FOR OFFICIAL USE ONLY

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The WVorld Bank FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT ARTISANS, SMALL AND MEDIUM SCALE ENTERPRISE PROJECT CREDIT DE LA COTE D'IVOIRE (CCI) IVORY COAST February 12, 1979 Report No. 2223b-IVC 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.

2 CURRENCY EQUIVALENTS (September, 1978) The CFA (Communaute Financiere d'afrique) Franc is fixed with respect to the French Franc (1 FF = CFAF 50) and floats with respect to the US dollar. In this report the following conversion has been used: US$1 = CFAF 220 ABBREVIATIONS AFCOPA BCEAO BDI BIDI BNDA BNEC BOAD CAA CCCE CCI CIFIM CSPPA DDI FAC FGCEI OPEI SONAFI SSE SME UMOA UNIDO USAID Association Francaise de Formation, Cooperation, Promotion et Animation d'entreprises Banque Centrale des Etats d'afrique de l'ouest Bureau de Developpement Industriel Banque Ivoirienne de Developpement Industriel Banque Nationale de Developpement Agricole Banque Nationale pour 1'Epargne et le Credit Banque Ouest Africaine de Developpement Caisse Autonome d'amortissement Caisse Centrale de Cooperation Economique Credit de la Cote d'ivoire Compagnie Ivoirienne de Financement Immobilier Caisse de Stabilisation et de Soutien des Prix des Productions Agricoles Departement de Developpement Industriel Fonds d'aide et de Cooperation Fonds de Garantie des Credits aux Entreprises Ivoiriennes Office National pour la Promotion des Entreprises Ivoirienes Societe Nationale de Financement Small-Scale Enterprise Small- and Medium-Scale Enterprise Union Monetaire Ouest-Africaine UJnited Nations Industrial Development Organization US Agency for International Development Fiscal Year CCI: October 1 - September 30

3 FOR OFFICIAL USE ONLY STAFF APPRAISAL REPORT CREDIT DE LA COTE D'IVOIRE (CCI) ARTISANS, SMALL AND MEDIUM SCALE ENTERPRISE PROJECT IVORY COAST TABLE OF CONTENTS Page No. I. THE SETTING The Economy... 1 The Industrial Sector The Financial Sector II. THE INSTITUTION Ownership Organization, Management and Staff Operations and Financial Performance III. THE PROJECT Concept and Objectives Description and Main Features Financing Plan Organization and Implementation Benefits and Justification IV. RECOMMENDATIONS This report is based on the results of a mission to Ivory Coast in May 1978, consisting of Robert E. Hindle and Michel Beguery. 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.

4

5 LIST OF ANNEXES Annex I CCI - Assumpt'ions for Financial Forecasts Annex II CCI - Income Statement Annex III CCI - Balance Sheets Annex IV CCI - Actual and Projected Financial Ratios Annex V CCI - Arrears Position Annex VI CCI - Organization Chart Annex VII CCI - Extract:s of Policy Statement Annex VIII Annex IX Estimated Disbursement Schedule Selected Documents Available in Project File

6

7 IVORY COAST Credit de la Cote d'ivoire (CCI) Basic Data Exchange Rate (9/78): US$1 = CFAF 220 Year of Establishment: 1955 Authorized Capital: (As of September 30, 1978) CFAF 2 billion Ownership: Paid in Capital CFAF Million % Government of Ivory Coast 1, BCEAO CCCE , Resource Position: (As of September 30, 1977) CFAF Million Local Foreign Total Paid in Share Capital 2,000 2,000 Reserves 2,839-2,839 Subtotal 4,839-4,839 Borrowings Outstanding Government 9,264-9,264 BCEAO 8,016-8,016 CCCE - 2,888 2,888 Other 1, ,668 18,546 3,290 21,836 Total Resources 23,385 3,

8 - ii - CFAF Million Local Foreign Total irivestments and Commitments Net Fixed Assets Loans Outstanding 21,501 3,290 24,791 Equity (Net) Subtotal 22,081 3,290 25,371 Resource Surplus 1, Undisbursed Commitments 14,683 Covered by: Resource Surplus 1,304 Available BCEAO Rediscount 10,760 Other lines of credit 3,454 15,518 Available for Commitment 835 (CFAF Million) Operations Loan/Equity Approvals 5,423 8,107 6,690 11,003 16,044 Earnings Net Income 1/ As % of Average Networth Financial Position Net Worth 2,150 2,283 2,492 3,668 4,107 Total Assets 10,780 13,680 16,524 22,149 27,597 Debt/Equity Ratio 3.9:1 4.9:1 5.6:1 5.1:1 5.1:1 Interest Rates and other Charges Interest Rates: 8.5% to 12.5% Commitment Charge: 3/4 of 1% on undrawn balance 1/ Includes transfers to general reserves.

