Appraisal of Banque Nationale pour le Developpement Economique (Including a Smallscale Industry Component) Morocco

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Report No. 1505a-MOR Appraisal of Banque Nationale pour le Developpement Economique (Including a Smallscale Industry Component) Morocco April 25, 1977 Industrial Development and Finance Division Projects Department Europe, Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank 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 (Dirhams per U.S. Dollars) End of Period Period Period Average (DH) 'Source: IMF, International Financial Statistics - February ABBREVIATIONS BAII BCM BCP BNDE BRP CCG CDG CIH CNCA DFC LIBOR OCP ODI SSI Banque Arabe Internationale d'investissement Banque Commerciale du Maroc Banque Centrale Populaire Banque Nationale pour le Dgveloppement Economique Banque Regionale Populaire Caisse Centrale de Garantie Caisse de Dep8t et de Gestion Credit Immobilier et H^otelier Caisse Nationale de Credit Agricole Development Finance Company London Inter-Bank Offered Rate Office Chgrifien des Phosphates Office pour le Dgveloppement Industriel Small-Scale Industries FISCAL YEAR January 1 - December 31

3 FOR OFFICIAL USE ONLY APPRAISAL OF BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (INCLUDING A SMALL-SCALE INDUSTRY COMPONENT) MOROCCO TABLE OF CONTENTS PaRe No. SUMMARY AND CONCLUSIONS... I. i-.i I II. THE ENVIRONMENT A. Economic Situation B. Manufacturing Sector C. Financial Community D. Interest Rates III. BNDE'S ORGANIZATION AND POLICIES... 4 IV. BNDE'S OPERATIONS... 7 A. Characteristics of Operations 7 B. Evaluation of Performance 9 C. Impact of BNDE's Operations. 9 V. BNDE'S FINANCIAL STRUCTURE...10 A. Resource Position B. Financial Position and Performance C. Audit..... o13 VI. SMALL SCALE INDUSTRY (SSI) VII. PROSPECTS A. The Environment B. Operations C. Financial Prospects VIII. THE LOAN - OBJECTIVES AND JUSTIFICATION IX. RECOMMENDATIONS.. 19 This report was prepared by Messrs. J.M. Robert Feige, Jacques Coudol, Mohamadou Diop, Jose Mombru (SSI consultant) and Dieter Unverzagt (SSI consultant), based on a mission which took place during the first half of December, This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Beak authorization.

4 ANNEXES 1. Actual Investments in Industry and Transport 2. Structure of Interest Rates 3. Shareholders and Ownership Structure 4. Board and Executive Committee 5. Organization Chart 6. Investment Approvals Under Morocco Investment Codes 7. Analysis of Investments Approved Loan 890-MOR - Analysis of Projects Financed 9. Loan 1061-MOR - Analysis of Projects Financed 10. Resource Position as of December 31, Audited Income Statements Audited Cash-Flow Statements Audited Balance Sheets Analysis of Financial Data Small Scale Industry (SSI) Component 16. Major Assumptions for BNDE's Five-Year Operational and Financial Forecasts 17. Past Operations ( ) and Forecast ( ) 18. Projected Commitments and Resource Needs (Commitment Basis) 19. Projected Income Statements Projected Source and Application of Funds Projected Balance Sheets Estimated Disbursement Schedule for the Proposed Loan

5 APPRAISAL OF BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (INCLUDING A SMALL-SCALE INDUSTRY COMPONENT) MOROCCO SUMMARY AND CONCLUSIONS i. Banque Nationale pour le Developpement Economique (BNDE) is a mature DFC, and has so far received seven Bank loans totalling $141 million. BNDE plays a key role in the financing of industrial development in Morocco, both in the private and public sector, and has been entrusted by the Government to evaluate and advise on all industrial loans requiring term financing under the provision of the Industrial Code. ii. During , Morocco achieved a 6% growth rate of GDP in real terms. The average growth of the whole industrial sector during is estimated at 10% p.a., in line with the Plan targets. Private investment in manufacturing and the processing industry (excluding construction and transport) increased from about DH 754 million in 1973 to over DH 1,300 million in Public investment in the sector increased even more dramatically, from DH 77 million in 1973 to DR 712 million in 1976, reflecting the increased importance of such investments in the sector. iii. BNDE's operations have reflected the general upsurge in industrial investments, and its direct loan approvals have more than quadrupled in the last three years, increasing from DH 147 million in 1973 to DH 696 million in Privately sponsored projects, although they increased in absolute terms, decreased in relative terms to 45% during , compared to 75% of total approvals during iv. BNDE's adherence to undertakings agreed with the Bank under previous loans has been satisfactory. Operationally BNDE has also performed generally well, and the quality of its appraisals has continued to improve and is satisfactory. Commitments and disbursements of the last two Bank loans are in line with expectations at the time of their appraisals. v. The staffing of BNDE, under capable management, is considered satisfactory. BNDE has increased its staff to cope with the increased workload, but a further increase will be necessary. The appraisal of large, complex projects has posed new demands, particularly also for technical expertise. vi. BNDE is actively seeking new shareholders interested in playing an active role in developing the Moroccan economy, and prepared to assist in foreign equity and loan investments in the country. This initiative is welcomed, as is BNDE's increasing emphasis on promotion inside the country. vii. A significant new activity of BNDE will be its leading role in the promotion of small scale industries (SSI), in cooperation with a commercial bank, and using up to $5 million in Bank funds. The SSI have a high employment

6 - ii - potential, but in the past have not been very actively promoted, or supported. A pilot project to be initiated and supervised by BNDE will not only help SSI development, but also may provide the experimental basis required for preparing a much larger project in this field. The pilot project will be supported by a sector study of SSI. viii. BNDE has been quite successful in mobilizing and diversifying the resources required by its increased volume of activities during However, in 1976, as Morocco ran into unforeseen balance of payments problems, BNDE was unable to meet its resource commitments, and ended 1976 with a resource gap of DH 168 million. The Bank has urged BNDE to accelerate its resource mobilization, and BNDE has since prepared a balanced resource mobilization plan covering the period 1977 to mid ix. While BNDE's financial position and performance in the last three years have, in general, been satisfactory, the increased volume of business and related borrowing needs have affected BNDE's term debt/equity ratio which has increased to 10.5:1 at end As previously agreed with the Bank, BNDE should maintain a conventional debt/equity ratio below 10:1 from 1978 onwards. In order to achieve this, BNDE will double its capital in 1977; this is a condition of effectiveness of the proposed loan. x. In order to remunerate the increased share capital, BNDE will improve its profits by increasing its nominal interest rate from 10% to 11% on its long-term loans. This will increase the effective cost of BNDE funds to subborrowers from 9% to 10%, taking into account the Government rebate of two points on industrial term loans and various fees and charges of 1% p.a. xi. BNDE expects to maintain its future business in real terms at about the 1976 level, and to continue providing its financing for both private and public projects. BNDE's expected commitments would amount to DH 2.8 billion in , and its projected resource requirements would amount to DH 2.2 billion through December 31, Based on BNDE's financing plan for the period covered by the proposed loan (1977-mid-1979) a resource gap of DH 216 million remains to be filled; the proposed Bank loan would reduce the resource gap to DH 13 million. The Bank would be providing about 10% of BNDE's projected resource needs in 1977-mid-1979 (commitment basis). The proportion of Bank funds in BNDE's outstanding borrowings,which was 42% in 1974 and 20% in 1976, would decline further to 13% by the end of xii. The projected financial position and performance, which are based on conservative assumptions, show an improving situation. BNDE's profit before taxes, provisions and reserves would more than quadruple in , yielding 28% on average equity in 1981 compared to 23% in BNDE would have no problem in maintaining or even increasing its present 8% dividend rate. The resulting reserve build-up coupled with a doubling of the share capital would help maintain a sound financial structure, well within the agreed term debt/equity ratio of 10:1. xiii. BNDE continues to remain a suitable recipient for the proposed Bank loan of $45 million; up to $5 million would be allocated to an SSI pilot project. The proposed loan would have a flexible amortization schedule, with subloans not to exceed 15 years, including three years of grace.

7 APPRAISAL OF BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE (INCLUDING A SMALL-SCALE INDUSTRY COMPONENT) MOROCCO I. INTRODUCTION 1.01 The Banque Nationale pour le Developpement Economique (BNDE) was established in 1959, and received its first loan from the World Bank in BNDE has so far received seven Bank loans totalling $141 million 1/. The most recent Bank loan, 1061-MOR, was signed in December, /, and was fully committed in October, Although BNDE has been successful in mobilizing substantial additional resources from diverse sources, it needs further funds to fulfill its role in the expanding Moroccan economy. This report appraises BNDE for an eighth loan of $45 million, which includes a $5 million component for a pilot project for the promotion of small-scale industries Through the proposed loan, the Bank will assist BNDE in: (i) providing continuing support for the development of the industrial sector in Morocco, both with respect to the private and public sector; (ii) expanding its promotional and development efforts, with emphasis on labor-intensive small-scale industries (SSI) for which a pilot project will be created; (iii) mobilizing additional resources, particularly in the international market; (iv) strengthening its institutional appraisal capabilities, particularly with respect to larger and more complex projects, in line with the demands made on BNDE by the evolving trend of industrial development in Morocco The proposed loan of $45 million equivalent would meet 10% of the additional resources required by BNDE (commitment basis) for the period / Net of cancellations. 2/ See Bank Report No. 585-MOR: "Appraisal of Banque Nationale pour le Developpement Economique, Morocco", dated November 7, 1974.

8 - 2 - II. THE ENVIRONMENT A. Economic Situation 2.01 A report entitled "Current Economic Position and Prospects of Morocco" (1021-MOR, dated January 26, 1976) was distributed to the Executive Directors on February 13, An updating economic mission visited Morocco in June 1976, and the report is to be issued in June, B. Manufacturing Sector 2.02 The Third Plan aimed at a growth rate of the manufacturing and the processing industry of about 10% through an acceleration of industrial exports, and also through continued import substitution in the food processing, textile, metal working and chemical industries. The Government sought to attain these objectives by providing additional stimuli for the private industry (such as the new Industrial Investment Code promulgated in 1973, granting industrial investors a 2 point interest rebate, tax exemptions, etc.), and by developing public and semi-public enterprises, which were expected to absorb up to 70% of total investment during the Third Plan period. The Government investment strategy was made possible by increased phosphate revenues which permitted more ambitious public investment programs, and was prompted by the limited investment potential of the private sector in comparison to Government development objectives The objective of reviving private investment has been largely achieved. Private investment in manufacturing and processing industry (excluding construction and transport) increased from about DH 754 million in 1973 to over DH 1,300 million in Public investment in the sector increased even more dramatically, from DH 77 million in 1973 to about 712 million in Total industrial investment (public and private), is currently estimated at DH 8 billion for the Third Plan period. To stimulate capacity utilization, exports were promoted; as a result, the exports of finished products increased from DH 426 million in 1972 to DH 563 million in 1973, and to DH 795 million in An increase of 10% in these exports is estimated for Policies and measures to sustain and expand industrial growth in general since 1973 have so far been effective, since the 10% p.a. growth target of the Third Plan is being achieved. The growth of the manufacturing sector alone has been somewhat less than expected, since its growth averaged only about 7% p.a. during the period; its share in GDP remained at about 13% throughout the period. The prospects for 1977, and for the Fourth Plan period ( ), are discussed in Chapter VII.

