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Ег,::�ы r,1 .1'и`I .г �г , , •, i ',. ,. г ,, .�i= . �,t �г,:'г 'ц.;м. �. i'е.�д':� R� �#;-г �а'�(iт'.'..�vг _ �:rп'дΡ , �.г:=.3�ч (�4' 'К'k�ii �• -, � - �Э, �•дз. . � _ '1•;.-:,:,'- ��:+�.��;г`�`�•..€, �``.,...>.r�.;' ��.�. �. _ i ,:г-. L^i-л�5• .осtlгi:г.--.-д•'г'�-c,:tL� 'г,"..S:rs7 •..�: - 'S.'� `i�} ' !'.. � � ' ��-+д--л•tя,`"' ✓ !У'г" �r'"'�г А� �J'ii'.�<�г - . - . .. . ... . . - �__ . - г -� _.. . , , - ..__.,..._ ..,.-, l . ....- .�:r�;I_ :` . _ ч-.,���'�€':."�.ZIW,.?���:_i:iiie.ti•г��.хD#'ц'в-мtг,'�.�-htr'_�:�,:пс�4 ,.иs�Gt.чfi;`»йих::i+.�-А1�.-,�а:ч� TABLL 0'2, C0IýT_ýC`ITTS j_ý M n.'ýT cý, -n p r -l 'R p rin i -ri (i B legu"l System C. Finý,ncial Laf:1ý-a-Str-ý,e ture .D. Sl.'ructure of the Ecc-nomy 'r -; ý + ^ -r tý1 -1 T - A 4- -^-4 v i. j_ ýL v ýj Å..1 L c, ,i. V.L Ik. The-Develonment B,-m-k B. Organizationa'l Fr=e-work Posi+iol -ure 'ro'ý'i`ab21' B. Capital Strwýture 0. SJiLking Fund D. Prof itý.ýb 111-ty IV. One -r at o rz a,ý-,ýd P o I. i c - e s 35 A. Operations B. Covlposition øf Portfolio rt, -ns a--id iJondi+ians of Loans %.« Teri V. Loa, Pcrtfolio _. ø.. 4 2 - h- T.n~ý fn-r Cii i +i vA.ti n n B. loans to the Tea Produeliig Sector 0. Industr-ial Sector Portfolio D. Small Scalleý Industry Loan Prograrrw?I-. ," ' n f -1 a -1 "" cb 4» s £j Reserve 4 or 'LEJ u li - v ;, 2 vi. AppraLsal ana Follow-up.Procedures . A. Appraisal of Industrial -Investments B. Appraisal of Agricultural Loans C. Follow-up Procedures VII. Board of Directors ... ... ?6-7< VIII. MaiaZement and -Staff... ... ... 80-94 A. The Managing :Director B. Other Staff IX. Relations with the Governmeant k. Personal Reliaions B. Procedures for New Industry C. Financial Relations '. -ietie nA Appoinmn-o;tf 0Jd . 0 LA. VU.. v cL±U~ im U~ A- U~L V-me - o St f - X. Relations with the Business Communitv... 106-110 v r M X.&. TourismL 0. ...,0..11 - A. Growth of Tourism B. Growth of New Mauritius Hotels C. Consequences of the New Mauritius Hotels Monopoly 'n PntePnti fo-.r Tpeouris E. Conclusions XII. Recommendations : Future Role & Policies for the Develonment Bank 12?-146 A. Number.of Development Finance Companies in Mauritius B. Policies in Agriculture G. Policies in Industry I. Pci ouis E. Other Fields of Activity P. Staffing Pattern Gr. Financial Structure U. overnmenz. Conro.l I. Priority of Changes : IBRD Assistance XIII. Forecast of Actiy ...I .J. 1^?-1. A. Approvals B. Commitments and Disbursements C. Financial Needs and Sources 1). Profitability XIV. Summary .. ... ... 0.. -17 A. Policy Directive Issued to DBM under the Development Bank Ordinance . Organization Chart 0. Comparative Balance Sheets - 1964-1969 D. Borrowings by DBM B. Comparative Income Statements - 1964-1969 F. 1969 Balance Sheet, Sub-divided into Industrial and Agricultural Operations G. 1969 Income Statement, Sub-divided into ITndutrial and Agcri m ltirrnal Onprati nsc H. Industrial Loans, by Sizes & Sectors of Economic Activity I. Crrma 4i I c+rne n+ "or"foli 1OA-1O6O J. Industrial Portfolio, September 30, 1969 K. Forecast of Operations - 1970-1974 L. list of Appraisal Reports and ProJect Files Studied M. People, Institutions and-Plants visited. A. General Background 1.1 Mauritius is a small island located in the Indian Ocean approximately 500 miles east of Madagascar. On March 12, 1968, it attained in- denendence. Prior to 1968 nd dowm to 1810. Mnairi tiisi wa a Britis.h dependency; prior +n 1810.. auritius wa under -Frnch i~e rue.-,n ,,+-- ,e estab«Lis;hed wyhich1 I became, and are today, the econj,omic- mainstay of the count. Afican slaves were initially used as labourers on these plantations; UCieve, th aboi.ion U sLavery in 1833 forced trie French plantation owners, over the next 30 years, to bring in nearly 200,000 indians as indentured labourers. At present, the population ranges from a small group of pure French (the "Franco- auritians") to a medium-sized group of mixed French and Africans (the "Greoles") to a large 2 group of pure Indians (the "Indo-Mauritians"). The English have made little impact on the country. The number of people not of either French or Indian origin (mainly Chinese) is very small. 