Document of The World Bank FOR OFFICIAL USE ONLY. A^l. 3/4/1 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OFFICIAL USE ONLY A^l. 3/4/1 MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASS?CIATION AND THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED IDA CREDIT OF SDR 32 MILLION AND A PROPOSED IBRD LOAN OF US$15 MILLION TO BANQUE OUEST AFRICAINE DE DEVELOPPEMENT (BOAD) FOR A THIRD REGIONA' DEVELOPMENT PROJECT JANUARY 2, 1990 Report No. P-5220-AFR This document has a restricted distribution and may be used by recipients only in the performance of their oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

2 CURENCY EQUIVALENTS Currency Unit = CFA Franc a/ US$1.0 CFAF 300 CFAF 1 million = US$3,333 SDR US$1.250 US$ SDR FISCAL YEAR (BOAD) October 1 - September 30 ACRONYMS AND ABBREVIATIONS ADB - African Development Bank AIRFD - Association des Institutions Regionales et Sous-R4gionales de Financement de D6veloppement en Afrique de l'ouest AMSCO - Africa Management Services Company APDF - Africa Project Development Facility BCEAO - Banque Centrale des Etats de l'afrique de l'ouest BOAD - Banque Ouest Africaine de D6veloppement CEAO - Communaut6 Economique de l'afrique de l'ouest DFI - Development Finance Institution ECOWAS - Economic Community of West African States EIB - European Investment Bank FAGACE - Fonds Africain de Garantie et de Cooperation Economique FEGECE - Fonds d'entraide et de Garantie des Emprunts du Cor.seil de l'entente FOSIDEC - Fonds de Solidarit4 et d'intervention pour le D4veloppement de la Communautd (CEAO) FSA - Fonds de Solidaritd Africain SAF - Special African Facility UMOA - Union Monetaire Ouest Africaine UNDP - United Nations Development Program UNIDO - United Nations Industrial Development Organization a/ The CFA Franc (CFAF) is linked to the French Franc (FF) at a fixed parity of FF 1 to CFAF 50. The French Franc is currently floating.

3 FOR OMCIAL USE ONLY BANQUE OUEST APRICAINE DE DEVELOPPEMENT (BOAD) THIRD REGIONAL DEVELOPMENT PROJECT Credit/Loan and Project Summary Borrower: Banque Ouest Africaine de Developpement (BOAD) Beneficiaries: Private and public sector enterprises in the seven member countries of Union Monetaire Ouest Africaine--UMOA (West African Monetary Union): Benin, Burkina Faso, COte d'ivoire, Mali, Niger, Senegal and Togo. Amount: IDA credit of SDR 32 million (US$40 million equivalent); IBRD loan of US$15 million equivalent. Terms: IDA: standard, with 40 years maturity; IBRDt 20 years including 5 years of grace at the standard variable interest rate. Financing Plan: BOAD (own resources US$ 208 million and borrrovings) Subborrowers US$ 122 million Cofinanciers US$ 157 million IDA/IBRD US$ 55 million TOTAL US$ 542 million Staff Appraisal Report: Report No AFR IBRD This document has a restricted distribution and may be used by recipients only.n the pe rormance of their official duties. Its contents may not otherwise be disclosed without Worlci Bank at.horization.

4 MEMORANDUM RECOMMENDATION OF THE PRESIDENT ON A PROPOSED CREDIT AND LOAN TO BANQUE OUEST AFRICAINE DE DEVELOPPEMENT (BOAD) FOR A THIRD REGIONAL DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed development credit for SDR 32 million (US$40 million equivalent) and a Bank loan for US$15 million to Banque Ouest Africaine de Developpement -BOAD - (West African Development Bank) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity, and the proposed loan on standard Bank terms with 20 years maturity. Together, they would help finance BOAD's lending program over a 3-year period in the member countries of the UTnion Monetaire Ouest Africaine--UMOA (West African Monetary Union), as well as technical assistance to BOAD. 2. Background. BOAD was established in 1974 as the common regional development bank of the UMOA which c.mprises seven French-speaking African states: Benin, Burkina Faso, COte d'xvoire, Mali, Niger, Senegal -tnd Togo. Within the UMOA framework, these countries share a common currency (CFA Franc) freely convertible into the French Franc at a fixed parity, and a common Central Bank (BCEAO) responsible for the conduct of the Union's monetary and credit policies. All seven countries are undergoing, or have under preparation, structural adjustment programs with Bank Group support. The BCEAO, in consultation with the Bank and IMF, has formulated and is implementing a comprehensive and far-reaching reform program inter alia to liberalize financial and credit policies, restructure the distressed banks, and improve the efficiency of resource mobilization and allocation in the Union. As the regional development bank of UMOA, BOAD's role is to contribute to the economic development and economic integration of its member countries. It does so mainly by providing term finance both in the form of loans and equity investments to viable investment projects, and by undertaking economic, sector and project feasibility studies. BOAD finances projects of both a regional and national character, in the public and private sector, in all productive sectors (e.g. rural development, industry, energy, transport, communications and other infrastructure) to the exclusion of the social sectors (e.g education, health). Since starting business in 1976, BOAD has achieved a satisfactory operational record and built up significant capacity as a development finance institution. Its financial condition is sound, as reflected in a strong capital base, adequate liquidity, low indebtedness, and a loan portfolio with moderate arrears. It has a well-structured organization, good management, a competent and experienced professional staff, and systematic operating policies and procedures including those for project appraisal and supervision. Thus, BOAD is a suitable financial intermediary for channelling resources to investment projects in the TJMOA member countries. The Bank Group has maintained a close and productive relationship with BOAD. Apart from significant technical assistance to help build up BOAD in its formative years, this has included two lending operations. The first, an IDA credit of US$3 million (No. 939-WAF) approved in 1981, financed