9 - 3 - C. Financial Community 2.05 Morocco's institutional finance system comprises (i) 15 commercial banks with extensive regional coverage through a combined network of nearly 400 branches; (ii) 5 specialized institutions, including BNDE; and (iii) 2 savings banks. Long-term finance is provided to private investors principally through three institutions, the agricultural bank (CNCA), the housing and tourism bank (CIH), and the industrial bank (BNDE), each of which services its respective sectors and has received Bank loans. The Banque du Maroc is Morocco's Central Bank. Morocco has a relatively developed capital market centered at the Casablanca stock exchange, where gold, bonds, shares and government securities are traded. There is also an active inter-bank market, which is free of Central Bank control BNDE derives its key position from being the only financial institution authorized to provide industrial projects, broadly defined 1/, with contractual long-term financing under the 1973 Industrial Investment Code. In addition, BNDE plays a major role in the distribution of medium-term loans by commercial banks to the industrial sector, especially for the benefit of smaller industrial enterprises. Medium-term loans for industry, initially extended by commercial banks, may be rediscounted with the Central Bank only if appraised and approved by BNDE. These loans have terms up to five years, and bear an effective interest of 8.0% to the final borrower. The Central Bank's rediscount rate is currently 4.5%, and BNDE's commission for processing and approving rediscounted loans is 0.75%. The primary risk of default is borne by the commercial bank, with BNDE guaranteeing only against the risk that the commercial bank may fail to pay the Central Bank. Since the possibility of such defaults is remote, BNDE bears practically no risk. D. Interest Rates 2.07 The Government continues to strictly control the institutional interest rates in Morocco. There has been upward movement of the interest rates in the 1970's, including rates in the active bond market and increases in BNDE's long-term lending rate from 7% to 10%. The lending interest rate structure in Morocco is shown in Annex 3, and ranges from 4.5% (special export credits) to 11% (for certain non-rediscountable medium and long-term credits) The interest rate charged by BNDE consists of a nominal rate, 10% at present, to which must be added various annual charges equivalent to about 1% of the outstanding loan amount. Since industrial borrowers receive a direct rebate of 2% per year from the Government, the effective rate is thus 1/ Including transportation (shipping and airlines), ocean fishing and mining, but excluding energy.

10 - 4-9%. It should be noted that the effective rate (including charges) was only 8Z until July 1975, when the rate was raised to 9% as agreed with the Bank at the time of the seventh loan negotiations BNDE and the Government have agreed during negotiations to an increase in BNDE's nominal interest rate from 10% to 11% on new long-term loans (i.e. loans with maturities over seven years), thereby bringing the effective rate to 10%. Such an increase in interest rate would help to improve the profitability of BNDE, as is required in view of the agreed increase in the share capital (para 5.06), and as an inducement to attract more foreign capital. In line with the explanation given in para 2.08, and taking into account the existing and projected inflation rate 1/, this would ensure that subborrowers pay a positive interest rate of about 3%. Mediumterm loans will continue to carry a lower effective interest rate of 9% so as to maintain comparable, competitive rates with other commercial banks; less than 20% of BNDE's projected loan commitments would be in the form of medium-term loans so defined In reviewing BNDE's interest rate structure, the justification of the 2% rebate and the Government carrying the foreign exchange risk were also questioned. The Government views the rebate (together with other incentives under the Industrial Code) as well as protection of investors from foreign exchange risks as indispensable for maintaining a favorable investment climate in Morocco. It is not prepared to pass on the foreign exchange risk to subborrowers, nor to abolish the rebate at this time, as these measures appear to help investments to expand at the desired rate. The Government is nevertheless concerned with the cost and effecttlbeness of rebates, and is from time to time reviewing these (e.g. Maritime Code); however, it does not consider that a downward adjustment of the rebate would be appropriate. The questions of interest rate, rebates and foreign exchange risk have been points of discussion with the Bank for years. The agreed increase to 11% in BNDE's long-term lending rate is a significant step, - the only one the Government will consider at this time -, and seems sufficient at this stage to help prevent misallocation of BNDE's long-term resources. III. BNDE'S ORGANIZATION AND POLICIES Organization 3.01 BNDE has its headquarters in Rabat, and a small regional office in Casablanca for promotional purposes. BNDE is strengthening its Casablanca office and establishing two additional promotional offices, in Agadir and Oujda, for closer contacts with local entrepreneurs. 1/ Inflation in Morocco was running at a modest 2.4% p.a. average over the period , but is expected to average 8.2% for the period , and 7.2% p.a. for

11 3.02 A list of BNDE's shareholders as of January 1, 1977, is given in Annex 3. In 1975, and in line with an agreement reached with the Bank, BNDE increased its share capital from DH 32.4 million to DH 70 million. The share capital issue was well received, and shares available to domestic investors were oversubscribed. No major changes in institutions represented on the Board (Annex 4) have taken place since the last appraisal in 1974, although there have been changes in personalities. The Board has continued to display a considerable amount of initiative, and is active in policy anid investment matters. The Executive Committee meets once a month and has received authority from the Board to approve loans up to DH 4 million. IFC is represented on both the Board and the Executive Committee There has been remarkable stability in BNDE's senior management and organisation since the last Bank appraisal in 1974 (Annex 5). Credit must be given to the President and General Manager, Mr. Faris, for keeping a capable management team together In line with the growth in operations, BNDE's staff has expanded from 48 professionals in 1974 to 60 professionals by end 1976, including four young engineers. A further strengthening of BNDE's staff is required to improve quality standards under increased workloads. BNDE has agreed to recruit five more financial analysts/economists, and a further three--hopefully experienced--engineers; the latter are required to further improve the technical appraisal work, and assist with more frequent supervision of'projects. Operational Policies 3.05 BNDE's Policy Statement has not changed since the last appraisal, and is still considered satisfactory. The appraisals prepared by BNDE are, in general, of good quality. BNDE calculates the effective rate of protection, as well as the economic rate of return for projects with more than 50% effective protection rate or for which BNDE's financing exceeds DH 5 million. For the proposed loan, BNDE has agreed to calculate the economic tate of return for all projects financed with Bank funds (except for SSI sub-loans, see Chapter VI), but will no longer be required to calculate the effective rate of protection separately. For other projects, BNDE will also calculate the economic rate of return for loans above DH 5 million. BNDE's Role in Financing Large-Scale Enterprises 3.06 The appraisals of large-scale projects recently completed by BNDE have been closely checked. A few of these projects, in the public sector, were rejected by BNDE because of insufficient profitability, and in one case a Government subsidy was eliminated on the basis of BNDE's appraisal. In the other projects, BNDE participated in various degrees during the formulation of the project, often in close cooperation with Office de Developpement Industriel (ODI) and other Government agencies. In a few cases BNDE's appraisal of large-scale projects has been less than satisfactory, mainly due to staff constraints and inexperience and, more importantly, to the fact that its assistance has been requested at times when all key decisions in a project had already been taken.

12 To play a useful role in evaluating large-scale projects, and contribute financial, economic and technical expertise, BNDE must be involved at the earliest possible stage of project formulation. BNDE has now decided that it will not normally consider financing of large-cale projects brought to BNDE's attention after the engineering contract has been completed, or the construction contract has been signed. Fishing Industry and Merchant Marine 3.08 BNDE has been officially designated to act as the sole long-term financing agency for the fishing industry and merchant marine. Due to the favorable incentives granted by the Government for the purchase of ships (subsidy in investment cost of up to 30%, and a combined rebate of 6% on the 10% BNDE interest rate) coupled with apparently profitable prospects, BNDE is receiving a rapidly increasing number of applications for such financing, particularly for the purchase of fishing vessels Expansion of Morocco's fishing fleet, particularly in view of the increase in the territorial fishing rights to 200 miles, and the fishing potential thereof, is considered reasonable. However, the impact fishing loans may have on BNDE's portfolio quality must be further evaluated before larger commitments in this rapidly expanding sector are undertaken, especially as the generous incentives may be attracting some inexperienced investors; under the proposed loan, Bank funds will, therefore, not be used for the purchase of fishing vessels. Use of Bank Funds 3.10 Taking account of the quality of BNDE's appraisal work, of inflation which has raised the cost of all projects, and the fact that the Bank would like to concentrate its supervision on large projects, it was agreed to raise the free limit from US$0.9 million (DH 4 million) to US$2 million (DH 9 million), with no aggregate free limit Under the condition of the seventh loan, the use of Bank funds in any single enterprise was limited to US$4 million, and the aggregate use of Bank funds for investment projects owned to the extent of 50% or Tore by the Government was restricted to 40% of the total loan proceeds. In view of the price inflation which has taken place since 1974, and taking accownt of BNDE's increased outstanding loan portfolio (Annex 13), it was agreed to increase the exposure limit to $6 million. However, the amount of any single sub-project commitment under the proposed eighth loan would still be limited to $4 million. The limitation of 40% on investments in public sector projects with Bank funds, as stipulated in the previous loan agreement, is maintained Supervision. BNDE's supervision reports have improved since the last appraisal, but the technical supervision has been somewhat limited due to staff constraints. The newly-hired four engineers, as well as the proposed further increases in staff, should enable future supervisions to be more frequent and the reports to be more complete.

