Report No. 718a-CM FILE COPY Appraisal of a Small and Medium Scale Enterprise Project Cameroon May 15, 1975 Development Finance Companies Department Not for Public Use U Document of the Intermational Bank for Reconstruction and Development international Development Association This report was prepared for off cial use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVAIENTS The CFA Franc is fixed with respect to the.French Franc (FFi = cFAF 5o) and, thus, floats with respect to the US dollar. The following approximations have been used throughout the report: US $1 CFAF 225 CFAF 1 = US $0.oo44 CFAF 1 million = US $4,444 ABBREVIATIONS AFCA Association pour la Formation des Cadres de l'Industrie et de l'Administration BEAC Banque des Etats de l'Afrique Centrale BCD Banque Camerounaise de Développement CAPME Centre National d'Assistance aux Petites et Moyennes Entreprises CCCE Caisse Centrale de Coopération Economique FAC Fonds d'Aide et de Coopération FOGAPE Fonds d'Aide et de Garantie des Crédits aux Petites et Moyennes Ehtreprises Camerounaises PME Petites et Moyennes Entreprises SATEC Société d'Aide Technique et de Coopération SME Small-and Medium-Scale Enterprise SNI Société Nationale d'Investissement FISCAL YEAR July 1 - June 30 This report was prepared on the basis of missions to Cameroon in February/March, July and October 1974 by Messrs. A. Nespoulous-Neuville, R.M. Westebbe, R. Vaurs, A.D. Osei and J.O. Bloom. APPRAISAL OF A SMALL AND MEDIUM SCALE ENTERPRISE PROJECT CAMEROON Table of Contents Page No. SUMMARY .................................................- iii I. INTRODUCTION ............................................ II. THE SETTING ............................................. 2 Trends in Economy .................................. 2 Cameroonian Industry in the Economy ................ 2 Government Industrial Policies ..................... 3 Promotion of Small-Scale Enterprises ............... 5 Problems of Small Enterprise Promotion ............. 6 III. TECHNICAL ASSISTANCE TO SME ............................. 8 Background ......................................... 8 CAPME .............................................. 8 SATEC .............................................. 9 AFCA .........................2..................... 12 IV. FINANCIAL INSTITUTIONS SU...... .......................... 14 The Financial Setting .............................. 14 Banque Camerounaise de Developpement (BCD) ......... 16 V. THE PROJECT .2........... ............................... 24 VI. BENEFITS AND JUSTIFICATION .............................. 31 VII. RECOMMENDATIONS ......................................... 32 LIST OF ANNEXES ANNEX 1 Investment Incentives ANNEX 2 BEAC: Rediscount Terms and SME Promotion Table of Contents (Cont'd) Technical Assistance: ANNEX 3A SATEC: Status of Operations at February, 1974 ANNEX 3B SATEC: Proposed Program ANNEX 3C AFCA: Proposed Annual Budget: July 1975-Junel977 Banque Camerounaise de Developpement: ANNEX 4A Board of Directors ANNEX 4B Organization ANNEX 4C Personnel ANNEX 4D Interest Rates ANNEX 4E Credit and Guarantee Approvals by Term ANNEX 4F Credit and Guarantee Approvals by Sector and Type ANNEX 4G Industrial Loan Approvals ANNEX 4H Loan Portfolio Analysis of Arrears of Principal ANNEX 41 Equity Portfolio ANNEX 4J Balance Sheets ANNEX 4K Profit and Loss Statements ANNEX 4L Assumptions for Financial Projections ANNEX 4M Projected Loan Approvals ANNEX 4N Projected Cash Flow ANNEX 40 Projected Balance Sheets ANNEX 4P Projected Income Statements ANNEX 4Q Financial Ratios ANNEX 4R Consortial Credits ANNEX 4S Expected Real Financial Charges on Subloans ANNEX 4T Job Descriptions: Financial Analyst Industrial Engineer ANNEX 4U Statement of General Policy ANNEX 5 Estimated Schedule of Disbursements CAMEROON SMALL AND MEDIUM SCALE INTERPRISE PROJECT SUMMARY i. This report recommends an IDA credit to the Banque Camerounaise de Developpement (BCD) of US $3.0 million equivalent to provide term financing of a small- and medium-scale enterprise (SME) project in Cameroon. The proj- ect would be financed jointly with the Caisse Centrale de Cooperation Econo- mique (CCCE) and UNDP would provide its support of technical assistance to three technical assistance agencies and to BCD. In addition to supporting productive investments, the proposed project would seek to enhance BCD's ac- tivity as an effective development institution, to improve and coordinate technical assistance to SME and to provide experience concerning effective policies and programs for SME assistance. ii. Industry has taken a slowly growing role in the economy of Cameroon, contributing 25% of GDP in the fiscal year ending June 30, 1973. Within the sector, Cameroonian enterprises have played a relatively small part. Most Cameroonian firms appear to operate in the "informal" sector, characterized by use of traditional technologies and management methods, finance provided by non-institutional sources and operating independent from regulations, in con- trast to the larger "modern" enterprises. Although available data are in- complete, many of these firms seem to be well adapted to local conditions and hence make a significant contribution to the economy in terms of employment and use of domestic inputs. While the Government has provided incentives to industrial investment through tax and tariff exemptions and other measures, SME investment is probably constrained rather than stimulated by these measures due to the cumbersome administrative procedures. Consequently, the pool of potential SME entrepreneurs, comprising artisans, traders and educated but in- experienced Cameroonians, has not been effectively tapped. iii. The technical assistance to SME would be coordinated by Centre National d'Assistance aux Petites et Moyennes Entreprises (CAPME), a Government organization which started operations in 1969 to assist the SME sector and to help the Government in policy formulation and gathering of information on the sector. CAPME's: role and organization is currently under revision in a UNDP study. The two other technical assistance agencies are the Societe d'Aide Technique et de Cooperation (SATEC) and the Association pour la Formation des Cadres de l'Industrie et de l'Administration (AFCA). SATEC is a French Gov- ernment-owned aid agency which has been working in Cameroon since 1968. It assists entrepreneurs in marketing, technical and feasibility studies on proj- ects, commencing from project identification up to project start-up. Since its start, SATEC has assisted 88 entrepreneurs; 17 projects with a total investment of some CFAF 850 million are operating, while 7 more for CFAF 250 million are under construction and 12 firms representing CFAF 90 million have failed. - ii - SATEC is staffed by 9 professionals and its budget is currently CFAF 80 million a year of which 50% is provided by the Government of Cameroon. AFCA is a French private non-profit organization which has been working in Cameroon since 1962 mainly engaged in training of upper and middle-level managers in Govern- ment and industry. It has a unit (AFCA/PME) for assisting artisans and small enterprises with management training and consulting service. It also assists in the organization of artisan cooperatives. Since its start it has provided training to nearly 500 small entrepreneurs. The unit's consulting service is directed mainly to former students and currently 70 entrepreneurs are clients. AFCA/PME is presently staffed by 3 professionals and works on a budget of CFAF 20 million. iv. BCD is a majority Government-owned development bank, established in 1960. It is a multipurpose bank, financing industry, agriculture, trade, craft, housing, etc. In the fiscal year ending June 30, 1974, it approved loans and guarantees totalling CFAF 7.5 million of which somewhat less than 20% was for industrial projects. Of the industrial credits, 25% of amounts and 70% by number was for small or medium-sized enterprises. Between 1970 and 1974, BCD financed 155 SME to an amount of CFAF 600 million. v. Under the proposed project, it is expected that about 80 SME would receive subloans; approximately 65 small subloans, averaging CFAF 11 million, and 17 larger loans, averaging CFAF 70 million, would be granted by BCD. The effective interest cost to subborrowers of 11% per annum includes a spread for BCD of 2.75%, taxes of 2% and, on smaller subloans, a guarantee fee of 1.25% for loans to enterprises locally defined as small- and medium-scale enterprises (petites et moyennes entreprises or PME), or a fee of the same amount to be paid to Government for assumption of the foreign exchange risk. The proposed guarantee fund would automatically cover 80% of loans to PME and would be self-liquidating with permanent losses of up to 14%; any additional funding required would come from Government. Loans to subprojects receiving BCD's financing up to CFAF 30 million would not require prior Bank approval and review procedures for subloans above that amount would be coordinated with CCCE. To strengthen BCD's appraisal and resource allocation capabilities, an industrial lending unit would be created with the assistance of two financial analysts and an engineer financed by UNDP. vi. Pending completion of the UNDP review of CAPME, this agency will, in addition to its other functions, more actively assume the coordination of tech- nical assistance to SME, gather information on the sector and advise Government on policy matters affecting SME. Under the project SATEC and AFCA, with UNDP assistance, would expand their present activities focusing respectively on pro- motion of small to medium size and on projects and training of small entre- preneurs and assistance to former trainees. The staff of the organizations would be expanded with increased efforts to train local staff and each would geographically diversify their activity. vii. The project is expected to generate some US $11 million in invest- ments, supported by about US $3 million in technical assistance. The IDA credit of US $3.0 million would be used exclusively to support investments. IDA and - iii - CCCE would jointly finance a little over one-half of the total investment cost of subprojects with entrepreneurs providing a little over one-fourth and BCD the remainder (about one-fifth) in the form of medium-term loans redis- countable with the Central Bank. UNDP would finance 60% of the technical assistance, and Government 40%. viii. The improved appraisal and assistance procedures to be instituted under the project at BCD and the technical assistance agencies are expected to stimulate both more and better SME projects. Increased coordination among the technical assistance agencies as well as broader geographic diversification and increased emphasis on smaller enterprises should improve their cost- effectiveness. The strengthening of BCD's staff and procedures should help to make it a more effective development institution. Although precise estimates and not possible, the investment financing to SME is expected to support some 80 enterprises, contributing to industrial entrepreneurship, output and employ- ment; economic returns on subprojects are expected to exceed the financial returns, due to the substantial unemployment and under-exploitation of many local raw materials. ix. Subject to the conditions listed in Chapter VII, the project is suit- able for a Credit of US $3.0 million equivalent. I. INTRODUCTION 1.01 Following a request made by the Minister of Planning simultaneously to the Bank Group and to the Caisse Centrale de Cooperation Economique (CCCE) for financial assistance to support a Government program to promote small and medium-size Cameroonian enterprise (SME), a Bank mission visited Cameroon in February-March 1974. The mission was joined by representatives of CCCE for most of its stay. The two missions reached a broad agreement between them- selves and with the Government on the general features of a possible joint Bank-CCCE project and on the action which would be required on the part of the Government to make such a project feasible. Bank missions in July and October held more detailed discussion of issues with the Government and the various concerned agencies. This report recommends an IDA credit of US$3 million for term financing of SME projects through the Banque Camerounaise de Developpement (BCD), a majority Government-owned devevelopment bank. CCCE would provide parallel financing of investments and UNDP would provide financing of technical assistance. 1.02 The principal objectives of the proposed credit are: (a) to provide term financing on appropriate terms and to simplify administrative procedures for the establishment and expansion of small and medium-scale manufacturing, artisanal, service, transport, repair and construction firms; (b) to bolster BCD's role as an effective development institution by strengthening its appraisal and resource allocation capabilities, internal organization and procedures, and resource base; (c) to improve the technical assistance facilities for SME, sustaining on-going efforts while fostering coordinated action by the relevant agencies; and (d) to learn more, for both the Bank and Government, about effective policies and procedures for SME promotion and support and the bene- fits accruing therefrom. 1.03 This is expected to be the first in a series of credits designed to assist Cameroonian entrepreneurs and institutions. Given the state of the art in assisting small-scale entrepreneurs in Africa and the complexities of the institutional set-up in Cameroon regarding small enterprise development, the proposed project has a substantial experimental aspect. -2- II. THE SETTING Trends in Economy 2.01 By the end of the 1960's, Cameroon appeared to be well on the way toward achieving its basic growth target of doubling real per capita income in the 20-year period 1960-1980. But the growth rate, which averaged 6.5% in real terms in the sixties, was sharply reduced to less than 3% in 1970-71, mainly as a result of a drop in the world market price of cocoa and interior drought conditions affecting the other main crops, cotton, foodstuffs and groundnuts. Moreover, in the late 1960's, private investment had begun to fall off, partly because the most obvious and easiest opportunities for import substitution of consumer goods were exploited, and slowed further as a conse- quence of the recession of the early 1970's. In early 1973, terms of trade changed in Cameroon's favor due to steep rises in cocoa, coffee and timber prices. A growth target for the next few years of about 4 to 5% in real terms (more realistic than the 7.3% in the five-year plan 1971/72-1975/76) is pre- mised on the assumption that Cameroon will be able to cover a large resource gap in foreign exchange. Accordingly, priority will have to be given to promoting exports and replacing imports. The above target implies that manu- facturing, which accounted for 12% of total GDP in 1972/73, would maintain a yearly growth rate of about 10%, as compared with 8.6% annually between 1965/ 66 and 1972/73. A recent industrial report by the Bank indicates that there is substantial scope for industrial expansion on the basis of both further im- port substitution and processing of agricultural products for export markets. New investments in industry would be facilitated if steps were taken to improve governmental industrial policies (see paras. 2.06 to 2.11). Cameroonian Industry in the Economy 2.02 There is no comprehensive data on Cameroonian enterprise although various partial surveys give some indication of its dimensions. In looking at this data, it us useful to differentiate between the "modern" and "informal" sectors of business activity. Informal sector firms are generally small Cameroonian-owned enterprises mainly in the growing urban areas with expanding markets. These firms number in the thousands and are generally not subject to official regulations. Although there is not an adequate data base for esti- mating the relative importance of the output and potential of firms in the informal sector, their contribution to employment is probably considerably more substantial than that of modern enterprises and they probably rely more heavily on domestic inputs. In contrast, the modern type of enterprise normally has a legal business structure, is subject to minimum wage and fiscal legislation, and utilizes reasonably well-developed systems for accounting, production and marketing. Most firms in this category have reasonable access to banking and financing services, are normally foreign controlled, and rely to some extent on expatriate managers and technicians; in the industrial sector, such firms have access to significant fiscal, tariff and other incentives. -3- 2.03 The best data available on modern sector firms is a survey under- taken in 1970 to which 1504 firms responded, yielding the profile in the fol- lowing table. Cameroonian Foreign Total No. of Avg. No. No. of Avg. No. No. of Avg. No. Firms Employees Firms Employees Firms Employees Primary 6 27 108 213 114 203 Manu- facturing 32 33 211 100 243 91 Con- struction 6 29 82 135 88 127 Transport 10 96 65 141 75 135 Services 78 77 354 15 432 26 Trade 94 20 458 20 552 20 Total 226 45 1,278 63 1,504 60 2.04 As can be seen from the table Cameroonian firms constituted only 15% of the respondents, three-fourths of them in the service and trade sectors. In manufacturing only 32 Cameroonian-owned firms were identified with an aver- age employment of 33 workers, about one-third that of the average payroll of foreign-owned manufacturing enterprises. Even the non-manufacturing sectors are dominated by foreign firms. Although the number of firms and the extent of Cameroonian participation have certainly increased since the survey, the basic structural patterns persist. 2.05 It is clear, however, that in all sectors it is an important Govern- ment objective to encourage the further development of Cameroonian businessmen, particularly those undertaking productive activities. The result is the pro- motional effort described in the following paragraphs. Government Industrial Policies 2.06 Cameroon's economic system is officiallly described as planned liberalism. The Government has tried to be pragmatic in the choice of economic policies and in promoting Cameroonization. Private and profit-oriented enter- prises are encouraged and foreign investment has been favored in sectors which are considered to have strong linkages with domestic production and large in- come distribution effects, such as agricultural processing and forestry pro- ducts. The Government influences industry through various means including custom tariffs, investment incentives and price controls. Recently, Government has actively sponsored some dozen large industrial ventures, seeking to accel- erate large-scale industrialization as well. 2.07 Cameroon is a member of the Union Douaniere et Economique de 1'Afrique Centrale (Customs and Economic Union of Central Africa) along with C.A.R., Congo and Gabon. Consequently, most duties are fixed by treaty with -4- some relatively small supplemental taxes which vary. Custom tariffs consist of entry duties applicable to goods from all countries of origin plus various other duties applicable only to countries other than those of EEC and OCAM. The tariff structure does not appear to provide excessive encouragement for domestic industrialization; tariff rates on capital equipment are high (average about 40%) and rates on finished products and intermediate materials range from 40% to 70%. 