5 - 2 - technical assistance as well as economic, sectoral and project feasibility studiee. A PCR is under preparation for this credit. The second, a :omposite IDA credit/bank loan for SDR 13 million and US$6.1 million respectively (No. 1331/No WAF), has been fully comsitted for subprojects and technical assistance. Both projects have been implemented satisfactorily. 3. Rationale for IDA/Bank Involvement. The Bank Group played a constructive role in helping BOAD start up and subsequently evolve into a sound and effective regional development bank. The continuation of Bank Group support both financially and through advice and technical assistance will enable BOAD in the years ahead to expand its lending activity in response to the pressing investment requirements of the UMOA countries, as well as to further build up its institutional strength. The thrust of BOAD's activities, namely the furthering of the economic integration of its member countries, is consistent with a major Bank Group objective in Africa. In that sense, the proposed operation would form part of a broader Bank Group effort to support selected schemes and organizations involved in intra-african cooperation and economic integration. The catalytic effect of Bank Group lending would also facilitate BOAD's efforts to mobilize additional external resources including its first attempt at foreign commercial borrowing. 4. Proiect Obiectives. A major objective of the proposed project is to enable the Bank Group, through BOAD as an intermediary, to contribute to the provision of investment finance to a broad spectrum of viable development projects in the 7 resource-poor UMOA countries, thus helping to strengthen the supply response needed to support the structural adjustment reforms underway in these countries. Such projects would be of a size (US$3-l1 million in project costs; US$1-4 million in subloan amounts) too small for direct Bank Group lending in a cost-effective manner. Another important objective is to help BOAD achieve further institutional growth particularly in enhancing the developmental impact of its operations. Specifically. BOAD's Development Strategy agreed under this operation calls for: (a) an intensification of its promotional activities, in particular for those projects that contribute to regional economic integrationt (b) a shift in its lending policy in favor of private sector investments: (c) measures to ensure that BOAD will adequately address the environmental impact of the projects assisted by it, including the formulation of satisfactory guidelines and staff training to that end; (d) the!-ttiation of a study toward the establishment in UMOA countries of grass-roots banking institutions based on cooperative and mutualist principles, and the lead role which BOAD could play in that process; (e) a study toward the development of an effective leasing industry in the UMOA and the prospective role to be played by BOAD therein; and (f) BOAD's first attempt at borrowing from the international capital market on commercial terms, as a means of diversifying its resources. Other institution-building measures include arrangements for bringing BOAD's interest rates substantially in line with the UMOA domestic market rates and a comprehensive portfolio review to determine an appropriate level of provisions and steps to further strengthen the portfolio management system.