1.3 The Franco-Mauritians control the sugar- mills and plantations, most of the industry, and a substantial part of the wholesale trade. The Creoles are mainly factory and white-collar workers and are concentrated in the urban areas. The Indo-Mauritians are mainly small planters and plaht'Lion workers, adj sume have inlaresLs il retail and wholesale trade and industry. Most of the retail trade is controlled by the Chinese. I.4 The Prime Minister, an Indian and a former medical doctor, but with many years of political experience, is Sir Seewoosagur Ramgoolam. Sir Seewoosagur is leader of the Labour Party which won the general election in 1967 and which derives most of its strength from the small Indian farmers and plantation workers in the rural areas. Sir Seewoosagur is a patriarchal figure, and, being 3 associated with gaining independence, enjoys popularity among the population and respect for leadership among his colleagues. His major achievemnt has been to win the confidence of the minority groups in tLe country and thus to lend political stvability to the country. In the absence of Sir Seewoosagur froin the country, Mr. Ringadoo, Deputy Prime Minister and Minister of Finance, acts as Prime Minister. Mr. Ringadoo is highly competent and shows an appreciation of the social and economic situation in Mauritius. 1.5 The country appears to be politically stable; most opposition to Sir Seewoosagur disappeared in November, 1969 when the major opposition party, the Parti Mauricien Social Democrate, entered into a coalition with the Labour Party. The Parti Mauricien. which genera-prlly repets the f".ttory and whita-nolld workers (the non-farming, urban population) nd1 is traders, was given a share in the Government houg the creation of-4:- ei` niew m iniserixal positions-G.Ur: Thle -Leader Ulf.the Parti Muiin 4 Mr. Duval, a very young, leader with popular appeal, was given the post of Minister of Foreign Affairs and Tourism. Other ministries given to the Parti Mauricien include the Ministry of Commerce and Industry and various ministries of State. Now having a stake in Government, most opposition to Sir Seewoosagur has disanpeared. The next few years are,therefore,expected to be ones of general political stability. 1.6 By African standards, Mauritius is a small but wealthy country. annual GNP is apProximateiy U. S. $ 150 million; average per capita income is about U. S. 3 200. However. approximately 300 of this GNP is derived from the surar industrv: inI about 45o of the total lnd n d 95.1o of the cultivable land is covered by sugarcane. 1.7 The average sugar production in recent years has been around 550,000 tons per year. Two-thirds of this production is sold at favoured prices (which have been 60% to 80% higher than free market prices) under agreements with the United Kingdom and Canada and under United States' ouotas; the 5 b al ance has -eeni s aUJ1t fL re eU ma eUtI prices. netUIL an International Sugar Agreement has been concluded under which mauritius has received a suoSTanIla.L quota for sale in the free market. This quota, together with the quota under the agreements with the UniLted Kingdom, Canada, and the United States, covers approximately all of the present production of Mauritius. The main impact of the International Sugar Agreement has been to strengthen the price of sugar on the free market. attend school; the Mauritian worker is said to be generally intelligent and industrious. General living conditions are, according to African standards, high. 1.9 The country currently has three major and somewhat inter-related problems. The first problem is a very high rate of population growth. almost 31,, per yeara. The annual increaeq in npiation has absrt,orbe i n recnm tryears almostQ oll ofP 'he arnlna Inc e 4 W ; GNP, l.eAvin yer ai L 4icamec 6 The size of the population becomes an increasingly serious probleim each year due to the current high population density on the island (1,086 per square mile) and the lack of unused land on which to live or farm. I.10 The high rate of population growth also leads to the second problem - high unemployment. Unemployment is estimated by the IMP to be 40,000 or 20%o of the working population. Moreover, 8,000 to 9,000-new workers -are expected to enter the labour mLarket each y,ear, u) u at lea6t li9; on current prospects, only a small percentage of these workers will be able to find jobs in Mauritiun. I.11 The third major problem is the excessive dependence of the economy on sugar. Given the great fluctuations in the price received for sugar *According to the IMP 'r RepOrt on1- The "COnOm1y of Mauritius (February 4, 1969), as of 1967, the ~a o ~u the "economically active" popu a iCn was 200,000, and the unemployment was 40,000. 