Document of The World Bank E FOR OFFICIAL USE ONLY Report No. P-3487-RW REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN MN AMOUNT EQUIVALENT TO US$7.0 MILLION TO THE RWANDESE REPUBLIC FOR A THIRD DEVELOPMENT BANK (BRD) PROJECT March 17, 1983 F 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. CURRENCY EQUIVALENTS US$1.00 Rwandese franc (Rf) 91.91 RF 100 US$1.09 FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS BNR - Banque Nationale du Rwanda - Central Bank BRD - Banque Rwandaise de Developpement CCCE - Caisse Centrale de Cooperation Economique CDI - Centre de Developpement Industriel CIDA - Canadian International Development Agency DEG - Deutsche Entwicklungsgesellschaft EDF - European Development Fund KfW - Kreditanstalt fur Wiederaufbrau MINECOM - Ministere de l'Economie et du Commerce MAGERWA - Magasins Generaux du Rwanda SMEs - Small and Medium Enterprises SOMIRWA - Societe des Mines du Rwanda SSEs - Small Scale Enterprises WEIGHTS AND MEASURES Metric British/US Equivalents 1 meter (m) = 3.3 feet 1 hectare (ha) = 2.47 acres 1 are (100 m2) = 0.02 acres 1 kilometer (km) = 0.62 miles 1 square kilometer (km2) = 0.39 square mile (sq. mi.) 1 kilogram (kg) = 2.2 pounds (lb) 1 liter (1) = 0.26 US gallon (gal) 0.22 British gallon (imp gal) 1 metric ton (m ton) = 2,204 pounds (lb) FOR OFFICIAL USE ONLY (i) RWANDA THIRD DEVELOPMENT BANK (BRD) PROJECT Credit and Project Summary Borrower: Rwandese Republic Beneficiary: Rwandese Development Bank (BRD) Amount: SDR 6.5 million (US$7.0 million equivalent) Terms: Standard Relending Terms: The Government would relend US$6.9 million equivalent to BRD at an average interest rate of 6.9 percent which would give BRD a spread of about 5.6 percent as its average lending rate will be about 12.5 percent. Funds under the small-scale enterprise component (US$2.5 million)l/ would be on-lent to BRD at a rate of 5 percent (given the higher administrative costs and risks associated with this type of operation). Funds for larger projects/enterprises (US$4.4 million) would be on-lent at a rate of 8 percent and would have a flexible amortization schedule that would substantially conform with the aggregate of the amortization schedules of the subloans approved by BRD under the proposed credit, subject to a maximum of 15 years, including a grace period not to exceed five years. The portion of the credit relent to BRD for SSE financing would have a fixed amortization schedule of 15 years, including 5 years of grace, starting from the date of credit effectiveness. The Government would bear the foreign exchange risk. Project (i) Objectives: To (a) provide, through an effective Description: financial intermediary (the BRD) the needed foreign exchange resources for high priority investments; (b) assist in the development of a small-scale enterprise (SSE) program in Rwanda by helping BRD implement a pilot program for financing SSE 1/ Small-scale enterprises (SSEs) are defined as having total assets of less than 15 million Rwandese Francs, annual sales of less than 12 million Rwandese Francs, and less than 30 employees. 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. (ii) projects and by financing the cost of a study necessary to develop a nationwide SSE development program; and (c) help BRD continue developing its capabilities and evolve into a strong and mature financial institution. (ii) Components: The project would provide for: (a) a line of credit to BRD including: i) at most US$4.4 million to help BRD finance larger projects; ii) at least US$2.5 million for BRD's proposed program (at BRD's request and with IDA's consent, funds reserved for larger projects could be reallocated to finance small enterprises); and (b) US$0.1 million to help Government carry out studies for the development of an SSE program and of the interest rate structure in Rwanda. (iii) Benefits: Private and public sector investment would be promoted. BRD's capabilities and procedures particularly as regards assistance to SSE development would continue to be strengthened and improved. (iv) Risks: There is no major risk associated with this project. For a small development bank, BRD has a substantial pipeline of projects, which should be sufficient to support the forecast level of operations and ensure satisfactory rates of commitment and disbursement. Estimated costs 1/: Local Foreign Total (US$ millions equivalent) BRD Lending Program 9.2 17.1 26.3 SSE and Interest Rate Studies 0.1 - 0.1 Total 9.3 17.1 26.4 1/ Import duties and any taxes would be financed out of that portion of costs covered by project sponsors. (iii) Financing Plan: (BRD's Operations) Local Foreign Total (US$ millions equivalent) IDA - 6.9 6.9 BRD Resources 6.6 5.0 11.6 Net Cash Generation 2.6 - 2.6 Other Foreign Exchange Sources - 5.2 5.2 (including EDF) Total 9.2 17.1 26.3 Estimated Disbursements (IDA): IDA FY FY84 FY85 FY86 FY87 FY88 FY89 (US$ millions equivalent) Annual: 0.99 1.52 1.52 1.31 1.17 0.49 Cumulative; 0.99 2.51 4.03 5.34 6.51 7.00 Appraisal Report: No. 4082-RW of March 1, 1983 Rate of Return: n.a. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE RWANDESE REPUBLIC FOR A THIRD RWANDESE DEVELOPMENT BANK (BRD) PROJECT 1. I submit the following report and recommendation on a proposed credit to the Rwandese Republic for the equivalent of SDRs 6.5 million (US$7.0 million) on standard IDA terms, to help (a) finance the foreign exchange requirements of the Rwandese Development Bank (BRD) through the end of 1984 (US$6.9 million of which US$2.5 million for small-scale enterprises--SSEs 1/) and (b) Government carry out studies of the interest rate system in Rwanda and to develop a nationwide SSE program (US$0.1 million). As regards the US$6.9 million for BRD, funds under the SSE component (US$2.5 million) would be on-lent by Government to BRD at a rate of 5 percent, while funds for lending to larger projects/enterprises (US$4.4 million) would be on-lent to BRD at a rate of 8 percent. Funds for lending to medium and large enterprises would be repaid by BRD to Government under a flexible amortization schedule that would substantially conform with the aggregate of the amortization schedules of the subloans approved by BRD and financed under the proposed credit, subject to a maximum of 15 years, including a grace period not to exceed five years. Given the large number of small loans expected to be financed under the SSE component, the portion of the credit relent to BRD for this purpose would have a fixed amortization schedule of 15 years, including 5 years of grace, starting from the date of credit effectiveness. PART I - THE ECONOMY 2. A report, "Memorandum on the Economy of Rwanda" (No. 1108-RW), was distributed to the Executive Directors on July 27, 1976. Rwanda was visited by an economic mission in February 1979 and again in November/December 1981. The major findings of this last mission are reflected below. Country data are provided in Annex I. 3. Rwanda is a small landlocked country, surrounded by Uganda, Tanzania, Burundi and Zaire. It has the third highest population density of low income countries, at 210 persons/km2 (following Bangladesh and Sri Lanka), and its GNP per capita is among the lowest in the world, estimated at about US$240 in 1981. Rwanda's population of 5.5 million in 1982 is predominantly rural (with only 4.5 percent in urban areas), and lives in small individual farms scattered over hilly terrain. The balance between food production and population is precarious, as potentially arable land is scarce, yields of most foodcrops have 1/ See footnote page (i). -2- been stagnant, and population is expanding at an estimated 3.6 percent annually. Twice recently (1974 and 1980), Rwanda had to resort to emergency food imports. Agriculture (coffee, tea, pyrethrum, cinchona) provides most of the country's foreign exchange earnings from merchandise exports. Coffee is by far the most important source (55 percent) followed by mining products (20 percent), mainly cassiterite and wolfram. Rwanda's manufacturing base is narrow, and growth of modern manufacturing is limited by the small size of the market and by the lack of raw materials, marketing facilities, entrepreneurial skills and skilled manpower. The country, consequently, imports capital goods, steel, petroleum products, cement and other construction materials, and virtually every modern consumer product. Its merchandise trade is hampered by high transportation costs and dependence on neighboring countries for access to the seaports at Mombasa and Dar es Salaam. 4. A quantitative assessment of Rwanda's economic performance can only be tentative, as the national accounts estimates are based upon data of dubious reliability. These estimates suggest that during the period 1977-81 the rate of growth of real GDP averaged over 5 percent per annum, on the strength of reasonably good performance by most sectors, except those engaged in production for export. The recent growth of the agricultural sector can be explained, to a significant extent, by good weather conditions, increased world coffee prices in the late 1970s, improvement of the road network, and the rapid growth of urban and project-induced demand. Official production data indicate that foodcrop output (36 percent of GDP) increased at an average annual rate of about 5 percent in the period 1977-81, but this estimate may prove to be overstated. In any event, it is the judgment of informed observers that the balance between food production and population remains precarious, as food production is vulnerable to weather conditions and population is increasing rapidly. With the exception of tea, the production of export crops was disappointing during 1977-81. Largely influenced by weather, and in spite of substantial increases in 1978 and 1981, coffee production tended to stagnate. Absolute declines were recorded for the country's two other export crops, pyrethrum and cinchona. After having expanded at an average rate of 11 percent per annum, tea production also declined in 1982, and the industry has experienced difficulties in obtaining sufficient quantities of green leaves to process for export (due to competition from other crops and lack of fertilizers). 5. Mining production also declined during 1977-81, at an average annual rate of 4 percent, and Rwanda failed to profit (until recently) from reasonably favorable international prices, particularly of cassiterite (by far the most important product). This poor performance has been a consequence of various factors, among them management problems at SOMIRWA (the mining company), equipment obsolescence, and substantial increases in production costs (mainly the wage bill) while world market prices have fallen and the Rwandese franc (which is linked to the United States dollar) has appreciated vis-a-vis the country's major trading partners. 6. Manufacturing growth was, on average, 6 percent during 1977-81, largely reflecting agricultural performance as an estimated three-quarters of manufacturing output consists of the transformation of agricultural products, mainly banana and sorghum, into beer, and agro-industries (coffee, tea, sugar). Modern manufacturing has been limited to import substitution industries such as shoes, textiles, soap, plastic utensils, corrugated iron sheets, all of which rely on imported raw materials. A cement plant located in Cyangugu (southwest Rwanda) is due to start operations in the next two years and is expected to make Rwanda self-sufficient in cement. 