6 a Proiset Description. The proposed project would provide BOAD with a composite line of credit comprising an IDA component (US$39 million equivalent) for onlending to investment projects in the 6 IDA-eligible countries (lenin, Burkir,a taso, Mali, Niger, Senegal and Togo), and an IBID component (US$15 million) for onlending in CMte d'ivoire. Eligible beneficiary enterprises iould be in both the private and public sectors, of a regional as vell as a national scope, in all productive economic activities, e.g. agriculture, industry, energy, transport, communications and other infrastructure. The line of credit is expected to cover approximately one-fifth of BOAD's lending program for a 3-year period up to end-1992 projected at US$270 million equivalent, and about one-third of BOAD's estimated borrowing requirements. A technical assistance component of US$l million equivalent included in the IDA credit would finance economic, sector and project feasibility studies and specialized consultants' services. A Staff Appraisal Report No APR of December 27, 1989, is attached. 6. Aareed Actions. BOAD has adopted a Statement of Development Strategy covering the period outlining its major developmental objectives including those referred to in paragraph 4 above. BOAD has agreed on the following main steps, (a) to start by June 1990 a study on the modalities for setting up in the UMOA region of new banking institutions based on cooperative and mutualist principles; (b) to initiate another study by June 1990 on the prospects for developing the leasing business in UMOA countriest tc) to borrow aoout US$20 million during from the international capital market on commercial terms; and td) to adopt a revised interest rate system wherebys ti) commercially-oriented investments including all private sector projects will be charged UMOA domestic commercial banking rates of up to 16? p.a.; and (ii) noncommercial, development-oriented operations undertaken by the public sector will be charged a lower rate set at a level sufficient for BOAD to recover its full cost (8.82 p.a.), with the subsidies (2.4t p.a.) coming exclusively from the member countries themselves. 7. Benefits. The line of credit under the proposed project would provide the additional resources needed to enable BOAD to achieve its next 3-year lending program which is expected to generate investments totalling over US$500 million. Subprojects to be financed, although not preidentified, will have minimum economic and financial rates of return of 12X. The technical assistance component, and more generally the continuation of Bank Group involvement, will help BOAD achieve further institutional growth, particularly in implementing its Development Strategy, thus enhancing its economic impact and its contributions to the UMOA's economic integration. The studies on cooperative and mutualist banks, and on the development of the leasing business, are expected to yield significant potential benefits in terms of deepening the UMOA financial system. Lending to BOAD as a regional development bank whose geographic area covers 7 countries would also enable the Bank Group to achieve economies of scale compared with lending separately to national financial intermediaries the majority of which, in the present UMOA situation, are facing financial and other difficulties which restrict their intermediation capacity.

7 Risks. No particular risks are envisioned except possible financial difficulties of some UMOA countrie., which could adversely affect their future debt servicing capacity and hence the quality of BOAD's loan portfolio. This risk, however, appears no greater than for the Bank Group's own lending in the same coantries, and is mitigated by the structural adjustment reforms underway in the member countries, and b 1 BOAD's close supervision of subprojects. 9. Recomendation. I am satisfied that the proposed credit and loan would comply with the Articles of Agreement of the Association and the Bank and recormend that the Executive Directors approve the project. Barber B. Conable President Attachments Washington, DC January 2, 1990

8 JANQUE U%ST AFPRICAINE DI DZVLOPPDUNT THRID REGIONAL DIVILOPMENT PROJECT ESTIMATED COST AND FflW/r1NO PLAN Estimated Coots,L2cal Zr-elan Dei ft---fl- (USs million) Subproject Financing Technical Assistance 0.S 12.0 Total Finmncins Plan Local Forsian Total (US$ million) BOAD's own resources BOAD's other borrowings IDA/IBRD Cofinanciers Subborrowers f^ Total

9 Schedule B BANQUE OUEST AFRICAINE DE DEVELOPPEMENT (BOAD) THIRD REGIONAL DEVELOPMENT PROJECT PROCUREMENT METHOD AND DISBURSEMENS Procurement Method Total Proiect Element ICB LCB Other Cost (US$ million) Subproject Financing (28.6) (12.1) (13.3) (55.0) Technical Assistance (1.0) Total (28.6) (12.1) (14.3) (55.0) Figures in parenthesis are the respective amounts financed by IDA/IBRD. Disbursements CategorY 2 Subproject Financing IDA Credit IBRD Loan Technical Assistance 802 (of subproject cost) 702 (of subproject cost) 902 (of expenditures) Estimated IDA/IBRD Disbursements Fiscal Year (USS million) Annual Cumulative

10 Schedule C EAMOUR OUE8T AFRICAINE DE DEV_LOPPEMENST COAD) THIRD REGIONAL DVEMLOPMENT PROJECT Timetable of Kev Proiect Processina Events (a) Time taken to prepare: Eight months (b) Prepared bys BOAD with IDA/Bank assistance (c) First IDA missiont 1978 (d) Appraisal departuret May 1989 (e) Negotiationss September 25-29, 1989 (f) Planned Date of Effectiveness: May r

11 Schedule D STATUS OF BANK GROUP OPErZATIONS WITTH ANQUE OUEST AFRICAINE DE DEVELOPPEMENT (BOAD) STATEMENT OF BANK LOANS AND IDA CREDITS (As of December 15, 1989) Amount Loan/Credit No. Fiscal Year in USS million Undisbursed Cr Cr (SDR million) Ln TOTAL of which has been repaid 0 TOTAL now held by IDA/Bank 24.5

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