Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15841 PERFORMANCE AUDIT REPORT EGYPT SMALL AND MEDIUM SCALE INDUSTRY PROJECT (Loan 2458-EGT) EXPORT INDUSTRIES DEVELOPMENT PROJECT (Loan 2459-EGT) CONSTRUCTION INDUSTRY PROJECT (Loan 2460-EGT) June 28, 1996 Operations Evaluation Department 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 (annual averages) Currency Unit = Egyptian Pound (LE) Year Official Rate Market Rate 1984 US$1.00 00.70 0.83 1985 Us$1.00 00.70 1.30 1986 US$1.00 00.70 1.35 1987 US$1.00 00.70 1.50 1988 USSl.00 00.70 2.21 1989 USS1.00 01.10 2.52 1990 US$1.00 02.00 2.71 1991 US$1.00 3.30 1992 US$1.00 3.33 1993 US$1.00 3.35 1994 US$1.00 3.38 1995 US$1.00 3.38 Abbreviations and Acronyms ADB African Development Bank BM Bank Misr CBE Central Bank of Egypt DF1 Development Finance Institution EDBE Export Development Bank of Egypt EEC European Economic Community EEPC Egyptian Export Promotion Center EIB European Investment Bank EIDDC Engineering and Industrial Design and Development Center GOE Government of Egypt IBRD International Bank for Reconstruction and Development ICR Implementation Completion Report IDBE Industrial Development Bank of Egypt ILO International Labor Organization JCDCI Joint Committee for the Development of the Construction Industry KfW Kreditanstalt fur Wiederaufbau MIDB Misr Iran Development Bank NBD National Bank for Development OED Operations Evaluation Department PAR Performance Audit Report PB Participating Bank SAL Structural Adjustment Loan SAR Staff Appraisal Report SMI Small and Medium Industry SSI Small Scale Industry TA Technical Assistance Fiscal Year July I - June 30 FOR OFFICIAL USE ONLY The World Bank Washington, D.C. 20433 U.S.A. Offce of the Director-General Operations Evaluation June 28, 1996 MEMORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Performance Audit Report on Egypt - Small and Medium Scale Industry Project (L2458- EGT), Export Industries Development Project (L2459-EGT), and Construction Industry Project (L2460-EGT) Attached is the Performance Audit Report (PAR) on the Egypt Small and Medium Scale Industry (SMI) Project (Loan 2458-EGT for US$170 million), the Export Industries Development Project (L2459-EGT for US$125 million) and the Construction Industry Project (L2460 for US$100 million), each approved on June 28, 1984. They closed on June 30, 1994, two years behind schedule. Cancellations were 51 percent of the SMI project, 62 percent of the Export Industries project, and 76 percent of the Construction Industry project. The SMI project was to support SMI development and contribute to employment creation and private sector development by: (a) meeting long-term industrial finance requirements among SMIs; (b) increasing SMI access to technical assistance; and (c) strengthening the state-owned Industrial Development Bank of Egypt's (IDBE's) capacity for long-term project lending. It was also agreed that the Government would introduce a policy and administrative framework conducive to the development of small scale industries during implementation of the project. The Export project was to support development of the export sector by: (a) assisting the Government institute export-oriented policy reforms; (b) providing long-term finance requirements for export industries; (c) developing the institutional framework for export promotion; (d) increasing the availability of commercial export finance; (e) strengthening the capacity of the participating banks (PBs) to lend to the export sector; and (f) increasing exporter access to technical assistance. The Construction Industry project was to help initiate policy reforms in the sector by: (a) assisting the Government identify and implement policy; (b) upgrading management skills in contracting firms; (c) assisting the PBs appraise and supervise loans; (d) financing construction equipment; and (e) encouraging competition between private and public sector firms. The objectives of the three loans were not substantially achieved. Effectiveness was delayed by three years to mid-1987, due to disagreement by the PBs with the Loan Agreement between the Bank and the Government, which required sub-borrowers to take the foreign exchange risk. Even after the Bank agreed to the Government taking the risk for a fee, the credit lines moved sluggishly due to poor investor confidence in the economy and the availability of more competitive lines of credit. The SMI project utilized half the original amount, and 40 percent of the amount disbursed went to ten large borrowers (one of them borrowed more than US$8 million). The Export project utilized 40 percent of its original amount but financed also a high proportion of import substitution industries. Over one quarter of the amount lent was to projects now classified as problem projects. The Construction Industry project financed seven firms for 22 percent of the original amount. About 45 percent of the amount lent was to subprojects presently classified as problems and 37 percent of the total lent was in arrears as of December 1995. 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. Approximately 50 percent of the funds were committed at negative real interest rates or at rates below the prevailing market. The cost to GOE was high, having assumed the foreign exchange risk and seen its risk premium progressively diminished under repeated restructuring of the interest rate, while the currency depreciated. Each of the TA components, with the exception of the management training component and policy studies under the Construction Industry project, were canceled during implementation. The unsatisfactory outcomes reflect the inability of the selected instruments to address the key problems at the time. A range of policy and institutional constraints were the critical obstacles to development of the respective sectors rather than the financing constraint ultimately addressed by the interventions. In retrospect, the Construction Industry project would have been much more effective and efficient had it been a freestanding TA project without the credit component. The relevance of the Export Industries project diminished after the policy reform and institutional development components were canceled. The SMI project was inadequately designed to make a substantial contribution to the development of the sector. Project outcome is rated unsatisfactory and sustainability uncertain for all three projects. Institutional development is rated moderate for the Export and Construction Industry projects and negligible for the SMI project. Bank performance is rated unsatisfactory for all three projects. Lessons of the project include: (i) in the absence of policy reform, the relevance of a credit line in distorted conditions should be closely examined; (ii) lending pressure in the Bank can lead to the presentation of projects that are incompletely designed; (iii) narrow bottlenecks, such as passage of a specific law, which can derail the whole project should be anticipated and addressed at the design stage. Attachment FOR OFFICIAL USE ONLY Contents Preface ............................................................ 3 Basic Data Sheet..................................................... 5 Evaluation Summary .....................3....... ................13 1. Background ......................................... .........25 Industrial Development in Egypt...........................26 Bank Support for Industrial Development in Egypt .....................27 Major Constraints to Industrial Development............... .............27 2. Project Objectives and Design ............................ .....29 The Small and Medium Scale Industry Project........................29 The Export Industries Development Project ..........................30 The Construction Industry Project.................................... 32 3. Implementation and Results..............................35 Implementation Experience ....................................35 Project Results ............................................37 Financing Components ..................................37 Technical Assistance Components..........................37 4. Contribution to Industrial Development..........................39 Contribution to Financial Sector Development........................39 Contribution to the Policy Environment for Industrial Development ...........40 Contribution to Institutional Development...........................41 5. Assessment and Lessons ................................ .....45 Attainment of Objectives......................................45 Assessment of Outcome......................................47 Sustainability ............................. ................48 Bank Performance..........................................49 Borrower Performance........................................50 Lessons of Experience ....................................... 50 This report was prepared by Carl Jayarajah and Asita De Silva (Consultant) who audited the projects in December 1995. Norma Namisato provided administrative support. The report was issued by the Country Policy, Industry, and Finance Division (Manuel Pefialver, Chief) of the Operations Evaluation Department (Francisco Aguirre-Sacasa, Director). 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 wiihout World Bank authorization. 2 Annexes ...................................................... 53 I. Summary of Assessments: Egypt - Small and Medium Scale Industry Project (L2458-EGT)........................................55 II. Summary of Assessments: Egypt - Export Industries Development Project (L2459-EGT) ........................................56 III. Summary of Assessments: Egypt - Construction Industry Project (L2460-EGT).....57 IV. Summary Information on All Three Projects .........................58 V. World Bank Lending to Egypt, 1960-1996 ...........................59 VI. Related World Bank Loans to Egypt..............................60 VII. Egypt: Economic Indicators ........................... ........61 VIII. Gross Domestic Investment in Egypt ..................... .........63 IX. Utilization of Credit Lines by the Participating Banks ....................64 X. On-lending Interest Rates After April 1992..........................65 XI. IDBE Financial Performance Indicators.......................66 XII. Summary of Subproject Information Under the SMI Project (L2458)..................67 XIII. Comparison of Egypt SMI Loan with Sample of 45 Bank-wide SMI Loans..........68 XIV. List of Subprojects Under the SMI Loan (L2458) .............. ........69 XV. Summary Information of Subloans Under the Export Industries Development Project (L2459) ................................. .....76 XVI. List of Subprojects Under the Export Industries Project (L2459-EGT).................77 XVII. Egypt: Revealed Comparative Advantage ...........................79 XVIII. Structure of Exports in Egypt ...................................80 XIX. Trends in the Export Sector in Egypt.................. ..............81 XX. Covenant Compliance Under the Export Industries Development Project (L2459) ............................................82 XXI. Summary Information of Subloans Under the Construction Industry Project (L2460) ............................................85 XXII. List of Subloans Under the Construction Industry Project (L2460).......................86 XXIII. World Bank Lending to Egypt by Financial Year......................87 Attachment I. Letter from the Industrial Development Bank of Egypt (IDBE) ..... ......... 89 3 Preface This is the Performance Audit Report (PAR) for the Small and Medium Scale Industry Project (Loan 2458-EGT), the Export Industries Development Project (Loan 2459-EGT), and the Construction Industry Project (Loan 2460-EGT) in Egypt. The projects were each approved on June 28, 1984 and closed on June 30, 1994, two years behind schedule. Disbursements of the Small and Medium Scale Industry project were US$86.4 million, or 51 percent of the original loan amount of US$170 million. Disbursements of the Export Industries Project were US$47.7 million, or 38 percent of the original amount of US$125 million. Disbursements of the Construction Industry Project were US$23.6 million, or 24 percent of the original amount of US$100 million. The PAR was prepared by the Operations Evaluation Department (OED). The report is based on the Staff Appraisal Reports, the Memorandums of the President, the Implementation Completion Reports, the official files of the projects, and Bank economic and sector work. A mission visited Cairo in December 1995 to discuss the relevance and effectiveness of the three projects with the Government of Egypt, the participating intermediary banks, the technical assistance beneficiaries, and representative sub-borrowers. Their cooperation in the preparation of this report is gratefully acknowledged. The performance ratings of the PAR differ from those of the ICRs prepared by the Middle East and North Africa Region. The draft PAR was sent to the Borrower for comments. The comments received from the Industrial Development Bank of Egypt (IDBE) are reproduced as Attachment I to the PAR.  5 Basic Data Sheet SMALL AND MEDIUM SCALE INDUSTRY PROJECT (LOAN 2458-EGT) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs Loan amount 170 86.35 51% Cancellation 83.65 49% Date physical components completed 12/31/91 06/15/94 3.5 years delayed Cumulative Estimated and Actual Disbursements FY85 FY86 FY87 FY88 FY89 FY90 Appraisal estimate (US$M) .4 20.8 65 112.6 114.68 162.08 Actual (US$M) 0 0 0 6.01 12.71 31.35 Actual as % of appraisal 0 0 0 5% 11% 19% Cumulative Estimated and Actual Disbursements (cont.) FY91 FY92 FY93 FY94 FY95 Appraisal estimate (US$M) 169.98 170 170 170 170 Actual (US$M) 49.92 63 75.96 86.26 86.35 Actual as % of appraisal 29% 37% 45% 51% 51% Date of final disbursement: July 29, 1994 6 Project Dates Original Actual Identification 9/83 Negotiations 05/15/84 Board approval 06/28/84 Signing 04/04/86 Effectiveness 11/84 08/19/87 Closing date 06/30/92 06/30/94 Staff Inputs (staff weeks) Total Preappraisal Appraisal 61.6 Negotiations 35.1 Supervision 122.6 Completion 12 Total 231.3 Mission Data Date No. of Staff Specializations Perform. Types of,roblems (month/year) persons days in represented rating field Through 2/84 3 75 ECN,FNA Appraisal Through 6/84, 8/87 5 15 ECN, FNA 3 Effectiveness Delay Effectiveness Supervision 8/87, 9/87, 6/88, 11/88, 24 60 ECN (9), 3 till Delay, restructuring 3/89, 6/89, 3/90, 4/91, FNA (3) 10/92, need, slow 10/92, 4/93 then 2 utilization Completion 9/94 2 6 FNA, ECN 2 7 Other Project Data Borrower/Executing Agency: FOLLOW-ON OPERATIONS Operation Credit no. Amount Board date (US$ million) None 8 EXPORT INDUSTRIES DEVELOPMENT PROJECT (LOAN 2459-EGT) Key Project Data (amounts in Us$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs Loan amount 125 47.72 38% Cofinancing Cancellation 77.28 62% Date physical components completed 12/31/91 05/31/94 3.5 years delayed Cumulative Estimated and Actual Disbursements FY85 FY86 FY87 FY88 FY89 FY90 Appraisal estimate (US$M) 5 25 61 114 125 125 Actual (US$M) 0 0 0 1.5 8.75 15.31 Actual as % of appraisal 0 0 0 1% 7% 12% Cumulative Estimated and Actual Disbursements (cont.) FY91 FY92 FY93 FY94 FY95 Appraisal estimate (US$M) 125 125 125 125 125 Actual (US$M) 17.9 25.23 29.23 44.93 47.72 Actual as % of appraisal 14% 20% 23% 36% 38% Date of final disbursement: September 16, 1994 9 Project Dates Original Actual Identification 9/83 Negotiations 05/15/84 Letters of Development Policy Board approval 06/28/84 Signing 04/04/86 Effectiveness 11/84 08/19/87 Closing date 06/30/92 06/30/94 Staff Inputs (staff weeks) Total Preappraisal Appraisal 55.5 Negotiations 26.3 Supervision 141.1 Completion 10.3 Total 233.2 Mission Data Date No. of Staff days Specializations Perform. 7)pes ofproblems (monthlyear) person infield represented rating Through 2/84 3 75 ECN,FNA Appraisal Through 6/84, 8/87 5 15 ECN, FNA 3 Effectiveness Effectiveness Delay Supervision 8/87, 9/87, 6/88, 11/88, 24 60 ECN (9), 3 till Delay, 3/89, 6/89, 3/90, 4/91, FNA (3) 10/92, restructuring 10/92, 4/93 then 2 need, slow utilization Completion 9/94 2 6 FNA, ECN 2 10 Other Project Data Borrower/Executing Agency: Fouow-oN OPER oNS Operation Credit no. Amount Board date (US$ million) None 11 CONSTRUCTION INDUSTRY PROJECT (LOAN 2460-EGT) Key Project Data (amounts in US$ million) Appraisal Actual or Actual as % of estimate current estimate appraisal estimate Total project costs 132.2 30.49 23% Loan amount 100 23.62 24% Cofinancing Cancellation 76.38 76% Date physical components completed 12/31/91 10/30/94 3.8 years delayed Economic rate of return Institutional performance Cumulative Estimated and Actual Disbursements FY85 FY86 FY87 FY88 FY89 FY90 Appraisal estimate (US$M) 6.1 41.6 77.4 94.4 100 100 Actual (US$M) 0 0 0 0.25 0.41 0.48 Actual as % of appraisal 0% 0% 0% 0% 0% 0% Cumulative Estimated and Actual Disbursements (cont.) FY91 FY92 FY93 FY94 FY95 Appraisal estimate (US$M) 100 100 100 100 100 Actual (US$M) 4.19 18.2 22.08 23.09 23.62 Actual as % of appraisal 4% 18% 22% 23% 24% Date of final disbursement: May 2, 1995 Project Dates Original Actual Identification 1/82 Negotiations 5/84 3/84 Letters of Development Policy Board approval 6/84 06/28/84 Signing 11/05/86 Effectiveness 06/84 10/30/87 Closing date 12/31/92 06/30/94 12 Staff Inputs (staff weeks) Total Preappraisal Appraisal 93.51 Negotiations 65.74 Supervision 13.20 Completion 89.2 Total 231.3 Mission Data Date No. of Staff Specializations Perform. Types of problems (montWyear) persons days in represented rating field Through 2/84 3 75 ECN,FNA Appraisal Through 6/84, 8/87 5 15 ECN, FNA 3 Effectiveness Effectiveness Delay Supervision 8/87, 9/87, 6/88, 11/88, ECN (9), 3 till Delay, restructuring 3/89, 6/89, 3/90, 4/91, FNA (3) 10/92, need, slow 10/92, 4/93 then 2 utilization Completion 9/94 2 6 FNA, ECN 2 Other Project Data Borrower/Executing Agency: GO/Executive Unit, JCDCI FOLLOW-ON OPERATIONS Operation Credit no. Amount Board date (US$ million) TA Privatization C2402 9 6/25/92 13 Evaluation Summary Background 1. Over the last four decades, Egypt has maintained a largely centrally-planned, public sector-dominated economy. Industrial production has taken place within an import-substitution incentive environment. Despite several efforts to remove obstacles to market-driven, private sector-led growth, a significant private investment response and shift in the production structure has yet to occur. The World Bank has been active in supporting the Government of Egypt's (GOE) efforts through economic and sector studies, policy dialogue, and ten financial intermediary loans for a total utilized value of US$395 million since 1974. 2. In 1983, when the three loans under review were appraised, GOE had focused on development of small and medium industries, export industries and the construction industry as a high priority. The SMI sector was considered to be a significant provider of employment. The manufacturing export sector was recognized as essential following the decline in foreign earnings from oil exports. Meanwhile the construction sector had become increasingly inefficient and ineffective and its poor performance was seen as hampering attainment of GOE's investment targets. Project Objectives and Design 3. The Small and Medium Scale Industry project (SMI project) was to support development of small and medium industries (SMI) in Egypt and thereby contribute to the Government's effort to encourage the role of the private sector and foster employment creation. This was to be achieved by (i) meeting part of the demand for long-term industrial finance among SMIs; (ii) increasing SMI access to technical assistance; and (iii) strengthening the Industrial Development Bank of Egypt's capacity for long-term project lending. To support financial sector reform, the line of credit was to be disbursed to sub-borrowers at interest rates that reflected the cost of capital. The potential adverse impact of distorted macroeconomic and sector conditions on the efficiency of subproject resource allocation was to be addressed through the provision of technical assistance to subprojects and calculation of economic rates of return by the IDBE at appraisal.1 4. The objective of the Export Industries Development Project (Export Project) was to support development of the export sector in Egypt. To accomplish this, it was to (i) assist the Government institute export-oriented policy; (ii) meet part of the long-term finance requirements of new and existing export-industries; (iii) develop the institutional framework for export promotion; (iv) increase the availability of commercial export finance; (v) strengthen the capacity of institutions lending to the export sector; and (vi) increase exporter access to technical assistance. In support of reform in the financial sector, funds were to be on-lent at interest rates reflecting the cost of capital. Sub-borrowers under the project were to be given three to five 1 The Region says: "At the time of appraisal, the Bank was cognizant of the pervasive policy distortions in both the financial and real sectors, but considered that proceeding with the three loans was warranted by the importance of maintaining a minimum level of engagement with the Government while a broader dialogue on a comprehensive reform program that could be supported by a SAL was initiated on a parallel track." 14 years prior to exporting at least 30 percent of their production as this was the amount of time estimated to be necessary for export policy reforms to remove incentive and structural biases against exports. 5. The objective of the Construction Industry Project was to help initiate policy reforms to improve the performance of the construction industry. To accomplish this, the project was to (i) assist the Joint Committee for the Development of the Construction Industry (JCDCI) develop and implement policy reforms in the sector; (ii) upgrade management skills in contracting firms; (iii) assist financial institutions appraise and supervise loans to the construction; (iv) finance construction equipment and machinery needed for the production of building; and (v) encourage competition between private and public sector construction firms by encouraging private participation in the credit component. This was the first loan to support overall improvement in the construction industry and if successful, further Bank funded projects were to follow and focus more directly on institutional reforms as well as further policy adjustments. The project also intended to maintain nonsubsidized interest rates under its credit component. Implementation Experience 6. The loans became effective three years after approval (in June 1984) due to disagreement on the on-lending terms of the credit components. The participating banks (PBs) maintained that they would be unable to market the loans unless the Government took the foreign exchange risk which, at negotiations, the Government and the Bank had agreed the sub- borrowers should take. Agreement was reached in April 1987 that the Government would assume the foreign exchange risk for a 9 percent fee. This was a departure from Bank best practices of the time in the case of the export and construction industry projects, which recommended that only in the case of SSE lending or single currency subloans should the Government assume the foreign exchange risk.2 7. The funds moved sluggishly over the next 18 months due to the existence of other sources of funds, the uncompetitive interest rate (with other lines of credit being disbursed by the PBs at 15 percent or lower) and limited investment demand due to the poor prevailing economic climate. A second restructuring took effect in July 1989 under which the foreign exchange risk fee was reduced and the interest rate brought down to existing market-levels which were recognized as being negative in real terms by Bank management. Commitments started in earnest, but in mid-1991 the Bank suspended approval of all subloan commitments on the basis that on-lending interest rates has become substantially below market levels. In April 1992, a new interest regime was introduced under which on-lending rates were able to move with the market. Through the end of the subproject commitment period, they remained below the market 3 rate for 1 -year loans and approximately equal to the Government's marginal cost of borrowing. 2 The Region says: "The structure of onlending under the three loans was consistent with Bank policy at the time, which was to offer subborrowers the option to borrow either in foreign exchange or in local currency. In the latter case, a fee was charged to subborrowers to reflect the foreign exchange risks assumed by the Government." The Region says: "Competitiveness of the onlending rates with the prevailing interest rate structure in Egypt was an important consideration in the early phases of project implementation, until the macroeconomic policy framework in Egypt enabled a market-based, interest rate adjustment mechanism to be implemented. Bank policy at the time viewed such competitiveness considerations with importance, recognizing that in some circumstances, concerns over interest rate competitiveness may compete with the desire for positive real interest rates. During the later phases of project 15 8. Other changes under the SMI project included the upward revision of the maximum size of SMIs (to reflect price increases), reduction of the requirement that the Industrial Development Bank of Egypt (IDBE) lend at least 70 percent of the loan amount to SMIs (to 60 percent), and authorization to IDBE to provide free-standing replenishment of working capital loans. The Construction Industry loan was restructured to include loans for construction equipment to private dealers and to make public sector cement companies eligible for sub-loans. IDBE dropped out of the construction industry project shortly after effectiveness without making any loans. Under the export project difficulty in marketing the loans caused IDBE and the National Bank for Development (NBD) to withdraw without making any subloans. Misr Industrial Development Bank was invited to participate but made only one loan and then dropped out. The bulk of loans were made by Export Development Bank of Egypt (EDBE) which had converted from the apex institution into a PB. Project Results 9. Under the financing components, the SMI project disbursed 51 percent of the original loan amount to 232 subprojects, 92 percent of which are reported to have been satisfactory and maintained repayment schedules. An estimated 37 percent of the loan reached medium-sized firms and 18 percent SSIs, although 60 percent of borrowers had had previous transactions with IDBE. In addition, average subproject size at US$368,563 was large compared to other Bank- supported SMI projects. The top ten sub-borrowers accounted for 44 percent of the amount utilized, borrowing an average of US$3.7 million each. Under the Export project, 40 percent of the original loan amount was disbursed to 28 sub-loans, 23 of which (74 percent of the amount) are reported satisfactory. However, an estimated forty-three percent of the amount went to local market-oriented firms, with only weak export development plans. The top three sub-borrowers accounted for 53 percent of the amount utilized. Under the Construction industry project, seven subloans were made using 22 percent of the original amount. A total of 45 percent of the amount 4 disbursed consists of problem loans and currently 37 percent of the amount lent is in arrears. 