World Bank Documentdocuments.worldbank.org/curated/en/249961468056651166/pdf/multi...IDBI - Industrial Development Bank of India IFA - International Financing Agencies ... PREFACE

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Rqpt No. 10207

PROJECT COMPLETION REPORT

MAURITIUS

FIFTH AND SIXTH DEVELOPMENT BANK OF MAURITIUS PROJECTS(LOANS 1789-MAS AND 2164-MAS)

DECEMBER 27, 1991

Africa RegionEast Africa DepartmentIndustry and Energy Operations

This document bas a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVAIENTS

Unit - Mauritian Rupee (Re)

Time of Appraisal/Supervision Reports USS1.00

February 1979 Rs .14November 1979 6.14December 1979 7.77May 1980 7.77April 1981 8.25September 1981 8.50October 1981 10.00June 1983 11.00June 1984 13.00May 1985 15.95June 1986 13.18

ACRONYMS

ADB - African Development BankBank - World BankCCCE - Caisse Centrale de Cooperation EconomiqueDBM - Development Bank of MauritiusDFC - Development Finance CompanyECGS - Export Credit Guarantee SchemeECIS - Export Credit Insurance SchemeEIB - European Investment BankEPZ - Export Processing ZoneGOM - Government of MauritiusIDBI - Industrial Development Bank of IndiaIFA - International Financing AgenciesMCB - Mauritian Commercial BanksMCB-RS - Mauritian Commercial Banks Refinancing SchemesMLE - Medium/Large-Scale EnterprisesSAL - Structural Adjustment LoanSSE - Artisan/Small-Scale EnterprisesUSA::D - United States Agency for International Development

FISCAL YEAR

July 1 - June 30

FOR OFFICIAL USE ONLYTHE WORLD SANK

W"hington, D.C. 20433U.SA.

Office of Director4.en.raOperations Evaluation

December 27, 1991

HEHORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT

SUBJECT: Project Completion Report on Mauritius - Fifth andSixth Development Bank of Mauritius Projects

(Loans 1789-HAS and 2164-MAS)

Attached, for information, is a copy of a report entitled "ProjectCompletion Report on Mauritius - Fifth and Sixth Development Bank of MauritiusProjects (Loans 1789-MAS and 2164-MAS)" prepared by the Africa Regional Office.No audit of this project has been made by the Operations Evaluation Departmentat this time.

Attachment

Thbh document bhs a restricted distribution and my be used by recipients only in the peionrance of their okIia duties|Its cntents may not otherwise be disclosed without World Bank authorEtton.

FOR OFFICIAL USE ONLYPROJECT COMPLETION REPORT

MAURITIUS

FIFTH AND SIXTH DEVELOPMENT BANK OF MAUXITIUS PROJECTS(LOANS 1789-MAS AND 2164-MAS)

TABLE OF CONTENTS

Page No.

PREFACE .. . . . . . . . . . . . . . . . .EVALUATION SUMMARY.. . . . . . . . . . . . . . .iii

PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE . . . . . . 1

I. Projects' Identity . . 1 . . . . . . . . . . . . . . . .II. Background . . . . . . . . . . . . . . . . . . . . . . .

III. Linkages Between Projects' Sector and Macro PolicyObjectives . . . ... 2

IV. Projects' Objectives and Description . 2V. Projects' Preparation, Appraisal and Negotiations . . . 3VI. Projects' Implementation . . . . . . . . . . . . . . . . 4VII. Projects' Results . . . . . . . . . . . . . 5VIII. Projects' Sustainability . . . . . . . . . . . . . . . . 6IX. Bank Performance . . . . . . . . . . . . . . . . . . . . 7X. Borrower Performance . . . . . .. .8

XI. Lessons Learned . . . . . . . . . . . . . . . . . . . . 8XII. Comments on the Government's Part II . . . . . . . . . . 8XIII. Projects' Documentation and Data . . . . . . . . . . . . 9

PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE . . . 10

A. The Adequacy and Accuracy of the Factual Informationin Part III cf the Project Completion Report . . . . . . 10

B. Comment on Analysis Contained in Part I . . . . . . . . 10C. The Bank's Performance during the Evolution and

Implementation of the Project, with SpecialEmphasis on Lessons Learnt that may be relevantto the Future . . . . . . . . . . . . . . . . . . . . . 11

D. The Borrower's own Performance during the Evolutionand Implementation with Special Emphasis onLessons Learnt that may be Relevant to the Future . . . 11

E. The Effectiveness of the Relationship Between theBank and the Borrower during the Evolutionand Implementation of the Project . . . . . . . . . . . 12

F. The Performance of Co-Financiers and the Effectivenessof their Relationship with the Borrower duringthe Evolution and Implementation of the Project . . . . 12Annexure 1 .. 15Annexure 2 .. 16Annexure 3 . . . . . . . . . . . . . . . . 17

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

TABLFE OF CONTEIITS (cont'd.)

Paae No.

PART III: STATISTICAL INFORMATION . .. . . .v. .v 18

1. Related Bank Loans and/or Credits . . . . . . . . . . . 182. Project Timetable ..... .... .. ....... 19

Ao DBM V . . . . . . . . . . . . . . * . 19B. DBM VI . . . . . . . . .. * *. *. . *. . . .. .... . 21

3. Loan Disbursements . . . . . . . . .. . . . . . . . . . 234. Project Implementation . . . . . . . . . . . . . . 24

A. DBM V . . . . . . . . . . . . . . . . . . . . . . . 24B. DBM VI . .. 25

5. Projects' Cost and Financing .. .26

6. Project Results .. . . . . . .. , 27A. Approvals . . . . . . . . . .. . . . . . . . . . . 27

Disbursements . . . . . . . . . . . . . . 28B. Financial Position and Indicators . . . . . . . . . 29C. Study . . . . . ....... ... ....... . 30

7. Status of Covenants . . . . . . . . . . . . . . . . . 318. Use of Bank Resources . . . . . . . . . . . . . . . . . 34

A. Staff Inputs .. . ..... . . . . . . . . . . . . 34B. Missions.. . . . . ... 35

PROJECT COMPLETIO REPCRT

MAURITIUS

FIFTH AND SIXTH DEVELOPMENT BANK OF MAURITIUS PROJECTS(LOANS 1789-MAS AND 2164-MAS)

PREFACE

This Project Completion Report covers the Fifth and SixthDevelopment Bank of Mauritius Projects, which are herein revieved togethergiven that DBM VI was in effect a follow-up phase of DBM ', therebyconstituting one project. This was evidenced by the fact that no staffappraisal report was done for DBM VI, instead the appraisal report for DBMV was used as the basis for both loans. DBM V, in the amount of US$6.0million, was approved on December 27, 1979 and DBM VI, in the amount ofUS$6.0 million, was approved on June 1, 1982. DBM V was closed fouryears behind schedule and DBM VI was terminated and prepaid 6 months aheadof schedule. US$5.5 million was disbursed under DBM V, with lastdisbursement date, May 6, 1987. Under DBM VI, US$4.0 million wasdisbursed with last disbursement date, May 29, 1987.

TPhe PCR for the two projects was prepared by the Industry andEnergy Operations Divisio%n, Eastern Africa Department, of the AfricaRegional Office (Preface, Evaluation Summary, Parts I and III).

Preparation of this PCR was started in December, 1990 and isbased, inter alia, on the Staff Appraisal Reports; the Loan and GuaranteeAgreements; supervision reports; correspondence between the Bank and theBorrower; and internal Bank memoranda. The PCR was sent to the Borrowerfor its comments, and are incorporated as Part II.

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PROJECT COMPLETION REPORT

MAURITIUS

FIFTH AND SIXTH DEVELOPMENT BANK OF HALURITIUS PROJECTS(LOANS 1789-MAS AND 2164-MAS)

EVALUATION SUMMARY

Obi ectives

1. The macro-objective of the Fifth and Sixth DBM projects was tosupport the Government of Mauritius development plans to diversify the economy,reduce its dependence on sugar, achieve full employment through the creationof new industries, mustly in the export product/service sectors, and thedevelopment of the artisan/small-scale enterprise sector. The specificobjectives were twofold: 1) continue to provide foreign exchange financing tosupport DBM's lending programs, and 2) continue technical support andassistance in the development of DBM's internal operations (paras. 1-18).

Implementation

2. Under DBM V, all phases of the project processing and implementationwere executed on schedule except the period for disbursement (Part III-2A).The projected disbursement period was optimistic given the expected slowdownin the Mauritian economy. Also, the allocations to various components of theloan had to be modified given the failure of the Mauritian Commercial BankRefinancing Schemes (HCB-RS) and the initial slow pace of funding to the SmallScale Enterprises (SSE) (paras. 19-21; Part !II-4A&B, 6A).

3. Under DBM VI, all phases of project processing were executed onschedule up to loan effectiveness. Given the slow pace of draw-down underDBM V, the need for DBM VI was not evident at the time it was approved. Loanprocessing should have been postponed until DBM V was almost fully committed.Prior to committing the totality of available funds, DBM VI was terminated andprepaid because of the high foreign exchange risk cost associated with Bankfunds (para. 23; Part III-2B).