13 3.13 Procurement and Disbursement. BNDE does not normally insist on international competitive bidding procedures, but its procurement policy has been satisfactory and in line with that of other Bank-supported development banks. Equipment supplies for projects are procured from a wide variety of suppliers and countries. Disbursement procedures are satisfactory Sector Work. BNDE's Economic Studies Department (Annex 5) not only supports the appraisal work, but also undertakes and publishes industrial product and sector studies. In 1975 a total of 53 such studies were published; a sample survey of these indicated professionally competent work Promotional Activities. BNDE's promotional activities are through (i) sector studies; (ii) publication of brochures and other documentation to assist local entrepreneurs; (iii) assisting in establishing a capital market by participating in equity investment; and (iv) promotion of Moroccan industry, and investment opportunities therein, abroad. In respect to the last point, BNDE places great emphasis on the role its own foreign shareholders could perform. BNDE intends to further expand its promotional role by establishing two new regional offices, and by assisting in the development of SSI. Considering these efforts, the promotional work done by BNDE is considered satisfactory and of importance for the industrial sector. IV. BNDE'S OPERATIONS 4.01 In line with its Policy Statement, BNDE's operations consist of direct medium- and long-term loans, rediscounted medium-term loans, and equity investments. The following analysis of BNDE's operations is based on Annexes 6-9. A. Characteristics of Operations 4.02 BNDE's direct loan approvals have more than quadrupled since 1973 and reached DH 696 million for Rediscounted loan approvals have increased five-fold since 1973, representing 35% of BNDE's 1976 total operations, compared to 29% in No. Amount No. Amount No. Amount No. Amount (DH Millions) Direct Loans Approvals Commitments Disbursements Investments Commitments Disbursements Rediscounted Loans

14 The fast growth of BNDE's operations during is in line with the growth of gross fixed investment, particularly in the industrial sector (para 2.03). The investment codes of August 1973 gave further impetus to industrial investments as reflected by industrial investment approvals by the Ministry of Industry (Annex 6) The average size of direct loans reached DH 9 million during the period. Whereas most of BNDE's loans to medium-sized industry averaged 7 years, the large-size projects require longer terms (Annex 7). The general increase in the size and terms of BNDE's direct loan volume partly reflects Morocco's industrial investment strategy, which increasingly emphasizes, projects based on domestic raw materials (e.g. chemicals and cement), many of which are capital intensive Rediscounted loans are at present limited by law to a maximum five-year duration. BNDE cannot discount its own medium-term loans. For approving, and guaranteeing medium-term loans offered by the commercial banks for rediscounting to the Central Bank, BNDE collects a 0.75% fee During the period /-73, about 75% of the amount of BNDE's approvals were in the private sector. However, during the period private sector approvals decreased to 45% as publicly sponsored projects, in line with corresponding upward revisions in the Development Plan, became increasingly more prominent. Nevertheless, there has not been a slow down in the absolute level of private loan approvals, which grew from DH 307 million in 1974 to DH 559 million in 1976, an increase of 82%. Following the Moroccanization laws of 1973, loan approvals for foreign-controlled enterprises, which accounted for 38% of total approvals during 1959/73, have dwindled to insignificant levels (7% in 1974, and 1.4% in 1976) During the period , a total of 67% of BNDE's approvals was for loans to the manufacturing industry (chemicals 15%, food processing 11%, textiles 10%, cement 7%, others 24%). Transport accounted for 29%, and fishing for 4% The geographic distribution of BNDE's loans reflects the concentration of industries in the Casablanca-Mohammedia area. This area was on the average the beneficiary of 59% of all BNDE's loan and equity investment approvals during the period (compared to 36% in ). The balance of approvals during was generally well spread over other major urban centers (i.e. Rabat, Marrakesh, Agadir, Fes, Tanger, etc.) During the period , BNDE approved 28 new equity investments for DH 33 million, compared to 54 investments for DH 55 million during the whole period As of December 31, 1976, BNDE held participations in 33 industrial enterprises, accounting for 66% of total outstanding equity investments of DH 84 million; in 8 tourism enterprises (15% of total); and 6 financial institutions (19% of total). 1/ BNDE was created in 1959.

15 - 9 - B. Evaluation of Performance under Loan 1061-MOR 4.10 During the appraisal of the seventh loan to BNDE (1061-MOR), BNDE undertook to implement certain steps to meet the objectives of the Bank loan. As agreed, BNDE doubled its share capital to maintain a strong equity base in the face of anticipated growth of lendings, and increased its nominal lending rate by 1% to make sub-borrowers pay an effective rate of 9% 1/, a coat which was considered at the time to better approximate the real cost of funds. Performance with regard to appraisal and supervision procedures, management and staffing has been reviewed earlier (Chapter III) and found to be generally satisfactory Commitments and disbursements of Loan 1061-MOR have overall been in line with appraisal estimates. Due to the financing of a large number of medium-sized enterprises (i.e. loans under the individual free limit of $900,000), BNDE rapidly reached the aggregate free limit of $7 million set at the time of appraisal of loan 1061-MOR. In view of the improving quality of BNDE's appraisal reports, and in order to avoid a cumbersome review of every project presented to the Bank for financing, the Bank agreed to remove the aggregate free limit on October 23, C. Impact of BNDE's Operations 4.12 During the period, the total investment cost of projects approved by BNDE amounted to an estimated DH 6.4 billion. BNDE's direct loan and equity approvals, amounting to DH 1.9 billion, are expected to contribute 30%, and rediscounted loan approvals to provide 13.3% of the total estimated funds required; the balance was to be provided from equity funds, Government grants, and other loan financing mostly in the form of suppliers' credits A summary of the operations financed under the last two Bank loans (890-MOR and 1061-MOR - Annexes 8 and 9) is given below. 890-MOR 1061-MOR Totals No. of Projects Capital Cost (DH million) No. of Jobs 2,401 2,288 4,689 Cost per Job ($) /1 27,100 41,400 34,100 /1 Calculated where employment figures available. 1/ After paying fees and charges and receiving a Government rebate.

16 Export-oriented projects 1/ financed from the above Bank loans, mostly in the textile and food processing sectors, accounted for some DH 87.7 million or 10% of the estimated total capital cost, and for 13% of Bank ftnds. Fourteen projects were expected to export between 27% and 100% of their output. The relatively high cost per job is due to a substantial number of expansions financed by BNDE, often in capital-intensive industries, which create little additional employment. V. BNDE'S FINANCIAL STRUCTURE A. Resource Position 5.01 Since the previous appraisal, BNDE's resource mobilization efforts have continued to bear significant results. At the end of 1976, total outstanding resources had increased by 124% to DH 1,763 million, from DH 786 million in mid Total resources mobilized during 1975 amounted to DH 682 million, of which DH 34.4 million through new subscribed shares 2/; DH 474 million in foreign currency loans; DH 100 million in new local (7.5%, 15-year) bonds; a 30-year loan of DH 50 million at 6.5% from the Treasury; and a DH 20 million 5-year, 6.5% loan from CDG. BNDE resorted successfully for the first time to an internationally subscribed (8.5%, 8-year) bond issue guaranteed by the Moroccan Government, and denominated in Saudi Rials (SR 100 million, equivalent to DH 116 million) In 1976, however, the resource mobilization momentum was not maintained by BNDE for reasons in large part beyond its control; BNDE contracted only DH 313 million in new resources (of which DH 273 million in foreign exchange), less than half the amount mobilized in 1975, and wound up the year with a resource gap of DH 168 million (Annex 10) The problems faced by BNDE were many and varied. In order to meet expenditures, the Government resorted to a national bond issue of DH 1,000 million, which reduced the capacity of the domestic financial market for additional commitments. BNDE entered the Euro-dollar market early in 1976 for $40 million (DH 180 million), and was about to launch another $100 million borrowing when it was preempted by a major borrowing by the Office Cherifien des Phosphates (OCP) Some of the objectives pursued by the Bank have been to encourage BNDE not only to diversify its sources of funds, and thereby decrease its reliance on Bank funds, but also to assist in increasing the general flow of 1/ Over 25% of output exported. 2/ BNDE distributed DH 3.2 million from reserves as stock dividend, thus bringing the total issued share capital to DH 70 million.

17 foreign capital into Morocco, and to mobilize domestic savings and strengthening the local capital market. These objectives are progressively being achieved. The proportion of Bank funds decreased from 42% of total resources outstanding in mid-1974, to 20% at the end of Borrowings from institutions in capital surplus Arab countries, which accounted for only 1.4% of total resources outstanding in July 1974, made up 18% of such resources at end 1976, having increased from DH 11.2 million to DH million. B. Financial Position and Performance Financial Position 5.05 BNDE's income statements, cash flow, and balance sheets for the period , are detailed in Annexes 11, 12 and 13. (Audited statements for 1976 are not yet available.) During the period , BNDE has more than doubled its total assets with a net increase of DH 976 million in its loan and equity portfolio outstanding. A major increase in term borrowings brought BNDE's term debt to equity ratio to 9.0:1 at December 31, 1975 and to 10.5:1 at end The term debt/equity ratio calculated on the basis agreed with the Bank, where equity includes DH 63.5 million in quasi-equity, 1/ was 6.4:1 compared to the maximum allowable limit of 7:1. In line with the 1061-MOR Bank Loan Agreement the term debt/equity ratio, excluding any reference to quasi-equity, will be limited to 10:1 from January 1978 onwards This limit is considered acceptable because of the quality of BNDE's portfolio and the guarantees which the Government provides. This limit has already been reached, and in order to comply with this agreement a share capital increase of DH 70 million (i.e. a doubling of the existing capital) has been agreed to by BNDE. The doubling of the share capital is a condition of effectiveness of the proposed loan. Current Position 5.07 At end 1975 BNDE's current ratio stood at 1.5:1 providing it with a satisfactory current position; the share capital increase in 1975 and the increase of term debts helped improve the current position (Annex 12). The resource mobilization constraints of 1976 strained BNDE's current position at the end of that year, and BNDE had to resort to substantial short-term borrowings to meet its commitments. BNDE's debt service ratio was satisfactory at 1.2:1 at end 1976, but had ranged between 1.5:1 and 0.7:1 in the period ; interest coverage during the same period was between 1.4 and 1.5 (Annex 14). BNDE realizes that it must keep a balanced debt service ratio. During negotiations BNDE agreed to endeavor to maintain at all times a debt service ratio above 1:1. 1/ The quasi-equity is defined as that portion of DH 90 million subordinated Government loans which matures after repayment of Bank loan (890-MOR) to BNDE.