7. Tertiary sector activities experienced a fairly rapid expansion during 1977-81. Commerce and transportation increased at an average annual rate of 7 percent reflecting increases in marketed foodcrop production, manufacturing output, and imports (especially of consumer and intermediate goods). Traffic on Rwandese roads is estimated to have expanded at about 7 percent per annum, the fleet of pick-ups more than doubled during 1979-81, and imports of transport equipment increased at nearly 11 percent in real terms, albeit all from a very small base. 8. Traditionally, the Government has pursued prudent fiscal policies. A principal indicator of this was the budget surpluses ran during 1977-81 (on average, 2.5 percent of GDP). The Government's ability to sustain these surpluses was aided by favorable terms of trade, which served to raise export duties (particularly in 1977-79, following the rise in coffee prices) and import duties (insofar as Rwanda's exports financed a relatively large volume of imports, upon which the revenue structure is highly dependent). Also, substantial capital inflows facilitated the growth in imports, thereby adding to government revenues. In 1977-81, nearly 50 percent of central government revenues (which averaged 10 percent of GDP) came from import and export taxes, with coffee exports alone contributing 21 percent; taxes on beverages, and on income and property accounted for most of the remainder. Expenditures were distributed mainly among administrative services (25 percent), education (26 percent), and defense (20 percent). Expenditures on agriculture and public works have expanded faster than total expenditures in recent years. 9. The fiscal situation, however, has deteriorated since 1981. In contrast to the preceding years, increases in revenue have fallen short of increases in expenditure. Budgetary receipts from coffee export duties have stagnated at lower levels than those of previous years as a result of declining coffee prices and in spite of higher export volumes. At the same time, there has been a significant expansion in government expenditures reflecting, inter alia, the impact of the general wage awards granted in September 1980, the addition of a new Ministry of Higher Education, and implementation of the education reform. In an effort to expand the revenue base and increase revenue, the Government introduced a new business tax in 1981 which, however, has not yielded sufficient revenues to compensate for the decline in revenue from coffee. As a result of -4- these developments, the overall budgetary balance has shifted from a surplus of RwF 1.2 billion in 1980 (equivalent to 1 percent of GDP) to deficits of RwF 2.2 billion and RwF 2.6 billion in 1981 and 1982, respectively. In an attempt to arrest the fiscal deterioration, the Government increased import tariffs in January 1982 and taxes on beer and cigarettes, in January 1983. 10. The Government has been traditionally quite conse.rvative in its monetary and credit policies. Inflationary pressures have arisen mainly from supply shortages caused by frequent disruptions of supply routes through neighboring countries, increased international transport costs, and increased prices of imports and domestic foodstuffs. Inflation averaged 10.6 percent per annum during 1977-81; it peaked at 15.8 percent in 1979, primarily as a result of the closing of the Uganda border, but also reflecting higher transport costs following the 1979-80 oil price rise. The inflation rate fell to 7.3 percent in 1980 and declined further to 6.5 percent in 1981, as trade flows through Uganda were back to normal, and the rate of increase of import prices decelerated. 11. Rwanda's increased export earnings (until 1980) and large inflows of foreign grants and loans enabled the country, during 1977-81, to increase imports substantially and to build up international reserves. In real terms, imports of goods and non-factor services expanded at an average annual rate of 5 percent and averaged 27 percent of GDP. At the same time, Rwanda's gross international reserves reached, at end-1981, an amount equivalent to nearly seven months of estimated 1982 imports of goods and non-factor services. In 1982, however, Rwanda suffered its first reserve loss in many years, as coffee export receipts remained at about the same (depressed) levels of the previous two years, foreign grants and loans declined, while imports continued to expand rapidly. At end-1982, gross foreign official reserves were down to the equivalent of five months of projected 1983 imports of goods and non-factor services. 12. Rwanda's Third Development Plan, like its predecessor, remains essentially a qualitative document which provides a broad statement of national development priorities 1/ but lacks a multi-year sectoral investment program, 1/ As in the Second Plan, five of the six main goals of the Third Plan aim at the satisfaction of basic needs: (i) food self-sufficiency; (ii) job creation, to ensure an adequate family income; (iii) education and training; (iv) improvement of basic health services; and (v) provision of minimum standard housing. - 5 - key input and output targets (in physical as well as financial terms), and an agenda of policy and institutional reforms for implementing the overall strategy. Other important weaknesses of the planning process are: the absence of a mechanism for periodically assessing the changing outlook regarding resource availabilities and the feasibility of the projected levels of investment and the weak linkage between the planning and budgetary processes. In consequence of these deficiencies, Rwanda's plans have not served as effective instruments of economic management. Nevertheless, the Government has made serious efforts to pursue the Plan's objectives. The limited success of these efforts has been largely due to the country's structural constraints (among them the critical population problem), institutional weaknesses (stemming largely from lack of skilled personnel), and insufficiency of domestic financial resources. At the same time, the lack of skilled personnel, fragmentation of institutional responsibilities, and poor coordination among concerned agencies have limited the country's capacity to absorb external resources. 13. The Government has taken steps to address these problems. Of particular importance have been actions concerned with the extremely rapid population growth, and the lack of education and training. In 1980 it established the National Population Office (ONAPO) to plan, coordinate, and mDnitor all population activities. ONAPO has started to sensitize the population about the implications of excessive demographic pressure on the country's limited resources, a few pilot family planning programs have been set up, and a nationwide fertility survey is scheduled to start in mid-1983 which is expected to provide valuable information on the potential demand for family planning. Obviously, the impact of these measures will only be felt in the long-run. Meanwhile, the population is growing at 3.6 percent annually and expected to double by the year 2000. To address the problem of lack of education and training, the Government introduced an education reform in 1979 whose objectives are appropriate to the country's needs, but whose implementation has been hampered by financial constraints and the lack of teachers. 14. As mentioned earlier, external aid (of US$25-30 per capita) was an important catalyst to the country's favorable economic performance during 1977-81. This aid has been mainly for infrastructure and technical assistance, most of which (58 percent) has benefitted agriculture, education, and health care. These three sectors, together with transport and communication, received nearly 64 percent of the aid extended to Rwanda in 1981, an emphasis which is in line with the country's objectives and priorities. The principal sources of foreign assistance and their average share during 1977-81 were Belgium (27 percent), the European Development Fund (14 percent), the Federal Republic of Germany (8 percent), IDA (7 percent), and France (6 percent). - 6 - 15. Economic management in recent years has been prudent, as evidencedby relatively low inflation rates, low debt service ratio, and avoidance of projects of dubious economic justification. This was andoubtedly facilitated by substantial aid inflows and favorable terms of trade in the early part of the period. The terms of trade have deteriorated since 1980. It is thus evident that the country's need for external assistance will increase substantially. Its external debt is still manageable. At end-1981, the medium- and long-term external debt outstanding (disbursed only) amounted to US$172 million equivalent, or 15 percent of GDP, and the debt service ratio was equivalent to only 1.8 percent of exports of goods and non-factor services. Hence, there remains scope for further borrowing. However, given the poverty of the country, its overwhelming constraints and vulnerability, and its unfavorable medium-term prospects, external funds should continue to be provided in the form of grants or loans at highly concessionary terms, and include a high proportion of local cost financing and non-project assistance. PART II - BANK GROUP OPERATIONS IN RWANDA 16. Bank Group assistance started in 1970 and initially focused on the improvement of the road network and the strengthening of agriculture production. Rwanda has received eighteen IDA credits totalling US$188 million,of which five (totalling US$69.0 million) were for roads, seven (US$80.6 million) for agriculture, two (US$9.2 million) for DFC projects, two (US$18.0 million reduced to US$16.4 million) for education, one (US$7.5 million) for telecommunications and one (US$5.0 million) for technical assistance. There have been no Bank loans. An IFC loan of US$535,000 for a tea factory was signed in 1976; a second IFC loan of US$226,000 and contingent equity commitment of up to US$60,000 to expand the tea factory were signed in September 1980. Annex II contains a summary statement of IDA credits, IFC investments and notes on the execution of ongoing projects. 17. The first three highway projects are completed and totally disbursed. A fourth credit for a highway maintenance project (Credit 769-RW), which became effective in August 1978, is three-quarters completed and is progressing satisfactorily. A US$25.9 million credit for a Fifth Highway Project became effective on December 8, 1982. 18. The first agricultural development (Mutara) project was completed in July 1979 and funds have now been completely disbursed. A second credit of US$8.8 million, which supports the second phase of a long-term development for the Mutara region, was declared effective in May 1980, experienced start-up problems due to difficulties in recruiting technical assistance but is proceeding satisfactorily now. The Cinchona Project (US$1.8 million) is nearing - 7- completion and has progressed well. The Bugesera/Gisaka/Mingongo mixed farming and rural development project (BGM I) is about completed; construction, procurement and budgeting have proceeded satisfactorily though the results of foodcrop and plant improvement components are below appraisal estimates due to a lack of appropriate technical packages for the relatively dry project area. Given this, the BGM II project, for which a US$16.3 million credit was approved July 13, 1982, emphasizes research for semi-arid crop development. A project to support reforestation programs in Kigali, Butare and Gisenyi Prefectures (IDA Credit 1039-RW for US$21.0 million) became effective on November 11, 1981; the project includes a study of renewable energy sources for Rwanda. A US$15.0 million credit for a coffee improvement/foodcrops project in the Lake Kivu region became effective January 18, 1982; all staff have been recruited, the first year extension program has been completed successfully, and research activities have commenced. A credit for an education project (US$8.0 million) became effective in 1975; physical implementation has been complicated by procurement problems (para. 19 below). The first credit of US$4.0 million to the Rwandese Development Bank (BRD) has now been fully committed. BRD's performance under the credit has been highly satisfactory. A second credit of US$5.2 million to BRD became effective in January 1980. The credit is nearly fully committed. Additional information on the two BRD credits is contained in paragraph 43. A credit for a telecommunications project (US$7.5 million), which aims at reducing Rwanda's geographic isolation from other countries and at improving internal telecommunications facilities, became effective July 7, 1981, and is proceeding satisfactorily. 