Results

4. DBM's performance vis-a-vis the projects under review was satisfac-tory. The on-lending operations resulted in 52 sub-projects with total fundingof US$5.5 million under DBM V and 50 sub-projects with total funding of US$4.0million under DBM VI being sanctioned. The aggregate was 102 sub-projects withtotal funding of US$9.5 million (paras. 24, 26, 27, 29). In the area ofinternal operations development, the projects achieved the following results:1) the development of a strategic plan including a project promotion program;2) a reorganization program; 3) improvements in DBM's follow-up procedures withcorresponding reductions in arrears; and 4) the creation of a foreign exchangehedging scheme (para. 25).

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Sustainabilitv

5. The project sustainability is reasonably assured for the followingreasons: 1) DBM is a long established government-sponsored institution withrelatively sound management and proven record; 2) DBM is the principal sourceof foreign exchange term-financing to the industrial and tourism sectors; 3)DBM has adequate access to financial resources from International FinancingAgencies (IFAs) and local sources; and 4) DBM's performance during theproject's period (1980-1986) showed total assets increased by 972, net profitincreased from Re. 7.8 million in 1980 to Rs. 16.3 million in 1986 andprovision to total portfolio r&tio was maintained at an average 4.3X(paras. 30-32; Part 111-6B).

Lessons of Experience

6. A few lessons may be drawn from the experience of these projects.First, the implementation procedures for new programs like the MCB-RS shouldbe worked out with all relevant parties at the initial stages of the projectprocess to assure commitment by 4mplementing agencies. Second, the foreignexchange risk implicit in borrowing Bank funds should be mitigated through somehedging mechanisms to the extent that the effective interest cost to the sub-borrower is reasonable. Third, the timetable for implementation of theseprojects should have been more conservative. Lastly, focused lending programslike the SSE scheme should be earmarked specific resources, and separated fromgeneral operations (paras. 40-43).

PROJECT COMPLETION REPORT

MAURITIUS

FIFTH AND SIXTH DEVELOPMENT BANK OF MAURITIUS PROJECTS(LOAN3 1789-MAS AND 2164-NAS)

PART I: PROJECT REVIEW FROM THE BANK'S PERSPECTIVE

I. PROJECTS' IDENTITY

Projects' Names : Fifth Development Bank Project (and)Sixth Development Ba.k Project

Loan Numbers 1789-MAS; 2164-MASRVP Unit AfricaCountry MauritiusSector IndustrySubsector Industrial Finance

II. BACKGROUND

1. Historically, the economy of Mauritius had been dependent on theproduction of sugar and its ancillary industries. During the 1970s/1980s, theGovernment of Mauritius targeted the diversification of the economy and fullemployment through new jobs creation, particularly for skilled and semi-skilledworkers, as the primary objectives of its development plans.

2. Emphasis was focused on the manufacturing sector by encouraging newindustries, mostly in export products/sez-Jices due to the saturation ofimport-substitution industries and the limited growth potential of the domesticmarket. The objectives were to be achieved by attracting private investmentsthrough a genercus package of incentives to investors, sett.Lng up of industrialestates and public investments in infrastructure for the benefit of themanufacturing sector. The GOM, also provided subsidized funding to theindigenous artisan/small-scale sector.

3. Notwithstanding the movement towards diversification, the sugar estatesector needed substantial investments for the improvement of crop yields,modernization of processing facilities and mechanization of harvestingiunctions.

4. Government also sought to develop the tourism sector as a source offoreign exchange and employment.

5. To achieve the -tbove objectives, the financial sector was beingstrengthened and expanded with the injection of new funds from internationaland bilateral financing agencies (including the Bank, ADB, USAID, CCCE, IDBI,etc.) and the creation of new institutions (e.g. Stat.e Finance Corporation) toprovide specialized financial services.

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III. LINKAGES BETWEEN PROJECTS' SECTOR AND MACRO POLICY OBJECTIVES

6. The Bank's lending program was designed to support the COM's objectiveof diversification to reduce the economy's dependence on sugar by developingnew export-oriented industries as tha most appropriate means of achieving fullemployment. The DBM was established by the Government in 1964 and reorganizedin 1970 with the Bank Group's assistance. It provides financing to medium andlarge-scale enterprises and for tcourism development and was identified by theBank was the primary vehicle to channel direct financing to the targetedsectors. Accordingly, beginning in 1972, the DBM received four loans from theBank totalling US$23.5 million equivalent for on-lending to industrial andtourism projects and an IDA credit of US$4 million equivalent to support theconstruction of an industrial estate. The DBM managed a scheme to providefinancing to artisans/small-scale industrial enterprirss and a program ofassistance to small agriculturalist. In line with the Government developmentstrategy, DBM was also expected to provide some financial assistance for themodernization and possibly mechanization of sugar estates.

7. DBM V and VI complemented the Bank's strategy of supporting thedevelopment of the country's infrastructure as an impetus to industrial growth.Other projects funded by the Bank included credits for improvements to the portand new facilities like the bulk sugar terminal and Structural Adjustment Loans(SALs). The Bank also lent support to the GOM's investment 4ncentives programwhich gave tax holidays and duty exemptions to import-substitution andexport-oriented enterprises, by providing financial assistance through DBM.The GOM also implemented a promotion program in Europe to attract foreigninvestors.

8. The Bank's loans to DBM helped make it the principal source ofterm-finance for the industrial and tourism sectors. DBN V introduced a schemefor DPM to refinance commercial banks' foreign exchange advances. The supportto the artisan/small-scale enterprises (SSE) sector, was enhanced and the GOMwas persuaded to reduce interest subsidy for this sector.

9. DES was also able to institute Export Credit Guarantee and ExportCredit Insurance Schemes to support Export Processing Zone (EPZ) factories andother export oriented enterprises.

IV. PROJECTS' OBJECTIVES AND DESCRIPTION

10. The DBM V's objectives were to assist DBM provide part of the termforeign exchange financing needed by medium and large-scale industrial,agro-industrial and tourism enterprise (via the commercial banks if appropri-ate), expand its financial and technical assistance to the artisan and small-scale sector, and continue financing the mechanization of the sugar estates toalleviate their harvesting problems. These objectives were in line with theGOM 5-year Development Plan to create new industrial and commercial employmentopportunities and diversity the economy away from sugar. Under DBM V, the Bankwas able to continue to provide technical support and assistance in thedevelopment of DBN's internal operations.

11. The general objective of DBM VI was to build on the six previous Bankprojects, which had strengthened DBM as a Development Bank. AT the same time,

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it was to rein;rce the A- Group efforts to assist development of industryand tourism in Mauritius, h was a major part of the Government's adjustmentprogram. It complemented ;he SAL approved in 1981. Specifically, the loan wasto provide DBM with untied _.reign exchange resources for 1982/83 and 1983/84,necessary for it to continue to play a meaningful role in the development ofthe Mauritian economy by financing in the above sectors. It also provided upto $300,000 to finance studies of the industrial and financial sectors.

12. DBM V, in the amount of US$6.0 million, was to assist DBM in financingdirectly or through Mauritian-owned Co-uercial Banks (MCBs), the foreignexchange component of loans and invastments in industry, agro-industry, andtourism. The loan was also to help cover the foreign exchange component ofartisan and small-scale enterprises investment needs. The allocations were:US$3.0 million for direct lending; US$2.0 million for lending through MCBs;and US$1.0 million for lending to SSEs.

13. DBM VI, also in the amount of US$6.0 million, had two main purposes:1) to finance studies of the industrial and financial sectors, to be carriedout by Government with the aid of consultants, intended to develop policies andinstitutional arrangements conducive to the growth of industrial production andexports; and 2) to assist DBM in financing the foreign exchange comporent ofloans and investments in industry, agro-industry and tourism, including theforeign exchange component of investment by small-scale enterprises.

14. Both lines of credit were granted on the Bank's standard terms fordevelopment finance institutions. Prior Bank approval was necessary for eachsubproject requiring Bank funds in excess of US$600,000. The aggregate freelimit for DBM's approval of sub-projects %'nder US$600,000 was set at US$3.0million under each project.

V. PROJECTS' PREPARATION. APPRAISAL AND NEGOTIATIONS

15. DBM V was first identified in the Bank,'s super7ision of DBM IV inre, ruary 1978. Issues raised in the project brief concerned the slow pace ofcc Tr._tment under the ongoing DBM IV project. The timing and amount of the newloan was subject to accelerating the commitment of DBM IV and DBM's need forfunds, taking into account the availability of funds from other IFAs. Theappraisal mission proposed a multi-program approach and made the projectconditional on GOM commitment to provide adequate local currency funds for DBMworking capital needs and to continue the split-risk sharing scheme on DBM'sforeign exchange borrowings.l/ DBM V was approved by the Board in December,1979, signed in January, 1980, and became effective three months later in April1980.

16. The issues raised in the DBM VI project brief centered on the need forDBM to re-examine its strategy for meeting its general developmental objective.Areas of concern included: 1) reorganization and staff improvements; 2)

1/ Foreign exchange risk sharing scheme:a) Loans to SSE - Foreign exchange risk carried by GOM;b) All other loans - Rupee to US$ risk carried by sub-borrower

and US$ to disbursed currencies risk carried by GOM.