10. Most of the TA components of the three projects were canceled with the exception of the management training program and sector work under the construction industry project which were effectively implemented. EDBE canceled the TA for staff training which it believed should have been provided as a grant rather than a loan. The exporter access to commercial finance component was also canceled during the project. The entire policy reform and export promotion institution development effort was abandoned when GOE delayed passing a law conferring management autonomy on Egyptian Export Promotion Center (EEPC). As a result, the TA component to develop the Exporter Assistance Fund was canceled and none of the studies planned under the project were carried out. Under the SMI project, Engineering and Industrial Design and Development Center (EIDDC) faced increasing financial troubles and requested the TA component to be canceled after utilizing some 25 percent of the allocated amount. IDBE was unable to implement the recommendations made by advisors retained under the EEC and implementation, an automatic, market-based, interest rate adjustment mechanism was successfully implemented under the three loans." 4 The Region says: "In this regard, the demand for funds under the three loans (at market interest rates) was influenced by the fast changing macroeconomic and investment climate since appraisal, and by the emergence of competing sources of funds from other major donors. Bank staff responded timely and often to adjust the operations, including proposing major cancellations to the Borrower, to reflect the changing circumstances and the declining market demand." 16 USAID technical assistance projects. The TA component to the PBs under the construction industry loan was also canceled. Attainment of Objectives 11. Overall, the objectives of the three loans were not substantially achieved. The SMI project only partially achieved its objective of financing term investment among SMI's and was unable to deliver increased access to technical assistance to SMIs and did not achieve its capacity development objectives in IDBE. In addition, the costs of the project were raised by a high percentage of non-SMI and previous borrowers included among the subprojects. The export project was also only partially able meet its objectives of financing export industries and contributing to the development of financial intermediation for exporters. The costs moreover, were high as a high proportion of import substitution industries were financed and 26 percent of the loan amount went to problem projects. In addition, the project was unable to help GOE institute export-oriented policy reforms, did not enhance the institutional framework for technical assistance, nor increase the institutional capacity of the other PBs, and was unable to increase exporter access to technical assistance. The Construction Industry Project partially achieved its objective of financing construction equipment and machinery, although at high cost as 45 percent of the amount was lent to problem projects and 37 percent of the amount lent is presently in arrears. The project was able to help develop management skills in contracting firms and contributed to progress in policy reform in the sector. It was unable to assist PBs appraise and supervise loans to the construction industry, however, and did not increase competition between private and public contracting firms. The three projects also did not maintain their objective of disbursing funds at subsidy-free interest rates and funds under each of the projects were committed at subsidized interest rates, including negative interest rates in real terms. Contribution to Financial Sector Development 12. While a large number of subloans were made under the three projects, it appears that they did not provide an incremental value by meeting a demand that would otherwise not have been met. Through the course of the project, commitment of Bank funds was hampered by alternate lines of credit, made available to PBs at terms more competitive to the sub-borrower and more profitable to the PBs. A high level of demand for funds in 1992 under the SMI loan was attributed to investor anticipation of a devaluation and of an increase in interest rates as a result of the ongoing reform program. When devaluation was limited and interest rates did not rise many of the subprojects were canceled. 13. The objective of maintaining subsidy-free interest rates was abandoned before effectiveness. In 1990, it was estimated that an on-lending interest rate of 16 percent implied a real effective cost of borrowing of -11.7 percent (taking into account the tax deductibility of business interest expense). A simulation exercise under inflation of 25.2 percent indicated that to obtain a real cost of capital of plus 3.04 percent, nominal interest rates would have had to be 30 percent or 40 percent to obtain a real cost of capital of 8.34 percent (Dailami and Dihn, 1991). Under the export project, efficient resource allocation was further reduced by EDBE's leveraging of Bank funds with its even cheaper subsidized funds in order to utilize its allocation. 17 Contribution to the Policy Environment for Industrial Development 14. While the loans focused on achieving their financing objectives, in retrospect, it is apparent that the availability of finance was not the major constraint to investment in any of the three target sectors. Lending was constrained by a weak demand arising out of poor confidence 5 among private investors in the economy. The banking system, moreover, was liquid and able to provide more long-term term loans without risking a mismatch between maturities of assets and liabilities. The potential contribution of the export project would have been to encourage investment in the sector and compensate exporters for any loss of competitiveness resulting from adverse policies in the local environment. Throughout the project, however, EDBE was hard pressed to find eligible exporters and ended up financing instead a good number of import- substitution subprojects. This reflected the need for incentives other than accessible or subsidized credit to encourage exports.6 15. The manufacturing export sector has seen serious deterioration in recent years, contracting by -9.7 percent between 1992 and 1994, while industrial production as a whole has contracted by -0.4 percent. Continuing obstacles deterring private investment in industry include the inconsistent enforcement of regulations, administrative and legal obstacles to exit and entry, and an under-developed capital market. A corporate tax regime higher than comparable countries, the cost of credit, the supply of materials and inputs, and stringent labor regulations are also cited by manufacturers as inhibiting their growth. The industrial incentive system lacks a strategic focus and is limited to a five to ten-year tax holiday for industries locating in the New Communities. Continued delays in the privatization program and flagging commitment to reforms have also sent unclear signals to private local and foreign investors. Contribution to Institutional Development 16. The potential contribution of the SMI loan to financial intermediation in the sector would have been to address the higher intermediation costs to the banks that prevent SSIs from being reached by the banking sector. These include higher marketing costs, higher per-unit costs of small loans, and a higher level of risk associated with SSIs. Under the project, however, IDBE retained a fixed margin on all loans regardless of size and was thereby not encouraged to absorb the higher risk and per unit costs associated with SSI lending. The result was that IDBE preferred lending to large, well-known borrowers and felt constrained by the size restrictions of loan.7 17. The SMI project was unable to have an impact on IDBE's ability to mobilize resources. IDBE has depended on subsidized funds, with Bank support, for most of the past twenty years. When IDBE did not have access to external credit lines in FY92, it was unable to off-set higher borrowing costs through higher lending rates or reduced intermediation costs. While it has The Region says: "Recent Bank PSD assessments, however, have found the lack of long(er) term credit to be an acute financial constraint for private business in Egypt." 6 The Region says: "The export project, however, encouraged potential exporters and raised awareness of exporting as - Pusinss proposition by requiring applicants to prepa. exporting plans as part of their loan applications." 7he Region says: "IDBE's margin, however, was large enough to enable to IDBE to earn a profit on SSI lending and, since availability of term funds was not a constraint, IDBE had an inherent incentive to enter this business subject to available capacity. In addition, the loan documents covenanted a certain proportion of required SSI lending." 18 received a reprieve in FY94 through the provision of LE 300 million from GOE to compensate it for previous foreign exchange losses and has made efforts to expand its resource base, whether it will able to maintain its current level of operations in the absence of further external funding is questionable. 18. Some progress was made under the export project in increasing EDBE's appraisal capacity. However, EDBE's appraisals were weakest in their assessment of export markets and the export potential of the enterprise, reflecting the anti-export bias in the environment.8 Only limited achievements were made with respect to IDBE's economic analysis of projects despite the fact that the project was designed to compensate for real sector distortions through economic analysis.9 IDBE's internal incentive system and corporate culture have traditionally emphasized lending volume over portfolio quality or the efficiency of resource allocation. As a result, despite continued Bank technical and financial assistance over the years, IDBE's arrears position has reached critical levels. Its portfolio affected by arrears averaged 47 percent of outstandings and arrears as a percentage of outstandings averaged 31 percent between FY90 and FY94. The Bank contributed to strengthening IDBE's follow-up department and a "Problem Project Unit" was also established to concentrate on high-exposure projects. Despite some progress made, however, the value of IDBE's assets and its viability as an autonomous institution continue to remain in serious question. Sustainability 19. While the Bank's projects were designed to prevent misallocation of resources in the distorted economy through economic appraisals, it is apparent that subproject selection and economic appraisals were not sufficiently rigorous to serve this purpose. Subprojects under the export project reflected the incentive environment for investors at the time, resulting in a large proportion of import-substitution rather than export-oriented subprojects being financed. Under the SMI project, only a handful of economic appraisals were conducted. To this extent, there is some question as to the continued viability of these firms in a reformed incentive environment. The continued viability of the subprojects is also questionable because PBs were allowed to approve projects with high debt to equity ratios. 20. The continued contribution of the financial sector achievements of the project can be gauged by the ability of investors to meet long-term financing needs. While the banking system as a whole is liquid and in a position to finance industrial investment, development of the capital market has been constrained by a low level of savings, NBD's exclusive rights to public savings and use of resources to finance long-term loans to public enterprises. The corporate tax rate in Egypt is also substantially above comparable countries, reducing the level of investment to be financed through retained earnings. 8 The Region says: "The projects, however, helped to strengthen the capacity of EDBE and IDBE for project appraisal, supervision, follow-up, debt collection and training. Institution building of these institutions constituted the bulk of institutional development work envisaged under the three projects. The Bank can take particular credit for developing EDBE on proper lines and for assisting it to become a sound institution functioning efficiently." 9 The Region says: "The Management Development Program under the Construction Project was well-managed and effective. In addition, progress has been made by the implementing agency to make components of the program financially self-sustaining, by developing and offering specialized training programs in the private market." 19 Bank Performance 21. It is apparent that both the Bank and GOE felt the pressure to increase the Bank's FY84 lending to Egypt. Negotiations on the loans had not been satisfactorily completed when they were presented to the board. GOE's insistence on using the official exchange rate for subioan repayments implied a substantial subsidy to borrowers and conflicted with the loans' objective of providing subsidy-free funding. In addition, inadequate consideration had been given to the difficulty of marketing a credit line at interest rates 3-5 percent above comparable local market rates and which included an increasing risk of exchange rate devaluation. The PBs who were closest to the market and represented demand for the loans were compelled to object to the original terms, resulting in the three year effectiveness delay. There are also some indications that a degree of coercion was necessary before the PBs accepted the terms that made the loans effective and several PBs openly expressed discontent with the loans and dropped out of the projects when given the opportunity. 22. In terms of the relationship with the Borrower, there are indications that the loans worsened rather than improved the wider policy dialogue with GOE. The Bank's agreement to the first restructuring of the lending rate in 1987, despite its compromise of the projects' interest rate objectives, was driven partly driven by the need to end the "bitterness relating to this negotiation which has vitiated our relations over the last eighteen months and also detracted us from the dialogue on the management of the economy." A project under the export loan was approved by the Bank, despite its clear import substitution-orientation partly to "avoid exacerbating the strained relationship with Bank Misr at this time as well as hard feelings with [a senior government official]." 23. Supervision of the projects was overall satisfactory regarding implementation. GOE was advised a number of times to cancel amounts unlikely to be utilized in the time remaining. Problems with the intermediary banks were identified in a timely manner and proper remedial action recommended. The total resources consumed by the project were high, however, involving 736 staff weeks to complete the projects. The poor performance of the credit lines was somewhat compensated by some timely and high quality ESW on the industrial sector in Egypt, produced during the course of the project. Borrower Performance 24. The performance of the participating banks in the loans is considered to be satisfactory to the degree that they made use of a significant amount of funds allocated to them, despite difficult circumstances, and report a satisfactory percentage of performing subprojects. The PBs also endeavored as far as possible to address the weaknesses in their operational and financial positions as recommended by Bank staff. GOE's objectives, however, extended beyond utilization of the loans. Under the export project, when the TA component was rendered ineffective, GOE did not develop and implement the policy reforms, despite clear indications that they were required to stimulate the sector. GOE's effort was more focused on the provision of finance to the export sector through subsidized loans and less on addressing the major disincentives to export that continue to exist. The cost to the Government was also high, having assumed the foreign exchange risk in a situation where its risk premium progressively diminished while the currency substantially depreciated. 20 Assessment of Outcome 25. The outcomes of each of the three loans were unsatisfactory. Under the export project, when its policy reform and institutional development components were de-railed, the project's relevance rapidly diminished and it was reduced to pushing a credit line through in adverse conditions rather than overcoming obstacles to sustainable development of the sector. In retrospect, the construction industry project would have been much more relevant, effective, and efficient had it been a freestanding TA project focused on policy and institutional reform, without the credit component which did not provide any additional leverage. The SMI project did not have clearly defined development objectives. As an industrial development project, it should have been used to help catalyze identified policy reforms in the sector. As a social-sector employment-generating project, it should have been presented in the context of Egypt's social safety net and identified its income distribution objectives. The form it took, in which it expected to compensate for real sector distortions through economic appraisal and TA to SMIs, was inadequate and overly optimistic in the highly distorted environment of the time. Overall, the unsatisfactory outcome ratings of the projects reflect the inappropriateness of the selected instruments to address the problems at the time and the system of incentives on both sides that encouraged their use. A lot of energy and resources were expended in achieving the credit line objectives of the projects, when their final contribution to industrial development in Egypt is largely negligible and the cost to GOE (in terms of foreign exchange losses and opportunity costs) high. Lessons of Experience 26. Lessons of the projects include: * The projects anticipated or endeavored to produce policy reforms, but these were not forthcoming. In the absence of a catalyzing effect on policy reform by a credit line, its continuing relevance in distorted conditions should be closely examined. * The construction industry project was a pilot project through which the Bank was to establish the basis for further interventions to help develop the construction industry. As such, it was burdened by the need to disburse a large line of credit for which there was no demand and which did not provide additional leverage. In such a situation, a freestanding technical assistance loan would have more a more relevant and efficient intervention. * The continuing problems faced by IDBE despite 20 years of Bank institutional support and 8 lending operations, indicates the diminishing returns to technical and financial support to an intermediary bank when its operating environment encourages it to behave differently. * Under the export project attainment of its policy reform and institutional development objectives was prevented because of the failure of GOE to pass a law conferring autonomy on EEPC. Narrow bottlenecks which can derail the whole project should be anticipated and addressed at the design stage. SUMMARY OF ASSESSMENTS: EGYPT - SMALL AND MEDIUM SCALE INDUSTRY PROJECT (L2458-EGT) RATING TYPE RATING ASSESSMENT The SMI project did not clearly define its development objectives. As an industrial development project, it should have been used to help catalyze identified policy reforms in the sector. The form it took, in which it expected to compensate for real sector distortions through economic appraisal and TA to SMIs, was inadequate and overly optimistic in the highly distorted environment of the time. The project partially achieved its objective of financing SMIs, although mid-course restructuring diluted its original intentions of maintaining a subsidy-free interest rate, lending at least 70% of the funds to SMIs, and providing investment rather OUTCOME UNSATISFACTORY than working capital loans. The project did not ensure a high quantity and quality of economic appraisals by IDBE and was unable to provide sub-borrowers with technical assistance. The efficiency of the project is considered to be low given that it required cancellation of 50% of the originally committed amount, consumed substantial Bank resources, involved high foreign exchange costs to the government, and precluded more relevant operations in the sector. In addition, protracted negotiations over on-lending terms were considered to have detracted from more productive dialogue on the management of the economy. The Bank has been providing IDBE (and its predecessors) with financial and technical assistance since 1973 through eight financial intermediary loans totaling $250 million. While some of IDBE's accounting procedures were improved following the 1991 financial sector reform program, its viability as an autonomous institution remains questionable and it is not poised to lead improvements in SMI access to institutional finance. While initial bank loans were valuable in establishing IDBE's presence in the NEGLIGIBLE lending market, its subsequent development has been constrained by its operating environment and its internal incentive system DEVELOPMENT and corporate culture which emphasize lending volume over portfolio quality and efficiency in resource allocation. Subsequent technical assistance and credit lines to support IDBE's institutional development have thereby had diminishing returns. The project was also unable to effectively increase the availability of technical assistance to SMIs, although it was identified as a key constraint in the sector. The sustainability of the benefits of the project will depend on the ability of the industries financed to adjust to changing macroeconomic and sector conditions. Limited evidence on their current activities and viability prevents an assessment of this SUSTAINABILITY UNCERTAIN likelihood. In terms the contribution to financial institutional development, sustainability will depend on improvements in the operating environment for IDBE (including its ownership) which will enable it to meet the needs of SMIs in a more effective and efficient manner and which are presently uncertain. A clearer SMI development strategy should have accompanied the project to address the major identified policy constraints to the development of the sector. IDBE's performance was satisfactory to the extent that it took steps to address its financial and BORROWER UNSATISFACTORY operational weaknesses and endeavored to utilized the funds as far as possible in difficult conditions. Its operating environment, PERFORMANCE however, has encouraged its internal incentive system to focus over the years on lending volume rather than portfolio quality or efficiency of resource allocation. IDBE's financial performance has been poor throughout the period, and its portfolio has high arrears. From the Bank's perspective, the design of the loan prevented it from making a substantial contribution to either industrial BANK development or the social safety net in Egypt. The objective of maintaining subsidy-free interest rates was encouraging but PERFORMANCE inappropriate under the circumstances. The absorptive capacity of IDBE was also overestimated and it was provided with a package of $250 million under these three loans. COVENANT The EIDDC component was canceled in mid-course and full program was not administered. Other covenants of the project were COMPLIANCE Scomplied with by the borrower. Note: The ICR of the MNA region rated Outcome as Satisfactory, Institutional Development as Moderate; and Sustainability as Likely. SUMMARY OF ASSESSMENTS: EGYPT - EXPORT INDUSTRIES DEVELOPMENT PROJECT (L2459-EGT) RATING TYPE RATING ASSESSMENT The project's objectives were highly relevant to the needs of the sector at the time. The project aimed to address the lack of a coherent export development strategy and supportive institutional framework for exports and to meet an estimated demand for long- term finance among exporters. The project, however, failed to catalyze policy reforms in the export sector and did not strengthen the institutional environment for export promotion. With the cancellation of the TA component, the project was reduced to pushing a credit line through in adverse circumstances rather than removing constraints to development of the sector. The PBs were hard pressed to find eligible sub-borrowers and included a number of import-substitution industries. Twenty-six percent of the funds were disbursed to subprojects currently in trouble. The costs of the project are considered high in relation to its limited achievements. It required cancellation of 62 percent of the originally committed amount, high foreign exchange costs to the government, consumed a high level of Bank resources, and detracted from the wider policy dialogue between GOE and the Bank. The Bank was involved in the creation of EDBE in 1983 and the project helped strengthen its capacity to service the export sector. INS77TUTIONAL The project, however, was unable to benefit the other four banks who were to participate in the project. It also failed to benefit DEVELOPMENT MODERATE EEPC which was expected to catalyze and coordinate development of the export sector. It moreover did not create the Exporter Assistance Fund as envisioned and did not help EDBE establish an exporter guarantee program. EDBE is in a generally sound financial and operational position and likely to continue to play a key role in export development in Egypt. Institutional finance alone, however, is unlikely to stimulate the desired response from the export sector and continued SUSTAINABILITY UNCERTAIN reform to remove policy and structural constraints to exports is necessary to ensure sustainable development. The performance of EDBE and Bank Misr was satisfactory; they maintained adequate financial positions and utilized funds to the extent possible in poor economic conditions. GOE's objectives, however, extended beyond utilization of the funds and when the BORROWER TA component was not made effective, GOE did not in any event undertake to develop and implement the policy reforms that had PERFORMANCE UNSATISFACTORY been identified as essential to