19. In fiscal years 1979-81, disbursements for Rwanda totalled US$28.9 million compared to new commitments of US$42.4 million. In the same period, the average annual disbursement rate (ratio of change in disbursements to undisbursed balance) was 20 percent; this is about average for countries of the Eastern Africa Region. While disbursement performance in general is satisfactory, notable difficulties have arisen in the case of the First Education Project. The lack of acceptable record keeping caused significant delays in the processing of disbursement requests. However, following a UNESCO-assisted final inspection and evaluation mission for the workshops financed under the project, disbursements have resumed. Implementation of the Second Education Project approved June 15, 1982, should be less affected by similar weaknesses given the familiarity with Bank Group procedures now acquired in the Ministry of Primary and Secondary Education. 20. One of the major constraints on Rwanda's development is the shortage of technical/managerial capacity. This affects all sectors and inhibits project preparation and implementation. Intensive technical assistance and on-the-job training of Rwandese staff are therefore a salient feature of the Bank's program for Rwanda, either under individual projects in the various sectors or through the Technical Assistance Project (declared effective November 22, 1982). - 8 - 21. For the future, the primary emphasis of Bank operations will remain on rural development, the main objective being to increase food production as well as export crops, while maintaining soil fertility. A major emphasis will also be placed on the development of human resources, focusing on population planning and support to basic education and skills training to improve agricultural productivity, provide skilled manpower, and influence attitudes on the population issue. Further investment is also justified for infrastructure (including water supply facilities -- a project for which is being prepared -- and roads to reduce the country's isolation and provide incentives to further intensification of agriculture as well as increased specialization and diversification through better marketing). Another area requiring special attention is energy to lessen the demand for fuel imports and mitigate their impact on the balance of payments. A study of renewable energy sources is being financed under IDA credit 1039-RW (para. 18), and a regional hydroelectric power project on the Ruzizi river is being prepared. PART III - THE INDUSTRIAL AND FINANCIAL SECTORS The Industrial Sector 22. The industrial sector, broadly defined, comprises mining, manufacturing and construction, each of which includes modern as well as traditional or artisanal segments. Although industry (thus defined) is the largest sector after agriculture (accounting for 21 percent of GDP in 1981), it is small even by African standards, with value added estimated at about US$270 million in 1981. Manufacturing is the dominant activity with a share of 73 percent cf the sector's value added. The main production is of consumer goods, particularly food and beverages, textiles, shoes and a few household goods. The production and processing of such agricultural products as coffee and tea is also important and contributes to the country's foreign exchange earnings from merchandise exports (70 percent in 1981). Mining, which is largely for cassiterite and wolfram, is dominated by one company, SOMIRWA (Socifte des Mines du Rwanda). Cassiterite and wolfram accounted for about 17 percent of total merchandise exports in 1981. 23. The growth of industry in general, and of manufacturing in particular, continues to be affected by long existing constraints -- a small domestic market, low per capita income, and limited possibilities for exporting to neighboring countries. In addition, investment costs are high (largely due to high transportation costs and the long time required for imports to arrive -- which necessitates holding large stocks of inputs and spare parts). Finally, the shortage of skilled manpower and infrastructure deficiencies discourage investors. 24. Available data indicate that in addition to a large brewery there are about 100 relatively small enterprises in Rwanda. Employment in manufacturing was estimated at about 35,000 in 1980, or about 1.5 percent of the total active population. Food manufacturing continues to dominate the sector accounting for over half of the value added in 1981. This sub-sector remains largely - 9 - traditional and artisanal although there have been some attempts to modernize traditional processes such as the production of banana beer and wine. What data are available suggest that annual investments in manufacturing in current terms increased from US$8.7 million equivalent in 1977 to about US$13.0 million equivalent in 1980, an increase of about 10 percent in real terms. The main factors that continue to favor such investments are the unexploited local opportunities in either import substitution or in the processing of local materials for export, the rapidly increasing transportation costs that give locally produced goods a natural protection, and Rwanda's comparative political stability and a relatively open economy. 25. Industrial Policy. Rwanda's industrial policy has attempted over the years to establish a framework within which the limited potential of the sector can be achieved, mainly through the efforts of the private sector. This policy gives priority to industries that use local raw materials, some of which for export, are labor intensive, and substitute for imports. Among the measures taken by the Government to encourage industry, the most important are: (i) liberalization of the investment code which provides firms, whose share capital is about RwF 10 million or more, with such incentives as an exemption from or reduction in the rates of customs duties and taxes on imported capital goods, spare parts and inputs, as well as from taxes on profits for at least five years; (ii) an industrial zone (on a site close to Kigali-- this zone, financed by FED, contains about 10 enterprises and is likely to be fully occupied soon); (iii) a bureau for the promotion of industry (established in 1977); (iv) a special guarantee fund (started in 1978) to provide special guarantees to small enterprises on loans they obtain from participating financial institutions; and (v) regional cooperation, in particular within the Economic Community of the Great Lakes, which provides a framework for economic cooperation between Rwanda, Burundi and Zaire through entities such as a regional development bank. 26. Sector Issues. The Second Five-Year Plan (para. 12) and the Third (1982-86) Five-Year Plan give priority in the industrial sector to increased production of basic consumption goods, to processing locally produced agricultural and mineral products and to maximizing employment. The promotion and preparation of industrial projects, however, still suffer from serious institutional shortcomings. First, the procedures that govern applications under the investment code and the granting of incentives should be simplified. Also, given the role that small-scale enterprises (SSEs) are expected to play in the development of industry in Rwanda, the code should be reviewed to determine what incentives could and should be provided to SSEs. A full review of this investment code is planned by the Government, and the technical assistance included in the proposed project will assist in this effort. Second, there is need to strengthen and improve the capacity to prepare projects. The Bureau for Industrial Promotion (para. 25 (iii)) is starting to develop some projects, but it is too early to judge the usefulness of its work. The effort to identify and develop projects is also likely to benefit from the IDA-financed technical assistance project (para. 20), as well as from the National Studies Bureau (BUNEP), the autonomous agency for project preparation activities set up under the auspices of the Ministry of Planning. - 10 - 27. The Small-Scale Enterprise Sub-sector. Rwanda has no reliable data on the number of SSEs and their employment, investment and output. Generally, SSEs can be found in fishing, dairy, poultry, grain milling, bakery, garment, brick- and tile-making, and wood and metal works products activities as well as in such service areas as auto repair. Before an appropriate nationwide SSE development program can be devised, there is need for gathering more reliable information on this sector through a comprehensive survey. As the Government does not possess the necessary resources to undertake such a task (which never before was undertaken), the proposed project will help in this respect by providing study funds adequate to finance consultant services and the local costs of the survey, which will be part of the overall SSE study (paras. 29 and 50). 28. SSE Potential and Development Strategy. The constraints on SSE development include limitations in available technical and management know-how, insufficient knowledge of the available resources and opportunities, lack of active support by financial institutions and lack of incentive measures specifically designed for the sector. There are indications, however, that the potential for SSE development may be considerable and that attractive investment potential exists for goods such as improved bricks, concrete blocks and tiles, agricultural tools as well as for food production and processing. BRD has received in recent years requests for financing from many SSEs which it could not consider for various reasons, notably shortage of staff and lack of specialized skills. These requests have averaged about US$1.0 million equivalent per year, or more than three times the average level of BRD's SSE loan approvals in recent years. With some encouragement, it is likely that the level of SSE requests would have been even higher. 29. Although the Government has not yet developed an adequate framework for the promotion of SSEs, there are expressions of support for SSEs, specifically in the Third Development Plan; however, no specific policy or strategy exist for SSE development. BRD's intention to lauch a new intensive effort to promote and finance SSEs promises to be a breakthrough, but requires the formulation of a nationwide SSE development program. One of the studies financed under the proposed project will therefore identify the institutional and policy framework of such program. The Financial Sector 30. The most important institutions comprising Rwanda's financial system are the Central Bank (Banque Nationale du Rwanda), two commercial banks, the Development Bank of Rwanda (BRD), the People's Banks (Banques Populaires), the Savings Association (Caisse d'Epargne), and the Mortgage Bank (Caisse Hypothecaire). While the People's Banks have agencies in most of the communes, the commercial banks and the Savings Association have branches only in a few of the provincial towns offering limited service. The Central Bank (Banque - 11 - Nationale du Rwanda - BNR) is responsible for supervising the country's financial institutions, formulating monetary and credit policies, and managing the international reserves. The two commercial banks (Banque Commerciale du Rwanda and Banque de Kigali, established in 1963 and 1966, respectively), are majority foreign owned and managed. They finance exports, particularly coffee, and imports, and account for about 86 percent of the short-term credit extended in Rwanda; their combined medium- and long-term lending accounted for only about 20 percent of their total outstanding at December 31, 1981. The Development Bank (BRD) is the most important among the term-lending institutions, accounting for 43 percent of the total outstanding term credit at the end of 1981. The Savings Association, next in importance, provided 24 percent of total term credit at December 31, 1981. The Caisse Hypothecaire, the mortgage association which was recently established for financing housing and building construction projects costing US$5,500 or more, is still relatively inactive. 