9 - iii - Basic Data on Previous Bank Loans (as of January 24, 1979) 1124-IVC Loan 1162-IVC Purpose Hotels SME Amount $9.7 million $5.6 million Rate of Interest 8.5% 8.5% Date of Approval May 27, 1975 August 21, 1975 Date of Effectiveness January 18, 1976 February 2, 1976 Free Limit $500,000 $45,000 Amount Committed $6.8 million $3.0 million Amount Disbursed $2.7 million $1.0 million *

10

11 I. THE SETTING A. The Economy 1.01 Few countries can match I[vory Coast's economic performance over the past twenty-five years. Real growth has averaged 7% per annum over the period, a unique record on the African continent. The performance is all the more impressive as, until the recent discovery of offshore petroleum deposits, there has been no mining activity to speak of and growth has been fueled by extensive agricultural exports, particularly of coffee, cocoa and timber, but also including fruits, vegetables, palm oil and rubber. Per capita income in the Ivory Coast rose from $145 at independence in 1960 to $710 in The current population of the Ivory Coast is estimated at 7.3 million with an annual rate of growth (including immigration) of 4.0%. Recent economic developments are described in the Bank's latest economic report for Ivory Coast, dated February, / 1.02 The Government of the Ivory Coast has followed a liberal and pragmatic policy toward foreign workers and capital and the economy remains resolutely open. The positive results of this policy have been enhanced by high world prices for its agricultural commodities and the country's political stability. Certain constraints resulting from past policies are, however, now becoming apparent as questions of extensive reliance on expatriate experts, inequitable income distribution and rapidly rising external debt are taking on increased importance. Despite these constraints there remains an impressive potential for further growth in the Ivory Coast if prudent decisions are taken on future diversification of agriculture and concentration on immediately productive investment. In particular, in industry a shift of emphasis from import substitution to export oriented processing of locally produced raw materials is warranted, as is a policy of employment creation through concentration on small- and medium-scale industries As illustrated in the following table, the economic structure of the Ivory Coast has not altered significantly from 1972 to The balance of agriculture vis-a-vis the rest of the sectors has remained remarkably stable, and the share of manufacturing constant since the beginning of the seventies. 1/ Ivory Coast: A Basic Economic Report, Main Report, Number 1147b-IVC, dated February, 1977.

12 Table 1.1: GDP AT CURRENT PRICES (%) (Projected) Agriculture Manufacturing and Construction / (Manufacturing) (15) (15) (13) - (Construction) (7) (5) (6) _ (Other) (-) (1) (1) - Services / (Transportation) (9) (9) (8) - Government and Other /1 Includes artisanal firms. /2 Includes profits of CSSPA. B. The Industrial Sector 1.04 In the first 15 years after independence manufacturing developed rapidly at an annual rate in real terms of about 15%. Manufacturing industry's share in GDP rose from 4% in 1960 to about 15% in 1974, and (based on a new statistical series of national accounts introduced in 1975) 13% in Owing to the rapid rise in agricultural income between 1975 and 1978 based on higher international prices for coffee and cocoa, the share of manufacturing in GDP has probably not expanded since 1976 and may even have dropped marginally. Moreover, it is clear that most of the apparent import substitution investment opportunities have been taken up, and it will be necessary in the future to shift increasingly to investment in export oriented firms. Nevertheless, assuming global figures are not skewed by high agricultural prices, it is likely that over the next five years industry's relative share of GDP should grow according to past trends. Over the recent past the most dynamic industrial subsectors have been production of construction materials (40% annual growth rate), textiles and shoes (30%) and metal, mechanical and electrical industries (26%) Ivory Coast's industrial sector includes three components: (1) a relatively small number of large, mostly foreign owned and managed firms; (2) a larger number of medium and small size modern sector firms which are increasingly Ivorian owned; and (3) a large, but uncounted, number of informal sector firms which are exclusively Ivorian or African owned. Available data for the sector reflect mostly developments among firms in the first

13 - 3 - category and to some extent in thet second category, although as a result of a first IBRD-SME project and recent studies conducted by the government, knowledge of the latter two groups; is expanding Commonly agreed definitions distinguishing precisely Ivorian large, medium and small firms do not exist, nor is there a clear dividing line between modern sector firms and traditional artisans. The 1976 national accounts cover 1,790 firms including a few artisanal units. Of the firms surveyed about 85% have total assets under CFAF 75 million and fewer than 50 employees. Moreover, among these firms the vast majority has assets under CFAF 10 million (65%) and fewer than 10 employees (62%). For purposes of this report the criterion of total. investment will be used to define firms by type. Large firms will be considered those with total assets above CFAF 500 million, medium as those between CFAF 75 million and CFAF 499 million, small as those under CFAF 75 million. 1/ Informal sector artisans are those individuals working alone or in cooperatives, who produce traditional goods for the local market and who are outside the national accounting system. As in most countries, the artisanal sector is characterized by ease of entry, reliance on indigenous resources, family ownership, labor intensive technologies and unregulated markets Small-Scale Enterprises. At the request of the Bank a study was carried out in 1976 of the SME sector in Ivory Coast. Thirty-one firms were surveyed in detail through on site visits and interviews, and data on an additional 720 were reviewed. It was found that the typical modern sector SME in Ivory Coast is in an urban area (probably Abidjan), employs fewer than 10 persons, has been created in the last 10 years and has an annual turnover of about CFAF 50 million ($225,000). Small-scale firms are heavily oriented to trade and commerce (72%) and only 18% is involved in manufacturing. The remainder (10%) is occupied in the production of raw materials (logging, quarrying, etc.). In terms of the financial structure of SME, undercapitalization is common and indebtedness (especially to non-formal lenders) is high. The study concluded that the important constraints facing SME include: (1) lack of financial resources; (2) competition from large and small foreign-managed firms; and (3) inadequate government incentives to small African enterprises Artisans. Based on a 1976 study, it appears that 15% to 20% of firms incorporating themselves in the modern, small scale sector are artisans whose businesses have prospered, and that roughly 15% of manufacturing output is from artisans. Cost per job created in the artisanal sector appears to be one tenth that of the large scale, modern sector. Thus, the impact of the artisanal sector is of considerable importance, both in terms of developing new generations of African businessmen and generating employment at a low cost per job. The important constraints facing artisans are lack of long and medium term finance, insufficient knowledge of markets, weak management and competition from larger enterprises. Artisanal output in the Ivory Coast 1/ The Central Bank's definition of small scale industry, includes all African-owned enterprises with total indebtedness below CFAF 20 million.