stimulate the sector. GOE's effort during the project was more focused on the provision of subsidized finance to the export sector and less on addressing the major disincentives to export. The project responded to the priorities of both the Bank and the Borrower and was designed to address the key constraints in the sector. However, the possible failure of the law to be passed and the poor overall economic conditions which derailed the project could have been better anticipated at the design stage. After the cancellation of the TA component, the project's relevance rapidly BANK UNSATISFACTORY diminished and more should have been done to re-introduce an export policy reform focus, which was one of the project's key PERFORMANCE objectives. With the inability of GOE to pass legislation conferring management autonomy on EEPC, a number of related covenants had to be COVENANT canceled causing the project to lose its policy reform and institutional development focus. COMPLANCE UNSATISFACTORY cacldcuigtepoettloeisplcreomadisiuonleeomntfu. COMPLIANCE Note: 7te ICR prepared by the MNA region rated Outcome as Satisfactory; Institutional Development as Substantial; and Sustainbility as Likely. SUMMARY OF ASSESSMENTS: EGYPT - CONSTRUCTION INDUSTRY PROJECT (L2460-EGT) RATING TYPE RATING ASSESSMENT The TA component is considered highly relevant to the needs of the borrower and the objectives of the Bank at the time. It addressed the need to stimulate substantial changes in the environment governing the construction sector and to enable private sector participation. There is less certainty as to the relevance of the credit line, given that the sector was dominated by public sector firms with access to subsidized financing at official exchange rates and that major non-financial constraints prevented a larger role for private firms. The project's financing component was marginally utilized due to poor demand and recession in the sector. The TA component was more effective and resulted in a well-managed management training program and a number of studies promoting reform in the sector. Efficiency of the project is considered low given a high cancellation amount, foreign exchange losses to the government, a high percentage of the loan amount in doubt, a protracted implementation period, and substantial benefits arising only from the TA component. The Bank has provided considerable support to stimulate improvements in the construction sector through lending operations and sector studies. It also helped establish the Egyptian Federation of Contractors which has increased information on the industry. The TA component produced several studies promoting improved procedures in the industry as well as an effective management INST7TUTIONAL MODERATE training program, the positive aspects of which might be replicated in other sectors. A new system of contracting and bidding DEVELOPMENT procedures was not implemented, however, due its inability to be passed through parliament. The PBs did not utilize the TA component and the project did not strengthen financial intermediation to the construction industry. Continued development of the construction industry requires consistent progress on the reform front. Recent indications of progress such as the passage of a law changing rent control stipulations is expected boost the housing sector. The MTP program SUSTAINAB)ITY UNCERTAIN currently is dependent on official financing and whether it can eventually raise its own funds from clients and evolve into a self- sustaining operation remains to be seen. The MTP program was well managed and effective and the studies, though delayed, were completed. Bank Misr performed satisfactorily in endeavoring to utilize the loan, although was constrained by the inappropriateness of the credit line at the time. BORROWER UNSATISFACRY However, only limited progress has been made in addressing the central recognized constraints to efficiency and development in PERFORMANCE the sector, including the poor incentive system and excess employment in public firms, non-competitive bidding, and restricted private access to the market and supply inputs. In retrospect, this loan would have been much more relevant, effective, and efficient had it consisted only of the TA component and not the credit line. Bank staff overestimated the demand for finance and underestimated the negative impact of structural BA UNSATISFACTORY rigidity in the sector and adverse macroeconomic conditions. The TA component was well supported by Bank supervision staff PERFORMANCE who were flexible and encouraged adoption of innovative approaches. Bank Misr did not utilize funds allocated to it for training and therefore did not employ advisors to help develop its appraisal skills COVENANT (Sect. 2.09). Otherwise the Borrower complied with the covenants of the loan. COMPLANCE SATISFACTORY (Sc.20)OtewsthBorwrc plewihteovntsftela. COMPLIANCE Note: The ICR prepared by the MNA region rated Outcome as Unsatisfactory; Institutional Development as Moderate and Sustainability as Likely.  25 1. Background 1.1 Over the last four decades, Egypt has maintained a largely centrally-planned, public sector-dominated economy. Twice over this period, in 1974 and 1990, the Government of Egypt (GOE) has undertaken major efforts to reduce the dominant role of the public sector and increase private participation in the economy. Key measures of the 1974 "Open Door Policy" included the revision of investment laws, changes in the trade and foreign exchange regulations, and decentralization of control over the public sector. The reforms, however, slowed down as large foreign capital inflows from increasing petroleum export revenues, remittances from overseas workers, the reopening of the Suez canal, and foreign borrowings, contributed to a GDP growth rate of more than 8 percent per annum between 1974 and 1982. When oil prices declined, GOE resorted to heavy external borrowing, which resulted in external debt increasing from US$18 billion in FY81 to US$40 billion in FY84 to maintain a 7 percent growth level between 1982 and 1985. 1.2 By 1986, it became apparent that this was an unsustainable growth path. Extensive consumer subsidies, an inward looking trade regime, a distorted foreign exchange market, and government directed resource allocation had combined with declining oil revenues and rising import requirements to create a highly unstable and distorted economic environment. GDP growth fell to 2.7 percent between 1986 and 1990 and, in 1990, inflation stood at 19 percent , the current account deficit was 7 percent of GDP, and the fiscal deficit 18.4 percent of GDP. External debt had reached 114 percent of GDP and 377 percent of exports. The structure of production, meanwhile, remained public sector-dominated, inward-looking, and energy- intensive. 1.3 GOE responded to this crisis by restraining expenditure, increasing tax revenues, and announcing its intention to stimulate private sector growth (through the Second Development Plan, FY88-92). In 1990, a series of reforms supported by an IMF Standby Arrangement (SBA) and a Bank Structural Adjustment Loan (SAL) were implemented to stabilize the economy and remove obstacles to market-driven, private sector growth. Major stabilization elements of the 1990 reforms included, reduction in the fiscal deficit (which was reduced from 17 percent of GDP in 1990/91 to 2.5 percent in 1994), reduction in the rate of monetary expansion (which declined from 28 percent in 1992 to 12 percent in 1994), reduced credit to the public sector, and the reduction of public investment. Prudential banking regulations were improved and a market for treasury bills introduced. Reforms to induce structural adjustment in the economy included liberalized prices and interest rates, a significant reduction in consumer subsidies (particularly in energy), a decontrolled foreign exchange market, partial reduction in trade barriers, and the easing of investment and production licensing requirements. 1.4 While much progress was made, the reform process has remained incomplete. Unclear policy signals (particularly through delays in the privatization program) along with continuing obstacles in the regulatory and incentive framework for the private sector have prevented a significant private investment response. The comfortable balance of payments situation, militant social unrest, and the anticipated uncertainty and political costs of reform are factors contributing 26 to the slowing down of the reform program. With the decline in public investment and the poor response of the private sector, GDP growth declined to 1.2 percent per annum between 1990 and 1994. Since January 1996, however, a new impetus for the reform program has taken place with more than 100 companies approved for privatization by the full cabinet, steps being taken to ease the tax regime, and legislation proposed to allow majority holding of foreign banks in joint- venture banks. New investment projects with private sector participation are underway and there is a reported rise in the registration of small investment projects. Moreover, the successful passage of a long-awaited law liberalizing rents is expected to boost the construction industry. Such measures have created a promising degree of optimism and enhance the likelihood of a strong private sector response. Industrial Development in Egypt 1.5 Industrial production in Egypt has been dominated by the public sector and the maintenance of an import-substitution incentive environment. Between 1983 and 1987 GOE policies focused on the provision of essential services, establishment of new industrial cities, rationalization of investment tax incentives, and unification of two of the existing three foreign exchange rates. Public enterprises continued to dominate, accounting for 73 percent of industrial investment, 70 percent of value added, 88 percent of industrial exports, and 80 percent of the capital stock. Industrial production during the period grew at 2.7 percent per annum, fueled by public investment in the production of consumer non-durables (especially food and textiles). Industrial exports grew at 5 percent per annum, driven by textiles which increased by 10 percent per annum and made up 60 percent of industrial exports. The lowest value added products (such as yarn and gray cloth), however, still accounted for 80 percent of textile export earnings. 1.6 After 1987, public investment priorities shifted away from consumer non-durables into metals, chemicals, and fertilizers, all of which were high net importers of inputs or finished products. Private investment also shifted away from textiles and foods into import-substitution industries such as pharmaceuticals, metals, and engineering goods. On the export front, the Government pursued a strategy that insulated the majority import-substitution economy from policy changes. Industrial production slowed to an average 0.9 percent growth per annum between 1988 and 1990 while manufactures grew at 2.1 percent. The private industrial sector continued to be constrained by the large size of the public manufacturing sector which resulted in a shortage in the availability of materials and inputs to private sector (which received only residual supplies from public enterprises). Public enterprises also continued to enjoy monopolies in many sectors (such as cotton yam and steel) and regulatory barriers to exit and entry discouraged or raised the cost of private participation in the economy. 1.7 Since 1990, following the implementation of major reforms, the economy has stabilized, although a weak private sector response has yet to generate the desired shift in production structure. While public investment decreased substantially from an average of 19 percent of GDP between 1980 and 1989 to 11 percent of GDP between 1990 and 1994, private investment has increased only marginally, from 6.6 percent between 1980 and 1989 to 7.7 percent between 1990 and 1994. This compares with an average private investment share of GDP of 25.5 percent in East Asian countries and 18 percent for developing countries as a whole. Industrial production as a result slowed to 0.4 percent per annum between 1990 and 1993 while manufacturing contracted by -0.2 percent per annum and reduced its share of GDP from 17 percent in 1990 to 14 percent in 1993. Manufactured exports meanwhile contracted by -4.4 percent. Nonferrous metals, manufactured fertilizers, fruits and vegetables, chemical elements, 27 electrical machinery are among the major product groups which saw a decline, suggesting a reduced comparative advantage in the production of these goods. Textiles in particular reduced their share of total exports from 22 percent in 1990 to 12 percent in 1993, with a -3 percent growth rate. The only sub-sectors recording an increase in exports were ready-made clothing, rice, and food-stuffs. Bank Support for Industrial Development in Egypt 1.8 Prior to the 1990 SAL, the Bank had been involved in a number of operations to develop private industry in Egypt. Between 1973 and 1984, the Bank provided ten financial intermediary loans for a total utilized value of US$395 million. Four of these were to develop agro-industries, while the other six loans were aimed at the industrial sector, and the private industrial sector in particular. These loans had satisfactory outcomes as rated by the Operations Evaluation Department of the World Bank with the exception of two of the agro-industry intermediary credits. One (C0988) saw a drop in demand for credit and rising arrears among the participating banks due to the inability of the loan's small and medium agro-industry borrowers to cover their debts after a rise in foreign exchange rate while the other credit (CO830) reached larger borrowers rather than its targeted small farmer group. 1.9 The immediate predecessors of the three loans under review were the Fifth Development Industrial Bank (later IDBE) project, approved in December 1981 for US$120 million and the Second Agro-Industries project, approved in March 1983 for US$81.2 million. The PAR of the agro-industry project found that the participating banks were unequally committed to disbursing the credit line and that the emergence of a foreign exchange risk for sub-borrowers dampened demand for funds and threatened sub-borrowers with bankruptcy. In addition, it was concluded that the participating banks had insufficient economic appraisal skills and that some subprojects proved unviable when macroeconomic and sector distortions were removed. 1.10 The objectives of the Fifth DIB project were to meet IDBE's term-lending requirements for FY82 and FY83, to support its institutional development through staff training, and to support EIDDC's technical assistance program for SMIs. The PCR of the project reported satisfactory attainment of the objectives (to support IDBE's term-lending requirements and to support technical assistance to SMIs). Less progress was made with respect to strengthening IDBE. Its appraisal and supervision skills were found to be lacking, its activities were insufficiently diversified, and it had been unable to implement various recommendations arising from technical assistance provided by other donors. It was further noted that a high proportion of repeat clients existed among the sub-borrowers indicating that the loan had not reached new borrowers. Major Constraints to Industrial Development 1.11 In 1983, at the time the loans under review were appraised, major constraints to growth in the export sector were identified in the SAR as (i) the multiple exchange rate system preventing exporters from converting their proceeds at the most favorable exchange rate; (ii) the complex protection regime, making domestic sales more attractive than exports; (iii) the weak institutional framework supporting exports; (iv) the lack of a high level body to develop and coordinate export promotion policy; (v) complex and time-consuming export and import control procedures; (vi) inadequate human resources and infrastructure; (vii) public sector inefficiency and capacity restraints; and (viii) the limited availability of finance for exports. With respect to 28 the last constraint, commercial banks had conservative lending practices and were short-term- oriented and medium and long-term finance to private industry was provided only by IDBE. With the decline of oil revenues, GOE had recognized the need for a vibrant private manufacturing export sector and elevated its development to a priority. 1.12 Constraints to the SAI sector at the time of the loan were identified in the SAR as, the unclear overall policy signals regarding development of the private sector, the complex tariff structure, bureaucratic controls, the unavailability of space, lack of project planning capabilities, and a lack of managerial know-how. In addition, SMIs faced a limited access to institutional finance resulting in a lack of raw materials, spare parts, and outdated equipment. There was also inadequate institutional support promoting sub-contracting relationships between large and small industries. GOE had placed a priority on the development of the SMI sector as, with most large firms being nationalized, the SMI sector was seen as synonymous with the private sector and estimated to provide 40 percent of industrial employment. While the Government was supporting SMI development through financial and technical assistance programs (supported by previous Bank projects), no coherent overall strategy for the development of the sector was in sight. 1.13 The construction industry faced particularly severe constraints at the time of the loans. Production, material imports and distribution, and pricing in the sector were controlled and directed by the Government who in turn was the major client of the industry. While the industry consisted of 47 public sector companies, 75 private sector firms and about 25,000 other private operating units, over 70 percent of major construction contracts went to public sector firms. A well-defined set of rules and regulations to govern production and investment in the sector did not exist. There were frequent shortages of materials, fluctuating demand, poor contracting procedures, a shortage of skilled workers, poor management, and a lack of finance in the sector. These conditions led to inefficiencies as illustrated by long construction periods, poor quality of workmanship, unfulfilled contractual obligations, as well as frequent defaulting on payments due to contract and laws favoring the client, or in the case of the Government, due to scarcity of funds. The poor overall performance of the construction industry was hampering GOE's investment targets and its development was considered a priority. 29 2. Project Objectives and Design The Small and Medium Scale Industry Project Objectives 2.1 The Small and Medium Scale Industry project (SMI project) was to support development of small and medium industries (SMIs) in Egypt and thereby contribute to the Government's effort to encourage the role of the private sector and foster employment creation. This was to be achieved through the immediate objectives of (i) meeting part of the demand for long-term industrial finance among SMIs; (ii) increasing SMI access to technical assistance so as to enable greater productivity and efficiency among them; and (iii) strengthening the institutional capacity for long-term project lending. To support financial sector reform, the line of credit was to be disbursed to sub-borrowers at interest rates that reflected the cost of capital. It was also agreed that during the project the GOE would formulate and implement a policy to promote the small- scale industrial sector. Design 2.2 To meet the demand for long-term finance among SMIs, a line of credit of US$168.1 million was to be on-lent through the state-owned Industrial Development Bank of Egypt (IDBE). GOE was to lend the funds to IDBE at the Bank rate plus I percent for assuming the interest rate risk and the foreign exchange risk between the US dollar and other currencies owed to the Bank. As with previous intermediary loans, sub-borrowers would bear the exchange risk between the US dollar and the Egyptian pound. The on-lending interest rate was initially set at not less than 14 percent, subject to annual review to ensure conformity with market conditions. At least 70 percent of the total loan amount was to be lent to SMIs, defined as industries with fixed assets (excluding land and buildings) of less than LE 2.75 million in 1983 prices (US$3.9 million). Under the project, IDBE was also to increase its approvals to small scale industries (SSIs, defined as industries with total fixed assets excluding land and buildings not exceeding LE 420,000 in 1983 prices) to 50 percent of total approvals by 1986. The potential adverse impact of distorted macroeconomic and sector conditions on the efficiency of subproject resource allocation was to be addressed through the provision of technical assistance to subprojects and calculation of economic rates of return by the IDBE at appraisal. 2.3 To increase the availability of technical assistance to SMIs, a technical assistance (TA) component of US$1.5 million was to be granted by GOE to the Engineering and Industrial Design and Development Center (EIDDC) under the Ministry of Industry. Similar assistance had been provided under the DIB III project (in FY78) and continued under the DIB V project (FY82). Specifically, the project was to increase the number of EIDDC's extension teams, increase regional coverage, continue financial management and training services, streamline operations of the subcontracting exchange, establish a project development and implementation unit and increase cooperation between EIDDC and IDBE. GOE was to provide a matching 30 LE 1.6 million grant to cover the local currency costs of the operation, partly through a contribution from IDBE's interest income under the financing component of the project. EIDDC was to provide technical assistance to some 1,300 enterprises a year. 2.4 The institutional capacity of IDBE was to be strengthened through an existing EEC- funded advisor who would assist IDBE improve its project supervision system. A USAID- funded restructuring program was also underway to help IDBE improve its budgeting, accounting, financial control, and management information systems. Under the project, economic and financial rates of return were to be calculated for all subprojects with investments costs above LE 800,000 (US$1.15 million) and IDBE was to employ additional project staff, increase staff salaries and improve its economic appraisal standards by more extensive use of shadow prices and more realistic assumptions on variables. IDBE was also to commit at least US$25 million in funds from non-Bank sources and endeavor to mobilize funds from commercial sources in order to reduce dependence on official sources of financing. As a condition of continued participation, IDBE's debt to equity position was to not exceed 9:1 during the life of the project. The Export Industries Development Project Objectives 2.5 The objective of the Export Industries Development Project (Export Project) was to support development of the export sector in Egypt. Its immediate objectives were to (i) assist the Government institute export-oriented policy; (ii) meet a part of the long-term finance requirements of new and existing export-industries, particularly private firms; (iii) develop the institutional framework for export promotion; (iv) increase the availability of commercial export finance to exporters; (v) strengthen the capacity of institutions lending to the export sector; and (vi) increase exporter access to technical assistance. In support of reform in the financial sector, funds were to be on-lent at interest rates reflecting the cost of capital. Design 2.6 To meet the demand for long-term finance among exporters, a credit line of US$118 million was to be lent through GOE to three state-owned participating banks (PBs) to finance fixed investment and permanent working capital in new and existing export-oriented industries. The state-owned Export Development Bank of Egypt (EDBE) was to administer the loan as the apex organization. Manufacturers supplying intermediate products to exporters were also eligible for financing. The PBs were to conduct economic appraisals for projects above LE 800,000. On-lending interest rates were to be at least 14 percent per annum and included a 2.5 percent spread for the PBs, a 0.25 percent fee for EDBE, and a 1.2 percent fee for GOE to cover the variable interest risk and the exchange rate risk between the US dollar and currencies owed to the Bank. Sub-borrowers were to assume the exchange rate risk between the US dollar and the Egyptian pound. Subprojects financed were to be committed to exporting at least 30 percent of the production attributable to the subproject within five years of start-up (or three years for existing projects). The time-lag was included because this was the amount of time estimated to be necessary for export policy reforms to remove incentive and structural biases against exports. 31 2.7 To support GOE's action program to institute export-oriented policy reforms, a US$0.1 million TA component was provided. The Government agreed to undertake a series of studies on import/export procedures and the duty drawback scheme as a prelude to their simplification and improvement; to study the incentive regime for exporters in order to be able to increase export incentives based on export performance; and to review the determinants of high effective protection rates on local industries in order to prepare a reform agenda. 2.8 To develop the institutional framework for export promotion, the Egyptian Export Promotion Center (EEPC) was to be strengthened through a US$3.1 million TA component. EEPC was to be restructured as the focal point for catalyzing and coordinating export activities and to assist GOE in developing policies to improve the export climate. The TA component would finance expert advisors to develop EEPC's range of services, including (i) identifying and addressing its clients' supply and marketing constraints; (ii) providing support services such as product design, quality control, and export finance; (iii) providing trade information and documentation; and (iv) developing and coordinating training programs. An initial client base of 75 exporters was to be established. In addition, EEPC would receive expert guidance in developing strategies and policies, recruiting staff, and streamlining accounting and administrative procedures. 2.9 To increase exporter access to technical assistance, US$3 million was to be provided to establish an Exporter Assistance Fund (EAF) under EEPC. EAF would finance technical assistance needed by exporters such as prefeasibility studies, export market identification and development, product upgrading and development, improvements in production and cost efficiency, and training of staff in export marketing and production. EAF was to finance up to 50 percent of the cost of a program on a grant basis, with the exporter providing the balance. 