31. Inflation. In recent years, prices in Rwanda have been mostly influenced by the seasonal fluctuations of crops, the border closings with Uganda, and the movement of the Rwandese franc, which is linked to the US dollar, vis-a-vis European currencies (most of Rwanda's imports originate in Europe). After increasing by 7 percent in 1976, the general consumer price index increased by an average of 13.5 percent p.a. in 1977 and 1978 and jumped to 15.8 percent in 1979 (a year in which there was a prolonged border closing with Uganda). In 1980, inflation fell to 7.3 percent p.a. largely because of good harvests and the lack of transport problems, combined with some appreciation in the Rwandese Franc. Continued good crops and appreciation of the Rwandese Franc contributed to a continuation of this trend in 1981, when the general price index is estimated to have increased by about 6.5 percent. In 1982, the rate of inflation increased slightly to about 10 percent. According to IMF/Bank estimates, inflation is projected to average about this same level over the next four years. 32. Interest rate ceilings are fixed by BNR, which put into effect a substantial upward revision in November 1979. These rates have remained substantially unchanged and appear to be adequate for the time being, although they may have to be increased in future, depending on the evolution of inflation (para. 31). The maximum term deposit rates for periods between one month and one year vary from 6 to 7 percent and range from 8 to 9.5 percent for savings of longer than one year in duration. - 12 - Banque Rwandaise de Developpement 33. Objectives and Role of BRD. BRD was established in 1967 with a broad mandate to encourage the creation and development of productive enterprises in Rwanda through the provision of long- and medium-term loans or guarantees and equity participations. Since its creation, BRD, which is the main institution providing term financing in Rwanda, has played a significant role in financing investment, particularly by the private sector. BRD has succeeded in securing foreign exchange from several bilateral institutions. Its ability to provide funds, coupled with its experience, has given it a major role in the implementation of the second and third Five-Year Plans. It is the only institution in Rwanda with the expertise to undertake a proper overall evaluation of investment projects. 34. BRD Ownership and Resources. BRD's share capital consists of "A" (public) shares, which must account for at least 55 percent of the total and are reserved for the Government and other public agencies and institutions, and "B" (private) shares for private and foreign shareholders. There are no differences between the rights and privileges of either category of shareholders. Besides its share capital, BRD's local resources include retained earnings, two special investment funds, and two loans from the Government and the Central Bank (BNR) at very concessionary terms. BRD's foreign exchange resources consist of seven loans/credits from three different donors (CCCE, IDA and KfW) and a large line of credit provided by the Central Bank out of the proceeds of an IMF Trust Fund loan. The foreign loans carry interest rates between 0.75 and 6 percent and have maturities ranging from 11 to 50 years. The two CCCE loans are tied to French procurement and one of them has been granted for financing a specific project at an interest rate of 9 percent p.a. On the other loans, there are no conditions attached to restrict BRD's flexibility of operation. The Government carries the foreign exchange risk on all loans. 35. Management, Staffing and Organization. BRD's recently appointed (July 1982) Managing Director is young and dynamic and has experience in the Government, business and banking. He is assisted by two expatriate experts for general administration, investments and project evaluation. The remainder of BRD staff (64, of whom 20 are professionals) are Rwandese. Most professional staff are university graduates trained in banking related fields. Training needs within BRD are met mainly through practical on-the-job instruction although some staff have benefitted from specialized courses abroad. Since its establishment, BRD's staff has been organized into two departments: (i) The Investment Department which is responsible for project evaluation, supervision, and provision of technical assistance to enterprises assisted by BRD; and (ii) the Administration and Finance Department which is responsible for disbursement and loan collection, as well as for maintaining BRD's accounts and administering - 13 - the local and foreign resources. In the past, when BRD was small, this organization was adequate, but with the rapid increase in the volume and complexity of operations, BRD has become aware of the need to strengthen the top-level management of the institution and reorganize itself to handle better an increasing level of more complex operations. In July 1982, several organizational changes were introduced which should contribute to greater efficiency. These include: creation of an SSE division to appraise and supervise SSE projects; creation of a separate disbursement and loan collection unit; and appointment of separate managers for the investment and administration/finance departments. 36. Operating Policy and Procedures. BRD's present policy statement is satisfactory. It does, however, require the changes noted below to strengthen the analysis of the economic impact of projects, to simplify the interest rate structure, and to adapt some policies to SSE requirements. BRD has made significant progress in improving the quality and standard of its appraisal work, particularly the financial and technical aspects. Projects are thoroughly analyzed and, in some cases, redesigned during appraisal to adapt them to economic and financial conditions in Rwanda. In contrast, the economic analysis of subprojects is still relatively weak and needs to be strengthened. Calculation of net foreign exchange earnings/savings or the incremental value-added is done in an inconsistent way, while the economic rate of return is only estimated for large import substitution projects. To correct these shortcomings, BRD has been asked in the future to calculate the economic rate of return for all non-service sector projects above US$200,000; amendment of its Policy Statement to reflect this requirement is a condition of credit effectiveness (Section 5.01 (b)(ii) of the Development Credit Agreement). BRD's supervision procedures are satisfactory with staff normally visiting each project under supervision twice a year. Projects encountering difficulties receive additional visits. BRD has been very active in project promotion and has successfully identified a large number of investment opportunities in industry, agriculture, as well as in the service sectors; this has spurred BRD's growth at a rapid pace in the last several years. BRD now intends to devote efforts to the promotion of small projects and has already initiated studies in a number of subsectors (woodworking, garages, tea-growing, quinquina) to assess market and investment opportunities. BRD policies concerning foreign exchange risk, interest rates, disbursements and audits are discussed in paragraphs 46, 49, 54 and 55 of this report. 37. Operations. As of December 31, 1981, BRD had approved loans and equity investments amounting to RwF 2.4 billion. Most equity participations were made before the mid-1970's with loan approvals increasing in importance in the mid-1970's and expanding rapidly to the present. Industry has become the predominant sector in the last three years accounting for 48 percent of total - 14 - loan approvals. Other sectors of importance include serviees (garages and storage). Because BRD is the only source of foreign exchange term loans in Rwanda, it has been involved in financing all sizes of projects ranging from large-scale projects of RwF 240 million (US$2.6 million) to small-scale project- amounting to RwF 0.5 million (US$5,440). Generally, BRD keeps the size of its investments within 20 percent of net worth in order to spread the risks and in accordance with its exposure policy. On a few projects for which its intervention exceeded the 20 percent ratio, it has obtained adequate supplementary guarantees (mostly from Government). Projects typically have financial rates of return in excess of 15 percent and an estimated investment (including initial working capital) per job created in the range of US$2,500-3,000 for small enterprises and US$25,000-30,000 for medium and large enterprises. 38. Financial Condition. BRD is a sound and creditworthy institution. In 1981, its term debt/equity ratio was about 0.7:1.0, well within the agreed 3:1 limit, while its debt service coverage ratio was 2.2. Of the medium- and long-term debt totalling RwF 677.8 million, RwF 551.6 million was in foreign exchange on which the Government carries the foreign exchange risk. The remainder was local currency borrowings from the Government and the Central Bank. BRD has a conservative provisions policy which offers adequate protection against losses on the portfolio. Debts considered doubtful or bad amounted to less than 2 percent of the portfolio as of Decembser 31, 1981. Total arrears of more than three months at the end of March 1982 amounted to less than one percent of the portfolio. BRD's liquidity position is very strong and is expected to remain so as a result of substantial loan repayments by clients in the next three to four years. During negotiations it was agreed that BRD would maintain a debt/equity ratio of 3:1 (Section 3.03 of the Project Agreement). 39. BRD and SSE's. BRD has undertaken a review of its role in financing SSEs. In the seven years ending December 31 1981, 44 percent of BRD's 73 loan approvals were for small enterprises (SSEs) Ix but only 3.1 percent in terms of amount. This level of approval was much lower than the actual demand for loans. Because of staffing constraints and the lower risks associated with large loans, BRD investigated on average only about 40 SSE loan applications per year, representing aggregate annual loan requests of about RwF 100 million. None of BRD's 13 large enterprise clients had arrears of over three months at March 31, 1982, while two of eleven medium-size clients and 11 of 25 small enterprise clients were in arrears at that date. On the other hand, BRD analysis shows that several factors could alleviate the negative financial impact of SSE lending. First, more experience in the sector should lead to improved repayment performance through better criteria to select projects and promoters. Second, the current streamlining of loan processing procedures for 1/ For SEE definition, see footnote, page (i); medium-scale enterprises are defined as having net assets of less than RwF 75 million. - 15 - for SSEs should hold down administrative costs. Third, an increase in BRD lending rates should help improve its average spread (para. 49). Fourth, continuing access by BRD to Government's guarantee fund should help minimize the financial impact on BRD of bad debts on SSE loans. To facilitate expansion of BRD's SSE program, assurances were obtained during negotiations that BRD will maintain its participation in the Government's Guarantee Fund (Section 3.05 of the Project Agreement). 40. Bank Strategy. The Bank's strategy in the industrial sector has evolved gradually over the years from a purely institution-building effort to the establishment of a dialogue with the Government on sector policy issues. Under the first two IDA credits (para. 42), the main objective of Bank assistance was to help BRD develop into a sound financial institution. That objective is now largely achieved. BRD is strong financially and has relatively experienced staff. With this third IDA credit, it is proposed to begin a new phase in which the Bank will assist BRD and Government in starting a serious effort to define policies for the SSE sector and help develop SSEs, while continuing to strengthen BRD under its new management. The Bank has already provided BRD and the Government with a consultant to help prepare the SSE component of the proposed project. In addition, a review of the SSE/artisan sector was carried out under the World Bank/UNIDO Cooperative Program. The proposed project will help to reorient BRD's operations and increase its lending to SSEs, while also providing support to help Government develop a national SSE program for which the Association might consider further assistance in the future. Finally, the Bank will be joining efforts with other UN agencies in helping Government establish regional institutions and define more clearly the potential for regional cooperation in the field of industry. PART IV - THE PROJECT 41. The proposed project would be the third IDA operation in support of the Banque Rwandaise de Developpement (paras. 