Document of FILE COpy The World Bank FOR OFFICIAL USE ONLY Report No.P-2998-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A SMALL SCALE INDUSTRY DEVELOPMENT PROJECT March 26, 1981 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 Currency Unit Tunisian Dinar (D) The exchange rate of the Tunisian Dinar is floating. The rate used in the Staff Appraisal Report, which approximates the current rate is: US$ 1 = D 0.4 D 1 = US$ 2.5 D 1 million= US$ 2.5 million FISCAL YEAR CALENDAR YEAR ABBREVIATIONS AND ACRONYMS AFI Agency for Industrial Land (Agence Fonciere Industrielle) API Investment Promotion Agency (Agence de Promotion des Investissements) BCT Central Bank of Tunisia (Banque Centrale de Tunisie) BDET Economic Development Bank of Tunisia (Banque de D6veloppement Economique de Tunisie) CNEI National Center for Industrial Studies (Centre National des Etudes Industrielles) FOPRODI Fund for the Promotion and Decentralization of Industries (Fonds de Promotion et de Decentralisation Industrielle) SSI(s) Small Scale Industry (Industries) UNDP United Nations Development Program UTICA Tunisian Industry, Commerce and Handicraft Association (Union Tunisienne de l'Industrie, du Commerce et de l'Artisanat) FOR OFFICIAL USE ONLY TUNISIA SMALL SCALE INDUSTRY DEVELOPMENT PROJECT Loan and Project Summary Borrower: Republic of Tunisia Beneficiaries; Participating commercial banks and Economic Development Bank of Tunisia (BDET) Loan Amount: US$30.0 million equivalent Terms: About 15 1/2 years including 3 years of grace; repayment based on a composite amortization schedule of sub- projects; interest rate at 9.6 percent per annum. Relending Terms: Interest rate at least equal to rate payable by commer- cial banks on medium-term rediscountable industrial loans (at present 8.25 percent per annum); amortization depends on individual subprojects, and may vary between 5 and 13 years, with up to 3 years of grace. Project Description: The project will support the Government's comprehensive assistance program for small scale industries (SSIs), to help them reach their potential in generating employ- ment, improving intersectoral linkages, developing industrial managers and technicians, and alleviating regional imbalances. It will provide financial assis- tance to about 130 SSIs, creating about 5,200 jobs at an average cost of about $11,000 at 1980-prices. Bank funds amounting to $29.35 million, will be channeled to sub-borrowers through commercial banks and the Economic Development Bank of Tunisia (BDET). All subprojects will be reviewed by the Investment Promotion Agency (API), and a $650,000 technical assistance component is included in the loan to help API perform this task. The main project risks are inadequate subproject prepara- tion, implementation and management, and the commercial banks' reluctance to lend to SSIs. Provisions made in the project are expected to minimize these risks. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Estimated Project Cost; Local Foreign Total -------$ million------- Lending Component 29.35 29.35 58.70 Technical Assistance Component to API 0.10 0.65 0.75 Technical Assistance to SSI subprojects 0.20 0.90 1.10 Total 29.65 30.90 60.55 Financing Plan: Local Foreign Total -------$ million------- Bank Loan - 30.00 30.00 Government 0.30 - 0.30 Local Financial Institutions 11.74 - 11.74 Beneficiaries 17.61 - 17.61 UNDP and Bilateral Assistance - 0.90 0.90 Total 29.65 30.90 60.55 Bank Loan Disbursements: Bank Fiscal Year 1982 1983 1984 1985 1986 1987 -------------------$ million---------------- Annual 5.5 6.5 7.0 6.0 4.0 1.0 Cumulative 5.5 12.0 19.0 25.0 29.0 30.0 Appraisal Report: Report No. 3266-TUN dated March 13, 1981. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRD TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A SMALL SCALE INDUSTRY DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed loan for the equivalent of US$30 million to the Republic of Tunisia, to help finance the foreign exchange cost of a Small Scale Industry Develop- ment Project. The loan would have a term of about 15-1/2 years, including 3 years of grace, with an interest rate of 9.6 percent per annum. US$29.35 million of the loan would be onlent to project beneficiaries through par- ticipating banks, with maturities of up to 13 years, including up to 3 years of grace, at least at the interest rate for rediscountable medium- term loans to industry prevailing in Tunisia, presently 8.25 percent. Participating banks would receive a commission from the Government equivalent to about 2 percent per annum of the amounts onlent. PART I - THE ECONOMY I/ 2. The last economic report entitled "Economic Position and Prospects of Tunisia" (No. 2201-TUN) was issued on November 16, 1978. An economic mission visited Tunisia in June 1980 and this part reflects its findings. Country Data sheets are attached in Annex I; present economic projections are provisional and strongly depend on the outcome of an ongoing study on the future of domestic oil production and energy demand and on the economic policies that will be adopted for the Sixth Development Plan (1982-86). 3. Tunisia is rather poorly endowed with natural resources. Much of it is arid or semi-arid. The limited areas where dry-land agriculture is possible are subject to severe year-to-year fluctuations in rainfall. The adverse effects of climatic fluctuations are alleviated by expanding irri- gation. Tunisia's most important raw materials are phosphates, petroleum, and natural gas; however, the known exploitable reserves of oil and gas are small, and phosphate deposits are of relatively low quality. There is considerable tourism potential, and efforts have been made to develop it rapidly over the last decade. 4. Since independence in 1956, Tunisia has undertaken a massive effort towards development of its human resources, paying special attention to education and training as basic prerequisites for modernization. As a result, the adult literacy rate has increased from under 15 percent at the time of independence to 55 percent by 1980; the health and nutrition status of the population improved, average calorie supply per capita increased from about 80 to 112 percent of requirements, and life expectancy at birth increased from about 48 years in 1960 to 57 years in 1978. 1/ Part I is substantially unchanged from that in President's Report No. P-2981-TUN of March 4, 1981 for a Fourth Education Project. -2- 5. Tunisia's economy depends on rural activities to provide employ- ment, but on petroleum and phosphate exports to provide foreign exchange earnings. Manufacturing is rapidly becoming important in both respects. The relative sectoral composition of GDP shows a diversified economic structure. From the employment point of view (the country's most pressing social problem), Tunisia remains an agricultural economy, with the rural sector providing work for nearly one out of every three Tunisians in the labor force. The direct employment effects of petroleum extraction, phosphate mining and tourism are small, although these sectors make a vital contribution to GDP, public revenues, savings and exports. From the export point of view, Tunisia is largely a petroleum and mining economy with those two activities providing 37 percent of the country's foreign exchange earnings; all manufacturing activities and tourism together provide another 43 percent. The Main Economic Sectors in 1979 (in percent) GDP /1 Employment Exports /2 Agriculture 16.2 35.0 6.8 Energy/Mining 12.1 1.8 37.1 Manufacturing 12.1 21.8 22.5 Tourism 4.8 1.5 20.2 Construction and Services 41.2 25.4 13.4 Government Administration 13.6 14.5 _ 100.0 100.0 100.0 /1 At factor cost. /2 Goods and non-factor services. Recent Economic Developments 6. Tunisia's economy has grown relatively fast in recent years. GDP, in constant prices, increased at an average annual rate of 6.5 percent from 1976 to 1979. Although this is somewhat less than the 8.6 percent growth rate for the 1969-76 period, Tunisia's GDP growth of 8.0 percent for the entire decade 1969-79 places it among the top 10 middle-income countries; it also marks a substantial improvement over the relatively low growth (4 percent per annum) experienced during the 1960s. GNP per capita reached $1,120 in 1979, which, in constant prices, is about 73 percent above the 1969 level. 7. The impressive growth achieved from 1969 to 1976 was largely attributable to changes in economic management introduced at the beginning of this period. In agriculture, stronger Government efforts to stimulate production, reoriented towards promotion of individual farming, together with favorable weather conditions, resulted in a near doubling of produc- tion, a remarkable turn-around from the slow, but continuous, decline in -3 - agricultural production during most of the 1960s. In manufacturing, the degree of Government control declined, and more incentives were given to private initiative. An increasingly export-oriented investment strategy, coupled with a dynamic marketing effort, led to a rapid growth of prodluc- tion, particularly in textiles, while tourism was promoted with marked successo 8. During the second half of the 1970s, the situation was quite different, not so much in terms of overall growth (which slowed down slightly), as in terms of the underlying growth factors: output in agri- culture has virtually stagnated since 1976, partially as a result of bad weather conditions; textile production declined in 1978, and tourism development slowed down because of the 1977 slump in the European tourist market. By contrast, petroleum production and, to a lesser extent, phos- phate processing expanded making these two sectors the main engine of economic growth over the 1976-79 period. After an exceptional low level in 1976, oil production increased by over 12 percent per annum up to 1979; more important, however, were the large protits reaped by Tunisia from the successive increases in crude oil prices, starting in 1974. These large additional foreign exchange earnings enabled the country to increase its investments, from an average of slightly over 20 percent of GDP before 1975, to nearly 29 percent thereafter, and expand its public services at a rapid rate. These two factors, in turn, triggered a rapid growth in the construction industry and in local manufacturing of construction materials. 9. In spite of the considerable increase in domestic demand, particu- larly in investments, the balance of payments situation remained favor- able. Even in constant prices, exports grew marginally faster than imports. In addition, the terms of trade improved significantly, due to higher export prices for oil and low import prices for grain. As a result, the resource gap remained relatively small, and domestic savings financed on average over 72 percent of the greatly increased investment effort. The current account deficit of $500-600 million (1978/1979) was easily financed: grant aid and private investments accounted for about 30 per- cent, while the remainder was covered by long-term foreign borrowing. The increase in lending to Tunisia from public sources allowed it to reduce borrowing from financial markets and suppliers' credits. During the 1970s, therefore, total foreign debt disbursed increased little relative to GDP and the debt service ratio improved (para. 18). Net foreign exchange reserves increased in seven out of the last ten years, but still repre- sented only 1.5 months of imports at the end of 1979. 10. Since independence, the public sector has played a major role in mobilizing and redistributing domestic resources. General budgetary revenues were equivalent to one-third of GDP in 1978 and 1979, one of the highest shares among middle-income countries. Over one-fourth of these revenues were saved, and public savings financed close to two-thirds of total government capital expenditures. This comfortable public finance situation has led to a fast increase in subsidy payments to private con- sumers and public enterprises. Such transfers have nearly doubled over the last four years, accounting for 16 percent of total current budget outlays, -4- or 4 percent of GDP. This level of subsidies, to cover the increasing operational deficits of public enterprises may not be sustainable in the long term; similarly, consumer subsidies for basic necessities will have to concentrate more systematically on the needy. Medium-term Prospects 11. The objectives of the Fifth Development Plan (1977-81) have a good chance of being achieved, except for the employment creation targets. The actual GDP growth will be just short of the planned rate of 7.3 percent per annum, while the investment objective of $9.8 billion in current prices, or 30 percent of GDP, will be fully met. Completion of some large projects in the public sector (steel, cement, expansion of the oil refinery) will, how- ever, be delayed. Private sector investments, both foreign and national, are likely to exceed Plan targets. The Government welcomes this shift from large capital-intensive projects in the public sector to medium-scale industries as a means to speed up employment creation. Open and hidden unemployment is currently considered the most serious problem for the Tunisian economy. During 1977-79, the domestic non-agricultural economy could only absorb three-fourths of new job seekers. In view of this, and of the fact that migration to Libya and Europe is decreasing rapidly, the overall unemployment and underemployment rate, estimated at between 20 and 25 percent, has not declined markedly. 