2.10 To enhance the institutional capacity ofEDBE and the PBs a TA component of US$0.5 million was to be implemented. The component would help develop and implement sound general banking procedures in EDBE and provide training programs for EDBE and the PBs to strengthen staff capacity to appraise and supervise loans in the export sector. The selected PBs were IDBE, Bank Misr, and the National Bank for Development (NBD). As EDBE had been established less than a year prior to the loan, it would not initially finance subprojects due to its lack of appraisal and supervisory skills, but would instead administer and monitor the activities of the PBs. IDBE and the Bank had a long history of association the Bank and aside from continuing weaknesses in its project appraisal and supervisory capacity it was in a generally sound position. Bank Misr was Egypt's second largest commercial bank and had an increasing medium to long-term lending portfolio and strengthened project appraisal capacities due to the assistance of three previous Bank projects. NBD was also a new bank, established in 1980 but had participated satisfactorily in the Bank's Second Agro-industries project and improved its appraisal and supervision skills. 2.11 To increase exporter access to commercial finance, EDBE was to be provided with expert advice on instituting export credit and insurance facilities. 32 The Construction Industry Project Objectives 2.12 The objective of the Construction Industry Project was to help initiate policy reforms to improve the performance of the construction industry. Specific objectives were to (i) continue the work achieved under the construction industry study by assisting the Joint Committee for the Development of the Construction Industry (JCDCI) develop and implement policy reforms in the sector; (ii) upgrade management skills in contracting firms, particularly public sector firms; (iii) assist financial institutions appraise and supervise loans to the construction industry; (iv) finance construction equipment and machinery needed for the production of building materials in order to improve the capacity of the construction industry; and (v) encourage competition between private and public sector construction firms. This was the first loan to support overall improvement in the construction industry and if successful, further Bank-funded projects were to follow and focus more directly on institutional reforms as well as further policy adjustments. The project also intended to maintain non-subsidized interest rates under its credit component. Design 2.13 To finance construction equipment and machinery, a US$96.7 million line of credit was to be provided to IDBE and Bank Misr for on-lending to public and private sector construction enterprises. Manufacturing projects were to be appraised according to normal term-lending procedures with established minimum economic and financial rates of return. Proposals from contractors would in turn be evaluated on the basis of whether their equipment needs reflected wider national needs, the managerial capacity of the firm, its volume of work and turnover growth, its equipment on hand in relation to existing and proposed work, and other financial and operational indicators. On-lending terms and conditions were similar to the other two loans, with a 2.5 percent spread for the PBs and sub-borrowers undertaking the foreign exchange risk. By making private sector firms eligible, the project hoped to increase its participation in the sector. 2.14 To develop management skills in the contracting firms US$2.5 million was allocated for a TA program. Advisors would be made available to senior managers of contracting firms to analyze and solve problems, identify training needs, and identify scope for improved management information systems. The Sadat Academy of management was to be utilized for detailed work on developing training programs and systems in order to utilize local expertise. The program was to be mandatory for public sector firms and available to private firms as well. ILO was considered a likely candidate to organize and administer the program. 2.15 To support the progress of policy reform in the construction industry, a US$0.3 million TA component would be provided to JCDCI for the retention of consultants. In particular, progress was to be made on streamlining the bidding and contracting procedures in the industry. GOE agreed to discuss recommendations with the Bank and implement agreed reforms within a two year time frame. GOE also agreed to properly staff a technical and financial secretariat in the MDHLR which would support the JCDCI in its work program. 2.16 To assist the participating financial institutions appraise and supervise loans to the construction industry, US$0.2 million was to be made available to the two participating banks for staff training and expert consultants. Both IDBE and Bank Misr has been recipients of past 33 bank loans and had satisfactory performance records. While both were experienced in long-term loan appraisals, however, they had limited capacity to do so for projects in the construction sector. 2.17 To increase competition between private and public contracting firms, the project was to encourage the participation of private firms in the credit component.  35 3. Implementation and Results Implementation Experience 3.1 Although approved in 1984, the loans were not signed until 1986 and became effective only in mid-1987, three years after approval. The cause of the delay was the inability of the Bank and GOE to convince the PBs to agree to the on-lending terms of the loan and, in particular, that the sub-borrowers should absorb the foreign exchange rate risk. The PBs maintained that they were having problems with clients who had previously borrowed under such conditions and would not be able to market the loans. They instead wanted GOE to assume the risk for a fee, a proposal to which GOE and the Bank were opposed. Agreement was finally reached by April 1987 that GOE would assume the foreign exchange risk for a 9 percent fee, although sub-borrowers were free to assume the risk and not pay the premium. The final on- lending rate would then be 20 percent, consisting of the 9 percent foreign exchange risk fee, the 7.65 percent cost of Bank funds, a 3 percent margin for the intermediary banks, and other charges of 0.35 percent. This on-lending rate involved a capital subsidy and thus a compromise of one of the original objectives of the loans. In the case of the export and construction industry projects, it also represented a departure from Bank best practices of the time, which specified that only in the case of SSE lending or single currency subloans should the Government assume the foreign exchange risk (OMS 3.73, paras. 27-30). 3.2 Over the next eighteen months, the PBs attempted to market the funds, but without much success. Several Bank missions concluded that the reasons for the low commitment of the funds were the uncompetitive interest rate (with other lines of credit being disbursed by the PBs at 15 percent or lower) and limited investment demand due to the poor prevailing economic climate. By April 1989, only US$39 million of the original US$383 million credit lines had been approved (10 percent of the original amount and 25 percent of the final total utilization) and US$18 million disbursed. To address the poor utilization of funds, GOE requested a revision of the interest rate. In June 1988, new Bank staff working on the project requested regional approval to restructure the project to make on-lending terms more competitive. Approval was provided one year later, following internal discussions on the compatibility of the loans with the on-going SAL discussions. The second restructuring of the interest rate took effect in July 1989. The foreign exchange risk fee was reduced from 9 percent to 6.35 percent and the on-lending rate reduced to 17 percent per annum. This made the real on-lending rate negative in real terms, a condition recognized by Bank staff, but overlooked due to the need to adhere to the Government's request for a marketable interest rate. In addition, GOE at the time announced its intention to introduce a series of public enterprise reforms and the intention was to redirected the loans in support of this effort by financing enterprises adopting restructuring plans. 3.3 This situation continued until mid-1991 when the Bank suspended approval of all subloan commitments on the basis that on-lending interest rates were substantially below market levels. At this time, long-term interest rates ranged 20 to 22 percent (after liberalization of the interest rate regime), while Bank funds were being committed at 17 percent. During the period between June 1989 and June 1991, a total of US$79.2 million was committed under three loans (21 percent of the original amount and 51 percent of the final total utilization). In April 1992, a 36 new interest rate linked to the Central Bank's Discount Rate (CBDR) was introduced. Under the new agreement, fixed interest loans would be on-lent at 2 percent below the CBDR while variable interest-rate loans would be at 3 percent below the discount rate. Actual fixed interest rates ranged from 17.8 percent in May 1992 to 16.4 percent in December 1992, the terminal date for submission of subloans under the SMI project, and 14.9 percent in November 1993, when the last subloan under the export project was approved. While the rates were moving with the market, they continued to carry a subsidy, remaining 2.5 percent to 3.5 percent below the market rate for 1-year loans and approximately equal to the 3-month treasury bill rate. During this last period, an additional US$38.5 million (25 percent of final total utilization) was committed before the terminal dates for submission of sub-loans. 3.4 Other major changes during implementation of the SMI project included the June 1989 redefinition of SMIs as firms having fixed assets excluding land and buildings of less than LE 10.7 million (US$4.28 million at the market exchange rate), up from the 1983 definition of LE 2.75 million to reflect price increases. The definition of a small enterprise (SSI) was raised from firms having fixed assets excluding land and buildings of less than LE 420,000 to less than LE 1.4 million while very small SSI were raised from LE 210,000 to LE 700,000. In light of the declining demand for term credit, the requirement that IDBE lend 70 percent of the loan amount to SMIs was reduced to 60 percent, although throughout the project, IDBE reported being constrained by the size classification requirements. In June 1989 IDBE was authorized to provide freestanding replenishment of working capital loans which it later reported significantly increased the marketability of funds. 3.5 In late 1990, the Construction Industry loan was restructured to include loans for construction equipment to private dealers, and to make public sector cement companies eligible for subloans in return for implementing restructuring and modernization programs. IDBE also dropped out of the construction industry project shortly after effectiveness without making a single loan, leaving Bank Misr accountable for the US$21.8 million disbursed under the project. A decline in the growth of public investment in construction sector sent the industry in recession and demand for investment finance remained poor throughout the subproject commitment period. In addition, until 1990, public sector firms had access to finance from the banking system at more favorable official exchange rates. The Executive Committee of the JCDCI assisted Bank Misr in marketing the funds in order to prevent cancellation of the project, and the loss of the TA component as well. All seven subloans of the project were approved between 1990 and 1991 when interest rates under the project were negative in real terms. The third revision of interest rates in April 1992 did not result in any further commitments. 3.6 Under the Export project, commitments did not respond to the repeated restructuring efforts as the PBs had difficulty seeking export projects when investors found the domestic market more profitable. Difficulty in marketing the loans was reflected in the behavior of the PBs. IDBE pulled out before effectiveness stating that they would not be able to market the loans under the terms of the Bank. NBD subsequently pulled put for the same reasons. Misr Industrial Development Bank was invited to participate, made one loan (11 percent of the final utilized amount), and then dropped out of the project. At closing, Bank Misr had made five subloans accounting for 13 percent of the amount disbursed. The bulk of loans (over 77 percent) were made by EDBE which had converted from the apex institution into a PB. EDBE made a special effort to utilize the funds and was able to achieve a higher level of commitment partly because it used its subsidized lines of credit to leverage the higher-cost IBRD funds. 37 Project Results Financing Components 3.7 Under the SMI project, IDBE disbursed US$86 million (51 percent of the original loan amount) through 232 subloans to 191 different sub-borrowers, a high ratio of which (92 percent) are reported to be performing satisfactorily by IDBE. IDBE estimated that 44 percent of the loan amount went to large borrowers, 37 percent reached medium-sized firms and 18 percent went to SSIs. Average subproject size was fairly large at US$368,563 as compared to other Bank- supported SMI projects which had an average subloan size of US$31,774, or US$76,050 in the EMENA region. Sixty percent of the loan amount went to borrowers with previous transactions with IDBE. By sector, 41 percent of the amount lent went to textile industries, 23 percent to chemicals, 12 percent to food industries, 9 percent to plastics, and 8 percent to electronics industries. One sponsor, Marakem Group, accounted for 10 percent of the amount lent (US$8.7 million) through 5 subloans while the top ten sponsors accounted for 43 percent of the amount lent. Some 4 percent of the amount lent went to working capital loans. 3.8 Under the Export project, US$46.84 million (40 percent of the original amount) was disbursed through 28 subloans to 19 sub-borrowers. Twenty-three of the subloans (74 percent of the loan amount) were implemented satisfactorily. However, approximately 43 percent of the disbursed amount went to local market-oriented firms with only weak export development plans. By sector, 42 percent of the amount lent was to industries in the plastic sector, 24 percent the spinning and weaving industry, 12 percent to the food industry, and 11 percent to the electronics industry. Eleven percent of the lending amount was to a public sector firm, 63 percent to joint stock companies, and 26 percent to individual and limited liability firms. The two largest sponsors, Technopack and Oriental Weavers Group, accounted for 41 percent of the amount disbursed, through two and five subloans respectively. At present, there is no information on the export orientation of subprojects financed and whether they are meeting their target export requirements of 30 percent of production within 3-5 years. 3.9 Under the Construction industry project, seven subloans were made for a total of US$21.7 million (22 percent of the original amount). Five public sector subprojects accounted for 91 percent of the amount lent and two loans to private firms accounted for the balance nine percent. Average loan size was US$3.96 million to the public sector and US$0.97 million to the private sector. A total of 45 percent of the amount disbursed consists of problem loans and currently 37 percent of the amount lent is in arrears, including 1.31 million of the 1.95 million (67 percent) lent to the private sector. The public sector firms have been unable to repay their loans apparently because they have not been reimbursed by GOE for prior work done. Technical Assistance Components 3.10 Most of the TA components under the Export and SMI projects were canceled during implementation. In 1990, EDBE canceled the TA component for training of its staff. EDBE believed that it should have been provided with the funds on a grant basis and this was initially done, although GOE later converted the utilized amounts into a loan. At this point, EDBE requested a cancellation of the balance and EDBE instead allocated its own funds for training. The TA components to strengthen the other PBs were similarly canceled. The exporter access to commercial finance component was also canceled by EDBE during the project. Most significantly, the entire policy reform and export promotion institution development component 38 of the project was abandoned when GOE delayed passing a law conferring management autonomy on EEPC. As a result, the TA component to develop the Exporter Assistance Fund was canceled and none of the studies planned under the project were carried out. 3.11 Under the SMI project, EIDDC used 30 percent of the TA funds allocated to it, although it was unable to effectively improve its provision of technical assistance to SMIs. The institution faced increasing financial troubles as GOE reduced its funding and IDBE refused to pass over the 0.4 percent of the interest earned due a dispute over earlier financial dealings. As it was responsible for repaying the full amount of the TA allocated to it, it requested the remaining component to be canceled. IDBE was unable to implement the recommendations made by advisors retained under the EEC and USAID technical assistance projects. 3.12 The most effectively implemented TA component of the three projects was the management training program under the construction industry project. After a delayed start, the Executive Unit of the JCDCI designed a series of training programs, using local consultants and trainers, which is continuing at present. Participants are selected for training based on intelligence and aptitude tests and provided with a series of courses covering general construction management, business management, contract administration, marketing, operational research, financial management, and organizational behavior. To date, the program has trained some 1000 executives of public and semi-public firms for a total cost of US$800,000. Overall, the program administrators have been focused and effective and it is likely that the positive aspects of this experience can be transferred to other sectors. The TA component also produced a set of streamlined bidding and contracting procedures to support efficiency in the sector, although they have not been implemented due their failure to be approved in Parliament. The component also helped establish the Egyptian Federation of Contractors, which is establishing a broad information base on the sector. The component to develop the appraisal capacity of the PBs under the construction industry loan was canceled. 39 4. Contribution to Industrial Development Contribution to Financial Sector Development 4.1 The financial sector objectives of all three projects were (i) to help meet part of the demand for investment loans in their target sectors and (ii) to maintain interest rates approximating the cost of capital. In addition, as discussed below, each project endeavored to develop financial intermediation to the industrial sector by strengthening the institutional capacity of the participating intermediary banks. 4.2 While a large number of subloans were made under the three projects (some 267, worth US$154 million), it is unlikely that they provided an incremental value by meeting a demand that would otherwise not have been met. Throughout the course of the project, commitment of the Bank's funds was hampered by GOE's success in securing alternate lines of credit which were made available to the PBs at terms more competitive to the sub-borrower and more profitable to the PBs. For example, in 1988, it was estimated that IDBE had foreign currency resources of US$398 million (including IBRD, EIB, ADB, and KfW credit lines) and this would meet its lending requirements for the next 7 years (i.e. till 1994). During the export project, EDBE had access to an EIB credit line of US$30 million (disbursed at 17 percent when Bank rates were at 20 percent) as well as a continuous flow of subsidized funds from CBE which it was authorized to disburse at interest rates as low as 9 percent. Under the construction industry loan, the credit line did not initially move because public sector firms had access to foreign exchange resources at the more favorable official exchange rate and only when Bank funds were being committed substantially below the market rate were subloans possible. 4.3 During implementation, there was a steady depreciation of the Egyptian pound from LE 1.5 per dollar in 1987 to LE 3.3 per dollar in 1991. This movement substantially increased the debt service requirements of previous foreign currency borrowers (including those under previous Bank loans) who as a result sought further loans to finance their debt obligations. Moreover, in 1992, a high level of demand for funds under the SMI loan was attributed to investor anticipation of a devaluation and increase in interest rates as a result of the ongoing reform program. When devaluation was limited to 7 percent and the Egyptian pound began to appreciate thereafter and interest rates on long-term loans did not rise as much as the interest rate on 6 month Treasury Bills, subprojects were canceled and the high rate of commitment was not reflected by a high rate of disbursement. 4.4 In retrospect, it is apparent that the availability of finance was not the major constraint to investment in their respective target sectors at the time. Private fixed investment decreased from an average of 6.1 percent between 1980 and 1989 to 3.4 percent of GDP in 1990 due to the degree of uncertainty in the economy rather than from a lack of finance. Even following stabilization and financial sector reforms in 1991, it is the degree of uncertainty and policy constraints that suppressed investment rather than the availability of long-term finance. In 1993, CBE estimated that a total of 17 percent of bank lending in Egypt was for medium to long-term loans (15-20 percent of commercial bank lending, 30-35 percent of investment bank lending and 55-60 percent of specialized bank lending). The banks, moreover, claimed that they could 40 provide more long-term loans without risking a mismatch between maturities of assets and liabilities but were constrained by a weak demand arising out of poor confidence among private investors in the economy. 4.5 The potential contribution of the export project would have been to encourage investment in the sector and perhaps compensate exporters for any loss of international competitiveness resulting from adverse policies in the local environment. Throughout the project, however, EDBE was hard pressed to find eligible exporters and the degree of import- substitution apparent in the subprojects eventually financed reflects the need for incentives other than accessible or subsidized credit to encourage exports. A Bank export sector study in 1994 concluded that the high liquidity in the banking system in Egypt made adequate finance available for preshipment, postshipment, and investment finance and that the availability of finance was not a constraint to exports. 4.6 As seen above, the objective of maintaining subsidy-free interest rates was abandoned before effectiveness. In retrospect, the two financial sector objectives of both removing capital subsidies and financing investment turned out to be incongruent in the distorted environment prevailing in the country. One or the other had to be compromised and the first two restructurings reflected a de-emphasis on the interest rate objective in favor of moving the funds. In 1990, it was estimated that an on-lending interest rate of 16 percent implied a real effective cost of borrowing of -11.7 percent (taking into account the tax deductibility of business interest expense). A simulation exercise under inflation of 25.2 percent indicated that to obtain a real cost of capital of plus 3.04 percent, nominal interest rates would have had to be 30 percent or 40 percent to obtain a real cost of capital of 8.34 percent.2 This provided a strong incentive to borrow and misallocate resources as a project with a real rate of return of negative 4 percent would still be an attractive investment. Under the export project, efficient resource allocation was further reduced by EDBE's leveraging of Bank funds with its even cheaper subsidized funds in order to utilize its allocation. Contribution to the Policy Environment for Industrial Development 4.7 The TA component of the construction industry loan was able to make some progress in promoting procedural reforms and in injecting a greater managerial know-how into the sector. The construction industry, however, continues to face serious problems. With the reduction in government investment projects, the major market for public construction firms in Egypt has collapsed and an excess production capacity has emerged. Public sector firms continue to dominate the supply of construction services and retain inefficiencies associated with non- economic incentive criteria. While it is recognized as a high employment industry absorbing some 27,000 engineers, some 25 percent of the staff in public firms are estimated to be in excess of efficient operating levels. Growth in smaller private activities in the sector has been constrained by laws biased in favor of clients over contractors and until recently by rent control laws discouraging housing construction. 4.8 Following the cancellation of the policy reform and TA component under the export project, GOE did not design and implement a broad-based policy reform to reduce anti-export 2 Mansoor Dailani and Hinh T. Dinh, Interest Rate Policy in Egypt: Its Role in Stabilization and Adjustment, World Bank WPS 655, April 1991. 41 biases in the incentive framework. It instead maintained the import-substitution regime and targeted the export sector with subsidized credit. The export sector has seen serious deterioration in recent years, contracting by -9.7 percent between 1992 and 1994. Following nominal devaluation of the exchange rate in 1990 and 1991, Bank studies suggest an appreciation of the real effective exchange rate of 35 percent between March 1991 and June 1994. Despite tariff reform under the SAL program, the average tariff rate declined only 3 percent between 1988 and 1994, from 31 percent to 28 percent. In addition, counter-acting these reforms, an "import surcharge" of 2 to 5 percent was introduced in 1994. Complex import and export restrictions and procedures, an inefficient transport sector, and an inadequate flow of information and technology continue to reduce competitiveness and deter investment in exports. 