33-39). An appraisal mission visited Rwanda in April 1982. Negotiations were held in Washington from February 7 to 18, 1983; the Rwandese delegation was headed by Mr. Cleophas Mugaragu, Director General of the BRD. A detailed description of the project components is in the Staff Appraisal Report (No. 4082-RW), dated March 1, 1983, being circulated separately to the Executive Directors. Supplementary Project data are summarized in Annex III. First and Second Development Bank Projects 42. BRD has benefitted so far from two IDA credits: Cr. 655-RW for US$4.0 million, approved in July 1976 and effective in March 1977; and Cr. 896-RW for US$5.2 million, approved in April 1979 and effective in January 1980. The first - 16 - credit is now fully disbursed, while the second is about 80 percent committed and, as of January 31, 1983, had disbursed US$1.1 million. Thirteen subprojects had been financed by IDA as of January 31, 1983, of which three were below the free limit. These subprojects were well designed and fully justified on technical and financial grounds. The largest subproject (US$3.5 million, of which US$1.2 million was refinanced by the Association) was to help SOMIRWA (Societe des Mines du Rwanda) rehabilitate its mining operations and implement its first five-year development program which ended in 1981. SOMIRWA now employs about 8,500 workers in addition to the 2,000 artisan miners who extract and sell ores to the Company. The second largest subproject (subloan of US$1.2 million) was to assist MAGERWA, a storage company in which BRD is the main shareholder, in renewing and expanding its facilities (which had become insufficient to meet the country's needs). Of the remaining eleven subprojects, six were for industry and assisted firms in developing/expanding their production line (plastic products, corrugated iron sheets, textile) or diversifying their operations into new activities; five were for tourism development, purchase of printing equipment and materials, and financing of equipment for automobile and truck repair. In terms of geographical distribution, the subprojects tended to be concentrated in and around Kigali. All subprojects have high financial rates of return, often in excess of 15 percent, and those which are in operation show returns comparable to appraisal estimates. Although the economic rate of return has not been calculated for all the subprojects, available data show that those of an import substitution character generally operate without special protection, are competitive with imports and have saved the country significant amounts of foreign exchange. Project Description and Objectives 43. The proposed project includes two components: (a) A line of credit to BRD comprising: (i) US$4.4 million to help BRD finance larger projects; (ii) US$2.5 million for BRD's proposed SSE program; and (b) US$0.1 million to help Government carry out studies and develop an SSE program. The proposed credit would thus help BRD, an effective financial intermediary, to continue contributing to the development of the productive sectors of the economy in line with the strategy of Rwanda's Third Five-Year Development Plan. More specifically, the objectives of the proposed project are to: (a) provide the needed foreign exchange resources for priority capital investments (both SSE and larger prospects); (b) finance the cost of studies necessary to develop a nationwide SSE program and to determine how the interest rate system could be further rationalized and contribute better to Government development objectives; and - 17 - (c) help BRD continue developing its capabilities and evolve into a mature financial institution. Line of Credit to BRD 44. Eligibility. All subprojects within BRD's scope of operations would be eligible for financing. They would have to be financially sound, selected by BRD in accordance with its investment strategy and justified on the basis of a full economic analysis, including calculation of the economic rate of return for all non-service sector projects above US$200,000. SSE subprojects would be selected and appraised according to a simplified format agreed with the Association during appraisal. The free limit for an individual subproject would be US$200,000, and the aggregate free limit US$2.5 million. As all SSE sub-projects would be below the free limit, the Association would review in detail the first ten submitted by BRD to ensure that the simplified format agreed upon is used effectively. 45. On-lending Rate. Since the Association would be providing about 57 percent of BRD's foreign exchange gap during 1983-85, the on-lending rate of the proposed credit would have a major impact on BRD's future profitability. During negotiations it was agreed that: (i) BRD would raise its relending rates to levels which should permit it to earn an average interest rate of about 12.5 percent; and (ii) IDA funds for financing SSEs (US$2.5 million) would be on-lent to BRD by the Government at an interest rate of 5 percent, given the much larger administrative costs and risks associated with this type of operation, while funds for lending to larger enterprises (US$4.4 million) would carry a rate of 8 percent. This would result in an average interest rate of 6.9 percent (as compared with 6 percent under the second IDA credit--para. 42) and would give BRD an average spread of about 5.6 percent (Section 3.01 (b) of the Development Credit Agreement). Terms and conditions of on-lending from the Government to BRD would be spelled out in a Subsidiary Loan Agreement; signature of this Agreement by both parties is a condition of credit effectiveness (Section 5.01 (a) of the Development Credit Agreement). 46. Foreign Exchange Risk. The Government has thus far carried the foreign exchange risk without a fee. It is recommended that this arrangement continue under the proposed credit (Section 3.01 (b) of the Development Credit Agreement). This is justified on several grounds. BRD has already agreed to raise its interest rates to real positive levels and has promised that it will review these rates with the Association annually (para. 49 (iv). Thus, adding a fee for the foreign exchange risk would increase further the real cost of resources to investors which Government views as running counter to its policy of encouraging term investment in productive enterprises. 47. Service Charge and Commitment Fees. For the same reason discussed in para. 46 above, it was also agreed that BRD would (i) pay to Government the 0.75 percent service charge only from the date of subproject approval, and (ii) be exempted from the IDA commitment fee which will be borne by the Government. - 18 - 48. Amortization Schedule. In conformity with the normal IBRD/IDA lending policy to DFSs, funds for lending to medium and large enterprises (US$4.4 million) would have a flexible amortization schedule that would substantially conform with the aggregate of the amortization schedules of the subloans approved by BRD and financed under the proposed credit, subject to a maximum of 15 years, including a grace period not to exceed five years. Given the large number of small loans expected to be financed under the SSE component, the portion of the credit relent to BRD for this purpose (US$2.5 million) would have a fixed amortization schedule of 15 years, including 5 years of grace, starting from the date of credit effectiveness. 49. BRD Interest Rates. Following a general readjustment of interest rates in November 1979, BRD revised its interest rate policy and adopted a system whereby the rates charged to clients depend on three factors: (i) the maturity of the loan (medium or long-term); (ii) the sector; and (iii) BRD's own estimation of the project's financial rate of return (FROR). The "basic" rate varies from 8 to 10 percent for medium-term loans, and from 9 to 11 percent for long-term loans, depending on the profitability of the project. Except for agriculture which is exempted, sector differentials are then added to the "basic" rate. In addition, a flat fee of 0.75 percent of the loan amount is paid at signature and a commission of one percent is charged on undisbursed funds. This interest rate structure applies to all local and foreign currency loans with the exception of two foreign lines of credit which have special onlending conditions. The result is a very complicated system of interest rates which is not justified from the point of view of economic efficiency, penalizes good projects, is arbitrary and results in a relative low average interest rate (now about 10 percent p.a. on the portfolio). At negotiations, BRD undertook (i) to simplify its interest rate structure by eliminating FROR as a criterion for determining interest rates; (ii) not to give any interest rate preferential to SSEs; (iii) to increase all rates by 1 to 2 percentage points; and (iv) to set interest rates at positive levels in real terms and to review the level and structure of interest rates with IDA at least once a year (Section 2.02 of the Project Agreement). Further, Government undertook to carry out a study on interest rates in Rwanda by March 31, 1984 to determine how the system could be further rationalized and better contribute to the achievement of Government's development objectives (Section 3.01 of the Development Credit Agreement). The terms of reference as well as the timetable for this study were agreed during negotiations. Amendment of BRD's Policy Statement in order to achieve positive interest rates on all loans constitutes a condition of credit effectiveness (Section 5.01 (b) of the Development Credit Agreement). SSE Study Component 50. The Government recognizes the importance of developing SSEs and has agreed to carry out a study of the issues related to the development of a - 19 - comprehensive SSE program in Rwanda. Accordingly, it was agreed during negotiations that: BRD would take the lead in organizing and establishing a working group which will carry out this study for the Government; BRD will supervise the work of this group and coordinate its activities with the different ministries concerned (Plan, Economy and Commerce, and Finance). The study would address specific policy issues affecting the development of the SSE sector (such as investment incentives and the procurement system). Detailed terms of reference for this component were discussed and agreed with the Government and BRD at negotiations. The SSE study would lay the basis for drawing up an SSE development program in Rwanda which would be completed and discussed with IDA by December 31, 1984 (Section 3.01 (a) (iii), 3.03 and 3.04 of the Development Credit Agreement). Consultants for the studies cited would be employed in accordance with principles and procedures satisfactory to the Association and on the basis of the Bank's guidelines for the use of consultants (Section 3.02 of the Development Credit Agreement). Project Commitments 51. For the project period, 1983-85, commitments are estimated at US$26.3 million, of which US$17.2 million is foreign exchange. In the past, BRD financed on average about a third of the investment costs (the remaining costs being covered by subproject sponsors and other sources). Thus, the US$26.3 million forecast commitments are likely to result in about US$80 million of investments. Financing Plan for BRD Operations 1983-85 52. US$million Local Foreign Total Total Commitments 9.2 17.1 26.3 Resources Available for Commitment 6.6 5.0 11.6 Resource Gap 2.6 12.1 14.7 Financed by: Net Cash Generation 2.6 - 2.6 Third IDA Line of Credit - 6.9 6.9 Other Foreign Exchange Sources - 5.2 5.2 (including EDF) 2.6 12.1 14.7 IDA would thus cover about 57 percent of BRD's foreign