2.08 However, the Government grants exemptions from tariffs and from a variety of other taxes through its investment code, summarized in Annex 1. For the enterprises considered of particular economic importance, the Govern- ment can also guarantee certain conditions of legal, economic and financial continuity, quota protection on competing imports, the supply of labor, renewal of export permits, etc. The code includes a special regime for small and medium-scale enterprises including duty reductions on imported equipment and materials (see para. 2.13). Hence, few SME firms pay the published tariff rates on imported capital equipment. 2.09 The application of the investment code and other measures could be vastly improved and rationalized. First, the application procedure is lengthy and difficult. Second, criteria for awarding incentives are not clearly speci- fied. As a result, the extent of net effective protection given to individual investors may vary considerably and is not consistently related to employment, regional development, balance of payments or public revenues objectives. Third, decisions taken to favor foreign private investors for certain large scale enterprises which often get effective monopolies do not consider the im- pact on smaller Cameroonian enterprises in the same field. 2.10 No provision of the investment code deals with price control. The present price control system sets ceiling prices for many goods actually manu- factured or imported by adding specified percentage margins to certain identi- fied types of variable costs. Thus, the system tends to encourage inefficiency and inaccurate accounting, as profits will increase with costs. Moreover, long delays in authorizing increases in selling prices following increases in raw material prices and other costs entail unpredictable risks for enterprises and may deter new investors. 2.11 Before a full set of reforms of tariffs, investment code and price control can be suggested, with a view to maintaining the competitiveness of domestic production with imports, developing labor intensive methods and re- specting some macroeconomic constraints (public revenues, balance of payment, regional balance, etc.) on future economic growth, further study is needed to better assess the impact of the current system on typical sectors and enter- prises. A Bank basic economic mission, recently returned from Cameroon, has suggested to Government a thorough review of the tariff and incentive systems with a view towards recommendations for reform. - 5- Promotion of Small-Scale Enterprises 2.12 Small and medium-scale enterprises (SHE) are defined by several criteria in Cameroon. The development bank (BCD), for example, divides arti- sanal and small industrial loans from large industrial loans by a limit of CFAF 30 million (about US $130,000) in the amount of the loan. On the other hand SME are defined in the regulations relating to interest rates (arrete of June 29, 1974) as firms whose management is Cameroonian with 51% of capital held by nationals and meet one of the following three conditions: (i) it pays the minimum tax ("forfait"); (ii) its short-term rediscount ceiling at the Central Bank is not above CFAF 25 million; or (iii) its equity is not above CFAF 50 million. The same definition is used by the Decree of April 2, 1975 establishing a credit guarantee fund (see para. 5.06). The Central Bank, on the other hand, uses criteria based on tax liabilities and total equity. Clearly, a relevant operational definition must be related to the Cameroonian environment and, in individual cases, to the technology and management of a project. Nevertheless, the approximate ranges to be used with reference to this project are as follows: Investment Typical Employment (CFAF million) (Number) Small up to 40 up to 15 Medium up to 150 up to 50 Large over 150 over 50 At the lower end of small-scale, artisans are defined as independent workers or small industrialists who manage their business and participate in its phys- ical work. 2.13 Help for artisans has been confined to the setting up of three arti- san cooperatives and the organization of annual fairs to market handicraft wares. Small and medium-scale enterprises currently receive only limited spe- cial official support. Technical assistance is provided for them by the institutions described in Chapter III. Industrial enterprises with fewer than five employees are exempt from the 4% internal turnover tax and pay only an 11% business income tax instead of 22%. (In fact, many of them evade all taxes.) As mentioned above, the investment code contains a special regime for small and medium-scale enterprises, called the PME regime (PME for "Petites et Moyennes Entreprises", or Small and Medium-Scale Enterprises). Eligible enter- prises are not defined. Any firm which is not of sufficient importance to justify the granting of benefits under the normal regime, but whose operations are nevertheless of economic interest to the country, or any firm, whatever its size, which prefers the simple advantages under the PME regime, may apply for it. The regime consists of a reduction of duty on imported equipment from normal rates between 20% and 60% to a flat 5% ad valorem. Firms qualifying for the PME regime may also apply for the "TIP" (for Taxe Interieure a la Production or Inland Turnover Tax) regime, in which reduction of import tariffs on raw materials is partially compensated by imposition of a tax on finished products. - 6 - 2.14 In practice, the application of the investment code for small and medium-scale enterprises, including the PME regime has been cumbersome, and to some extent counter-productive. Some small entrepreneurs who might have invested in the absence of the regime are not willing to invest unless and until they receive the concessions under the regime. This may lead to long periods of uncertainty and, in some case, to the abandonment of projects. Accordingly a simplification of the application of the PME regime would be a part of the implementation of the present project (see para 5.07 and Annex 1, para 19). Problems of Small Enterprise Promotion 2.15 A discussion of the problems of small enterprise creation and entre- preneurial development in Cameroon must, given the limited available data, be based on the necessarily modest experience of techncial assistance agencies, and the impressions of entrepreneurs, governmental authorities, bankers, and technical assistance agencies. 2.16 Entrepreneurial talent that exists in Cameroon can be encouraged and developed through a package of technical, financial and managerial assistance, the precise nature of which depends on the type of entrepreneurs in question and the size of their enterprises. Three main types of Cameroonian entrepre- neurs may be distinguished in the current small and medium-scale enterprise structure: those having experience in handicrafts, those with past involvement in non-industrial activities and those with some technical or advanced educa- tion but little practical experience. 2.1.7 The first category consists of successful artisans who have the capacity to expand their activities into small-scale industrial enterprises. Their main problem is in handling a change of scale in their enterprise that often implies some transformation of their methods. Although they have some technical know-how, they need basic training in management. In addition, such firms require access to short-term capital primarily, rather than medium and long-term finance for equipment, as their investment needs are small given the labor intensive character of their operations. The small size of such firms tends to make the delivery of effective technical assistance expensive. 2.18 In the same category but a step more advanced are experienced arti- sans who have achieved some success as managers and who want to move into the medium-size sector. These entrepreneurs face formidable problems of organiza- tion, financial and personnel management, adoption of appropriate technologies and acquisition of both short and long-term capital. Past experience shows that, because of the complexities involved, only a rather limited number of Cameroonian entrepreneurs have succeeded in making the transition to medium- size enterprises. 2.19 The second category consists of businessmen who have had demonstrated success in foreign and domestic trade, transportation or real estate specula- tion. These businessmen often operate a number of enterprises which depend on the personal continuous involvement of the entrepreneur for their success and -7- tend to do less well if he is not involved. The quality of bookkeeping is poor in such firms so that their real profitability is difficult to ascertain. Cameroonian firms in this category have recently experienced difficulties as competition increased, leading to reduced profit margins. In real estate, de- mand for building space has levelled off reducing speculative opportunities. Entrepreneurs in this category have begun to move into manufacturing but have difficulty in obtaining commercial bank financing because of their existing relatively large current liabilities. Characteristically, they mix the finan- cial aspects of all their activities together, thus complicating financial analysis. These enterprises can utilize relatively large amounts of technical assistance for production, procurement, marketing and elementary bookkeeping. 2.20 The third category, educated professionals who have gone into busi- ness, may have easier relations with governmental administrative agencies and banks but they often do not have the necessary experience to run a business. These technicians usually have a university education normally in fields unre- lated to industry or business management. Often they start enterprises as a part-time activity while keeping their professional positions. They use tech- nical assistance when available but are often capable of mounting fairly com- plex operations without it. In some cases they directly recruit expatriate technicians. 2.21 In Cameroon, each of the above three categories is a source of potential entrepreneurs. In virtually all categories, the entrepreneur is seldom the only investor. Entrepreneurs frequently have access to traditional capital sources in their ethnic groups and this has been an essential element in fostering new productive enterprise in Cameroon. Thus, even when facing liquidity problems in commerce and having no access to bank credit, such entre- preneurs can often find funds for new investments. Silent partners and unre- corded loans makes normal banking relationships difficult to maintain with such enterprises. The traditional capital market is based on a high degree of mutual confidence between participants, which allows informality in contractual relations. Such investors or lenders sometimes require that particular family or tribe members be hired often regardless of their qualifications. Technical assistance agencies have not had much impact on this aspect of the management of firms they have tried to assist. By institutionalizing the availability of credit and technical assistance to small firms, investments can be promoted among a wider group of potential entrepreneurs. 2.22 Most Cameroonian businesses are reluctant to come under the scrutiny of any kind of administrative agency. Most of them escape official controls and regulations relating to employment, wages, and tax payments. However, in some cases, profitable "informal" enterprises also have to meet the competition of similar usually larger enterprises enjoying the benefits of the investment incentive system. Accordingly, any promotion program for small and medium- scale enterprises should not be used as a front for tax collections, else en- trepreneurs will not come forward. Agencies involved in such efforts should retain the confidence of the entrepreneur and not serve as the Trojan horses of the Government. - 8 - 2.23 Nearly 80 percent of industrial investment occurs in or near the two main urban centers, Yaounde and Douala. There is similar concentration of the small enterprises which require proximity to sizeable consumer markets. Sec- ondary towns such as Mbalmayo, close to Yaounde, have attracted some industrial activities but then usually because of special local advantages, such as low cost land and availability of utilities and transport on terms equivalent to those in Yaounde. Experience indicates major efforts to spread small and medium enterprises to other centers would probably succeed only in the context of comprehensive regional programs including provisions for infrastructure, utilities, transport and related services. 2.24 It would, however, be only prudent to recognize the difficulties in lending to small and medium-scale enterprises of the type found in Cameroon today. A substantial effort will be needed to produce a flow of creditworthy dossiers for financing of promising enterprises run by qualified managers. Thus, a major technical assistance effort is called for at the level of the entrepreneur, matched by an active industrial financing policy on the part of the development bank, BCD. III. TECHNICAL ASSISTANCE TO SME Background 3.01 There are currently three active organizations charged with providing technical assistance to SME: Centre National d'Assistance aux Petites et Moyennes Entreprises (CAPME), Societe d'Aide Technique et de Cooperation (SATEC) and Association pour la Formation des Cadres de l'Industrie et de l'Administra- tion (AFCA), as described below in detail. SATEC and AFCA have been operating in Cameroon for more than six years; CAPME, the focus of a previous UNIDO/ILO project, while awaiting the outcome of an ongoing UNDP study of its role, organization and staffing, has made a start in assisting PME in management, and in repair and maintenance of industrial equipment. CAPME has been desig- nated by law as the coordinator of technical assistance to SME. CAPME 3.02 The Centre d'Assistance aux Petites et Moyennes Entreprises (CAPME), which started operations in 1969, has been given a broad mandate of assisting firms ranging from small artisans to medium-scale industries, researching and promoting project possibilities, recommending industrial policy to'Government, training entrepreneurs, and coordinating all technical assistance to SME in Cameroon. With UNDP and Government funding of US$0.8 million, ILO helped estab- lish and manage CAPME from 1969 to 1971. The project was not fully successful. CAPME was little active during 1971 and 1972. A related UNIDO/UNDP project, Programme Pilote d'Entretien et de Reparation (Pilot Program in Maintenance and Repair or PPER), which was to provide machine-tool training and repair services in a workshop, was integrated in CAPME's Technical Department in 1973. -9- 3.03 To strengthen CAPME and intensify its activities, Government ap- pointed a new and competent Director-General of CAPME, the former head of the West Cameroon Development Agency, and merged PPER into CAPME. Simultaneously, UNDP responded to a Government request in 1973 and has undertaken a study of the appropriate role, organization and staffing for the combined CAPME/PPER as well as its relationship to other technical assistance agencies; a UNDP and a UNIDO consultant began work in April 1974. CAPME's current staff con- sists of the Director-General, two heads of Departments (one engineer and one accountant), two senior staff members, seven technicians, supporting staff and, at the ex-PPER, 11 workers of various qualifications; the yearly budget is equivalent to US $0.4 million. 3.04 Operations. Since mid-1974, the workshop (ex-PPER) has effected more than 100 maintenance or repair operations. However CAPME has not yet been able to fulfill completely the coordinating role assigned it. 3.05 Prospects and Recommendations. A first UNDP report on the role and organization of CAPME is expected in mid-1975. One of its main recommendations will be how to achieve the coordinating role given to CAPME by its statutes and that the Government is still expecting CAPME to play. Progress has been made towards this objective during negotiations by finalizing draft conventions to be signed between CAPME and SATEC and between CAPME and AFCA. 3.06 Pending the conclusions of the UNDP study, CAPME could, inter alia, begin to fulfill three vital functions. First, CAPME should initiate systema- tic collection and analysis of information on the SME sector, along lines to be agreed with the Bank. Second, CAPME should give attention to the policy review responsibility with which it was charged by its original establishing legislation, evaluating the impact of present fiscal, monetary and customs policies on SME and proposing new policies to foster SME development in con- junction with the Ministries of Industrial and Commercial Development, Finance, and Plan. Third, the Government should use CAPME as its advisor on policy matters regarding technical assistance and delegate to it implementation of policy decisions taken regarding SATEC and AFCA. As a start, CAPME has been consulted on the two-year programs prepared by SATEC and AFCA and it has been agreed that CAPME would monitor their activity. SATEC 3.07 SATEC is a wholly French Government-owned aid agency established in 1956; although nominally controlled by CCCE, SATEC's agencies operate autono- mously. SATEC began work in Cameroon in 1968. Its staff of nine is divided between offices in Yaounde and Douala; an engineer in the Paris headquarters provides full-time support. 3.08 Method. Project ideas originate from entrepreneurs who approach SATEC for help or from SATEC itself which will then seek out an entrepreneur and assist in a preliminary market and technical study, drawing on the exper- tise of its Paris office as needed. Once the project is sufficiently defined, SATEC aids the entrepreneur in securing financing and investment incentives. - 10 - Detailed engineering and marketing plans are developed, sometimes with parti- cipation of the equipment supplier, and SATEC continues its support through project construction and start-up. Although CAPME is supposed to take over technical assistance after the fourth month of production, SATEC has occasion- ally provided continuing assistance as CAPME was unable to do so. 3.09 Operations. As of October 1974, SATEC had established contacts with entrepreneurs regarding 88 project ideas. According to SATEC, the status of those still active was as follows: Number Total investments Direct of firms (CFAF million) employment Operating 17 849 383 No longer operating 12 93 133 Under creation 7 255 168 Awaiting approvals or financing 13 n.a. n.a. Under study 16 n.a. n.a. Details on these projects are at Annex 3A. The range of projects realized is very broad, from total investments of less than CFAF 2 million (US$9,000) and four employees to a factory employing 140 at an investment cost of CFAF 400 million (US$1.8 million); prospective operations are on average smaller than past operations. Excluding the three largest projects of over CFAF 150 million each, the average total investment falls between CFAF 15 and 40 million (US$ 67,000 to $175,000). Of the 29 projects classified by SATEC as awaiting approvals or financing, or under study as of October 1974, only some 5 or 6 are still active and likely to be implemented. 