4.9 Industrial production as a whole contracted by -0.4 percent between 1992 and 1994. Recent studies identify a range of structural and incentive obstacles deterring private investment, including the inconsistent enforcement of regulations, administrative and legal obstacles to exit and entry, and an underdeveloped capital market. A corporate tax regime higher than comparable countries, the cost of credit, the supply of materials and inputs, and stringent labor regulations are also cited by manufacturers as inhibiting their growth. The industrial incentive system lacks a strategic focus and consists largely of a five to ten-year tax holiday for industries locating in the New Communities, primarily meant to relieve pressure on Cairo. Finally, continued delays in the privatization program and lagging commitment to reforms have sent unclear signals to private local and foreign investors. Contribution to Institutional Development 4.10 A key objective of each of the three projects was to strengthen the institutional capacity of the intermediary banks and thereby contribute to the development of financial intermediation and the long-term lending market for the private industrial sector. Particular areas to be addressed identified in the appraisal reports of the projects were (i) accounting and management information systems; (ii) resource mobilization; and (iii) project appraisal and supervision. In addition, a major problem that emerged during implementation was the declining portfolio quality of the PBs. 4.11 The potential contribution of the SMI loan to financial intermediation in the sector would have been to address obstacles that prevented SSI's from being reached by the banking sector. These include higher intermediation costs to banks caused by (i) lack of information among SSIs and the consequent need to reach out and market loans to them; (ii) higher per-unit costs as overheads for small loans are the same as for large loans; and (iii) a higher level of risk associated with SSIs. Under the project, however, IDBE retained a fixed margin on all loans regardless of size and was thereby not encouraged to absorb the higher risk and per unit costs associated with SSI lending. Instead, IDBE preferred lending to large, well-known borrowers and felt constrained by the size restrictions of loan. In the end, over 60 percent of the loans went to borrowers with previous transactions while only 13 percent went to "small" new borrowers, borrowing less US$500,000 each. It is unlikely in this event that any progress was made in enhancing intermediation for SSIs. Moreover, expanded similar efforts risk being counterproductive. SSIs in Egypt without access to formal lending pay between three to five times the going commercial lending rate. Thus, formal lending institutions still have a large margin with which to cover the higher costs involved in outreach marketing, higher per unit overheads, and higher risk. 42 4.12 During the project, Bank supervision missions identified problems with assets classification and amounts provisioned for bad debts in the PBs as being below international accounting standards. The practice of each PB was to make subjective classifications of the quality of their portfolios, based on semi-annual case-by-case reviews. Provisions made on this basis were inadequate and income reporting was exaggerated by the inclusion of interest income on bad loans not classified as such. While the supervision missions continuously recommended reform of these practices, changes were effected only after the introduction of prudential regulations under the 1991 financial sector reform program. The new regulations required banks to (i) classify their assets according to specific criteria; (ii) identify non-performing assets; (iii) suspend accrual and reverse previously accrued but uncollected interest on non-performing assets; (iv) not refinance or capitalize interest; and (v) maintain minimum provisions for losses. The extent to which IDBE's practices in particular had diverged from these standards became apparent when these measures were implemented in FY92, contributing to its LE 40 million loss reported for the year. 4.13 The SMI project was unable to have an impact on IDBE's ability to mobilize resources. Between FY88 and FY92, Bank funds accounted for an average 78 percent of IDBE's foreign currency available for approval in each year. During the last stages of the project, IDBE received Bank funds at three points below the treasury bill rate and 2 percent below the 3-month deposit rate. Similar subsidized funds have been available to IDBE over most of the past twenty years. When the credit was closed and IDBE did not have access to other external lines of credit, it relied on inter-bank deposits to meet an increasing demand which it was unable to off-set through higher lending rates or reduced intermediation costs. This contributed to its reduced operating income in FY92 and FY93. In FY94, IDBE received a reprieve by the provision of LE 300 million from GOE which was the amount estimated owed to it by GOE to compensate it for foreign exchange losses incurred under previous foreign credit lines. Since FY94, IDBE has made efforts to expand its resource base through acceptance of time deposits, current accounts, and by financing imports and exports. Whether it will able to maintain its current level of operations in the absence of further external funding is questionable, however. 4.14 The level of arrears among the PBs increased during the project, attributed to the poor economic environment and the adverse effects of inflation and local currency depreciation on borrowers in particular. IDBE's position, in particular, became particularly acute, with its portfolio affected by arrears averaging 47 percent of amounts outstanding and arrears as a percentage of outstandings averaging 31 percent between FY90 and FY94. The Bank contributed to strengthening IDBE's follow-up department and a "Problem Project Unit" was also established with the assistance of the EEC to concentrate on high-exposure projects. Despite some progress made in collecting arrears and cleaning up the portfolio by FY94, the value of IDBE's assets remains in serious doubt. In FY92, it was estimated that one third of its loans were not collectible except through liquidation of collateral and while the bulk of IDBE loans are secured by collateral rights, enforcement of collateral rights remains difficult. 4.15 Some progress was made under the export project in increasing EDBE's appraisal capacity and increasingly rigorous appraisals were submitted to the Bank for approval. However, EDBE's appraisals were weakest in their assessment of export markets and the export potential of the enterprise, despite this being the main objective of both the loan and EDBE. In the end, approximately 43 percent of subproject lending was to firms oriented to the local market-oriented and which had only weak export plans, if any. In some instances, export plans were limited to "letters expressing interest" from overseas buyers. There was a frequent need for 43 Bank staff reviewing subproject appraisals to request a more detailed export development effort. To some extent, this experience reflects the continued partiality of the environment toward import-substitution as well as ingrained attitudes that import-substitution was as good as export- orientation. For example, EDBE's appraisal of the Technopack project stated that the company hoped to capture a share of the local market for polypropylene film market because "custom duties and other fees impose a 30 percent increase on the original import price and further, Egyptian government policies entail the banning of importation of products which are locally produced at reasonable quantity." 4.16 Only limited achievements were made with respect to IDBE's appraisal capacity. Under the SMI project, real sector distortions were to be compensated for by the use of economic appraisals. Nevertheless, during the project, only some 15 economic appraisals were conducted, out of the 232 projects it financed. These in turn were inadequately presented and as described by a Bank supervision mission "lacked coverage, articulation, realism, and judgment" and "neither support a prudent or economic approval nor an effective supervision later on." Financial appraisals were often cursory and in January 1991 a supervision mission recommended that further extensions of the loan be contingent upon "crash" training for IDBE staff to improve the quality of appraisals. It is important not to place too much emphasis on addressing IDBE's appraisal capacity as a solution to its problems at this stage, however. More likely, changes in its operating environment will need to be effected. Continuing problems in IDBE despite 20 years of Bank and donor support are partly attributable GOE's signals over the years that the SMI sector is a priority as a provider of employment rather than a source of sustainable growth. As such, IDBE's internal incentive system and corporate culture have continued to emphasize lending volume over portfolio quality or the efficiency of resource allocation. 4.17 It is clear that IDBE needs to make further progress if it is to effectively undertake its designated leading role in industrial finance to SMIs. During the project, its capital base was increased by government equity contributions which reduced its debt to equity ratio from 13.4:1 in FY88 to 7.9:1 in FY93. A pending proposal exists for the National Investment Bank to convert LE 50 million of its deposits with IDBE into equity, which would raise IDBE's paid-in capital to its authorized LE 200 million. However, the institution's viability continues to be questioned by the doubtful value of its assets and its inability to manage increased debt service payments. Overall, there is a clear need for an in-depth assessment of the specialized banks in an attempt to identify and exploit their unique contribution in the current changing environment. Given that it is important to reach the designated target sectors, in the interests of effectiveness and sustainability, it needs to be ensured that strengthening these institutions and supporting them with subsidized credit will not discourage private commercial efforts from reaching the same sectors.  45 5. Assessment and Lessons Attainment of Objectives 5.1 A summary of the achievement of objectives for each of the three projects is as follows: The Small and Medium Scale Industry Project 1) Objective: Meet the demand for long-term investment finance among SMIs. Result: Partially achieved. Assessment: The project financed 232 subproject to 191 different borrowers, most of which are reported viable. The degree of achievement is tempered, however, when large loans accounting for over 40 percent of the amount used (reaching US$8.7 million to a single company), working capital loans, and loans to previous borrowers are considered along with the negative real interest rates at which the funds were disbursed. 2) Objective: Increase the availability of technical assistance to SMIs. Result: Not achieved. Assessment: While EIDDC used 30 percent of the TA funds allocated to it, it was unable to effectively improve its provision of technical assistance to SMIs. It faced financial problems as the Government reduced its funding and it did not receive the 0.4 percent commission on interest earned by IDBE as specified in the project agreement. EIDDC still remains a cumbersome organization, employing 500 people to service 150 clients a year and it needs to clarify its incremental contribution to SMI development and focus on areas where it can have a measurable impact. 3) Objective: Strengthen the institutional capacity of IDBE. Result: Not achieved Assessment: Since new Banking regulations were introduced under the 1990 reform program, IDBE has improved its income recognition and provisioning procedures. However, despite 20 years of Bank support, its resources mobilization ability has not been improved, its appraisal standards remain lacking, and the poor quality of its assets questions its ability to operate as an autonomous, viable institution. The Export Industries Development Project 1) Objective: Meet the demand for long-term finance in the Export Sector. Result: Partially achieved Assessment: US$ 46.84 million was disbursed in support of 31 export industry projects and 28 of these were implemented satisfactorily. The achievement is reduced, however, because over 40 percent of the subloan amount went to industries that were dominantly local-market oriented and had weak export development plans. Problem projects account for 26 percent of the amount disbursed while interest rates were negative for a substantial period of the disbursement period. 46 2) Objective: Support GOE's action program to institute export-oriented policy reforms. Result: Not achieved. Assessment: With the cancellation of the TA component to EEPC, none of the studies planned under the project were carried out and EEPC was not developed into a top-level agency to catalyze and coordinate the national export development effort. None of the studies planned were carried out. 3) Objective: Develop the institutional framework for export promotion. Result: Not achieved. Assessment: EEPC did not was unable to utilize its technical assistance component as GOE did not pass a law guaranteeing EEPC's management autonomy, which was a condition of the loan. As a result, the Exporter Assistance Fund was also not established. 4) Objective: Enhance the institutional capacity of EDBE and the PBs. Result: Partially achieved. Assessment: EDBE did not utilize the project's TA component for staff training and institutional development as it wanted the funds as a grant rather that as a loan. Nevertheless, the Bank has been able to support EDBE since its inception in 1983 and it has emerged as a generally sound financial institution. It is allowed to operate semi-autonomously and has the full support of the Government as a key intervention point in a priority sector. It has seen a gradual increase in its portfolio affected by arrears, however. The project had no impact on the capacity of the other PBs to appraise export projects. IDBE and NBD dropped without financing any loans, Misr Iran Development Bank (MIDB) financed only a single loan, and Bank Misr's participation was limited. 5) Objective: Increase exporter access to commercial finance. Result: Not achieved. Assessment: This component was canceled by EDBE during the project. The Construction Industry Project 1) Objective: Finance construction equipment and machinery. Result: Partially achieved. Assessment: Five public sector construction industry firms and two private sector firms were financed for a total of US$23.7 million (22 percent of the original amount). However, 45 percent of the total amount lent consists of problem loans and as of December 1995, 37 percent of the disbursed amount remained in arrears. 2) Objective: Help develop management skills in the contracting firms. Result: Achieved. Assessment: The Management Development program has emerged as a well-managed and effective program. The program has trained some 1000 mainly public-sector managers in general and specialized management. 3) Objective: Support the progress of policy reform in the construction industry. Result: Partially achieved. 47 Assessment: The TA component helped establish the Egyptian Federation of Contractors. A study to streamline bidding and contracting procedures to support efficiency in the sector was completed, although has not been implemented due to its failure to be passed in Parliament. 4) Objective: Assist participating financial institutions appraise and supervise loans to the construction industry. Result: Not achieved. Assessment: IDBE withdrew from the project without making any sub-loans. Bank Misr did not utilize the TA component for training and institutional development. 5) Objective: Increase competition between private and public contracting firms. Result: Not achieved. Assessment: The project was able to finance two private sector firms for US$1.95 million, 67 percent of which remains in arrears. In any event, it seems highly unrealistic to have expected the project to increase competition by financing private sector firms, given the range of regulatory, structural, and incentive biases against private participation in the industry. This objective seems to have been added to accommodate the Bank's concern with the private sector. Assessment of Outcome 5.2 The outcomes of each of the three loans were unsatisfactory. At appraisal, the three loans acknowledged that the financing constraint was not the only constraint to growth and efficiency in their respective sectors. The export and construction projects as a result established sector policy reform as their primary objectives, with supporting objectives in institutional development and direct financing. While the loans in retrospect seem to have involved excessive credit line components, they nevertheless were equipped to catalyze change in the policy environment. In the case of the export project, however, when its policy reform and institutional development components were de-railed, its relevance rapidly began to diminish. In the end, it was reduced to pushing a credit line through under adverse conditions rather than overcoming obstacles to sustainable development of the sector. 5.3 The construction industry project was able to make progress in its contribution to institutional development and policy reform in the construction industry but had less success with the credit line which had low relevance to the needs of the sector at the time. With substantial benefits arising only out of the TA component, the existence of the credit line greatly decreased the cost-effectiveness of the project. In retrospect, the construction industry project would have been much more relevant, effective, and efficient had it been a free-standing TA project without the credit component entirely. 5.4 The SMI project had an inadequately defined set of development objectives. As an industrial development project, it should have endeavored to help catalyze identified policy reforms in the sector or to address obstacles preventing the wider financial sector from reaching SMIs. The form it took, in which it expected to compensate for real sector distortions through economic appraisal and TA to SMIs, was inadequate and overly optimistic given the extent of distortions that prevailed at the time. 48 5.5 The unsatisfactory ratings of the projects reflect the inappropriateness of the selected instruments to address the problems at the time and the system of incentives on both sides that encouraged their use. A lot of energy and resources were expended in achieving the credit line objectives of the projects, when their final contribution to industrial development in Egypt was negligible and the cost to GOE in terms of opportunity and foreign exchange costs high. Sustainability 5.6 While the Bank's projects were designed to prevent misallocation of resources in the distorted economy through economic appraisals, it is apparent that subproject selection and economic appraisals were not sufficiently rigorous to serve this purpose. Subprojects under the export project reflected the incentive environment for investors at the time, resulting in a large proportion of import-substitution rather than export-oriented projects being financed. Their eligibility for financing seems to have been due to the 3 to 5 year time lag before export requirements and the eligibility of indirect exports, which actually served as "loopholes" for local market-oriented projects to be financed. Under the SMI project, only a handful of economic appraisals were conducted. Textile yarn and plastic manufacturers were prominent among the sub-borrowers while it is apparent that these industries operate under high effective rates of protection. Yarn manufacturers report the inability to compete with smuggled products from Asia as a threat to their viability. Overall, there is some question as to whether the machinery purchased under these projects can be adapted for different purposes in the event of further progress in reforming the incentive environment. In the absence of more detailed ex-post subproject assessment, sustainability of the subprojects financed must therefore be considered uncertain. 5.7 While both the SMI project and the export project report a high percentage of performing projects, the continued viability of the subprojects is clouded by an environment encouraging debt over equity financing. The PBs were permitted to approve projects with high debt to equity ratios and negative real interest rates, the limited capital market, and re-valued debt after the depreciation of the Pound, has led to firms with high debt to equity ratios. In some cases, this is compounded by the tendency of banks to adopt equity positions in the projects they finance, particularly as an alternative to pursuing legal action in firms that are in trouble. In the case of the Technopack project, EDBE which owned 12 percent of the equity at appraisal (while MIDB owned 27 percent) has increased its share of the unprofitable operation to 28.5 percent. In the case of SMI project, it is apparent that there was some degree of subsequent refinancing that occurred to relieve sub-borrowers locked into high interest rates (i.e. 17-21 percent when interest rates declined to 14 percent in 1993). As a result, repayment of the loans made under the project need not necessarily indicate the continued viability of the project itself. 5.8 The continued contribution of the financial sector achievements of the project to industrial development can be gauged by the continued ability of investors to access their long- term financing needs. While the banking system as a whole is liquid and in a position to finance industrial investment, the capital market in Egypt remains to be developed. Capital market development has been constrained by a low level of savings and because NBD has exclusive rights to the savings resources in the Social Insurance Fund, the Pension Fund, and the Post Office Savings and in turn uses these resources to finance long-term loans to public enterprises for capital investment. The corporate tax rate in Egypt is also substantially above comparable countries, reducing the level of investment to be financed through retained earnings. Moreover, the Government continues to have extensive control of the financial system through its 49 ownership and majority control of most banks, direct and indirect control over the capital market, and its deficit financing. Bank Performance 5.9 The objectives of the export project were relevant to the needs of the country at the time and conformed to the priorities of the Bank. The appraisal report identified the major structural and policy-induced constraints to growth and efficiency in the sectors and the loan was designed to address them through policy reform and institutional development as well as financial support. The objectives of the TA component of the construction industry were also relevant and the design of the loan placed it in a position to influence the critical constraints to development in the sector. The relevance of the large line of credit is less clear given that the construction sector was dominated by public sector firms with access to foreign exchange at the more favorable official exchange rate and the range of non-financial constraints to private participation in the sector. As noted earlier (para. 5.4), the SMI project had an inadequately defined set of objectives and did not address the real obstacles to SMI development. 5.10 It is apparent that negotiations on the loans had not been satisfactorily completed when they were presented to the board and that both the Bank and GOE felt the pressure to increase the Bank's FY84 lending to Egypt from US$4 million to US$400 million through the approval of these loans. The Bank and GOE had been unable to agree on the foreign exchange rate to be used for subloan repayment, with GOE insisting on using the official exchange rate which implied a substantial subsidy to borrowers. Despite last minute high-level interventions, GOE held fast to its position and the final agreement was that the "highest official exchange rate declared by CBE" was to be used. Lending pressure seems also to have caused inadequate consideration to be given to the difficulty of marketing a credit line at interest rates 3-5 percent above comparable local market rates and which included an increasing risk of exchange rate devaluation. The PBs who were closest to the market and represented demand for the loans, had to object to the original terms, resulting in the three year effectiveness delay. Even when the original restructuring took place, there is some indication that some coercion was necessary before the PBs accepted the terms that made the loans effective. According to the record, several PBs openly expressed discontent with the loans and indeed dropped out of the projects when given the opportunity. 5.11 In terms of the relationship with the Borrower, there is some indication that these loans worsened rather than improved the wider policy dialogue with GOE. According to an internal Bank memo, the Bank's agreement to the initial lending rate that took effect in 1987, despite its compromise of the projects' objective of maintaining a subsidy-free interest rate, was driven partly by the need to end the "bitterness relating to this negotiation [which has] vitiated our relations over the last eighteen months and also detracted us from the dialogue on the management of the economy" (internal memo, 10/85). Also, the Ibrahim Ahmed Nadim (MEDCO) project under the export loan was approved despite its clearly import-substitution orientation partly because of the need to "avoid exacerbating the strained relationship with Bank Misr at this time, as well as hard feelings with [a senior official of the Ministry of International Cooperation]" (internal memo, 12/88). 