14 -4- is sold largely to meet local (African) market demand, although a growing number of cooperatives seek to ensure technical assistance to artisans to ensure high quality output for sales abroad or to local expatriates Industrial Investment. Public investment in manufacturing and industry is clearly secondary to private investment, and in 1976 represented less than 30% of the capital of modern sector firms. During the last five year plan ( ) gross public investment in industry and mining amounted to CFAF 12 billion, or 10% of total industrial investment. Projected public investment in industry from 1976 to 1980 is CFAF 60 billion, one tenth of total anticipated industrial investment. Moreover, public resources are planned to be concentrated in a small number of large enterprises such as a pulp paper operation and agro-processing Industrial Location. About two-thirds of Ivorian industry is concentrated in Abidjan, with another 10% in Ivory Coast's second largest city, Bouake. Large modern sector firms are especially heavily concentrated in Abidjan, which, given Abidjan's attractions as a growth pole with good transportation, public services and a large market, is unsurprising. There are factors, however, which favor some decentralization. These include the need to locate raw material processing operations close to the source, the ongoing investment in improved transportation links, Government's intention to reach a better geographic distribution of investments by developing San Pedro as a growth pole and establishing regional industrial estates (paragraph 1.18). Nevertheless, industrial investment in Abidjan (especially for export purposes) makes sense and the government has decided to approach decentralization carefully and not to establish special fiscal incentives for regional industries Indigenization. At the beginning of 1975 foreign ownership comprised 60% of the equity in manufacturing firms; three quarters of the remainder represented Government equity and one quarter private Ivorian. Government policy has been to encourage Ivorian participation in both capital and employment, albeit within the context of a liberal and open economy. The main vehicles for doing so have been the establishment of a stock exchange which is restricted to Ivorians, Government equity participation in firms and the establishment of Societe Nationale de Financement (SONAFI), an equity participation fund. Nevertheless, the capital needs of large firms continue to be met with external private resources and in 1978 over 50% of equity ownership remained foreign. A similar situation exists in management where, despite the efforts of government, a substantial proportion (75%) of senior managers is expatriate Employment. 1/ Ivory Coast has traditionally been a large importer of industrial workers, including skilled Europeans (estimated at almost 10,000 in 1976, excluding externally funded technical assistance personnel) and unskilled workers from neighboring states (70,000 in 1976). Many additional African expatriates work in the agricultural sector; in 1976 non-ivorian 1/ Ivory Coast Special Report on Employment. Report No. 229a-IVC, 3 volumes, July 31, 1974.

15 - 5 - Africans were estimated to make up somewhat under 25% of the total population. Between 1973 and 1976 industrial employment expanded by an average of slightly over 10% per year. Nevertheless, industrial employment as a portion of total modern sector non-agricultural employment remains modest (25%). Data on gross unemployment are scanty, although it appears that such unemployment as exists is concentrated in urban areas (particularly Abidjan) and especially among the semi-skilled. 1/ 1.13 As in most West African countries, capital investment per job created in the modern sector has been high. According to estimates in 1976 by the Government the cost of each new industrial jo' createud n tlhe modern sector from 1971 to 1975 was $26,000 while the similar figure for the subsequent ten years was projected to be $30,000. Wide variations by branch and size were noted, however, with the greatest employment impact coming from agriculture and small-scale enterprise investment. These conclusions are consistent with the experience of the first line of credit for small- and medium-scale firms which created employment at an average cost per job of $9,300 (considerably below the national average) and by the experience of the Office National de Promotion des Entreprises Ivoriennes (OPEI) from 1968 to 1977, which had an average cost per job for small firms it promoted (including services) of about $5,000 per job Industrial Organization. Policies in the industrial sector are implemented by the Bureau de Developpement Industriel (BDI) of the Ministry of Finance, Budget and Plan for promotion, the Direction de Developpement Industriel (DDI) of the same Ministry for planning, and the Office National de Promotion des Entreprises Ivoriennes (OPEI) for technical assistance. On the financial side there is SONAFI, a credit Guarantee Fund, and, of course, two industrial development banks, Banque Ivorienne de Developpement Industriel (BIDI) and Credit de la Cote d'ivoire (CCI), both of which have received World Bank Group support. Specific incentives to small- and medium-scale investors include the programs of OPEI, loan guarantees, and the BCEAO preferential interest rate structure (para. 1.22) OPEI. OPEI was created in 1968 as a public enterprise designed to promote and develop small Ivorian enterprises. OPEI is under the responsibility of the Director of Industrial Development of the Ministry of Finance, Budget and Plan. Day to day management is handled by a Director General with the advice of a Government Commissioner. OPEI's operations fall into two major categories: (1) promotion and follow up of individual enterprises; and (2) assistance to Ivorian entrepreneurs buying out small expatriate-owned enterprises. It is, furthermore, intended to make OPEI the implementing organization for the Industrial Estates Program (para. 1.18). OPEI's Direction of Operations handles the preparation of SME dossiers and is in charge or project follow-up. It comprises seven units ("cellules") each specialized in a field of activity (food, commerce and services, mechanics and garages, wood 1/ A recent ILO study estimates unemployment at 5% in 1970, but makes no comment on probable changes since then.