3.10 Evaluation. SATEC has been successful in helping to create and nurture SME firms and, perhaps equally important, in establishing viable work- ing relationships with entrepreneurs, bankers and Government officials. This success is due largely to the quality and cooperative attitude of SATEC's staff. Although 12 of the 29 enterprises which actually started operations failed, these accounted for only 10% of investment in all projects; final losses would be further reduced by liquidation of residual assets. Moreover, almost half of the failures were for unpredictable reasons (e.g., jailing of the entrepreneur for reasons unrelated to the projects and unforeseeable by SATEC). The economic benefits of the entreprises created are difficult to assess as available information is scanty and unreliable. Nevertheless, it appears that the economic rates of return on the productive projects range from substantially less than zero to perhaps 80%; for the service projects where it is difficult to assess a rate of return, the economic benefit seems adequate. Moreover, there presumably is a longer-term benefit of stimulating entrepreneurship and management development although this is difficult to mea- sure. The income distribution impact of these projects is unclear. On other economic criteria, SATEC's performance is good. About one-half of the invest- ment has been in import substituting enterprises, some 40% in services or practically non-tradeable goods, and the remaining 10% in processing local raw - 11 - materials largely for domestic consumption. The investment cost per job in SATEC-assisted enterprises which actually started operations is substantially less than the national average in Cameroon, i.e. about US$8,000 compared to US$16,000 per job; including the costs of SATEC's assistance raises the cost to some US$11,000 per job. Given the fact that these are small industrial units, rather than artisanal, the technology choice and capital cost of these projects seems appropriate. 3.11 Staff. SATEC's staff of nine comprises the mission chief, an engineer, an architect, two financial and economic analysts and four French National Service volunteers. The mission chief and engineer are generalists while the four volunteers are selected by SATEC for their specialist skills (e.g., a textile specialist and a food processing engineer); in addition to the full-time services of another engineer at SATEC's Paris headquarters, the mis- sion in Cameroon is provided support by short-term visits of SATEC specialists as required. The financial and economic analysts, both Cameroonian, are chiefly responsible for the market studies, financial projections and liaison with banks and Government; these two counterparts are the first successes in SATEC's effort to Cameroonize its staff (see para. 3.17). 3.12 Budget and Funding. Since beginning operations early in 1968, the SATEC mission has cost a total of about CFAF 350 million (US$ 1.5 million) equivalent to about 25% of the capital cost of projects promoted; the cost cur- rently runs about CFAF 80 million (US$ 355,000) per year. The bulk of the money goes for expatriate salaries although these are greatly reduced as the specialist engineer volunteers receive no salary from SATEC. The operation was originally entirely financed by the French aid agency, Fonds d'Aide et de Cooperation (FAC), with the Cameroonian Government progressively assuming a greater share; since 1971, the cost has been split 50/50. Through December 1974, SATEC prefinanced its expenses, anticipating reimbursement from Govern- ment. FAC's five-year support ended in June 1974, as its time commitment was limited. 3.13 Prospects and Recommendations. SATEC's proposed two-year program for the period July 1, 1975 to June 30, 1977, detailed in Annex 3B, can be summarized as follows: 1975/76 1976/77 Total New enterprises created 20 45 65 Investments (CFAF million) 580 1,440 2,020 New jobs 275 600 875 SATEC budget (CFAF million) 151 148 299 The 65 new enterprises are expected to include 50 smaller enterprises with investments averaging CFAF 13 million and average employment of 10 and 15 larger enterprises with investments averaging CFAF 80 million in 1975-76 and CFAF 95 million in 1976-77 and average employment of 25. - 12 - 3.14 As proposals for changes in BCD's and Government's procedures (see Chapter V) take effect, SATEC's work should be greatly facilitated and its cost-effectiveness substantially increased. Most importantly, SATEC's staff must maintain its method and approach to retain the confidence of entrepre- neurs. It has been agreed during negotiations that, whereas CAPME will equip itself in order to offer management assistance to entrepreneurs after opera- tions have started, SATEC will have two management assistants who will help an entrepreneur as soon as he is selected and who will remain available for continuing assistance, if he wishes so. The entrepreneur will remain free to have recourse to the technical agency that would best meet his needs. It has also been agreed that SATEC will adopt simplified economic rate of return analysis to screen project proposals. 3.15 SATEC's budget projects an increase of 7 in its professional staff. Four of these new staff would go to staff an office proposed to be estab- lished in the north of Cameroon at Garoua, helping to start decentralization of SATEC's activity and Cameroonian industry from the main centers at Douala and Yaounde. Moreover, SATEC's staff would become increasingly Cameroonized, the plan calling for hiring five local staff and two additional expatriates; the emphasis would be on retaining access to specialists through the National Service volunteers and SATEC's Paris headquarters where one engineer would be assigned to work full-time on Cameroon and another engineer part-time. SATEC's coordination by and with CAPME is described at para. 3.02 - 3.06. AFCA 3.16 AFCA is a French private non-profit organization. Its activity began in Cameroon in 1962 under a FAC grant and was aimed principally at the training of middle and upper level managers in Government and industry. Since 1965, it has had a special unit, AFCA/PME, which works only with Cameroonian artisans and owner-managers of small enterprises. Its support is of three types: (i) training courses; (ii) consulting services; and (iii) cooperative organiza- tion. The overall FAC grant was terminated in 1971 although FAC still finances the cost of two expatriates; AFCA/PME has relied on fees generated by the main AFCA activity of training managers from industry. Out of a total AFCA staff of 11, three work for AFCA/PME; two German volunteers provide additional tech- nical support to entrepreneurs. AFCA/PME is sufficiently distinct from the other activities of AFCA in program, personnel and budgeting to be considered a separate agency; all references to "AFCA" are solely to AFCA/PME. 3.17 Operations. AFCA has trained almost 500 artisans and small entre- preneurs in its general management course; the most recent group comprised 34 participants. The course meets two hours per week over two years and attri- tion is low. The content focuses on practical aspects of general management of small firms, such as personnel recruiting and administration, inventory management, application for trade and bank credit, etc; basic literacy and arithmetic skills are also honed. Participants have included plumbers, metal workers, electricians, mechanics, tailors, masons, retailers and owner/managers of small factories. These courses have been given in Douala since 1965, in Yaounde for six years and in three other centers for two to three years; the - 13 - centers outside Douala were closed for lack of funds. In addition to this general course, AFCA has organized several specialty courses in bookkeeping, plumbing and masonry; the first is a small continuing course and the latter: two were one-time efforts aided by ILO. 3.18 AFCA provides ad hoc consulting services to its former students if help is not available to the entrepreneur elsewhere at reasonable cost. Con- sequently, most of AFCA's consulting work involves a continuing relationship with former students, undertaking limited, specific tasks for ongoing and for expanding enterprises; this contrasts with SATEC's usual involvement in start- up situations. Requests for assistance cover accounting, credit, design, governmental relations, marketing, production and technology. In general, the AFCA staff member ("animateur") responsible to respond to a request will simply counsel the entrepreneur and aid in his researches; on occasion, the consultant will intervene and assist in civil works supervision or negotiations for credit, customs, subcontracts, etc. AFCA maintains active contact with some 70 entrepreneurs, whose number grows with each year's graduates; about 20 substantial consulting assignments were undertaken in 1973/74. 3.19 In addition, AFCA has helped organize and support five exhibitions of artisans and small industrialists which had from 20 to 60 exhibitors. Such shows provide marketing publicity but also facilitate exchange of technical and marketing information among entrepreneurs. AFCA has also helped to create and manage two cooperatives, Cooperative de Credit Mutuel Artisanal (CCKA) and Cooperative des Freres Camerounais (Coofrecam). CCA, set-up in 1969 to pro- vide credit to artisans who could not obtain bank loans, has granted 32 loans of CFAF 22 million, of which 40% is outstanding and 2% in arrears; AFCA helps review loan applications and manage payments. Coofrecam is a group of 13 masons, metal workers and carpenters whose joint assets have grown from CFAF 1.6 million in 1966 to over CFAF 10.6 million in 1973; AFCA assists in book- keeping, general management and contract bid submission. Other similar trade associations are in the slow process of formation. 3.20 Evaluation. AFCA's courses are pragmatic in content and relevant to its students' needs. Its consulting services seem to provide useful short- term assistance and mesh well with the courses. The only quantitative data available relates to AFCA's observations of the firms in the Douala area which it has assisted; of 247 firms, AFCA judges 19% have shown a marked improvement with its help, 24% have improved somewhat, 25% have not changed and 35% have ceased operations. Clearly, neither the full credit for the successes nor blame for the failures is due to AFCA. However, the qualitative response to its courses and consultancy by entrepreneurs as well as the results of the cooperative organization efforts evidence AFCA's effectiveness. 3.21 Staff, Budget and Funding. AFCA's current staff includes two expatriate and one Cameroonian "animateur" who are generalists; two German volunteer specialists provide technical support in woodworking and plumbing. The current cost of the operation is about CFAF 20 million (US$90,000) annually; 80% of this is the cost of the two expatriates funded by FAC and the remainder is provided from fees for AFCA's courses for large industry. - 14 - 3.22 Prospects and Recommendations. AFCA proposes to expand its activi- ties along the lines it has been pursuing. It would annually conduct six general management courses of 10 to 15 participants each, try to form and help manage new credit cooperatives and provide continuing support to its existing clients. AFCA also proposes to reopen its center at Yaounde and to become active in the north of the country, through frequent visits. This expansion would require recruitment of one additional local professional staff and four office personnel. The estimated total cost would be CFAF 33 million (US$147,000) per year, detailed at Annex 3C. 3.23 AFCA has been most successful in its work with artisans, both individually and cooperatively. This orientation would be maintained with im- proved economic evaluation of projects to foster better allocation of scarce staff and credit. A system to monitor the progress of enterprises receiving assistance from AFCA would be implemented to provide a firmer basis for eval- uating and managing AFCA's activity. AFCA has agreed to implement these re- commendations. IV. FINANCIAL INSTITUTIONS The Financial Setting 4.01 The banking system in Cameroon consists of the Banque des Etats de l'Afrique Centrale (BEAC), five commercial banks, and a number of specialized financial institutions, including the Societe National d'Investissement (SNI) and Banque Camerounaise de Developpement (BCD). 4.02 Central Bank. BEAC is a common central bank for Chad, Congo, Gabon, the Central African Republic and Cameroon. Credit policies are formulated in the context of the monetary position of the five-country area as a whole. Each country has national committees for implementing the policy decisions of the Board. 4.03 BEAC regulates bank operations mainly by setting rediscount ceilings, reviewing the position of individual borrowers and assessing individual proj- ects presented by the banks for rediscount. Rediscount ceilings for short- term credits are established for each country, for each bank and, within each bank, for each individual borrower. A global ceiling for rediscount of medium- term loans is determined for the five countries together, and not for each country separately. This ceiling is fixed after taking into account both ex- pected private investment demand and the foreign exchange holdings of BEAC. Certain investments can be financed outside of the ceiling, either because of their importance or because of their benefits for the whole monetary union. The management of the ceilings is flexible enough to attain the desired objec- tives at the national level while taking account of priorities at the levels of economic sectors, individual enterprises and individual projects. An indi- cation of the importance of BEAC's role is the fact that at mid-1974, credit from BEAC financed 28% of all loans to the private sector by commercial and - 15 - development banks in Cameroon. Although BEAC's staff in Yaounde reviews each medium-term loan, it relies mainly on the lending commercial or development bank for financial appraisal, and its own economic evaluation is relatively superficial. 4.04 BEAC's role in SME promotion has expanded recently but remains limited. The bank has eased documentation requirements for short and medium-term redis- counts of SME loans and, in February 1974, has ordered that for every commer- cial bank, a minimum of 20% of all short-term credit go to Cameroonians or firms under local control; the actual ratio for the major commercial banks was already above the minimum, and any incremental credit allocated under this re- gulation is likely to go to commercial firms. In May 1974, BEAC established new rediscount policies, setting rediscount rates of 4.25% for loans to "privileged" borrowers and 5 3/4% for all others, for both short-term (up to 18 months) and medium-term (up to 10 years) loans. Banks may add a 3-6% margin depending on the operation. Privileged borrowers include national governments, agricultural cooperatives, industrial exporters, local small and medium-scale entrepreneurs and builders of residential buildings. As funds available for rediscounts of such privileged loans are strictly limited, most are expected to go to builders whose projects serve as prime security and almost none to SME projects. (Details are at Annex 2). 4.05 Commercial Banks. Five commercial banks operate in Cameroon. The most important, Societe Camerounaise de Banque (SCB), is the only bank with a Cameroonian majority shareholding. It is now 60% Government-owned, and enjoys the advantage of receiving the deposits of public institutions, such as social security, savings bank and the Treasury itself. The Government is in the process of acquiring a minimum participation of one-third of the share capital of the other four commercial banks. 4.06 Based on aggregate figures from three of the banks, the table below gives an indication of the very limited role commercial banks play in SME finance: Three Representative Banks Credits Outstanding (March 1974) CFAF million US$ million % Total Total short and medium-term credit outstanding 48,000 213.00 100.0 of which: Medium-term 3,000 13.00 6.5 of which: Cameroonian-controlled firms 450 2.00 0.9 of which: - housing 355 1.58 0.7 - other (including commerce and industry) 95 0.42 0.2 - 16 - 4.07 Because of the risks and costs involved in financing SME's, commer- cial banks finance practically only long-standing customers. Due to slowness in the judicial process, commercial banks do not fully rely on securities offered but tend to prefer consortial loans with BCD as the lead bank in order to benefit from BCD's extraordinary recovery privilege (see Annex 4R). The banks lack trained staff to assist entrepreneurs in preparing loan applications and with their internal accounting. The proposed technical assistance facili- ties (Chapter III) and Guarantee Fund (para. 5.06) proposed under the project should serve to involve commercial banks in possible future SME projects. 4.08 Societe Nationale d'Investissement (SNI). The Societe Nationale d'Investissement (SNI) was created in 1964 as a fully Government-owned company in order to promote development in industry, agriculture and trade. Its ob- jectives were to mobilize national savings, to make or to finance project studies, to finance investments through equity particpations, loans or guaran- tees, and to manage the direct investments of the State and of public institu- tions. SNI has primarily been active in making equity investments and lends only to companies in which it is a shareholder. 4.09 SNI's resources at June 30, 1973, consisted of share capital of CFAF 1.0 billion, reserves (CFAF 0.2 billion), solidarity and endowment funds (CFAF 0.5 billion), and Equipment Bonds, obligatory subscribed by banks, stabiliza- tion funds, pension funds and other financial institutions, amounting to CFAF 4.6 billion, for total resources of CFAF 6.3 billion. SNI's equity portfolio stood at CFAF 3.7 billion of which 43% was in food and agro-industries, 21% in hotels, and the remainder diversified. Out-standing loans amounted to only CFAF 0.4 billion. SNI's portfolio has strengthened over the last few years. 4.10 While continuing to serve as the promoter of and channel for Govern- ment investment in large-scale industry, SNI has been practically inactive in the field of small-scale enterprises, having invested in only four companies whose total equity is no more than CFAF 60 million. SNI should also assist firms which require equity capital participation for expanding to medium and large-scale operations. Banque Camerounaise de Developpement (BCD) 4.11 BCD, established in 1960, is a multi-purpose development bank with a majority Government shareholding (75%); CCCE holds 16%, the Central Bank 8% and Bremen Landesbank a token 1%. It finances industry, agriculture, trade, crafts, housing, and household and professional equipment. It may promote trade, handcrafts and small and medium-size enterprises. BCD provides short, medium and long-term loans, equity particpation, guarantees, and finances pub- lic or private corporations or individuals. In practice, the bulk of loans approved has been loans for up to 18 months. For the year ending June 30, 1974, loan and guarantee approvals totalled CFAF 7.5 billion (US $33.3 million); at year end, loans and guarantees outstanding amounted to CFAF 9.9 billion (US $44.0 million). Details are at Annex 4. - 17 - 4.12 Relations with the Government. The BCD has close ties with the Government, which appoints nine out of the twelve Board members; BEAC names one and CCCE the remaining two (Annex 4A). Among the Government representa- tives are top ranking officials of the Ministries of Finance, Planning, and Agriculture. Two directors represent mixed public-private enterprises, and the Board can draw on the expertise of an accountant and an engineer who are among its directors. The Board meets about three times a year and has dele- gated authority to grant unlimited short-term credit, medium-term loans up to CFAF 30 million and long-term loans up to CFAF 10 million to a Credit Commit- tee, consisting of the Director General and Board members representing Govern- ment, BEAC and CCCE. A Government Commissioner, appointed by the Minister of Finance, has a veto power over Board decisions, but to date has never exercised it. The Director General is appointed by Presidential Decree upon nomination of the Board. The present Director General, Mr. Gottlieb Titti, a former civil servant in the Department of Taxes of the Ministry of Finance, was appointed in August 1971. 