5.12 Supervision of the financing components of the projects was satisfactory. GOE was advised a number of times to cancel amounts unlikely to be utilized in the time remaining. Problems with the intermediary banks were identified in a timely manner and proper remedial 50 action recommended. At several points the Bank considered not extending the elapsing deadlines of the project. However, it was considered that the Bank stood to further worsen its relationship with the PBs and GOE if were to occur. The PBs claimed that they had expended a large amount of resources to market these credit lines and deserved additional time to use them. 5.13 The total resources consumed by the project were high. A total of 736 staff weeks were required to complete the projects, at an average of 245 staff weeks per project. At the same time, however, the Bank produced some timely and high quality ESW on the industrial sector in Egypt. This includes the sector studies preceding the loans, an industrial sector review in 1987, a financial sector review in 1989, an assessment of the private sector regulator environment in 1992, and a private sector assessment in 1994. Borrower Performance 5.14 The performance of the participating banks in the loans was poor. In the case of the export project, it is unclear to what extent export industries were financed and in the case of the SMI project it is unclear to what extent viable SMI industrial projects were financed. The PBs did endeavor to address the weaknesses in their operational and financial positions as recommended by Bank staff, but the results were poor, particularly for IDBE. 5.15 GOE's objectives, however, extended beyond utilization of the loans. Under the export project, when the TA component was rendered ineffective, GOE did not develop and implement the policy reforms, despite clear indications that they were required to stimulate the sector. GOE's effort was more focused on the provision of finance to the export sector through subsidized loans and less on addressing the major disincentives to export that continue to exist. 5.16 The costs to the Government were also high. Contrary to the best practices of financial intermediary lending of the time, the Government absorbed the foreign exchange risk on sub- loans. Since 1987 when the first loans were committed, the Pound has depreciated by 126 percent against the dollar. The fee the Government was to take for absorbing this risk, however, diminished from 9 percent in 1987 to 6.35 percent in 1989 and to an unspecified amount after 1992 (determined by the on-lending rate which moved with the discount rate less the three point spread for the PBs plus the repayment rate to the Bank). Lessons of Experience 5.17 Lessons of the projects include: * While the projects anticipated or endeavored to produce policy reforms, these were not forthcoming. In the absence of a catalyzing effect on policy reform by a credit line, its continuing relevance in distorted conditions should be closely examined. * The construction industry project was a pilot project through which the Bank was to establish the basis for further interventions to help develop the construction industry. As such, it was burdened by the need to disburse a large line of credit for which there was no demand and which did not provide additional leverage. In such a situation, a freestanding technical assistance loan would have a more relevant and efficient intervention. 51 * The projects focused on addressing financing constraint even though it became apparent that financing was not the critical constraint to development of the respective sectors at the time. Strengthening of financial institutions and access to finance, without accompanying sector development strategies that remove policy distortions, are unlikely to have the desired impact on development of the real sectors. * The weak state of IDBE despite 20 years of Bank institutional support and 8 lending operations indicates the diminishing returns to technical and financial support to an intermediary bank when its operating environment encourages it to behave differently. * Under the export project attainment of its policy reform and institutional development objectives was prevented because of the failure of GOE to pass a law conferring autonomy on EEPC. Narrow bottlenecks which can derail the whole project should be anticipated and addressed at the design stage. 戸 53 Annexes  SUMMARY OF ASSESSMENTS: EGYPT - SMALL AND MEDIUM SCALE INDUSTRY PROJECT (L2458-EGT) RATING TYPE RATING ASSESSMENT The SMI project did not clearly define its development objectives. As an industrial development project, it should have been used to help catalyze identified policy reforms in the sector. The form it took, in which it expected to compensate for real sector distortions through economic appraisal and TA to SMIs, was inadequate and overly optimistic in the highly distorted environment of the time. The project partially achieved its objective of financing SMIs, although mid-course restructuring diluted its original intentions of maintaining a subsidy-free interest rate, lending at least 70% of the funds to SMIs, and providing investment rather OUTCOME UNSATISFACTORY than working capital loans. The project did not ensure a high quantity and quality of economic appraisals by IDBE and was unable to provide sub-borrowers with technical assistance. The efficiency of the project is considered to be low given that it required cancellation of 50% of the originally committed amount, consumed substantial Bank resources, involved high foreign exchange costs to the government, and precluded more relevant operations in the sector. In addition, protracted negotiations over on-lending terms were considered to have detracted from more productive dialogue on the management of the economy. The Bank has been providing IDBE (and its predecessors) with financial and technical assistance since 1973 through eight financial intermediary loans totaling $250 million. While some of IDBE's accounting procedures were improved following the 1991 financial sector reform program, its viability as an autonomous institution remains questionable and it is not poised to lead improvements in SMI access to institutional finance. While initial bank loans were valuable in establishing IDBE's presence in the NEUOLGLGOBE lending market, its subsequent development has been constrained by its operating environment and its internal incentive system DEVELPMENT and corporate culture which emphasize lending volume over portfolio quality and efficiency in resource allocation. Subsequent technical assistance and credit lines to support IDBE's institutional development have thereby had diminishing returns. The project was also unable to effectively increase the availability of technical assistance to SMIs, although it was identified as a key constraint in the sector. The sustainability of the benefits of the project will depend on the ability of the industries financed to adjust to changing macroeconomic and sector conditions. Limited evidence on their current activities and viability prevents an assessment of this SUSTAINABILITY UNCERTAIN likelihood. In terms the contribution to financial institutional development, sustainability will depend on improvements in the operating environment for IDBE (including its ownership) which will enable it to meet the needs of SMIs in a more effective and efficient manner and which are presently uncertain. A clearer SMI development strategy should have accompanied the project to address the major identified policy constraints to the development of the sector. IDBE's performance was satisfactory to the extent that it took steps to address its financial and BORROWER UNSATISFACTORY operational weaknesses and endeavored to utilized the funds as far as possible in difficult conditions. Its operating environment, PERFORMANCE however, has encouraged its internal incentive system to focus over the years on lending volume rather than portfolio quality or efficiency of resource allocation. IDBE's financial performance has been poor throughout the period, and its portfolio has high arrears. From the Bank's perspective, the design of the loan prevented it from making a substantial contribution to either industrial BANK UNSATISFACTORY development or the social safety net in Egypt. The objective of maintaining subsidy-free interest rates was encouraging but PERFORMANCE inappropriate under the circumstances. The absorptive capacity of IDBE was also overestimated and it was provided with a package of $250 million under these three loans. COVENANTC The EIDDC component was canceled in mid-course and full program was not administered. Other covenants of the project were COMPLIANCE SATISFA complied with by the borrower. Note: The ICR of the MNA region rated Outcome as Satisfactory, Institutional Development as Moderate; and Sustainability as Likely. SUMMARY OF ASSESSMENTS: EGYPT - EXPORT INDUSTRIES DEVELOPMENT PROJECT (L2459-EGT) RATING TYPE RATING ASSESSMENT The project's objectives were highly relevant to the needs of the sector at the time. The project aimed to address the lack of a coherent export development strategy and supportive institutional framework for exports and to meet an estimated demand for long- term finance among exporters. The project, however, failed to catalyze policy reforms in the export sector and did not strengthen the institutional environment for export promotion. With the cancellation of the TA component, the project was reduced to pushing a credit line through in adverse circumstances rather than removing constraints to development of the sector. The PBs were hard pressed to find eligible sub-borrowers and included a number of import-substitution industries. Twenty-six percent of the funds were disbursed to subprojects currently in trouble. The costs of the project are considered high in relation to its limited achievements. It required cancellation of 62 percent of the originally committed amount, high foreign exchange costs to the government, consumed a high level of Bank resources, and detracted from the wider policy dialogue between GOE and the Bank. The Bank was involved in the creation of EDBE in 1983 and the project helped strengthen its capacity to service the export sector. INSTITUTONAL The project, however, was unable to benefit the other four banks who were to participate in the project. It also failed to benefit MODERATE EEPC which was expected to catalyze and eoordinate development of the export sector. It moreover did not create the Exporter Assistance Fund as envisioned and did not help EDBE establish an exporter guarantee program. EDBE is in a generally sound financial and operational position and likely to continue to play a key role in export development in Egypt. Institutional finance alone, however, is unlikely to stimulate the desired response from the export sector and continued SUSTAINABILITY UNCERTAIN reform to remove policy and structural constraints to exports is necessary to ensure sustainable development. The performance of EDBE and Bank Misr was satisfactory; they maintained adequate financial positions and utilized funds to the extent possible in poor economic conditions. GOE's objectives, however, extended beyond utilization of the funds and when the BORROWER TA component was not made effective, GOE did not in any event undertake to develop and implement the policy reforms that had PERFORMANCE UNSATISFACTORY been identified as essential to stimulate the sector. GOE's effort during the project was more focused on the provision of subsidized finance to the export sector and less on addressing the major disincentives to export. The project responded to the priorities of both the Bank and the Borrower and was designed to address the key constraints in the sector. However, the possible failure of the law to be passed and the poor overall economic conditions which derailed the project could have been better anticipated at the design stage. After the cancellation of the TA component, the project's relevance rapidly BA UNSATISFACTORY diminished and more should have been done to re-introduce an export policy reform focus, which was one of the project's key PERFORMANCE objectives. With the inability of GOE to pass legislation conferring management autonomy on EEPC, a number of related covenants had to be COVENANT canceled causing the project to lose its policy reform and institutional development focus. COMPLANCE UNSATISFACTORY cacldcuigtepoettloeisplcreomadisiuonlevomntfu. COMPLIANCE Note: The ICR prepared by the MNA region rated Outcome as Satisfactory; Institutional Development as Substantial; and Sustainbility as Likely. SUMMARY OF ASSESSMENTS: EGYPT - CONSTRUCTION INDUSTRY PROJECT (L2460-EGT) RATING TYPE RATING ASSESSMENT The TA component is considered highly relevant to the needs of the borrower and the objectives of the Bank at the time. It addressed the need to stimulate substantial changes in the environment governing the construction sector and to enable private sector participation. There is less certainty as to the relevance of the credit line, given that the sector was dominated by public sector firms with access to subsidized financing at official exchange rates and that major non-financial constraints prevented a larger role for private firms. The project's financing component was marginally utilized due to poor demand and recession in the sector. The TA component was more effective and resulted in a well-managed management training program and a number of studies promoting reform in the sector. Efficiency of the project is considered low given a high cancellation amount, foreign exchange losses to the government, a high percentage of the loan amount in doubt, a protracted implementation period, and substantial benefits arising only from the TA component. The Bank has provided considerable support to stimulate improvements in the construction sector through lending operations and sector studies. It also helped establish the Egyptian Federation of Contractors which has increased information on the industry. The TA component produced several studies promoting improved procedures in the industry as well as an effective management MODERATE training program, the positive aspects of which might be replicated in other sectors. A new system of contracting and bidding DEVELOPMENT procedures was not implemented, however, due its inability to be passed through parliament. The PBs did not utilize the TA component and the project did not strengthen financial intermediation to the construction industry. Continued development of the construction industry requires consistent progress on the reform front. Recent indications of progress such as the passage of a law changing rent control stipulations is expected boost the housing sector. The MTP program SUSTAINABILITY UNCERTAIN currently is dependent on official financing and whether it can eventually raise its own funds from clients and evolve into a self- sustaining operation remains to be seen. The MTP program was well managed and effective and the studies, though delayed, were completed. Bank Misr performed satisfactorily in endeavoring to utilize the loan, although was constrained by the inappropriateness of the credit line at the time. BORROWER UNSATISFACTORY However, only limited progress has been made in addressing the central recognized constraints to efficiency and development in PERFORMANCE the sector, including the poor incentive system and excess employment in public firms, non-competitive bidding, and restricted private access to the market and supply inputs. In retrospect, this loan would have been much more relevant, effective, and efficient had it consisted only of the TA component and not the credit line. Bank staff overestimated the demand for finance and underestimated the negative impact of structural BANK UNSATISFACTORY rigidity in the sector and adverse macroeconomic conditions. The TA component was well supported by Bank supervision staff PERFORMANCE who were flexible and encouraged adoption of innovative approaches. Bank Misr did not utilize funds allocated to it for training and therefore did not employ advisors to help develop its appraisal skills COVENANT SATISFACTORY (Sect. 2.09). Otherwise the Borrower complied with the covenants of the loan. COMPLIANCE Note: The ICR prepared by the MNA region rated Outcome as Unsatisfactory; Institutional Development as Moderate and Sustainability as Likely. 58 Annex IV SUMMARY INFORMATION ON ALL THREE PROJECTS Small and Medium Scale Export Development Construction Industry TOTAL Industry Project (L2458) Project (L2459) Project (L2460) Dates Approval Date June 28th, 1984 June 28th, 1984 June 28th, 1984 Effectiveness Date August 19th, 1987 August 19th, 1987 October 30th, 1987 Effectiveness Delay 3 years 3 years 3 years, 3 months Closing Date June 30th, 1994 June 30th, 1994 June 30th, 1994 Closing Delay 2 years 2 years 2 years Original Amounts ($m) Credit Component Amount 168.1 118 96.7 382.8 Technical Assistance Amount 1.5 6.7 3 11.2 Front End Fee 0.4 0.3 0.3 1 Total Loan Amount 170 125 100 395 Net Amounts ($m) Credit Component Utilized 85.5 46.84 21.7 154.04 TA Component Utilized 0.42 0.22 1.6 2.24 Total Amount Utilized 86.35 47.72 23.6 157.67 Utilization (%) Percent of Credit Component 51% 40% 22% 40% Percent of TA Component Utilized 28% 3% 53% 20% Percentage of Total Loan Utilized 51% 38% 24% 40% Subprojects Financed Subproject Commitment Period 10/30/87 to 12/31/92 10/25/87 to 12/31/93 1990 to 12/31/92 Number of Subprojects Financed 232 28 7 267 Average Subproject Size US$368,563 US$1.7 million US$3.1 million Ratings Outcome Unsatisfactory Unsatisfactory Unsatisfactory Institutional Development Negligible Moderate Moderate Sustainability Uncertain Uncertain Uncertain Bank Performance Unsatisfactory Unsatisfactory Unsatisfactory Borrower Performance Unsatisfactory Unsatisfactory Unsatisfactory WORLD BANK LENDING TO EGYPT, 1960 - 1996 Amounts in US$ million 1960-1983 1984-1996 TOTAL: 1960 - 1996 No. of Net Share of Average No. of Net Share of Av.a No. of Net Share f Average I Amount Project Amount Project Amount Project Projects Total Projects Total Projects Amont Total Proe ($m) Size ($m) ____ Size ($m) Size ALL LOANS 62 2,740 100% 44 27 1,557 100% 58 89 4,297 100% 48 By Sector Agriculture 12 494 18% 41 9 558 36% 62 21 1,052 24% 50 Education 4 117 4% 29 3 104 7% 35 7 221 5% 32 Electricity, Power, & Other Energy 3 367 13% 122 2 162 10% 81 5 529 12% 106 Finance 6 270 10% 45 3 158 10% 53 9 428 10% 48 Industry 12 394 14% 33 12 394 9% 33 Multi-Sector 2 137 5% 69 1 150 10% 150 3 287 7% 96 Oil and Gas 4 240 9% 60 1 84 5% 84 5 324 8% 65 PoplHealthlNutrition 2 22 1% 11 3 184 12% 61 5 206 5% 41 Public Sector Management 1 9 1% 9 1 9 0% 9 Telecommunications 3 140 5% 47 3 140 3% 47 Tourism 1 23 1% 23 1 130 8% 130 2 153 4% 77 Transportation 8 357 13% 45 1 17 1% 17 9 375 9% 42 Urban Development 2 66 2% 33 2 66 2% 33 Water Supply and Sanitation 3 110 4% 37 2 1 0% 1 5 111 3% 22 By Lending Instrument Financial Intermediary Loan 9 395 14% 44 3 158 10% 53 12 552 13% 46 Specific Investment & Maintenance 13 536 20% 41 1 31 2% 31 14 567 13% 40 Specific Investment Loan 33 1,663 61% 50 20 1,208 78% 60 53 2,871 67% 54 Structural Adjustment Loan 2 137 5% 69 1 150 10% 150 3 287 7% 96 Technical Assistance Loan 5 10 0% 2 2 10 1% 5 7 20 0% 3 RELATED WORLD BANK LOANS TO EGYPT SectInL-ding Approval Original Net Loan Net/ Sustain Institutional Ratng FY Project tUiC ilosing Date Duration Loan Amount Original Outcome ait d lon t Task Manager NO. Instrument date ($ m) ($ m) Amount abHity development By 1973 C0412 Bank of Alexandria project Finance/FIL 6/26/73 1/31/80 6.5 years 15.0 14.7 98% Satisfactory Not rated Not rated PAR (DFC I) 1976 Ll276 F t and vegetable Agriculture/FIL 5/28/76 12/31/84 8.5 years 50.0 48.6 97% Satisfactory Not rated Not rated PCR I development project Second Bank of Alexandria 1976 C0576 pect Bank o Finance/FIL 7/15/75 4/30/81 5.8 years 25.0 25.0 100% Satisfactory Not rated Not rated PAR project (DFC II) 1978 C0830 Agricuitural development Agriculture/FIL 6/27/78 12/31/84 6.5 years 32.0 31.7 99% Unsatisfactory Not rated Not rated PAR project 1978 L1533 Tbird development finance Finance/FIL 3/21/78 12/31/82 4.7 years 40.0 39.5 99% Satisfactory Not rated Not rated PCR GUPTA company (DFC III) Marginally SCADUTO- 1980 C0988 Agro-industries project Agriculture/FIL 3/11/80 6/30/88 8.2 years 45.0 43.8 97% Saiaoy Likely Modest PAR MENDO Satisfactory __MENDOLA 1980 Ll8D4 evelopment finance company Finance/FIL 3/11/80 12/31/84 4.7 years 50.0 49.6 99% Satisfactory Not rated Not rated PCR GUPTA project (DFC V/DIB IV) 1980 L1842 Misr Iran Development Bank Finance/FIL 5/13/80 6/30/87 7.1 years 30.0 23.6 79% Satisfactory Uncertain Modest PCR E. SAWAYA C project (DFC IV/MIDB 1) 1982 L2074 Fifth Development Istrial Finance/FIL 12/22/81 12/31/88 7 years 120.0 118.1 98% Satisfactory Likely Modest PCR J. MAWENI Bank project (DIB V/SSI) -~ ___ _____- -- Marginally 1983 L2243 Second Agro-Indsutries Project Agriculture/FIL 3/8/83 6/30/90 7.2 years 81.2 56.5 70% Satisfactory Likely Modest PAR Sml an Meiu Scaleator 1984 L2458 Small and Medium Scale Fance/FIL 6/28/84 6/30/94 10 years 170.0 86.4 51% Unsatisfactory Uncertain Negligible PAR SHETTY Industry Project 1984 L2459 Export Industry Development Finance/FIL 6/28/84 6/30/94 10 years 125.0 47.7 38% Unsatisfactory Uncertain Modest PAR SHETTY Project 1984 L2460 Construction Industry Project Finance/FIL 6/28/84 6/30/94 10 years 100.0 23.6 24% Unsatisfactory Uncertain Modest PAR SHEHADEH 1991 L3353 Structural Adjustment Loan Multi-Sector/SAL 6/21/91 6/30/94 3 years 300.0 150.1 50% Satisfactory Likely Substantial ICR PETERSEN Public Sector 1992 C2402 TA Privatization MalagectA 6/25/92 (6/30/1998) 9.0 9.0 100% BEHBEHANI Managemnent/TAL 90 90 10 EBHN EGYPT: ECONOMIC INDICATORS (Page 1) 1988 1989 1990 1991 1992 1993 1994 Average Average Average (est.) 1988-1990 1991-1994 1988-1994 Real GDP Growth Rate 3.9% 3.0% 2.4% 2.1% 0.3% 0.5% 2.0% 3.1% 1.2% 2.0% Real GDP Per Capita Growth Rate 0.9% 0.0% -0.6% -0.4% -1.4% -1.7% 0.0% 0.1% -0.9% -0.5% Gross Domestic Investment (% of GDP) 23% 23% 22% 20% 18% 17% 18% 22.8% 18.2% 20.2% Gross Domestic Savings (% of GDP) 10% 11% 7% 10% 11% 5% 6% 8.9% 8.1% 8.4% Sectoral Composition Agricultural Value Added (% of GDP) 18% 17% 17% 17% 17% 16% 18% 17.5% 17.1% 17.3% Industry Value Added (% of GDP) 29% 28% 22% 22% 22% 20% 19% 26.0% 20.9% 23.1% Manufacturing Valuie Added (% of GDP) 16% 15% 17% 16% 16% 14% 14% 15.8% 15.0% 15.4% Services Value Added (% of GDP) 48% 48% 53% 53% 55% 54% 54% 50.0% 54.3% 52.5% Agricultural Value Added (Growth Rate) 2.5% 2.0% 1.7% 1.8% 1.4% 1.6% 2.9% 2.1% 1.9% 2.0% Industry Value Added (Growth Rate) 4.4% -1.2% -0.6% 2.0% -0.4% -0.4% -0.3% 0.9% 0.2% 0.5% Manufacturing Value Added (Growth Rate) 7.2% 0.5% -1.5% 1.7% -1.2% -1.1% -0.6% 2.1% -0.3% 0.7% Services Value Added (Growth Rate) 4.3% 4.8% 4.2% 2.3% 0.3% 0.6% 3.1% 4.4% 1.6% 2.8% Current Account Balance (excl.grants) (% of -2% -2% -2% 0% 2% 0% 0% -2.1% 0.5% -0.6% Offical Capital Grants (% of GDP) 1% 1% 1% 2% 1% 1% 1% 1.2% 1.0% 1.1% Resource Balance (% of GDP) -15% -13% -15% -10% -7% -12% -12% -14.2% -10.1% -11.9% Exports (GNFS) Growth Rate 25.3% 11.7% 5.8% 10.7% 5.7% -11.4% -0.8% 14.3% 1.1% 6.7% Imports (GNFS) Growth Rate 12.5% 2.1% 8.3% -0.7% -2.8% 4.6% -0.3% 7.6% 0.2% 3.4% Exports (% of GDP) 25% 27% 28% 30% 31% 28% 22% 26.2% 27.7% 27.1% Imports (% of GDP) 39.1% 38.7% 41.0% 39.9% 38.6% 40.2% 33.3% 39.6% 38.0% 38.7% Money M2/GDP 94% 92% 91% 93% 89% 93% 94% 92.0% 92.0% 92.0% M2 growth rate 30% 17% 20% 28% 14% 16% 11% 22.2% 17.4% 19.5% Private Sector Credit (% of total domestic credit) 37% 36% 33% 32% 33% 38% 42% 35.5% 36.1% 35.9% Private Sector Credit (% of GDP) 37% 36% 34% 32% 28% 31% 34% 35.7% 31.3% 33.2% Private sector credit growth rate 20% 18% 16% 17% 5% 22% 21% 17.8% 16.0% 16.8% Interest Rates Discount Rate 13.0 14.0 14.0 20.0 18.4 16.5 13.7 18.3 16.0 Deposit rate 11.0 11.7 12.0 12.0 12.0 12.0 11.6 12.0 11.8 Lending Rate (lyr loans) 17.0 18.3 19.0 18.0 20.3 18.3 18.1 18.9 18.5 Inflation Rate (Change in CPI) 18.6% 16.7% 19.0% 19.6% 21.1% 11.2% 8.2% 18.1% 15.0% 16.3% Exchange Rates Nominal Exchange Rate LE/US$ 1.76 1.94 2.61 3.01 3.32 3.33 3.38 2.1 3.3 2.8 Real Exchange Rate Index (1992= 100) 96.9 95.7 110.4 106.4 100.0 91.8 87.5 101.0 96.4 98.4 Percentage Change (positive = depreciation) -1.2% 15.4% -3.6% |-6.0% -8.2% -4.7% 7.1% -5.6% -1.4% Source: World Bank, Egypt CEMs/Sector Reports EGYPT: ECONOMIC INDICATORS (Page 2) 1988 1989 31990 1994 Average Average Average 1 (est.) 1988-1990 1991-1994 1988-1994 Government Budget Deficit (% of GDP) -.