8 business transactions,, such as in securing a mortgage on movable property or capitalizing interest. The Government has recently passed legislation to attempt to cure some of these defects. 1.13 The law provides for incentives to be giver to encourage new investment. The Government is empowered to issue a "Development Certificate" under wich an enterprise - can, inter alia, receive an exemption from income_taxes and imnort duties for a period-of years. The law also contains some sections which aDnear to hinder new investment. such as the inability to take an income tax duict1on for rea P-rh and develonrent expenditures nn +he inhiliyir +n bringr in + orarr forein +tech4 nil per sonne a1n% exmAereannsfo Mariia income tax. OnA baane the aI 11_ Appe"FF A.Ls to0 be f av Ou r &ale 1-o0 new e nte -ri, al J so, - he e 4, _ U ULi;_LU%.UaULZ~ kJ V I LU..L -~ LWjU-.;VLLUn6 .4.....SJ C. Pinancial Infra-etructure .14 Mauritius has over -the years built up a small financial infra-structure. This comprises, besides 9 the& Developnent Bank, a central bank, rommercial 1.15 The central bank (Bank of Mauritius) was set up a little over two years ago. Besides managing the country's foreign exchange reserves and operating its foreign exchange control system, the central bank is now beginning (1) to provide for the increase in liquidity needed to ieet the seasonal requirements of the sugar industry, (2) to operate a monetary policy, and (3) to mainta:Ln an orderly market for Covernment securities. The central bank is at an early stage in its career, but the efficient execution of these functions should lend financial stabilit to the economy. 1r.i There are at nresent brannhs of four foreigsn hnlsr (Barcy erat-ntile Bsnk of Rar,oda, Habib Bank) operating in Mauritius, besidies a lo cal 14.42~l -n1 In ii +4 11 ^,vnrn, , ~r4 &l U 1 I.n -«~k k -~ - +4- Wit ca . foreini1. bLLA (JJ.Vyj. h.LIe Lat%j ori -Lfun cti of the comrmercial banks is to finance the foreign 10 trade of the country. In the past the commercial banks also helped to bring in money (mainly from London) for financing the seasonal requirements of the sugar industry, but gradually the central bank is becoming the main sou:.'ce for this financc. With the gradual increase in industrial units in the country, the commercial banks have begun to meet the working capital needs of local industr,. 1.17 Two of the banks also provide medium-termCL credlt to industry. The Mauritius Commercial B3anl: a edium-s.ernu-imeniug suoslary wnicn provices loans, up to five years duration, mainly to the sugar industry. Barclays Bank has a finance subsidiary with international operations. 1.18 .Life insurance has made some headway in Mauritius, and possibly gives rise to investible funds of about Rs 5 million annually. In the past, life insurance companies (there are mainly three, Anglo-Mauritius, Swan Hunter - which has recently entered the life insurance field, and Life Insurance Corporation of India) invested most of their funds abroad. (usually on the London market). However, I1 more recently, the lfe isran4ce -pnies h main.Ly in IIlauritis vernmet secitie. AU small proportion of Leir fLUunds is aso invetd U in shares and debentures of private conpanäies. anld we received the impression from our discussions with insurers that, given opportunities and safety, this proportion can rise in the future. I.19 Some attempt has been made to form invest- ment companies in Mauritius. Recentlv an invest- ment trust, allied to a trading group, was formed and its share issue was over-subscribed. We understand that it is planning a further issue. T.2O The sugar companies are close1y hel however, hInnk- nf shares in tne nnpni es occ~sonÖ4rvall changehands Whil ~,evos of theö in dstrian4nl comp-,a a inAl and do I £i - .