12. The Sixth Development Plan (1982-86) is presently in preparation. Employment generation, food self-sufficiency, and more rapid growth in the three most backward regions of the country (North-West, Center-West, and South) are likely to be among its major objectives. The outlook for over- all economic growth during this period and beyond, will depend upon future developments in the oil and natural gas sector. Based on known reserves, it is generally expected that oil production will decline after 1981 from its present level of 5-6 million tons per annum and will come to an end during the late 1990s. The possible exploitation of some of the smaller fields that may soon become profitable will not delay the declining produc- tion trend by more than a few years. Some off-shore fields cannot be exploited for the time being, because they are located in areas disputed by Libya. Gas production in presently exploited fields (385,000 tons of oil equivalent--toe--in 1979) is expected to cease around 1990. Royalties from the Algerian/Italian pipeline will provide an additional supply of natural gas, rising from 200,000 toe in 1982 to 800,000 toe in 1986 and there- after. Negotiations with Algeria on the purchase of additional quantities of natural gas are proceeding, but have so far been inconclusive. The Government is therefore considering the exploitation of the off-shore gas field of Miskar, despite its high production cost. The optimal use of all these resources is being studied with foreign assistance within a compre- hensive long-term policy framework. 13. While detailed macroeconomic growth projections beyond the mid- 1980s will have to wait for the outcome of these studies, there can be little doubt that--barring large new oil discoveries--Tunisia will face 5 the consequences of a decline in oil and gas production over the next 10-15 years, and become a net importer of hydrocarbons, perhaps as early as 1987- 88. The Government is fully aware of these developments. It agrees that the situation will require significant policy changes in the near future and is analyzing the areas where these changes will have to take place in the context of the preparation of the Sixth Plan. Unlike many other developing countries, however, Tunisia has enough lead time to introduce these changes gradually until the mid-1980s. This will reduce the associated economic and social strains, and should avoid major balance-of- payments problems. Assuming that the necessary measures will be imple- mented, it is reasonable to expect an overall GDP growth of about 7 percent in constant prices, until at least 1985. 14. The expected decline in oil production and exports is likely to have an impact on external debt and domestic savings, particularly public savings. Changes in demand management will thus be required to avoid balance-of-payments difficulties and maintain satisfactory economic growth. In the public sector, the necessary restraint in current budget expenditures will require a reassessment of present price and subsidy policies, in particular for energy, basic foodstuffs, and transportation. Considering the complexity and the pervasiveness of the present subsidy system, and the impact its dismantling will have on domestic inflation and on the standard of living (particularly on the 17 percent of the population still living in absolute poverty), the introduction of changes into the system will be a difficult endeavor, but ought to be initiated without delay. As part of this effort, the subsidies to public enterprises, to a large extent stemming from managerial inefficiencies, ought to be phased out. In addition, interest rate and fiscal policies will have to be used more effectively to restrain final consumption, particularly of imports, and to stimulate savings. Finally, wage and salary policies will have to keep labor cost increases in line with productivity increases, particularly since Tunisia will have to stimulate tourism and make a greater effort to improve its competitiveness in international markets by promoting exports of manufactured goods other than textiles. 15. A successful and timely implementation of these policy changes, however, cannot prevent a decline in the domestic savings rate. This, in turn, will require a corresponding adjustment in the investment rate below the present average of 29 percent of GDP, so as to maintain a manageable spread between domestic savings and investments. More resources will have to be allocated to labor-intensive projects, particularly to small and medium manufacturing enterprises, in order to ease the unemployment problem and reduce income disparities, between rural and urban areas as well as within each of these areas. While investments in education, health, hous- ing and water supply will have to continue, they should be focussed more on the neediest income groups, provided at lower costs (health, shelter), and made more relevant to the needs of the economy (education, training). Social Issues 16. In general, Tunisia's social performance has been impressive. Since independence, the country has come a long way towards meeting the - 6 - basic needs of its population and reducing absolute poverty. About 16 per- cent of GDP is now devoted to social programs, although too many of the benefits still accrue to the upper income groups. Education expenditures rank first among budgetary outlays. The comprehensive education system provides free access for all students, and the gross enrollment rate has reached 100 percent for primary education and 22 percent for secondary education. The performance of the system, however, could be improved by; (a) expanding vocational training programs and improving their relevance and coordination with labor demand; and (b) catering more to poorer and rural groups. Public health services are second among social expenditures, and their overall beneficial effect is reflected in the improvement of the vital statistics (para. 4). There remain, however, regional disparities in the availability of hospital beds, doctors and nursing personnel, and the medical referral system is not properly functioning. As a result, the rural poor are often excluded. Closely linked to nutritional deficiencies, infant mortality is still high. So far health services have concentrated largely on curative medicine. To achieve better and faster results, the Government is planning to allocate more resources to preventive medicine and nutrition education. Finally, Tunisia faces a difficult housing situation. Subsidized housing, the cornerstore of public intervention, has not reached the most needy groups. The housing demand from households above the poverty limit should be satisfied by the private sector; to this end, adequate incentives need to be provided. 17. Absolute poverty still affects one out of every six people in Tunisia. Over the last fifteen years, the overall number of absolute poor remained stable but declined in rural areas as a result of internal and external migration. Most of the poor are unskilled seasonal workers in agriculture and industry, small farmers, and artisans. Income differen- tials between the coast (East) and the interior (West) widened, in part because the system of price controls and subsidies as well as the tax system and budgetary expenditures had a weak redistributive impact. The Government is using the preparation of the forthcoming Plan as an occasion to focus on basic needs and poverty alleviation, with a view to abolishing absolute poverty before the end of this century. Maintaining a low demo- graphic growth rate will be an important factor for a significant allevia- tion of poverty. External Assistance and Foreign Debt 18. As mentioned above (para. 9), foreign borrowing remained limited during the second half of the 1970s, and a growing share of foreign funds was provided by public sources at relatively soft terms. During the 1976-79 period, foreign loan commitments averaged about $670 million per annum, two-thirds of which in the form of official assistance (ODA--$450 million or some $75 per capita). About 70 percent of ODA commitments came from bilateral sources, chiefly France, the Federal Republic of Germany and Canada, but also some oil-surplus countries, whose contributions averaged about one-fourth of total bilateral ODA. About 17 percent of total ODA was committed by the Bank Group, and some 13 percent by other multilateral - 7 - sources. Borrowing terms were favorable, averaging 6.1 percent interest and 18 years maturity, including a grace period of 4.8 years. At the end of 1979, debt outstanding and disbursed was estimated at about $2.9 bil- lion, or one-third of GDP; debt service was 10.7 percent of exports of goods and services, as compared with 17.8 percent in 1970. 19. Direct foreign investments were small during most of the 1970s, but have gained momentum during the last five years in line with increased activities in the petroleum sector and new incentives offered to foreign investors in manufacturing. Such investments have increased from less than $20 million in 1969 to more than $100 million in 1976 and $165 million in 1979. 20. The balance-of-payments outlook remains favorable, at least up to the mid-1980s. Thereafter, much will depend on the policy measures initiated during the next few years (para. 14). The main risk would be for Tunisia to attempt to continue its policy of high investments and high current social outlays in spite of the expected decline in foreign exchange earnings and domestic savings. Pressures to that effect will certainly exist. The new Government formed in the spring of 1980, however, is aware of this danger and recognizes the need for change. Considering its long record of prudent and skillful balance-of-payments and external debt management, there is every reason to assume that Tunisia will formulate and implement the necessary reforms and, thus, will continue to remain credit- worthy for future Bank lending. PART II - BANK GROUP OPERATIONS IN TUNISIA 21. Since 1962, Tunisia has received forty Bank loans and eleven IDA credits amounting respectively to $739.6 million and $70.1 million (net of cancellations) of which fifteen loans and nine credits have been fully disbursed. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of December 31, 1980, and notes on the execution of ongoing projects. Project implementation is generally satis- factory. In a number of sectors, important institutional improvements have been achieved, and autonomous agencies have been created or strengthened to ensure the efficient management of the related sectors or subsectors. 22. The Bank's lending strategy in Tunisia aims at supporting Government efforts to: (a) increase employment; (b) encourage more balanced growth and distribution of income among regions and income groups with particular emphasis on rural areas; (c) promote export-oriented policies and investments; and (d) provide selective support for the development of basic infrastructure and for institution building in key public services. An important feature of this strategy is to support the Tunisian authorities in the timely and well-coordinated preparation ot projects through missions and advice by Bank staff, the assistance of the IBRD/FAO Cooperative Program and the use of the Bank's Project Preparation Facility. The Bank is also supporting the Government in its efforts to -8- increase the mobilization ot domestic resources, and to secure cotinancing for the projects it assists. The latter is particularly important in view ot the extent of Tunisia's external resource needs. 