-- -20% -18% -18% -17% -5% -4% -3% -18.8% -7.3% -12.2% Foreign Financing (%) 5% 5% 4% 14% 2% 0% 1% 4.4% 4.1% 4.2% Monetary System Credit (%) 7% 8% 10% 2% -3% -2% -1% 8.1% -1.2% 2.8% Taxes on International Trade (% of Merch.Imports) 14% 14% 10% 10% 14% 14% 17% 12.6% 13.5% 13.1% Total Government Debt (as a % of GDP) 214% 209% 193% - 158% 159% 1 149% 139% 205.4% 151.2% 174.4% Total External Debt (% of GDP) 144% 137% 114% 80% 88% 83% 78% 131.5% 82.2% 103.4% Total External Debt (% of Exports) 620% 563% 377% 249% 281% [ 329% 357% 520.0% 304.0% 396.5% Source: World Bank, Egypt CEMs/Sector Reports 63 GROSS DOMESTIC INVESTMENT IN EGYPT Annex VIII Average 1990 1991 1992 1993 1994 Average 1980-1989 1990-1994 Gross Domestic Fixed Investment (% of GDP) Egypt 25.2 21.4 20.0 _ _17.6 16.5 17.2 18.6 Developing Country Average 21.7 22.9 22.9 22.9 23.3 23.8 23.2 Private Fixed Investment (% of Egypt GDP) 6.1 3.4 9.7 7.1 8.2 10.1 7.7 EMENA 9.9 11.7 14.3 13.6 15 15.4 14 East Asia 19.4 26.6 26.6 24.7 24.5 25.2 25.5 Developing Country Average 13.4 16.1 16.1 16.1 16.7 18 16.6 Public Fixed Investment (% of GDP) Egypt 19.1 18.1 10.3 10.4 8.4 7.1 10.9 EMENA 11 9.1 8.3 8.6 8.4 6.8 8.2 East Asia 8.2 7.6 8.6 8.9 8.9 8.7 8.5 Developing Country Average 8.3 6.8 6.8 6.8 6.5 5.8 6.5 Private Fixed Investment (% of Total Fixed Investment) Egypt 24.6 15.8 48.5 40.6 49.4 58.7 42.6 Developing Country Average 58 62 1 63 62 62 63 62 Foreign Flows as a % of Private Fixed Investment Egypt 28 40 6 18 15 12 18 EMENA Average (Egypt, Morocco, 18 9 6 9 13 12 10 Tunisia, Turkey) I I I I Note: EMENA: Egypt, Morocco, Tunisia, Turkey. East Asia: Fiji, Indonesia, Korea, Malaysia, Philippines, Thailand Source: Trends in Private Investment in Developing Countries, IFC, 1995 CD UTILIZATION OF CREDIT LINES BY THE PARTICIPATING BANKS SMI Project L2458 Export Project L2459 Construction Industry Project L2460 ALL Planned Actual Planned Actual Planned Actual Planned Actual Utilization 1Utilization UtilizationUilzto Participating Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent Bank ($ m) of Total (S m) of Total (Actual/ m) of Total ($ m) of Total (Actual/ ($ m) of Total ($ m) of Total (Actual/ ($ m) of Total ($ m) of Total (Actual/ Planned) Planned) Planned) Planned) IDBE 168.1 100% 85.9 100% 51% 30.0 25% 0.0 0% 0% 50.0 52% 0.0 0% 0% 248.1 65% 85.9 57% 35% EDBE (a) 33.6 78% 33.4 22% BM 44 (b) 37% 4.7 11% 11% 46.7 48% 21.8 100% 47% 90.7 24% 26.5 18% 29% MIDB 4.9 I1% 4.9 3% NBD 44 (b) 37% 0.0 0% 0% 44.0 11% 0.0 0% 0% TOTAL 168.1 100% 85.9 100% 51% 118.0 ] 63% 43.2 100% 37% 100% 21.8 100% 23% 382.8 100% 150.9 100% 39% (a) EDBE was the APEX institution for the Export project (b) Approximate amount 65 ON-LENDING INTEREST RATES AFTER APRIL 1992 Annex X Central Bank 3-Mo. Treasury Average 3-Mo. Average I-yr. Subproject Fixed GOE Rate to Discount Rate Bill Rate Deposit Rate Lending Rate Lending Rate PBs May-92 19.8 17.9 16.81 20.86 17.8 14.8 Jun-92 19.8 17.6 16.74 20.27 17.8 14.8 Jul-92 19.5 17.5 16.69 20.3 17.5 14.5 Aug-92 19.1 17.2 16.49 20.4 17.1 14.1 Sep-92 19.1 16.9 16.3 20.24 7 17.1 14.1 Oct-92 18.7 16.7 15.9 19.85 16.7 - 13.7 Nov-92 18.7 16.5 15.64 19.45 16.7 13.7 Dec-92 18.4 16.4 15.12 -19.07 16.4 13.4 Jan-93 18.4 16.2 14.87 19.28 16.4 13.4 Feb-93 18 16 14.78 19.12 16 13 Mar-93 1816 14.5 19.05 16 13 Apr-93 17.8 15.7 14.21 18.97 15.8 12.8 May-93 17 13.81 18.39 15 12 Jun-93 17 13.49 18.2 15 12 Jul-93 16.5 13.36 17.77 14.5 11.5 Aug-93 16.7 13.06 17.87 14.7 11.7 Sep-93 16.9 12.76 17.84 14.9 11.9 Oct-93 16.9 12.72 17.88 14.9 11.9 Nov-93 16.9 12.54 17.67 14.9 11.9 IDBE FINANCIAL PERFORMANCE INDICATORS 7 IAverage FY85 FY86 Average FY90 FY91 FY92 FY93 FY90- FY83 FY84 FY83-FY86 F9 Financial Performace Net profit (before taxes) (LE million) 8.8 12.2 14.0 14.0 12.3 25.7 16.0 -40.4 12.3 3.4 Net profit (before taxes)/average total assets 3.2% 3.6% 3.5% 2.7% 3.3% 2.5% 1.3% -2.9% 0.8% 0.4% Net profit (before taxes)/average equity 30% 35% 38% 34% 34% 38% 14% -30% 10% 8% Interest income/average total assets 13% 14% 14% 13% 13% 13% 12% 8% 11% 11% Operating expenses/average total assets 1.6% 1.2% 1.3% 1.3% 1.4% 0.8% 1.0% 0.9% 1.7% 1.1% Operating expenses/interest income 12% 9% 9% 10% 10% 6% 8% 11% 16% 10% AverageAverage FY87 FY88 FY89 FY90 Average FY91 FY92 FY93 FY94 FY91- FY87-FY90 F9 Portfolio Quality Collection Ratio (Collections as a percentage of 4% 4% 3% 4% 4% 36% 49% 55% 47% amount due) Infection ratio (% loans affected by arrears) 50% 41% 51% 49% 47% Portfolio arrears (arrears as a percentage of loans outstading)32% 36% 39% 22% 32% 24% 28% 38% 34% 31% outstanding) Percent of arrears over two years/total 10% 14% na na 22% 7% outstanding FY88 FY89 FY90 FY91 FY92 FY93 Resource Position Local currency available for commitment (LE m) 49 36 130 177 365 334 CBE credit as a percentage of total local 152% 287% 91% 84% 31% 37% currency available for commitment Foreign currency available for approvals ($m) 240 205 138 194 72 42 Total IBRD funds available for approval ($m) 201 190 122 89 22 0 IBRD funds as a percentage of total foreign 84% 93% 88% 46% 31% 0% currency funds available for approval I I I 67 Annex XII SUMMARY OF SUBPROJECT INFORMATION UNDER THE SMI PROJECT (L2458) Percent Pecn1ecn Amount Problem Problem Percent Percent Average Number of Total Problem Problem by Aage (US$m) Number Amount Loan Size (Value) by Value Number Total Disbursed 232 85,506,519 100% 21 6,211,590 7% J 9% 368,563 By Approval Year _-__ I _ _ ---4.48 1987 ______ 9,411,362 11% 1 651.237 7% 14% 1,344.480 1988 18 11,030,354 13% 612,797 1989 58 16,285,329 19% 5 1,839,726 11% 9% 280.782 1990 65 16,975,003 20% 9 993,219 6% 261,154 1991 ______ 17 12,913,774 15% 2 1,515.143 12% 12% 759.634 1992 67 18,890,697 22% 4 1,212,264 6% 6% 281,951 Previous Borrower 1430,15 YES 117 50,327,547'_ 5-9 -9 2,740,993 5% 8% 0,150 NO 106 30,090,822 35% 10 3,151,343 10% 9% 283,876 N/A 9 5,088,150 1 6% 2 319,254 6% 22% 565,350 By Period Sep-87 to Jun-1989 46 25,362,614 30% 4 1,891,320 7% 9% 551,361 Jul-89 to Apr-92 119 41,199.320 48% 13 3,108,007 8% 11% 346,213 Apr-92 to Dec-92 67 18,944.586 22% 4 1,212,264 6% 6% 282,755 By Sector 232,798 Textiles 99 34,931,876 41% 7 329,313 2,847 Chemicals 11 9,986,240 23% 1 300,000 3% 9% 907,840 Food 16 10,151,016 12 1 209,380 2% 6 634,439 Plastic 22 7,452,571 9% 2 1,590,272 21% 338,753 Electronics 9 6,978,537 8% 775,393 Ceramics 6 3,241,815 4% 540,302 Printing 18 2,491,919 3 2 249,298 10% 11% 138,440 Engineering 14 2,257,359 3% 161,240 Furniture 1,628,155 2% 2 49,825 9% 232,594 Tourism 5 1,487.375 2% 1 136,000 9 20% 297,475 Other _____ 19 3,9870 41% 3 610,934 17% 7 1% 189,630 Not Availabl_e _ _ 16 1,296,686 12% 2 736,568 57% 33% 216,114 Top Ten Sponsors I__ ______ 77" __ Marakem Group 5 8,998,862 11% 1,799,772 Goldentex Wool 4 48713-6% ---1,209,428 Food Industries Development Co. (Bim Bim) 2 3,460,860 4% 1,730,430 The Egyptian Food Industries Co. Ltd. 1 2,902,725 3% 2 249,298 10% 2,902,725 Gueneidy Co. for Industry 3 2,390,454 3% 796,818 El Araby Electtric Co. -1 3,969,6_56 5 5% ___3,969,656 Amoun Pharmace1ical 2 3,710,590 49%1,855,295 Menapharm Co. for Pharmaceuticals 1 3,201,136 4% 1 136,000 9% 3,201,136 Maf Co. for Dyeing and Finishing ____ 3 1,946,522 2% _ _ 648,841 Cleopatra 3 14%,844,816 2 6 % 614,939 Total able 6 137,263,334 44% 2_3656 5 33% 1,490,533 All Others 207- _48,243,186 F56% ___ 233,05 91 Total Disbursed 232 85,506,519 100% 368,563 W orking Cap-ital Loans- -24 1 5_,433,367 6%t -_3 4-00,547 7%f 3 j26,390_ Annex XIII 68 COMPARISON OF EGYPT SMI LOAN WITH SAMPLE OF 45 BANK-WIDE SMI LOANS Total Credit Line Average Average Number of Number of Disbursed Operation Size Subloan Size Operations Subloans (US$m) (US$m) (Current US$) Africa 10 55 6 563 97,886 EMENA 9 310 34 4,081 76,050 Asia 14 331 24 12,049 27,499 LAC 12 474 40 20,165 23,522 All Regions 45 1,171 26 36,858 31,774 Egypt SMI (L-2458) 1 86 86 233 366,953 Source: World Bank Lending for Small Enterprises 1989-1993 (Webster et. al.), 1996 LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 1) Approval1 Disbursed Interest Term Previous ID Year ADa Sub-Borrower Problem Rte r s Activity Sector __Date Amount ($) __Rate (Yrs.) | | Loan B-114 19901 Aug-90 ABCO United (Plastics and Chemicals) 388,625 17.6 5 Plastic Containers Plastic no B-157 1991 Apr-91 ABD-EL RAHMAN ABD-EL __ 95,954 17.6 B-15 1988 Aug-88 Abdallah Salam and Co. (Salamtex) 142,492 20.2 B-124 1990 Oct-90 Abdel Fattah Abdel Gaward Ismail 100,000 17.6 5 Curtains Textiles & Garments yes B-233 1992 Dec-92 Abdel Wahab Sharkawi & Co. for Textiles 560,100 16.4 5 Textiles B-29 1989 Jan-89 Abu-Simple Co. for Dying and Finishing 442,838 20.1 5 Dying Textiles Textiles & Garments yes B-192 1992 Oct-92 Adel Abd El-Hady Khil El-Ekiaby 124,893 16.7 5 Sweets Food no B-69 1989 Oct-89 Adel Abdou Soliman 415,537 Problem 17.6 5 Carton Containers Paper no B-28 1989 Jan-89 AFRI Medical Co. 435,780 20.1 5 Medical Supplies Chemicals B-132 1990 Nov-90 African Press Offset Printers 68,414 17.6 5 Printing Printing -B-10-6 1990 Jun-90 jdunedMohamed Alned El Sopky 19,943 ______ 17.6 5 Plastic Accessories Plastic no B- 117 1990 Aug-90 edhuy ElGawy71,66317.6 5 Textiles Textiles & Garments yes B-162 1991 Jul-91 Al Engazat Co. for Plastic Containers 1,429,813 P m 17.6 5 Plastic Containers Plastic no B-106 1990 Aug-90 AI-Marwa Olive Oil ElSopky209,380 Problem 17.5 5 OliveOil Food no B-76 1989 Dec-89 Alexandria Limousine Co. 50,785 17.6 3 Tourist Transport Tourism no B-1 1990 Feb-90 AlwilFarid Co. PatcCnies 1328,216 Problem 17.6 5 Irrigation Pumps Engineering no B-6 1987 Oct-8T7Aly Fakhry Heider Abdeen and Co. 954,407 _20.5 6 Ready-made Garments Textiles & Garments yes B-57 1989 Aug-89 -Aly Mostafa Kosba. (Alexandria -Fishing Co.) 83,844 { _ 17.0 5 Fishing Ship Fishing no B-60 1989 Sep-89 Ame-rPress-_(Awatef EShekh Abhmed Moustafa and Sons) 109,810 17.6 5 Printing_House IPrinting no A-9 1991 Ap91 Amoun Pharmaceutical Industries 3,214,763 T17.6 Chemicals yes PW-011I 199-0 Jun-90 Arab Ceram-ic Company ____ ____ 326,839 _ 17.6 1 Ceramic Tiles Ceramics ____ yes B_-116 1990. Aug-90 Arab Ceramic Company _________ 572,510 17.6 4 Ceramics Tiles Ceramics yes _-134 1990 rNov-90 Arab Co for Modem Industries 189,874 17.6 5 Socks Textiles & Garments no PW-018 1990 -Nov-90 Arab Co. for Pharmaceutical (ACO Pharm) __ 300,000 Problem 17.6 3 Drugs ____ Chemicals----_ yes B-232 -1992 Dec-9 Atelier Rossan-Robert Kamel ______ 30,715 __ 16.4 5 Silk Screen Printing -Printing --no 14 1992 May-92 Awad_Akhowan for Textile Services _95,254 17.8 5 Embroidery Textiles & Garments no B-126 198S ec8 Awad Co. for Industry a 1 -e-8nd Trading (BI102) 685,784 _____Textiles & Garments yes B5-102 1990 May-90 Awad Co. for Industry and Trading (B26) 473,157 17.6 5 Weaving Textiles & Garments yes -B-206 1992 Dec-92 Awny Plastic Factory 156,242 ____ 16.4 5 Plastic Combs Plastic no B-1 7 1988 Sep-88 Badawi Factory for Weaving and Knitting 38,200 ___ 20.1 5 Sportswear Textiles & Garments yes PW-003 1989 O -89 Bavaria Co. for Fire Extinguishers 209,125 17.6 Fire Extinguishers yes -67 1989 Oct-89 Bavaria Co. for Fire Extinguishers PW3) P435,038 r17.6 5 Fire Extinguishers no B-14 191 Jan-91 Bekhit gad_Bekhit Co. 80,449 ___ 17.6 5 textiles Textiles & Garments 1 no B-46 199 Jun9 Ba .80,108 20.2 5 Ready-made Garments Textiles & Garments no PW-008 1990 Jan-90 Bishara Textile Manufacturing Company ( 12, 86) 71,947 1Textiles & Garments yes B-86 1990 Jan-90 Bishara Textile Manufacturing Company (1312, PW8) 137,250 2 7.6 5 Ready-made Garments Textiles & Garments yes CD LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 2) AprvlDisbursed Interest Term Previous ID Year Approval Sub-Borrower Problem Activity Sector Date Amount ($) ____ Rate (Yrs.) Loan B-12 1988 Aug-88 Bishara Textile Manufacturing Factory (B86, PW8)) 1,030,703 2 6 Ready-made Garments Textiles & Garments yes B-61 1989 Sep-89 Blue Sky for Touristic Investment 656,190 17.6 7 Hotel Tourism no B-138 1990 Nov-90 Cairo Electronics Co. 30,045 17.6 5 Portable Radios Electronics B-92 1990 Feb-90 Cairo Electronnics Co. (Farid_Atiya) 10,025 17.6 5 Electronics Electronics no B-91 1990 Feb-90 Celivia for Babies 58,762 17.6 5-Ready-made Garments Textiles & Garmentst no B-125 1990 Oct-90 Ceramica Cleopatra for 1,507.692 17.6 4 Ceramicwares Ceramics yes PW-005 1990 Mar-90 1Ceramica Cleopatra for Ceramic Products 298,667 7.6Ceramc e Ceramics yes B-182 1992 Sep-92 Cleopatra Plastic Factory 38,457 17.1 5 Plastic Products Plastic yes B-49 1989 Jun-89 Concord Press Eng. Mohesn Nasry Kamel 120,526 20.2 5 Printing and Publishing Printing yes B-189 1992 Oct-92 Conti Press 233,923 Problem 16.7 5 Printer Printing B-48 1989 Jun-89 Dahab for Biscuits, Chocolate, and Conf. Co. 220,558 21.0 5 Biscuits and Chocolates Food no B-173 1992 Jul-92 Demele International Egypt 315,319 17.5 5 Furniture no B-176 1992 Aug-92 Dolci for Food Industries 510,333 17.1 5 Food Products Food no B-75 1989 Nov-89 Dr. Yehia Zaki Halim 66,154 18.0 5 Ray Clinic Chemicals no B-68 1989 Oct-89 Egypt Electric Insulator 224,657 17.6 5 Electric Insulator Electronics no B-202 1992 Nov-92 Egyptian Lebanese Co. for Cloths (GONJUR) 661,757 16.7 5 Knitted Wear Textiles & Garments yes PW-015 1990 Oct-90 Egyptian Sanitary Ware Co. 77,346 1 17.6 1 Sanitaryware Ceramics yes El Amal Factory for Metal Industries (Hassan Abdel B-193 1992: Nov-92 .,000 Hse) 5_asig_ahie_ats Egieeig_e I Monem Hussemn) B-85 1989 Dec-89 El Amal for Sewing Threads 29,046 17.6 5 Sewing Thread Textiles-& Garments no B-96 1990 Mar-90 El Amana Factory for Plastic Ribbon 17.6 5 Plastic Ribbons and String Textiles& Garments: yes B-77 1989. Dec-89 El Amen Co. for Plastics 91,170 17.6 5 Plastic Sanitaryware Plastic I yes B-33 1989 Feb-89 El Amira Factory for Industry and g 69,887 20.2 5 Embidery extiles & Garments no A-10 1991 Apr-91 EL ARABY ELECTRIC CO 3, - - FE--ctr----s yes B-150 1991 Mar-91 El Arnab for Textile (Mahmoud El Shahat and Co.) 83,333 17.6 5 Textiles Textiles & Garments yes B-90 1990 Feb-90 El Arnab for Textile (Mahmoud El Shahat and Co.) 149.688 17.6 5 Textiles Textiles & Garments yes B-165 1992 Jun-92 El Dahans Metal Factory 161,087 17.8 5 Metals Fabrication Metal no B-39 1989 Apr-89 El Edissy Tours Company 136.000 Problem 20.2 3 Tourist Buses Tourism no B-212 1992 Dec-92 El Kady Co. for Industry and Commerce 26,853 16.4 5 Metallurgic Workshop Engineering no B-66 19891 Oct-89 El Mahaba Plastic Factory Odette Antonyous Reiad 31,810 17.6 5 Plastic Packaging Plastic yes B-194 19921 Nov-92 El Mahaba Plastic Factory Odette Antonyous Reiad 33,000 16.7 5 Plastic Bags Plastic yes B-127 1990 Nov-90 El Motaheda for Plastic and Tin Container 131,579 17.6 5 Tin Containers Metal yes B-84 1989 Dec-89 El Naam for Printing and Supplying Co. 71,311 17.6 5 Printing and Binding Printing no El Nada Weaving Factory (Mona Abdel Moneim El 94600 176 5 Weaving Textiles & Garments no B-10 1990 Nov-90T B-87 1990 Jan-90 El Nahdah El Hadissa Weaving Co. 26,053 Problem 17.6 5 Ribbons and Trimmings Textiles & Garments4 yes B-1 18_e-9E adbEl Hadissa Weaving Co. 1407 rbem - 3 Ribbons and Trimmnings Text iles &GrentsL_ y es B-41 1 184,7734 17.6em i LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 3) Approval Sub-Borrower Disbursed Interest Term Activit Previous ID YaFubBroe ProblemAcviySto Date Amount ($) Rate (Yrs.) Loan B-226 1992 Dec-92 El Nasr Clothing and Emboidery 61,647 16.4 5 Weaving ITextiles & Garments no B-89 1990 Jan-90 El Nasr Factory for Clay Bricks 92,318 Problem 17.6 3 Clay Bricks __Building no B-215 1992 Dec-92 El Nisrh Co. for Preserved Foods 257,974 16.4 5 Canned Foods Food no B-62 1989 Sep-89 El Salam Ribbon and Elastic Factory 22,935 17.6 5 Ribbon and Elastic Textiles & Garments no B-163 1991 Jul-91 El Salam Ribbon and Elastic Factory 52,101 17.6 B-240 1992 Dec-92 El Sawasy Factory for Military Signs 14,662 16.4 5 Metallurgic Workshop Engineering no B-73 1989 Nov-89 El Shafy Clay Bricks 74,474 17.6 3 Clay Bricks Building no B-217 1992 Dec-92 El Shark Co. for Chemicals Paints - Zeen El-Din 314,271 16.4 5 Building Paints Chemicals no B-93 1990 Feb-90 El Sigini Company for Dyeing and Finishing (B7) 283,207 17.6 5 Finishing Textiles B-7 1987 Nov-87 El Sigini Co. for Dyeing and Finishing Textiles (B93) 363,053 20.5 5 Dying Textiles [Textiles & Garments yes B-109 1990 Jul-90 El Signini Co. for Dying and Finishing (B7, B93) 920,002 17.6 5 Finishing Textiles Textiles & Garments yes B-100 1990 Apr-90 El Tabakh Trading and Industry Co. 326,404 17.6 5 Blankets Textiles & Garments yes B-239 1992 Dec-92 El Zeiton Mill for Dyeing and Finishing (B32, B146) 174,550 16.4 5 Finishing Textiles Textiles & Garments no B-38 1989 Apr-89 El Zeiton Mill for Dyeing and Finishing (B32, B146) 577,643 20.2 5 Fabric Finishing Textiles & Garments yes B-18 1988 Nov-88 El-Amal Medical Supplies Co. 196,562 20.1 5 Adhesive Plaster Chemicals no B-142 1991 Jan-91 El-Mohandsin Factory for Plastic 117,200 17.6 5 Plastic Plastic no B-107 1990 Jun-90 El-Nist Factory for Shoes 6,555 17.6 1 Shoe soles Footwear yes B-170 1992 Jul-92 Electro Motive Sabry Abu Taleb Ahmed 81,039 17.5 5 Auto Service Engineering no B-16 1988 Sep-88 Elias Modern Publishing House 126,526 20.2 B-153 1991 Mar-91 Emad Shokry Habib and Co. 27,762 17.6 5 Knitted Socks Textiles & Garments yes B-161 1991 Jun-91 EMI PLAST CO. 234,793 17.6 Plastic B-191 1992 Oct-92 Eng. Rafat Anwar Fahmy 64,353 16.7 3 jKnitting Textiles & Garments yes B-58 1989 Aug-89 Engineering Company (Mohamed Abou El Yazid Shible) 65,638Auto Exhaust Pipes Engineering no B-79 1989 Dec-89 Fakhoury Industrial and Trading Co. (B120) 54,532 17.6 5 Finishing Textiles Textiles & Garments yes B-119 1990 Aug-90 Fakhoury Industrial and Trading Co. (B79) 342,071 17.6 5 Finishing Textiles Textiles & Garments yes B-209 1992 Dec-92 Faroukh Ibrahim Mohamed Plastic and Rubber Products 483,625 16.4 5 Plastic Bottles Plastic yes B-184 1992 Sep-92 Fathia Seddik Abdel All 49,131 17.1Plastic Footwear Plastic yes B-43 1989 May-89 Fawzy Hassan Ahmed El Sayed and Co. 30,502 20.2Knitting Wear and Socks Textiles & Garments yes PW-016 1990 Nov-90 Food Industries Development Co. (Bim Bim) 294,516 17.6Sweets Food yes A-2 1987 Dec-87 Food Industries Development Co. (Bim Bim) 3,166,344 21.5 8 Chocolate Bars Food yes B-245 1992 Dec-92 Gaidtex for Industry and Trade (B147) 623,354 16.4 5 Polyester Yarns Textiles & Garments yes B-147 1991 Feb-91 Gaidtex for Industry and Trade (B245) 1,019,321 17.6 5 Polyester Yarns Textiles & Garments no B-242 1992 Dec-92 Goldentex Spinning Co. (A12, A7, PWO13) 63,431 16.4 5 Wool/blended Yarn Textiles & Garments yes A-12 1992 Dec-92 Goldentex Wool Co. 2,080,445 16.4 5 Wool/Blended Fabric Textiles & Garments yes A-7 1989 Jul-89 Goldentex Wool Co. 2,396,257 20.2 5 Wool/Blended Fabric Textiles & Garments yes PW-013 11990 Jun-90 Goldentex Wool Co. (A7) 297,580 17.6 2 Textiles Textiles & Garments yes B-21 99 Dc-2]Graphic Press Sherif Faik Girgus % Co. 6102 T___ 16.4 5 PrintingPrnigo B-211~~ ~~~ Weaving 1 02 rntngn LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 4) Approval FDisbursed Interest Term Previous ID Year A Sub-Borrower Problem Activity Sector Date Amount ($) Rate (Yrs.) Loan PW-002 1989 Oct-89 Gueneidy Co. for Industry and Trade 309,544 17.6 1 Electrical Products Electronics yes B-98 1989 Mar-89 Gueneidy Company for Industry and Trade (A8, PWOO2) 398,716 17.6 5 Electric Appliances A-8 1990 Oct-90 Guneidy Co. for Industry and Trade (PW2) 1,682,195 17.6 Hamdy Hassan Mahmoud (Abdel Rahman Mohamed El 39,842 Problem 20.2 R arments 5- G Texadilesd GaGarmntstn B-37 1989 Mar-89 Chazli) 3 4 Polem 2e B-97 19901 Mar-90 Happy Factory for Jacquard Weaving 85,469 17.6 B-14 1988 Aug-88 Happy Girl Factory 103,732 20.6 5 Ready-made Garments Textiles & Garment B-221 1992 Dec-92 Happy Shoes Mervat Khedre Iskander El Tarazi 184,205 16.4 5 Sport Shoes Footwear no B-218 1992 Dec-92 Hassan Zaki Hassan 163,966 16.4Plastic yes B-44 1989 May-89 Havana Knitting Factory 65,075 - -20.2 5 Ready-made_Garments Textiles & Garments no B-13 1988 Aug-88 Havana Knitting Factory 103,450 20.5 5 Ready-made Knitted Wear Textiles & Garments no B-83 1989 Dec-89 Hefny Tawfik Atwan Co. 53,772 17.6 5 Laces and Elastic Ribbon Textiles & Garments yes B-183 1992 Sep-92 Hesham Ibahim Youssouf Razzouk 165,304 17.1 5 Embroidery Textiles & Garments yes B-148 1991 Feb-91 Hesham Ibrahim Youssef Razzouk (B183, B120) 110,834 17.6 5 Embroidery Textiles & Garments yes B-20 1988 Oct-88 Hesham IbrahimYoussef Razzouk (B148, B183) 66,040 20.1 5 Embroidery Textiles & Garments no B-123 1990 Oct-90 Hosam El Din Abd El Fattah Mohamed 103,079 Problem 17.6 5 Cartons Paper yes B-216 19921 Dec-92 Hussain Ahmed Ali and his Partner 305,354 16.4 5 Printing Printing no B-52 1989 Jul-89 Hussein Ibrahim Mahmoud Attala 21,230 20.2 5 Rigid and Elastic Laces Textiles & Garments yes PW-007 1990, Jan-90 Ibrahim Abd Aziz Barakat 5,576 17.6 1 Socks Textiles & Garments yes B-181 1992 Sep-92 Industrial and Commerce Co. Eng. Mostafa A. Faiek 45,561 -17.1 5 Car Parts Engineering yes B-45 19891 Jun-89 Industry and Trade International Company 197,452 21.0 5 Circular Knitting Textiles & Garments yes B-ll 1988 Aug-88 International Co. for Marble and Granite 660,133 20.1 7 Granite - Granite yes B-112 1990 Jul-90 Jakfine Fathi Iskander 69,101 17.6 5 Embroidery Textiles & Garments no B-5 1987 Oct-87 Jet H Co. for Twin Blades 651,237 Problem 21.5 5 Razor Blades no B-213 1992 Dec-92 Just Co. for Aluminium Ladders and Scaffolding Industry 36,324 16.4 5 Aluminium Ladders Engineering yes B-151 1991 Mar-91 Kamal Mohamed El Samoly & Sons for Textile (B204) 908,884 17.6 5 Towels and Fabrics Textiles & Garments no B-204 1992 Nov-92 Kamal Mohamed El Samouly & Sons for Textile (151) 441,542 16.7 5 Towels and Fabrics Textiles & Garments yes B-224 1992 Dec-92 Kent Port Said Mohamed Youssif Saalem and Co. 63,867 16.4 5 Sweetmeats Food no B-120 1990 Sep-90 Khaled Delux Factory 75,690 17.6 3 Ready-made Garments Textiles & Garments no B-219 1992 Dec-92 Land Mark for Plastic (Eng. Rafaat Wadih Co.)44,479 16.4 Plastic Products Plastic yes B-35 1989 Mar-89 M. Salah Mohamed Ibrahim 23,359 -- - -20.2 5 Ice_Cream Food no B-88 1990 Jan-90 Macca Plastic Company 173,937 _ _____ 17.6 5 Pastic Shoes Plastic yes B-47 1989 Jun-89 MAF co. for Dyeing, Printing, and Finishing 1,064,241 Problem 20.2 5 Finishing Textiles Textiles & Garments yes PW-017 1990 Nov-90 Maf Co. for Dyeing, Printing, and Finishing (Mohamed 79,775 Problem 17.6 1 Finishing Textiles Textiles & Garments yes Amin Abdel Fattah) (847, B228) 8-228I 1992 Dec-92 Maf Co. for Dyeing, Printing, and Finishing (Mohamed 802,507 Problem 16.4 5 Finishing Textiles Textiles & Garments yes Amin Abdel Fattah) (847, PWOB17)-2 15 P LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 5) Approval Disbursed I interest Term Previous ID Year Sub-Borrower Problem R Activity Sector SDate Amount ($) Rat (Yrs.) Loan B-21 1988 Oct-88 Maher Monir and Company (Arab World Printing House) 99,300 20.1 5 Paper Printing Printing yes B-196 1992 Nov-92 Mahmoud EI-Sayed Fatouh 134,769 16.7 5 Weaving Textiles & Garments no B-71 1989 Nov-89 Mahmoud Salama for Industrial Products 1,320,338 17.6 5 Oxygen and Liquid Nitroge Chemicals yes B-175 1992 Aug-92 Makram for Leather Products 86,372 - 17.1 5 Leather Products _ _ eather no B-103 1990 May-90 Mansour Brothers Weaving Co. 141,579 17.6 5 Weaving Textiles & Garments no A-Il 1992 Dec-92 Marakem Industrial Yarns Company 3,430,021 16.4 6 Industrial Yarns Textiles & Garments yes B-208 11992 Dec-92 Maae etl nutis ____ ____ 1146 __ 16.4 5 Fabrics ITextiles & Garments yes B-0 19 _Dc9 Marakem Textile Industries18,6 PW-012 1990 Jun-90 arake 326,906 Textiles & Garments yes MaakmTextiles (MATEX) (Marakem Group) 1. B8-180 1992 Sep-92 Marcail Ramzy Hikhail Egyplastics Factory 160459 Problem 17.1 5 Plastic Products Plastic yes 8-17 99 Jn-9 Mri Pintx o.______ ____ ______ __ 150,544 -17.8T 5 FarcPiting __Textiles & Garments yes 1992 Ju-92Mario Printex Co.JZ kPi 8-188 192 Oct-92 1Mario Printex Co. 151,282 16.7 5 rinting Textiles Garments yes B-237 1992Dec-92 Markony Hanna Hawy 23 16.4 5 Ready-made_Garments Textiles & Garments no PW-010 1990 Apr-90 Masr Protein Anwar Mohamed Tawfik & Co. _ 52,800 _ 17.6 1 Animal Feed no Mechanical Engineering Turning Co. (Mohamed M. El B-166 1992 Jun-92 yes _________________ Zahar) _____ ____ _____ _ ___ A-3 1987 Dec-87 Menapharm Co. for Pharmaceuticals and Chemicals - 3,201,136 21.5 7 Pharmaceuticals Chemicals B-95 1990 Mar-90 Menoufeya Blanket and Wool Spinning Co. 746,398 17.6 5 Woolen Blankets Textiles & Garments yes B-195 1992 Nov-92 Miami Co. for Knitting and Garments 124,1 5 ving B-13-1 1990 Nov-90 Middle Delta for Plastic 150,000 17.6 5 Plastic Bottles Plastic yes B-27 1989 Jan-89 Misr Co. for Aromatic Products 115,885 20.1 5 FlavoringAdditive Food no 8-64 1989 Oct-89 Misr El-Salam Tricot Co. 76,825 17.6 5 Weaving Textiles & Garments yes B-I 19871 Sep-87 Mitkees Paper Converting Co. 150,302 20.5 5 Paper Products Printing yes B-227 1992 Dec-92 Modern Co. for Textiles (MONTEX) 455,457 16.4 5 Textiles Textiles & Garments yes 8-128 1990 Nov-90 Modern Co. for Textiles (MONTEX) 568,349 17.6 5 Polyester Yarns Textiles & Garments yes 8-135 1990 Nov-90 Modern Industrial Weaving Co. 132,789 Problem 5 Weaving Textiles & Garments no Mohamed Ahmed Ahmed and Ahmed Ahmed Abd El B-143 1991 Jan-91 142,552 17.6 5 Leather Shoes Footwear yes Whab B-56 1989 Jul-89 Mohamed Ahmed Hessien Safa 220,790 17.5 5 Engine Overhauling Engineering no 8-220 1992 Dec-92 Mohamed El Gimeizy and Co. 15,375 Problem 16.4 5 Printing_Labels Printing n B-55 1989 Jul-89 Mohamed El-Tabi Ftooh Sons _ 69.320 17.6 3 Glass Mirrors and Marble Furniture no 8-178 1992 Aug-92 Mohamed Mohamed Abdel Salam 104,419 .1 5 Ready-made Garments Textiles & Garments no B-94 1990 Feb-90 Mohamed Mohamed El Shaffi 22,005 17.6 5 Embroidering 'Textiles & Ga B-186 1992 Oct-92 Mohamed Said Mohamed Maghraby 40,011 16.7 5 Weaving extiles& Garments no B-144 1991 Jan-91 Mohamed Sheta Weaving Factory 56,855 17.6 5 Textiles Textiles & Garments yes 8-126 1990 Oct-90 Mostafa Aly Farag Co. for Modern Lighting 645,698 17.6 5 Lghting Fixtures Furniture no B-230 1992 Dec-92 Nabeel A. Fissikh & Co. 555,913 16.4 5 Sweets and Candy Food no -3 1987 Oct-8 Nadeen Print ("Zen El Deen & Co") 924,883 - - 16.5 5 Printing Textiles Textiles & Garments, yes LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 6) Approval Disbursed Interest Term Previous ID Year'Apoa Sub-Borrower PolmLa Date Amount ($) Proble Rate (Yrs.) Activity Sector B-214 19921 Dec-92 Naguib Agaiby Mousa 236,401 16.4 5 Laces and Ribbons Textiles & Garments yes B-72 1989 Nov-89 Nagy Tricot (Nagy Rezk Aziz Rezk) 104,497 17.0 Cicular Knitting Textiles & Gar PW-014 1990 Oct-90 National Co. for Maize Products 233,846Corn Syrup Food yes B-168 1992' Jul-92 National Medical Industries Co. 123,638 17.5 6 Medical ProductS Chemicals no B- 179 1992 Sep-92 New Techno Plast 19,299 17.1 3 Plastic Products Plastic yes B-101 1990 Apr-90 Norwood Production Co. __ _89,262 17.6 5 Metal Cans Metal no B-l 13 1990 Jul-90 Plastit Co. for Plastic Production 149,400 17.6 5 Pastics Plastic yes B-139 1990 Nov-90 Port Said Vegetables Dehydration 837,528 17.6 5 Vegetable Processing Food no B-185 1992, Sep-92 Prahimtico for Plastic and Trading Co. 47,182 1 - 7.1 5 Plastic Packaging Plastic no B-42 19891 May-89 Prestige Ltd. 22,584 20.2 5 Metallic and Wooden Works Furniture yes B-80 1989 Dec-89 Ragheb M. El Itriby 525,409 17.6 3 Furniture Furniture no B-34 1989 Feb-89 Refai Ahmed Abd El-Rahman 640,924 5 B-51 1989 Jul-89 Riad Floating Hotels 178,743Tourism no B-78 1989 Dec-89 Salam Factory for Paper and Cardboard 27,701 17.6 3 Carton Paper Paper no B-236 1992 Dec-92 Samaha Plastics and Modem Industries 70,108 16.4 5 Plastics _ Plastic B-l18 1990 Aug-90 Samir Aziz Abd El Malak 77,927 17.6 5 Printing Printing no B-207 1992 Dec-92 Samir Monir Awad 674,450 16.4 5 Ready-made Garments Textiles & Garmentsj no B-141 1990 Dec-90 Samir Shafik Escandar 133,423 17.6 5 Fruit Juice Food yes B-23 11988 Nov-88 Sayed Hassan Hawash 202,288 20.1 3 Clay Bricks Building no B-31 1989 Feb-89 Secro Misr Fatah Gody 144,281 20.2 5 Safety Glass Glass yes Secro Misr for Securit Glass & Plastic (Fattah Hamza PW-019 1990 Dec-90 God)(3)73,646176 2 SftGlsGasye B-8 1988 Apr-88 Sherin Kamel Ibrahim for Knitting Factory 25,810 20.5 5 Knitted Fabrics rTextiles & Garments yes B-136 1990 Nov-90 Sobhey Dimetry Shenouda for Embroidery 96,601 17.6 5 Embroidery _ITextiles & Garments Yes Societe Industrielle Commerciale Assauad Freres (B146, B-32 1989 1Feb-89 150,537 2. arc etls&Gret e I~ B38) - - Societe Industrielle Commerciale Assouad Freres (B32, B-146 1991 Jan-91 7.6T1,174 &ye B38) B-53 1989 Jul-89 Sphinx Commercial (Hussein Shaheen) (B205) 230,655 17.5 --7.5Binding Wires _ _Printing no B-205 1992 Dec-92 Sphinx Commercial (Hussein Shaheen) (B53) 125,224 16.4 5 Double Binding Wire Printing yes B-241 1992 Dec-92 Style Press Magdy Baker 75,174 16.4 5 Printing Printing no B-25 1988 Nov-88 Tanis Co. for Floating Hotels and Nile Cruises 465,657 20.1 5 Cruises Tourism B-201 1992 Nov-92 Tawakol Co. for Metallurgic Industries 233,785 16.7 --5 Casting Iron Pipes Engineering no B-197 1992 Nov-92 Technology and Graphic House 59,282 16.7 5 Printing Printing no B-122 1990 Oct-90 Technopol Egypt - The National Furniture Dev. Co. 29,053 Problem 17.6 5 Furniture Furniture no PW-006 1990 Mar-90 Technopol Egypt - The National Furniture Industry Dev. 20,772 Problem 17.6 I Furniture Furniture yes i Co. (P122) I I__________________ LIST OF SUBPROJECTS UNDER THE SMI LOAN (L-2458) (Page 7) Approval Disbursed Interest Term Previous ID Year Sub-Borrower Problem Activity Sectoro I Date Amount ($) Rate (Yrs.) Loan A-5 1988 Jul-88 Technotex Co. for Textile Industries 1,770,828 21.5 6 Acryillic Yarns Textiles & Garments no B-177 1992 Aug-92 Tenth of Ramadan for Dyeing, Printing, and Finishing 300,000 1s Textiles & Garments - no PW-009 1990 Feb-90 The Egyptian American Paint and Coating Co. 317,770 17.6 1 Paint Resin and Plastic Chemicals yes PW-001 11989 - The Egyptian Co. for Electrical & Electronic Appliances 300,016 17.6 1 Electrical Products Electronics yes (El Arabi) The Egyptian Co. for Industry and Trade Socks and B-229 19921 Dec-92 thing 36,124 16.4 5 Knitted Socks Textiles & Garments no The Egyptian Co. for Polymer and Fiber (Marakem A-6 1988 Oct-88 Gop__ _ _ __ 3,299,933,2 . 