resource gap, or about 40 percent of its total foreign resource requirements for the period 1983-85. BRD has already approached other foreign donors and is expected to be able to raise the balance of its needs. - 20 - Procurement 53. While the responsibility for selecting suppliers rests with the subproject promoters, BRD wants to be satisfied that the items to be purchased are at the lowest possible cost and suitable to the planned operation. For larger subprojects, several quotations are obtained during appraisal, and in cases where substantial construction is involved, BRD usually requires competitive bidding. Since subprojects financed by BRD only involve procurement packages of a relatively modest size, International Competitive Bidding (ICB) would not be suitable. BRD requires funds to be paid first, then disburses against presentation of invoices or relevant documentation. These procedures are adequate. Disbursements 54. The proceeds of the proposed credit would be disbursed as follows: (i) 100 percent of local and foreign costs of the SSE and interest rate studies and (ii) for BRD subloans financed under the line of credit (a) 100 percent of c.i.f. cost of goods and services imported for eligible subprojects; (b) 80 percent of the cost of locally purchased goods; and (c) 65 percent of the total cost of construction and civil works, representing the foreign exchange component (Section 2.02 of the Development Credit Agreement). Disbursements are expected to be completed over 6 years, or by December 1988. Audits and Reporting 55. Since 1976, when it was agreed under the first IDA credit that an independent auditing firm would verify BRD's accounts, the Nairobi based firm of Pannell, Kerr, Forster and Co., has been auditing BRD's accounts. The audits have been satisfactory and in line with the Association requirements. Under the proposed credit, BRD will continue to have its accounts and financial statements audited by independent auditors acceptable to the Association and will furnish to the Association certified copies of its audited financial statements and its annual report within six months after the end of the fiscal year (Section 3.02 of the Project Agreement). BRD will also submit to the Association quarterly reports which would include inter alia the following: financial statements, arrears and resources position statements, progress of operations and notes on major projects in difficulty. Government and BRD will also submit a project completion report at the end of the project period. Benefits and Risks 56. The proposed project presents a number of significant benefits. It would continue Bank support to BRD, the most important institution in Rwanda providing term financing for productive investments. It would assist Government in pursuing its industrial development policy which emphasizes: (i) diversification of the economy through investments (mostly involving private sector promotors) in industries which are labor-intensive, such as textiles, small-scale food processing and livestock development; (ii) jobs creation, - 21 - particularly through the SSE subprojects which are normally labor-intensive; (iii) resource mobilization for productive investments (based on experience with BRD I and II, two-thirds of funds would be generated by subproject sponsors and other sources); (iv) establishment of a nationwide SSE development program and launching through BRD an important effort in support of SSE projects; and (v) clarification of the role of interest rates in Government's development strategy. 57. There is no major risk associated with this project. For a small development bank, BRD has a substantial pipeline of projects, which should be sufficient to support the forecast level of operations. The rates of commitment and disbursement of the line of credit, which depend on the implementation of subprojects, are expected to proceed as anticipated. PART V - LEGAL INSTRUMENTS AND AUTHORITY 58. The draft Development Credit Agreement between the Republic of Rwanda and the Association, the draft Project Agreement between BRD and the Association and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. Special conditions of the credit are listed in Section III of Annex III. Special conditions of credit effectiveness would be: (i) signature of the subsidiary Loan Agreement by the Borrower and BRD (para. 45); and (ii) amendment of BRD's Policy Statement to modify the interest rate structure and to require calculation of an ERR for all subloans above the free limit (paras. 36 and 49). 59. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 60. I recommend that the Executive Directors approve the proposed Credit. A. W. Clausen President March 17, 1983 Washington, D. C. - 22 - ANNEX I Page 1 of 5 TABLE 3A RWhANDA - SOCIAL INDICATORS DATA SHEET RWhANDA REFERENCE GROUPS (WEIGHTED AVER/AGES AREA (THOUSAND SQ. EM.) - MOST RECENT ESTIMATE)- TOTAL 26.3 MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL 14.5 1960 /b 1970 /b ESTIMATE lb AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA GNP PIR CAPITA (US$) 70.0 100.0 239.0 250.8 1053.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 14.5 15.9 28.3 66.5 610.1 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 2858.0 3695.0 5530,0 URBAN POPULATION (PERCENT OF TOTAL) 2.4 3.2 45 17.8 28.3 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 10.4 STATIONARY POPULATION (MILLIONS) 38.1 YEAR STATIONARY POPULATION IS REACHED 2110 POPULATION DENSITY PER SQ. KM. 108.5 146.3 210.0 27.7 54.7 PER SQ. E-M. AGRICULTURAL LAND 189.3 240.7 393.0 86.7 129.9 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.3 45.7 46.7 44.8 46.0 15-64 YRS. 53.0 51.6 50.6 52.3 51.1 65 YRS. AND ABOVE 2.7 2.7 2.7 2.9 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 2.6 2.6 3.6 2.7 2.8 URBAN 5.4 5.4 6.3 6.2 5.2 CRUDE BIRTH RATE (PER THOUSAND) 51.2 . . 53.3 47.3 47.2 CRUDE DEATH RATE (PER THOUSAND) 27.2 22.3 20.1 19.5 15.7 GROSS REPRODUCTION RATE .. .. 4.1 3.2 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71=100) 81.0 102.0 105.0 88.7 90.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 83.3 95.6 94.2/c 90.2 93.9 PROTEINS (GRAMS PER DAY) 50.7 61.0 57.0lc 53.1 54.8 OF WHICH ANIMAL AND PULSE 25.6 34.0 29.17W 18.4 17.0 CHILD (AGES 1-4) MORTALITY RATE 32.0 30.5 29.0 26.7 23.9 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.2 42.1 45.2 45.6 51.0 INFANT MORTALITY RATE (PER THOUSAND) 147.0 142.0 137.0 129.9 118.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. 37.0/d 23.9 URBAN .. .. 41.0/d 54.9 RURAL .. .. 37.0/ij 18.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL . 53.0 57.0/e 25.8 URBAN .. 83.0 87.077 63.1 RURAL .. 52.0 56.O/e 20.2 POPULATION PER PHYSICIAN 143285.7/f 59596.8 38791.7/c 32097.3 14185.2 POPULATION PER NURSING PERSON 11617.87 8818.6 10460.77T 3264.6 2213.2 PUPULATION PER HOSPITAL BED TOTAL .. 790.4 650.0/c 1225.0 1036.4 URBAN .. 45.9 45.27W 249.5 430.8 RURAL .. 3097.0 1599.77 1712.1 3678.6 ADMlSSIONS PER HOSPITAL BED .. 21.2 21.3/g HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. .. URBAN .. .. RURAL .. .. 4.5/e AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. URBhN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. UR BA N.. RURAL C- ANNEX I - 23 - Page 2 of 5 TABLE 3A RWANDA - SOCIAL INDICATORS DATA SHEET RWANDA REFERENCE GROUPS (WEIGHTED AVE9AGES - MOST RECENT ESTIMATE )- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 49.0 73.0 70.0 63.2 83.3 MALE 68.0 83.0 74.0 72.7 96.1 FEMALE 30.0 64.0 67.0 50.3 80.4 SECONDARY: TOTAL 2.0 2.0 2.0 10.2 15.3 MALE 2.0 3.0 3.0 13.2 19.4 FEMALE 1.0 1.0 1.0 6.6 11.3 VOCATIONAL ENROL. (% OF SECONDARY) 39.9 12.2 16.7 7.9 4.7 PUPIL-TEACHER RATIO PRIMARY 38.8 59.7 53.2 47.4 38.6 SECONDARY 14.2 13.3 15.3 26.2 23.4 ADULT LITERACY RATE (PERCENT) 16.4/f 23.0/h 49.5 34.0 35.6 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 0.4 0.9 1.5/e 3.0 31.9 RADIO RECEIVERS PER THOUSAND POPULATION .. 8.1 30.1 34.8 71.8 TV RECEIVERS PER THOUSAND POPULATION .. .. .. 1.7 17.9 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION .. .. 0.04/c 2.9 19.1 CINEMA ANNUAL ATTENDANCE PER CAPITA .. .. 14.6/le 1.1 0.6 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 1617.8 2007.1 2679.8 FEMALE (PERCENT) 49.1 48.6 48.4 34.1 36.5 AGRICULTURE (PERCENT) 95.0 93.0 91.0 78.4 56.5 INDUSTRY (PERCENT) 1.0 2.0 2.0 9.2 17.7 PARTICIPATION RATE (PERCENT) TOTAL 56.6 54.3 51.8 41.4 37.0 MALE 58.9 56.9 54.7 53.9 46.9 FEMALE 54.4 51.9 49.1 29.1 27.2 ECONOMIC DEPENDENCY RATIO 0.8 0.9 1.0 1.2 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS HIGHEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 40 PERCENT OF HOUSEHOLDS .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 148.0/c 134.3 507.0 RURAL .. .. 85.07E 82.9 200.6 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 96.4 523.9 RURAL .. .. 43.0/c 60.4 203.6 ESTLMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 30.0/c 39.3 RURAL .. .. 90.0/c 69.0 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year bet'-,- 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1'S2. /c 1977; /d 1976; /e 1975; /f 1962; /g 1974; /h 1973. May, 1982 - 24 - ANNEX I Page 3 of 5 DEFLNIITIOWS L.1 SOCUIA INDICATORS Nates; Although the date -n drawn froourc..generlly judged the meet otholitain- and reliable. it should also be noted that thny -Yout be inte- national ly no.epneble be.aus of the lank of standardised deinition and concepts used by different coun.tries in collecting the data. The dte ar,noe Ibse seu inderib " dreo oniua wdnt ned,ad oao -eis etain eaJor diffe cocos. between ...untn ee. Tah feeo gnuaar he same coutrY group If the subject coutry and 2) .a..u.tny group with enenhat high. en arag i....nI uhon the coun.try gn-u of'ohs sbl:te .. noutr -lenop fu High Inco- 011 topor tens go shore "Middle. nco- N-rnh Africa an Middle. last" Is chon h...boca.. of ene scol-culturol ftfiitiesl. In the reference group data the.veag pr pultion eightsd arithmei- sn anso ,indicator co.d ohunt only abet 3-jui~tyIat the countrie inagoc-p h.e d:t. far that indicatort. Since Ohe -coerag at ocuottnie -no b nisrr wed tthnaclbtdly f oc and Ia c tr.cuinmtb ent-Ise iw. reltIng ucnges of on indica toro .othr.th eTa.. -...agae un only useful uicn nn navieo cnn Indlicatoran ari ae .g.ba cny and rofer.... groupe. ASAREA con aA. Poculanic conf_tcendiial td -tta,uban,t and r.ral - cpulttiac (otal,I Tonal - Tt ltufac rtn. nun ad aad inad uer 199daa urban, and rural) divided by thei opo I inn ..nhnrof huapital bedo Aglie.1-turl - intinarn of agurl ura1t urea cad t-aP-rarly or peraecl aaIoi in pubice and printgoru av poio opita and no-. far oropa. poauro,cabo and kitchen gardoa ant0 la ie fallca 1979 daa. bbilirctionnnno.IInital arc noabInboevo Pouvonly atotfrd by no Ioa ... pyain tctoahTIamvoycligpliinOpallycu-c_ ISP PER CAPITA (US$) - GNP pro ..pi,a -ei-ao tcrenmro ricra, ra- dil, non ar'e. co icoidd. ORu b'ocpiculu. hcannt, include braith culatd by na" c.ooncrico merhod ac Wonld no na (1979480 basc) .190. anmdica o...... no prnman-tl -Offod by a physkican(o by 1970, and 1980 data. mdical.. aci-t-n n ia,edoifo, non-) hich cffrr in-p. 'ilnlu, ne dacton and provide licioed r.go of ordinal fun 11i o- For otti- tNERGY COOSIfMfTION PERI CPITA - donaI -non..mption of c--eriol on-gy (Icni lctal punpoune urban .b.v..ta inlodI ano prinnipul/grcclhuo- olo anod lignite, p -rlo.ntura ga- cod hydro-. ncerand g-ctbeh eb- and rural b tpioou, lc l o rura hunyir1o aod medi-calcd eatrity trInIy) in gl-co of coal ooi-al-c Pen capita; 1960, 17.ad197 Inoeo.lycialined hc-pitala one uicluddonyudon tota. data. Adninai.n. Per HaPita1 Sod - ctal nub-n of udmin-iut to or di.Ihoogno from hoepitale dividod by the nuder, of bodn. POPLUTTION AND0 VITAL STATtISTICS Tota Popolatico. Mid-youe (hnono)-An of July 1; 1960. 1970,. ad 1980 HOUSING dunn. AcgoSian of H.corhold (pe..ecoc PI, hbcunohod1)- toal ,,ho. .an tona- ambn. PopntIrt 9A 90 ndIo aa b hoc,:hoId for hotctiotlclqponpturn. octllp, puic ~einnb g I n urn. cod choi ferta lity and bilitil icy d don ltg.eprloy. niig onudc-pnanttcunnd PPloo,adtnl i npcacttbtcr t775pa.Topc-lnvnicldn oono tintotIicloy In lvin qoatoo no p--tge meroto ot-lptr n0on haCno rh1i- e " ..no ....nunin dm10d in 190t. ofoel, uba. and- cora dorI logo crpnd lnr-I-y. C "ia Orroliny an,onodn by inoelo and- d t an fail plandIling potarmacce.:p-il, 1d~n.. oa- cachcoutry n tin tnigod onity ohen n.Pine ofnlnnth_ of- nana-t ..OCATOO anI otiiyto ioOthpo) 001c p ...vo . y , ,l,I-Adluc,ted nollment, fluthoc1~lba ad -naicarI. popolatyc -.Ov noutIonc. opito thhl-l nr ui. ong- ot -10c olor - choo -t. torch o-1 ad-Ifemal--ti-o toa, an o f f-n irthrui .