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replacement of expatriate Mar.aging Director with a Nauritiang 3) the need tostrengthen its promotional activities; 4) the elimination or veduction ofintereet subsidies to SSEs; and 5) reduction in high level of arrears in DBMloan portfolio. The difficulties in implementing the MCB-RS unde,: DBN V wasdiscussed, and the problems identified included legal impediments regarding thecontractual arrangements between the DBM, the MCBs and the Central Bank. Alsoraised were concerns about the foreign exchange risk guarantee scheme with theparticipation of the Bank.

17. In view of the fact that policy issues were being addressed under theSAL lending and the absence of major institutional and project issues, the LoanCommittee decided to waive the yellow cover review. The amount of the loan wasto be based on the exp3cted funding to DBM from EIB and ADB taking into accountthe effects of the 9/8'. devaluation. There were some concerns regarding thecontinuation of the foreign exchange risk sharing scheme and the implicationsof the GOM's proposal to establistn the State Finance Corporation (SFC) tomobilize local resources to provide term loans to the industrial sector. Themain issue here was whether this would be complementary to DBN or competitive.

18. To address issues raised during negotiations: DBM agreed to preparean operation strategy statement and action plan, and to review the status ofDBM's expatriate Managing Director vis-a-vis a Mauritian Managing Director.The Bank agreed to increase the SSE qualifying ceiling from Rs. 25,000 to Rs.50,000, and to include in the loan, the amount of US$300,000 to employconsultants to carry out studies of the industrial and financial sectors. DBMVI was approved by the Board and signed in June 1982 and became effective inSeptember 1982.

VI. PROJECTS' IMPLEMENTATION

19. The most critical variance between planned and actual projectimplementation was in regards to the period for disbursement. At the projectedclosing date for DBM V only 38% of estimated disbursements had been made. ForDBM VI, 74% had been disbursed when DBM terminated the project and prepaid theoutstanding loan amount.

20. The other area of significant variance involved the allocations to thevarious components of the loans: Under DBM V, the entire allocation of US$2.0million for MCB-Rs. and US$0.5 million of the US$1.0 million allocation for theSSE component had to be reallocated to the Medium and Large-Scale Enterprises(MLEs) component.

21. The change in allocation is understandable given that both the MCB-Rs.and SSE programs were new and innovative; effectively constituting test-cases.However, the disbursement pattern could have been anticipated as both the Bankand DBM expected an economic slowdown. The Bank may have over-estimated theimpact of its SAL and infrastructure lending programs and the GOM's investmentincentives and promotional efforts by assuming an early reversal of theeconomic trend and a corresponding increase in sub-projects' commitments byDBM.

22. DBM was a long established and basically sound institution and the twoBank financed projects we.e the fifth and sixth in a series of industrial

on-lending loans from the Bank. Therefore, the Bank was in the position toanticipate and prepare for risks. Given the concerns about DBM's h±ghportfolio arrears and the slow pace of new sub-projects, DBM was required toformulate a new strategic development plan including an investment promotionprogram. Pressure was applied to recruit a new, preferably Mauritian CEO, andthe GOM was required to guarantee the availability of adequate local currencyresources for DBM's working capital needs. The foreign exchange risk wascovered under a sharing scheme, whereby, foreign exchange risk on loans to SSEswas carried by the GOM and on all other loans; the Rupee to US dollars risk wascarried by the sub-borrower and the US dollars to disbursed currencies wascarried by GOM.

23. Subsequent to the analysis of the initial project and after negotia-tions, the Mauritian Rupee underwent the first in a series of devaluations fromRs. 6.14 to US$1.00 in 1979 to Rs. 15.95 in 1985. While this should haveboosted the Mauritian export industries and tourism sector, the implicationsfor firms with foreign exchange obligations were disastrous. The sub-borrowersunder these projects were negatively affected. The foreign exchange lossesincurred and uncertainty as to future losses rendered the Bank's loanunattractive. The DBM responded by instituting a foreign exchange risk coverscheme and the GOM assumed most of the foreign exchange risk. However, theeasy availability of moderately priced local currency loans and ready accessto foreign exchange through the Central Bank coupled with cheaper funds fromother funding agencies; (CCCE, EIB, ADB and IDBI) made it advantageous for DBMto terminate and prepay DBM VI before completion date.

VII. PROJECTS' RESULTS

24. The results of the projects' on-lending operations were as follows:under DBM V, 52 sub-projects with total funding of US$5.5 million and under DBMVI , 50 sub-projects at US$4.0 million; an aggregate of 102 sub-projects atUS$9.5 million. Under the two projects US$2.5 million was canceled; US$0.5million under DBM V due to delays in commitment of funds and US$2.0 millionunder DBM VI due to cost of high foreign exchange risk associated with Bankfunds. The Bank's supervision reports did not review the performance of thesub-projects financed under the two lines of credit. However, a review ofDBM's Provisions to Total Portfolio ratio over the project's period (1980-1986)shows DBM maintaining a 4.0% (+/-) compared to the appraisal projects of 6.0%(+/-). DBM's actual net profits exceeded appraisal projections each yearduring the project's period, and its total assets increased from Rs. 395.4million in 1980 to Rs. 778.4 million in 1986 compared to projects of Rs. 569.3for 1986.

25. The realization of internal operations objectives achieved thefollowing results:

1) development of new strategic plan for DBM;2) re-organization program including staff strengthening;3) development of promotion program;4) substantial reduction in portfolio and rent arrears; and5) the creation of a foreign exchange hedging scheme.

26. The reallocation of funds under DBM V from the MCB-RS to DBM's normalMLE program involved no change of final beneficiaries, only a change in thelevels of intermediation. The SSE program, though slow under DBM V, showedexceptional results overall; DBM's disbursement to the sector over the projectsperiod totalled Rs. 119.1 million as compared to projections of Rs. 19.6million.

27. The ERR and IRR were not determined for the project, however, a reviewof operational results shows the actual figures nominally equal to theprojections for the initial three years (1980-1983) but exceeding projectionsunder each category over the full project period (SI-6 A&B). Most significant,DBM's resource base increased from Rs. 418.7 million at 6/79 to Rs. 567.0 at6.81 to Rs. 945.9 million at 3/86 (last supervision). Job creation in the maledominated SSE sector compensated for jobs creation in the EPZ sector, whichpredominantly employed women thereby, achieving some balance in thesocial/family structure.

28. DBM VI provided for studies of the industrial and financial sectors.A consultant was contracted to worK with the Mauritian Ministry of Econom4cPlanning and Development to undertake a study of trade and industry policy andimplementation, with the objective of formulating trade and industrializationpolicies that would foster more rational use of resources, spur economicgrowth, and generate higher levels of employment. The study was undertakenahead of schedule and at a lower cost than in the appraisal estimate.Subsequent supervision reports did not comment on the study's findings nor onthe status of its implementation. Given the long-term implications of policyimplementation, a proper assessment of the impact of the study was notrealistic at the time the project closed. Accordingly, no evaluation was madein the supervision reports.

29. Overall, the project assisted in sustaining DBM as a strong, viablelocal institution to serve as a catalyst for industrial development inMauritius.

VIII. PROJECTS' SUSTAINABILITY

30. DBM is a long established government-sponsored institution which hasbecome the principal source of term-finance to the industrial and tourismsectors and is closely linked to the GOM's macro-developmental objectives. TheBank and other international financing agencies (ADB, EIB, CCCE, IDBI, USAID,etc.) have identified DBM as the primary conduit of industrial developmentfunds to Mauritius which helps to ensure its long-term viability.

31. The principal factors affecting DBM's continued importance are:

1) availability of adequate financial resources;2) good management with well-trained professional

support staff; and3) an effective strategic plan with clear outlines of

specific programs.

The availability of resources seemed assured from the international financingagencies and local sources; GOM and local bond market. With the assistance of

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the Bank, DBM underwent a re-organization including staff strengthening and asa condition of Loan DBM VI, DBM developed a revised strategic plan which metthe approval of the Bank.

32. Risk factors of concern are the inherent tendency of DFCS to followthe business cycles of their targeted industries and the political risk ofgovernment interference with management. The first concern could be mitigatedby DBM diversifying its lending programs and spreading its commitments withinprograms. The second concern is politically sensitive given that DBM is ownledeffectively by the Government.

IX. BANK PERFORMANCE

33. The main strength of the Bank vis-a-vis the projects was its longworking relationship with DBM, in particular, and its experience with DFC linesof credit in general. Concurrently, the Bank was implementing several otherlending programs in Mauritius, including a SAL program, thereby complementingthe Bank's involvement int he project. Most important, the Bank was in theposition to significantly influence the DBM with regards to improvement in itsinternal operations through conditions in the loan agreement, recommendationsfrom the supervision missions, and interactions with DBM.

34. On the downside, it appeared that the structuring of the projects wasunduly influenced by the Bank's other programs, resulting in optimisticdisbursement schedules. Also, there was not adequate collaboration with theMCBs on the structuring of the refinancing scheme at the appraisal stage. Astrong negative was the foreign exchange risk inherent in borrowing Bank fundswhich rendered the cost of funds uncertain and, at worse, very expensive giventhe devaluating Mauritian Rupee. The foreign exchange losses to sub-borrowerson repayment were substantial. At the p int DBM VI was prepaid, the Bankcalculated the effective rate at 16 percent compared with the nominal fixedrate of 11.6 percent.