23. Within this broad framework, past lending emphasized support for long-term investments in infrastructure and social development. Lending tor urban and social development, including water supply, sewerage, educa- tion, family planning, urban low-cost housing, and the Tunis planning ana public transport project has accounted for 25 percent of Bank/IDA commit- ments in Tunisia since 1971. Lending tor transport, power and tourism infrastructure has accounted for 37 percent. Agriculture and fisheries have received 23 percent, and industrial and hotel financing, mostly through the Banque de Developpement Economique de Tunisie (BDET), 15 per- cent of total commitments. 24. In line with its lending strategy, the Bank will pursue its efforts in key sectors of the economy that offer prospects for economic and social development. It will also assist projects which enhance regional integration and help reduce the gap between income groups, and between urban and rural areas. Particular attention will be paid to employment creation and institution building. In addition to the proposed small-scale industry development project, the lending program includes projects in various stages of processing in the agricultural sector, in industry, power, highways, urban development, health and education. 25. The Bank's economic and sector work will continue to focus on strengthening the macroeconomic and sector base for our lending program; it will be more centered in the future on the analysis ot economic issues and policies related to the necessary adaptation process from a petroleum exporting to a petroleum importing country including appropriate interest rate policies (paras. 12 to 14). Two major reports in 1980 on the mechanical and electrical industries and on the social aspects of development provided a better knowledge of the country's industrial development base and prospects in these sub-sectors, and a better understanding of income disparities by evaluating the Government's social policies aimed at poverty alleviation. Future reports will include a review of pricing and subsidy policies in the rural sector, of the Sixth Plan (1982-1986), and of the agricultural, education and training, urban and energy sectors. 26. The Bank and IDA accounted tor about 12 percent of total public commitments to Tunisia during 1970-1979. Their share in total debt out- standing and disbursed at the end oa 1979 (including loans from private sources) was 10 percent and their share in debt service during 1979 was 11 percent. The Bank's and IDA's share in Tunisia's disbursed external debt by 1986 is expected to decrease to about 7 percent, and their share in the debt service would increase to about 16 percent. 27. IFC has invested in NPK Engrais (a fertilizer plant), BDET (a Tunisian development finance company), in Compagnie Financiere et Touristique (COFIT, a company to promote and invest in tourism projects), - 9 - in Societe Touristique et Hoteliere RYM (a large hotel development), in Industries Chimiques du Fluor, which produces aluminium fluoride from local fluorspar for export, and in the Sousse-Nord integrated tourism development project. IFC's net commitments in Tunisia total $13.3 million, as of December 31, 1980. PART III - SECTORAL BACKGROUND 28. Manufacturing. The beginning of the 1970s saw an important reorientation of government policies towards manufacturing. A stronger emphasis than before was placed on the private sector (including foreign investments) and on labor-intensive industries. As a result, manufacturing industries grew at an accelerated pace. Real growth of the sector increased from 6.4 percent per annum in the 1960s to close to 10 percent in the 1970s. Food processing and textiles remained the two most important subsectors, contributing together more than half of manufacturing output and two thirds of employment in the sector. In response to generous export incentives by the Government, the value of manufacturing exports increased on the average by over 20 percent per year throughout the decade, with textiles as the most dynamic subsector increasing its share in manufactur- ing exports from 3.6 percent in 1969 to 44.3 percent in 1979. The Govern- ment expects manufacturing industries to continue to play a leading role in the country's development, particularly in providing jobs for the rapidly increasing labor force. The new Development Plan (1982-86) is likely to address a number of structural weaknesses in the sector, such as low productivity and capacity utilization, over-capitalization, and short- comings in the incentive framework and in pricing and protection policies. 29. Small Scale Industries. According to the 1978 Industrial Survey, about 850 small scale industries (SSIs, defined as manufacturing enter- prises with between 10 and 50 employees, excluding handicraft units) represented about two-thirds of all manufacturing enterprises, and accounted for about 19 percent of employment, 13 percent of value added and 11.5 percent of investment in the sector. The importance of SSIs in the economy is, however, much more significant, since the survey was based only on a partial and outdated listing of SSIs. The shift in Government policy towards the private sector during the 1970s benefitted particularly SSIs. Although pertormance data for SSIs for the last decade are incomplete, indications are that SSI investment and employment grew faster than for the manufacturing sector as a whole. However, real value added failed to keep pace with the growth in investment and employment, pointing to a reduction in productivity. The reasons for this are mainly internal to the enter- prises and are often related to the inexperience of the entrepreneurs. Production planning, accounting and management are frequently poor, the equipment is sometimes unsuited for the purpose and the product choice inappropriate. The technical assistance to be provided to SSIs in the context of proposed project would address these weaknesses (paras. 4E8-50). - 10 - 30. The Financial System and Industrial Financing. Tunisia has a well developed financial sector with a large number and variety of institutions catering to the financial needs of the country. The Central Bank (BCT), at the apex of the system, controls the commercial banks and the credit supply through direct measures, such as prior approval of credits and rediscount ceilings, and indirect incentives and disincentives, such as liquidity, solvency and development financing ratios, and the fixing of interest and rediscount rates. In industry, large industrial projects are generally sponsored by the public sector and financed by the Government or direct foreign borrowing, while the banking system finances investments mostly for medium scale projects. Financing of SSIs has become more important in recent years, partly due to a special program set up by the Government (para. 33), but has remained relatively minor as compared to the overall volume of commercial banks' lending. 31. Among BCT's policy measures affecting the commercial banks' term lending to the private sector, the development ratio and the level of interest rates are the most important. The development ratio currently requires commerical banks to transform 18 percent of their depos_ts into medium-term loans. Commercial banks which do not meet this ratio have, as a penalty, to deposit the shortfall into a non-interest bearing account with BCT. 32. While the development ratio has acted as a definite incentive to banks to increase their term lending to the private sector, the tight control over interest rates, and the limitation on the spread between deposit and lending rates, has tended to reduce the commercial banks' will- ingness to consider financing ventures offering more than a minimum degree of risk. In early 1980, the weighted average cost of resources used by commercial banks for term lending was 4.4 percent, while the lending rate for rediscountable term credit was limited to 8.25 percent. The banks regarded the resulting spread of 3.8 percent as insufficient to justify the cost and risk involved in assuming more aggressive lending policies. Although specialized development finance institutions, such as the Economic Development Bank of Tunisia (BDET), fill part of the unmet demand for long-term credit, until now the financial system as a whole has not fully satisfied the needs for term financing of SSIs. The improvement to the renumeration of commercial banks to be introduced through the proposed project, would go a long way towards making lending to SSIs more attractive to the banks (paras. 45 and 46). 33. Government Assistance to SSIs. For some time, the Government has recognized the potential value of SSIs to the development of the country, given their relatively low investment requirements, their mobility and their potential role in training unskilled workers. Since 1974, the FOPRODI (Fund for the Promotion and Decentralization of Industries), a budgetary facility within the Ministry of Planning and Finance, has provided low-cost financial assistance to SSI projects. The loan terms are for up to 12 years maturity including up to 5 years grace, at 4 to 5 percent interest, with special financial incentives for investments in the less developed regions of Tunisia (North-West, Center-West and South). The - 11 - FOPRODI is administered by the commercial banks with the assistance ot the Investment Promotion Agency (API), who determines the eligibility ot SSIs for FOPRODI assistance. Between 1976 ana 1979, FOPRODI has supported 375 projects costing about $105 million and creating more than 10,000 new jobs. The eftectiveness of this scheme, however, has been hampered by complex and centralized administrative procedures. As a result, the poten- tial benefits of the scheme have not fully materialized and the etforts to promote industrial decentralization have had little success. Technical assistance to SSIs relating to project preparation and management are pro- vided by a special SSI department, created within API in the context ot the Bank's Pilot Line of Credit to SSIs (Loans 1504 and 1505-TUN of January 25, 1978). Technical assistance to SSIs on a more limited scale is also pro- vided by several other institutions, such as the National Center for Indus- trial Studies (CNEI) mostly in the form of sector surveys/market studies and project feasibility reports; the Agency for Industrial Land (AFI) through the provision of industrial land; the Tunisian Industry, Commerce and Handicraft Association (UTICA), for the general promotion of private business interests; and BDET. 34. Previous Bank Involvement in the Sector. To date, Bank financing of manufacturing industries in Tunisia has been limited to loans provided through financial intermediaries. BDET has received seven loans trom the Bank totalling $95.8 million (net of cancellations), of which $8.3 million remain undisbursed as of December 31, 1980. Most ot these funds were used to finance manufacturing industries, although lending for hotels also took a large share, especially in the early years. The Bank's relationship with BDET has been most fruitful. It helped fill BDET's foreign resource requirements while contributing at the same time to strengthening the bank's organization and operating procedures. At the end of 1979, BDET held about 40 percent of all long-term industrial credit outstanding to industry in Tunisia, and about 30 percent of private industrial credit. As a result of strong project appraisal and promotion departments and improv- ing supervision efforts, arrears (about 2 percent of portfolio) and the debt equity ratio (about 6.3:1) were kept at sound levels. 35. The last loan to BDET (Ln. 1504-TUN) of $30 million included $2 million earmarked for financing the expansion of SSIs. Simultaneously with this loan, the Bank provided $5 million to the Government (Ln. 1505-TUN) to be used exclusively for lending to new SSIs by commercial banks partici- pating in the FOPRODI scheme (para. 33) and BDET as intermediaries. The purpose of the Bank's SSI pilot scheme was to strengthen the ongoing initiatives in the field of financial and technical assistance to SSIs, and to provide lessons on which subsequent Bank loans for SSIs could be based. 