16 - 6 - industry, textiles and garments, building, and miscellaneous industries). As of June 1978, OPEI's staff of 158 included 45 Ivorian professionals and 41 expatriate technical assistants Extensive technical assistance has been provided to OPEI, in particular by FAC (though AFCOPA, a private French organization specialized in technical and management assistance to small enterprises) and UNIDO, which since 1974 has financed a major program of technical assistance to the different units of the OPEI's Direction of Operations. The cost of this external assistance was estimated at CFAF 745 million ($3.3 million) in 1977, of which about 40% is being paid by French bilateral aid and UNIDO and the rest borne by the Ivorian Government According to OPEI, over the period it assisted the creation or the extension of 321 enterprises (mainly in the service and food sectors), representing total investments of CFAF 4,677 billion ($19 million) and resulting in the creation of 3,681 new jobs at an average cost of about $5,000 per job. In view of the very high cost of operation of OPEI, these results are nonetheless disappointing. Following the efforts undertaken by the World Bank in collaboration with UNIDO in the first Bank SME project, OPEI's recent performance has improved. Internal procedures have been streamlined, staffing of the operational units has been completed and the output of small scale projects for financing has increased dramatically. Efficiency, however, remains a serious problem and technical assistance costs remain high in relation to the number of small scale enterprises promoted Industrial Estates. In order to promote the regional development of small- and medium-scale enterprises, the Ivorian Government has decided to create eleven industrial estates in each of the major districts of the Ivory Coast. These estates will provide SME's with common infrastructure and services and technical assistance which will be provided by OPEI. A regional development bank, Banque Ouest Africaine de Developpement (BOAD) has agreed to provide a loan of CFAF 730 million ($3.3 million) for this program which will be managed by a special department to be created in OPEI. Regional offices of OPEI will be established in each industrial estate. The investments of SMEs settling on the estates will be eligible for World Bank financing under the second SME project Prospects and Constraints in the Industrial Sector. The prospects for continued dynamism in the industrial sector are good, although there is a need to focus on such subsectoral objectives as Ivorianization of capital and management, employment generation and development of export oriented industries. The constraint will be to make these adjustments smoothly, without loss of industrial efficiency and in the context of Ivory Coast's liberal economic philosophy. Certain steps are already being taken to accomplish these goals. First, regarding indigenization, the government has restricted the stock exchange to Ivorian nationals and has reconstituted SONAFI to continue direct participation in undertakings of national interest. It also seeks, without establishing explicit quotas, to ensure that private firms recruit Ivorian counterparts to expatriate managers. Second, the government

17 - 7- promotes through OPEI and guarantee and participation funds, smaller enterprises in an effort to stimulate employment creation and to support African entrepreneurs. Finally, the government's direct investments in manufacturing are increasingly concentrated in those firms such as sugar mills, wood processing and canning, which give value added to locally produced raw materials. C. The Financial Sector 1.20 Ivory Coast is a member of a regional monetary union, the UMIOA (Union Monetaire Ouest Africaine) which was established in 1962 and which includes five other francophone countries (Benin, Niger, Senegal, Togo and Upper Volta). The union shares a common currency (the CFA franc) which bears a fixed relationship to the French franc, a common central bank (the Banque Centrale des Etats d'afrique de l'ouest in Dakar) and common credit and monetary po'licies BCEAO Credit Regulations. Credit policies affecting banks in UMOA countries were extensively revised in The objective of these reforms included, inter alia, a greater national input into credit allocation, greater incentives to lending for development and a more efficient use of domestic savings. Control of credit in the Union is exercised by the discounting mechanism of the BCEAO. All banks (commercial and development) can rediscount up to 35% of their outstanding portfolio with the Central Bank. In addition, commercial banks have (under pressure from BCEAO) begun to lend more extensively than heretofore for capital investment in industry. These developments have put development banks at a competitive disadvantage to commercial banks, as the latter can attract borrowers by providing a full range of banking services as well as term credit. As a result, development banks are actively redefining their strategies to broaden their operations and in the short term to locate co-financing opportunities with commercial banks Interest Rate Structure. Consistent with the rigorously controlled credit allocation system, interest rates are tightly controlled as well. Rates on loans to borrowers (no matter what the cost or source of resources) may in no case be higher than 13%, and in the case of certain preferred nonagricultural borrowers no higher than 8.5%. Preferred borrowers include majority African owned small-scale enterprises (those with outstanding credit under CFAF 20 million), short term agricultural borrowers, and African homeowners borrowing less than CFAF 10 million to construct their principal residence.