+nf+ n n- al publ-kic issue ofL shares, a few companies with needs for suUbstantial PUnds have made publi i e o shares, which have been successful. 12 1.21 There is a smt1 bourse in Maurit-ius on which shares of local companies are traded. The market is not active and deals are not frequent. However, the bourse does provide a forum for bringing buyers and sellers of surities together. D. Structure of the Economy 1.22 The structure of Mauritius' Gross National Product is shown in the following table :- Mauritius: Gross National Product at Market Prices.1961-67 (In millions of rupees) in Der cenItI- Jt-1 -ýj Agriculture, forestry, hunting and fishing 182 198 190 206 27 24 Mining 1 1 1 1 - - Manuf acltW;,ng 111 129 121 131 _. 5 Construetion 52 55 52 60 8? Energ, water, & ai tary services 14 23 22 24 2 3 Trnspo~rt, stonrge and communications 78 102 99 100 12: 12 Commerce and banking 84 103 100 106 12 13 wnership of dwellings 52 r,i 63 65 8 8 Government services 30 42 45 48 4 6 Other services 75 94 99 104 11 12 Gross domestic product (at factor cost) 679 808 792 845 of which: sugar industry(225) (246) (220) (249) (33) (30 Net income from abroad - 8 - 6 - 1 - 5 Gross national product 671 802 791 840 100 1.00 Per capita income 2/ (in 000's of Rs) ~ 1.0 1.1 1.0 1.1 * The ecniomv f Mauritius b the Internatina Monry 1/ Provisional. und,February 4,1969, page 6. 2/ Based on mid-year population. 12A 1.23 Land use is as follows: Total Area Classified by Utilisation 1967 Acres Agriculture 257,400 SugAr 242,100 Tea 10,300 Tobacco, vegetables and other crops 5,000 F_oreste, S.Crub 'areas, gc-rasstc- lands and grazing lands 164,400 MU4~1+ ~ - n- 9Q 17,M)~ Other,s 9,700 Total Island Area 460,800 1.24 Total sugarcane production in 1966 was 4.8 million tons and in 1967 was 5.8 million tons. Trends in yields on land under sugarcane cultivation have been as follows+ auritius, by Barclays bank, June 1969, page 1. + OuPosret P n ndr Prosnects of iauritius, by the IBRD, August 5, 1968 PnMe 19 SUGAR CII YIELDS IE ESTTES Ai i)LANTER FAk:; Year Estates P I n t e r s Mauri tis Island i Mauritius Maufacturing & Trade Co. Ltd. iii) Mauritius Chemicals Co.Ltd. Presse: stee~products: General Development Co.Ltd. doors & windows Printing i) Henry & Co. ii) Mauritius Stationery Manu- facturers Ltd. Ra#;or blades Light Industries Manufactur- ing Co. Ltd. Rubber pads Telstar intiis Rubber (plates and sheets) Rubber Industries Ltd. Salt Societe Koenig Freres Shirts i) Aurdally Brothers & Co. ii) Juddoo IFils & Co. Ltd. Ships,,tugs, launches, barges, Taylor Smith & Co. trawlers, fishing vessels up to 45 m. ecretary and represents th1^e Finance :Uinist ury. Mr-L. iuamusse nas a banking backgrounu knaving been General Manager and later Managing Director of the auritius Commercial Bank). Mr. Robert and Mr. White have sugar plantations and industrial/trading interests. Dr. Forget owns a daily newspaper. 11.16 Mr. Bates, the Managing Director, was the Financial Secretary to the Government until he assumed the present position in the Development Bank. 21 II.17 The Board, as at present composed, is heavily weighted in favour of political and civil service interests. We met most of the directors of the Board; none of them (except r._Lamusse) , showed a clear und_rt.d.ing af the problems of industry and financing. 11.18 e) RelationshiD with Government : Under the Ordinance, the Government has three kinds of powers vis-a-vis the Development Bank : (i) the power to give directions on general policy.matters, (ii) the power to make regulations for the administration and operation of the Bank, and (iii) the power to approve the appointment, terms, and conditions or starr. 11.19 The power to give directions, which arises under Section 15 of the Ordinance, relates only to "the policy to be followed in the exercise of its (DBM's) functions". This section also provides that "if the Board certifies that it is of the opinion that the carrying out of any of such directions may prejudice the Bank's financial nosition. the Bank shall not carry out such direction until the novernm,ent has guaranteed that any loss made by the Bank as a reslt of' such directioni shall be borne by the revenues of the Colony". 