36. Experience with the SSI pilot project has shown that the avail- ability of special resources for SSI lending alone is not enough to encourage commercial banks to intensify their lending to SSIs. Indeed, the commercial banks have been reluctant to utilize the Bank pilot facility because (i) they regarded the risk of lending to SSIs unacceptably high in relation to the expected profits; and (ii) as long as they had not met the - 12 - 18 percent development ratio (para. 31), they would rather convert their own deposits into SSI loans than utilize special resources provided by the Bank, which would not count towards satistying the ratio requirement. As a result, commercial banks have only committed about 36.5 percent of the $5 million loan to the Government. The balance was taken up by BDET, which as a development finance company is not constrained by the development ratio. BDET has made a special effort to promote SSI financing and established a small operating unit catering exclusively to the needs of its SSI clients. The problems encountered by the pilot project have been analyzed in detail by the Bank, the Government and the Central Bank, and appropriate policies to resolve them have been designed in the context ot the proposed project. 37. Through its industrial sector work on Tunisia, the Bank has been able to initiate a fruitful dialogue with the Government on policies and measures to promote SSIs. Since December 1979, the Government has made some modifications to the Investment Code to reduce the bias against small scale investments. The incentive system, however, continues to favor large projects, in terms of investment cost and the number of jobs created, with little consideration for the efficiency of such projects. We intend to pursue our policy discussions on this matter with the Government in the context of the Bank's future sector work and during the supervision ot the proposed project (para. 51). PART IV - THE PROJECT Background 38. The proposed project was identified by a Bank mission in March 1979, as a follow up to the SSI pilot project (paras. 35 and 36) and was appraised in March/April 1980. Project design and institutional require- ments were discussed further with the Government subsequently, in Washington in October 1980 and Tunis in November 1980. Negotiations were held in Washington in February 1981. The Tunisian delegation was led by Mr. Zein Mestiri and included representatives ot the Central Bank ot Tunisia and the Investment Promotion Agency. A report entitled "Staff Appraisal Report: First Small Scale Industry Development Project" (No. 3266-TUN, dated March 13, 1981) is being distributed separately. The main features of the loan and project are listed in the Loan and Project bummary and in Annex III. Project Objectives 39. The project aims at supporting the Government's efforts to estab- lish a comprehensive assistance program for small scale industries (SSIs) to help them reach their potential in generating employment, improving intersectoral linkages, developing industrial managers and technicians, and alleviating regional imbalances. Institutional and administrative - 13 - structures and procedures would be acapted to make them more responsive to the needs of SSIs, and the framework for financial and technical assistance would be strengthened. Proposed Project and Bank Loan 40. The proposed project would support the Government's program or promoting SSIs through financial and technical assistance. The proposed Bank loan would be made to the Government, which would assume the foreign exchange risk, and would finance the estimated foreign exchange cost of the project. $29.35 million of the Bank loan would be administered by the Central Bank of Tunisia and made available under a Line of Credit to small entrepreneurs through participating banks. The remainder of the loan ($0.65 million) would strengthen the appraisal capacity of the Investment Promotion Agency (API). 41. Selection Criteria for Financial Assistance. In principle, all SSI subprojects with an investment cost of up to D 500,000 ($1,250,000) including permanent working capital, would be eligible for financing under the proposed Line of Credit, provided they yield a financial rate of return of at least 10 percent. However, investment cost per job created (exclud- ing the cost of land) would have to be below D 6,900 ($17,250) in January 1981 prices. This is in line with the Government's employment creation objectives (paras. 11 and 12). Furthermore, to ensure access by smaller SSIs to the Line of Credit, at least 50 percent of it would be reserved for projects costing up to D 250,000 ($625,000). In addition, promoters with few resources of their own and eligible for FOPRODI assistance (para. 33), would have access to at least one third ($10 million) of the total amount of the Line of Credit. Assurances from the Government on the subproject selection criteria and on the allocation of the Line of Credit among the categories of subprojects mentioned above were obtained during negotiations (draft Loan Agreement, Section 2.02 and Schedule 2, para. 1). 42. Role of Participating Banks. All Tunisian commercial banks and the Economic Development Bank of Tunisia (BDET) will have access to the proposed Line of Credit, on a tirst-come-first-served basis. A number of modifications in the procedures of the pilot project are proposed to increase the incentive for the commercial banks to take advantage ot this facility. The participating banks would be responsible for subproject appraisal and the disbursement and collection of subloans. The Government would pay them a commission for these services. For each subproject, the participating banks, to ensure their involvement, would also be required to supplement loan funds from the Line of Credit with loans made out of their own resources amounting to at least 20 percent of each subproject's invest- ment cost. 43. Role of Investment Promotion Agency (API). API would assist the commercial banks in the appraisal of subprojects by reviewing the appraisal reports as to their economic, financial and technical viability, and the eligibility of subprojects for financing under the Line of Credit. Subprojects with an investment cost of D 250,000 and above would require - 14 - Bank approval before final agreement to finance them under the Line of Credit would be granted. Subprojects costing less than D 250,000, except for the first two subprojects submitted by each participating bank, would quality for Bank financing without such prior approval, atter they have been accepted by API and a participating bank. At least 44 percent of the proposed Line of Credit is expected to be for such subprojects, repre- senting about 70 out of a total of about 130 subprojects expected to be financed. In addition to the selection criteria mentioned above (para. 41), the Bank would expect projects costing more than D 250,000 to achieve a minimum simplified economic rate of return of 10 percent, which, for projects benefitting from a nominal customs duty protection in excess of 30 percent, would be based on c.i.f. prices of competing imports rather than local market prices while applying a uniform shadow wage rate of 75 percent of the actual cost to retlect the ditference between the market wage and the economic price for labor. API would compute the simplified economic rate of return and include this information together with their evaluation of the economic, financial and technical feasibility of the sub- project, in a summary report to the Bank which would accompany each sub- project's appraisal report. Assurances were obtained during negotiations, that API will review all subproject appraisal reports on the basis ot the agreed criteria and methodology (draft Loan Agreement, Schedule 2, paras. 1-4). API's capacity to perform this appraisal review function would be strengthened by two experts, one engineer to review the technical viability of subprojects, assess their needs for technical assistance and train API's staff in these respects, and one economist/market expert to check on the economic viability of subprojects and provide related training to API's staff. The terms of reference of the experts assisting API in these reviews have been confirmed during negotiations. The experts, who are expected to have to be hired from abroad, would be engaged for two years each at an estim.ted cost of $10,000 per man-month. The estimate includes all foreign exchange cost, such as salaries, international travel and vehicles, but excludes office space and supplies, and other local cost, which would be financed by the Government. In addition, ad hoc consultan- cies on specific technical or market problems would also be eligible for financing under this component. The proposed loan provides an amount of $650,000 to assist in financinj the services of the experts and consultants. 44. Onlending Procedures. The Bank funds would be onlent to SSI subborro'wers through participating banks at least at the same interest rate they c arge on rediscountable medium-term loans to industry. This rate is currently 8.25 percent per year; it is positive in real terms given Tunisia's relatively low past and projected inflation rates. The cost-of- living index rose by 5.4 percent in 1978, 7.6 percent in 1979 and 9.2 percent in 1980, and is expected to increase by about 7 percent on the average between 1981 and 1983. The Government would absorb the difference between the Bank lending rate and the onlending rate. The maturities of subloans would be based on the economic life of the equipment purchased and on the subprojects' cash-flows, and would not exceed 13 years including 3 years of grace. Assurances from the Government were obtained during -- 15 - negotiations on the above terms and conditions on subloans (draft Loan Agreement, Schedule 2, paras. 7 and B). 45. The participating banks would receive commissions for their services from the Government. The commissions would be structured in such a way as to reward particularly early disbursements and full subloan collection. They would consist of a one-time commission ot three percent of subloan disbursements on subprojects committed during the first year after loan effectiveness (declining to two percent thereafter), and a commission of between one and seven percent of debt service collections increasing with the collection rate in any one year from below 50 percent (earning a one-percent commission) to 100 percent (earning a seven-percent commission). The overall level of commissions of about 2 percent ot amounts committed would represent about twice that which the participating banks received under the pilot project (paras. 35 and 36). It would be comparable to the profit margin commercial banks would receive if they used their own funds for this type of business. Assurances from the Government were obtained during negotiations that it will pay at least the commission levels mentioned above (draft Loan Agreement, Schedule 2, para. 12). As an additional incentive, the Central Bank would credit each sponsoring bank's rediscount quota with an amount equal to its disbursements trom the Line ot Credit (draft Loan Agreement, Schedule 2, para. 11). As a result ot the difference between the money market and Central Bank rediscount rates, this would translate into an added remuneration to participating banks of about 1 percent per annum of amounts committed on the average. 46. Even though the participating banks will act as intermediaries to channel the loan funds from the Government to the promoters ot subprojects, they will be expected to share in the default risk. The share in the risk coverage would be one third on projects benetitting trom FOPRODI assis- tance, where promoters are expected to have limited financial income and difficulty in providing commercial guarantees, and one halt on all other projects. These arrangements would apply to subloans made out of the Bank Line of Credit as well as to those funded from the banks' own resources, and were confirmed during negotiations (draft Loan Agreement, Schedule 2, para. 10). The commissions, the increase in the rediscount quotas, and the risk sharing arrangements should provide a satisfactory level of remunera- tion to the participating banks to ensure their taking advantage of the proposed Line of Credit (para. 56). 