4.13 Role of CCCE. In addition to its presence on BCD's Board, CCCE's financial and technical assistance has been a key factor in the development of the BCD' in recent years, CCCE has been the only provider of technical assist- ance to BCD and by far its main provider of long-term finance (para. 4.19). There are now two technical assistants from CCCE; although officially they are only advisers, they occupy key functions. CCCE has made continuous efforts to train local management for BCD. These efforts have been frustrated because all BCD staff trained in CEFEB (the CCCE's training institution) except the last one (Mr. Haman Djoda, now head of the Credit Department) have been assigned to posts outside BCD shortly after their return from France, an indi- cation of the scarcity of trained financial analysts throughout the public sector. In recent years, the CCCE advisers were given no counterparts to train. Although this is evidence of the Government's confidence in CCCE advisers, the effect unfortunately is to leave BCD without experienced local management at a time when CCCE is reducing its active involvement. 4.14 Organization and Staff. BCD's organization chart is at Annex 4B. The main operating departments are the Credit Department which is responsible for appraisal and follow-up in all sectors except agriculture, the Agricultural Credit Department which performs the same functions for that sector and the Finance Department which is responsible for disbursements and accounting. BCD has branches in Douala, Bafoussam, Garoua, Victoria and Yaounde, which grant only small loans for housing, vehicles and durable consumer goods. The Douala branch performs preliminary project analyses, but projects are finally appraised by the staff of the head office in Yaounde. The total number of em- ployees has been reduced drastically from about 320 in 1965 to 197 in September 1968 and 138 at October 1974. However, over half are support staff; there are only 17 professionals. BCD continues to reduce the staff through attrition. Under the proposed project training would be the primary task of the technical assistance to BCD (para. 5.04); support from EDI for key individuals at BCD is also expected. - 18 - 4.15 Policies and Procedures. BCD's basic policies and procedures are detailed in its by-laws ("Reglement Interieur", revised for the last time in January 1974), which can be altered only by a three-fourths majority of the Board and the approval of the President of Cameroon. The by-laws, first, set minimum and maximum balance sheet relationships between resources and uses to which they may be put. For example, medium-term loans committed may not exceed medium-term borrowings and rediscounts plus 10% of short-term deposits plus any uncommitted long-term funds: fixed assets and equity investments together may not exceed 50% of BCD's equity plus endowments and borrowings specially made for those purposes. The by-laws also set forth the composition and approval limits of the Credit Committee (para. 4.12) and the powers of the Director General. 4.16 Individual equity investments are generally limited, by the by-laws, to 10% of the capital of each company to which BCD subscribes; this require- ment may be (and has been) waived if Government indicates a particular project is of special importance to the economy. There is, however, no limit on BCD's exposure, the amounts outstanding in equity, loans and guarantees, to any one company (see para. 4.25). The by-laws describe, in detail in certain cases, the conditions to be applied to some types of loans. For example, housing and real estate loans are limited according to various formula by the borrower's salary, the absolute amount and the percentage of total investment cost to be financed; moreover, minimal acceptable securities and maximum terms are also set. However, flexibility is maintained as amount, duration, minimum equity or other conditions are determined for each project individually for short, medium and long-term credit to agriculture, industry and commerce; for these loans there is no maximum set on loans to any single or related borrower. BCD has agreed during negotiations to supplement the by-laws with a policy state- ment conforming substantially to those under which most Bank-supported dfc's operate (see para. 5.15). 4.17 Appraisals and Follow-up. Most of BCD's credits to large industries and agro-industry have been made in consortial form (see Annex 4R) where only the lead bank ("chef de file") is in contact with the investor; BCD is rarely the lead bank. According to BCD, the quality of commerical bank appraisals for these loans is uneven. BCD's own appraisals of consortial or non-consortial credits suffice for prudent banking, assessing the credit risk to BCD, but do not serve to allocate funds to sound projects. Appraisals of short-term or small loans are carried out by the professional staff of the Credit and Agricul- tural Credit departments and by the senior CCCE advisor for medium-term, larger loans. In the large majority of cases, an applicant's technical and financial plans are merely accepted without question by the staff or discussion with the applicant; financial projections tend to be cursory computations of figures supplied by the applicant. The appraisals demonstrate the ability of a project or applicant to cover loan service payments and give close attention to an analysis of the security offered. However, in general they lack explicit evaluation of an applicant's managerial capabilities, independent evaluation of either market prospects or marketing arrangements, and economic evaluation is limited to indicators such as jobs created and foreign exchange directly saved by a project. Follow-up is limited to the review of the annual financial - 19 - statements from the larger borrowers. There are, at present, no follow-up visits; according to BCD, this is due to lack of staff. Provision of technical assistance to BCD and new produres in line with the policy statement under the proposed project are intended to remedy these flaws (paras. 5.04 and 5.15). 4.18 Disbursement and Procurement. The managing bank of consortial credits ("banque gerante", see Annex 4R) provides the funds. Even when BCD is the managing bank, it channels the funds through the commercial bank in which the borrower is a client. The BCD does not check whether disbursement is prop- erly controlled and relies on its recovery privilege to prevent customers from misusing its loans. Explicit procurement policies are lacking. Procedures to be adopted under the proposed policy statement are expected to fill these gaps (para. 5.15). 4.19 Resources. BCD's resource position was as follows, as of June 30, 1974: CFAF million Equity Share capital (paid-in) 1,418 Grants from Government 652 Reserves 455 2,525 Long-term debt CCCE 2,024 KfW 319 Local institutions 434 2,777 Medium-term debt BEAC 3,347 Government 250 Local and foreign institutions 200 Deposits 41 3,838 - 20 - CFAF million Short-term debt BEAC 742 Deposits 557 1,299 Total resources 10,439 Loans outstanding 7,049 Equity investments 751 Fixed assets (net) 688 Total uses 8,488 Resources available for disbursement 1,951 Less: undisbursed commitments 2,378 Resource gap for commitments (427) This gap results from, first, BCD granting small housing loans some CFAF 500 million in excess of its rediscount ceiling, an expected increase in the ceiling having failed to materialize, and, second, the shift of a CFAF 330 million International Coffee Organization Diversification Fund deposit from a sight deposit funding loans at BCD's risk to an Operation on Government Account at Government's risk. Hence, the gap is not a serious adverse reflec- tion of BCD's financial planning and should be covered, given normal disburse- ment lags, by internal cash flow and undisbursed funds available from the operations at the risk of Government. BCD manages CFAF 1,231 million in such Government operations, financed primarily by bilateral loans; although it neither carries any risk nor receives any fee for these, acting primarily as paying agent, the undisbursed funds (CFAF 666 million at June 30, 1974) are a useful source of free liquid resources and substantial interest on those in short deposits. Rediscount facilities at the Central Bank accounted for 40% of BCD's resources. Loans from CCCE comprised some 20% at rates from 3.50% to 5.00% with a weighted average of 4.44%. BCD has incurred large losses as a re- sult of carrying the full foreign exchange risk on a 1963 loan from KfW; as the balance should be repaid by mid-1976, measures to protect BCD from such losses in future were not a condition for the proposed credit. Avoidance of future foreign exchange exposures is a provision of BCD's proposed policy statement (para. 5.15). 4.20 Operations. A detailed breakdown of BCD's operations by term, sector and type is given in Annexes 4E and 4F for the fiscal years 1970 through 1974. Interest rates and taxes paid by borrowers for BCD's lending, origin and cost of resources and BCD's spread by type of operation are detailed in Annex 4D. Loan and guarantee approvals for the year ending June 30, 1974 can be summa- rized as follows: (CFAF billion): - 21 - Agriculture Industry Housing Other Total Short-term 3.4 0.4 - 0.5 4.3 Medium-term 0.4 0.9 1.0 0.6 2.9 Long-term - 0.1 - 0.2 0.3 3.8 1.4 1.0 1.3 7.5 4.21 Agricultural credits accounted for some 50% of all loan approvals; most are short-term loans for marketing of agricultural products, usually made in consortia with commercial banks. Short-term interest rates are normally 3% to 4% above the rediscount rate of 4% or 5-1/2%. Medium- and long-term inter- est rates range from 7% to over 11%. 4.22 Industrial lending constituted about 20% on average of BCD's annual total approvals, increasing irregularly from CFAF 0.6 billion in 1969/70 to CFAF 1.3 billion in 1973/74 split roughly equally both between short and medium/long-term as well as direct versus consortial loans; Annex 4G provides a detailed breakdown. Over 90% of BCD's lending to the sector has been to large-scale enterprises, including energy, transport and civil works contrac- tors; these subsectors have taken a large share of these credits. Total loans to small-scale industry (firms with assets less than CFAF 30 million) and arti- sans over the five years ending June 1974 numbered 155 out of 360 industrial loans. Term lending accounted for 40% by number and by amount of all small in- dustrial loans. Interest rates on most loans range up to 11% for both short- and medium-term at spreads for BCD of 3 to 5%. Some artisan and small industry credits carry an add-on interest charge of 6% of the initial balance, equiva- lent to an annual rate of about 11.50%. 4.23 Other lending includes housing loans, car and consumer durables loans and a small amount of loans to commerce. The housing loans, mostly medium- term, averaging about $3,000, are granted for both rental and owner-occupied housing; these loans are generally well-secured by mortgages and debt servicing is generally by direct paycheck deduction. Although consumer loans are in- herently more risky than much of BCD's other operations, strict limits on loan amounts in relation to the goods to be purchased and the borrower's income have kept defaults low and made such lending feasible for BCD. Interest rates are 7% to 11.50% for housing loans and 11.50% for car and consumer durables loans. 4.24 Portfolio. At June 30, 1974, BCD's total credits and guarantees out- standing were CFAF 9.8 billion(US $43.7 million), broken down as follows (CFAF million): Short-term Medium-term Long-term Doubtful Total Agriculture 1,976 607 270 44 2,897 Industry 681 1,259 1,286 49 3,275 Housing 39 1,693 250 74 2,056 Other 468 708 294 144 1,614 Total 3,164 4,267 2,100 311 9,842 - 22 - A more detailed analysis of the portfolio is at Annex 4H. In addition, BCD had undisbursed commitments of CFAF 2.4 billion, 80% for medium-term loans. 4.25 Arrears and Exposures. BCD had "unrecoverable" loans of CFAF 58 million (not included above) for which management has no hope of recovery and which are fully covered by provisions; the "unrecoverable" category is purged of old defaults at irregular intervals, 85% of these loans having been written- off during 1974. Recovery of "unrecoverable" and "doubtful" loans averages 15%. Loans are classified as "doubtful" when payments of principal and/or interest are more than 6 months late. Loans with payments less than 6 months overdue continue to be classified as normal. Consortial loans, normally carried out of the balance sheet, are put within the balance sheet if payments fall in arrears and classified as appropriate. As detailed at Annex 4H, arrears totalled CFAF 481 million, 5.1% of the portfolio, and loans affected by arrears amounted to CFAF 1,086 million, 11.6% of total loans outstanding. Provisions for losses of CFAF 280 million cover 62% of loans classed as doubt- ful and an additional 0.9% of normal loans. BCD's largest single exposures are to three mixed public-private companies, each of which has outstanding loans (all of which are being serviced normally) or equity participations of about 30% of BCD's share capital plus reserves. Despite these substantial ex- posures, BCD's loan portfolio appears fundamentally sound. 4.26 Equity Investments. BCD has subscribed to equity investments totalling CFAF 751 million in 16 companies. Details are at Annex 41. Over 50% has been invested in four commercial banks in Cameroon: these are the only dividend-paying shares in the portfolio. Investments in companies operat- ing profitably account for almost 60% of BCD's investments net of provisions; approximately 10% is invested in firms under construction and a similar amount in non-profit study and development companies. The remaining 25% of the total is invested in companies operating unprofitably or in liquidation. Provisions are probably inadequate by some CFAF 150 million; evaluation of the equities would be subject to audit. 4.27 Profitability and Financial Condition. BCD is not profit-oriented and, as most similar institutions in francophone African countries, is expected to make only a token profit. By tacit agreement between the Ministry of Fi- nance, the Central Bank and BCD's management, the cost of resources, lending rates and rediscount facilities are adjusted so that the balance on financial operations covers administrative expenses plus a small profit. Profits, though small, have increased markedly over the past five years, mainly because admini- strative expenses increaded by only 13% (as their proportion to total assets decreased from 5.0% to 3.7%) whereas both financial income and expenses in- creased by around 40%. In fiscal year 1974, operating income after provisions amounted to 2.5% of average total assets; net profit after tax amounted to 1.3% of average total assets; net profit after tax amounted to 1.3% of average total assets and 4.4% of average equity. As of June 30, 1974, the overall debt/ equity ratio was 2.1:1. Balance sheets, income statements and financial ratios, at Annexes 4J, 4K and 4Q, detail BCD's sound financial condition. - 23 - 4.28 Audit. BCD is not subject to an annual independent audit but is subject to three forms of supervision: (i) two Commissaires aux Comptes who verify the correctness of the accounts without an independent examination or evaluation of the supporting documentation; (ii) the Government's Inspection de l'Etat which is supposed to examine the books annually, seeking any irregu- larities, but in practice does not do so; and, (iii) missions from CCCE in principle annually but the last one in 1971, which examine the accounts in de- tail, perform some independent verification and assess minimum ratios of liquidity and profitability. Under the proposed project, BCD would engage in- dependent auditors (para. 5.12). 4.29 Prospects. Annexes 4L to 4Q detail projected approvals, financial statements and cash flow through fiscal year 1979 together with the assumptions used in making the forecast; these assumptions include the present proposed joint project as well as a similar possible second phase loan. 4.30 As detailed in Annex 4M, BCD's ongoing operations are expected to grow steadily over the five-year forecast period. Housing loans are expected to drop from the high rate in FY74 but then to resume slow growth. Conversely, short-term agricultural lending is expected to recover from its decline in 1974 and continue to constitute slightly less than one-half of BCD's loan approvals. The most important contribution to BCD's growth, however, are expected to be large-scale industry and, under the proposed Bank/CCCE project, SME. Industrial lending is already close to CFAF 1.5 billion and is expectedto grow at over 12% a year to some CFAF 2.5 billion, with term lending comprising some 60% of the total. As detailed in chapter V, under the project, SME lending is expected to triple during the quinquennium and term lending should grow rela- tively even faster. 4.31 To finance this program, BCD will require net borrowings of some CFAF 6.5 billion (Annex 4N). BEAC will supply the bulk of this finance; the proposed IBRD/CCCE loans would cover about 20% of total requirements. The forecasts also reveal BCD's need to borrow CFAF 1.3 billion, in addition to the proposed joint project loans, over the five years from sources not yet identified. These sources could be other external lenders or local insurance companies and financial institutions, which lent CFAF 0.5 billion to BCD in the past two years. The overall term debt/equity ratio, would be maintained under 4:1 through fiscal year 1979; agreement on such a limiting ratio was obtained at negotiation. Net income would remain at the level of about CFAF 100 million or about 6% of share capital, after yearly provisions forecast at 1% of total portfolio which is equivalent to about 1.5% of yearly disburse- ments. Thus, BCD should maintain its financial soundness while executing the proposed project. - 24 - V. THE PROJECT Project Description and Components 5.01 The proposed credit amounts to US $3 million to assist BCD in fi- nancing the establishment and expansion of privately owned small- and medium- scale enterprises. The investment component would be jointly financed with CCCE and UNDP and the Government would finance the the technical assistance component. The objectives of the project are stated in para. 1.02. 