18 Profitability 5.08 Although BNDE's average interest spread was reduced from 2.8% in 1975 to 2.5% in 1976 due to the higher cost of borrowings, profits have increased. The increase in share capital and continued plow-back into reserves of a major part of earnings have helped BNDE reduce the average cost of total resources. Administrative expenses, although having increased in absolute terms by 12% in 1975 due to the hiring of 12 additional professionals, remain low in relative terms and have decreased from 1.2% to 0.7% of average total assets over the same period. Average income from loans has increased from 8.2% in 1973 to 9.1% in 1976, reflecting the impact of the increase in BNDE's nominal lending rate from 8% to 9% in 1972, and from 9% to 10% in As a result, profits before taxes, and allocation to reserves and provisions, increased by 70% in 1975 to reach DH 17.5 million, and increased further to DH 23 million in Net profits have increased from DH 3.9 million in 1974 to DH 7.2 million in / 5.09 Net profit on average equity has dropped from 8.9% in 1975 to 6.9% in 1976, owing to the doubling of the share capital which took place in BNDE distributed DH 3.2 million from reserves in share dividends at the time of the last capital increase; consequently the average yield on originally subscribed BNDE shares exceeded the 8% paid in cash. The book value of shares amounted to 157% of par value at end Quality of Equity Portfolio 5.10 BNDE's total equity portfolio of DH 71.5 million at December 31, 1975, consisted of investments in 42 companies. Only 10 companies, which accounted for 21% of total investments, were in financial difficulties; four of these companies (DH 783,100 investment) are in liquidation. Provisions amounting to DH 5.3 million are adequate to cover risk of loss in BNDE's equity portfolio. BNDE's portfolio grew in 1976 to reach DH 84 million; accordingly BNDE increased its provisions for losses to DH 6.6 million. BNDE's provisions remained conservative, amounting to 7.8% of the equity portfolio Dividend income and capital gains on BNDE's investments have increased from DH 2.7 million in 1973 to reach DH 3.5 million in 1976, yielding 5.3% and 4.5% in those years respectively. These yields would have been higher were it not for the addition of new, as yet unprofitable ventures. Quality of Loan Portfolio 5.12 As of December 31, 1975, BNDE's portfolio comprised 63 medium-term 2/ and 180 long-term loans for a total of 243 loans outstanding, compared to 221 1/ Net profits do not reflect BNDE's true profitability as tax deductible allocations (up to one-seventh of interest earned)to a special reserve, as well as other deductions reduce taxable income, but not profits (Annex 11). 2/ As currently defined by the Banque du Maroc, 5 years or less.

19 loans in Medium-term loans outstanding make up 17% of the total portfolio outstanding at end 1975, compared to 16% in In 1975, loans amounting to DH 477 million or 52% of total loan portfolio were guaranteed by the Government through the Caisse Centrale de Garantie (CCG), compared to 38% in These guarantees and other banking consortium guarantees (e.g. for leasing companies) are required by BNDE's Policy Statement in cases where BNDE's financial exposure exceeds 15% of its unimpaired equity. The guarantees have been extensively reviewed and found to be satisfactory, and are additional to normal securities taken by BNDE (such as mortgages) As of December 31, 1975, total arrears of principal and interest in excess of three months amounted to DH 44.6 million. Total portfolio outstanding affected by arrears amounted to DH million, i.e., 12.2% of total portfolio outstanding at end 1975, compared to 9.3% in There has been a small deterioration of the loan arrears situation; however, in the opinion of the auditors provisions for losses 1/ of DH 12 million, as provided by BNDE are adequate. BNDE's loan portfolio can be considered of reasonably sound quality. C. Audit 5.14 BNDE's financial statements are audited by Price Waterhouse & Co., an internationally reputed firm of public accountants. The quality of the audit report, and supplementary information provided, are considered satisfactory. VI. SMALL SCALE INDUSTRY (SSI) 6.01 According to the 1969 industrial census, SSI in Morocco 2/ accounted for 75% of total industrial employment and over 40% of industrial value added. The Government is increasingly interested in developing this sector of industry, which is of prime importance for employment creation, and has asked the Bank to assist. A consultant's report, transmitted by the Bank to the Government in November 1975, suggested three types of action (i) administrative, in order to provide the small industry with the required legal and administrative framework; (ii) technical, to improve the efficiency of SSI management, technology, labor training, procurement and sales; and (iii) financial, to provide credit and other financial services to the SSI. Because information on SSE is sparse, the report also stressed the need to undertake a sector study The Bank's association with the Government to assist SSI is envisaged as a series of steps. The first one would consist of providing a relatively small amount of financing ($5.0 million) under the proposed loan to 1/ Provisions for risk on individual direct loans are considered case by case. Total provisions are deducted from the special reserve for loan risk, the balance of which is considered part of the equity. 2/ Defined as enterprises employing between 10 and 50 workers, with annual turnover under DH 7.5 million and total gross assets under DH 5.0 million.

20 enable BNDE to channel resources to SSI, and to be associated with a limited SSI sector study to be undertaken in Based on the experience gained, a larger SSI project could be developed in the future. The first steps, to be taken under the BNDE loan, are described in Annex 15 and summarized below SSI component. BNDE has acquired some experience in SSI under the medium-term rediscountable procedure (para 2.06). Under the proposed $5 million pilot SSI scheme, BNDE will associate itself with the major commercial bank in Morocco, Banque Centrale Populaire (BCP), to provide funds to BCP ($3 million) to finance SSI projects which require medium-term loans. On its own, BNDE will also provide long-term loans (over 5 years) to SSI projects which otherwise would not have access to such funds. BNDE will also be prepared to take equity participation in SSI which have not sufficient equity to become eligible for commercial bank credits. In view of the current definition of SSI in Morocco, the Bank would ask BNDE to focus its promotional effort on a number of aspects, as outlined in paras Financing will be to selected, representative urban centers and subsectors which have the larger concentration of SSI enterprises, and where the growth potential is considered to be good. The target group should be one where employment creation benefits primarily the urban poor. By setting maximum investment cost per job created of DH 25,000, the project seems likely to meet the Bank's guidelines for the urban poor. To the extent possible, the Bank, through BCP, will try to provide funds, in terms of equity participation and in longer-term financing, which are not otherwise available for SSI entrepreneurs Extensive discussions took place in Morocco on the interest rate to be charged to SSI enterprises for the financing envisaged under the proposed pilot project. Medium-term loans (up to 7 years) to SSI are currently made at an 8% p.a. interest rate. In comparison, long-term loans from BNDE to medium and large industry are currently available at an effective interest of 9% p.a.; when BNDE raises its interest rate (para 2.09), the effective cost will be 10%. The interest rate differential between SSI loans and other industrial loans seems reasonable, since the terms are different, and as there is a promotion element in SSI financing. Even at an interest of 8%, the maximum investment cost per job of DH 25,000 prevents any risk of Bank funds being used for capital intensive SSI projects. SSI loans at an effective interest rate of 8% p.a. can, therefore, be supported. The authorities have also argued that (i) the pilot project will only affect a segment of SSI enterprises and within that segment only the borrowers of BCP/BNDE; if under the proposed loan higher interest rates were required, an unbalanced situation between BNDE/BCP borrowers and other borrowers would be created; (ii) the Government first wants to study the outcome of the pilot project and subsector study before taking any action on interest rates which would have wide implications for industry To make Bank funds available to BCP and BNDE at an effective rate consistent with the 8% rate to the end-user, it was therefore agreed that the Government would offset BNDE's and BCP's higher administrative expenses and special risks, and permit them to earn a very modest margin on these

21 operations. For this purpose, the Treasury will provide funds to reduce to 5% the cost of Bank funds for the BNDE/BCP portion of the component. BNDE would then relend Bank funds to BCP at 6% p.a. This would leave BNDE with a 1% and BCP with a 2% gross margin. The subsidy for direct BNDE loans will be 2% p.a. There will be no subsidy for equity participations. In all cases, the foreign exchange risk will be assumed, as in the past, by the Treasury, at no cost to BNDE. Because this project is basically experimental and does not imply an endorsement by the Bank of the Government interest rate policy, it is proposed to accept the subsidy arrangement As also described in Annex 15, BNDE and BCP have agreed to organize appraisal and supervision capabilities for the SSI scheme which would, for the first time in Morocco, attempt to provide SSI entrepreneurs with assistance especially with regards to technical aspects of SSI projects and technical needs of SSI enterprises. In spite of its relatively small amount of financing, the SSI project component should provide some 1,500 jobs. Sector Study 6.08 In the same subsectors and urban centers selected for the SSI loan component, a study will be commissioned by BNDE in mid-1977 whose main objectives will be: (i) to make an inventory of the characteristics, economic needs and growth potential of SSI; (ii) to define SSI rationally; and (iii) to propose an action and implementation program of technical assistance to SSI in three areas, (i) administration and legal; (ii) technical (technological, training, marketing); and (iii) financial (credit, guarantees, risk) The study will be undertaken under the responsiblity of a qualified consultant and is expected to include expatriate as well as Moroccan experts (the latter from BNDE, BCP and the Ministry of Commerce and Industry). Draft Terms of Reference have been agreed with BNDE, and are shown in the Attachment to Annex 15. Monitoring of the study will be coordinated by BNDE and the Bank. The foreign cost of the study is estimated at below $200,000, and the study will be completed over a six-month period. BNDE has agreed to mobilize from its own resources, and with BCP's contribution, at least $100,000. If needed, the balance (not to exceed $100,000) will be financed from the proposed loan (repayment over 12 years). Consultant selection is in progress; the study report should be available in the spring of 1978.

22 VII. PROSPECTS A. The Environment 7.01 The industrial prospects for 1977, the last year of the third Five-Year Plan, and the early years of the Fourth Plan period are favorable, not only because the Government appears to be determined to maintain a high level of industrial investment, but also because the sizeable investment undertaken in 1975 and 1976 will have an impact on manufacturing and industrial output in the years to come. No details of the next Development Plan are as yet available, nor will they be until the end of A levelling off in the general level of investments is expected, as the previous high growth rate cannot be maintained due to financial constraints. Nevertheless, it is expected that the Government will continue its efforts to promote development of industry in general and manufacturing in particular and would: (i) maintain incentives to encourage industrial investments, (ii) continue its efforts to develop large-scale basic industries, such as steel, chemicals, and fertilizers, primarily by public investments, and (iii) increase assistance and financing to the small-scale enterprise in order to increase employment opportunities in the manufacturing sector. B. Operations 7.02 Assumptions governing BNDE's Five-Year business and financial forecasts are detailed in Annex 16. In the absence of firm investment targets in the Plan, but based on a pipeline of about 60 projects requiring DH 1.4 billion in direct term loans, BNDE expects its business as measured by volume of approvals to grow annually at a moderate (current) rate of 8% in For 1977 BNDE projects the same level of activities as in 1976, based largely on the projects remaining to be implemented in the Plan (Annex 17). The above assumptions appear valid based on BNDE's current pipeline of project Total loan approvals would amount to DH 3.4 billion in , compared to DH 2.0 billion in , a 70% increase; commitments would amount to DH 2.8 billion in , representing a 60% increase over the period Equity investment approvals would total DH 55 million in compared to DH 42 million in ; in real terms this would represent a levelling off in BNDE's equity investments. C. Financial Prospects Resource Requirements 7.04 BNDE's projected resource requirements through 1979, and the financing plan prepared by BNDE through mid-1979, are detailed in Annex 18 and summarized below:

23 1st half 2nd half Total Period (DH millions) A. Resource Needs B. Financing Plan Firm: Equity Cash Generation Domestic Bonds Eurodollars Spanish Credits Tentative/Under Discussion: Kuwait Fund Arab Fund Total C. Resource Gap 103 (41) 357 Accumulated Resource Gap BNDE's resource mobilization strategy has been to diversify its sources, and match term loan with appropriate borrowings. In this it has generally been successful, and there is no reason to expect that BNDE will deviate from this strategy in the future. During the last six months BNDE has been aggressively seeking new, diversified resources. As a result, a balanced plan as shown above has been arrived at. A firm resource mobilization plan covering the second half of 1979 will not be prepared by BNDE until early The funds of DH 203 million (US$45 million) becoming available under the proposed Bank loan, most of which are expected to be committed by mid-1979, would reduce the resource gap at that time from DH 216 million to DH 13 million; pending preparation of BNDE's resource mobilization plan for the period after mid-1979, the resource gap at the end of 1979 would be DH 370 million According to the BNDE resource mobilization plan through mid-1979, floating rate (Euro-dollar) funds would be limited to one borrowing of DH 450 million in On the basis of a 9% average cost for new borrowings 1/, excluding Bank and local funds, BNDE's overall profitability would remain adequate even if LIBOR 2/ indexed Euro-dollar funds could go temporarily higher, up to an average of, say, 12% per year. Any long-lasting period of high LIBOR rates would indicate a general world-wide increase in the level of interest rates; such an increase could be expected to be followed by increases in BNDE and other bank lending rates in Morocco. 1/ Actual Euro-dollar cost to BNDE would have been about 7-1/2% in March / London Inter-Bank Offered Rate.

24 Financial Position 7.07 BNDE's projected income statements, cash flow, and balance sheets are shown in Annexes 19, 20 and 21. As shown in Annex 20, BNDE's assets are expected to more than double during , mainly on account of the increase in the net equity and loan portfolio which would grow by DH 1.7 billion, an increase of 120%. The projected financial position would be generally good. IBRD debts outstanding would decrease substantially from 25% in 1975 to 10% of total debt outstanding in Euro-dollar debt would decline from 37% at end 1977 to 7% of total debts outstanding in 1981 (assuming no further Eurodollar borrowings by BNDE after 1977). The projected term debt/equity ratio would remain below 10:1, and would improve as sizeable reserves (after deducting adequate provisionq for real risks of loss on loans) are built up, primarily through the special reserve for loan risks. The debt service ratio, as indicated in BNDE'6 projections, will be 0.8:1 in 1977, and fluctuate between 1.1:1 and 1.5:1 in the period Interest coverage will range between 1.3 and 1.4 during this period (Annex 19). Profitability Prospects 7.08 BNDE's profitability prospects are expected to remain good, assuming an average 9% p.a. coot for LIBOR index"d Enro-dollar and other foreign funds other than Bank funds, and an 11% p.a. BNDE interest rate on long-term loans. Profits before taxes and allocation to reserves and provisions would quadruple, increasing from DH 23.0 million in 1975 to DH 89 million in Although BNDE's average interest spread would decrease from 2.5% in 1976 to 2.2% in 1977 owing to the projected rising trend in cost of borrowed funds, the greater volume of business, coupled with relatively low levels of administrative costs (which would be below 0.6% of average assets), would contribute to the increased profitability; from 1978 onwards the interest spread starts a climbing trend from 2.4% to 2.8% as the effect of the 11% interest rate on new loans is felt. Net profits would experience a dip in principally due to relatively higher tax-exempt allocations to the special reserve for loan risks. While profit before taxes and allocations to reserves and provisions grow steadily, from of average BNDE equity in 1975 to 28% in 1981, net profits decrease from 6.9% of equity in 1976 to 5.5% in 1978, due in part to the doubling of the share capital that year; from 1979 onwards net profits would grow slowly to reach 10.3% of average equity in BNDE would have no problem in maintaining an 8% dividend rate after doubling its share capital. The dividend rate could even be increased to 9-10%, provided that the allocation to the special reserve be limited to about one-tenth of interest income. VIII. THE LOAN - OBJECTIVES AND JUSTIFICATION 8.01 The industrial sector of the Moroccan economy has expanded rapidly since the last Bank loan to BNDE was granted, and there has been a continuing shift towards larger project entities, often in the public sector. BNDE's operations have reflected the general upsurge in industrial activity, and BNDE has continued to be the major institution for appraising and financing industrial projects, both in the private and in the public sector. The main justifications for the Bank's eighth loan to BNDE are summarized below.

25 Provision of Resources. Although BNDE has attracted a substantial amount of alternative resources, the expected expansion of BNDE's operations will result in a need for additional long-term funds. The proposed Bank loan would provide 10% of the additional resources required by BNDE during 1977 to mid The confidence expressed by the Bank by continued lending to BNDE should also facilitate the mobilization of other foreign resources by BNDE Institutional Development. The Bank's assistance, whether through the conditions included in the Loan Agreements, field and subproject supervision, sharing of information, or formal instruction courses, has greatly benefited BNDE. Further assistance is requested by BNDE, and is justified in view of the increased levels of industrial investments in the country and the necessity to adjust BNDE's operations and procedures correspondingly. The conditions of the loan would provide the Bank an opportunity to monitor BNDE's appraisal techniques, and to guide BNDE in developing an effective system for encouraging and developing SSI Support for the Industrial Sector. Although the Government's investment program and strategy will not be known in detail until the end of 1977, when the new Five-Year Plan is adopted, it is believed to stress continued emphasis on industrial development. In the meantime a substantial number of industrial projects have already been identified by BNDE, both in the private and public sector. BNDE's assistance in the formulation, evaluation, and financing of such industrial sector projects is of crucial importance. (BNDE has been entrusted by the Government to evaluate and advise on all industrial loans requiring term financing under the provisions of the Industrial Code.) 8.05 Small-Scale Industry. The Government is placing emphasis on the expansion of industrial employment for the urban poor by strengthening its assistance to labor intensive small-scale industries (SSI). Assistance to such SSI, which create employment at relatively low cost, is also in line with the Bank's general policy in respect to the urban poor, who would be the main beneficiaries of the increased employment thus created. As BNDE has expressed interest in assisting in the development of an SSI pilot project, and can provide expertise and organizational strength, an SSI loan component has been included in the eighth loan. IX. RECOMMENDATIONS 9.01 BNDE continues to remain a suitable recipient for Bank loans. A Bank loan of $45 million, as proposed, would provide about 10% of BNDE's resource requirements during 1977-mid Of the Bank loan, up to $5 million would be allocated to an SSI pilot project The proposed loan should be made on the normal terms and conditions as have been applied to recent loans to development finance companies, including the commitment charge; the proposed loan would have a flexible amortization schedule, with subloans not to exceed 15 years, including three years of grace.

26 To ensure a sound debt/equity structure, the capital of BNDE will be doubled, and the total term debt will not exceed ten times BNDE's equity. The interest rate on long-term loans charged by BNDE to sub-borrowers will be raised from 10% to 11%. BNDE will consult with the Bank on any possible substantial changes in the resource mobilization plan shown in this report. BNDE will maintain an adequate debt service coverage The free limit will be raised to $2 million, with no aggregate free limit. The maximum of any credit granted to a single project by BNDE from the proposed Bank loan will be limited to $4 million, and the total exposure (including commitments) with Bank funds shall not exceed $6 million. BNDE will not normally consider financing of large-scale projects brought to its attention after the engineering contract has been completed, or the construction contract has been signed. BNDE will calculate the economic rate of return, when feasible, on all Bank-financed sub-projects, and for all other projects receiving BNDE loans above DH 5 million. Bank funds will not be used for the purchase of fishing vessels BNDE will execute an SSI pilot scheme, partly in cooperation with a commercial Bank (BCP), and will provide supervisory manpower. BNDE will also supervise and finance a SSI sector study. The staff of BNDE will be expanded to at least 68 professionals, including an addition of three engineers.

27 M O R O C C O BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE BASIC DATA Year of Establishment: 1959 II. Ownership (As of 12/31/76): * ~~~~(DH'OOO) % Moroccan Goverrnent an4 Public Institution / 34, Noroccan Private Institutions 2, Moroccan Individuals 11, Foreign Financial Institutions 16, zpc , III. Resource Position (As of 12/31/76): DR millions Equity and Retained Earnings Government Loans 90.0 Bonds Other local borrowings 70.8 IBRD Loans Other foreign currency borrowings ,768.6 Outstanding Investnents 1,435.2 Available for Disbursements Undfsbursed Commitments Resource Gap at December 31, 1976 (167.8) IV. Bank Lgaus (Status as of December 31, 1976): Loan No. Date Signed Interest Amount Authorized Disbursed Outstanding Rate of for Loan Withdrawal at 12/31/76 (millions of U.S.$) 329-MOR Dec. 21, % NOR May 13, % MOR Nov. 14, % MOR March 6, % MOR Oct. 20, % MOR May 14, % MOR Dec / CDG holds about 10.4% of the share capital on a temporary basis pending placement of these shares which are to be subscribed by foreign investors. Government ownership would fall back to 38.2% following the placement of these shares.