47. The proceeds of the Bank Line of Credit would be applied to cover the full foreign exchange costs of the subprojects, which, based on the experience under the pilot project, are estimated to average at least 50 percent of total subprojects costs. The remainder would typically be financed through a 30 percent equity participation by the sponsors--which could, in the case of FOPRODI subprojects, be partly financed through personal loans--and a medium or long-term loan by the participating banks to the promoters. This additional direct lending relationship between participating banks and the small entrepreneurs is considered to be essen- tial to ensure a close supervision of the subprojects by the banks. - 16 - Assurances were obtained during negotiations that a direct loan by participating banks to cover at least 20 percent of total investment costs of subprojects be an additional eligibility criterion for financing under the proposed Line of Credit (draft Loan Agreement, Schedule 2, para. 3). The operational arrangements governing the utilization of the Line of Credit (appraisal, approval and supervision of subprojects, disbursement procedures) would be specified in a financing agreement satisfactory to the Bank, between the Government, the Central Bank, API and the participating banks. The signature and ratification of this agreement by those parties concerned, including at least two commercial banks and BDET, would be a condition of effectiveness of the loan (draft Loan Agreement, Sections 3.01(d), 6.01 and 6.02). Technical Assistance 48. In order for the project to succeed, the financial resources to be provided under the proposed Line of Credit have to be combined with an effective system of technical assistance. To this end, both API, which has extended technical assistance to SSIs for some years and the National Center for Industrial Studies (CNEI) (para. 33), would strengthen their capability to provide such assistance by training new staff, opening new branch offices and widening the scope of their actions. API's and CNEI's technical assistance capabilities will be available as needed by the SSIs during the full project cycle, from identification through the feasibility study stage to project implementation, and management and marketing. As in the past, both agencies are expected to be able to draw on external, bila- teral and UNDP aid in the form of provision of foreign experts. 49. In this connection, UNDP is discussing with the Tunisians a program of assistance, primarily to CNEI, to provide on-the-job training to its staff through foreign experts. API would also benefit from this UNDP program for ad-hoc consultancies to address specific technical problems during the implementation of SSI projects. Confirmation from the Govern- ment was obtained during negotiations that the draft UNDP project docu- ment relating to its assistance to SSIs will be submitted to the Bank for review and comment. 50. API's annual work programs are routinely reviewed by the Ministry of National Economy, the Ministry responsible for API. The programs dealing with technical assistance to SSIs for 1980-82 were reviewed by the Bank and are satisfactory for the purposes of the proposed project. API's current expenditures are covered through budgetary allocations by the Government. Assurances were obtained during negotiations from the Govern- ment that it will provide the necessary financial support to API to carry out its annual work programs after submitting them to the Bank for review and comment (draft Loan Agreement, Section 3.04). Assurances were obtained that API will assess the needs for technical assistance of all subprojects to be financed under the proposed Line of Credit to ensure that any technical assistance requirements are met either by API directly, or by CNEI or private consultants (draft Loan Agreement, Section 3.01(a) and Schedule 2, para. 4). - 17 - Policy Measures in bupport of SbIs 51. While the incentive ana remuneration package for the participating banks (paras. 45 and 46), to be introduced through the proposed project is expected to go a long way in increasing the banks' interest in SSI lending, Government's efforts to promote bbIs in general are still experimental. In this context, the Government is reassessing its overall policies towards bbli development, particularly the role of the development ratio (para. 31) as it affects ibl lending, the feasibility of establishing a comprehensive credit guarantee scheme, the removal of biases in the general industrial incentive system against SbI investments, and the adequacy of the existing and proposed financial and technical assistance arrangements. Assurances have been ootained from the Government during negotiations that it will review, through annual consultations with the Bank, the adequacy of exist- ing ana any new policy measures affecting SbI development. The first of such reviews woula take place not later than six months after loan effec- tiveness (draft Loan Agreement, Section 4.03). Procurement and Disbursement Procedures 52. The goods and services required under the proposed project would be for the most part purchased by borrowing S6Is through local commercial channels. Given the size and type of subloans, competitive bidding is not feasible. BDEI and the commercial banks, however, will see to it that procurement is carried out in an economical and efficient manner. API, when reviewing the technical viability of subprojects, will ensure that borrowers normally obtain at least three price quotations from suppliers or contractors. Assurances confirming these procedures were obtained from the Government auring negotiations (draft Loan Agreement, Section 3.03). 53. The Central Bank of Tunisia (BCT) would administer the Bank loan. It would be responsible for transmitting to the Bank the participating banks' appraisal reports on subprojects requiring prior Bank approval (while the appraisal reports on subprojects not requiring prior Bank approval would be available on request) together with API's summary reports, submit withdrawal applications, act as the Government's agent for disbursing the loan proceeds to sub-borrowers through the participating banks, and be responsible for servicing the Bank loan on behalf of the Government. Withdrawal applications for the Line of Credit to SSIs would be submitted on the basis of full documentation. The Bank would disburse into a project account with BCT which, in turn, would transfer the lccal currency counterparts of such disbursements to the accounts of the partic- ipating banks. The opening of the project account by BCT would be a condi- tion of loan effectiveness (draft Loan Agreement, Sections 3.01(c) and 6.01(b)). Disbursements under the technical assistance component for API (para. 43) would be for 100 percent of fully documented foreign exchange expenditures. 54. The BGT would also monitor the collection on subloans debiting the Government account in case of arrears and defaults by sub-borrowers. Participating banks would transfer the debt service collected on subloans to BCT's project account (draft Loan Agreement, Schedule 2, para. 9). bubprojects would be submitted to the Bank between mid-1981 and mid-1984 - 18 - (draft Loan Agreement, Section 2.03). The Closing Date of the loan would be December 31, 1986 (draft Loan Agreement, Section 2.04). The loan would be repaid according to a composite amortization schedule reflecting the amortization schedules of subprojects, over about 15 1/2 years, including 3 years of grace. Assurances from the Government on the obligations of BCT with respect to the administration of the Loan were obtained during negotiations (draft Loan Agreement, Section 2.10 and Schedule 2, paras. 2-5). Project Benefits and Risks 55. The proposed loan is expected to provide direct assistance to about 130 SSI subprojects creating about 5,200 additional jobs. It will help establish an effective and comprehensive financial and technical assistance framework, within which SSIs will be able to develop and make an important contribution to the economic development of Tunisia. This new structure will permit the Government to take advantage of increased finan- cial assistance to SSI from bilateral and other multilateral sources. Finally, the proposed project will foster a continuation of the fruitful dialogue between the Government and the Bank on appropriate policy measures for an accelerated development of SSIs in Tunisia. 56. The possible risks of the project are two-told; (i) commercial banks may continue to be reluctant to lend to SSIs resulting in a slower than expected drawdown of the Line of Credit; and (ii) the subprojects may suffer from a high degree of defaults because of inadequate subproject preparation, implementation or management. Sufficient provisions are included in the project to limit these risks. A comprehensive incentive and remuneration package was designed to convince the banks that SSIs are a potential group of new customers worth making special efforts to attract. The experience gained over the the past year under the Pilot Line indicated that the risk of lack of interest among commercial banks has lessened. The remuneration package together with other policy measures affecting SSI development will be reviewed six months after loan effectiveness and once a year thereafter, with a view to correcting any inadequacies. As regards the quality of subprojects, the technical assistance to SSIs provided by API and CNEI in general, and API's review of all subprojects to be financed under the proposed Line of Credit in particular, should help screen out non-viable projects. In view of the important potential contribution ot the project to the development of SSIs in Tunisia, these risks are manageable and well-worth taking. PART V - LEGAL INSTRUMENT AND AUTHORITY 57. The draft Loan Agreement between the Republic of Tunisia and the Bank and the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement are being distributed to the Executive Directors separately. Special conditions ot the project are listed in Section III of Annex III. Special conditions of effectiveness would be the - 19 - signing and ratification of a financing agreement between Government, the Central Bank, API, BDET and at least two commercial banks (draft Loan Agreement, Sections 3.01(d), 6.01(a) and 6.02), and the opening, by the Central Bank, of a project account (draft Loan Agreement, Sections 3.01(c) and 6.01(b)). 58. I am satisfied that the proposed Loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 59. I recommend that the Executive Directors approve the proposed Loan. Robert S. McNamara President by Ernest Stern Attachments March 26, 1981 Washington, D.C. - 20- ANNEX I Page i of 6 TUNISIA - SOCIAL INDICATORS DATA SHEET TUNISIA REFERENCE GROUPS (WEIGHTED AVERqGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 164.0 MIDDLE INCOME AGRICULTURAL 76.6 MOST RECENT NDRTH AFRICA & MIDDLE INCOME 1960 lb 1970 lb ESTIMATE /b MIDDLE EAST LATIN AMERICA S CARIRBEAN GNP PER CAPITA (US$) . 360.0 1120.0 818.5 1562.9 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 190.0 261.0 543.0 545.0 1055.9 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 4.2 5.1 6.0 URBAN POPULATION (PERCENT OF TOTAL) 36.0 43.5 50.1 45.7 63.4 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 9.0 STATIONARY POPULATION (MILLIONS) 14.0 YEAR STATIONARY POPULATION IS REACHED 2075 POPULATION DENSITY PER SQ. KM. 26.0 31.0 37.0 40.7 28.1 PER SQ. KM. AGRICULTURAL LAND 55.0 67.0 78.0 598.6 81.7 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 43.3 46.2 42.6 44.0 41.4 15-64 YRS. 52.5 50.0 53.8 52.5 54.7 65 YRS. AND ABOVE 4.2 3.8 3.6 3.5 3.9 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 /c 1.9/c 2.0 2.6 2.7 URBAN *- 3.8 3.9 4.5 4.1 CRUDE BIRTH RATE (PER THOUSAND) 49.0 42.0 32.0 41.6 34.8 CRUDE DEATH RATE (PER THOUSAND) 21.0 15.0 12.0 13.7 8.9 GROSS REPRODUCTION RATE 3.1 3.4 2.2 2.9 2.5 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 29.2 73.5 5SERS (PERCENT OF MARRIED WOMEN) .. 8.0 18.0 16.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 97.0 98.0 126.0 93.5 106.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 80.0 88.0 112.0 103.6 107.4 PROTEINS (GRAMS PER DAY) 50.0 57.0 73.0 69.8 65.6 OF WHICH ANIMAL AND PULSE 12.0 14.0 22.0 17.5 33.7 CHILD (AGES 1-4) MORTALITY RATE 29.0 20.0 15.0 L7.5 8.4 HEALTH LIFE EXPECTANCY AT BIRTN (YEARS) 48.0 54.0 57.0 54.4 63.1 INFANT MORTALITY RATE (PER THOUSAND) 148.0/d 135.0 .. .. 66.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 49.0 70.0 62.5 65.9 URBAN .. .. .. 82.9 80.4 RURAL .. .. .. 45.1 44.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. .. 62.3 URBAN .. .. 30.0 .. 79.4 RURAL .. .. .. .. 29.6 POPULATION PER PHYSICIAN 10000.0 5950.0 4800.0 4688.7 1849.2 POPULATION PER NURSING PERSON .. 730.0 1070.0 1751.5 1227.5 POPULATION PER HOSPITAL BED TOTAL 373.0le 410.0 439.0 635.5 480.3 URBAN .. 280.0 RURAL .. 930.0 ADMISSIONS PER HOSPITAL BED .. 24.1 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.1 /f 6.0 URBAN 5.1 7?f 5.8 RURAL .. 5.1 7f 6.1 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. 3.2 /f URBAN .. 2.7 7 .. RURAL .. 3.6 7 . ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 24.0 /f URBAN .. .. RURAL .. .. - 21 - ANNEX I Page 2 of 6 TUNISIA - SOCIAL INDICATORS DATA SHEET TUNISIA REFERENCE GROUPS (WEIGHTED AVEGA(ES - NOST RECENT ESTIMATE)- MIDDLE INCOME MOST RECENT NORTH AFRICA & MIDDLE INCOME 1960 /b W90 /b RSTIHAT lb KIDDLZ lAST IATIN AM5RICA 4 CARIBBEAN EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 66.0 100.0 100.0 76.4 99.7 MALE 88.0 120.0 118.0 92.2 101.0 FEMALE 43.0 79.0 81.0 59.9 99.4 SECONDARY: TOTAL 12.0 23.0 22.0 33.3 34.4 MALE 19.0 33.0 28.0 41.9 33.5 FEMALE 5.0 13.0 15.0 24.2 34.7 VOCATIONAL ENROL. (X OF SECONDARY) 24.0 12.0 17.0 9.8 38.2 PUPIL-TEACHER RATIO PRIMARY 61.0 48.0 40.0 39.2 30.5 SECONDARY 16.0 28.0 23.0 25.1 14.5 ADULT LITERACY RATE (PERCENT) 15.5 24.0/f 55.0 39.7 76.3 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 11.0 13.0 18.3 15.3 43.0 RADIO RECEIVERS PER THOUSAND POPULATION 40.0 74.0 138.0 139.6 245.3 TV RECEIVERS PER THOUSAND POPULATION 0.1 10.0 35.0 29.0 84.2 NEWSPAPER (-DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 19.0 16.0 33.0 22.2 63.3 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. 2.3 2.8 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 1137.9 1214.8 1533.5 FEMALE (PERCENT) 6.1 7.7 8.0 9.6 22.2 AGRICULTURE (PERCENT) 56.0 49.8 45.0 47.0 37.1 INDUSTRY (PERCENT) 17.6 21.0 24.0 23.8 23.5 PARTICIPATION RATE (PERCENT) TOTAL 27.0 23.7 23.7 26.1 31.5 MALE 50.2 44.2 44.0 47.4 48.9 FEMALE 3.3 3.6 4.0 4.7 14.0 ECONOMIC DEPENDENCY RATIO 1.4 1.8 1.8 1.9 1.4 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. 17.0 HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. 42.0 LOWEST 20 PERCENT OF HOUSEHOLDS .. .. 6.0 LOWEST 40 PERCENT OF HOUSEHOLDS .. .. 15.0 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 204.0 262.5 RURAL .. .. 97.0 140.4 190.8 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 193.0 202.1 474.0 RURAL .. .. 193.0 122.2 332.5 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 20.0 22.1 RURAL .. .. 15.0 33.1 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. lb Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970 between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1978. /c Due to emigration population growth rate is lower than rate of natural increase; /d 1960-65 average; /I 1962. /f 1966. Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980. October, 1980 ANNEX I - 22 - Page .3 of 6 DgTOltltVtPS Of SOCdA. INDICATtIS th.1ic... ...e todact th rdr f senied. L-dist trend. and cartete etin aceita.asbena- tIa. eta ma etasee getpe rc I)thesae c.aenr crepof he uh cc ouety ad l tooitco eec e thteeaha bn hr narna ersa ra tb conty cee atI..ublte .....(tep ceCpia tapu t ee tr'rcpte 'Ittdlalve arhAei anMld tdl Ea".atoe hec.. ofar. ael-tiaula initteal it ti eeat reep data the corccase paiatto hel ntd arien .rct o seth ledIIcato and she- aty h.. at iathiofnC trsne taaro a tate httdcte Ilt-t. eertla tacta en the m,d iccr oyrd on he sea11 t "sIte at1 dat ad I tt 'titon. acht oatleteeatd t rtacta attata f netndcatrtactha. hcaoeea;a ta ni uateRtotetertn et ei_ 7.1.1 - I C.1 C.I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ Penttcnea teitlte fle -dtcL. a.adre - Pplc)a(cci Asli-P I CtPT. 111 -toerca ccttcc atttec cet ries.tat aeha. and enal d. 4IivieL y hi r dpetnnnder a. itatatbd C entty CAITAkiera aUS) Coat aqaitate pn-tepna .....171 cod .118 mas.i:defe dae. ebya al.Ic te-pentint a Ie e ed prnda dae fate enaofsdicCIclcia Ptacnseol upee eh eat TeneIto aritn. Kid-Ya atlr.)-hofuy .. 1"; MO1. 1970. co 1978 dtstn ace. aevt led h-c trial n.P.ohsr o Ct an to;, ar tla:,Id,c eat., ~~~~~~~~~~~~~tramild heapeat d ,ivide pr I.a1 a ofd hpd.a.1dhpII,R POPchATI A VcecITAL SrAecTI ofS Lcrt)..Ratsof ebI -notea e-ectttt d,It Peaedeltiepa lbecrs1a attect 1 19ecrh0lt 19 I0 ict 198 .-. I dypl..C nettgttri-a Ia f nt ar R91.ct. unfce Sle:f.hethed (cetacea hapsvlll-tod.Irhn.andrbal Peeulttea n ter 100 - Itrate ptpccaat p-e1-vitts tea beso en 1990 eta their nab meate. t hoarde,r cc attr.nyc a eIh nlddi toa eaainby se .sd -e and cha1 Ir anlt and tunlity Cste. ch. heeeadte tt-tca opse led.8 ca aal , enaiat nblt ga 7 ....sr. .h psc- dlItig reafpavler. mal irg eaid atPrus totea o cae.fa et tiy' ta. _lo an he.leclsaeItlt tIl C te In aattaIfeo peete. , ;dC n p'a.-.1 fenttaaedanIoc Ibaa adpe I Icetly plcate paretcce. crcclvtetcct ervn 1lut a -ntt. ya. ee -4 [cabf veutey I. that casigned cae of Cbha tie. tfhna e at -etltty tcaiulO11m i dh t-ityitty it litoln teraae prate mad farttl ity iceh . .c prnccint pepa. . c ed ra,cdrrl el a.caac y etet blahtty 1 evuctc-1Iv eate dcaurh papela tentta i n greathATle calnccncs.. Thta.. InevIycoefd-olysiar ftfrnilty rates ettnat ydludla bota deant iRto Ihr aaenlalail et_yaciartteteh;e=ata P Ieeccvtooctten!nscltsttlaaclol tte.ea.rtcsecant eucoy. hatuccaayroetsitvtaeca nret ithcslaaend- lnrttea pretue ctrspettIne ect pctd vc bsi cI tIeproectd c h.raty... tc ah th ppayetatlCn pI-ar scolcnerlcaa calytcieectdt edt inth as tO. e ct ae C aliecttant tyrnetrapic- escht ..at..rdi cro tvoo o ost'e'ct,c; a seat letel. ceentricasith ecirarcal adacailci. torolteerit acy .tctcd 102 ptyoent~~~~~~~~~ Tillntint- oclat- .c. p.a reacica l -Thyerte antecypplalo seecs ppt r aa cr ..)haos-1n he ..ii!u-d- eChcaa._I caly.". AcataatI0-k. (.i- alatrvCaea (eren a"L. oasy - Vcci>.Ch cectit- Itne 64 yer),ad -ratrd Ill yearn sodene)fidersta e t-year pare- deatlyancdpeteh of ecneytntctr yace rereatnana It :950-I. UthO-i. sit ilS- t.- iYne-panab..laceha Peslato yos I. at .....o A no .ac rahenca naapp- .dult titerac Isa ataa - itrtaalstel le r ecd a scte le. tan tee " laSt-h. 1963->, cd1-370-70. uspretg f IotalI edet tpayolc-icn *e0 1' yea.cdl Mcs. Cr-d ttrth R.,n car, tcK ... - --Ica lIce vchepr the..and at sod-yas peealo;tl. 1970.ca :q99 te. .CaNSLMTIOctN Iee Rnodclc at-neaenuhr tdeganP. ac nt-i hoa In- shInr, ehilde tllyetns;actit fi.v-yas. oeree e-din to taIl. 1970, and £977. hrccesegnriyt pbllc 1e bosc tpplutn aitt el Ocalr PaneInsIso alvAr-ec . .atueiatnt.-0 eeaaeo _ie t.c........v iC. ca R. caaia saanofchldher egag i-- pert beon hrt-vncaldelcsc t ecivra(cr yrncd coioic) t yceocc onbrad-at Iconcelnda yce hele lostai ic caEr pimaygoslm scete n e al fi pecea ec ftui nine. accad. ~ Icta o cgadstc r sueta otannnint agNafe n CIdare trrec n,CnIeor erOoe i,tetrhra p-dclore cacledei . greeacedcta t lahcovr I. ... sd f.On niaknC nOdrn h ae nldlcaneln oOlcc toc eattoeslsnerane prtdaccr eros acight...; le.d I-iI.iy yfO,.andd1910 .dana. etA htClI.untes. sat pneetIea by- p,tC- -igedoehyattI.a need. to cotm8 ad ri- t;d -bte. .i. P.1 codi -.I,t cv --detc fritmne t-ip- -tar. bd tgt.ae ess(eca - taCIatba vtausprcnag Iaftlbo or. cud eta atetniben itn or rc;ctctinn. ada allanint it paeccat Icr aeste or osnlcetnera I rercant) - Ichor tocca tic lemma, lotcttro. haatltj uho~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1. ORC qin. ttroi ceteesctbltedb 1 providetari tnta 197 an 1978-tat......-l; 90 90- doe ldha Ssrncy l1961-, - ' and1977 dot..oeaearcee fteeptt. sodhilt9ve tIe 1rnd 97tnset P.,dlte I; C arial try [at f tt t r th- aea- dendcolft d.t.Pa letsu In. totetoa bcettr at birh: 196. 1970et .... tlei. db ' f.ii 90. 98dC talnt tentilr hte oarnioacr) -coeal ecta y IntnC oe maya:aen ellctt of sea pee thuso tie -h teho Ia eatd hrit-tlnd eveILttIrSpe c-r) rhtarIotf toeotoaroaCrlh.orvenRt - oroae Cvt-nt.otc cAdroetn Aa TutpnvytcnlC:-,et; stinco.aicitfi071l anesor e pavtc (ota . ar -t air -acl nipt.....ovab,WIeerr h.atot a nanron tonlly edqeada taeaaalaero euCemat IaI netLI eceeoeirI ooodc eetoiarttcesaa r eteeedbe ucetIItn I elodul. I15d. 1 d S1977hc ht rnpretthraoe.arna ndtCtrai. ataeatitr Panelve aetIt o ata -re n ae It' seance needs.~ ~ ~ ~ ~ ~~~El th RdaAS u..taacdOlu..ili.ahad-spg , desaoa so ~ l-lf paroel-geaor teir napev teepophetee. fcrn at-Reat m noa sattat ICneetdc...t.yAee ) P . iu Pejbten ap ries ht ptt pefeaca1. and eeita l.It lt Ian.. _2 3 ANNEX I Page 4 of 6 TUNISIA - ECONOMIC INDICATORS Population: 6.2 million (mid-1979) CNP per Capita: $1,1Z0 (1979) Amount Annual Growth Rates (million US$ Actual (at 1972 PrIces) Proiected (at 1977 prices) Indicator at current prices) 1979 1975 1976 1977 1978 1979a/ 1980 1981 1982 1983 14', NATIONAL ACCOUNTS Gross domestic product b/ 7080.0 8.1 7.4 4.3 8.3 6.9 8.0 7.2 6.6 6.4 6.h Agriculture 984.7 3.9 5.2 -7.5 8.6 0.5 8.0 7.6 3.1 3.1 3.1 Industry 1982.0 7.4 7.8 7.0 9.1 8.4 11.6 8.5 8.5 8.0 8.0 Services 3102.9 10.6 5.4 5.8 7.7 8.4 6.6 6.2 6.5 6.5 6.5 Consumption 5440.3 2.7 8.8 9.5 9.3 6.0 7.8 9.9 10.0 6.9 9.1 Gross investment 2069.0 20.2 16.9 5.8 6.6 9.7 7.2 3.1 -2.9 1.3 0.1 Exports of goods and GNFS 2655.6 5.0 9.6 5.6 9.1 12.6 5.0 4.1 7.4 7.3 8.8 Imports of goods and GNFS 3084.9 2.2 19.3 16.5 10.2 8.5 4.6 7.5 7.5 4.6 9.6 Gross national product 7030.7 8.6 6.0 4.8 9.1 6.3 7.8 7.2 6.5 6.4 6.6 Gross national savings 22.5 -6.3 -1.7 21.2 35.8 17.6 -0.9 -4.1 7.6 0.8 PRICES GDP deflator 134.2 137.7 151.4 158.6 171.9 - - - - - Exchange rate 2.49 2.33 2.33 2.40 2.46 Share of GDP at market prices (X) Average Annual Increase (2) (at current prices) (at constant prices) 1970 1975 1979 1985 1970-75 1975-79 1980-85 Gross domestic product 100.0 100.0 100.0 100.0 8.5 6.5 6.6 Agriculture 16.7 18.2 13.9 13.1 8.8 1.3 3.7 Industry 20.5 27.1 28.0 29.2 9.0 7.8 8.1 Services 49.3 42.7 43.8 43.2 8.7 6.6 6.4 Consumption 84.8 75.5 76.8 82.8 8.6 8.3 9.0 Gross Investment 19.7 29.3 29.2 20.9 11.8 6.5 -0.4 Exports of goods and GNFS 21.9 31.3 37.5 40.3 12.5 12.2 6.9 Imports of goods and GNFS 26.4 36.1 43.6 44.0 11.3 12.7 7.4 Gross national product 97.9 99.9 99.3 99.4 8.7 6.5 6.7 Net factor income 2.1 0.1 0.7 0.6 - - - Gross national savings 13.2 24.3 22.4 17.9 7.5 5.9 -1.7 As % GDP (at current prices) 1970 1975 1979 a/ PUBLIC FINANCE Current revenue 23.5 25.7 33.3 Current expenditure 20.4 19.9 24.4 Surplus (+) or deficit (-) 3.1 5.9 9.0 Capital expenditure 9.5 10.8 13.5 Foreign financing 5.0 1.8 1.6 1970-75 1975-79 1980-85 OTHER INDICATORS GNP growth rate (Z) 8.7 6.5 6.7 GNP per capita growth rate (X) 6.3 3.9 4.2 ICOR 2.6 4.3 4.0 Marginal savings rate 30.5 17.6 0.0 Import elasticity 1.24 2.01 1.12 a/ Estimate. b/ GDP at market prices and components, at factor cost. EMENA CP 2C October, 1980 AN N$ 3 I, IIIA -tXTEEAl I9AI,1 Popu lIatIon: 6.2 million (mid-1971° GNP per Capita: $1,120 119791 Amouint Annual Growth Rates (miiiIoln US_ Actual (at 1972 prices) Projected (at 1977 prices) Indicator at current pr Icc 1474 1975 17h 1977 (978 1979 1980 1981 1982 1983 1964 EXTERNAL TRADE Merchandise *'mportn 1762.6 -9.11 5.8 -5.(1 16.0 10.1 6.1 1.3 7.1 h.8 9.3 Crude oil 800.0 27.7 -15.0 1.9 14.0 91.3 11.9 -4.5 9." 8.6 (.0 Other primary 123.0 -26.7 21.8 -17.4 i4.7 (O.0 -11.7 5.8 2.7 2.h 2.5 Manuifa, tIror- 834.h -1 4.t 17.2 -1.5 21.9 14.8 1.3 6.3 6.0 5.7 18.8 Icr,ehandis.- Imp rtn 2827.3 -0.4 13.6 30.4 5.5 11.7 4.3 7.6 7.7 4.h 1(.0 i-nd 358.9 7.7 -13.5 25.5 11.1 27.7 7.2 9.9 10.0 n.() 8.9 l.-: tr.il-un493.5 43.1 -24.8 -8.5 -3.9 25.7 -9.8 13.( 12.5 -3.4 37.0 ?uc-i in, r n 1n -luipfl-n 1?04.9 3i.3 1t. l .4 ;. 2 -11. -1.3 1.3 (.0 1.3 0.0 Ott,rh 12711.2 -8.() 11.2 i6.( 2.9 14.1 9.9 9.'; 9.1 7.3 8.3 Price Index (1972 = 10(i) Price lndeu (1977 = 10)0 PR I I1S Export price in.dex - 191.0 181.2 197.9 215.0 267.9 196.4 1(8.Y 241.2 264.2 293.2 Import price Inden - 170.4 163.7 171.4 18(.6 205.6 146.6 IhO.7 175.4 187.4 203.1 Terms of trade Index - 112.1 110.7 1(5.5 119.0 130.3 134.0 136.2 137.5 141.0 144.4 Composition l.f Merchandise Trade 10) Average Annual Increase (7;) (at current prices) _ (at constant prices) 1970 1975 1979 1985 1970-75 1975-79 1980-85 Fxpor l(lt00.). 100.0 I((.0 100.0 11.6 9.4 6.1 Cru,de il 24.5 41.8 45.3 54.9 23.2 3.() 0.0 Other primarv 21.2 18.0 7.1 5.2 6.7 2.0 3.0 Mannifac -tres 54.3 40.2 47.6 39.9 6.2 14.3 9.9 m p,rte Iin.0 0 i(0.0 1(0.0 100.0 13.4 12.4 7.6 F.. d 20.6 15.8 12.7 17.9 8.9 7.5 8 .8 Pet rc (elan 4.0 9.8 17.5 22.6 36.5 23.2 14.5 Machiner, and Fp.(cipment 23.0 10.2 24.9 27.6 15.7 8.3 -0.1 Others 52.4 44.2 44.9 31.9 10.6 13.2 8.4 Share cf Trade with Share of Trade with Share of Trade witlc Industrial Countries (Z) Developing Countries (Z) Capital Surplus Oil Exporters (%) 1970 1975 1979 1970 1975 1979 1970 1975 1979 DIRECTION OF TRADE Exports 62.6 48.6 74.1 23.4 41.4 n.a. 14.0 10.0 n.a. Imports 62.9 67.1 73.5 33.7 25.7 n.a. 3.4 7.2 n.a. ANNFX I TUNISIA - BALANCF OF PAYME3NTS. EXTERNAL CAPITAL AXD DEBT (Billi-on US at current prices) Population: 6.2 Illion Ioid-539i GNP Per Capit,: 97,12° I (1793 Actual P-OjOctEd 1970 1975 1976 1977 1978 I197AL 1980 1981 1982 1983 19 S BALANCE OF PAYIPFNTS Net exports of goods .5 seovens -104.9 -208.8 -417.1 -sf7.n -9q9.7 -478.5 -350.8 -499.5 -567.2 -427.8 -74-.7 Exports of goods & serotoos 355.6 1,529.2 1,479.4 1,b'5.5 2,090.6 2,913.9 3,548.4 4,D62.4 4,748.0 5,503.1 7,1I4.3 Imports of goods & -eroioes 460.1 1,738.0 1,896.5 2,212.5 2,690.3 3,392.4 3,899.2 4,561.9 5,313.2 5,930.9 8,129.: Net transfers 53.0 47.4 92.P 46.4 33.6 31.0 36.0 36.f 36.1 36.1 3s.I Carneot aoo-nt hatluco -01.5 -161.4 -364.3 -021.6 -5668.1 '47. 