35. Project identification and preparation evolved from the Bank'scontinuing involvement with DBM, but was innovative in advancing the MCB-RS andSSE programs along with the traditional on-lending to MLEs. However, detailedimplementation programs should have been worked out at the initial stage.

36. The appraisal process was carried out in a timely fashion and waswithout major issues. The Bank, however, either underestimated the slowdownin the Mauritian economy or overestimated the impact of its SAL and otherprograms, and the impact of the GOM's investment promotion efforts, inprojecting the disbursement timetable.

37. As regards Bank supervision of the projects, recommendation by asupervision team for semi-annual missions was unheeded as this was consideredtoo frequent given the nature of the project and DBH's proven record. Thesupervision missions and attending reports were used effectively to stimulateimprovements in DBM's internal operations and to follow through on compliancewith loan covenants. They also facilitated the modification of the project byjustifying the reallocation of funds and extensions of closing date whenexpedient.

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X. BORROWER PERPORMANCE

38. The main strengths of the borrower were its long experience and proventrack record in industrial on-lending, excellent governmental support and readyaccess to multiple sources of funds, both foreign and local. initialweaknesses included; the lack of defined promotion program, weak follow-upfunctions, an expatriate senior management unwilling to tackle sensitiveissues, and policy dependence on the GOM even as regards staffing consider-ations.

39. The Borrower was active in the project preparation and cooperatedfully with the appraisal mission through project effectiveness. Implementationwas slow, mainly due to a general economic slow-down. The Borrower, however,undertook serious efforts to improve project promotion and project supervisionfunctions. The MCB-RS failed due to problems with implementation modalitiesand the foreign exchange risk implications. The SSE program was successfullyintroduced under DBM V and enhanced under DBM VI, with actual commitments tothe sector over the projected period being 5.. times greater than the appraisalprojections.

XI. LESSONS LEARNED

40. One of the lessons learned from the projects is that new programs likethe MCB-RS should be thoroughly vetted with parties who would be charged withits implementation and should only by incorporated in the project with theirknowledge and agreement. Active participation and agreement of the concernedinstitutions at the appraisal stage probably would have forestalled the failureof the MCB-RS.

41. Secondly, the foreign exchange risk implicit in borrowing Bank's fundsby projects in countries with rapid devaluing currencies, should only beundertaken if an appropriate foreign exchange risk scheme is in place.Alternately, the sub-borrowers should have the choice of assuming the exchangerisk or paying higher interest without the risk. The Borrower shouldrationalize its foreign borrowings in terms of both lending operations andprofitability, as evidenced by the early termination and prepayment of DBM VI.

42. Thirdly, estimate of credit needs and timetable for commitment of sub-projects and disbursement of funds under DBM V should have been more conserva-tive, particularly so given the trend under DBM IV and the anticipated economicslowdown. DBM VI was probably not needed at the time its was approved.

43. The fourth lesson is that focussed lending programs like the SSEscheme, are most effective when the necessary resources are specif.:allyallocated to the particular programs and not included in general operations.

XII. COMMENTS ON THE GOVERNMENT'S PART II

44. In general, there is broad concurrence between the Bank and GOM onproject performance. The Government's Part II elaborates on the Bank'sdiscussion (providing context and highlighting DBM successes and areas wherethe Bank's role was particularly constructive). There are some minordiscrepancies in the Bank's statistical tables (due to unavailability of data,

which has now been provided) and these have been corrected. Part I, para-graph 7 - The sentence beginning "other projects" refers to Bank lending to GOM(and not channeled through DBM). Part I, paragraph 9 - the word "industrialestates" has been deleted to correct a factual error.

XIII. PROJECTS' DOCUMENTATION AND DATA

45. Most of the data relevant to the preparation of the PCR is availablein the project files (though it is somewhat scantier in the last year), and theBank's resource input data is available in the MIS except for the costinginformation, which was not done on an individual project basis at the point theproject closed.

46. The supervision reports did not include information on the performanceof the sub-projects approved under DBM V and VI which is understandable giventhe fact that performance results are normally spread over a long period. Alsoin this particular case, a final supervision/project completion mission was notundertaken, given that the DBM VI was abruptly terminated and prepaid by DBM.

47. A useful practice would be for supervision reports to include a reviewof the required statistics as formatted in Part III of the PCR Guidelines.This would significantly reduce the time to prepare PCRs, and only nominallyincrease the time for supervision reports, given that the information would bepart of the working data of the supervision mission.

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PART II: PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE

Part II is the Development Bank of Mauritius' comments on Part I and III of theProject Completion Report.

A. The Adeauacv and Accuracy of the Factual Information in Part III of theProiect Comnletion Report,

We consider that the factual information contained in P;c III of thePCR as adequate. However, we have noted certain discrepancies on page 27, 28and 29, which deal with the Project Results - Forecast Operations compared toactuals -

(1) Approvals,(2) Disbursements, and(3) Financial Position and Indicators.

We have accordingly appended the revised pages 27, 28 and 29 asAxnnexures I, II and III.

B. Comment on Analysis Contained in Part I.

We broadly concur with the contents and views expressed in thebackground of the report.

However, in paragraph 7, under the heading "Linkages between ProjectsSector and Macro Policy Objectives", we must point out that projects funded bythe World Bank such as improvements to the port and new facilities like theBulk Sugar Terminal and Structural Adjustment Loans (SALs) were not channeledthrough the DBM. They were direct lending to the Government of Mauritius.

Regarding setting up of Export Credit Guarantee and Export CreditInsurance Schemes of DBM mentioned in paragraph 9, while not denying thepositive role of the World Bank all along, we would like to state that thesetwo schemes were introduced by DBM without the involvement of any outsideforeign agencies. It must be also mentioned that the above schemes coveredexporters generally, but certainly not industrial estates whose need forfinancial assistance is of a totally different nature.

We have noted certain discrepancies in the growth of assets andmovements of profits which we are reporting in Annex III and which consequentlyslightly alter the results in paragraphs 24, 27, and 32.

Regarding paragraph 37, we would like to mention that DBM was headedby a Mauritian as its Chief Executive between 1982 and 1984.

In paragraph 41, two approaches are broadly defined as regardsproblems relating to foreign exchange risks namely, the operation of a hedgingscheme or a higher interest rate to neutralize the risks. A third alternativewill be a formula acceptable to the World Bank, the Government of Mauritius orthe Borrower and the sub-borrowers wherein the risks will be shared amongthemselves in a predefined ratio. The logic behind this alternative is thatadverse foreign exchange fluctuations affecting sub-borrowers are caused by

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external factors and it is but equitable that the World Bank takes a share inthe loss. It may be mentioned that DBM introduced in 1984, Foreign ExchangeRisk Scheme in terms of which sub-borrowers were required to pay higherinterest for borrowing without the foreign exchange risk.

C. The Bank's Performance during the Evolution and Imtplementation of theProiect, with Special EmDhasis on Lessons Learnt that may be Relevant to theFuture.

The World Bank remained the first and foremost source of foreignexchange funds for DBM throughout the period under review. At Rs. 108.2million in ;980, this represented 72% of all DBM's overseas credits. In 1986,the position was Rs. 216.2m which was 55% of all DBM's foreign credits.Increasing commitments from other foreign sources underly confidence in DBM asa stable and viable institution.

On a macro-level, the provision of long-term funds from the World Bankenabled the DBM to meet its operational obligations, thus contributing to theestablishmerLt or expansion of industrial enterprises, creation of employmentand generation or saving of foreign exchange.

On internal operations, we agree that new programs like the MCB-RSshould be thoroughly vetted with parties who would be involved with itsimplementation and should only be incorporated in the project with theirknowledge and agreement.

We also agree that foreign exchange risks implicit in borrowings fromWorld Bank for projects in countries with currency devaluating tendenciesshould only be undertaken, if an appropriate foreign exchange risk hedgingscheme is in place.

D. The Borrower's own Performance durint the Evolution and Implementation withSpecial Emphasis on Lessons Learnt that mav be Relevant to the Future.

Perhaps the most significant performance of DBM during the periodunder review, is its ability to mobilize and provide funds for economicdevelopment when many DFC's, especially in the Third World, have been unableto do so. It has broad based its sources of funds and has been able to evolveover the years as a self-reliant institution. DBM has also been able tosustain and update the skills of its staff in investment appraisal andsupervision fielda so as to ensure continuity and face expansion of operations.The quality of its loans portfolio also showed improvement through a balancedspread among various sectors, in consonance with economic policy and trendsduring the period under review.

On the financial side, DBM's actual net profits grew from Rs. 8.4m in1980 to Rs. 15.2m in 1986, an average annual growth rate of 13.9Z. Its totalassets at Rs. 384.6m in 1980 stood at 848.9m in 1986 at historical costs. It'snet worth improved from Rs. 72m in 1980 to Rs. 114m in 1986. On operationsside, the volume of sanctions which was Rs. 51m in 1980 increased to Rs. 240min 1986, an increase of 370%. Disbursements recorded proportionate growths,from Rs. 34m in 1980 to Rs. 160m in 1986.

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E. The Effectiveness of the Relationship Between the Bank and the Borrowerdurina the Evolution and Imolementation of the Proiect.