18 - 8 - Table 2.1: BCEAO INTEREST RATES Allowable Type of Borrower Discount Rate (%) Allowable Spread Final Rate Preferential Agricultural SSE Housing Normal In the case of loans to small scale enterprises the central bank in conjunction with the Government has established an additional interest subsidy fund which is available to subsidize the cost of high priced international resources flowing to SSEs. Interest paid on saving deposits varies widely from 5.5% to 8.5%. Interest on fixed term, large deposits and on funds obtained in the money market in Ivory Coast ranges up to 10% Inflation. Although inflation has not historically been a major problem within member states of BCEAO, there have been recent sharp increases in prices in Ivory Coast, owing to reduced output of local foodstuffs and higher cost imports. For 1977 the BCEAO estimates that the consumer price index for Ivorian families rose by about 30%, although the global inflation rate was considerably lower at 13%. For the previous two years inflation was 8.3% and 9.5% respectively. Based on its policy of constraint of credit expansion, and the government's decision to reduce the pace of public investment, the central bank anticipates the rate of inflation to reduce markedly in 1978 to about 20% for Ivorian families and even lower taking account of imported goods. Moreover, the long term inflation rate for Ivory Coast is expected to be comparable to what it was for the last 5 years. The Bank projects annual inflation rates of 11.0%, 9.0% and 7.0% for the years 1978 to The Banking System. Banking and credit institutions in Ivory Coast include four commercial banks, four development banks, branches of foreign banks and various other institutions operating as leasing corporations, insurance companies, etc. In addition there is a public institution, Caisse Autonome d'amortissement (CAA) which manages the public debt, holds and manages public deposits and mobilizes local resources through tax free bond issues. The Caisse de Stabilisation et de Soutien des Prix des Productions Agricoles (CSPPA) is the Government agricultural price stabilization fund. Another public institution, Societe Nationale de Financement (SONAFI) was set up in 1962 to take direct equity participation in undertakings of national interest. In 1972 the Government established within SONAFI an additional participation fund to make equity available to small-scale Ivorian enterprises. The Government also established in 1968 a guarantee fund, Fonds de Garantie, to provide guarantees for credits granted to small Ivorian enterprises. Finally a stock exchange was established in April Ivorianization of

19 the financial sector is progressing steadily: the Government has a 100% interest in Banque Nationale pour l'epargne et le Credit (BNEC), 21% in Banque Ivoirienne de Developpement Industriel (BIDI), 82% of Credit de la Cote d'ivoire (CCI) and 67% in Banque Nationale de Developpement Agricole (BNDA). It has participation of between 10% and 33% in three commercial banks which are largely owned by French banks associated with American, German and Italian institutions. These banks have either an Ivorian as General Manager or Deputy and IvoriaLnization of their professional staff is increasing rapidly. At the end of 1975 local participation in the equity of commercial and development banks was 54.5%, about one-fifth of it in private Ivorian hands Specialized Banking. Ivory Coast has four specialized development banks, BIDI, BNDA, BNEC and CCI. BIDI, created in 1965 is majority foreign owned and specializes in financing large scale industrial enterprises. It received an IBRD loan in 1975 and hals an IFC participation. BNDA was established in 1969 as the agricultural dlevelopment bank in Ivory Coast to provide agricultural credit and technical assistance to its clients, and to mobilize rural savings. BNEC, created in 1975, has combined the activities of previous Government services related to housing, savings and loans and subsidization of low income housing. BNEC is the intermediary for the low income housing component of the ongoing IBRD AbidjaLn Urban Development Project. Finally, CCI is a majority Government owned mtultipurpose development bank which was created in CCI is the main provider of long term resources to smallscale enterprises and is in this respect an important instrument of the Government Ivorianization policy Guarantee Fund. A Fonds de Garantie des Credits aux Entreprises Ivoiriennes (FGCEI) was established in 1968 by the Government to promote the development of Ivorian enterprises by guaranteeing loans to such enterprises. The Fund guarantees up to 80% of loalns to majority Ivorian owned enterprises in the secondary and tertiary sector although the preponderate amount of guarantees is in the tertiary sector (70%). Since inception the Fund has granted 145 guarantees; its resources come primarily from budgetary allocations, and amount to CFAF 400 million. Since the Fund can guarantee up to five times its total resoruces its total guarantee capacity is CFAF 2 billion of which more than three fourths has been used. Approximately 15% of the portfolio has been written off or is in litigation Prospects in the Financial Sector. Financial institutions in the West African Monetary Union are in al state of transition as adjustments are made to the 1975 sectoral policy changes. In Ivory Coast, in particular, financial instituions are moving quickly to respond to increased local competitiveness and the period of adjustment should be smooth. On its part the Bank is involved in a detailed study of financial flows in Ivory Coast in order to understand fully the sources and uses of financial resources in the Ivory Coast. In a similar fashion the Bank has sought to intensify its relationship with BCEAO with a view to discussing interest rate policy and joint review of local development banks.