5 -314.8 -463.5 -531.I -3991 .7 _-70F.5 Direct private Invostment 25.5 59.2 102.6 p2.3 91.1 164.8 181.3 199.4 219.3 241.3 292.3) MLT loans (net) 43.4 124.5 161.1 557.1 468.6 383.0 324.0 346.9 405.7 227.8 559.7 Offiial 41.7 182.9 131.5 286.7 184.8 256.8 364.9 366.4 397.4 328.6 280.0 POi-te 1.7 21.h 29.b 270.4 283.8 126.2 -40.9 -19.5 8.3 -101.0 279.7 Other oapltal 2.0 -53.0 58.6 -185.5 41.4 32.4 - - - - - Change In reserves -19.4 39,7 42.0 56.7 -35.0 -132.7 -190.4 -82.8 -93.9 -77.2 -143.3 Internatinnal r--eovon 15.4 347.5 304.5 247.8 282.8 415.5 605.9 688.8 782.7 859.9 1,134.7 Fesorves as -onths of Inports 0.4 2.4 1.9 1.3 1.3 1.5 1.9 1.8 1.8 1.7 1.7 ActE al 1970 1975 1976 1977 1978 1979a/ fR00SS DiSBtIiBRR:SNTS Official grants 43.0 50.7 53.2 47.3 32.7 31.0 Cr-ss dlshboorneonts of riIT 10 ..ns 88.8 191.8 227.2 54.77 925.1 661.6 Concesslonal 45.2 100.1 108.7 178.4 182.5 279.6 Other multiluier-l L.1 5.5 - 0.3 7.6 12.7 Sileteral 41.3 82.0 99.8 172.5 174.1 266.7 IDA 2.9 12.6 8.9 5.6 0.8 0.2 Non-cnce-ssional 43.6 91.7 118.5 468.3 392.6 382.2 Private 13.1 4q.8 52.7 311.8 334.8 241.7 Off icla export credits 1.3 15.0 16.5 100.6 12.0 16.3 IBD 9.2 26.9 25.3 47.5 33.0 55.4 Pther oultilater-l - - 24.5 8.4 12.8 67.3 PXTERNAI. DEBT Bebt Ootsrandisg sod Dlsobrsod 544.8 1,038.9 1,175.2 1,780.1 2,358.9 2,893.9 Officlal 370.9 882.2 987.5 1,308.6 1,567.1 1,931.3 18RD 70.1 109.9 127.9 167.3 189.4 232.0 ITA 36.7 55.3 64.1 66.8 67.4 67.3 Other 264.1 697.1 795.5 1,074.5 1,310.3 1,632.5 Private 173.9 176.7 1E7.7 471.5 791.8 962.6 Endlsbsrsed debt 309.9 725.3 1,260.4 1,552.5 1,708.9 1,569.9 DEBT SEBVICE Total debt sorvsre payoenrr 63.2 101.5 104.8 143.7 201.6 310.3 Interest 17.8 35.1 38.7 53.9 95.0 142.7 'ayments as 7 espoots 17.8 6.7 7.1 8.5 9.6 10.7 Paymrents as X (NP 4.4 2.4 2.4 2.8 3.4 4.4 A.ver-ge Interest rate on new Loans (X) - 3.Q 5.1 6.2 7.1 6.3 Offilal - 3.3 4.3 4.7 4.8 6.3 Private - 6.7 8.0 7.7 9.8 - Soorage natonoy oi new uoans (vearsl - 24.0 . 20.7 10.3 14.9 19.4 OffInlal - 27.1 23.9 21.4 19.5 19.4 Provate - 9.1 8.9 10.7 9.4 - As 74 of DPobt Oststanding at End of Mos:t Reort Year (1979) DEPT STPIICTURE Maturity strocture of debt o-tstranding iY AmortIzation due within 5 years 49.0 s-ootination due withlo 10 yours 92.7 Interest otnuetoro of debt outstanding (7) Intorest don within first year h.5 a/ Fstimatns. -26 - ANNEX II Page 1 of 9 A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of December 31, 1980) US$ Million Loan or Amount (less Credit Cancellation) Number Year Borrower Purpose Bank IDA b/ Undis. Twenty-four Loans ard Credits Fully Disbursed 162.36 60.47 238 1971 Republic of Tunisia Population 4.80 1.14 858 1972 Repuhlic of Tunisia Tourism Infrastructure 14.00 2.52 937 1973 Republic of Tuinisia Urban Planning & Public 11.00 1.42 Transportation - 1029 1974 Republic of Tunisia Hotel Training 5.60 0.39 1042 1974 Comprignie des Phosphates Phosphate Development 23.30 1.63 et Chemin de Fer de GAFSA 1068 1974 Republic of Tunisia Irrigation Rehabilitation 12.20 4.73 1088 1975 Republic of Tunisia Urban Sewerage 28.00 13.74 1155 1975 Republic of Tunisia Third Education 8.60 8.20 1188 1975 Republic of Tunisia Second Highways 28.00 23.14 1189 1976 Banque de D4veloppement Sixth Development Finance Co. 20.00 0.68 Economique de Tunisie (BDET) 238-1 1976 Republic of Tunisia Population 4.80 1.12 1340 1976 Banque Nationale de Tunisie Second Agricultural Credit 12.00 4.10 1355 1976 Societe Tunisienne de Second Power 14.50 0.62 l'Electricit6 et du Gaz 1431 1977 Republic of Tunisia Irrigation Development 42.00 18.56 1445 1977 SONEDE Fourth Water Supply 21.00 16.26 -Q. U977 BDET Development Finance Co. 30.00 7.59 1505 1977 Republic of Ttinisia Small-Scale Industrial Project 5.00 4.20 1601 1978 Republic of Tunisia Rural Roads (Third Highways) 32.00 31.514 1675 1979 Republic of Tunisia Second Urban Sewerage 26.50 26.40 1702 1979 Societe Nationale Fifth Water Supply 25.00 19.92 d'Exploitation d'Eau 1705 1979 Republic of Tunisia Second Urban Development 19.00 19.00 1746 1979 Republic of Tunisia Second Fislheries 28.50 28.15 1796 1980 Republic ot Tunisia Southern Irrigation 25.00 24.84 L797 1980 Office des Ports Nationaux Third Port 42.50 35.98 l841 1980 Republic of Tunisia Fourth Highways 3o.50 36.50 1864a/ 1980 Societe Ttunisienne de Second Natural Gas Pipeline 37.00 37.00 l'Electricite et du Gaz 1885 a/ 1980 Banquie Nationale de Tunisie Third Agricultural Credit 30.00 30.00 TOTAL 739.56 70.07 399.37 Of which has been repaid 73.46 5.13 Total now outstanding 666.10 64.94 Amou,nt Sold 14.41 of which has been repaid 10.13 4.28 Total now held by Bank and IDA b/ 661.82 64.94 Total Undisbursed 397.11 2.26 399.37 a/ Not yet effective b/ Prior to exchange adjustment - 27 - ANNEX 11 Page 2 or 9 B. STATEMENT OF IFC INVESTMENTS IN TUNISIA (as ot December 31, 1980) Amount in Ub$ Million Year Obligator Type ot Business Loan Equity 'lotal 19h: NPK EnKrais Fertilizers 2,0 1.5 3.5 19h6 hociete Nattion,l Id' Inve stisiement Development Finance Co. U,6 U,v 1969 COF Il ( olr Ism M De velopme nt Finaice Co. 8.U 2 . IU. 21 1970 Societe Nationale d'lnvestissement (SNI) now BDEl Development Finance to. 0.b U.b 1973 Societe Touristiquie & Hoteliere RYM SA Tourism 1.6 0.3 1.9 1975 Societe O'Etudes & de Developpement de Sotisse-Noro Tourism 2.5 U.7 3.1 1974 Industries Chimiques du Fluor Clhemicals U.6 0.7 1978 BDE'U Development Finance Co. 1.3 1.3 Total Cross Commitments 14.1 7.8 21.9 Less cancellations, terminatiolns, repayments and sales 6.7 1.9 8.b Total commitments now held by IFC 7.4 5.9 13.3 Total undishursed ().b tJ.b - 28 - ANNEX II Page 3 of 9 C. PROJECTS IN EXECUTION 1/ Cr. 238: Population Project; US$4.8 million credit ot April 5, 1971; Date of Effectiveness: December 29, 1971; Closing Date: (Original) June 30, 1976; (Current) December 31, 1981. Cr. 238-1: Population Project: US$4.8 million Supplemental Credit (NORAD grant) of October 13, 1976; Date of Effectiveness: March 21, 1977; Closing Date: (Original) December 31, 1979; (Current) December 31, 1981. After many delays, construction of the maternity hospitals in Sousse, Tunis and Sfax is completed. These facilities are expected to be staffed and fully operational by mid-1981. The construction of the fourth hospital at Bizerte is likely to be completed by end 1981. Twenty-five of the 29 maternal and child health/family planning centers have been com- pleted; three are expected to be completed by mid-1981. One center (La Hafsia) has been deleted from the project because the Government has been unable to obtain a suitable site. Ln. 858: Tourism Infrastructure Project; US$14 million loan of September 28, 1972; Date of Effectiveness: June 29, 1973; Closing Date: (Original) December 31, 1977; (Current) December 31, 1980. The project is in its final implementation stage. The remaining minor works are expected to be completed by April 1981. Disbursements are being made only on commitments prior to December 31, 1980. Ln. 937: Tunis District Urban Planning and Public Transport Project; Cr. 432: US$11 million loan and US$7 million credit, both of October 5, 1973; Date of Effecriveness; September 24, 1974; Closing Date: (Original) December 31, 1976; (Current) December 31, 1981. The project has been completed except for construction of a bus depot which is expected to be ready by October 1981. The project helped establish and strengthen the Tunis District, the first regional planning authority in Tunisia. Work carried out by the District in the housing and 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. 29 _ ANNEX II Page 4 of 9 transport sectors has been instrumental in bringing about substantial changes in public programs and policies, such as the adoption of measures to encourage the use of buses and restrain the use of private cars. The project also assisted the public transport company Societe Nationale des Transport (SNT) in renewing its bus fleet and railway rolling stock, improv- ing its organization and finance, and upgrading the maintenance of its vehicles with the construction of a new bus depot. In parallel, the city of Tunis adopted a new traffic plan with a one-way street system, reserved bus lanes and restricted parking zones, which contributed substantially to the improvement of bus services in Greater Tunis. This, combined with an increase in the SNT bus fleet, and improved bus maintenance has led to an increase in the use of SNT transport facilities by about 27 percent above the level which would have been achieved in the absence of the project. Ln. 1029: Hotel Training Project; US$5.6 million loan of July 17, 1974; Date of Effectiveness: November 4, 1975; Closing Date: (Original) October 31, 1978; (Current) December 31, 1980. The hotel schools at Hammamet and Sousse Nord are now operational. The training curricula have been introduced in September 1979 and extended to all training schools in the country. Procurement of minor equipment and furniture items will be completed by end March 1981. Disbursements are being made only on commitments prior to December 31, 1980. Ln. 1042: Gafsa Phosphate Project; US$23.3 million loan of October 1, 1974; Date of Effectiveness: March 14, 1975; Closing Date: (Original) June 30, 1979; (Current) December 31, 1981. Underground mining operations using the longwall method were intended to supply phosphate rock to the Sehib washing plant which was commissioned at the end of 1979. Following the initial failure of the mining tests to reach satisfactory production levels, the company hired experienced consultants whose services are financed by the Bank loan. The services include: (i) 6 months' technical assistance in further testing the longwall method, (ii) a feasibility study on open pit mining of an alterna- tive deposit from which the supply of rock to the washing plant could be supplemented, and (iii) the design and implementation of an improved cost control system. The longwall test has not achieved a continuous good performance. The first phase of the open pit feasibility study is completed. The second phase will be started after completion of additional geological and beneficiation work. Cost control in the company is still inadequate. _ 30 _ ANNEX II Page 5 of 9 Ln. 1068; Irrigation Rehabilitation Project; US$12.2 million loan of December 31, 1974; Date of Effectiveness: September 18, 1975; Closing Date: (Original) December 30, 1981; (Current) June 30, 1982. Progress in construction and rehabilitation works in the Medjerda sub-project area continues to be satisfactory, except for the marketing center in Nebhana for which bids are called again, and for water supply to farmers on which a common decision is expected by SONEDE and OMVVM, regard- ing the farmers' contribution to the investment costs. Land reform is progressing slowly, especially in the Medjerda area. In Nebhana, the land consolidation program is developing well and farmers have been settled on nearly 60 percent of the total area. OMVVM continues to encourage large owners to improve cultivation of land and marked progress has been reported in the distribution of medium and short-term credit. Progress in construc- tion and rehabilitation of irrigation, drainage and road networks continues to be satisfactory. Ln. 1088: First Urban Sewerage Project: US$28 million loan of February 18, 1975; Date of Effectiveness: August 15, 1975; Closing Date: (Original) December 15, 1979; (Current) December 15, 1981. The project suffered considerable delay as a result of a number of factors, some beyond the control of the project entity, ONAS. As a result, considerable cost escalation occurred, chiefly in local cost components. However, all components of the project are now under construction and project completion is expected by mid-1982. One of its major benefits will be release of land for development around the Lake of Tunis, which until now has been impossible because of the pollution of the lake waters by untreated sewage. Consultants financed under the project have produced a land-use plan for the area, and acquisition of the land by Government is in progress. Ln. 1155: Third Education Project; US$8.9 million loan of August 13, 1975; Date of Effectiveness: March 1, 1976; Closing Date: (Original) June 30, 1980; (Amended Project) March 31, 1983 Implementation of this project was delayed following a change in education priorities in Tunisia. The project was subsequently amended to reduce the number of ITM centers to be equipped under the project, increase the facilities to train teachers for ITM, and increase technical assis- tance. The total cost of the amended project is estimated at $11.3 million and the Bank loan has been decreased by $0.3 million to $8.6 