28 V. IFC Investment Summary (As of September 30, 1976) Equity Date Approved (Cost in US$) No. of Shares No /20/62 1,495, ,000 Stock Dividends ,854 Sales (644,244) (66,213) Held at September 30, , ,641 Average cost per share Par value per share 50.0 Company's Book value per share (9/30/76) Market Price at January 14, US$ DH Total unrealized gain on shares held US$698,145 VI. Level of Operations ( DH million ) Approvals Commitments Disbursements VII. Profitability Indicators (X) Profits before tax and provisions to average equity Net Profits to: Year-end Share capital Average equity Dividends paid VIII. Financial Position Total Debt/Equity ratio 11.2:1 9.8:1 12.3:1 Term Debt/Equity (IBRD agreement) 7.1:1 5.1:1 6.3:1 Special Reserve for loan risks as % of Loan Portfolio EMENA IDF April 1977

29 ANNEX 1 M O R O C C O ACTUAL INVESTMENTS IN INDUSTRY AND TRANSPORT (DH million) Private Sector: Y Mines and Energy Petroleum Textiles Food Processing Mechanical Industries Chemical Industries TOTALS , , Transport , Growth Rates (Industry) +20.3% % - 8.2% Public Sector Industry2/ Total Investment (Industry) , , , / From provisional data. 2/ Excluding investments by Government owned agencies for which no data are available. Sources: BNDE's Economic Department; IMF (staff preliminary estimates) EMENA IDF April 1977

30 ANNEX 2 MOROCCO: Structure of Interest Rates (In per cent per year) Prior to Effective Effective July 1, 1974 July 1, 1974 July 1, 1975 Bank of Morocco Basic rediscount rate Coxmercial paper for exports 3) Advances to banks on six-month Treasury bills Special advances (with penalty) Medium-term paper Deposit Money banks Sight deposits Time deposits 1-24 months / f r e e f r e e Savings accounts (under DH 40,000) Sight deposits by Moroccan working abroad Rediscountable paper Nonrediscountable paper Medium-term credit (rediscountable) Treasury Six-month Treasury bills issued to the public Treasury bills subscribed by banks (6 months-5 years) Government bonds (15 years) Post Office Savings accounts / 3.502/ Specialized credit institutions CNCA Sight deposits Crop financing Medium-term loans CIH Five-year bonds Credit for hotel construction and furnishing 3/ Housing Construction 4/ BNDE Certificates of deposits (3-12 months) Fifteen-year bonds Medium- and long-term loans 5/ / No regulation over 60 months. 2/ Excluding a fidelity premium of 0.5 per cent. 3/ Excluding a government subsidy of up to 4.25 per cent; in 1976 interest rate raised to 11 per cent, subsidy to up to 6 por cent. Excluding a government subsidy of up to 2.75 per ceint raised to up to 4.00 per cent in 1975 for small housing. 5/ Excluding a government subsidy of 2 per cent. Source: Data provided by the Moroccan authorities. EMENA IDF April 1977

31 ANNE 3 KOROCCO BdNQ0E NATIONALED P01e1 Lt DeV7ES.SPDDIWT BCOSOHIQUB A. OROCCAN Sharobolders nd Omnrc.hir Structure (As of Doemeber 31, 1976) Actual 1974 Amount Percent Percent (Dirbhz) 1. Goverent and Public lnntiitulos GO.Ver t 23,902,350 Societe NatioDsle d'le,etiuseeent 1,541,200 Credit 1teobilirr et Hotelier 699,000 Coium eceeetoaie den 7trchrs 104,150 Bauqur do M-aoc 1,400 Came. do Depot et do GSution 7,B22,800 Goveeoeet beard mbers 10,000 34,580,90)( Frivate Moroccan Istlteeioee Culsue Iterpref...itenoli M-rar-ine dee Sotrutre- 313,600 Copepauir d'a..urecee et do Keaseuranc- s "Atlante" 4,100 La PaiY Africaiae 6,150 Lg Pretrid-eot Mareceife 24,600 Societe Marecaite d'asnsrasuen 11,750 Derirte Karteioe de Depot et de Credit 801,150 h'ltuall Cireitle M-eeni-r d'a..ura c-s 675,750 Omniun Mareteiut d'ltseutisretnt ,032, Iu4lviduaL bm-ec-as 11,968, Ttlal MIoeeran 48,501, B N,TONAL FIP0CE COtPO0ATION 5,260, C. PrOiRiG Cosrulud Oen t settee Ornque Starecaine pear le Coeeerre et licdauatce 785,350 Cspa.gie =.acuino de Credit et do Banqte 862,500 DbDque -arocaifo du Ceen,orce Beteroiore 937,450 Societe Goee-lo Mtarocatie de BOaques 666,400 nritieh Benk ef the Middle East 82,150 DUrio Buncaric otpuno-marrequi 288,250 Uoles KIheroin de Baaqueo 156,750 Societe Finnncirre et de Perticipetiens 49,800 Credit do Ma-C 509,630 Secoite do BOuque rt do Credit 82,200 Fondo r.ar.c.ic de Placeent ,920, F'reiuC, Cestrelled lsident 1-ra-ce Ceepusios CeoDpugoi M.r.ca-i- d'a.ueruoeu et dc Reausareeces El Wutani" 235,950 C gmpaoip d'a..arances "L'Ertette" 64,350 30O, FPruiro Fin-ncici Iostittti.ns Caisse Cstr-lc do Ceep-rrtio E-cos-eiqee 574,a50 Ceisso Noti 1nale des Marches de l'tat 205,300 Oooqar Satioonj.o do Perie h40,4uu Credit Ly-isal 308,000 1, Cer- Weetfalocback AG. 02,400 Dreadoer Bnk A4G. 245,650 Deatocbo BSak AG. 246,650 Co=crebank , Italian 1Setiteto MobiliSre Itali-o 342,750 Sacco NOtieoale del La-ere 342,500 Bauc- Coemeeciele Italiane Holding 341,700 1,026, UCited States Meoegs G-ceraty 8eteroatiol 021, Bank of Tokyo Ltd. 687,000 The Loeg Terr Credit cf Japan 6BB0000 1,375, Eotait K-Eit ISvoeteont Co. SAK 1,312, Seorceiao DEpertfi-a.s 275, Saudi Arabia Ceapegoie Ar-be d'invstisese-ts 1,500, Other Bznque Arobo et Ictrrnatielo d _nestleuesun e 1,510,00G Onion do Ounq-e Arobee et Peanedanes 1.460, TOTAL 70,000, % 100% EMNNA IDF April 1977

32 ANNEX 4 Page 1 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE BOARD AND EXECUTIVE COMMITTEE President (Chairman of the Board) * Mr. Mustapha Faris Vice-President * Banque du Maroc (Mr. Ahmed Bennani, Governor) Directors Moroccan Government and Semi-Public Agencies * Mr. Lahlou M'Fadel Managing Director Caisse de Depots et de Gestion * Mr. M'Hamed Tazi Mezalek Director Treasury and External Finance Division Ministry of Finance Mr. Abdel Aziz Benjelloun Director General Office du Developpement Industrial * Mr. Abdellatif Moumile Director of Industry Ministry of Industry Mr. Bensalem Guessous Managing Director Societe Nationale d' investissement Mr. El-Habib El-Fihri President Directeur Credit Immobilier et General Hotelier Mr. Mohamed Bijaad Director Plan and Regional Development Moroccan Individuals Mr. M'Hamed Jilali Benani Merchant Mr. Larbi Sakkat Private Textile Manufacturer Institutions resident in Morocco but foreign controlled * Mr. Mohamed Benkirane General Manager Banque Marocaine pour le Commerce et l'industrie

33 ANNEX 4 Page 2 International Finance Corporation * Mr. Habib Fawzi IFC Representative Foreign Banks Mr. Paul W. Fitzpatrick Vice President Morgan Guarantee Trust Company of New York Dr. Marcello Luri Deputy Director Banca Commerciale Italiana Mr. Urich Orth Deputy Director Dtesdner Bank Mr. Shiro Yamada Director General Bank of Tokyo Paris Mr. A.M. Mohamed Moussa Kuvait Investment Co. SAK Mr. Ives Truffert President Banque Arabe Internationale d'investissement Mr. Bernard Thiolon Director General Union des Banques Arabes et Francaises Government Commissaire (not a Board Member) ** Mr. Lotfallah Cheggour Chief Service of the Treasury Ministry of Finance * Member of the Executive Committee (established on May 31, 1968) ** Member, without a vote, of the Executive Committee EMENA IDF April 1977

34 BANQUE NATICNALE POUR LE DEVELOPPEiIENT ECONOMIQUE Organization Chart As of December 31, 1976 BOARDi OF DIRECTORS Pre:dent: Mustapha Faris. Managing Director Mustapha Faris Deputy Managing Director A. Sefrioui Deputy Managing Director M. Mansouri al, Administrative Finance Deparent ror re Follow-Up Econnic Dept. tudies { M. Rhoulami Rea-osD~prretDprmn Me roc Vacant)&EutInemns A. ImagriVaatABekzzMDeer internal Control & Accounting Division Promotion & Studies Economic & Market Technical Appraisals Project Appraisals Administration (4) (5) (2) Studies ( 7 )(7) (9) Legal Affairs Division Management of Funds External Relations Statistics Division Technical Follow-Up Equity investments (3) (2) (11 (2) (2) (3) Follow-Up Division (5).Professionals NOTL Numben under each Division Indicate numbers of profaisional ENM IDF April 1977 Management 7 42 Jr. Professionals 11 Clerks 10 and junor professional staff ir. er,ch Division Support staff Worid Bark -9210

35 MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Investment Approvals Under Morocco Investment Codes 1/ (DH Million) (July) No. of Employment No. of Employment No. of Employment No. of Employment Projects Amounts Creation Projects Amounts Creation Projects Amounts Creation Projects Amounts Creation Sectors Manufacturing N.A , , , ,915 Mining , Fishing ,548 NA NA Shipping Tourism , ,680 Artisans , , Total 183 1, , , , , ,870 Subsectors MANUFACTURING Electro-Mech ,594 Chemical-Const , ,498 Textile-Leather , ,157 NA Agro-Food Prod. _ , ,830 _ Total N.A , , , ,915 - =. = = - 1/ Details not available for 1973 and EMENA IDF April 1977

36 ANNEX 7 MOROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Analysis of Investments Approved (DH '000) Tvpe of Investment No. Amount Ng. Amount No. Amount No. Amount No. Amount EE Aon Direct long-term loans , , , , ,603,002 Direct medium-term loans , , , , ,695 rndirect loans , , , , ,556 Equitv Investments 54 55, , , , ,055 Guarantees Total 1,116 1,746, , ,041, ,078, ,750,308 Total Investment Cost of Proects 226 1,795, ,372, ,236, ,404,494 Term of Direct Loans Up to 3 years 13 7, , ,500 4 to Syears , , , , ,145 6 to 8 years , , , , ,200 9 to 12 years , , , , ,352 Over 12 years , , , , ,500 Size of Direct Loans Total , , , , ,866,697 Below DH 0.75 million , , ,250 DH million , , , , ,272 DH 5-10 million , , , , ,895 Above DH 10 million , , , , ,306,280 Purpose of Investment Total , , , , ,866,697 New Enterprises , , , , ,359,948 Extension , , , , ,390,360 Ownership of Roterprise Total 1,116 1,746, , ,041, ,078, ,750,308 Financed Majority public , , , , ,508,742 Majority private 1,062 1, , , , Total 1,116 1,746, , ,041, ,078, ,750,308 Nationality of Recipient Predominantly Moroccan 794 1,089, , ,021, ,063, ,669,730 Predominantly Foreign , , , ,578 Geographical Distribution Total 1,116 1,746, , ,041, ,078, ,750,308 Casablanca/Mohammedia , , , , ,615,465 Rabat , , , , ,418 Meknes , , , ,E ,522 Fes , , , ,268 Tetouan 33 37, , , , ,680 Tanger 73 68, , , , ,830 Eastern Morocco 28 93, , Tadla 14 98, ,071-3 _ 70, , Marrakech 41 41, , , , ,562 Agadir 73 71, , ,883 No specific locations , , _ , , , ,26 Sector Total 1,116 1,746, , ,041, ,078, ,750,308 Power and Mining , , , , ,100 Petroleum and Derivatives , , , , ,800 Textiles , , , , ,062 Food and Beverages , , , , ,902 Fishing , ,230 Mechanical industry 55 54, , , ,127 Chemical industry 47 91, , , , ,376 Agriculture 27 13, , ,162 Transportation , , , , ,002 Tourism 37 73,005-4 Miscellaneous , , ,499 1/ / , ,587 Total 1,116 1,746, , ,041, ,078, ,750,308 1/ Including DH million and DH 87.7 million for cement projects, respectively. EMENA IDF April 1977