20 Performance under Previous Loans. In July 1975, the Bank made a loan of $5.6 million to CCI to finance Ivorian small- and medium-scale enterprises. At about the same time CCI, which is the designated financier of hotels, received a Bank loan of $9.7 million for hotel construction. Thlc first SME project was designed to strengthen CCI as a financial intermediary, to develop links with local commercial banks, and, of course, to make available term resources for small Ivorian businessmen. CCI would finance, with IBRD resources, up to 60% of total investment with an investment ceiling of CFAF 40 million ($181,000), of Ivorian owned enterprises in preidentified branches (baking, tailoring, woodworking, garages) with flexibility to finance viable projects outside these branches. The financing plan was completed by Ivory Coast's commercial banks which financed 30% of total investment (for working capital) the balance (10%) being provided by the promoter himself. Project promotion and follow-up was provided by OPEI whose activities were funded by direct budgetary allocations, UNIDO and French bilateral aid Project implementation suffered from a number of constraints. Project effectiveness was delayed for a year pending resolution of a discrepency in interest rates between the BCEAO ceiling of 8.5% for small-scale enterprises, as defined by the central bank (see para. 1.06), and the negotiated rate of 12.5%. In the end, the difference between the two is made up by the Government interest subsidy fund which ensures CCI an adequate spread. Other constraints which have affected the project's performance have been the slow rate of project processing by OPEI (which averaged only three projects a month) and cumbersome procedures to move projects through the stages of promotion, agreement by OPEI, CCI and commercial banks, and disbursement. In addition, the 1975 Central Bank reform which put commercial and development banks on an equal footing has narrowed the scope for cooperation between CCI and commercial banks and loan processing by the latter has frequently been slow. Nevertheless, under the first project progress has been made in expanding and strengthening CCI's industrial development role and in providing integrated financial and technical assistance to Ivorian entrepreneurs. Coordination among CCI, commercial banks and promoters is now moving relatively smoothly Finally, although no specific target was established in the first SME Project, the cost per job created is higher than expected at time of approval ($9,300 average, slightly above the $8,700 anticipated, including an amount for technical assistance costs). As of January 15, 1979, 62 projects have been accepted with average investments of $100,000 (ranging from $20,000 to $160,000). At the same date commitments stood at 54%, but given the projects in CCI and OPEI pipelines, they are expected to reach 80% by February 1979, at which time new loan granting authority will be required.

21 II. THE INSTITUTION A. Ownership 2.01 CCI is a multipurpose development bank established in 1955 with French assistance and headquartered in Abidjan. It finances housing, industry, trade, artisans, hotels, consumer durables and automobiles. It provides short term (up to 2 years), medium term (2-10 years), and long term (over 10 years) loans, equity participation and guarantees to private or public corporations and individuals Ownership. CCI's initial share capital of CFAF 200 million was gradually increased to CFAF 2 billion by May All capital is fully paid in. The Government is the major shiareholder (82%). Caisse Centrale de Cooperation Economique (CCCE), a public French aid agency, holds 9% and the Banque Centrale (BCEAO) the remaining 9%. CCI's capital structure has evolved as follows: Table 2.1: PAID-IN SHARE CAPITAL Shareholder Original As of June 30, 1978 CFAF Mil:Lion % CFAF Million % Government , CCCE BCEAO , Board of Directors. CCI's Board of Directors meets approximately six times a year and consists of twelve members, ten Government appointed officials, one representative of CCCE and one from BCEAO who, since 1975, has been the Vice Chairman. A loan approval committee, consisting of five members (the Board Chairman, one representative of BCEAO, one from the Caisse Autonome d'amortissement (CAA) and two Government representatives) has been delegated authority to approve most routine loans and make day to day decisions. In addition, the Director General of CCI has the authority to approve housing loans up to CFAF 15 million and loans to enterprises up to CFAF 50 million. B. Organization, Management and Staff 2.04 Organization. CCI's present organization comprises a General Directorate and three major departments (Investment, Finance and Administration). A Division for Organization and Computing Activities and a Division of Internal Control are part of the Director General's office. Project promotion, appraisal and supervision are handled by the Investment Department which is also in charge of arrears collection. CCI currently has five branch offices

22 in Bouake, Korhogo, Abengourou, Daloa and Man. CCI's organization chart appears in Annex VI. Steps are underway to restructure CCI to make the organization more responsive to its growing role. In particular, it has been recommended that the internal control unit be strengthened and its responsibilities more clearly defined. In addition, the treasurer's functions are to be beefed up and a new operations manual is under preparation Management and Staff. The present Director General has been at CCI almost since its inception. He has spent the last eleven years in his present position and understands the institution well. He is assisted by a Deputy Director General. As of June 1978, the total staff of CCI, including the branch offices, amounted to 214 of which 33 are professionals. The professional staff is generally well trained academically but with limited experience and thinly spread. Recruitment has not kept pace with the rapid development of CCI's activities. Of the three Director positions one is currently vacant and most of CCI's departments are understaffed. Staff effectiveness is hampered by poor internal communication and lack of motivation. At present there are eight expatriates employed by CCI, including three working in computing activities. Among them, an advisor to the Director General is financed by the World Bank under the Tourism line of credit. His responsibilities include support for hotels and SME Training. Although the Administrative Department has a Division of Personnel and Training, there is presently no internal training program in CCI and external training takes place on an ad hoc basis. There is, moreover, a definite need in CCI for building up financial and managerial skills of its existing staff and for training new staff. This is particularly true as CCI intends to broaden the scope of its activities to compete more effectively with commercial banks. CCI has asked for Bank help in developing an internal training program and in arranging for outside training of junior professionals in financial analysis, accounting and computing activities. In addition, it wishes to hire short term consultants to perform financial training of its junior employees. Finally, CCI would like some of its analysts to attend the EDI industrial courses and to undergo on-the-job training in financial institutions abroad. (See paragraph 3.10.) 2.07 Policies and Operating Guidelines. CCI's operating guidelines are set out in its by-laws which were revised in May 1975 to incorporate modifications regarding appraisal criteria, exposure limits, financial policy and staff development which were suggested during appraisal of the first SME project. Equity investments are limited to 25% of a company's share capital or 25% of CCI's net worth whichever is lower. CCI's total exposure in a single company cannot exceed 25% of CCI's net worth, or 80% of project cost. Exceptions can be made for loans guaranteed by the Government. These limits are satisfactory. The by-laws also set terms and conditions of different categories of loans including maturities, minimum equity, spread, use of loan proceeds and acceptable guarantees.