-Iu equa ino-h dratl rae,dP f and aluc i. thagoctar-n- nrlmn falun noaptaylnla rtncn frnnov cams constan. Thin .iuuchrd oneofp utter tnctlit itofdoo -io i n pDCAIONcayobc-g cuon;coul ldnoido gdfi and f-tlicyrmeon lve of. unt oro. rp-ndut-c ranAhdjahgnraityoro bu cd- oot- Rtiodfs nt ngh f rn dunin c ct tnnoc. coylar-itonf macIp ma onat onny . i ycuaonngithouu Pounty uhaci-thoctalenaI o.dufailctc -nloo- na ono 10poon thuolthodo obo hin l of the drojohtrd, . ocun tlon ofe ibo yulaoin obo fsmepui anng ob no ab -o t P ofiil nobc ago. P in tbryour 20g.in dnh nathi c donlny ofl tectlityaoooclate n-ie- tnondary echanl-.g tonal = ;.ca antona.lo - fanyotde nohaldnr;unncda6r1 mheno ,-t I fnt e,-pdl. Irvol.h. ...hobtiooroqirnea lodi toot you ci'h opfno primary "'inortin Ornnnar Inaryroruutio In nounny. Tha ynar n.on 01rlay po puhuociin o tcldfee gactah vo-u-inIda.. oti 00cho Ic-u ..i . IntuIloc for polt niath adol haD anchd. -h.coaI- ly nO. ii on -12 it ofag; uoupvnccnuu arte go C~. -ndruly P _caoic I-nult rcld .. t 'i " ,o p,, Pm so. km Mid-yorpulic potoqr kiloano- (1000 hro-u...o) V_ ntinnalenrJollent (oroc f ..o2odacl..Ooninlino,tltuo... tonat una 1960, 1970 and 1979 data. iInoldo technioul, indoutnial. or 00c rgru Ochnrun nord Pro t. km. "g 'icotr.. land - Onnyp-d coahoor fcr ugoilclnuol1 land onolp no no dopo tmeot of noccodany i-uton ino.. l;10. 1972 and 0079 dat. PuI-ece ct t-phay. and nn-ndac-- a nurrrooldI PPntaittnAgo dlrutu..n (prlo-nn) ChOildooc (0-14 yect). c-king-uct (is- pruar and nooay lonolo dinudnd by nhoru. c :-h...oc inthI 64 or) an lrord (h5 y.a.. an d corn au poc-ntagni of old-pour corn- c-tnponding lomb.1 ain;1960, 1970 , and 198 data. Mo~lt 1i rn-o nato f(PInoo) - Litt-rcrdulcn (abict rod n aion) ,Popaltio_ Gooth latc (porctti - total -Annual groovh raes- oc tal lad- an a pornon-ag of total canto pnpo1ia-uonad 15 eoc nd coot. prar cnlto for 0911-i,6 ,190-7, an 19170-Ic. PopolaticoGco anfonc ra Anna 100000I laten of urban Popo- CONSUMOPTION laticot for 1950-60. 1960-70. atd 1970-80. Paoconfr (con .boad population) - P.un-g-o tanCn. lt u lid "nnh lair (poo tocu...nd) - Annual lire bLlohn PI, th.ounod of old-pont oauoocn nnta ih 01c;ccbr coans rre n popolatco 960" 91 n 9190data.- e1i buy -hicII-. Condn Drah lao (pro thounand) - Annuald-aho pro th--nad of old-pear adnRrion(nth.... popo lat)-al typon of ...oociodcrf adi Population; 1960, 1970, and 1980 d-on. b..dt..d..nttcgcnoralpobhic c tb adofppllin cloe n Crongornuci R ate-doAic_ oInbor of daughtero a caa nilb- hoar i0lnnocnirc ncut drand in ya hm. rngis-tutinn of rodin hen 0- norm l rprdun pcl o d it nhr mnpocn.... p000-0 age---o pifin for- ittuo- in of-ot; data I-te- c0t yrr- nay not bn c-p-cblo tinna tilltyotcs;uunllp f ie-al __oagn n ding In 1960, 1970. and 1990. 00.0..nlie. abnlinhrd linonniog. Family Ilanntnc- Ac..nptnn, Annua (thb.uacnde - uncool numbro of -a-nIptonu 00 noLor- (pot tho..n.nd populiatio - TV ocvr fcc b-nd-an on of hitt-ncnrrl drolon oce _npinno n nat-ionaI falli plannIng program. ....a pu,blic Per thcu.anod ppopluti.n; -noid.i unliconond f0rrcinrrc Poil Plannn-i ars(poront of ca-ind noe) - Pncrnatgr of marind 10 outinand in pyac at- reginontInc of TO nesI an In_ffc. anmeccf obld-hbaing ago (15-44 pear) h.c -n bicoh-o-trl1 d-ol-n ton -,oPIP,, CI'nlalona icon thb.u..d 2ncu1anion - Soon the --rgo tInl- all macrind cosmo in n-m age gcccp. -ulatino of "1duilgnea i--'oo -rcpaprn", dnfinrd anaproindic'l Puhlicatito docc-d prucalily n trtIllcdlng gon-ra noon it in ....stdood FOgD ANl NUTRITION tc o "dil"if0 ap er t lna- fontiome a cool loden of pond -do-ticn Pot CaPita 11969-P10011 - Indo of.parcapita annual Cinosa Aaonl.. uronodlanrpnr: Capita P poc oo-OBnnd cc the number of Praduotion of all food _omeoitin19Producion oct udno. Iad and toed and ti .iod during hbn pant, Inolodiof cdoiani-o to drlc-ilonino-a Is.o c....dar p.u. basin IC-diane cove primary goode. (e.g 91I. sIgronoan mbrnno. inct-d ot oncan) nahich ac e IbAndncot-inntrnn (e.g. _cffor and te urn enclodod). Aggrogate plod_nin.of c . oah ocuny in buo..d on L.AOR ORCfoo n-Ic..al a-rgn p-od-r prior - ightc; 1961-65, 1970. and 1980 dat. Tnota LaborOnc F .-(thonn~ands) --oroc cion Ponscon, including Per capita nopply o alon (onnoo o iemnn -zCup-tod iron anteed fIno and cormplcyod but ro-Indoc0 h'oonv_ u nudntn_ntI rcrrgy nqclnaln- of coo f-dlnp- in nilboIcononnoy pot "apita -toniog popul.oino of all ag.a. DaO loot, lon In -ai... o-trirnco cnn dap. Aailubln npyllon ncpoio dnenlo podcit no noot -cana-blr; 1960, 1970 enod 1980 lain. t ..goo np.lrdyc. andiobangul_ ocoi_ S licpdL inolrcoud- anleapp food o1do Peae(oot)-PmoIao ooca rco oo oa ao oe iuat tn nd in food Prnnnn,adlnonin din ihtno. Souirn- Agnicalt,cro (proc...ti - Labo Inoo iv farIng,9forrotry, bhottn, n men-n-hnr-aimatrd by_PAl bano.d phyoinlcgicol -rdn. too nncal anti- tiehiog at pont-nngo n t-nul Ilab., f IDr160 1920 ccd 1980 d.tc. ntr ad heath c- isdring Iicun-nu toopeot-ct, bndy ooilht_ og lod-ntry (pontoo) - L.ha Itoor in oItni1,I on utt-ion, m-an-acuiog anod cr0 dinroiburion of poplto an-inIg -0toco for ant at cod rtiip -uorad gao an P-onoi go of otal labor f-ror Ocsho, roi 196-6. 1219 977 dau P 1960 5970 a.d18 data. Pen capitad oa;pply of rrtni founptIdy rti otc fptcpt P-rtnipatln lato (po-oot9-) ona1. oaIn. und fo-lo e ar Iptnoo not supply of focd ,ptda.St s'Pply of fond Is doflond cn ahn.- ho ciiyrtna o oda oa,v .cd trmaln lbhnt Iorta quirom-c- to all onuI . ti-n I-obllobod by liA pro-ido c odioi_ pr....tag,,of c ital,' ca and foal pI oon Inotall1 a. 801 resctol y; alonnesc 60 glues of ltota Poc-in pc day aod 20 gSta of aioldand 1960,_1920. and 1980 data. Throune oo n L' arl pIc uo Pulcpcot foib0 rm thul ho anI"a P.ni. .. nI ouo- roloIog ago-no --t-uru of ocPouainadlngtime -nd . A ando am boo cha tobnn of 75 gStc of iotal prtonin and 23 gtraaofc fecnti. r at ftcm natlo-a ocu--o anmlP"""l a Invog for thn -aca,tproposd by PAD it the Thind cNnomun Dardc latn ` lati of popolutlo undot 15 cod 65 uIdInI Onyld fudluonep.-; ,1961-65. 91od197dn.n tho ocptal lbor c.- Pro canto nrntnin -aly tine anima and pulun-Prutoin uupplp of fond dn- tired from anmal and polun in gam_ pot dat;1961 -60., 19 70 atd 1972' darn. 08C0M01 DISTcRIBUTION Child (acre 1-Os) DeathSol fort ...nd) - Actua dranb. par thb....nd Jn Pocag tPivate Icnme fbtbt in outl and bind) - Rotrinrd by lioheut ago o,,u 1-4a y01, no. t bihldrr i t hin age glnup, onf andanolopingoc...- I peren.iohant 20 pootrot. p-errs 20 pret end Ponrn 40pnrowt tries data doriod (roe lifo tablno; 1960, 1920 and 1980 data. of h-ohorlds. bFALTH POVERTY TARIET CROUPS lite Onn..tanoy at Bltb (yruro) - Avonage ..ahrn of pram. of life Ircaining OTho tflllng nottcat arc -ry appnoninatn la-att of p-nrty lw-rl, no birth; 1960, 1970 and 1980data, and e baidheiconrprond with oo-id-oblccn-nio.. Intuon Mcotlity late (net thcoondl - Annual deaths of lof.t.at and.onen Ian lotlcatd Absyicto Pcrrny tIo.m leve fOOl pot oupital - arbon cod ral- - of agoPanfhouodliehrta 96,17 ua 1920J. dat.- Ahonlto pcnty Income Irnol Is rhat lonm lo-n hb.o. hich a minImal Anoint tn aoaoo(oon o:l f ppllco. ca, rban. and rotal - Su- tort al drquatr dint plan Iost.ntia1 oct-fond rrqoirnment ic n hon of people (otal1, urban andttl)"Oh .......abw rococo to -fe ftfcdablo. aaonspply fiocldottoctdnrfc ao Ito unreatod ho t soo-tu-l-ed Eoti Tmaogrlnntvo Povert Incomevlenn (US$ per onpita) - urban and rcrl.- -co auh.as that frIle pontroted blhoilo.. eprlngo, and eanitony rOon) on coal nlatlne pon-ry icnme lnowL is on-nhird of -on-gn pro napit P...oorge o theirtreoPeotinc pcpuloricno. to 00 urban ruptulin P ..r-ca Inocs ot the ruonroy. Urban lo-olIs wndf heIn ua f.c.ntai or tanadpo located nortmart ohoc 2G1 metore tZom h.ume maY ho l-1 with~ adjuo-eo fo higho- nI- of li~icg in orb an tees considere an boing olhiblo toanblr ...... It that b.u... On rota an-a -tlard Population Solca Aboclutn Povo-y Inca le-1 (ponnono -uba reaoblo atone ...Id iply thr.b,I-oeteo meebo o .f the ha...ehold and rtl- - Petero ot popcllaicn (urban and nata) h.o are "chbnlton doea -ht to prd a ditprnporttanto Pan of. the day in frtohiog tho so" ene 'o aP" Itca. orhon, and rual aerood hrb orn diapot...aI pecenar at thir pecote psa Eoiac.ttret dipo.aI caY ictlondn ohe ncllnt ia aMdcpcl. sorb no vitm t -rn tt, of h- etrt adar-nerby e--b-haa cyste an rho usa at pit pritina esd slab- PoePt1a no P-bPeyolin - Pcpalantnn divided by ot.er of prnticior physi- E..oaoin and Social Dota e an cOcoa qoallried fr- a medical s ol at unoiverity leve. EI ...mit An,alyela med ProjectSane Soemet- Polt.o eart!Loage Person - P.praltioo dinidedby eoshr of prootisiag :tY 1982 la, ad female grcdennme mLetmet nenmes pnctiool _ere aod _eee elia ri_a, - 25- ANNEX I Page 4 of 5 COUNTRY DATA-RWAU')A AREA POPULATION DENSITY (1982) 26.3 thousand sq. km. 5.5 million (mid-1982) 210 per square km. Rc-te of Growth: 393 per square km. of 3.6% (from 1978 to 1982) arable land POPULATION CHAPACTERISTICS (1978) HEALTH (1977) Crude Birth Fatc (per 1,G00) 54.0 Population per physician 38,792 Crude Death Rate (per 1,000) 21.0 ropulation per hospital bed 650 INCOM, DISTRIBUTICN ENT.RGY CONSUMPTION PER CAPITA % of national income, highest quintile .. (Kilograms of coal equivalent) 28.3 lowest quintilee ACCESS TO SAFE WA.TER_(1976) ACCESS TO ELECTRICITY Z of ponulation-total 35.0 % of populat-ion - total - rural NUTRITION (1977) EDUCATION (1980) Calorie intake as 70 of requirements 94.2 Adult literacy rate % 23.0 Per capita protein intake 57.0 Primary school enrollment % 60.0 (grams/day) GNP PER CAPITA IN 1981 (1): US $239 GROSS DCI{ESTIC PRODUCT IN 1981 (2) ANNUAL RATE OF GROWTF -(, constant 1976 prices) (3) US $ Mln. % 1977-81 CDP at Tarket Prices 1,257.8 100.0 5.8 Gross Domestic Investment 282.4 22.5 8.0 Gross National Saving 109.8 8.7 Current Account Balance -172.6 -13.7 Export of Goods, NFS 150.9 12.0 -3.9 Import of Goods, NFS 332.0 26.4 5.0 GOVERNMENT FINANCE Central Government (RwF Mln.) % of GDP 1981 (2) 1981 (2) 1972 Current Receipts 14827 12.7 8.3 Current Expenditure 14,040 12.0 10.7 Current Surplus 787 0.7 -2.4 Capital Expenditures 2,562 2.2 1.2 Overall surplus (4) -2,241 -1.9 -3.0 (1) The Per Capita GNP estimate calculated by the same conversion technique as the World Bank Atlas. All other conversions to dollars in this table are at the average exchange rate prevailing during the period covered. (2) Provisional. (3) Trend rates based on least squares estimates. (4) The overall surplus is not equal to the difference between current savings and development expenditures because the consolidated surplus or deficit of the Treasury special accounts is not shown in this table. not available. not applicable. -26- ANNEX I COUNTRY DtTA - RWAN0A Page 5 of 5 MONEY, CREDIT and PRtCES 1977 1978 1979 1980 1981 (Million RwF outstaniding end period) Mioney Supply (1) 10,175 11,204 14,185 15,331 16,331 Bank Credit to Government (net) 363 23 -1,350 -2,929 -1,939 Bank Credit to Private Sector 4,389 5,134 4,563 6,515 8,171 (Percentage or Inlex Numbers) Monev as % of GDP 14.0 13.8 14.6 14.4 14.2 Consumrnr Price Index (Jan-Mar 1976=i00) 116.7 131.3 152.1 163.2 173.8 Annuial percentage changes in: Consumer Price Index 14.5 12.5 15.8 7.3 6.5 Bank credit to Government (net) -77.4 -93.7 -5970.0 -117.0 33.8 Bank credit to Private Sector 60.1 17.0 -11.1 42.8 25.4 BALANCE CF PAYMENTS YERCIkNDMSE EXPORTS (AVERAGE 1978-81) 1978 1979 1980 1981(2) US$Mln. Z (US$ Millions) Exports of Goods, NFS 126 227 166 161 Coffee 79.5 54.8 Imports of Goods, NTS -261 -309 -323 -332 Tea 10.6 8.0 Resource Gap (deficit--) -136 -82 -157 -181 Cassiterite 17.6 13.1 Wolfram 5.5 4.1 Factor Services (net) -5 -2 5 12 Pyrethrum 1.3 0.9 lKet transfcrs - 5 -1 -3 Cinchona 11.9 1.5 ,lalance on Cur. Account -141 .79 -155 -172 Other 23.9 17.6 Total 140.3 100.0 Official Grants 95 128 106 106 Direct Private For.Invest. 