The historical working relationship between the Bank and DBM hashelped the latter to adopt the appraisal standards and follow-up proceduresrequired by the invernational institutions. The positive attitude of the Bankhas contributed to a great deal in facilitating a smooth flow of communicationbetween the two.

It is thus that while the Bank reacted favourably to the Borrower'srequests for the two credits, the latter implemented the Bank's recommendationsfor the:

(a) development of a new strategic plan,

(b) reorganization program including staff reinforcement,

(c) development of industrial promotion program through theprovision of risk capital credit,

(d) reduction in loan portfolio affected by arrears and rentarrears, and

(e) the creation of a foreign exchange hedging scheme.

On the manpower development, the Borrower has continued to avail ofthe training programs sponsored by the Economic Development Institute (EDI),thereby contributing to the upgrading of the skills of the staff of theinstitution.

On the macro level, the support of the Bank has helped the Borrowerto play its catalytical role for economic growth in Mauritius, being the mostimportant conduit of long term funds for the industrial and tourism sectors.

F. The Performance of Co-Financiers and the Effectiveness of their Relationshipwith the Borrower during the Evolution and Implementation of the Proiect.

DBM has successfully mobilized and diversified the sources of itsforeign long-term funds over the years based on its record and performance.Apart from the World Bank and its affiliated agencies, DBM has thus tappedfunds from the Caisse Centrale de Cooperation Economique, the AfricanDevelopment Bank and the European Investment Bank during the period underreview.

All the above-named financial agencies have organized supervisionmissions regularly and are generally satisfied with our performance.

-13 -

ForeignAaenc Period Sector Total Amount

(million)

CCCE 1980-86 Agriculture, 103.25 FFTourism

ADB 1983-86 Industry, 3.0 UA (UnitsTourism of Account

EIB 1982-86 Industry, 10.5 ECUsTourism

CAISSE CENTRALE

The Caisse Centrale's lending program was designed to support DBM inmeeting its commitments mainly to agricultural diversification and tourismdevelopment. These objectives were in line with the Government of Mauritius'plan to give a boost to agriculture while at the same time to sustain thegrowth in the tourism sector.

The results of the projects on-lending operations were as follows:

Year Amount of Credit No. of Sub-Proiects(in Million FF)

1980 3 121983 10 161984 7 11984 20 501984 47 11984 16.25 1

103.25 81

During the period under review, the Caisse Centrale sanctioned 6 linesof credit totalling 103.25m FF for 81 sub-projects. Of the above, the pilotproject for developing new energy resources in Mauritius out of Bagasse standsout as a bold commitment of the agency in funding an innovative and explorativeproject. Out of the 47m FF financed for the project, 37.4m were finallyutilized.

At the beginning of the period under review, Caisse Centrale's longterm credits represented merely 22 of all DBM's foreign sources of funds. Overtime it made deep inroad in DBM's foreign resources composition through itsattractive terms and faith in the country and its institutions. By the end ofthe review, its importance as a source of long term credit for DBM stood at 18%and was second only to the World Bank.

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EUROPEAN INVESTMENT BANK

European Investment Bank's lending program was designed to support DBMin meeting its long term financial commitments to the industrial and tourismsectors. A special feature of EIB's support during the period under review wasrisk capital resources of ECUs 0.5m sanctioned to DBM for enabling the latterto participate and suipport in the equity capital of the promoters and forundertaking studies for identifying potential projects.

The results of the projects on-lending operations were as follows:

Line of Credit Year Amount of Credit No. of Sub-proiects

EIB Pret 11-1 1982 4.0 ECUs 17EIB Pret 11-2 1982 0.5 ECUs 2EIB Pret III 1986 6.0 ECUs 19

10.5 ECUs 38

During the period under review, EIB sanctioned 3 lines of creditaggregating 10.5m ECUs for 38 sub-projects. Quite a number of projects bothin the industrial and tourism sectors was set up with the EIB lines of crediton attractive terms. With the establishment of the State Investment Corpora-tion Limited in 1986, the role played by the DBM in providing equity capitalsupport was taken over by the former and the major portion of DBM's investmentsin share capital of company were also transferred to that institution.

AFRICAN DEVELOPMENT BANK (ADB)

DBM signed a line of credit II for UA 3 million with ADB in February1983. The purpose was to finance the foreign exchange component of medium andlarge size sub-projects in the manufacturing, agro-industrial, mining andquarrying sectors. The ADB funds were restricted to enterprises having localmajority shareholdings and predominantly African management.

Line of Credit Year Amount of Credit No. of Sub-proiects(in million)

ADB Line ofCredit II 1983 3 UA 36

Under the above credit, 36 sub-projects were assisted for an amountaggregating 3 UA's. The line of credit under ADB has proved to be of benefitto the DBM in view of its flexib lity as regards extension of its credit andits terms considered relatively soft.

6. Project Results

A. FORECAST OF OPERATIONS COMPARED TO ACTUALS (Rs. millions)

APPROVAL 1980 1981 1982 1983 1984 1985 1986

I. DBM V - Forecast

Medium/Large-Scale Industry 27.0 27.5 36.0 44.0 50.0Agro Industry 7.5 5.5 5.5 6.0 7.0Transport Sector 7.0 8.0 3.5 - -Small-Scale Industry 2.0 3.0 3.0 3.0 3.0Agriculture Sector 2.0 2.0 3.0 3.0 3.0Equity Investments 2.0 3.0 3.0 3.0 3.0Industrial Estate 4.0 5.0 6.0 8.0 9.0

TOTAL 51.5 54.0 60.0 67.0 75.0

II. DBM VI - Forecast

Medium/Large-Scale Industry 46.0 50.5 56.0 61.5 68.0Agro-Industry 7.0 7.5 8.0 9.5 10.5Transport Sector - - - - -Small-Scale Industry 3.0 3.5 4.0 4.5 5.0Agriculture Sector 2.5 3.0 3.5 3.5 4.0Equity Investment 2.0 2.0 2.0 2.0 2.0Industrial Estate 2.0 2.0 2.0 2.0 2.0

TOTAL 62.5 68.5 75.5 83.0 91.5

III. Actuals

Medium/Large-Scale Industry 37.0 42.3 20.9 34.5 40.7 87.0 122.3Agro-Industry 3.0 6.2 2.0 15.2 34.1 70.2 8.9Transport Sector 4.8 1.4 1.0 9.0 0.8 13.9 -Small-Scale Industry 3.4 2.7 3.8 10.0 16.0 78.2 78.7Agriculture Sector 1.3 1.5 2.6 3.9 5.1 21.3 26.8Equity Investment - 1.5 0.4 6.4 5.0 1.8 0.5Industrial Estate 1.6 8.0 - 0.1 3.4 38.7 0.9

Total 51.1 63.6 30.7 79.1 104.1 311.1 238.1

A. FORECAST OF OPERATIONS COMPARED TO ACTUALS (Rs. millions)

DISBURSEMENTS 1980 1981 1982 1983 1984 1985 1986

I. DBM V - Forecast

Medium/Large-Scale Industry 27.1 22.2 22.6 26.8 32.9Agro Industry 3.1 10.6 6.1 4.6 4.8Transport Sector 8.8 8.0 3.5 - -Small-Scale Industry 1.6 2.0 2.5 2.5 2.5Agriculture Sector 2.4 1.6 2.0 2.5 2.5Equity Investments 6.1 3.0 3.0 3.0 3.0Industrial Estate 4.0 5.0 6.0 8.0 9.0

TOTAL 53.1 52.4 45.7 47.4 54.7

II. DBM VI - Forecast

Medium/Large-Scale Industry 34.5 46.0 42.0 44.0 48.5Agro-Industry 4.5 5.5 6.0 6.5 7.0Transport Sector - - - - -Small-Scale Industry 2.5 3.0 3.0 3.5 4.0Agriculture Sector 2.0 2.5 2.5 3.0 3.0Equity Investment 2.0 2.0 2.0 2.0 2.0Industrial Estate 2.0 2.0 2.0 2.0 2.0

TOTAL 47.5 61.0 57.5 61.0 66.5

III. Actuals

Medium/Large-Scale Industry 21.7 28.7 30.0 16.3 21.7 37.6 31.2Agro-Industry - - 2.2 0.9 5.9 14.7 13.2Transport Sector 3.7 4.5 1.3 - 7.0 2.7 9.0Small-Scale Industry 2.0 2.2 2.6 4.3 9.4 38.3 70.2Agriculture Sector 4.5 1.4 2.5 2.0 4.0 6.8 20.5Equity Investment - - 0.2 4.0 1.0 1.2 0.7Industrial Estate 1.6 8.5 0.5 0.1 0.1 6.42 15.2

TOTAL 33.5 45.3 39.3 27.6 49.1 107.72 160.0

Rate (Rs. to US$) 7.7698 8.5 10.0 11.0 13.0 15.95 13.18

B FINANCIAL POSITION AND INDICATORS. (Rs. millions)

1980 1981 1982 1983 1984 1985 1986DBM V - PROJECTIONS

1. Net Profit (Rs. millions) 7.9 9.9 11.7 12.22. Total Assets (Rs. millions) 376.2 420.5 440.8 460.83. Net Worth (Rs. millions) 81.9 89.3 98.5 108.24. Net Profit/Ave. Net Worth 2 11.4 11.6 12.6 11.85. Debt/Equity 3.5 3.6 3.4 3.26. Provisions/Total Portfolio 2 4.0 4.3 4.3 4.3