7 SnhtcFbrPlsiye Group) B-105 1990 Jul-90 The Egyptian Co. for Rubber and Plastic (RUBBLAST) 283,134 17.6 5 Rubber Rubber no The Egyptian Co. for TV Aerial and Household B-50 1989 Jul-89 53,683 ___ Appliances B-187 1992 Oct-92 The Egyptian Food Industries Co. Ltd. 1 500,472 16.7 5 Processed Meat Food A-4 1988 Feb-88 The Egyptian Food Industries Co. Ltd. 2,902,725 20.5 6 Processed Meat Food no PW-004 1989 Nov-89 The Egyptian Yarn Co. (EYCO) (Marakem Group) 232,798 17.6 5 Yarn Textiles & Garments yes B-70 1989 Nov-89 The Egyptian Yarn Co. (EYCO) (Marakem Group) 1,527,788 17.6 5 Yarn Textiles & Garments yes B-108 1990 Jul-90 The Engineering Co. for Mechanical Turning 83,463 17.6 5 Mechanical Turning Works Engineering yes B-81 1989 Dec-89 IThe Engineering Workshop for Mechanical Turning 80,921 17.6 3 Engine Overhauling Engineering no B-74 1989 Nov-89 The General Company for Ceramic and Porcelain 458,760 B-99 1990 Apr-90 Tricot Misr Co. (Tarek Ghais) 111,336 17.6 5 Socks Textiles & Garments yes B-10 1988 Jun-88 Ulice Factory for Ready Made Clothes 54,422 20.2 5 Ready-made Garments Textiles & Garments yes B-36 1989 Mar-89 Ulice Factory for Ready Made Clothes (310) 22,150 20.2 3 Ready-made Garments Textiles & Garments yes B-203 1992 Nov-92 Un nting and Advertisement 531,081 16.7 5 Printing Printing no 1 uor17.6 5 CaritRes Bodest Cheing no 1-0 190 ul90lYusryHasa Fee 94,1717.6 5 ICruer RubbsEninerino Annex XV 76 SUMMARY INFORMATION OF SUBLOANS UNDER THE EXPORT INDUSTRIES DEVELOPMENT PROJECT (L-2459) 1 Percent Percent Average N Amount Percent Problem Problem NmeI(U$ ofTotal Nume mut Problem Problem Loan Size (US$) Iof Total Number Amount byN. yVau (U$ by No. by Value (US$) Total Disbursed 28 46,838,139 100% 5 12,306,142 18% 26% 1,672,791 By Approval Year 1987 3 10,903,424 23% 2 10,065,473 67% 92% 3,634,475 1988 0 0 0% 0 1989 6 8,431,068 18% 2 1,950,000 33% 23% 1,405,178 1990 3 2,452,607 5% 817,536 1991 3 5,609,012 12% 1,869,671 1992 5 5,450,632 12% 1,090,126 1993 8 13,991,397 30% 1 290,669 13% 2% 1,748,925 By Baik BM 5___ __ 5,966,146 13% 1 290,669 20% 5% 1,193,229 EDBE 22 35,878,076 77% 3 7,021,556 14% 20% 1,630,822 MIDB 1 4,993,917 11% 1 4,993,917 100% 100% 4,993,917 By Activity Plastics 8 19,871,587 42% 2 10,065,473 25% 51% 2,483,948 Spinning and Weaving 7 11,065,518r 24% 1,580,788 Food 2 5,413.5 2% 2,706,773 Electrical Appliances 4 5,139,736 11% 1,284,934 Printing/Paper 3 1,585,465 3% 528,488 Medical Equipment 1 1,521,618 3% 1,521,618 Engineering 1 1,300,000 3% 1 1,300,000 100% 100% 1,300,000 Furniture 1 290,669 1 % 1 290,669 100% 100% 290,669 Tourism 1 650,000 1% 1 650,000 100% 100% 650,000 Ownership Joint Stock Company 14 29,324,819 63% 2 10,065,473 14% 34% 2,094,630 Individual/Limited Liability Partnership 13 12,239,721 26% 3 2,240,669 23% 18% 941,517 Public Sector 1 5,273,599 11% 1 15,273,599 Export Orientation (at appraisal) Local market-oriented 12 20,152,960 43% 4 11,656,142 33% 58% 1,679,413 Tourism 1 650,000 1% 1 650,000 100% 100% 650,000 Indirect exports 8 10,806,114 23% 1,350,764 Export-oriented 7 15,229,064 33% 2,175,581 By Sponsor Technopack 2 10,065,473, 21% 2 10,065,473 100% 100% 5,032,736 Oriental Weavers Group 5 9,275,451 20% 1,855,090 Misr Company for Spinning and Weaving 1 5,273,599 11% 5,273,599 Top Three 8 24,614,522 53% 2 10,065,473 25% 41% 3,076,815 Others 20 22,223,617 47% 3 2,240,669 15% 10% 1,111,181 By Period Sep-87 to Jun-1989 5 13,725,041 29% 3 11,365,473 60% 83% 2,745,008 Jul-89 to Apr-92 10 13,671,069 29% 1 650,000 10% 5% 1,367,107 Dec-92 to Nov-93 13 19,442,028 42% 1 290,669 8% 1% 1,495,541 LIST OF SUBPROJECTS UNDER THE EXPORT INDUSTRIES PROJECT (L2459-EGT) (Page 1) Rank 'ub~ A 0 Dis USDInterest F Export- Category Bank Date Sub-Project Activity Sector Ownership Disb USD Problem rt Yrs Orientation Expected Market (at appraisal) Sale to local cigarette, biscuit, snacks, The Modem Packaging P . Pi JSC 5071556 Problem 155 75 Local market- macaroni industries. Regional sales expected Se Products Co. (Technopack) ackaging astics . oriented 14% in 3rd yr and 26% in 6th year. Poor export market plan. A-002-ED EDBE Oct-87 Spin Tufted Carpets Sning and Individual 837,951 15.5 6 Export-oriented USA, Europe, Gulf. CRpes Tugs apes Weaving ILLC Sale to local cigarette, biscuit, snacks, The Modem Packaging Local market- macaroni industries. Regional sales 14% in A-0-MI MIDB Nov-87 ProductsPlastic Packaging Plastics JSC 4,993,917 Problem 15.5 75 oriented 3rd yr and 26% in 6th year. Poor export market plan. lbrahim Ahmed Nadimr . Medical Individual Letters from Saudi Arabia "asking about A-001-BM BM Jan-89 Syrges 1,521,618 19.6 7 Local market prices." Very poor export market (MEDCO) NEquipment /LLC assessment. _______- _.__.-Individual Letter from Italian importer. Poor export A-005-ED EDBE Feb-89 Afico Filters Automotive Filters Engineering ILLC 1,300,000 Problem Local market market plan. imporer._oor_xpor B-001-ED EDBE Jul-89 Egyptian Cruise Lines Cruise Ship Tourism Individual 10.65 Touri. Companys /LL 650.000 Problem (assumed 6 Tourism Tuim Company /LLC f.e. risk) B-002-ED EDBE Sep-89 Egyptian Fiber Company Polypropylene fiber Plastics JSC 2,460,000 8 Indirect exports ale or cort manufacturing (EFCO) (B-003-ED) and yarn arpets for export to USA, Gulf, Europe Misr American Carpet B-003-ED EDBE Nov-89 Mills (B-002-ED, A-009- Carpet Milland JSC 1,840,451 6 Export-oriented FSU, Europe, USA, MENA. Mill (B002-D, -009 Capet illWeaving ED, B-012-ED) Wevn B-004-ED EDBE Dec-89 Rotopack Mis CO. nPlastics 659,000 7.5 Indirect exports Sale to local manufacturers. materials /LLC MrkmTxieIdsreSpnigad Individual Local market- B- -EDMarake Textile Industries Non-woven products Weaving an L 1,000,000 5.5 USSR, Europe, Arab States. (MATEX) Weaving __ /LLC Oriented Book and carton Local market- Sale to local cirgarette, tissue paper, B-007-ED EDBE Jun-90 El Shorouk Press Company Paper/printing JSC 640,000 17 5 oret biscuits, and food industries. Direct to printing oriented USSR. Kiriazi Refrigerators . Electrical Local market- Exported 2%of production to USSR. Weak Manufacturing Co. Appliances oriented analysis of Saudi Arabia market potential. B-008-ED EDBE Feb-91 The Pyramid Paper Mills Pocket Hankies Paper/printing JSC 195,465 5 Local market No export effort reported. Factory __ A-006-ED EDBE May-91 Cairo for Food Industries Tomato-based F Individual 1,029,851 I17 7 Export-oriented Loca market plus MENA countries through Company (Heinz) products /LLC Heinz Co. X LIST OF SUBPROJECTS UNDER THE EXPORT INDUSTRIES PROJECT (L2459-EGT) (Page 2) Category Bank Date Sub-Project Activity Sector Ownership Disb USD Problem raInterest Orient Expected Market (at appraisal) I Irate Ys Orientation Epce akt(tapasl The Food IndustriesI A-007-ED EDBE Aug-91 Development Company Chocolate Bars Food JSC 4,383,695 7.5 Export-oriented MENA, Europe, USA, Asia. (Gersey Company) B-009-ED EDBE Oct-92 Nancel Clothing Co. Ready-made Garments Spinning and Individual 113,517 5.5 Export-oriented Europe. Weaving /LLC ______ _ ____________ Var. 15.7 Individual Sale to local export-oriented industries such A-003-BM BM Oct-92 Misr Plastics Co. Plastic Bags Plastics /LLC 1,362,114 at 5 Indirect Exports as fruits, vegetables, chemicals. ______________ ________ ________ _____ _____approval______________________ A-008-ED EDBE Nov-92 Rotopack Misr Co. Flexible packaging Plastics JSC 2,100,000 7.5 Indirect exports Sale to local manufacturers. Amaterials Sale to local manufacturers of detergents, B-010-ED EDBE Nov-92 El Alamein Offset Press Color printed carton Paper/printing JSC 750,000 8 Indirect exports cosmetics, pharmaceuticals, and food products. Oriental Weavers Fibres Individual Sale to sister company manufacturing and B-012-ED EDBE Dec-92 Co. (B-002-ED, B-003- Heat set yarns Plastics /LLC 1,125,000 7.5 Indirect exports exportmg carpets. ED, A-012-ED) Var. Kiriazi Refigerators . Electrical Local market- iLetters from Kuwait and France expressing Manufacturing Co. Appliances oriented in Egyptian-made household equipment. Cairo Precision Industry Water heaters, home Electrical Local market- Showroom in Moscow; application for ISO B-014-ED EDBE Jun-93 Coan P o s t er s A JSC 1,149,819 6 o rket- 9000; Arab States. No export plan in Company cookers Appliances oriented aprslreot appraisal report. Cairo Precision Industry Water heaters, home Electrical Local market- 'Showroom in Moscow; application for ISO A-013-ED EDBE Nov-93 Company cookers Appliances JSC 1,198,171 6 oriented 9000; Arab States. No export plan in Com y c s Aappraisal report. Misand Arab European, Amercian Markets. 30% A-009-ED EDBE Jan-93 Mills (B-002-ED, B-003- Fitted Carpets Spinning JSC 1,750,000 16.4 5yrs Export-oriented Expo ea Appria Mil 02ED, B-012-e Weaving exported at appraisal. ED, B-012-ED)__ ____ __ A-011-ED EDBE Jun-93 Misr Company for integrated ready-made Spinning and Public 5,273,599 7 Export-oriented US, Canada, Europe, Arab States, Asia, Spinning and Weaving garments production Weaving Sector 5,7359 Spinning and Individual Sale to sister company manufacturing ready- B-013-ED EDBE May-93 El Sahwy Co. for Textiles Knitted fabric Weaving /LLC 250.000 Indirect exports made garments. Oriental Weavers Fibres Individual Sale to sister company manufacturing and A-012-ED EDBE Nov-93 Co. (B-002-ED, B-003- Heat set yams Plastics /LLC 2,100,000 6.5 Indirect exports exporting carpets. ED, B-012-ED) Jan-3 NdiaWiliamFacory rawr Rnnes Frniure Individual B-001-BM BM Jan-93 Nadia William Factory Drawer Runners Furniture /L 290,669 Problem Var 5 Local market No export market plan. 79 Annex XVII EGYPT: REVEALED COMPARATIVE ADVANTAGE 1970 1980 1985 1990 Food and Feeds 3.23 2.2 1.07 Beverages and Tobacco 0.38 0.38 0.1 Crude Materials 0.21 0.31 0 Refined Fuels 0.13 4.57 9.06 Animal & Vegetable Oil 0.55 0.11 0 Chemicals 0.72 0.25 0.62 Manufactures by Material 2.22 1.69 1.75 Machinery and Transport 0.13 0.25 0.34 Miscelleanous Manufactures 1.07 0.5 0.87 Textiles, Yarn, Fabric, Etc. 3.34 2.69 2.58 Clothing and Acccessories 0.43 0.23 0.71 Footware 0 0.12 0.47 Chemicals 0.09 0.08 0.18 Non-metal mineral goods 0 0.03 0.06 Iron and Steel 0.15 0.02 0.25 Metal Manufactures 0 0.09 0.22 Misc. Manufactured Goods 1 0.05 0.15 0.09 Source: World Bank, WPS1571, 2/96; Egypt Private Sector Assessment 80 Annex XVIII STRUCTURE OF EXPORTS IN EGYPT 1965-67 1970-72 1975-77 1980-82 1985-87 1990-92 Total Exports* 591,695 792,066 1,543,977 3,132,778 2,029,883 3,108,179 By Destination All OECD 27.1% 20.5% 31.4% 58.1% 47.8% 52.6% All Non-OECD 72.9% 79.5% 68.5% 41.9% 52.2% 47.4% OECD Europe 21.2% 15.5% 26.7% 49.1% 40.9% 41.8% North America 2.7% 1.1% 2.1% 5.8% 4.2% 8.7% Japan 3.0% 3.8% 2.7% 3.3% 2.7% 2.1% Eastern Europe 45.2% 56.6% 49.2% 10.9% 22.1% 11.0% Middle East 3.0% 4.6% 6.6% 16.1% 14.5% 19.7% By Product Group Foods 16.7% 18.2% 18.6% 7.1% 8.0% 9.5% Agricultural Materials 54.5% 48.5% 32.1% 15.1% 13.0% 4.7% Fuels (incl. Crude Petroleum) 5.4% 4.1% 20.0% 65.0% 51.2% 43.8% Ores & Non-Ferrous Metals 1.6% 0.4% 1.5% 3.5% 6.0% 6.4% Total Manufactures 21.6% 28.7% 27.7% 9.2% 21.8% 35.5% Textiles 16.1% 17.9% 15.3% 6.7% 16.7% 15.6% Clothing 0.4% 1.8% 3.4% 0.6% 1.3% 5.2% Other Manufactures 5.1% 9.0% 9.0% 1.9% 3.8% 14.7% * excluding petroleum produced and exported by foreign firms Source. World Bank Policy Reseacrh Working Paper No. WPS157, 2/96 TRENDS IN THE EXPORT SECTOR IN EGYPT i19 A verage A verage A verage Constant 1992 Prices (LE m) 1988 1989 1990 1991 1992 1993 199 I _(est.) 1988-1990 1991-1994 1988-1994 Total Merchandise Exports 3602 2959 3110 3723 3634 3525 3165 3224 3512 3388 Share of GDP 3% 3% 3% 3% 3% 3% 2% 2.9% 2.8% 2.9% Growth Rate -17.8% 5.1% 19.7% -2.4% -3.0% -10.2% -6% 1.0% -1.4% Petroleum 1760 1234 1134 1771 1651 1931 1647 1376 1750 1590 Share of total exports 49% 42% 36% 48% 45% 55% 2% 42% 37% 40% Growth Rate -30% -8% 56% -7% 17% -14.7% -19% 13% 2.3% Total Manufactured Goods 1335 1339 1619 1746 1725 1382 1272 1431 1531 1488 Share of total exports 37% 45% 52% 47% 47% 39% 2% 45% 34% 39% Growth Rate 0.3% 20.9% 7.8% -1.2% -19.9% -8.0% 11% -5% 0.0% Textiles 572 491 682 546 575 441 475 581 509 540 Share of total exports 16% 17% 22% 15% 16% 12% 2% 18% 11% 14% Growth Rate -14% 39% -20% 5% -23% 7.8% 12% -8% -0.9% 00 Other Manufactured Goods 763 848 938 1199 1150 942 797 850 1022 948 Share of total exports 21% 29% 30% 32% 32% 27% 2% 27% 23% 25% Growth Rate 11% 11% 28% -4% -18% -15.4% 11% -2.4% 2.0% Export Volume Growth Rate 47% -18% 5% 20% -2% -3% -10% 11% 1.0% 5% Source: Word Bank COVENANT COMPLIANCE UNDER THE EXPORT INDUSTRIES DEVELOPMENT PROJECT (L-2459) (Page 1) Section Covenant Type Description Status Comments Section 2.04 Other Loan closing date on 6/30/92. tAfter delay complied Extended to June 30, 1994. This was the final with extension. Cancelled effective April 30, 1991, due to delays by Section 3.01(b) Sectoral regulatory Government to reorganize EEPC in manner satisfactory to the Bank. Not complied with the People's Assembly in approving a law to grant EEPC managerial autonomy. Prior amendment of 6/89 stated that repayment from Amendment of 4/92. Repayment from PBs to GOE on account of subloans .ro GOenacnt of subdoa denomnt in Flow & util of denominated in local currency shall be at annual rate lower by 3 perc. pts. C l wo crE o at an aulate equat th Section 3.02(b) funds- Than minim. Annual interest rate fixed or variable referred to in L.A. para orl Ban te lusnaafeeaofr635%eperlannumht (a)(i) ofsec.2.04World Bank rate plus a fee of 6.35 % per annum to (a)(ii) of sec. 2.04 cover the foreign exchange risk. Government, PBs and Bank shall undertake quarterly review of subloan Section 3.02(vi) Monitoring & terms and conditions to determine if adjustments thereto are necessary to Complied with Terms and conditions revised in June 1989 and April report. ensure continued competitiveness of Bank funds with other foreign exchange 1992. credit. Government may determine in agreement with Bank, to designate a new MIDB participated in one subloan. EDBB converted to Section 3.02(vii) Sectoral regulatory bank as a "participating bank," if new banks accept to abide with provisions Complied with PB. of PB project agreement. EEPC to employ consultants to help implement strengthening of EEPC, Section 3.03 Management provide access to export-oriented enterprises, undertake training and studies, Not complied with Cancelled. aspects and help establish exporters' assistance fund. EEPC shall carry out studies under part c (d) of project, furnish bank with Section 3.04(a) Management results, and thereafter take necessary measures to implement agreed Not complied with Cancelled. aspects measures. EEPC shall open an Exporters' Assistance Fund account, entrust Section 3.05(a) Accounts/audit management to committee of representatives of EEPC, EDB and one PB, Not complied with Cancelled. establish rules for use of funds, including eligibility criteria, procedures and financial arrangements. Section 3.05(b) Accounts/audit EEPC shall withdraw $250,000 for EAF account. Not complied with Cancelled. Section 3.05(c) Sectoral regulatory EEPC shall review EAF procedures with Bank after $500,000 has been paid Not complied with Cancelled. out. Section 3.08(a) ~Monitoring & EEPC shall provide Bank copies of plans, contracts reports, etc., that are Not complied with Cancelled. report. prepared under part c of project (i.e., EEPC component). Monitoring & EEPC shall maintain records and procedures adequate to record progress of Section 3.08(b) part c, including costs and benefits to be derived, and shall provide bank Not complied with Cancelled. report. with progress reports every 6 months. EEPC shall maintain separate accounts for part c of the project, shall Section 4.02(a) Accounts/audit maintain records for SOEs until one year after loan closing, shall submit Not complied with Cancelled. audited accounts to bank within 6 months after end of each fiscal year. COVENANT COMPLIANCE UNDER THE EXPORT INDUSTRIES DEVELOPMENT PROJECT (L-2459) (Page 2) Free limit subloan definition: except for the first three subloans made by a Section 1.01(a) Flow & util of PB and for subloans proposed to be made to a sub-borrower in which the PB Complied with funds has more than 25% of the share, a free limit subloan shall not exceed $1,675,000. Technopack subproject received subloans worth . Flow & util of Maximum subloan amount is $6.6 million. Prior to June 17, 1989 $10.07 million, although split between two PBs. Section 2.02(a) Cmle ih Oina evr ru eevd$. ilo funds amendment to the corresponding figure was $6.0 million. ___ __________through 5 individual subproject loans. Prior to the June 17, 1989 amendment, the limit was Flow & util of Amendment of June 17, 1989. Eligible sub-projects shall not have an Section 2.02(b) fns siae oteceig$67mlin opidwt 2. ilo.TeTcnpc rjc,te en funds-i appraised, had a total cost of $26.68 million and was Flowapproved in September 1989. Aggregatec) Flw 89%l ofggegteamun disbursementsPs o rivtesetwereEyp stolno theie wtprivateibuseenssector/jointteseto/jin Section 2.02(c) funds be less than 50% of the total amount of the loan earmarked for PBs. Each request by a PB for a subloan shall contain an export development plan Marketing plans of sub-borrowers satisfied this Flow & util of demonstrating that the subproject is expected to export not less than 30%of Sectionfunds its production (i) within 3 years for existing enterprises, and (ii) within 5 2 c )ctialh o fen Section 2.04 Other Terminal date for subloan submission to the Bank on 6/30/89. with dExended to 12/31/93. This was the final extension. Amendment of May 6. 1987. APBs shall charge interest rate on subloans denominated in foreign convertible currencies sufficient to cover Financ.inemdaincss&cmestPBforikolossbtenehng Section 2.04(a)(i) Complied with There was one loan denominated in foreign currency. performance rate changes between currencies of subloans & those currencies in which PBs obligation to repay is denominated. Original PA provided for sub- borrowers to carry foreign currency risk. The exchange rate to be used in obtaining value of LE denominated subloans will be based on the rate of exchange for the dollar in terms of LE declared Amended by letter of April 16. 1992. Previously date Section 2.04(a)(ii)(A) flowund utis of by PB, for the purpose of effecting foreign currency transactions, on the Complied with of fixing the exchange rate was that of subloan respective dates of disbursement made to the investment enterprise under the contract. subloan contract. For LE-denominated loans at fixed interest, the minimum onlending rate shall be 2 percent points below CB discount rate, and for those approved at Section 2.04(a)(ii)(B) Flow & uCil of variable interest rate, minimum rate shall be initially 3 percent points below Complied with funds CB discount rate and would be adjusted annually with cap of + or - 1.m5i% for each adjustment and cap of + or - 6% for subloan duration. COVENANT COMPLIANCE UNDER THE EXPORT INDUSTRIES DEVELOPMENT PROJECT (L-2459) (Page 3) Bank, government and PBs shall determine in context of review to be Section 2.04(b) Flow & util of undertaken pursuant to section 3.02 of the loan agreement whether any Complied with funds adjustments should be made in terms and conditions applicable to the subloans. Each PB shall require, as a condition of providing a subloan, that each Flow & util of subproject which is estimated to cost LE 2.5 m should have an EROR of at Complied with Section 2.04(c) funds least 12%. This was section 2.04 (d). It was relettered as a result of June 117, 1989 amendments. 00 85 Annex XXI SUMMARY INFORMATION OF SUBLOANS UNDER THE CONSTRUCTION INDUSTRY PROJECT (L2460) Total Amount Average Percent Amount in Percent in Number Disbursed Pct Loan Size Probleml Arrears Total Arrears ($m) ($m) Loans ($m) Total Disbursed 7 21.75 100% 3.11 45% 8.13 37% By Ownership Public 5 19.80 91% 3.96 41% 6.82 34% Private 2 1.95 9% 0.97 89% 1.31 67% By Approval Year 1990 3 13.13 60% j 4.38 51% 6.19 47% 1991 4 8.63 40% 2.16 35% 1.94 22% By Loan Size Above $5 million 2 11.81 54% 5.91 0% 0.00 0% Below $5 million 5 9.95 46% 1.99 98% 8.13 82% LIST OF SUBLOANS UNDER THE CONSTRUCTION INDUSTRY PROJECT (1,2460) Su-Brrwr ppovl At PblcorTye fApproved DisbursedT Own ,Total IBRD as a Amount in Percent X Sub-Borrower Tpeof eren SubBorowe Aciviy Aoun AmuntFinancing Project % of Total Problem Arrears in Date Private Project of Total ______ _____ ______ ($ni) ($m) ____ $) Cost Project Cost____ $m Arrears Arab Company for Foundations ssi ArbCmayfrFudtos Nov-90 Specialissi Public Expansion 6.25 4.24 19 1.5 5.71 74% Problem 4.00 95% (VIBRO) Foundations Arab Contractors Osman Ahmed N 0I - 5 ArbCnrcosOmnAmdEarth-moving Public Expansion 6.60 6.39 29 1.9 75 Osman & Co. Nv9 a0 El-Nasr Building and Construction - Building and Buidin Nv-9 . PubicExpnsin .80 2.3 1% .73 3.4 78%T ProblemT 2. 19 86% Co. (EGYCO) Construction A General Nile Co.(SPECO) Apr-91 Public Expansion 1.45 1.28 6% 0.44 1.75 73% Problem 0.63 49% Industrial Engineering for Sep-91 Equipment Private Expansion 2.50 1.74 8% 1 2.71 64% Problem 1.31 75% Construction (ICON) Dealer Matrc oman Ag-1 Caterpillar Private Expansion 2.50 0.21 1% 0 02 8 Mantrac CompanyDealer Misr Concrete Development Mar-91 Contracting Public Expansion 5.40 5.37 25% 1.24 6.64 81% (MCDC) _Apoa Works or Type of_ Percent _Nov-90__Specialists__in Public_ Expanion1.25 .754 19% 6125571 74 TOTAL No 0 B g a P c E 27.50 2.5 12% 0 3.24 78% 55% 8.13 37% 00 ConstructYo 87 Annex XXIII WORLD BANK LENDING TO EGYPT BY FINANCIAL YEAR Number of Original Revised Utilization: Average Project Average Project Projects Amount Amount Revised/Original Size (Original) Size (Revised) 1960 1 56.5 56.5 100% 56.5 56.5 1970 1 26.2 24.2 92% 26.2 24.2 1972 1 30.2 29.2 97% 30.2 29.2 1973 3 51.2 49.6 97% 17.1 16.5 1974 4 43.9 43.4 99% 11.0 10.9 1975 5 227.0 220.8 97% 45.4 44.2 1976 5 222.0 216.8 98% 44.4 43.4 1977 6 267.5 258.9 97% 44.6 43.1 1978 6 241.0 203.8 85% 40.2 34.0 1979 6 322.5 298.5 93% 53.8 49.7 1980 7 480.0 398.2 83% 68.6 56.9 1981 7 286.6 283.5 99% 40.9 40.5 1982 5 465.0 379.2 82% 93.0 75.8 1983 5 350.0 277.2 79% 70.0 55.4 1984 4 399.0 158.8 40% 99.8 39.7 1984* 1 4.0 1.1 26% 4.0 1.1 1985 4 263.3 178.4 68% 65.8 44.6 1986 - 1 70.0 27.9 40% 70.0 27.9 1989 3 241.0 154.0 64% 80.3 51.3 1990 2 61.5 61.5 100% 30.8 30.8 1991 3 524.0 374.1 71% 174.7 124.7 1992 4 375.8 176.8 47% 94.0 44.2 1993 3 207.5 207.5 100% 69.2 69.2 1994 1 121.0 121.0 100% 121.0 121.0 1995 1 80.0 80.0 100% 80.0 80.0 1996 1 17.2 17.2 100% 17.2 17.2 * The second 1984 line indicates the lending position in the absence of the three loans being evaluated. The three loans were each approved on June 28th, 1984, shortly before the end of the fiscal year.  89 Attachment I INDUSTRIAL DEVELOPMENT BANIC OF EGYPT(IDBE) FOREIGN DEPARTMENT RG.. 176459 - Cairo CAIRO ON :.......... 9...6 .6.- -. --. -... Mr. Manual Fenalver Division Chief Country Policy, Industry & Finance Operations Evaluation Department 1818 H Street N.W. Washington , D.C. 20433 U.S.A. Re:Small and Medium Scale Industry Project ( Loan 2458-EGT), Export Industry Development Project ( Loan 2459- EGT ), and Construction Industry project ( Loan 2460-EGT) performance Audit Report. Dear Mr. Penalver Reference is made to the valuable Performance Audit Report(PAR)prepared by the Operation Evaluation Department ( OED ) - World Bank on May 17 1996 concerning the three projects extended to Egypt for total utilized value of $ 395 million from which $ 170 million was allocated to IDBE in order to finance the investment needs of SXIs& axtend the requ±red technical assistance to improve the effeciency of their operations and strengthen the institutional capacity of IDBE . In this respect we would like to point out that the main objectives of the Small and Medium Scale Industry Project were achieved to a great extent as IDBE succeeded in financing SMIs for $ 86.4 million under the said project addressed to 232 sub-projects in different sectors (Textile Industries - Engineering -Chemicals Food Stuffs- Plastic - Printing - Electronics - Ceramics - Furniture - Toursim and others ) represncing 191 different borrowers ( 44% large borrowers , 37% medium sized firms, 18% SSIs) with an average sub-project size of $ 368563 . It is worth to say that IDBE made a tangible progress in improving its inst- itutional capacity through dealing with the main problems idencifed by the WorldBank missions in some areas :- 1) IDEE financial situation:- IDBE has achieved partial improvment through reducing the debt/equity ratio from 13.4 : 1 in FY 1988 to 7.9 : 1 in FY 1993 to 7.1 : 1 in Fy 1994 and 7.6 : 1 in FY 1995 due to IDBE efforts with the concerned authority to compensate our foreign exchange losses for L.E 300 million incurred under previous foreign credit lines and raising the authorized capital of IDBE to L.E 200 million . The paid up capital is still L.E 146.2 million and concerning the pending contribution of NIB for L.E 50 million it is still under approval by the concerned authority 2) Debt collections :- IDEE adopted a plan to accelerate collections and cleaning up most doubtful loans by strengthening the follow up department , establishing a" problem project unit " and forming a settlement committee consisting of high specialised experts to review and approve the required settlements . 110, Gaaa Stree, - Cairn . Egypt - Cable Addrc-s (DEVBANK) Teies : 20377 - 21682 IO8E UN Tel. : 761430 Telefax .763026 90 INDUSTRIAL DEVELOPMT BAN OP SOYPT ( IDDR) FOREIGN DEPARTMENT RG.. 176459 - Cairo CAIRO ON: ....... .6..19 9.. . .. 3) Training IDBE had made great strides in improving skills of the staff in all banking areas and management specially in project appraisal and follow up activities through internal and external training programs . It has organised 122 training courses for 334 employeesin FY 1993 /1994 and 155 training courses for 464 employees in FY 1994 /1995 . Although the utilization of said project faced many problems as stated in the (PAR) in details , we do appreciate the way of handling these obstacles in cooperation with the World Bank missions specially during the implementacion of the economic reform program in Egypt and their positive dialogues to modify the terms and conditions to meet the required changes in interest and foreign exchange rates Please accept our sincere appreciation and looking forward to continue the already excellent relations with the World Bank Sincerely Yours, 4t -. . Mohamed A. Bassal General Manager & Member of the Board of Directors 1 10, Galaa Street - Cairo - Egypt - Cabl Addiess ( DEVSANK ) Telex : 20377 - 21682 IDBE UN TeL : 761430 Telefax : 763026  IMAGING Report No; 15841 Type: PPAR