37 MOROCCO - BANQUE NATIONALE POUR LE DEVEIOPPEMENT WCONOK11QUE Loan 890-MOR - Analysis of Projects Financed (DH 'ooo) FOREIGN PROTECTION RATES SALE PROJECT EXCHANGE Nominal Effective BNDE IMPORT ESTIMATE Local Exportation PROJECT SECTOR COST COST BNDE LOANSV/ W ( FINANCING No.of Jobs (%L (%) MOULITEX IV TEXTILES 9,400 6,522 5, , M. LEASING XII LEASING 7,358-3, n.a. - - MAFER NARITIME TRANS. 14,800 12,000 7, , COMANAV III MARITIME TRANS. 37,380 37,250 12, , SPONTIS TEXTILE 5,767 3,380 3, , MANUFACTURE FES TEXTILE 15,500 8,721 10, , GAZAFRIC GAS 6,748 3,689 2,500 2, LUXATRONIC TEXTILE 7,017 3,789 3, , _ GOOD YEAR TIRES 85,000 30,930 25, , _ TEXTIS TEXTILE 10,500 5,358 4, , _ BLITA III TEXTILE 8,200 6,508 5, , SMJBC CHfEMCAL 14,600 4,o96 4, , N. LEASING XIII LEASING 15,370 10,000 n.a. SMM. DAVUM MECRANICAL 2, DIMATIT I BUILDING MATERUIS 6,276 2,550 2, ,000 4h INTER COMMERCE TANGEROIS TEXTILE 1,800 1, ICOMA TEXTILE 9,457 5,850 2, ,000 n.a FRUSUMA VII FOOD 1, FILTEX III TEXTILE 2,650 2,066 1, , ORBONOR X TEXTILE 3,40 2,786 2, ,000 n.a LAFARGE MAROC CEMENT 46,489 29,078 7, , to BROC TEXTILE 5,035 3,000 2, , FILATIS III TEXTILE 11,750 8,178 4, , TOTALS 328, , , ,618 2,401 1/ Direct loans only excluding DH 23.7 million rediscountable medium term loans. EMENA IDF April 1977

38 MROCCO - BANQUE NATIONALE POUR LE DEVELOPPEMEBT ECONOMIQUE ANNX9 Loan 1061-MOR - Analysis of Projects (DH 000) Financed FOREIGN PROTECTION RATES SALES PROJEDT EXCHANGE Nominal Effective BNDE IMPORT ESTIMATE Local Ecportation PROJECT SECTOR COST COST BNDE WDARN 1/ () % FINANCING No.of Jobs (%) (S) MAROC LEASING II / LEASING 19,000-15, _ n.a. ASMAR 2/ CEMEST 167,030 74,291 87, , IDEALE IV PRINT 2, , STAM IV AGRICULTURE 5,904 3,314 2, ,000 n.a BERLIET-hARoC TV MECHANICAL 14,469 6,206 4, , SOFRUMA MARITIME TRANS. 14,200 14,160 5, , CIMENTS D'AGADIR -' CEMENT 16,646 9,948 8,ooo , ioo - BRASSERIE3 DU MAROC FOOD 29,060 6,671 12, ,671 n.a DELATTRE MECHANICAL 15,110 6,605 6,ooo - - 6,0oo 153 ioo - CEMEMTOS TANGER CEMENT 32,779 18,944 12, , BASALTES MAROCAINS MINES 4,863 2,966 4, ,966 n.a BLANCATEX TEXTILE 6,579 4,228 3, , SOMrA OOD 7,553 2,387 1, , So PPM FOOD 6,078 1,170 1, , ICPA FOD 2, , DIMATIT II BUILDING MATERIALS 8,444 4,635 3, , COVEM FOOD 3, , SAMTETEX TEXTILE 7,760 4,097 2, , SONAPPE TEXTILE 2, , o GAIILARD-MAROG PRINT 4,693 2,614 2, , AROMAROC CHEMICAL 4,469 1,189 1, , SNAP FISNING 4,024 3,600 2, , ISSKLMANE FISHING 7,300 6,360 2, , MANIC SCIA GARMENT 6,18o 904 2, FILCO TEXTILE 6,702 3,393 2, , HABROC II TEXTILE 3,750 2,742 1, o HOECHST MAROC CHEMICAL 7,077 4,102 2, , _ SICOME TEXTILE 8,430 1,678 3, , _ SMA II CHEMICAL 15,346 8,929 3, , _ ORBONOR XI TEXTILE 4,669 3,343 2, , _ CERAMICAS DEL LLD3 BRICK 5,500 1,380 2, , _ NOUR IFRIQUIA ELECTRICAL 4,840 2,816 1, , _ BRIOUETESIE DU DETROIT BRICK 7,250 2,416 2, , _ KEOHREB TLrBES METAL 3,448 1,405 1, , CRONOPAL PLASTIFORM PLASTIC 3,956 1,853 1, ,000 la 100 _ EUJRAFRICA TEXTILES TEXTILE 2,810 1,118 1, , _ FILCROC IX TEXTILE 6,825 4,897 3, , _ yma VI NIIHANICAL 3,736 1,503 1, , _ CITRAM CONTRACTOR 4,495 1,208 1, , SEFITA IV TEXTILE 2,966 1,544 1, , _ ATLAS INDUSTRIES F0OD 7,700 3,060 3, , _ METAUX LEOERS MECHMANICAL 7,914 5,095 2,600 _ - 2, _ MAGHREBINE WOOD 13,100 8,232 3, ,6oo TOTALS 513, , , ,218 2,288 2/ Direct loans only excluding DH 54.5 million rediscountable medium term loans. 2 Financial Company. Estimated job creation not available but probably high (small-scale projects). I' EER: 27% I/ lerr: 50% EMENA IDF Atril 1977

39 ANNEX 10 Page 1 MOROCCO BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Resource Position as of December, 31, 1976 DH'000 A. EQUITY AND RETAINED EARNINGS 128,588 Share Capital 70,000 Reserves and Provisions 58,588 B. LOCAL CURRENCY BORROWINGS (page 2) 417,486 Government Loans 90,000 Local Bond Issues 256,736 Local Borrowings 70,750 C. FOREIGN CURRENCY BORROWINGS (page 2) 1,222,551 IBRD Loans 300,516 Other Foreign Loans 922,035 TOTAL OUTSTANDING RESOURCES: 1,768,625 Less: Uses of Funds 1,435,195 Loan Portfolio Outstanding 1,340,082 Equity Portfolio 84,031 Fixed and Other Assets 11,082 AVAILABLE FOR DISBURSEMENTS 333,430 UNDISBURSED COMMITMENTS (loan & equity) 501,243 RESOURCE GAP (167,813) EMENA IDF April 1977

40 MOROCCO ANNEX 10 Page 2 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Long-Term Borrowings Outstanding at December 31,1976 A. LOCAL CURRENCY BORROWINGS Government Loans Interest Amount (DH '000) Rate % Contracted Repayment 1st Loan 20, nd " 10, rd " 10, th " 50, ,000 Local Bond Issues 6V Bonds 1,o % IT % it 13, it" 14, lt% It 15, s It 17, % it 60, s it 93, ,736 Local Borrowings CDG I 50, CDG II 20, Short-term cashiers bonds , 750 TOTAL LOCAL CURRENCY BORROWINGS: 417,486 B. FOREIGN CURRENCY LOANS IBRD Loans 329-MOR 8, MOR 8, MOR 25, , moR 4, MOR 59, MoR 64, MOR Other Foreign Borrowings 300,516 USAID 8, Kuwait I 7, o tl II 33, o " III 85,ooo 6.5o+o AfDB I 21, I II 16, BNP I 3, BNP-BFCE 70, BNP II 272, years Eksport Finans 30, Abu Dhabi 76,ooo 5+0o int. Bond Issue (BAII) 116, Euro-dollar loans 180_348 Variable (LIBOR) ,035 TOTAL FOREIGN BORROWINGS: 1,222,551 EMENA IDF April 1977

41 ANNEX 11 MOROCCO: BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Audited Income Statements V INCOME December (Unaudited) Interest and Commissions on Direct Loans 29,467 39,050 63, ,494 Rediscounted Loans 1,749 1,954 2,507 3,396 Dividends and Capital Gains 2,715 2,828 3,075 3,512 Guarantee Fees and Other Income 1, ,503 1,866 Gross Income 35,175 44,690 70, ,268 EXPENSES Charges on Borrowings 19,813 26,497 43,936 74,036 Personnel Costs and Salaries 3,561 4,271 5,145 6,996 Other Administrative Expenses 1,024 1,880 1,975 2,040 Depreciation + Amortization ,796 2,258 Provision for Losses on Equity Investments ,000 Total Expenses 26,308 33,982 53,352 88,330 PROFITS BEFORE TAXES 8,867 10,708 17,513 22,938 Less:-Allocation to Special Reserve for Loan Risk 3,913 5,245 6,769 10,881 -Provision for Rediscounted Loans Other Deductions 2,120 2,201 2,379 - TAXABLE PROFITS 2,742 3,135 8,119 11,714 Income Tax 1,265 1,448 3,853 4,498 NET PROFITS 3,597 3,888 6,645 7,216 APPROPRIATION Legal Reserves ,082 Dividends 2,592 2,592 4,096 5,600 Unallocated , ,597 3,888 6,645 7,216 1/ See footnotes to Projected Income Statements (Annex 19). 2/ Including other deductions. EMENA IDF April 1977