5.02 Subloans. Based on a review of past and projected activity by BCD and the technical assistance agencies, approximately 80 subprojects are ex- pected during the two-year commitment period, ranging from total investment costs of about CFAF 5 million to over CFAF 100 million. Based on the agencies' expected staffing, four-fifths of these subprojects would be assisted by CAPME, SATEC or AFCA; the remainder would be new or expansion projects based on the entrepreneur's experience and training or assistance from a technical partner. Subloans would fall into two groups: (i) loans to small enterprises where BCD's loan to the subborrower did not exceed CFAF 30 million normally to firms with total assets after the project less than CFAF 38 million (US $170,000); and, (ii) loans to larger enterprises receiving more than CFAF 30 million from BCD. As guidelines, the financing plans are expected to be approximately as follows: - 25 - Long/medium-term loans Equity IDA CCCE BEAC /1 Entrepreneur Total Smaller subprojects 40% 40% - 20% 100% (Loans under CFAF 30 million) Larger subprojects 20% 20% 30% 30% 100% (Loans over CFAF 30 million) /1 BCD medium-term loans rediscountable with BEAC. Actual financing plans will be determined for each subproject by the entrepre- neur, BCD, the technical assistance agency (if any) and IDA/CCCE. Consequently, the subloan profile would be approximately as follows: Smaller Larger subprojects subprojects Total Number of subprojects expected 65 79 17 21 82 100 Total cost of subprojects (CFAF million) 870 35 1,600 65 2,470 100 (CFAF (CFAF million) (US$'000) million) (US$'000) Maximum subproject cost 37 165 - Maximum BCD loan 30 134 - of which: IDA 15 67 - - Average subproject cost 13 58 97 430 Average BCD loan 10 44 68 300 of which: IDA 5 22 19 86 5.03 Onlending Terms. The effective cost of project subloans to sub- borrowers would be as follows: % p.a. Cost of funds from IDA and CCCE to BCD 5.00 Spread for BCD 2.75 Onlending interest rate 7.75 Taxes paid by borrowers 2.00 Guarantee or foreign exchange risk fee 1.25 Cost of funds to subborrowers 11.00 - 26 - On subloans covered by the guarantee scheme (para. 5.06), a guarantee fee of 1.25% would raise the effective cost to 11% p.a.; Government would bear the full foreign exchange risk. On other subloans, as likely subborrowers have very little experience with and would likely be unwilling to borrow in unspecified foreign currencies, Government would charge a foreign-exchange risk fee of 1.25%, making the effective cost of funds 11% for these sub- borrowers as well. Appropriate subloan maturities would be based on indivi- dual subproject projected cash flows; total terms are expected to be from 7 to 15 years, including 2 to 3 years of grace. The proposed rate is slightly higher than BCD's current term loan rates (Annex 4D) but lower than estimated rates in the traditional capital market; commercial banks rates would likely be about 13%, but they have lent only token amounts to small enterprises in the past recent years. The 11% rate represents a compromise with the Govern- ment who felt that an 11% rate was important as a sign of support for Cameroonian entrepreneurs. It also represents a 2Z increase in BCD's present rates charged on much of its industrial lending. With price inflation estimated to average between 7 and 8% p.a. over the project life, real financial charges would be positive in the range of 2 to 7% p.a. (Annex 4S). A spread of 2.75% to BCD is comparable to the present range of spreads on its term industrial loan and, since the guarantee fund (para. 5.06) would provide substantial cover for losses, this spread is considered adequate. Given the 1.25% fees noted above, a tax on credit equivalent to 2%, and the BCD spread of 2.75%, the onlending rate from Government to BCD will be 5.0%. As part of its overall study of SME (para. 3.06), CAPME will undertake a thorough study of the source and costs of credit to SME; the conclusions of this study will provide a firmer basis for future interest rate policy in Cameroon as well as possible future Bank projects. 5.04 Appraisals and Subproject Review. Subloans would be made on the basis of BCD's appraisal. To strengthen its industrial appraisal capabilities, two financial analysts/economists, an industrial engineer, and counterparts would be recruited to form an industrial lending unit in BCD. As part of nor- mal loan appraisal and supervision, the industrial unit would help formulate financing plans and provide financial counseling. The three expert positions would be financed by UNDP; job descriptions are at Annex 4T. CCCE would review all subprojects. Loans of up to CFAF 30 million (i.e., expected to be IDA funds of CFAF 15 million or US$67,000 equivalent), after approval by BCD's Credit Committee, would not require pprior IDA approval, up to aggregate IDA financing of US$1.5 million (CFAF 337 million). This exceptionally large aggregate free limit, equivalent to one-half of the IDA credit, would main- tain the simplicity of the lending procedures for smaller entrepreneurs, serving to stimulate such loans, while the technical assistance personnel help to maintain subloan quality. A representative sample of these subproj- ects would be subject to ex post review by normal supervision missions. 5.05 Subprojects over the free limit would be submitted to IDA and/or CCCE for review; the choice of lender would be at BCD's option. IDA and CCCE would inform each other of subproject approval, disapproval or further information required from BCD. If contrary decisions were taken on a sub- project submitted to both, BCD would be free to resubmit it to the other lender for consideration of a larger amount or to finance the subproject else- where. Disagreements on subloans above the free limit are not expected to be - 27 - frequent enough to prevent substantially parallel disbursement. These proce- dures would provide the rapid review needed in SME lending, help upgrade BCD's effectiveness as a development bank and permit a workable joint operation with CCCE. 5.06 Subloan Guarantees. A guarantee fund for project subloans would help cover the higher risks and lower secruity availability to SHE lending. The eventual role and necessity of a guarantee fund is an experimental aspect of the project and experience gained is expected to be useful in future projects in Cameroon and elsewhere; moreover, the procedures instituted may eventually serve as a model for guarantees for commercial bank credits in future SME lend- ing. As both BCD and Government sought the inclusion of such a fund as an ele- ment of the project, procedures were developed, in cooperation with IDA, to minimize any additional administrative burden on subborrowers or BCD. Fonds d'Aide et de Garantie des Credits aux Petites et Moyennes Entreprises Camer- ounaises (FOGAPE), established by Decree of April 2, 1975 under the auspices of BCD, would be used as the guarantee fund; it has been funded with a CFAF 125 million budgetary allocation, has received CFAF 82 million representing 10% of the profits made by commercial banks in 1973-74, and will continue to receive a certain percentage of these profits annually. BCD's loans to SME, as defined by the above Decree (see definition in para. 2.12), would automatic- ally be covered as a concomitant of approval by BCD; however, by advance notice to BCD, FOGAPE could refuse to guarantee individual loans. As the representa- tives of BCD and Government on FOGAPE's management committee also sit on BCD's Credit Committee and Board, loan and guarantee decisions should generally be parallel. The guarantee would normally cover 80% of any eventual loss. BCD would still be obliged to pursue its normal bad debt recovery procedures. A fee of 1.25% of the loan outstanding, equivalent to 1.56% of the guarantee coverage, would be charged and paid to FOGAPE. The guarantee fund would break- even with a final default rate of about 14% of loans covered. Any losses re- sulting from higher defaults would be covered from budgetary appropriations. The maximum ratio between guarantees outstanding and FOGAPE's resources is set at 7:1 by the Decree creating FOGAPE. 5.07 Investment Incentives. As the incentives available under the PME regime (para. 2.13) are widely perceived by entrepreneurs to be valuable and many defer beginning a project until the incentives are granted, the approval procedures would be simplified and accelerated for all PME loans approved by BCD (See Annex 1, para 19). 5.08 Technical Assistance to SME. The project would help CAPME to serve its designated role of coordinating SME technical assistance (para. 3.25). The preparation of the project has already considerably served that purpose. Contracts between CAPME and SATEC and CAPME and AFCA, defining their working relationship, have been finalized during negotiations. It has been agreed that close contacts will be maintained between these institutions through frequent meetings and procedures for reporting to CAPME, allowing CAPME to fulfill its mission, while SATEC and AFCA would remain responsible for selec- ting their staff, subject to agreement by the Government, and the choice of their working methods. The entrepreneur will remain free to have recourse - 28 - to the technical agency of his choice. In addition to its coordinating role, CAPME will provide essential information - gathering and policy review services. In particular, it will study in depth the SME sector in Cameroon. It will also develop its capacity of providing various kinds of advice to enterprises set up with the help of SATEC or AFCA after they have become operational. CAPME expects to receive five expatriate experts and an appropriate number of coun- terparts through a UNDP project. 5.09 Under the project, SATEC and AFCA would expand their present activi- ties, SATEC focusing on the promotion of small-to-medium size projects and AFCA on training and on advising former trainees on management and investments. SATEC and AFCA agreed to apply economic criteria to project appraisal. SATEC's professional staff in Cameroon would be expanded to 16 including the new office in the north at Garoua. Similarly AFCA would become active in the north and expand its staff in relation with the project to 4 professionals. Proposed budgets for SATEC and AFCA are at Annexes 3B and 3C. CAPME's budget would be defined in light of the conclusions of the ongoing study and UNDP funding is expected to continue. With a view towards future projects, an equally important activity of SATEC and AFCA would be training of its local staff as the integration with or close coordination by CAPME proceeded; the projected initial staffing would be as follows: Professional Staff Expatriate Local Total BCD Industrial Lending Staff 3 3 6 AFCA 2 2 4 SATEC 9/1 7 16 Total 14 12 26 /1 Plus one engineer full-time and one engineer part-time at SATEC's head- quarters in Paris. The continuing assistance to SME after start-up, coupled with CAPME's activi- ties, would permit close monitoring and subproject evaluation by IDA and CCCE. 5.10 On the basis of the above assumptions, the project would generate some CFAF 2,500 million (US$11.2 million) in investments, supported by US$2 million in technical assistance (not including CAPME), to be financed as follows: - 29 - BCD From IDA From CCCE From BEAC Entrepreneurs UNDP Govt. Total Amt. At Amt. Amt. _ Amt. A Ant.. Amt. % US$ million Subproject Investment a) smaller sub- 1 projects 1.6 40 1.6 40 0.8 20 3.9 100 b) larger sub-- / projects 1.4 20 1.4 20 2.2 30 2.2 30 7.3 100 Sub-Total 3.0 27 3.0 27 2.2 19 3.0 27 11.2 100 Technical Assistance a) SATEC 0.7 50 0.7 50 1.4 100 b) AFCA 0.1 54 0.1 46 0.2 100 c) BCD 0.4 100 0.4 100 Sub-T ctal 1.2 0.8 40 2.0 100 TOTAL 3.0 23 3.0 23 2.2 17 3.0 23 1.2 9 0.8 6 13.22 100 CFAF million Subproject Investment a) smaller sub- projects 350 350 170 870 b) larger sub- projects 325 325 500 500 1,650 Sub-Total 675 675 500 670 2,520 Technical Assistance a) SATEC 150 150 300 b) AFCA 35 30 65 c) BCD 81 81 Sub-Total 266 180 446 TOTAL 675 675 500 670 266 180 2,966 1/ Figures do not add-up horizontally becaus3 of rounding. 2/ Not including UNDP's continuing assistance to CAPME (of about US$0.8 million for the period) which will also benefit the project. DFCD May 28, 1975 - 30 - 5.11 The proposed Credit of US$3.0 million would be used entirely for investment subloans. Government's onlending to BCD would be at 5% and on a fixed schedule of 15 years, including 3 of grace, subject to revision to approximate aggregate subloan repayments to BCD. CCCE would lend directly to BCD at an interest rate of 5% on terms paralleling Government's onlending. The full foreign exchange risk would be taken by Government but loans not covered by a guarantee would carry a foreign exchange risk fee of 1.25% on outstanding amounts, equivalent to 2.50% on the part of the loan financed by IDA, which is the only financing with an exchange risk. Although the foreign exchange component of individual subprojects might range from 30% to 90%, the overall average is expected to be about 55%. As mentioned earlier IDA financing would cover about 40% of total cost of smaller projects and about 20% of total cost of larger projects co-financed by CCCE; in the rare cases of larger proj- ects where IDA funds would be the only source of foreign exchange, IDA would cover 40% of total cost. To encourage smaller loans and maintain simplified procedures, it would be possible in some cases to finance local currency costs with IDA funds, but on balance IDA financing would almost never exceed the foreign exchange component of a project and would represent only about 50% of the estimated foreign exchange component of all projects. With UNDP financing 100% of the foreign exchange cost of the technical assistance, the three ex- ternal agencies would firance 98% of the foreign exchange component and 54% of total project cost. 5.12 Audit. Under the project, the accounts of BCD would be subject to annual independent audit by firms engaged on terms and conditions satisfactory to the Association. Prior to effectiveness, BCD would submit a satisfactory audit of its accounts as at June 30, 1975. 5.13 Procurement. Equipment to be procured under the loan would be small - mostly below US $25,000 - and varied and, therefore, unsuitable for bulk procurement through international competitive bidding. Essentially all of the capital goods would be imported but purchased "off-the-shelf" from domestic distributors. Overseas suppliers for most of the imported machinery and equipment are adequately represented in Cameroon; competition among them is sufficient and their services reasonable. Most subloans are expected to involve financing construction of industrial buildings. Overall, the construction industry seems efficient and competitive. BCD would satisfy itself that goods and services procured are competitive in quality and price and meet the needs of its clients. Agreement has been reached with CCCE that procurement for subprojects financed jointly would not be restricted to the Franc zone, as is its normal practice. 5.14 Disbursement. Disbursement of the Credit would be for 50% of BCD approved smaller subloans (para. 5.02) and up to 100% of BCD approved larger sub-loans, the expected share of the IDA credit in larger sub-loans being about one-third of their aggregate amount. BCD would submit the normal documentation for larger sub-projects. However for smaller sub-loans, IDA would allow, after a starting period, that the supporting documentation be retained at BCD for inspection by supervision missions and a summary request for reimbursement of funds advanced would be forwarded to IDA quarterly. These arrangements would be covered by the proposed annual audits. Disbursement of the Credit is expected to take 4 years; an estimated schedule is at Annex 5. - 31 - 5.15 Policy Statement. During negotiations, BCD has agreed to adopt a Policy Statement which will inter alia: (i) normally limit its total expo- sure on a single enterprise to 20% of BCD's equity; (ii) limit its total equity investments to BCD's equity and (iii) state that BCD will not assume any exchange risk on its borrowings in foreign currencies. The agreed text of Policy Statement is at Annex 4U. As the three parastatal borrowers ex- ceeding the above limit of 20% appear sound (para. 4.25), immediate reduction in these positions is unnecessary; BCD would not expand these exposures and abide by the Policy Statement limits for future operations. In addition, section 3.05 of the Project Agreement between IDA and BCD specifies that the term debt of BCD, plus its commitments over one year related to consortial loans and to guarantees, should not exceed four times BCD's equity. VI. BENEFITS AND JUSTIFICATION 6.01 In a country where there seems to be a reservoir of potential small entrepreneurs, the project is an effort to deal with three bottlenecks to their development: technical assistance, finance and administrative procedures. Given actual loan demand in the face of past difficulties, it is expected that applications for technical assistance and financing will considerably increase when it is known that a single decision in the Credit Committee of BCD can pro- vide the applicant all the financing he needs, backed with Government guaran- tees, and considerably facilitate and accelerate granting of incentives under the PME regime. 6.02 The activity of the existing technical assistance agencies will be increased, diversified sectorally, with greater focus on the smaller entrepre- neurs, and diversified geographically, with opening of a new center of activity in the north. CAPME has started coordinating technical assistance and agree- ment between all technical assistance agencies for closer coordination was reached during negotiations. Cost-effectiveness of technical assistance should be improved through a greater volume of business, better appraisals and savings of time previously spent for obtaining investment incentives. 6.03 The appraisal capacity of BCD will be strengthened, and selection of projects improved, in particular through a more systematic use of economic analysis both within BCD and the technical assistance agencies. 6.04 Through this first credit, the Bank will have an opportunity to: (i) continue to be associated with current studies on future expansion of technical assistance activities; (ii) agree to the choice of experts for BCD, SATEC and AFCA; (iii) learn more on the SME sector and on the ways to help it, particularly through close supervision of BCD and monitoring of the technical assistance agencies; (iv) study and discuss with the Government industrial policies; and (v) prepare future action based on an improved technical assistance institutional set-up, possible inclusion of commercial banks among the financing agencies, and revised industrial policies. - 32 - 6.05 The project providing about 36% of BCD's financing requirements, its financial impact is clear. While the project's direct benefits are difficult to quantify, it would provide needed financing and technical assistance for 65 small Cameroonian entrepreneurs and perhaps 17 larger projects, helping to develop entrepreneurship and contributing to production, employment and, hope- fully, foreign exchange resources. Subprojects are expected to have a financial rate of return in excess of 15% and the economic evaluation proce- dures would be substantially improved. Considering the substantial urban unemployment and the under-exploitation of many local raw materials, economic rates of return of most subprojects are expected to be above their financial return. Most workers are expected to come from the large untrained labor force; modernization of production facilities and techniques would help upgrade skills of trained and untrained labor. The expected geographic distribution of subprojects would make a small contribution to regional development and in- dustrial decentralization. Finally, since much of the additional goods produc- tion would be substituting for imports, the project's balance of payments impact would largely consist of foreign exchange savings. VII. RECOMMENDATIONS 7.01 An IDA credit of US$3 million is recommended, to be onlent by the Government to BCD at an interest rate of 5%, on a fixed schedule of 15 years, including 3 years of grace, subject to revision in order to approximate ag- gregate sub-loan repayments to BCD. 7.02 All smaller BCD sub-loans, defined as BCD loans up to CFAF 30 mil- lion (US$133,000) would be financed jointly and equally by IDA and CCCE. It is expected that the two institutions would also share in the financing of most or all larger sub-loans, but BCD would remain free to seek such financing from only one of them. Thus IDA financing may amount for larger sub-projects to up to 100% of BCD financing. Considering that IDA financing under the project is expected to amount to only about 50% of the estimated foreign exchange component of all sub-projects, IDA would be prepared to finance local currency expenses on any particular project (see para. 5.11). 7.03 Smaller sub-loans, in which IDA participation would not exceed CFAF 15 million (US$67,000), would be considered as loans under a free limit. IDA participation in larger sub-loans would be submitted to prior approval by IDA, with an aggregate free limit of US$1.5 million. 