23 Procedures. SME projects are handled by the Credit Division of the Investment Department. A separate division is in charge of hotel projects. Appraisals of small personal loans consist of a routine check of the proposed purchase and the security offered. Applications for larger projects are subject to thorough appraisals which include calculations of rates of return. Appraisals of projects financed under the first SME project include detailed sectoral and market analysis for the first project in a series, followed by simplified but complete appraisals of all subsequent projects of the same type. Appraisals of projects are generally satisfactory and are completed by site visits during project implementation. Rates of return on the SME projects in CCI's portfolio range from 13% to 33%, and average 16%. Nevertheless, follow-up after disbursements is generally limited owing to staffing constraints. Some of the burden of project follow-up is taken by OPEI, but CCI recognizes the need to improve in this area and CCI's Investment Department has recently recruited a professional currently being trained, who will be in charge of SME project supervision Procurement and Disbursement. CCI's procedures for procurement and disbursement are generally adequate. For consumer durable Lending disbursements are made directly to the suppli-ers. For industrial loans CCI disburses to the supplier or the construction contractor after verification of prices and work performed. For larger loans, CCI reviews borrowers' procurement plans and ensures that proper goods are obtained at reasonable prices Audit. CCI's accounts are reviewed annually by the Government and an independent auditor. The audits have been provided on time and, after a few start-up problems owing to lack of familiarity with Bank requirements, their overall quality is good. The audit report for FY 1977 has been submitted to the Bank, as well as a complementary study recommending a number of organizational changes Foreign Exchange Risk. According to its by-laws: "CCI shall take adequate steps to protect itself against foreign exchange risks associated with its borrowings abroad." As in the case of its previous borrowings, including the two IBRD lines of credit, the Government, through CAA, assumes, the foreign exchange risk for a fee ofe' 1% Interest Rates. In accordance with BCEAO guidelines, CCI's interest rates on medium and long term loans now range from 6.5% to 13.0% and from 8.5% to 13.0% on short term credits. Rates on existing portfolio range from 5.5% to 13.0%. Deposit rates range from 2% to 9%. In keeping with BCEAO guidelines, loans to artisans and small enterprises (defined as those with outstanding credit under CFAF 20 mill:ion ($90,000) carry an interest rate of 8.5% Strategy. Following the 1975 BCEAO reform which abolished the distinction between commercial and development banks, CCI, while consolidating and developing its traditional activities, is studying the possibility of entering the field of savings collection in order to procure additional resources. A study is underway to determine what the opportunities are for

24 CCI in that field and what should be CCI's strategy. However, CCI is conscious that, before making any decision, it will have to strengthen its organization and improve the technical expertise of its staff. Mobilization of additional local resources through an active savings program is a useful objective for CCI, although it must be implemented prudently to avoid any undue negative impact. CCI's management is aware of this and has kept the Bank closely informed of studies undertaken so far and will continue these consultations in the future. As for its traditional development activities, CCI intends to take a number of steps. Housing lending is likely to be stable, as a certain portion will flow to a new affiliate of CCI, Compagnie Ivorienne de Financement Immobilier (CIFIM), and a correspondingly greater emphasis will be put on industrial operations especially among small and medium scale investments. To support these activities CCI envisages an increase of its capital which could take place before the end of 1979 and which, together with the proposed loan, will help CCI reinforce its resource base to face the projected development of its activities. C. Operations and Financial Performances 2.14 Resources and Operations. The bulk of CCI's resources have come from BCEAO rediscount, term borrowings from CAA and CCCE and term deposits from Caisse Nationale de Prevoyance Sociale (CNPS) and CAISTAB. CCI has also received financing from USAID though the USAID/Conseil de l'entente African Enterprise Program and two lines of credit from IBRD, one for Tourism ($9.7 million) and the other for SME ($5.6 million) both in The following table summarizes the growth of CCI's loan approvals over the last five years: Table 2.1: LOAN APPROVALS No. Amount No. Amount % Short Term (Up to 2 Years) (CFAF million) (CFAF million) Vehicles ,166 2, Consumer durables 7, ,305 1, Commerce and Industry Other ,142 1, ,524 4, Medium and Long Term /1 Housing 1,756 3, , Industry , Other , ,840 4, , ,982 5, ,504 16, /1 Through 1975 medium term loans up to 7 years, thereafter up to 10.