DBM VI - PROJECTIONS

1. Net Profit (Rs. millions) 11.0 12.6 14.0 15.1 16.92. Total Assets (Rs. millions) 464.9 492.9 515.6 539.8 569.33. Net Worth (Rs. millions) 91.1 98.7 107.77 117.8 129.74. Net Profit/Ave. Net Worth 2 12.4 13.4 13.5 13.3 13.65. Debt/Equity 3.8 3.6 3.5 3.3 3.16. Provisions/Total Portfolio Z 4.6 5.2 5.8 6.3 6.1

ACTtUALS

1. Net Profit (Rs. millions) 8.4 11.4 11.8 14.2 16.8 16.3 15.2 12. Total Assets (Rs. millions) 384.6 424.2 499.4 528.2 602.6 656.3 848.93. Net Worth (Rs. millions) 72.2 85.1 87.8 95.7 108.1 113.9 115.14. Net Profit/Ave. Net Worth 2 10.2 11.3 5.6 10.9 16.5 14.7 10.75. De;bt/Equity time 4.1 3.6 4.3 3.9 3.3 3.8 4.66. Provisions/Total Portfolio X 4.0 4.2 5.2 5.5 4.0 4.1 5.1

1/ Based on revised projection 3/1986

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PART III

STATISTICAL INFORMATION

1. RELATED BANK LOANS AND/OR CREDITS

A. Earlier Loans/Credits:

Title Purpose Year of Status/CommentApproval

313-MAS Industrial lending 1972 Completed

411-MAS DBM's investments in 1973 CompletedCoromandel IndustrialEstate.

979-HAS Industrial lending 1974 Completed

1168-HAS Industrial lending 1975 Completed

1481-HAS Industrial and tourism 1977 Completedfinancing mechanizationand modernization ofsugar sector.

B. Projects Covered under PCR:

1789-HAS Direct industrial 1979 Completed(DBH V) lending to MLEs,

component to SSEsector and refinancingCBMs foreign exchageadvances.

2164-HAS Industrial lending to 1982 Completed(DBM VI) MLEs and SSEs. Component

for industrial andfinancial sectors studies.

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2. PROJECT TIMETABLE

A. DBM V

ITEM DATE DATE DATEPLANNED REVISED ACTUAL

Identification - - 6/78(Executive Summary)

Preparation - - 8/78

Appraisal Mission 2/79 1/79 1/79Appraisal Report 5/79 6/79 6/79Loan Negotiations 8/79 10/79 10/79

Board Approval 9/79 10/79 12/79

Loan Signature 1/80 - 1/80

Loan Effectiveness 3/80 5/80 4/80

Loan Completion 12/81 12/82(Submission of Sub-Projects) 6/83 12/86

Loan Closing (Disbursement) 12/83 12/8412/8512/86 6/87

Cozments on Prolect Timetable:

1) Identification: Project identified in the Bank's supervisionreport on DBM dated February, 1978.

2) Preparation: Issues raised in project brief; slow pace ofcommitment under ongoing DBM IV project. Timing and amount ofloan subject to accelerating commitment of DBM IV and DBM need forfunds taking into account, availability from other sources,respectively.

3) Appraisal Mis-ion: The appraisal mission proposed a multi-programapproach, compartmentalizing the credit into three parts: (i)medium/large-scale industry, agro-industry and tourism; (ii)artisan/small-scale enLerprises (subject to change in on-lendingrates); (iii) refinancing of Mauritian Commercial Banks. Projectalso conditional on GOM commitment to provide adequate local

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currency funds for DBM working capital needs and to continue thesplit-risk scheme on DBM foreign-exchange borrowings.

4) Loan Negotiations: Issues for negotiation:

(a) GOM and DBM policy regarding on-lending rate to SSE.

(b) Foreign exchange risk sharing formula in respect of ML!,sub-borrowers.

(c) Provision of adequate local currency resources for DBMoperations.

(d) Reporting requirements during project implementation.

(e) DBM future investments in the sugar sector.

(f) Mechanism for refinancing of MCBs and forecast of theiLforeign exchange finance requirements.

(g) DBM wanted percentage of Bank funds covering civil worksincreased from 45Z to 60?.

5) Board Approval: Approved with standard conditions, deadline foreffectiveness of MCB-RS refinancing scheme set at 6/80.

6) Loan Agreement Signature: No substantive issues.

7) Loan Effectiveness: GOM requested extension of finaleffectiveness date due to its delay of standard ratific'Lion andlegal opinion requirements.

8) Loan Completion Date: Terminal date for submission of sub-projectextended at the request of DBM due to failure of scheme forrefinancing of MCBs, and slow commitment of funds to SSE sector:full amount of US$2.0 million allocated to MCB-RS scheme and US$0.5 million of US$1.0 million for SSE re-allocated to MLE sector.

9) Closing Date: Date for final disbursement was extended severaltimes to synchronize with extensions of commitment dates.

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2. PROJECT TIMETABLE

B. DBM VI

ITEM DATE DATE DATEPLANNED REVISED ACTUAL

Identification - - 10/81

Preparation 11/81 - 11/81

Appraisal Mission 11/81 - 11/81

Loan Negotiations 4/82 - 4/82

Board Approval 6/82 - 6/82

Loan Signature 6/82 - 6/82

Loan Effectiveness 8/82 10/82 9/82

Loan Completion 12/84 12/85(Submission of Sub-Projects) 12/86 12/86

Loan Closing (Disbursement) 12/88 - 6/87

Comments on Proiect Timetable:

1) Identification/Preparation: Issues raised in the project briefwere as follows:

(a) DBM to re-examine its strategy for meeting its generaldevelopment objective.

(b) Replacement of expatriate Managing Director with aMauritian.

(c) DBMs need to strengthen its promotional activities.

(d) The elimination or reduction of interest subsidies to SSE.

(e) Concern over high level of arrears in DBM's loan portfolio.

(f) Difficulties in implementing the MCB-RS under DBM V due toperceived legal impediments and the easy availability oflocal currency loans at modestly higher interest rates

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without the foreign exchange risk associated with thescheme.

(g) The Bank also wanted to participate in a review of DBM'sproposed foreign exchange risk guarantee scheme.

2) Appraisal Mission: In view of the fact that policy issues werebeing addressed under the SAL lending and the absence of majorinstitutional and project issues, the committee decided to waivethe yellow cover review.

3) Negotiations: Issues agreed during negotiations were:

(a) DBM was to prepare an operation strategy statement and actionplan, which was completed in December, 1984.

(b) SSE qualifying ceiling to be increased from Rs. 25,000 to Rs.50,000 and the inclusion in the loan of US$300,000 to employconsultants to carry out studies of the industrial and financialsectors (TOR to be discussed). The status of DBM expatriateKanaging Director vis-a-vis a Mauritian Managing Director wasdiscussed. The position is still held by an expatriate.

4) Board Approval: The loan was approved as negotiated.

5) Loan Signature: Referring to the negotiations, the loan documentswere amended in respect of the qualifying limit increasing fromRs. 25,000 to Rs. 50,000 for sub-loans to SSE, subject to GOMincreased guarantee coverage.

6) Loan Effectiveness: Final date extended to allow time for receiptof documents which subsequently arrived sooner than revised date.

7) Loan Completion: Extended due to slow commitment of funds by DBM.

8) Loan Closing: DBM requests to terminate drawdowns and prepayoutstanding loan balance which carried interest at 11.6Z p.a.Given that DBM was able to raise lower costing domestic resources,the prepayment would render DBM more profitable. The Bankapproved and waived prepayment penalties. Cancellation ofundisbursed balance of US$1,989,326.02 effective 6/87.

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3. LOAN DISBURSEMENTS

A. DBM V

Cumulative Estimated and Actual Disbursements(US$ '000)

BANK FISCAL APPRAISAL ACTUAL ACTUAL Z OFYEAR ESTIMATE DISBURSEMENT ESTIMATED

1980/81 700 200 28

1981/82 3400 400 12

1982/83 5600 1800 32

1983/84 6000 2300 38

1984/85 6000 3100 52

1985/86 6000 3300 55

1986/87 6000 5500 92

Cancellation of Undisbursedbalance 6/87 500 8

Date of Final Disbursement - May 6, 1987.

B. DBM VI

BANK FISCAL APPRAISAL ACTUAL ACTUAL Z OFYEAR ESTIMATE DISBURSEMENT ESTIMATED

1982/83 426 89 21

1983/84 1810 231 13

1984/85 3363 700 21

1985/86 4597 1900 41

1986/87 5439 4011 74

1987/88 6000 -

Date of Final Disbursement - -May 29, 1987.

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4. PROJECT IMPLEMENTATION

A. DBM V

(USS '000)Appraisal Revised Actual

Components Estimate Allocation Allocation

a) Financing to Medium and 3000. 5500. 5169.Large-scale Industry,Agro-industry and Tourism.

b) Financing to Artisan/ 1000. 500. 357.Small-scale Enterprise.

c) Re-financing of Mauritian 2000. - NILCommercial Banks TermForeign Exchange Advances.