7.04 The effectiveness of the credit would, in addition to the standard provisions relating to IDA credits, be conditioned on: (i) Effectiveness of CCCE joint loan; - 33 - (ii) Agreement of UNDP for financing technical assistance to BCD, SATEC and AFCA and signature of conventions between CAPME and SATEC and between CAPME and AFCA, as agreed during negotiations; (iii) Recruitment by BCD of two financial analysts and one engineer, satisfactory to the Association; (iv) Receipt by IDA of an independent audit of BCD accounts as of June 30, 1975, satisfactory to the Association. ANNEX 1 Page 1 CAMEROON SMALL- AND MEDIUM-SCALE ENTERPRISE PROJECT INVESTMENT INCENTIVES A. The Incentive System 1. As a member of UDEAC 1/, Cameroon's tariff structure is fixed by treaty among the four members. Tariffs and related taxes account for some 80% of all tax revenues in Cameroon; hence, in addition to the industrial protec- tion provided, duties are a vital budgetary resource. The system provides four separate taxes whose imposition and rates vary by the origin of imported goods, by specific type of goods and by their value. In combination, effec- tive duties on industrial machinery vary from about 20% to 60% ad valorem, with an average of about 40%. Duties on raw materials and finished goods range from about 40% to 80% in a few cases. The government grants exemptions from the tariff structure (and certain other taxes as well) through its Investment Code. Almost all medium- and large-scale industrial projects in Cameroon are implemented only after approval of Investment Code privileges, or are abandoned if the privileges are not granted. Entrepreneurs who seek Investment Code privileges prepare an application, including financial and other projections, and specifying the type of privileges that they desire. This application may refer to the Cameroonian market alone, or to UDEAC as a whole. 2. Cameroon's Investment Code has been harmonized with the Investment Codes of the other UDEAC countries, and Cameroon has agreed not to make changes without consulting them. Incentives available under the Investment Code are divided into a number of schedules: A, B, C, D, Forest Industries, and Small and Medium Enterprises. In addition, many privileged enterprises and some others are governed by special sales tax systems (partly incentives and partly revenue-raising devices), called the "inland production tax" (Taxe In- terieure a la Production - TIP). 3. Schedule "A" provides exemption (up to a maximum of ten years) from import duties on raw materials, packaging, supplies and machinery required for industrial or agricultural production. Reduction or exemption from export taxes also may be granted, and investors may be guaranteed against new import or export tax rates for ten years. 1/ UDEAC: Union Douaniere et Economique de 1'Afrique Centrale (Customs and Economic Union of Central Africa) includes Cameroon, C.A.R., Congo and Gabon. ANNEX 1 Page 2 4. Schedule "B" may provide all the benefits of Schedule "A", plus ex- emption from business income tax for five years (beginning with the first year of actual production). The business income tax (impot sur les benefices des societes) is at the rate of 33% of profits. All owners' or associates' salaries exceeding 25% of the profit must be added to the profit for tax pur- poses. A minimum profit tax is imposed at the arbitrary rate of 1.0% of sales or CFAF 400,000 whichever is higher. Normal depreciation charges during the five-year period of income tax exemption may be deducted from income during the following three years. Schedule "B" also provides exemption from the annual business license tax (patente), and mining and forestry taxes. 5. Schedule "C" is reserved for enterprises of special economic impor- tance for the implementation of the Five Year Plan, which engage in "priority" productive activities (those which are listed in the Plan). Such industries may negotiate a contract of establishment (convention d'etablissement) with the government for up to 25 years. This contract may provide some or all of the benefits of Schedule "B" (and thus of Schedule "A" as well). In addition, the government may guarantee legal, economic or financial continuity and free- dom from foreign exchange restrictions, free entry and movement of personnel, free choice of employees and suppliers, automatic renewal of forestry or mining permits, access to hydraulic or electric power resources, etc. Tax privileges may be passed on to shareholding companies. 6. Schedule "D" is reserved for enterprises of prime importance to national economic development, which make very large investments. These may receive all the benefits of Schedule "C", plus a guarantee against any change in tax rates for up to 25 years after production begins (up to five years may be allowed for installing plant and equipment). If tax laws become more favor- able, Schedule "D" industries may apply for the new benefits, or ask for a re- turn to normal tax status. 7. "Forest Industries" may be granted a 95% reduction of import taxes on equipment, both for logging and for sawmills or other processing plants. They may import either for replacement or expansion, provided they spend at least CFAF 10 million. Some of the largest forest enterprises have obtained approval under Schedule "A" through "C", but most forest products industries have been considered ineligible for these more attractive privileges. 8. "Small and medium enterprises" (PME) consist of all productive enterprises (including artisans) which are not considered important enough to qualify for the other Schedules. These may be granted a reduction of import taxes on equipment to a flat 5% ad valorem, for up to five years. In addition, small and medium enterprises may separately apply for the inland production tax. 9. The TIP or "inland production tax" law provides for exemption from import duties on imported raw materials, as well as from several internal sales taxes: e.g., the "transaction tax" of 8% on sales. These are valuable privileges for import substitution industries that use imported raw materials, ANNEX 1 Page 3 and - unlike Investment Code privileges - last indefinitely. Partial or com- plete exemption from export taxes can also be granted under the inland produc- tion tax procedure. In return for these privileges, a special tax is levied on production at the time it leaves the factory for sale to internal markets; sales for export or to other factories that have "inland production tax" pri- vileges are exempted. 10. The rate to be paid for the TIP is determined by the Ministry of Finance. Ministry experts estimate how much tax revenue could be obtained from an "inland production tax". Indirect effects, such as an increase in corpora- tion income or wage taxes usually are neglected, as is any possible "multiplier effect" on national income (and thus on general tax revenues). The maximum possible TIP is calculated as the difference between the duty-paid cost of competing imports and the allowable price under price control regulations (production costs at duty-free import prices, plus the allowable manufacturing margin of perha!s 11 percent; see below). The proposed rate usually is reduced below this maximum to allow some competitive price advantage to the local producer and to allow the manufacturing margin on the tax itself. To give a hypothetical example, a commodity whose duty-paid landed cost is 100 might be analyzed as follows: Duty paid landed cost of import 100 Less allowance for lower price for local manufacturer 3 Possible price for local manufacturer 97 Cost of Production: Labor ) Raw materials (duty-free imported) ) Depreciation (imports of machinery ) 65.00 duty-free) ) etc. Manufacturing margin at 11 percent 7.15 Sub-Total 72.15 Balance available (97-72.15) 24.85 Possible tax (24.85/1.11) 22.39 Manufacturing margin on tax (at 11 percent) 2.46 Sales price 97.00 Accordingly, the inland or single tax rate might be set at CFAF 22.39 for every CFAF 97 of sales, or 23.1 percent. ANNEX 1 Page 4 11. The estimated tax revenue on this basis is then compared with the estimated loss of import taxes on the finished product. If the loss of tax revenue is relatively moderate (e.g., 25-35 percent of former import tax col- lections), possible favorable effects of the project are considered, including: (a) Whether the project uses local raw materials, or depends on imports; (b) Whether the projects create a large (absolute) number of jobs; (c) Whether the project will avoid an increase in prices to the consumer (usually the Ministry does not favor a decrease in prices, and pre- fers to increase the inland or single tax. If such favorable advantages seem to be impressive, the Ministry approves the project. However, if the estimated loss of tax revenue seems high, or the advantages seem small, the Ministry may propose a reduction of privileges under the investment code. B. Procedures 12. Applications for investment code privileges are submitted to the Ministry of Industrial Development in 33 copies. An additional 30 copies are required for UDEAC applications. The Ministry of Industrial Development dis- tributes copies to a number of Ministries. Applications are referred to a working-level "Interministerial Committee for the Coordinated Study of Invest- ment and Development Projects". 1/ This Committee usually meets monthly, makes 1/ Members include: Director of Commerce and Industry, Ministry of Industrial and Commercial Development (Chairman) Director of Planning, Ministry of Plan Director of Budget, Ministry of Finance Director of External Economic Relations, Ministry of Industrial and Commercial Development Director of Territorial Development, Ministry of Plan Director of Rural Action and Development, Ministry of Agriculture Sub-Director of Private Investment, Ministry of Finance Head of Taxation Service, Ministry of Finance Representative of responsible Ministry President of SNI and General Manager of BCD, as advisors ANNEX 1 Page 5 a decision by a simple majority vote, and refers it to a cabinet-level Invest- ment Commission. 1/ This Commission meets at least once every six months, and approximately every four months if the volume of business makes that necessary. If an unanimous decision cannot be reached, conflicts must be referred to the Presidency for resolution. Schedules "A" and "B" are promulgated by Presiden- tial decree; Schedules "C" and "D" require legislation. 13. After final approval, the project is returned to the Ministry of Finance for the fixing of the inland or single tax rate. The Finance Ministry's decision is submitted (along with an opinion from the Ministry of the Industrial Development) to the Presidency for issuance of the necessary decree. 14. The Ministry of the Plan considers mainly whether a project is in accordance with the current Five Year Plan. Projects that have been listed in the Plan, or fall under some of its general provisions, are legally entitled to priority. The Ministry gives special attention to industries that are in- cluded in a list of 30 large projects, which was included in the present Five Year Plan. Many of these are held over from the previous Plan. The Ministry of the Plan also tries to encourage industries that use local raw materials, and sometimes discourages industries that do not. 15. The Ministry of Industrial and Commercial Development is primarily responsible for promotion of most industrial opportunities. It is, therefore, normally the advocate of applicants for the investment code privileges. The Ministry also tries to apply certain critical judgments, representing the gov- ernment's general thinking on the selection of industrial projects. Insofar as it can, the Ministry attempts to judge projects according to some or all of the following criteria: 1/ Members include: Minister of Industrial and Commercial Development (Chairman) Minister of Finance Minister with responsibility for project Two members of the National Assembly Representative of the Economic and Social Council President of SNI General Manager of BCD Two representatives of Chamber of Commerce, Industry and Mines One representative of Chamber of Agriculture Animal Husbandry and Forestry One representative of Cameroon Inter-Sector Association for Study and Coordination of Economic Interest ANNEX 1 Page 6 (a) "Local value added" 1/ and total value added; (b) Tax revenues compared to tax losses of customs revenues; (c) Net foreign exchange savings or possible earnings; (d) Number of new jobs created (favoring absolutely large rather than relatively labor-intensive projects) and investment per job; (e) Decentralization of industries to less-developed provinces; Of these, "value added" and "foreign exchange saved" are the most important. 16. The Ministry of Finance tries to avoid or limit the loss of tax revenue as a result of import substitution (or, in a few cases, processing be- fore export of products subject to export taxes). When a dossier is first received in the Ministry, it is referred to the Tax Division (Direction des Impots), whose accountants and experts determine whether the estimates of "local value added" are reasonable. If not, a reduction is proposed to the other members of the Committee. After discussion, a revised figure is trans- mitted to the Customs Service. The Customs Service compares the "local value added" with the estimated loss of import revenues. The project is usually given favorable consideration if the former exceeds the latter. If an investor is seeking the TIP regime as well as the Investment Code incentives, officials of the Ministry proceed to set a rate of the TIP. C. Evaluation 17. The apparent economic effects of the Investment Code incentives seem clear. By reducing tariffs to be paid, in particular on imported machinery, from 20-60% to 5% or zero, they probably lead to higher capital intensities in industrial projects but probably do not stimulate additional investment. The TIP system perhaps increases effective protection of local manufacture by elim- inating duties on imported raw materials and clearly does not encourage use of local raw materials. As the margin allowed is calculated as a fixed percentage of sales, the system favors industries requiring low investment and provides no Incentive to obtain cost efficiencies which would likely result in an increased tax rate. Nevertheless, the full economic impact of the incentive 1/ Defined as local raw materials, depreciation, cost of energy, wages of Cameroonian workers, 50 percent of salaries of expatriates, taxes, travel (except home leave of expatriates), overhead; excludes profit because most enterprises are owned by expatriates. ANNEX 1 Page 7 system remains to be assessed more completely before firm recommendations for reform are possible. A basic economic mission, which visited Cameroon in early 1975, briefly reviewed the tariff and incentive systems, recommending a thorou6h study leading to substantial reforms. 18. The most serious problem with these incentives, however, is the length of time required to obtain a decision. According to SATEC's experience with entrepreneurs it has assisted, final action on an application for the PME regime required, on average of more than 11 months. Moreover, in general, SATEC's applications involve fewer, simpler and smaller problems than those from larger and expatriate enterprises, and probably take less time than the average as the application is probably more complete and accurate than most. In consequence, new investments tend to be limited to investors who already have established industries in the country, and can afford to pursue new appli- cations in their spare time or who receive intensive technical assistance. Such delays in obtaining the PME incentives certainly inhibit investment. The delays in receiving approval of a TIP application are less serious since many entrepreneurs find it confers dubious benefits; the need for close and continu- ing official scrutiny of an enterprise's costs and the possibility that the tax rate can be changed in future cool entrepreneur's enthusiasm for the TIP. 19. It is the intention of the Government to expedite and simplify the procedure for reviewing and approving applications for the PME regime. In particular, in the case where an enterprise has received a loan from BCD, since BCD shall have already approved the economic justification of the investment, a decision on granting the PME regime will be reached generally within 15 days, and in any event not later than one month, from the date of transmittal to the Government of a favorable decision by BCD. Government has also strenghtened its own economic evaluation capabilities. DFCD May 29, 1975 ANNEX 2 Page 1 CAMEROON SMALL- AND MEDIUM-SCALE ENTERPRISE PROJECT BANQUE CENTRALE DES ETATS DE L'AFRIQUE CENTRALE (BEAC) Rediscount Terms and SME Promotion A. Rediscount Terms 1. As from April 25, 1974, BEAC increased the maximum length of short- term credits admitted to rediscount to 18 months and for medium-term credits to 10 years. At the same time it established discount rates as follows: % per annum "Privileged" discount rate 4.00 Ordinary discount rate 5.50 These rates apply to both short- and medium-term; for the latter, a commission of 0.25% is added. 2. Maximum allowable spreads were established as follows: Z per annum (including commissions) Short-term Rediscountable 3.00-4.00 Non-rediscountable 4.00-6.00 Medium-term "Privileged" operations Rediscountable 2.75 Non-rediscountable 4.75 Ordinary operations Rediscountable 3.25 Non-rediscountable 4.75 ANNEX 2 Page 2 The base rates to which these spreads may be added are the relevant rediscount rate, if a loan is of a type which could be rediscounted or, if not, the maxi- mum rate payable on 1 year term deposits of more than CFAF 200 million, set at 6.50%. 3. "Privileged" operations include: (a) short-term pre-harvest crop financing; (b) short-term credit to agricultural cooperatives and marketing boards; (c) credit to industrial firms who have been granted incentives under the Investment Code; (d)q credit to finance industrial exports; (e) credit for housing; (f) credit to Cameroonian small- and medium-scale enterprises. B. SME Promotion 4. For the purposes of applying the privileged rate, SME is defined as a firm whose management is Cameroonian with 51% of capital held by nationals and meets one of the following three conditions: (i) it pays the minimum tax ("forfait"); (ii) its short-term rediscount ceiling at BEAC is not above CFAF 25 million; or, (iii) its equity is not above CFAF 50 million. 5. BEAC has attempted to promote short-term credits to SME by various measures. For loans to SME of less than CFAF 10 million, no accounts need be presented by the borrower to the lending bank but only basic credit informa- tion; for such loans between CFAF 10 and 25 million, summary accounts of current assets and liabilities are all that is required. To facilitate sales of equipment to SME, any suppliers credit from a large trading house for such sales will simply be added to the selling firm's previous rediscount ceiling. Finally, 20% of each bank's short-term rediscount ceiling is reserved for "privileged" borrowers' almost all of this, however, goes to commercial firms and residential builders. 