25 The level of CCI's annual financing operations increased from CFAF 5.4 billion in FY 1973 to CFAF 16.0 billion in FY Over the last ten years lending for housing has been decreasing relatively while credits to industrial enterprises have increased significantly. Lending for consumer durables has been irregular while vehicle financing has increased, including in particular credit to small Ivorian truc'king firms. Despite an increasingly wide geographic spread, the distribution of CCI's loan portfolio reflects Abidjan's dominant position. In FY 1977 CCI's operations outside of Abidjan represented approximately 40% of the total, double the proportion outside Abidjan in FY73. CCI's equity investments are limited, amounting to CFAF 275 million in 8 companies, the largest participation being in CAPRAL (CFAF million), a coffee and cocoa processing company Arrears. Despite its relatively long history, CCI's accounting and computer systems need improvement, particularly regarding payments on loans outstanding. CCI classifies its loans as normal, doubtful or contentious based on the borrower's repayment record and a review of its financial condition. Borrowers six months in arrears automatically are classified as doubtful, and those against whom legal proceedings have begun are classified contentious. At the end of FY 1977, CFAF 2.1 billion of principal and interest due was in arrears. Of this amount CFAF 1.2 billion or 4.8% of the outstanding portfolio was doubtful or contentious. The largest part of accounts in arrears (80%) affects housing loans, for which security is good. There are no arrears on industrial loans, and very few on automobile and consumer durable loans (see Annex V). It is clear, nevertheless, that CCI's record management system for arrears requires extensive improvement to distinguish between principal and interest in arrears and by the age of arrears. CCI's management is well aware of this, as are CCI's auditors, and both agree to work to implement a new system Provisions. Provisions against loans amounted to CFAF 730 million at the end of FY 1977 and CFAF 7.0 million for equity investments. Specific provisions covered 62% of doubtful loans and 67% of contentious loans. In addition, there are three separate internal guarantee funds totaling CFAF 911 million which provide additional amounts to cover possible loan losses for automobiles, consumer durables and small-scale enterprises. Finally, a provision for general risks is made each year to reduce taxes (see para. 2.18). This account amounted to CFAF 921 million in Based on this, and a review of selected accounts outstanding, CCI's auditors concluded that the level of provisions is adequate. The Bank concurs with this view Financial Performance. CCI's financial position is sound. Assets reached CFAF 25.7 billion as of September 30, 1977, over a two-fold increase since The debt equity ratio stood at about 5.1:1 as of end 1977, well below the 8 1/3:1 ratio agreed to under the first SME line of credit. As shown in Annex II, CCI's profits in 1977 amounted to CFAF 9.4 million. As a public institution which is not expected to pay dividends, CCI is not concerned to show a profit after provisions but tries to maintain a solid balance sheet: thus gross profit in excess of a nominal level is transferred to a tax-free general reserve account. Taking account of these transfers

26 CCI's profit should be restated as CFAF 84 million, or a return of 2.2% on average net worth. Such transfers are limited in any one year to 5% of loans outstanding and cumulatively to 10% of loans outstanding. At present reserves are well below these limits. Balance sheets, income statements and financial ratios in Annexes II to IV detail CCI's financial condition Prospects. Financial projections and the assumptions on which they are based are presented in Annexes I to III. These projections assume the assistance of this loan and a concomitant expansion of CCI's industrial lending. CCI's pipeline of medium-scale industrial projects consists of over 12 projects requiring about $10 million in financing from CCI. Of these projects, six to eight for about $3 million in financing would qualify as medium-scale investments under the project. The remaining $2 million allocated to mediumscale projects would be committed to projects to be identified. In order to meet its projected operations, CCI will have to mobilize about CFAF 18 billion ($81 million) in the next five years. The proposed loan will cover about 15% of this. The balance will continue to be provided by advances from BCEAO, CAA and CCCE, as well as a proposed increase in equity. Over the forecast period CCI's profits and debt equity ratio remain satisfactory. III. THE PROJECT A. Concept and Objectives 3.01 The first SME project was designed to support IBRD objectives in the industrial sector in Ivory Coast. These objectives include reinforcement of the local industrial and financial intermediaries, integration of financial and non-financial assistance to Ivorian enterprises, provision of financial resources to productive Ivorian enterprises and creation of employment at a cost per job considerably below the existing average for the industrial sector As a continuation of the first SME project, the proposed project will pursue these objectives further, especially to improve the institutional setting catering to the needs of SMEs in Ivory Coast by strengthening CCI, the local development bank specialized in lending to SME. It will also draw lessons from the experience gathered in the first project and expand the range of beneficiaries. As a result of developments in Ivory Coast and the first operation, it is clear that commercial banks are increasingly aggressive in searching out SME borrowers and providing them short- and medium-term loans. This has reduced somewhat CCI's natural clientele, and forced it to broaden its purview to include larger industrial borrowers, and informal sector artisans. The increased competition among banks is of distinct benefit to borrowers and is supported by the Bank. Nevertheless, it does impose on CCI (and BIDI) certain obligations to ensure a wide and efficient range of services. This project, which involves an important institution building effort, as well as providing resources for artisans, small- and medium-scale entrepreneurs would help CCI meet these obligations.