6000. 6000. 5526.

Comment:

Project implementation was slower than projected, the MCB re-financing scheme did not work and the US$2.0 million was re-allocated tothe financing of MLE; also US$0.5 million from SSE.

Details of amounts withdrawn are summarized below.

Description Amount Withdrawn

"A" Subloans $2,501,015.57

"B" Subloans 2,668,141.44

Small Scale Enterprise Subloans 356,966.22

TOTAL WITHDRAWN $5,526,123.23

Amount cancelled per telex 473,876.77of July 9, 1987.

ORIGINAL LOAN AMOUNT $6,000,000.00

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4. PROJECT IMPLEMENTATION

B. DBM VI

(US$ '000)Appraisal Actual

Components Estimate Allocation

a) Financing to Medium and 5700. 3721.Large-scale Industry,Agro-industry and Tourism.

b) Industrial and Financial 300. 290.Sectors Studies.

6000. 4011.

Comments:

The study component was implemented fully and with timing slightlyahead of appraisal estimate. Commitments under the MLE sector was slowdue to the loan high financial cost compared to other lines of creditfrom CCCE, EIB, IDBI and local resources without foreign exchange risk.The DBM effective 6/89 terminated disbursement and prepaid outstandingbalance.

Description Amount Withdrawn

Front-end Fee $ 88,670.00

Small-scale enterprise subloans 1,029,717.46

Other free-limit subloans 1,884,121.16

Subloans above free limit 758,106.00

Studies under Part B or Project 290,059.36

TOTAL WITHDRAWN $4,010,673.98

Amount cancelled per telex 1,989,326.02of June 29, 1987

ORIGINAL LOAN AMOUNT $6,000,000.00

5. PROJECTS' COST AND FINANCING(USS mi I I I on)-(Rs. million)

A. PROJECT COST

DOM V Appraisal Estimate DOM VI Appraisal Estimate Actual CommitentsLoan Flscal Local FX Cost Total Local FX Cost Total Local FX Cost TotalYear Cost Cost Cost Cost Cost Cost

USS Rs. USS Rs. USS Rs. US1 Rs. USS Ru. USt Rs. USS Rs. US1 Rs. USS Ru.DOM V

190 2.1 13.0 5.7 35.0 7.8 48.0 2.7 20.8 1.7 la.a 4.4 34.11961 2.6 18.0 4.2 26.0 8.8 42.0 2.9 24.5 2.0 17.6 4.9 42.11962 2.6 16.0 6.2 32.0 7.8 47.0 0.9 9.4 3.4 33.8 4.3 43.2

Total 7.8 46.0 15.1 93.0 22.4 138.0 e.6 64.7 7.1 64.7 13.6 119.4DBU VI

1962 1.0 10.0 6.4 64.0 7.4 74.0 0.9 9.4 3.4 88.s 4.8 48.21968 1.2 12.0 4.8 48.0 6.0 60.0 2.2 24.2 1.1 12.3 3.3 38.61964 1.3 13.0 6.2 52.0 8.6 66.0 2.8 36.9 1.9 25.4 4.7 62.8

Total 3.6 35.0 16.4 164.0 19.9 199.0 6.9 70.6 6.4 71.6 12.8 142.0

8. PROJECT FINANCING

IBRD - - 4.0. 25.0* 4.0 26.0 - - 6.0 60.0 8.0 60.0 N.A N.A. 9.5 N.A. 9.6 N.A.Other ExternalSourcos - - 4.1 25.0 4.1 25.0 - - 7.3 73.0 7.3 73.0 N.A. N.A. N.A. N.A. N.A.N.A.

Domestic 7.3 45.0 7.0 43.0 14.3 98.0 8.6 86.0 U.1 31.0 6.6 66.0 N.A. N.A. N.A. N.A. N.A.N.A.

Total 7.3 46.0 15.1 93.0 22.4 138.0 3.5 35.0 18.4 164.0 19.9 199.0

* excluding U.S.92.0 millon for MCO-RS.

S. Prolect Results

A. FORECAST OF OPERATIONS COMPARED TO ACTUALS (Re. millions)

APPROVALS 1980 1981 1982 1983 1984 1985 1986

1. DOM V - Forecast

MVdium/Large-Scals Industry 27.0 27.6 386.0 44.0 60.0Agro Industry 7.5 5.5 5.5 6.0 7.0Transport Sector 7.0 8.0 8.5 - -

Small-Scale Industry 2.0 8.0 a.0 8.0 3.0Agriculture Sector 2.0 2.0 3.0 3.0 8.0Equity Investments 2.0 8.0 3.0 3.0 8.0Industrial Estate 4.0 5.0 6.0 8.0 9.0

TOTAL 51.6 54.0 60.0 67.0 76.0

II. 08D VI - Forecast

Medium/Large-Scale Industry 46.0 60.5 68.0 61.5 68.0Agro-Industry 7.0 7.5 8.0 9.5 10.5Transport Sctor.Small-Scale Industry 3.0 8.5 4.0 4.5 5.0Agriculture Sector 2.5 3.0 3.5 3.6 4.0Equity Investment 2.0 2.0 2.0 2.0 2.0Industrial Estate 2.0 2.0 2.0 2.0 2.0

TOTAL 62.6 68.6 75.6 83.0 91.5

III. Actual*

Medium/Large-Scale Industry 37.0 42.3 20.9 34.5 40.7 87.0 122.8Agro-Industry 3.0 6.2 1.9 16.2 84.1 70.2 8.9Transport Sector 4.8 1.4 1.1 9.0 0.8 13.9 -Small-Scale Industry 3.4 2.6 3.8 10.0 16.1 78.2 79.7Agriculture Sector 1.8 1.5 2.6 3.9 5.1 21.3 26.0Equity Investment - 1.5 0.4 6.4 6.0 1.8 0.5Industrial EstateO 1.6 8.0 - 0.1 2.3 38.7 0.9

Total 1.1 683. 30.7 79.1 104.1 311.1 238.1

A. FORECAST OF OPERATIONS COMPARED TO ACTUALS (Re. millions)

DISBURSEMENTS 1980 1981 1982 1993 1984 1986 1986

I. 0DM V - Forecast

fedium/Large-Scale Industry 27.1 22.2 22.6 26.8 82.9Agro Industry 3.1 10.6 6.1 4.6 4.8Transport Sector 8.8 8.0 3.6 - -Small-Scale Industry 1.6 2.0 2.6 2.6 2.6Agricultur, Sector 2.4 1.6 2.0 2.5 2.6Equity Investments 6.1 3.0 3.0 3.0 3.0Induetrial Estate 4.0 6.0 e.0 8.0 9.0

TOTAL 63.1 62.4 45.7 47.4 54.7

II. DOM VI - Forecast

Medium/Large-ScmIl Industry 34.6 46.0 42.0 44.0 48.5Agro-Industry 4.6 5.5 6.0 6.6 7.0Transport Sector - - - - -Small-Scale Industry 2.6 3.0 3.0 3.5 4.0Agriculture Sector 2.0 2.6 2.6 3.0 3.0Equity Investmnt 2.0 2.0 2.00 2.0 2.0Industrial Estate 2.0 2.0 2.0 2.0 2.0

TOTAL 47.6 61.0 67.6 61.0 66.6

III. Actuals oc

MedIum/Large-Scale Industry 21.7 28.7 30.0 16.3 21.7 87.6 24.4y Agro-Industry - - 2.2 0.9 5.9 14.7 6.8

Transport Sector 3.7 4.5 1.3 - 7.0 2.7 9.0Small-Scale Industry 2.0 2.2 2.6 9.3 9.9 88.3 68.8Agriculture Sector 4.6 1.4 2.6 2.0 4.0 6.8 16.9Equlty Invostment - - 0.2 4.0 1.0 1.2 0.7Industrial Estates 1.6 8.6 0.6 0.1 0.1 10.8 11.4

TOTAL 33.5 46.3 39.3 32.8 49.6 112.1 116.9

Rate Re. to USI 7.7698 8.6 10.00 11.00 13.00 16.95 13.18

8. FINANCIAL POSITION AND INDICATORS (Re. millions)

1980 1981 1982 1983 1984 1985 1986OSM V - PROJECTIONS

1) Not Profit (Re. millions) 7.9 9.9 11.7 12.22) Total Asett (Re. millions) 376.2 420.6 440.6 460.88) Not Worth (Re. millions) 81.9 89.3 98.6 108.24) Not Profit/Ave. Not Worth U 11.4 11.6 12.6 11.86) Debt/Equity 3.6 3.6 3.4 3.26) Provisions/Total Portfollo X 4.0 4.3 4.3 4.3

08D VI - PROJECTIONS

1) Not Profit (Re. millions) 11.0 12.8 14.0 16.1 16.92) Total Asstts (Rs. millions) 484.9 492.9 616.6 639.8 669.38) Not Worth (Rs. millions) 91.1 98.7 107.77 117.8 129.74) Not Profit/Ave. Not Worth X 12.4 13.4 138. 13.8 13.66) Debt/Equity 8.8 3.6 3.6 3.8 3.16) Provisions/Total Portfolio X 4.6 5.2 6.8 6.3 6.1

ACTUALS

1) Not Profit (Rs. millions) 7.8 11.4 11.8 14.2 16.8 16.3 16.8 8/2) Total Assets (Re. mllions) 395.4 424.2 499.4 628.2 602.6 656.3 778.48) Not Worth (Re. millions) 72.2 86.1 87.8 95.7 108.1 118.9 190.04) Net Profit/Ave. Net Worth X 10.2 11.3 5.6 10.9 16.5 14.7 10.75) Debt/Equity time 4.1 3.8 4.3 3.9 3.8 3.3 2.96) Provisions/Total Portfolio X 3.8 4.0 5.0 5.2 4.0 4.0 4.2

11 Based on revised projection 3/1986.

C. STUDY

Cost Timing Impact ofPurpose as defined Estimate Actual Estimated Actual Status Studyat Appraisal:

Studies of Industrial 800. 288. Juno 1984 Aug.'83 Completed Not reviewod Inand financial sectors to - Sept'84 - Jul'84 supervision reports.develop policies andInstitutional arrangmsntsu,xiducive to growth ofIndustrial production andexports.