6. Provisions to encourage medium-term SME loans include special redis- count facilities for credits of less than CFAF 5 million for housing construc- tion and artisanal or agricultural equipment; however, again most of these credits go to the first group. BEAC will also accept credits financing up to 80% of the total project cost of SME investments, compared to a normal limit of 60% of cost. Substantial additional rediscount ceilings have also been instituted for SME loans by development and commercial banks. ANNEX 2 Page 3 7. The above incentives have not had a significant effect on lending to SME as the lending banks retain the credit risk on rediscounted loans. Thus, lacking a stream of well-appraised, viable projects, the banks continue to rely fundamentally on the securities a borrower can offer. Consequently, the bulk of the special facilities offered go for well-secured housing loans. DFCD October 10, 1974 Annex 3A Page 1 SOCIETE D'AIDE TECIIQUE ET DE COOPERATIOW Status of Operations at October, 1974 Investment Enterprise (Location) (CFAF million) Employment Coments Operating Edible ices (Douala) 6 10 Seasonal profits Refrigeration ice (Douala) 45 30 Profitable Preserves (Oboke) 4 6 Sporadic activity Commercial dry cleaning (Yaounde) 16 10 Very profitable; under expansion Construction materials (Douala) 35 17 Marginal profits; sponsor jailed 1/ Soap (Bessi) 4 12 TJnder expansion Exercise books (Yaounde) 180 45 At breakeven Mattresses (Douala) 23 21 TTnder expansion Yoghurt (Douala) 20 12 Absorbing competitor Maize handling (Bafoussan) 29 5 Profitable Laundry (Donala) 8 7 Reduced operations Edible ices (Yaounde) 5 15 Seasonal profits; under expansion Soap (Garoua) 22 15 Under expansion Soap (Bafoussan) 10 18 In start-up Mirrors (Douala) 5 4 Profitable Dry cell batteries (Douala) o 140 In start-up Metal fabrication (Douala) 34 16 In start-up No longer operating Fish production (Douala) 8 12 Boat sank Edible ices (Nkongsamba) 3 6 Sponsor jailed 1/ Trailers (Douala) 4 8 Sporadic activity; shareholders conflict Edible ices (Garoua) 8 12 Closed due to theft Plastic housewares (Penja) 10 20 Sponsor jailed 1/; possi- bly to be restarted Edible ices (Bafoussam) 3 6 Sporadic activity Edible ices (Kunba) 3 6 Closed Wine processing (Bafoussan) 8 5 Sponsor jailed 1/; possi- bly to be restarted Edible ices (Douala) 3 6 Closed Refrigeration ice (Nkongsaiba) 37 32 Sponsor jailed 1/ Attache cases (Yaounde) 4 16 Sponsor jailed 1/ Trailers (Yaounde) 2 4 Sporadic activiTy 93 133 1/ All jailings of entrepreneurs are for political or civil reasons unrelated to these projects and unforeseeable by SATEC. Annex 3A Page 2 Projected Investment Enterprise (Location) (CFAF million) Employment Caments Under creation Shoes (Yaounde) 43 36 Under construction Ballpoint pens (Yaounde) 90 18 Negotiations underway Toys (Mbalmayo) 53 42 Under construction Tannery (Penja) N.A. N.A. Incentives approved Toiler paper (Douala) 18 20 Under construction Industrial laundry (Yaounde) 41 l Under construction Meat packing (Bamenda) 37 8 2551 Awaiting approvals or financing Tire retreading (Yaounde) 40 21 Incentives refused Coffee roasting (Nkongsamba) 00 .. Inactive Phonograph records (Yaounde) 30 10 Inactive Costume jewelry (Yaounde) 00 a. Inactive Refrigeration ice (Kumba) 47 32 Inactive Ironwork (Douala) 15 24 Inactive Metal containers (Douala) 56 35 Inactive Refrigeration ice (Maroua) 40 32 Inactive Biscuits (Yaounde) 80 35 Incentives under consideration Eyeglasses (Douala) on .. In formation Coffee grinding (Bafang) .0 00 Preliminary plans complete Industrial papers (Douala) .0 00 Incentives under consideration Metalwork (Douala) 15 17 Incentives under consideration Annex 3 Page 3 Projected Investment Enterprise (Location) (CFAF million) Employment Conments Under study Grillwork .. .0 Inactive Rope (Douala) .0 Inactive Confections (Yaounde) 00 .0 Inactive Towels (Yaounde) .0 00 Inactive Weaving (Yaounde) .. 00 Inactive Public bath (Douala) D. 0. Paper sacks (Yaounde) .. 00 Shoelaces (Douala) 00 a. Pineapple juice (Penja) *0 00 Clinic (Bafoussam) 00 00 Cartons (Yaounde) 00 00 Palm oil processing (Eseka) 00 00 Preserves (Penja) 00 .. Charcoal (Yaounde) 0 00 Broiler production (Douala) 00 00 Watches (Douala) 00 00 DFCD February 2, 1975 SOCIETE D'AIDE TECHNIQUE ET DE COOPERATION ANNEX 3B Proposed Program (Fiscal years ending June 30) I. Operations ly?6 1977 Average Average Total Total Total Total Total Total Investment Employment Number Investment Employment Number Investment Employment Number Investment Employment CFAF CFAF CFAF CFAF millions millions millions millions Smaller enterprises 12 - 14 10 15 180 150 35 490 350 50 670 500 Larger enterprises 80 -175 15 5 400 125 10 950 250 15 1,350 375 20 580 275 45 1,440 600 65 2,020 875 II. Budget (CFAF millions) - - - -- Salaries: Expatriate professional 66 70 136 Local professional 17 18 35 Headquarters (Paris) 8 8 16 Support Staff 5 5 10 96 101 -77 Office 30 24 54 Transport 25 23 48 TOTAL 71- -77 299 III. Staffing Yaound4 Douala Garoua Paris Headquarters Total Mission chief 1 - - 1 Engineers 3 3 3 1 10 Financial/economic analysts 1 2 1 4 Management assistants - 2 - 2 Total professional 7 1 17 Support staff 4 4 3 11 TOTAL 9 11 7 1 28 y15, 1975 ANNEX 3C AFCA - PME Proposed Annual Budget: July 1975-June 1977 (CFAF millions) Centers at: Douala, Yaounde. Salaries 2 expatriate professionals 16.1 2 local professionals 8.6 6 support staff 1.8 Office 5.0 Miscellaneous 1.5 33.0 DFCD May 15, 1975 Annex 4A BANQTJE CAMEROUNAISE DE DEVELOPPERENT Board of Directors as of June 1974 President: Mr. Ousmane Mey Governor of the Province of North Cameroon Mr. Edouard Koulla Director General, Societe Camerounaise de Banque Mro Robert Naah Secretary-General, Mnistry of Planning Mr. Joseph Zambou Zoleko Director, Ateliers Graphique du Cameroun Mr. Martin Nkake Ndolo Director, Societe pour le Developpement du Cacao Mr. Felix Moukoko Kingue Accountant Mr. Ahmadou Hayatou Deputy Secretary General of the National Assembly Mr. Nicolas Eyidi Director of Rural Development, Ministry of Livestock Mr. Tamajong Ndumni Engineer Mr. Marcel Yondo Director of Central Bank for Cameroon Mr. Rene Mallorga Director of CCCE, Yaounde Mr, Yves Esquillat Deputy Director of CCCE, Yaounde Governmert Mr. Emmanuel Njamen Commissioner: Deputy Director of Ridget, Ministry of Finance Director Mr0 Gottlieb Titti General: DFCD February 5, 1975 BANQUE CAPEROTNAISE DE DEVELOPPEENT Organizatior at June 1974 Board of Di)irectors Credit Committee ueneral Manager Assistant to 'Jen. Mgr Adviser to Gen. Mgro Mr. Mbiena Mr, Renard (CCCE) (1) Personnel Administration Collections Finance Agricultural Credit Credit Mrs. Towa Mr. Bateg Mr. Nguiamba Mr. Njanga Mr. Tlgaleu Mr. Haman Djoda Adviser: Mr. Andre(CCCE) ()()(1) (2) (1) I 1 I Yaounde branch Douala branch Bafoussam branch Garoua branch Victoria branch (3) (1) (1) (1) (1) Note: ',hmbers in parentheses indicate departmental professional staff. DFCD February 5, 1975 Annex-4C BANQTTE CAMEROTINAISE DE DEVELOPPEMENT PERSONNEL'/ As of October, 197 Officers Professional Staff Support Total Head office 4 3 17 38 62 Branches: Yaounde - 3 6 13 22 Bafoussam - 1 4 7 12 Garoua - 1 4 6 11 Donala 1 - 9 12 22 Victoria - 1 2 6 9 Total branches 1 2 Total 5 9 42 82 138 Evolution: 1971-1973 A- of: June 30, 1971 June 30 192 June 30, 1973 October 1, 1974 2ead office 81 69 66 62 3rjnches: Yaounde 28 22 23 22 Bafoussan 13 11 11 12 Garoua 11 11 11 11 Douala 33 28 24 22 Victoria 10 8 10 9 Total branches 9 8 79 'otal 176 149 145 138 1/ Excludes seconded advisers DFCD February 5, 1975 BANQUE CAMERONAISE DE DEVELOPPEMENT Interest Rates (percent per annum) Assumed cost to Spread to Lending Taxes and Cost to Short-term (less than 18 mos.)Source BCD BCD rate insurance 1/ borrower Agriculture BEAC ) Industry (large-scale) BEAC ) 4.00-6.00 3.00-6.00 7.00-12.00 1.75-2.80 8.75-14.80 Industry (small-scale) BEAC, own funds ) 2/ 3/ Consumers Own funds, other 6.00 5.50 11.50 3.75 15.25 Medium-term (18 mos. to 10 yrs.) Agriculture BEAC, CCCE) Industry (large-scale) BEAC, CCCE) Industry (small-scale) BEAC, KfW ) 4.25-6.50 2.75-4.75 7.00-11.25 1.75-2.75 8.75-14.00 Commerce BEAC) Housing BEAC, CCCE) 2/ 3 Consumers Dwn funds 6.50 5.50 12.00 3.80 15.80 Long-term (over 10 yrs.) Agriculture CCCE, other 3.00-5.00 1.25-4.75 4.25-9.75 1.50-2.05 5.75-11.80 Industry (large-scale) CCCE, other 3.50-5.00 1.50-4.75 6.00-9.75 1.75-2.05 7.75-11.80 Guarantees -- - 1.00-2.00 1.00-2.00 -- 1.00-2.00 Note: Based on borrowings to date. 1/ Taxes and insurance include: - tax on credit: 1.00% - credit life insurance: 0.50% (depending on borrower) - sales tax: 9.67% on revenues 2/ National cost based on rate paid on large fixed-term deposits of similar term. 3/ Includes an additional 1% contribution to BCD's Solidarity Funds required for these classes of loans. DFCD October 10, 1974 BArQTJ CAK 0U1AIS DE DEVLPPEM E Credit and Uuarantee Approvals byv Te-T-, (CFAF million) Fiscal year ending june 30 1970 1971 1972 1973_ Amount Aount Amomunt i n, Amoit A X oo I. Short-term (Less than 18 nos.) Agriculture 3,121 62 16 2,80h h9 18 3,618 54 18 4,198 54 21 3,359 45 20 Industry 252 5 18 153 3 12 Uh9 7 18 1,61 6 31 359 $ 20. Ponsing - - 1 6 - h9 2 - 22 1 - 7 - Consumer 173 h 1,922 276 5 2,825 256 h 2,392 359 5 3,239 522 7 , Commerce 154 3 5 22 - 3 2 - 3 32 - 2 37 - Public sector - - - - - - - - - - - - - - - 3,700 1,962 3,261 77 2,907 7, 327 7 2,73 5,051 3 7300 7, 2h,90 6 II. Medimn-term(18 mos, to 10 yrs.) A griculture 23 1 6 97 2 12 279 h 14 272 3 39 398 5 58 åndrnt.ry 316 6 39 557 10 30 h22 6 17 1,02h 13 19 672 9 25 ]ousing 416 8 51h 238 h 260 423 ? L91 543 7 737 1,039 14 1,583 Cnsomer 185 4 383 246 h 480 135 2 236 1L,3 2 257 129 2 211 Conmerce 49 1 h 108 2 13 109 2 18 51 1 J6 i9ý 3 24 Public sector 20 - 1 -- - 7 2 3 3 1 1,009 7-0 1,26 72 793 -1,w3 2 76- 2,196 21,071 2,707 36 1,902 III. LonZ-teri (Over 10 yrs.) Agriculture - - - - - - 210 h 1 300 1 - - - Industry 17 - L 100 7 3 50 - 1 - - - 76 1 1 Housing 7 - 2 21 1 6 65 1 16 71 1 16 - - - Public sector 172 4 2 - - - - - - - - - 225 3 1 196 7 U 21 T7 9 325 7 1I 371 7 17 301 ~ -2 IV. Guarantees Indu-try 59 1 12 755 13 21 528 8 47 135 2 13 233 3 30 Commerce 7 1 2 - - - - - - - - - 17 - 2 9 2 ~ 75 13 21 77 -T T47 37 - 73 ~ 3 32 TOTAL 5,001 100 2,928 5,683 100 3,732 6,623 100 3.285 753 ,on 7 7,5' 100 6,h1 DF CD ?ebruary 5, 1975 Annex F BANQUE CAMEROUNAISE DE DEVELOPPMENT Credit and Guarantee Approvals by Sector and Type (CFAF million) Fiscal Years ending June 30 1970 1971 1972 1973 1976 Amount I Amount % Amount - Amount Amounts Agriculture Direct Short-term 210 557 768 745 596 Medium-term 22 47 236 232 157 Long-term - - 210 300 - 232 5 TOT 11 1,217 18 1,277 16 73 10 Consortial and guarantees Short-term 2,911 2,27 2,89 3,453 2,764 Medium-term - 50 43 40 240 Long-term - - - - - 3 2 T29 20 92 44 45 3004 0 1~0Z 702 Total agriculture 2 1 T,106 2,770 jr 375 40 Industry Direct Short-term 252 153 440 322 359 Medium-term 239 160 72 505 271 Long-term 17 400 0 - 76 307 10 713 13 562 9 827 11 75i 9 Consortial and guarantees Short-term 59 755 528 218 233 Medium-term 77 397 358 574 4ol Long-term - - - - 1 6 1 2 20 13 792 10 7 8 Total industry Yi 13 1,8T 22 fTj T T 70 17 Other sectors Direct Short-term 327 303 261 392 566 Medium-term 671 476 623 878 1,565 Long-term 179 21 6 71 22 1,177 23 8 1 99 14 1,341 18 2,3 32 Consortial and guarantees Short-term 37 - - - 17 Medium-term - 117 120 22 74 Long-term - - - - 37 1 117 2 120 2 22 - 1 Total other sectors 1.214 27 9 17 06_ 13 _62 TOTAL 5,001 100 5,683 100 6,623 100 7,752 100 7,544 100 All sectors Direct Short-term 789 16 1,013 18 1,469 22 1,459 19 1,521 21 Medium-term 932 18 683 12 931 14 1,615 21 1,993 26 Long-term 196 4 421 7 325 5 371 4 301 4 1,917 38 2,117 37 2,725 7 3,7 T 3,713 51 Consortial and guarantees Short-term 3,007 60 3,002 53 3,377 51 3,671 48 3,014 40 Medium-term 77 2 564 10 521 8 636 8 715 9 Long-term -,9- , 37 TOTAL 5,001 163 5,583 166 , 100 7,752 100 7,57o 100 uFCD February 5, 1975 BA,1QB CE aM,,ERO1RNAISE DE DEVELOPPEMENT Industrial/Loan Approvals (CFAF millions) Fiscal Years ending June 30 1970 171 1972 12Z3 1975 Am. -' N. AtNo. Amt. N. Amt. Nio. Amt. N. Amt_No Amt. 0o 0No Short-term Large-scale 302 h 25 901 48 29 933 64 53 514 32 18 322 24 9 Small-scale 4 artisan 2/ [ 1 2 8 27 2 21 276 21 5 311 24 039 6b7 6 3 Medi-wn/Long-term Large-scale 282 1h 8 857 66 l4 460 32 15 1,059 65 19 701 51 15 Small-scale R artisan/ 51 8 83 4 P 21 i 7 20 1 47 4 9 333 3_ 0 _970 TO22 l 33 2 1,079 7 722 Total industry 64 100 70 1,865 100 66 1, 49 100 83 1,620 100 63 1,346 100 78 1/ Includes non-agricultural firms engaged in service and construction activities. 2/ According to the mission's classification. Includes all loans to artisans and loans to enterprises with total assets of less than CFAF 30 million. DCD February 5, 1975 Anne LH page 1 BANQUE CAMEROTNAISE DE DEVELOPPMENT Loan Portfolio at June 30, 1974 (CFAF million) Short-term Medium-term Long-term Doubtful Unrecoverable Total % of Total Agriculture 647 545 270 h 3 1,509 22 Industry 379 523 1,286 49 28 2,265 32 Housing - 1,654 250 74 24 2,002 28 Consumer 351 133 - 22 3 509 7 Commerce 4 184 -1 221/ - 310 4 Public sector - 160 291 - - 75h ? Total 1,381 3,199 2,100 311 58 7,049 (% of total) (20) (h) (30) (4) (1) (100) 100 Consortial Credits and Guarantees at June 30, 1974 (CFAF million) Guarantees Short-term Medium-term Total Agriculture 13 1,316 62 1,391 Industry 302 - 736 1,038 Housing 39 39 78 Commerce 112 - 231 343 Public sector 1 - - 1 Total 467 1,316 1,068 2,851 1/ About 85% of these loans are to one large government-sponsored company, SONAC, which is in liquidation. DFCD February 5, 1975 Annex 411 BANQUE CAMEROUNAISE DE DEVELOPPEMENT Page 2 Analysis of Arrears of Principal and Interest as of June 30, 1974 (CFAF million) Loans Outstanding 1/ Arrears from 2 to 6 months(Normal) Arrears over 6 months(Doubtful) Total As % of total outstanding Total provisions Direct Consortial Total Exposure Arrears Provision 2/ Exposure Arrears Provisions Exposure Arrears Provisions Total arrears Total exposure Total exposure SHORT-TERM Agriculture 651 1,316 1,963 23 20 3 4 4 1 27 24 4 Industry 381 - 379 9 5 1 2 2 2 11 7 3 Housing - - - - - - - - - - - - Consumer 360 - 351 60 16 7 9 8 8 69 24 15 Commerce 108 - 4 4 4 -104 3/ 104 3/ 50 108 108 50 Sub-total 1,500 1,316 2,816 96 45 11 119 118 61 215 163 72 5.8 7.6 33.5 MEDIUM-TERM Agriculture 585 62 647 138 39 15 40 39 31 179 78 46 Industry 568 736 1,304 154 92 17 '.5 28 29 200 130 46 Housing 1,715 39 1,754 192 18 21 61 38 46 254 56 67 Consumer 146 - 146 26 5 3 13 11 9 39 16 12 Commerce 202 231 433 66 9 8 18 6 7 84 15 15 Sub-total 3,376 1,068 4,444 576 163 64 177 132 122 756 295 186 6.6 17.0 24.6 LONG-TERM Agriculture 270 - 270 - - - - - - - - - Industry 1,288 - 1,288 57 8 6 2 2 1 59 10 7 Housing 263 - 263 43 1 5 13 12 10 56 13 15 Public sector 294 - 294 - - - ---- - - Sub-total 2,115 - 2,115 100 9 11 15 14 11 115 23 22 1.1 5.4 19.1 TOTAL 6,991 2,384 9,375 772 217 86 311 264 194 1,086 481 280 5.1 11.6 25.8 % of total outstanding 74.6 25.4 100.0 8.2 2.3 0.9 3.4 2.8 2.1 11.6 5.1 3.0 1/ All loans classed as "unrecoverable" have been purged from this analysis as they are fully covered by provisions of CFAF 58 million. 2/ Provisions rationally allocated by term and sector. 3/ Of these amounts, CFAF 100 million is due from SONAC (see footnote, Annex 4H, page 1). DFCD February 5, 1975 BANQUE CAMEROUNAISE DE DEVELOPPEMENT Equity Portfolio at June 30, 1974 (CFAF million) Value % of total BCD Subscription Pro- net of equity Par Share capital BWn ) Dividends Co. Status Disbursed Undisbursed Total visions provisions portfolio value of company capital Amount % of value net Banks and insurance of provisions A Ste. Camerounaise de Banque 175 - 175 - 175 25 250 1,000 25 9.4 5.4 A Banque Internationale pour le Commerce et l'Industrie au Cameroun 75 - 75 - 75 11 194 1,215 16 14.8 19.7 A Ste. Generale de Banque Camerounaise 30 - 30 - 30 4 81 810 10 4.0 13.3 A Banque Internationale pour 1'Afrique Occidentale 100 - 100 - 100 14 100 1,000 10 - - C Ste. Camerounaise d'Assurance 15 5 20 - 20 3 20 400 5 - - 395 5 400 - 400 57 645 28.2 7.1 Hotels and real estate C Ste. Inuobiliere du Cameroun 50 - 50 - 50 7 50 500 10 - - B Ste. des Grands Hotels du Cameroun 30 - 30 - 30 4 30 963 3 - - B Ste. Hoteliere Nord Camproun 12 - 12 - 12 2 12 135 9 - - E Ste. des Residences Mont-Febe 6 - 6 6 - - 6 32 19 - - 98 - 98 6 92 13 98 Agro-industry & rural development A Ste. Sucriere du 6ameroun 2 - 25 - 25 4 25 1,800 1 - - D Ste. d'Expansion et Modernisation de la Riziculture de Yaguoa 20 - 20 - 20 3 20 465 3 - - D Stes. Regionales de Developpement des Zones d'Actions prioritaires Integrees de 1'Est 5 - 5 - 5 1 5 191 3 - - D Ste. de Developpement du Nkam 2 - 2 - 2 - 2 92 2 - - 52 - 52 - 52 8 52 Miscellaneous E Ste. Nationale Camerounaise pour le Commerce, l'Industrie et le Developpement (SONAC) 138 - 138 7 131 19 138 400 35 - - E Les Argiles Industrielles du Cameroun 43 - 43 43 - - 43 168 26 - - D Ste. des Etudes pour le Developpement de l'Afrique 10 10 20 - 20 3 20 200 10 - - 191 10 201 50 151 22 201 TOTAL 756 15 751 56 695 100 996 28.2 4.1 1/ Status: A: Operating profitably. B: Operating unprofitably or breaking-even. C: In construction, or start-up. D: Non-profit study or development company. E: In reorganization or liquidation. DFCD February 5, 1975 Annex 4J Page 1 BANQUE CAMEROUNAISE DE DEVELOPPEMENT Balance Sheets (in million of CFAF) At June 30 1970 197 1972 1973 19 ASSETS Current Cash and bank deposits 1/ 14 (157) 284 663 198 Accounts receivable 134 145 182 166 132 Sundry debtors j49 104 101 11 114 197 7 9 Loan portfolio Cash advances and short-term loans 784 692 930 834 1,381 Medium-term loans 2,136 1,911 1,754 2,281 3,199 Long-term loans 1 406 IL220 1,315 1 666 2 100 Sub-total ,32 3,933 3,999 ,7f 1 ,M Doubtful loans 625 401 348 295 311 Unrecoverable loans 210 265 357 429 58 Less: provisions for bad debts (62) ((6) 1) ) 8) Net loans 4,5344,048 4,093 4,881 ,9 Equity participations (at cost net of 271 443 500 594 695 provisions) Fixed assets (net) 685 784 749 703 688 TOTAL 5,687 5,367 5,909 7,120 8,618 LIABILITIES Current Sundry creditors 34 24 32 52 39 Deposits 319 639 686 717 301 Short-term borrowings (BEAC) ) 14( 128 257 242 680 Current maturities at term debt ) 1, ( 243 250 321 415 Accrued charges 2 216 233 408 **g 1,994 1T 1W 1,70 1,977 Medium- and long-term CCCE ) ( 951 833 1,145 1,368 BEAC ) ( 969 757 1,175 1,729 KfW 2,635( 397 341 289 228 Local institutions ) ( - 200 280 535 Government ) ( - 250 200 150 Deposits 66 60 48 44 41 Foreign institutions - 117 2 7 2,70 2,44 ~ 3,212 T,i1 General reserves 116 207 157 183 238 Equi ty Shara capital (paid-in) 1,000 1,397 1,397 1,418 1,418 Granbs 61 132 382 457 652 Accunulated profits (losses) (18 ) 11) (1) 110 217 70 1,416 1,768 1,977 27 TOTAL 5,687 5,367 5,909 7,120 8,618 1/ TTndisbursed operations on Government account (Annex 4J, page 2) are also usable as cash. DFCD February 5, 1975 Annex J Page 2 CONTINGENT LIABILITIES (CFAF million) At June 30 1970 1971 1972 1971 1974 Consortial credits Short-term 1,862 1,263 1,553 1,750 1,316 Medium-term 2 227 533 672 1 068 20 0 2,h22 Guarantees 96 799 771 573 467 Total 2,161 2,289 2,857 2,995 2,851 OPERATIONS ON GOVERNMENT ACCOUNT Disbursed 1,250 1,157 1,116 889 565 TTndisbursed 79 838 993 244 666 Total 1,329 1,995 2,109 1,133 1,231 DFCD February 5, 1975 Annex )Z BANQUE CAMEROUNAISE DE DEVELOPPEMENT Profit and Loss Statements (in million of CFAF) Year ending June 30 170 1971 1972 1973 Income Interest and Commissions 329 346 335 387 475 Other financial income 49 115 164 120 117 Net rentals 78 75 93 95 95 Miscellaneous income 60 6 6 65 60 Total income 516 592 655 667 747 Expenses Administrative Expenses 215 219 254 241 244 Depreciation 63 58 56 54 50 Financial expenses 139 145 155 159 185 Provisions 2/ 20 101 8 2 Total expenses 437 523 503 456 551 Net Operating Income 79 69 152 181 196 Extraordinary income (loss) (108)2/ 8 (9) (4) (24)1/ Tax 4 5 h1 56 69 Net Profit (33) 72 102 121 103 j/ Including foreign exchange loss of CFAF 109 million in 1970 and CFAF 37 million in 1974.on KfW loan. 2/ Of the provisions, the following amounts were allocated to general reserve: 5 5 5 5 30 Consequently, net income may be restated as (28) 77 107 126 133 DFCD February 5, 1975 ANNEX 4L Page 1 BANQUE CAMEROUNAISE DE DEVELOPPEMENT Assumptions for Financial Projections I. Forecast Operations A. Approvals (i) loan approvals