million, rep- resenting the full foreign exchange cost of the amended project. Imple- mentation of the project is proceeding satisfactorily; designs for the extension of the five teacher training colleges have been approved and invitations for local bidding are scheduled for April 1981. Equipment procurement for the teachers' colleges and the ITM centers is proceeding satisfactorily. - 31 - ANNEX II Page 6 of 9 Ln. 1188: Second Highways Project; US$28 million loan of January 26, 1976; Date of Effectiveness: June 16, 1976; Closing Date: (Original) December 31, 1979; (Current) December 31, 1982. Civil works of Lots 9 and 10 of the Tunis-Bizerte highway have been completed. Construction is in progress on Lot 6 in Nabeul. Construction works of Lots 5, 7 and 11 have started. The local financing issue has been discussed with the Ministries of Public Works and of Planning and Finance, and a satisfactory physical and financial execution plan now exists for the remaining items, except for Lot 8 on which there is a difficult probletn of expropriation which may result in deleting this element from the project. The final report of the transport coordination study has been completed. The Government is now reviewing the consultants recommendations, and has agreed to set up a transport planning unit. Ln. 1189: Sixth Development Finance Company Project; US$20 million loan of January 26, 1976; Date of Eftectiveness: June 7, 1976; Closing Date: March 31, 1981. BDET has shown consistent improvements over the past three years in the key areas of management effectiveness, arrears recovery, financial practices and resource mobilization. The institution plays an increasingly important role in financing industrial development, extending about one-third of all term credit available to the industrial sector in Tunisia. Ln. 1340: Second Agricultural Credit Project; US$12 million loan of November 23, 1976; Date of Effectiveness: July 19, 1977; Closing Date: June 30, 1981. About 75 percent of the loan amount is disbursed and more than 100 percent is committed; amounts in excess will have to be financed from the Third Agricultural Credit project. Disbursements in Categories 1, 2 and 4 - subloans to small and medium farmers, commercial farmers and agro-industrial investors - are progressing rapidly. They will commence shortly in Category 3, subloans to farmers' associations for the establishment of date palm plantations, after BNT and Government have approved six subprojects. The present Closing Date of June 30, 1981 may have to be extended to December 31, 1981. Ln. 1355: Second Power Project; US$14.5 million loan of January 12, 1977; Date of Effectiveness: May 4, 1977; Closing Date: June 30, 1981. The Project has been completed and the seven gas-turbines have been commissioned. Measures are being taken to overcome difficulties in operating the turbines, which have arisen due to excessive use and lack of spare parts. The energy pricing study has been extended in scope to include an overall assessment of the country's energy resources and is now expected to be completed by the end of 1981. - 32 - ANNEX II Page 7 of 9 Ln. 1431: Sidi Salem Multipurpose Project; US$42 million loan of July 5, 1977; Date of Effectiveness: July 31, 1978; Closing Date: June 30, 1984. For the project as a whole, progress in implementation con- tinues to be satisfactory. The land reform and consolidation program is underway. The Sidi Salem dam is expected to be completed on schedule. The new railroad, including superstructure, is now completed and will soon be operational. Construction of the Medjerda-Cap Bon interconnection canal, which started one year behind schedule, is proceeding slowly due to some extent to the force account method of construction adopted, and to manage- ment difficulties resulting from conceptual differences in methods of construction between the Tunisian and Chinese workers, and lack of expe- rience in using modern technology and modern equipment for tunneling and canal lining. Ln. 1445; Fourth Water Supply Project; US$21 million loan of July 5, 1977; Date of Effectiveness: January 30, 1978; Closing Date: December 31, 1982. The procurement process under the fourth project is now completed. Project execution has accelerated during the last six months and the proj- ect is now expected to be completed by end 1982, about six months behind the appraisal schedule. Having increased the average water rates in 1979 by about 44 percent, the borrower's financial situation is expected to remain satisfactory for the next two years. Ln. 1504/1505: Industrial Finance Project consisting of Seventh Loan to Banque de Developpement Economigue de Tunisie (BDET) and a Pilot project for assistance to SSI; Loans of $30.0 million to BDET and of $5.0 million to the Government of January 25, 1978; Date of Effectiveness: October 13, 1978; Closing Date: December 31, 1981. The $5 million pilot loan is fully committed; the $28 million com- ponent to BDET is also fully committed, and the $2 million allowed for the financing of SSI extension is half committed. Disbursements are in line with appraisal estimates. Under the project, BDET is giving priority in its financing to projects which are located in the least developed regions, sponsored by new entrepreneurs, characterized by high labor intensity or export-orientation. Under the SSI pilot project, the commercial banks' initial reluctance to utilize Bank funds for SSI financing has been over- come. Considerable progress has been made by the Tunisian authorities toward setting up a network of Tunisian and foreign technical assistance experts, specifically catering to the needs of SSI, as agreed under the project. Ln 1601: Rural Roads Project; US$32.0 million loan of July 24, 1978; Date of Effectiveness: April 30, 1979; Closing Date: June 30, 1984. Road construction is now underway in all the provinces to be covered under the project. The Government wishes to accelerate implementa- tion so as to complete construction works by end-1982. Progress on _33 _ ANNEX II Page 8 of 9 the complementary agricultural component, after an initial delay, is now proceeding satisfactorily. Ln 1675; Second Urban Sewerage Project; US$26.5 million loan of April 13, 1979; Date of Effectiveness: August 31, 1979; Closing Date; December 31, 1984. Consultants have been contracted and detailed design is proceed- ing. Tenders have been called for the first civil works, and construction has started. Ln 1702: Fifth Water Supply Project; US$25.0 million loan of May 31, 1979; Date of Effectiveness; October 19, 1979; Closing Date: December 31, 1982. The physical execution of the project is progressing well and according to schedule. SONEDE has already approved eight urban and seventeen rural sub-projects for a total investment cost of $28.5 million. Procurement is expected to be completed by June 1981. Ln. 1705: Second Urban Development Project; US$19.0 million loan of May 31, 1979; Date of Effectiveness: December 1, 1980; Closing Date: December 31, 1983. Staffing of the project units and preparation of tender documLents are progressing satisfactorily. Civil works have started on two Tunis sites and one Sfax site and service areas. All technical work on the civil works component is progressing well. Ln. 1746: Second Fisheries Project; US$28.5 million loan of July 20, 1979; Date of Effectiveness: May 14, 1980; Closing Date: June 30, 1985. All contracts for port infrastructure have been awarded. Detailed design for the boats has been delayed due to delays in contract finalization with the consultants. Tender documents for procurement of hulls will therefore not be available before March 1981. Engines are being procured under ICB; analysis of bids is still in progress. Ln. 1796: Southern Irrigation Project; US$25.0 million loan of February 8, 1980; Date of Effectiveness: September 30, 1980; Closing Date; June 30, 1986. The implementation of the project is proceeding according to schedule. A contract has been awarded for the sinking of the first 13 deep wells of the project. Bidding documents and bids have been reviewed by the Bank for procurement of asbestos-cement pipes. - 34 - ANNEX II Page 9 of 9 Ln. 1797: Third Port Project; US$42.5 million loan of February 8, 1980; Date of Effectiveness: June 25, 1980; Closing Date: June 30, 1985. The loan agreement has been amended to reflect changes in OPNT's financing plan. The main changes are: (i) the reduction in the amount to be financed by export credits from $20.3 million to $7 million, and (ii) the percentage of expenditures to be financed by the Bank; i.e. 100 percent of foreign expenditures and 6 percent of local expenditures instead of 48 percent of total expenditures. The contracts for civil works construction have been awarded. Work has now commenced at La Goulette after delays in agreement on an acceptable location of a site for depositing material to be dredged from the project area. No work has yet commenced at Sfax due to delays in moving the Chantiers Navals from their present location to the new fishing harbor nearby, and checking of final design. Consultants to supervise the works at Sfax have been appointed. Ln. 1841: Fourth Highway Project; US$36.5 million loan ot May 22, 1980; Date of Effectiveness: November 21, 1980; Closing Date: September 30, 1984. All the elements of the 1981 program for rehabilitation and maintenance have now been received and reviewed. Ln. 1864: Second Natural Gas Pipeline Project; US$37 million loan of October 22, 1980; Planned Date of Effectiveness: July 22, 1981; Closing Date: December 31, 1983. The original project scope has been modified because of uncertainties related to the purchase of gas from Algeria; the project is being redesigned to utilize royalty gas as a substitute to premium liquid fuel products. Ln. 1885; Third Agricultural Credit Project; US$30.0 million loan of August 6, 1980; Planned Date of Effectiveness: April 30, 1981; Closing Date: December 31, 1983. The project will finance part of BNT's agricultural three-year lending program for medium- and long-term credit to small and medium farmers, production and service cooperatives, commercial farmers and agroindustries. The loan is not yet effective pending ratification of the Guarantee Agreement, signature of an agreement between BNT and the Ministry of Planning and Finance, and receipt of the legal opinions. _ 35 _ ANNEX III Page 1 ot 2 TUNISIA SMALL-SCALE INDUSTRY DEVELOPMENT PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project: About 12 months (from March 1979 to March 1980) (b) Agencies which prepared project: Ministries of Planning and Finance and of National Economy; Central Bank (c) Project first identified by Bank: March 1979 (d) First Bank mission to review project; December 3, 1979 (e) Departure of appraisal mission: March 24, 1980 (f) Completion of negotiations: March 6, 1981 (g) Planned date of effectiveness; End of August 1981 Section II: Special Bank Implementation Action The Bank to review, through annual consultations with the Govern- ment, the adequacy of existing and any new policy measures for SSI develop- ment, the first of such reviews to take place not later than six months after loan effectiveness (para. 51). Section III: Special Conditions 1. Special conditions of effectiveness: (a) Signature and ratification of a financing agreement between the Government, the Central Bank, API, BDET and at least two commercial banks (para. 47); and (b) Opening, by the Central Bank, of a project account (para. 53). 2. Other special conditions: (a) Government and API to select subprojects for financing under the proposed Line of Credit in accordance with agreed selection criteria (paras. 41, 43 and 47). - 36 - ANNEX III Page 2 ot 2 (b) Government and the Central Bank to ensure that at least (i) half of the proposed Line of Credit be utilized for subprojects with up to D 250,000 investment cost; and (ii) one third for subprojects eligible for FOPRODI assistance (para. 41). (c) The Government and the Central Bank to ensure that subloans are made at least at the same interest rate as other rediscountable medium-term loans to industry, at terms appropriate for the nature of the subprojects (para. 44). (d) The Government to bear half of the default risk on non-FOPRODI subprojects and two-thirds on FOPRODI subprojects (para. 46). (e) The Government and the Central Bank to ensure that the Central Bank will administer the proposed Line of Credit on behalf of the Government and monitor the collection on subloans (paras. 53 and 54). (f) The Government to provide sufticient financial support to API to permit the Agency to carry out its annual work programs (para. 50).