Comments

Study was conducted ahead of schedule and at lower cost under tho title Study of Trade and Industry Policy and Iplementation with statedobjectivo - to formulato trade and Industrilalzstion policles to foster Moro rational use of resources, economic growth and higher lovels ofemployment.' Not evaluated In supervision reports.

LA

0

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7 STATUS OF COVENANTS

Conditions Status 0f Comol_1_nc

Loan Acrooment DOM V

Section 301 (d): D8M's lending rates In compliance. Recently changdwould be t least OX on SSE subloans (not structure provides for only IIX p.s. onmoro than Re. 25,000), and 12X on all loans between Re. 25,000 and Rs. 50,000.oth-r subloans. However, section 3.O1 (d) under OBM VI

qualifiet and supersodes this agreement.

Section a.03 a : DBM shall submit In compliance.rogul*r quarterly reports.

S ction a.o0 (b: DBM shall submit a Not yet submitted.compion report within six months afterloan closing.

Section 401 (a): DBM shall maintain In compliance.adoquxt procedures and records tomonitor progress of loan in general andof withdrawals for SSEs made under SOEsin particular.

S-ction 4.01 (b) DBM shall retain the In compliance.rocords rlating to withdrawals madeunder SOEs until one year after date ofloan closing.

Section 4.02 WI DBM shall (;) have its In complianco. FY 86 accounts delayod by_eeounts audited by qualified auditors; three months.and submit such accounts to Bank withinsix months after the end of the fiscalyea r.

Section 4.06: DBMks debt/equity ration In compliance.should not exceed four.

Section 4.07 (a): DOM shall take all In compliance.necessary steps satisfactory to Bank toprotect itaolf against foreign exchangorir'

Section 4.07 (b): DBM shall take all In compliance. Covernment covers fullnecessary steps satisfactory to Bank to foreign exchange risk.protect SSE, against foreign exchangerisk.

Section 4.08: DBM shall consult with In compliance.Bank on introducing positive rates ofinterest on subloans to SSEs.

Section 6.01 (Q: Changes in DOBMs In compliance.statnent oil policy shall not be madewithout the Bank's consent.

Guarantee Agrement DBM V

Section 2.02: Governmnt will provide In compliance.DBM with the required local currencyresources.

Loan Agrement DBM VI

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S etlon 2.02 (a): Proceeds of the loan In compliance.may be withdrawn to pay for (a) front-endfee; (b) up to US8S00,000 of the cost ofstudios by Government; and (e) subloonsnd Investments In subprojects.

Soctlon 3.01 W: DOM shall consult with In compliance.bank on the q;uatifications and exrerienceof any proposed appointes to position ofManaging Director.

Section P Co ( DOM lending rates In compliance.shall be atloast IOX on SSE subloans(los, than Re. 26,000), and for all othersubloans, at looet 2 percentage pointshigher then t-e cost of funds used by theborrow-r for such subloans.

Soct on 3 b01 (a): D hM ahll make up to In compliance.0SS 800,000 available to Government tocover costs of studies on the amefinancial term and conditions govorningthe proceodx of the loan from the Bank toDBM.

Section 3.03(a): DBS shall submit In compliance.regular rIportnto the Bank.

Section 3808 Ib): DBM shall prepare a In complianco.cNWe-tToin report and submit It to theBank within six months of loan closing.

Section 8.06: DOB shall preparo and In complianco.agre with Government and the Bank anoperational strategy paper no later thanDecember 81, 1982 and subsequently adoptproposals in such stotement.

Section 4.01 (a): DBM shall koep: (t) In compliance.eparate accoun-t on *xpendittires by SSEsfor which withdrawals from the loan havobeen made under SOEs; and (ii) separateaccounts reflecting th- operations,resources and expenditures on itsindustrial estates.

SoctTon 4.01 (b): DS shall retain, In compliance.ntil on-, year after closing date, allrecords relating to withdrawals mde ofSSE. under SQE and shall allow Bankrepresent-tives to examine such records.

Section 4.02: DBM shall (T) have its In compliance. FY 86 accounts delayed byaccount a*udited by qualified auditors; three months.and (i;) submit to the Bank within sixmonths of the end of Its fiscal year suchaudited accounts, including the auditorsopinion on the separate account. referredto under Section 4.01 (a).

Section 4.06: OBM's debt/equity ratio In compliance.shall not xceoed four.

Section 4.07 (a): DOM shall take all In compliance.necessary steps that are satisfactory toBank to protect itself against theforeign oxchange risk arising out of itsoperations.

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Section 407 (b): For *al subloans In couplinnce. Thin limit was rais d to*xcei ing Rs 25,000, DBM shall ensure Re. 60,000 with Bank agreement.its clients bear the foreign exchangerisk between the Rupe and the US dollar.

S etion 6.01 O cl: Change in DO8U In complianco.Statmnt of Policy cannot be madewithout the Sank's consent.

Section 3.02: Government shall ber the In compliance. Limit subsequently raisedMl oT f roso resulting from: (a) the full to Re. 60,000 with Bank ogre eme nt.exchange risk on SSE subloans (Re. 26,000or loss); (b) the foreign exchange riskdue to the changes between the USt andthe carrencies in which the proceeds ofthe loan relent to non-SSE subloans arerepayable.

Section 3.04: Governmsnt shall (a) carry In compliance.out promptly studies on industrial andfinancial sectors; (b) recruit qualifiedconsultants acceptable to Bank to do so;(c) furnish Sank with copios of studiesby consultants; (d) obtain funds from DSMon terms specitied in Section 3.01 (c) ofloan agreement; (C) keep adequatesparate records on use of such funds;and (f) provide Bank with studyrecommendation by March 31, 1983, or suchother dato as mutually agreed, andpromptly thereafter draw up a program forcarrying out those actions that it shalldeem necessary.

8. USE OF BANK RESOURCES

A. STAFF IlPUTS (STAFF WEEKS)

1978 1979 1980 1981 1982 1983 1984 1985 1988 1987 TOTAL

ODM V

Through Appraisal 1.8 19.7 - - - - - - - - 21.0

Appraisal throughBoard Approval 3.8 6.1 ^ - - - - - - 8.4

Board Approvalthrough Effectiveness - - 9.7 - - - - - - - 9.7

Supervision - - 6.8 7.4 3.7 4.6 6.9 4.1 6.7 0.1 39.3

TOTAL 1.8 23.0 21.8 7.4 8.7 4.6 6.9 4.1 6.7 0.1 78.4

DBm VI

Through Appraisal 20.7 - - - - - 20.7

Appraisal throughBoard Approval 8.1 - - - - - 8.1

Board Approvalthrough Eftfctiv*ness 0.1 0.6 - - - - 0.7

Supervision - 4.2 6.3 4.9 11.1 2.6 28.1

TOTAL 28.9 4.8 6.3 4.9 11.1 2.6 58.6

8. USE OF BANK RESOURCESB. MISSIONS

oDm Stato of Project Cycle Month/ No. of Days In Specialization Performance Type ofProject Year Porsons Field Represented Rating Status Problow

V Through Appraisal 1/79 3 14 1,2 N.A. NAV Appraisal through

Board Approval 4/79 2 6 1,2 N.A. N.A.V Board Approval

through Effectiveness 2/80 2 12 1 2 i,F,0V Supervinion B/81 2 12 1 2 i,FV Supervilsion 9/81 1 11 1 2 M,FV Supervlsion }VI Through Appraisol) 12/81 3 12 1,2 2 M,FVI Appraisal through

Board Approval - - - -VS Board Approval

through Effectiveness - - - -V Supervision )VI Supervision ) 12/82 1 7 1 1 M,F

V Supervision )VI Supervision ) 6/83 1 5 1 1 M,F

V Supervlison :VI Supervision } 6/84 1 10 1 1 M,F

V Supervision IVI Supervislon ) 4/86 1 14 1 1 M,F

V Supervision)VI Supervision ) 6/88 2 14 1 1 M,F

KEY:o/ SDeciolization Ra;resented / Performance Ratina Status Typo of Problem

1 - Operations Officer 1 - Problem Free or Minor Problem 1 - Vnngerial2 - Loans Officer 2 - Moderate Problems F - Financial

a - Major Problems T - TechnicalP - Political0 - Others