42 MOROCCO: BANQUE NATIONALE POUR LE DEVELOPPEMENT EIONOPIQUE Audited Cash-flow Statements (DH rooo) December T6 SOURCES (Unaudited) Internal Sources: Net Cash generation 9,488 10,593 15,944 24,341 Loan collections 55,356 63,787 73,569 8I,223 Increase in current liabilities 21 16,347 7,148 24,760 Increase 19,978 in share capital ,512 _ Increase in term debts 84, , ,504 Increase 311,173 in short-term borrowings 9,900 38, ,549 Sales of assets _ APPLICATIONS Total Resources 175, , , ,264 Disbursements Loans 2/ 120, ,912 h53, ,877 Bluity investmnents- 7,468 5,530 11,830 13,947 Debt Repayment 38,237 86,9)43 142,9361/ 76,438 Fixed and Other Assets ,9o5 4,249 Increase in current assets/ 6,770 12,825 17,559 25,606 Dividends 2,592 2,592 _ 4,147 Write-offs and Other Investments 26 - _ 2,000 4/ Total Applications: 175,3)43 308, , ,264 1/ Exccluding short-term portions of debts and loans. 2/ Including equipment bonds. 3/ Including DH 56 million in short-term borrowings. 7 Subscription to National Bond Issue. Debt Service Ratio 1.5;1 0.9:1 0.7:1 1.2:1 EMENA IDF April 1977

43 ANNEX 13 MOROCCOf: BANQUE NATIONALE POU1R 1E vdeveloppement UJONOIEQUE Audited Balance Sheets 1973 t. 76 (DlH 'D0D) ASSETS December Current Assets Cash 19,277 28,201 35,724 45,198 Current maturities of loans 76, , , ,796 Receivables and other current assets 22,873 26,775 36,812 55,303 Total current assets 119, , , ,297 Investment Portfolio Loans outstanding 393, , ,705 1,340,082 Less: Current maturities (76,888) (108,174) (137,047) (145,796) : Provisions for losses (2,832) (10,700) (12,000) (12,000) Equity investments 54,524 59,877 71,506 84,031 Less: Provisions for losses (3,160) (4,798) (5,298) (6,595) Debentures and Government Bonds 1,286 1,463 1,664 4,199 Net Portfolio 365, , ,530 1,263,921 Fixed Assets (net) 3,700 3,594 3,500 4,438 Deferred Charges (net) 428 1,436 5,591 6,644 TOTAL ASSETS 489, ,oo4 1,046,204 1,521,300 LIABILITIES & EQUITY Current Liabilities Short-term borrowings 19,170 57,660 1, ,549 Current maturities of long-term debt 80,211 68,435 73, ,676 Dividends and taxes payable 3,856 4,040 7,950 11,200 Accounts payable and other 26,682 33,846 54, Total current liabilities 129, , , ,841 Long-term Debt EQUITY Government loans 40,000 40,000 90,000 90,000 CDG loans ,000 70,000 Local bond issues ,736 Sub-total 100, , ,59 415,736 IBRD 232, , , ,028 International bond issues , ,297 Kuwait Fond 8,028 10,465 42,480 67,245 USAID 8,980 8,731 8,731 8,467 BNP 4,238 6,417 5,650 3,708 BNP/BFCE - 9,448 52,337 67,546 AfDB - 14,657 17,124 Abu Dhabi Fund BAII Euro-dollar loans ,348 Sub-total 254, , , ,763 Exchange gain due to Government 29,541 30, , , , ,391-1,115,800 Less: Current maturities (80,211) (68,435) (73,483) (107,676) 304, , , Share capital 32,400 32,400 70,000 70,000 Legal reserves 1,830 2,262 2,787 3,869 Special reserves for loan risks 18,278 15,783 19,023 30,246 Unappropriated earnings 2,353 2,180 2,250 2,784 Share capital premium - 3,436 3,436 54,861 52,625 97, ,335 TOTAL LIABILITY + EqITY 489, ,004 1,046,204 1,521,300 1/ Unaudited. EMENA IDF April 1977

44 ANNEX 14 BANQUE NATIONALE POUR LE DEVELOPPEMENT ECONOMIQUE Analysis of Financial Data Profitability Indicators / Net Profit as % of average net worth Profits before tax 1/as % of average net worth Cash Dividend as % of net profit Cash Dividend as % of par value share 8% 8% 8% 8% Book value of share as % of par value share Operational Income Gross Income as % of average total assets Administrative expenses as % of average total assets Financial expenses as % of average total assets Administrative expenses/no. of professional staff (US$ '000) Dividends as % of average equity portfolio Income from loans as % of average loan portfolio Volume of Approvals/No. of professional staff (US$ '000) 1, , , ,385.0 Cost of Debt as % of average debt Year end professional staff Financial Structure Indicators Total Debt/Year-end net worth Long-term Debt/Year-end net worth IBRD Debt as % of total long-term debt Debt/Equity (IBRD Agreement)2/ Provisions for losses on equity investments as % of equity portfolio Provisions for losses on loans as % of loans outstanding Special Reserve for Loan Risks as % of loan portfolio Interest coverage ratio / Before allocation to Special Reservesfor loan risks and for rediscounted loans. 2/ Limited to maximum 7:1 and equity including DH 63.5 million in quasi equity (Seventh Loan Agreement 1061-MOR). 3/ From unaudited statements. EMENA IDF April 1977

45 ANNEX 15 Page 1 MOROCCO BNDE - SMALL SCALE INDUSTRY COMPONENT A. Current Situation 1. SSI accounted for 75% of total industrial employment and over 40% of industrial value added according to the 1969 industrial census. Mlore recent statistical information is not available on a national scale, but an indication of the growing importance of SSI, and of their distribution by subsector, is provided by a 1975 survey of industrial activities. The importance of SSI in the context of Morocco's industrial development is beginning to be recognized, not only because of their employment creation potential, but also because they are called upon to play an essential role in complementing the industrial activities undertaken by the larger plants. 2 A generally valid and accepted definition of SSI has not yet been established in Morocco, but the Ministry of Commerce and Industry, the Central Bank and the banking sector in general, have agreed on five criteria for SSI: (i) employment of at least 10, but normally less than 50 persons; (ii) investment per job exceeds DH 5,000 (no upper ceiling); (iii) investment of at least DH 100,000 in production equipment; (iv) annual turnover not exceeding DH 7.5 million (was DH 3.0 million up to 1/1/77); and (v) total gross assets not exceeding DH 5.0 million (was DH 2.0 million up to 1/1/77). Credit is limited to DH 1 million per project. The above definitions seem to exceed somewhat the definitions tentatively recognized as applying to SSI in the Bank. Nevertheless, for the purpose of this pilot project, the Moroccan definitions are being accepted, however with an upper ceiling on the investment cost of DH 25,000 per job in order to focus on employment. 3. In spite of emerging industrial regionalization, Casablanca remains the country's economic heart and its industry largely dominates that of the other regions. Casablanca's industrial sector comprises 1,775 registered individual enterprises employing more than 5 people. Its sectorial distribution among the major manufacturing sectors is as follows: 1/ 1/ Source: "Repertoire des etablissements avec 5 et plus employes: industrie, commerce, services" Dir. de la Statistique - Secretariat d'etat au Plan

46 ANNEX 15 Page 2 Sector No. of Est Food products Textiles Metal products Leather products Wood processing Construction materials Vehicles Electrical products Chemical products Rubber products Misc. products Total 1, Percentage As shown in the table, almost half of the enterprises belong to the handicraft sector (they provide less than 10 jobs each), 38% are SSIs. The remaining 15% account for medium- or large-scale units employing more than 50 persons. The most important industries in the SSI range are textiles, metal products, food, wood products and leather. 4. The distribution of SSIs in other major urban centers is similar to that found in Casablanca. The SSI's role may be even stronger than suggested by the available figures, because they deal with registered enterprises only and are not always accurate 1/. Promotion 5. Promotional activities are still at a very early stage. The government is only beginning to address its assistance to SSI, and institutions lack competent personnel. The Ministry of Commerce and Industry is responsible for SSI promotion, but due to the lack of staff, the support to SSI by the Ministry's four technical divisions has been rather limited so far. ODI is the Government office for industrial promotion to stimulate investment through studies and participation. Until now, ODI has focussed its activities on medium, or, even more so, on large industries. At present, there are no specific action programs to promote SSI within ODI. Since the distinction between handicrafts and SSI is not sharp, it can be said that the two handicraft institutions: the "Direction de l'artisanat" and the "Entraide Nationale", provide some assistance to SSIs: there are ambitious programs in technical and marketing support, as well as in manpower training. The direct benefit for SSI itself, however, is generally regarded as negligible. Reasons for this are the lack of a well defined program, staff, financial resources, and of clearly identified action procedures. 1/ Real employment figures, for instance, seem to be higher than those shown. This means that a large number of enterprises counted as handicrafts should be among SSI.

47 ANNEX 15 Page 3 Financing 6. A coherent system has been operating since 1973 (although many SSIs seem to be still unaware of its possibilities), following the creation of an accelerated procedure for medium-term credit rediscountable to the Central Bank. It applies specifically to SSIs, as defined in para. 2. Maximum credit is DH 1,000,000 and 30% equity financing is required. Each credit proposal is to be approved by a Restricted Committee formed by BNDE, the Ministry of Finance, and the Central Bank, and the rediscounting request is automatically processed by the Central Bank after approval by the committee. The Central Bank requires commercial banks to allocate 4.5% of their deposits to such medium term credits. These credits, for durations between 2 and 5 years, are to finance productive equipment of the enterprises in the industrial, commercial and transport sectors. Procedures have been simplified and streamlined considerably. The appraisal of the projects is initiated by the commercial banks, following a standard procedure prepared by BNDE. 7. Total SSI credits granted jumped for DH 5.6 million in 1973 to DH 27.5 million in BNDE and the commercial banks feel that a tangible promotion effort could raise these amounts sharply, although the condition that about 30% of the project cost be financed by the investor itself seems to be an obstacle for many SSI. Government and banking sources believe, and this seems to be confirmed by available statistics on investments, that only between 10 and 20% of SSI's investments have been financed through the Restricted Committee. The main explanation for this situation is the importance of short-term rollover credit extended by commercial banks to finance SSI investments, estimated to have financed more than 50% of total SSI investments during the last years. 8. Casablanca alone has taken almost 40% of total credits granted by the Restricted Committee followed by Fes (10%). The two leading industrial activities financed have been food products and textiles. BCP has been the most active bank, financing alone 45% of the total credits granted through the Committee since Non-rediscountable medium-term credits do not appear to be a major source of SSI financing. The commercial banks, with the only probable exception of BCP, have preferred to limit their role to the use of rediscounting facilities. BNDE's long-term credit lending to SSIs has been negligible. Leasing, which presented some interest to SSIs when it appeared in Morocco in the early '60s, has been of decreasing importance for SSIs, probably due to high interest charges on leasing operations. Equipment credits for durations of between 12 and 24 months can be provided for the purchase of equipment, mostly by BCP; most of them go to the enterprises in public works, and few SSIs seem to have made use of them. BCP was recently granted the possibility to act as the rediscounting institution to finance investments below DH 1.5 million for enterprises in the fishing sector.