10 13 17 19 Net MLT Lr,ens 19 40 33 25 EXTERNAL DEBT, DECEM3ER 31, 1981 Oc.er M & LT (net) 1 -22 -2 2 US$Mln. Net Short-Term Capital 21 -10 22 20 Public Debt, incl.guaranteed 172.1 Capital Flows, NEI -6 1 -2 -9 Non-Guaranteed Private Debt Errors & Omissions 5 -1 -6 1 Total outstanding & disbursed Increase in Reserves (-) -4 -70 -13 -1 Gross Reserves (end year) 100.0 177.6 208.8 199.2 NET DEBT SERVICE RATIO for 1981 (4) Petroleom imports (3) 17.0 23.0 30.0 3Z.0 Z Petroleum Exports (3) . . . . Public Debt incl. guaranteed 1.8 Non-guaranteed Private Debt Total outstandina & disbursed RATE OF EXCAINGE Annual End IDA LENDING,(July 31,1982)(USMln.) Averages Period IDA. 1974-80 Sept. 1982 Outstanding & Disbursed 74.96 US$ 1.00 = RuF 92.84 92.84 Undisbursed 40.08 RwF 1.00 - US$ 0.011 0.011 Outstanding inol. Undisbursed 115.04 1) Includes Money and Qjasi money 2) Provisional. 3) Crude and derivatives. 4) Debt Service net of interest earned on foreI.gn exchange reserves as a percentage of Exports of Soods and Non-Factor Services. ,. not available . not applicable -- less than US $ 0.5 million -27 - ANNEX II Page 1 of 5 THE STATUS OF BANK GROUP OPERATIONS IN RWANDA A. Statement of IDA Credits (As of September 30, 1982) Amount US$ million (Less cancellations) Credit No. Fiscal Year Borrower Purpose IDA Undisbursed (Five credits have been fully disbursed) 45.90 ( 567-RW 1975 Rwanda Education 6.38 2.06 655-RW 1977 DFC I 4.00 0.13 656-RW 1977 Agriculture Cinchona 1.80 0.08 769-RW 1978 Road Maintenance 15.00 3.04 896-RV 1979 DFC II 5.20 4.13 937-RW 1979 Mutara Agricultural and Livestock Development 8.75 5.24 1039-RW 1980 Integrated Forestry and Livestock Development 21.00 16.60 1057-RW 1981 Telecommunications 7.50 6.97 1126-RW 1981 Coffee/Foodcrops 12.65 13.42 1217-RW 1/ 1982 Technical Assistance 4.61 4.61 1250-RW 1/ 1982 Fifth Highway 24.99 24.99 1263-RW 1/ 1982 Second Education 9.65 9.65 1283-RW 1/ 1982 Phase II Bugesera/ - Gisaka/Migongo 15.55 15.55 Total 182.98 1/ 106.47 Total Held 182.33 1/ Not yet effective. Note: a) Rwanda has received no Bank loan. b) US dollars amounts equivalent for IDA VI credits are calculated at the rate as of September 30, 1982. - 28 - ANNEX II Page 2 of 5 B. Statement of IFC Investments (As of September 30, 1982) In 1976, IFC made a loan of US$535,000 for a tea factory. A second IFC long-term loan of US$226,000 and contingent equity commitments of up to US$60,000 for an expansion of the tea factory were signed in September 1980. C. PROJECTS IN RWANDA 1/ (As of September 30, 1982) Credit No. 567-RW Education Project; US$8.0 Milion Credit of June 30, 1975; - Date of Effectiveness: December 1, 1975; Closing Date: December 31, 1982 As now constituted, the project includes construction, equipping and furnishing of 250 primary-school workshops, a school-textbook printshop, and an office building Lor the School Financing and Construction Services (SFCS) as well'as furnishing and equipping of the Rural Agricultural Training Center of Gitarama. The project also provides technical assistance, vehicles and operating expenses for the SFCS. The project has been hampered by implementa- tion difficulties centering on two misprocurements (an amount of US$130,000 was cancelled because of misprocurement of certain construction materials; a second amount of US$1,491,000 was cancelled due to misprocurewent or paper). Hlost of the 250 workshops are nearly completed. The lack of acceptable reccrd keeping, howgever, has impeded the processing of disbursement requests. There- fore, a final inspection and evaluation mission for the workshops, organized by the Government (with IDA approval) was undertaken successfully in November 1981 with UNESCO assistance. Disbursements have resumed. The printshop is now operational and construction of the office building for the SFCS comDleted. The original Closing Date (June 30, 1982) was extended to December 31, 1982 by which time the project is expected to be completed. Credit No. 656-RW Cinchona Project; US$1.8 million Credit of August 20, 1976 Date of Effectiveness: March 2, 1977 Closing Date: March 31, 1983 The project provides over a five year period inputs and extension services to grow cinchona for export. Progress is satisfactory and there is still a demand from farmers for planting material. World market prices for cinchona derivates, however, remained low during 1979 and 1980, and OCIR Cthe implementing agency) had to reduce the farm gate price 'or cinchona bark 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report anv problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding they do not purport to present a balanced evaluation of strengths and weakness in project execution. - 29 - ANNEX II Page 3 of 5 and abolish the export tax and the OCIR levy. In September 1980 it was decided to establish a cinchona bark processing plant in the Kirambo area, and construction has-since started and the factory is scheduled to be open in early 1983. This should give Rwanda a stronger position in the future to compete with cinchona derivates on the world market. The original Closing Date (June 30, 1982) was extended to March 31, 1983 by which time the project is expected to be completed. Credit 769-RW Fourth Highway Project; USS15.0 Million Credit of April 21, 1978; Date of Effectiveness: August 4, 1978; Closing Date: June 30, 1984 Implementation of the Fourth Highway Project (a US$15.0 million Credit for road maintenance) started in January 1978. Specialists financed under the technical assistance program are performing satisfactorily. Procure- ment of equipment is completed. On the suggestion of the Association, an expert on labor intensive methods visited Rwanda for three weeks in June 1978 and recommended that one mechanized unit be replaced by one unit utilizing labor intensive methods. Following the consultant's recom-mendation, the Government has introduced labor-intensive methods for road maintenance. Although the project is about one year behind schedule, implementation is now at its anticipated progress rate and the project is proceeding satisfactorily. Credit 896-RW Second Rwandese Development Bank Project; US$5.2 Million; Credit of July 13, 1979; Date of Effectiveness: January 4, 1980; Closing Date: June 30, 1983 The Project aims at providing further assistance to the industrial sector by supporting the activities of the Rwandese Development Bank. It includes two components: (a) a second line of credi.t of US$5.0 million (wlhich is now about 90 percent committed) to finance BRD-s foreign exchange require- ments and (b) a feasibility study for the establishment of an auditing firm in Rwanda (US$0.2 million). Government has just finished reviewing the audit study and its comments are currently under consideration by the Association. Credit 937-RW Mutara Agricultural and Livestock Development Project; US$8.75 Million Credit of July 13, 1979; Date of Effectiveness: May 30, 1980; Closing Date: December 31, 1983 The project is the second phase of a long-term development program for the Mutara region. It aims at developing techniques, procedures, and an institutional environment which will make it possible to preserve the production potential of the area, make a rational and more intensive use of available resources, improve farming and ranching techniques, and integrate the project into the local administration. Settlement of cattle owners has proceeded in an orderly way and pasture production has improved, but destocking activities and credit recovery have been disappointing due to lack of clear policies and enforcement mechanisms. - 30 - AkNNEX II Page 4 of 5 Credit 1039-RW Integrated Forestry and Livestock Development Project; US$21.0 Million Credit of July 7, 1980; Date of Effectiveness: November 11, 1981; Closing Date: September 30, 1986 The project is the first phase of a long-term program to develop the forestry resources o'f Rwanda and to strengthen the livestock industry. Technical assistance personnel and key local staff have been recruited and start-up activities are progressing satisfactorily. Credit 1057-RW Telecommunications Project; US$7.5 Million; Credit of August 13, 1980; Date of Effectiveness: July 7, 1981; Closing Date: June 30, 1985 The proiect aims at improving the quality of existing telecommuni- cations services, while extending the coverage to geographical areas and segments of the population which at present do not benefit from such services. In addition to improving international and domestic telecommuni- zations (telephone and telex) the project provides technical assistance and training to the Hinistry of Post and Telecommunications. The project is coffnanced w.ith FAC and CCCE (US$3.9 million equivalent) and CIDA (Can$4.95 million) and is proceeding satisfactorily. Credit 1126-RW Lake Kivu Coffee Improvement and Foodcrops Proiect. US$15.0 Million Credit of April 29, 1981; Date of Effectiveness: January 18, 1982; Closing Date: December 31, 1986 The project aims at building up an effective extension service which would assist farmers in increasing foodcrop and coffee production using field-tested techniques and also helping OCIR-Cafe (the implementing agency) improve its financial management. Technical assistance personnel and key local staff have been recruited and start-up activities are progressing satisfactorily. Credit 1217-RW Technical Assistance Project; US$5.0 Million Credit of April 5, 1982; Date of Effectiveness: December 29, 1982; Closing Date: December 31, 1986 The project aims at increasing Rwanda's absorptive capacity, improving interministerial coordination in project preparation and monitoring, and strengthening the Ministry of Planning (MINIPLAN). The project credit agreement was signed April 5, 1982. The Project Economist to be assigned to the Programming Directorate in the MINIPLAN has been recruited and has been at his post since mid-June 1982. - 31 - ANNEX II Page 5 of 5 Credit 1250-RW Fifth Highway Project: US$25.9 MIllion Credit of June 1, 3982; Date of Effectiveness: December 8, 1982; Closing Date: December 31, 1986 Date of effectiveness is scheduled for December 8, 1982. Bidding on the project road is in progress. Credit 1263-RW Second Education Project; US$10.0 Million Credit of June 30, 1982; Date of Effectiveness: December 29, 1982; Closing Date: September 30, 1987 The Project Implementation Unit (PIU) is established and the architect for the PIU employed. A remaining condition of effectiveness is employment by the PIU of the project accountant. Effectiveness is set for December 29, 1982. Credit 1283-RW Phase II Bugesera Gisaka Migongo (Phase II) Project; US$16.3 Million Credit of September 28, 1982; Date of Effectiveness: December 29, 1982; Closing Date: December 31, 1988 Project start-up activities including the family planning component, areproceedino satisfactorily under the PPF advance. Effectiveness is scheduled for December 29, 1982. - 32 - ANNEX III SUPPLEMENTARY PROJECT DATA SHEET Section I: Timetable of Key Events (a) Project Preparation Agency: BRD/IDA (b) Appraisal Mission: April 1982 (c) Negotiations: February 7-18, 1983 (d) Target Effectiveness: July 1983 Section II: Special Conditions A. The Borrower would: (i) relend to BRD US$6.9 million of which US$2.5 million will bear interest at the rate of 5 percent p.a. and US$4.4 million will bear interest at the rate of 8 percent p.a. (para. 45); (ii) prepare and submit to the Association by March 31, 1984 a study of SSE policy which would serve as the basis for a nationwide SSE program (para. 50), and (iii) carry out the study by March 31, 1984 on interest rates in Rwanda (para. 49). B. BRD would: (i) calculate the economic rate of return for all non-service projects above the free limit (para. 36); and (ii) simplify its interest rate policy and charge positive interest rates in relending to investment enterprises (para. 49). C. Special Conditions of Credit Effectiveness are: (i) execution of the Subsidiary Loan Agreement (para. 45); and (ii) amendment of BRD's policy statement to modify the interest rate structure and to calculate an ERR for all non-service projects above the free-limit (paras. 49 and 36).