grow as detailed in Annex 4M based on de- tailed projections by sector, term and type by BCD staff; (ii) cancellations estimated at 10% of long- and medium-term approvals; (iii) new equity investments projected at CFAF 25 million per year. B. Commitments (i) short-term loans committed in year of approval; (ii) medium- and long-term loans 75% committed in year of approval, 25% in following year. C. Disbursements (i) short-term loans 90% disbursed in year of comitment, 10% in following year; (ii) medium-term loans 60% disbursed in year of commitment, 40% in following year; (iii) long-term loans 25% disbursed in year of commitment, 75% in following year; (iv) equity investments disbursed in year of approval. D. Loan Maturities (i) loans outstanding at June 30, 1974 repaid as follows: short-term loans in 1974/75; medium-term loans over 3 years; long-term loans over 5 years; (ii) guarantees outstanding approximately 15 months; ANNEX 4L Page 2 (iii) short-term loans repaid 60% in year disbursed, 40% in following year; (iv) medium-term loans 1 year of grace and 4 of repayment; (v) long-term loans 2 years of grace and 6 of repayment. II. Revenues and Expenses A. Interest rates as at Annex 4C. B. Other financial income (i) interest income on deposits averages 8%; (ii) dividend income rises from less than 5% of net portfolio to about 7.5%; (iii) rents projected at CFAF 100 million per year; (iv) consumer loan commissions projected at 5.6% of small equipment and housing loans plus 2.7% of automobile loans. C. Administrative expenses (i) staff costs jump 15% in first year of new operations, rising 10% per annum thereafter; (ii) other costs grow 10% per annum. D. Provisions - provisions are projected at approximately 1% of total loans outstanding at year-end, net of those classified as doubtful; equivalent.to some 1.5% of yearly dis- bursements. III. Borrowings (i) Government onlending of IDA Credit: at 5% for 15 years including 3 of grace; (ii) CCCE: (a) SME project: at 5% for 15 years, including 3 of grace; (b) Public sector projects: 1/ 1/ Specific public sector infrastructure and social services projects for which CCCE will continue its past support. ANNEX 4L Page 3 (1) Medium-term: CFAF 600 million for 5 years, including 1 of grace, at 3-1/2%; (2) Long-term: CFAF 600 million for 8 years, including 2 of grace, at 3-1/2%. (iii) BEAC - short- and medium-term rediscounts on normal terms; (iv) Other - from unidentified sources to maintain cash at CFAF 450 million. DFCD May 15, 1975 Annex 4M BANQTJE CAMEROUNAISE DE DEVEIDPPEKENT Projected Loan Approvals (CFAF million) Sector Term TZpe 1974/75 1975/76 1976/77 1977/78 1978/79 Agriculture Long/med. Direct 400 500 500 600 600 Short Direct 900 940 940 1,000 1,000 Short Consortial .0 74 000 4 00 Industry Long Direct 500 625 750 750 750 Medium Direct 500 625 750 750 750 Short Direct 160 200 200 267 267 Short Consortial 80 100 100 133 133 Short Guarantees 360 450 450 600 600 1,600 200r T ,0,0 SME Long Direct 50 355 475 550 550 Medium Direct 50 85 115 150 150 Short Direct 100 150 200 200 200 Short Guarantees 200 230 _00 300 300 1400 40 1,090 1,200 1,200 Housing Medium Direct 650 750 800 850 900 Consumer Medium Direct 150 150 200 200 200 Short Direct 50 00 500 50 600 600 700 75 00 Commerce Medium Direct 75 100 150 150 150 Short Direct 75 100 150 150 200 150 0 300 300 350 Public sector Long/med. Direct 200 200 200 250 250 Total 8,500 9,840 10,540 11,450 11,600 Recapitulation Long 750 1,205 1,450 1,975 1,575 Medium 1,825 2,185 2,490 2,675 2,725 Short 5,925 6,1450 6,600 7,200 7,300 DECD February 5, 1975 Annex 4N BANQUE CAMEOTUNAISE DE DEVELOPPEMENT ProJected Cash Flow CFAF million) Fiscal years ending June 30 1976 1977 1978 1979 SOIRCES Borrowings Unidentified 1/ 314 581 413 88 (81) IDA/,CCE: SME project - 179 319 404 432 0OCE: Public sector projects 378 243 200 216 243 BEAC: Short- and medium-term 3 234 3 952 4,547 5 5 387 5,1479 790 Loan collections Loni-term 333 406 500 670 544 Medium-term 1,113 1,507 1,224 1,767 2,004 Short-term 1 643 1,795 1 943 2 088 2 220 Share capital payments 82 - - - - Cash from operations Net income 115 95 90 95 90 Non-cash charges 60 60 60 60 60 Total sources 7,272 8,818 9,296 10,470 10,899 USES Loan disbursements Long-term 430 794 1,073 1,285 1,397 Medium-term 1,505 1,761 2,058 2,289 2,1411 Short-term 1,677 1 869 19980 2 149 2 257 Equity investments 25 25 25 25 25 Fixed assets expenditure 60 60 60 60 60 Debt repayment Outstanding as of June 30, 1974 441 433 420 293 148 IDA/CCCE: SME project - - - 88 185 CC: Public sector projects 116 209 257 269 260 BEAC: Short- and medium-term 2 968 31494 35395 4 182 4 357 Other accounts (net) 50 173 28 (170) (201) Total ises 7,272 8,818 9,296 10,470 10,899 1/ Additional borrowings from unidentified sources, net of repayments. ebuary 5, 1975 Annex 4 0 BANQUE CAMFROUNAISE DE DEVELOPPENENT Prolected Balance Sheets (CFAF million) As of June 30: (Actual) 1974 1975 1976 1977 1978 1979 ASSETS----- Cqrrent assets 444 450 450 450 450 450 Loan portfolio hort-term loans 1,381 1,415 1,489 1,526 1,587 1,624 Mediim-term loans 3,199 3,591 3,845 4,679 5,201 5,608 Long-term loans 2 100 2 197 2,585 3 158 3 773 4 626 Sub-total L76U 7,919 1 6 1 IT - Doubtful and unrecoverable loans 369 430 495 575 670 775 Less: provisions for bad debts (258) (0) (345) (405) O (170) (4) Net loans 6-17- 7,3 T,0&-9,-3-3 lo-71 1,0b Equity participations (net) 695 720 745 770 795 820 Fixed assets (net) 688 700 700 700 700 700 TOTAL 8,618 9,203 9,96L 11,453 12,706 14,058 LIABILITIES Current Short-term borrowings (BEAC) 680 717 794 838 906 949 Current maturities 415 459 508 427 315 257 Other 882 700 650 600 600 600 1,977 1,876 TT Medium- and long-term CCCE (excluding SME project) 1,368 1,538 1,208 988 883 839 BEAC 1,729 1,958 2,339 3,447 4,279 5,266 KfW 228 145 62 - - - Institutions 600 482 364 312 260 208 ovemnment 150 100 50 - - - Deposits 41 40 40 40 40 40 IDA/CCCE (SME project) - - 179 498 902 1 334 'Tniden ti fied - 314 895 1,308 1,396 1,315 General reserves 238 265 295 325 360 395 Share capital 1,418 1,500 1,500 1,500 1,503 1,500 rants 652 650 650 650 650 6c0 "ccumulated profits 217 335 430 520 61. 705 2,287 2,485 2,580 2,670 2,765 2,855 TOTAL 8,618 9,203 9,964 11,453 12,706 14,058 DF CD Dbruary C, 19) Annex 4P BANQUE CANEROUNAISE DE DEVELOPPMENT Projected Income Statements (CFAF million) (Actual) Year ending June 30: 194 19 1976 1977 1978 1 22 Income Interest and commissions 475 540 610 705 820 915 Other financial income 117 110 90 75 75 75 Net rentals 95 100 100 100 100 100 Miscellaneous income 60 55 60 65 65 70 Total income 747 815 860 945 1,060 1,160 Expenses Administrative expenses 24 275 310 340 375 425 Depreciation 50 60 60 60 6o 60 Financial expenses 185 245 280 325 385 435 Provisions 2/ 72 60 6 80 2 1 Total expenses 551 640 715 805 915 1,025 Operating income 196 175 145 The 145 135 Tax 69 60 50 50 50 45 Net income 103 115 95 90 95 90 / Of the provisions, the following amounts are pro- jected to be added to general reserves 30 42 45 60 65 75 Consequently, net income may be restated as follows 133 157 140 150 16o 165 DFCD February 5, 1975 BANQUTE CAMEROTUAISE DE DEVELOPPEMNT Actual and Projected Financial Ratios Actual Projected Income Statement Elements as % of 270 191 1972 1271 1974 1975 1976 197 128 jL1 Average Total Assets 2/ Gross Revenue 6.7 8.1 8.8 7.6 7.3 7.2 7.1 7.2 7.3 7.3 Less: Financial expenses 1.8 2.0 2.1 1.8 1.8 2.2 2.3 2.5 2.6 2.7 Administrative expenses (including depreciation) 3.6 3.8 4.2 3.4 2.9 3.0 3.1 3.0 3.0 3.1 Operating income 1.3 2.3 2.5 2.4 2.6 2.0 1.7 1.7 1.7 1.5 Less: Provisions j/ 0.2 1.3 0.4 0.3 0.4 0.2 0.2 0.2 0.2 0.2 Tax and extraordinary items 1.4 - 0.7 0.7 0.9 0.5 0.4 0.4 0.3 0.3 Net profit (0.3) 1.0 1.4 1. 1.3 1.3 1.1 1.1 1.2 1.0 Selected Income and Cost Items Dividend incone as % of average equity portfolio 5.5 5.6 4.2 4.6 4.3 4.9 5.6 6.3 7.0 7.7 Income from loans as % of average loan portfolio 2/ 5.6 5.7 5.7 5.7 5.8 5.7 5.8 5.9 6.2 6.2 Cost of debt as % of average total debt3 3.2 3.7 4.3 3.9 3.7 4.3 4.6 4.5 4.6 4.5 Net profit Net profit as % of year-end share capital loss 5.2 7.2 8.5 7.3 7.7 6.3 6.0 6.3 6.0 Met profit as % of average equity I/ loss 5.5 5.7 5.9 4.4 4.4 3.4 3.1 3-J 2.8 Structural Ratios Total debt/equity plus reserves:_ Y 4.1 1.8 1.6 1.7 2.1 2.1 2.2 2.6 2.9 3.1 Term debt/Equity plus reserves J/ R/ 2.7 1.5 1.3 1.5 1.6 1.7 1.8 2.2 2.5 2.8 Provisions as % of loan and equity portfolio / 11.8 11.9 12.7 11.0 4.0 4.2 4.4 4.3 4.4 4.14 1/ Excude cnri loans. 2/ Excludes consortial loans. 2Includes consortial loans. 3/ Includes projected unidentified debt. 7/ Includes general provisions as equity. /' Includes provisions for bad debts; allocations to general reserves are included in profit. DFCD April 18, 1975 ANNEX 4R BANQUE CAMEROUNAISE DE DEVELOPPEMENT CONSORTIAL CREDITS BCD makes a number of credits, called "consortial credits", in association with commercial banks. For these credits, one of the participating institutions is leader ("chef de file"). The leader is the only institution in contact with the borrower. It studies the credit application more in depth than the other institutions. It is in charge of collection and of legal action. The same institution, or another one, is manager ("gerant") of the credit and centralizes accounting. Either the leader or the manager ensures the relations with the Central Bank. One or several of the participating institutions pro- vide the funds. The credit risk is shared between the participating institu- tions, not necessarily in relation with the amount of funds provided. When BCD does not provide funds, its share of the credit risk appears on its books as a contingent liability ("Engagement sur signature"). If credits are redis- counted by the Central Bank, they are allocated, according to circumstances, either to ordinary bank quotas or to special quotas for particular purposes. The following examples illustrate the complexity of the system: i. Short-term credits for the marketing of agricultural products. When BCD participates in consortial credits for this purpose, it is always the leader. Its share of the risk varies between 40% and 45%. One of the commer- cial banks is manager. The managing bank provides all funds in cases where rediscounting is accepted by the Central Bank on a special quota and outside the Yaounde province. In other cases (ordinary quotas or special quotas for Yaounde) all participating bank rediscount directly their share with the Cen- tral Bank upon instructions of the managing bank. ii. Medium-term industrial credits. Commercial banks do not lend on medium term to industry without BCD partiepation, in particular because BCD benefits from a right to seize movable properties equivalent to that of the Treasury. The leader studies the credit application and prepares the inter- bank protocol. BCD is rarely leader and thinks that studies made by commercial banks are of uneven quality. The managing bank (BCD for some forest credits and a few industrial credits) provides the funds. If BCD is the man- aging bank, it channels the funds through the commercial bank of which the borrower is a client. Risks are shared according to an inter-bank protocol. Each participant sends to the Central Bank a guarantee ("aval") letter, and the Central Bank directly debits the participants of their share of loss in case of default. DFCD June 7, 1974 ANNEX 4S BANQUE CAMEROUNAISE DE DEVELOPPEMENT Expected Real Financial Charges on Subloans 1. To determine the likely real cost of loans to subborrowers, real financial charges were calculated under three different projections of future inflation in Cameroon. Loan terms were taken as 11.00% interest and 8 year term, including 3 years of grace. 1/ The assumptions on inflation and the con- sequent real cost of loans are as follows: Assumed Inflation Optimistic Best Estimate Pessimistic (% change per year) 1976 10 13 17 1977-80 5 7 10.5 1981-84 4 6 7.5 Real cost (% p.a.) + 6.7 + 4.7 + 1.7 2. Under all three conditions, real financial charges are positive. Even were the first two of these assumptions to prove overly optimistic, the real rate of nearly 2% under the pessimistic assumption indicates that charges could remain positive. 1/ Additional assumptions are: (i) disbursed 20% in first year, 60% in second year and 20% in third year following approval, pursuant to assump- tions for long-term loans in Annex 4L; (ii) equal annual principal repay- ments; and, (iii) debt service paid at mid-year. DFCD May 15, 1975 ANNEX 4T Page 1 BANQUE CAMEROUNAISE DE DEVELOPPEMENT FINANCIAL ANALYST 1. General background and qualifications. A financial analyst. A graduate of a college of Commerce or Business School. Good accounting background. Five years minimum experience in project analysis and evaluation in a development, investment or commer- cial bank or in the investment department of a well established financial enterprise. Legal and economic background helpful. 2. Job. Evaluation of small- and medium-scale industrial investment projects: - Initial overall evaluation based on contact with clients and summary analysis of proposals based on BCD's economic and fi- nancial criteria. - Detailed study of project and preparation of reports which will include an analysis of financial needs and statements, projec- tions, profitability and rate of return, etc. Additionally. evaluation of the economic impact of proposed projects and their long-term benefits to Cameroon. The analyst will work closely with the client and technical assistance agencies in preparing the financial and economic evaluation. - Supervision and follow-up of projects after approval, during construction and after operations have started. As part of this work, the analyst would assist clients in the creation or improvement of internal accounting systems and procedures. - The analyst will be responsible for training Cameroonian counter- parts who will work under his or her direct supervision. - Directly responsible to the Director in charge of industrial loans. 3. Period of Appointment. 2 or 3 years. 4. Date of Appointment. Summer/Fall 1975 5. Residence. Yaounde. 6. Languages. Completely fluent French. Good knowledge of English desirable. ANNEX 4T Page 2 INDUSTRIAL ENGINEER 1. General background and qualifications. A general industrial engineer who should be a graduate of an engineering school and have 5 or more years of experience in the technical management of small manufacturing concerns, maintenance services in medium-size in- dustry or broad experience in industrial consulting. The engineer should be conversant in technical fields related to projects submitted to BCD, in particular agricultural processing, food and light manufacturing. Though not a specialist, the engineer should have an up-to-date general knowledge of technical problems in manufacturing industries. 2. Job. Evaluation of small- and medium-scale industrial investment proposals: - Initial overall evaluation based on contact with clients and summary analysis of proposals. - Detailed study of projects, including evaluation of design and technology choice, proposed buildings and equipment, procure- ment arrangements and projected costs; for expansion projects, evaluation of existing plant and equipment. The engineer would also assess the technical competence of the client's staff and projected training or technical assistance requirements. - Supervision and follow-up of projects after approval, during construction and after operations have started. - Responsibility for training Cameroonian counterparts who will work under his or her direct supervision. - Directly responsible to the Director in charge of loans to in- dustry. 3. Period of Appointment. 2 or 3 years. 4. Date of Appointment. Summer/Fall 1975. 5. Residence. Yaounde. 6. Languages. Completely fluent French. Good knowledge of English desirable. DFCD February 14, 1975 ANNEX 4U Page 1 BANQUE CAMEROUNAISE DE DEVELOPPEMENT Statement of General Policy The purpose of this Statement is to outline the policy that shall be applied to the activities of the Banque Camerounaise de Developpement, herein- after referred to as the Bank. I. OBJECTIVES AND OPERATIONAL CRITERIA 1. The Bank shall extend its assistance on the basis of social, economic and financial criteria. Enterprises that submit projects to the Bank shall be required to have efficient management, be technically sound, have satisfactory market prospects for their production, be able to generate a financial return on the investment and generally to contribute to the economic and social growth of the country. 2. As a general rule, the total amount of loans granted by the Bank, (with the exception of seasonal agricultural loans) together with its parti- cipations and any other commitments of a financial nature in favor of a single enterprise may not exceed 20% of the Bank's paid-up share capital and the un- impaired reserves. 3. The Bank's total investments in the form of equity participations may not exceed the total of the Bank's paid-up share capital plus unimpaired reserves. 4. As a general rule the Bank shall limit its equity participation in any one enterprise to a maximum of 10% of the share capital of the enterprise. However, such participation may exceed 10% in enterprises which are of partic- ular interest for the development of the country, on the condition that written agreement has been received from the Government. 5. Generally, the Bank shall not assume managerial responsibilities in enterprises it assists. It may, however, by a three-quarters majority decision of the Board, assume managerial responsibility if this is justified by the circumstances or the nature of the enterprise. The Bank may also, notwith- standing the above restrictions, take any action it considers essential to protect its investments. 6. The Bank shall take all measures necessary to ensure that the funds it disburses are effectively used for the specific purpose of its loans and that borrowers procure the goods envisioned at reasonable prices. The Bank shall require that its borrowers have an accounting system which meets the re- quirements of sound management. It shall, as far as it is possible, exercise the right to check the activities and inspect the accounts and books of the companies it finances. ANNEX 4U Page 2 II. FINANCIAL POLICY 7. The general aim of the Bank's financial policy is to maintain the value of its own capital, to manage its funds in such a way that it is at all times able to honor its obligations on time and to achieve a profit margin that enables it to cover its operating costs and form adequate reserves. To this end the Bank shall: - maintain inasmuch as possible a satisfactory balance between the maturities of its own obligations and those of the loans it grants; - not incur exchange risks in respect of those of its borrowings that are repayable in foreign currencies; - generally require appropriate security for the loans it grants; - make adequate provisions against potential losses and build up reserves to a level consistent with sound financial practices, taking into account the size and quality of its portfolio of loans and investments. 8. The Bank's own accounts shall be kept in accordance with generally accepted international standards. The Bank shall engage the services of an independent firm of professional accountants of international repute to audit its annual accounts. DFCD May 15, 1975 Annex 5 CAMEROON SMALL- AND MEDIUM-SCALE ENTERPRISE PROJECT Estimated Schedule of Disbursements (US $1000) Fiscal Years 1976 Cumulative First quarter 100 Second quarter 125 Third quarter 125 Fourth quarter 150 00 1977 First quarter 150 Second quarter 175 Third quarter 175 Fourth quarter 200 1,200 1978 First quarter 200 Second quarter 225 Third quarter 225 Fourth quarter 250 2,100 1979 First quarter 300 Second quarter 250 Third quarter 200 Fourth quarter 150 3,000 DFCD February 5, 1975