11.20 To date, only one direction has been issued to DBM (see Annex A). This was issued at the time of the formation of DBM and requires DBM1 to concentrate its efforts on the diversification of agriculture and -the promotion.of industry. The __t( LP l .1Y -. 4 , - -t 4 - loans for sugar cultivation to an amount equal to that arising out of the repayment of existing sugar loans. 11.21 The power to make regulations is divided into two categories. Under Section 47 of the Ordinance, the Government is given the general power to make regulations "for the administration of the Bank ... not inconsistent with the provisions of this Ordinance, and generally for carrying out the provisions of this Ordinance". In addition to having this general power, the Government also has the specific power to regulate the creation of 23 indebtedness (Section 19) a-nd to determine "from time to time" the amount of DBM' s funds that must be held in liouid securities (Section 21). 11.22 The power to approve the appointment, terms, and conditions of staff arises under Section 12. We understand that the initial terms of employment laid down for DBM's staff were similar to those for corresponding civil service positions. DBM has found it-difficult tc recruit and retain professional stff cn thi aisnd it hs only been with difficulty that the Government recently approved a small revision in these terms. 11.23 The day-to-day affairs of DBM are run by the Managing Director. There are two major operat- ing departments in the Bank - the industrial section and the agricultural section. The industrial section is directly under the Managing Director and has 3 professional..staff. The agricultural section 24 (as also the accounting section, secretariat, and legal section) is under the Secretary/Accountant, who in turn reports to the Managing Director. The agricultural section contains 4 professional staff. In addition to these 9 professional staff, there are apnroximatelv 20 non-professional staff. An ornnization ch,art is grivenl in Annex R. CHAPTER III : FINANCIAL POSITION, CAPITAL STRUCTURE, AND PROFITABILITY A. Financial Position III.1 The Mauritius Agricultural Bank, from which the Development Bank originated, did not have any share capital. It was funded. by loans from the Government, debentures and public deposits and Bank was formed, this capital structure was continued. 111.2 The following summary balance sheet shows the position of the lauritius Agricultural Bank as of February 29, 1964 and is also the opening balance sheet of DBM at its inception on March 1, 1964. Bailance Sheet as at Lrc 1, 1964 (B in million) LIABILI TIES ASETS Capital Liabilities Loans Government loans 0.55 Agriculture 23.31 Long-term loans 19.89 20.44 Tea 1,29 Industry 11.01 Currerit Liabilities and Provisions 0.39 Housing 0.51 26.12 Short-term oans 4.93 Cash ard Current Assets 1.64 Sinking Fund Reserves 1.30 Reserves Securities 1.30 General Reserve 4.50 Liquidity Reserve Fund 0.95 Profit &%~ Loss Acrt 0.06 4.56 Fixed Assets 1.61 31.62 31.62 27 111.3 As a result of DBM's operations over the next 5 years and 4 months, DBM' s balance sheet became Balance Sheet as at Jue 30. 196.9 LIABT&IISASE' Loans Loans Goverment 23.07 Agricuture 19,14 Long-term 18.01 Tea 3.41 41.0 ndutr 156 3;8.-A A11i Loan Deposits & current Industrial Investments Liabilities 1.46 -r-da n,,-:-ng- 1.-3 Short-term Loans 2.94 Shares 1.59 Machinery on Reserves Icase 0.53 3.75 General Reserve 7.20 Interest Accrued and Current Aqsets 1.45 Contingencies Reserve 1._5 0i'h 0.52 Account 031 8.56 Id.ddtyReser-- a 05 EnMngAndsa.v cos v.0 54.04 54.04 28 assets 11.4 Between 1964 and 1969, current4(including cash, short-term investments and liiuidity reserve fund) have increased from R 2.59 -million to P 4.71 million. Current liabilities (including short-term loans) have decreased slightly from f 5.32 million to Rs 3.40 iillion. Thus, DESii' s liquidity position as imnroved; and. as of June 30. 1969. its current ratio wa . Tntal irv estyrent portfolio has increased from +5.61 i n P to n 4 Illion over te- period 1964-1969. The portfolio i dics in detaie in ChaptersIT and A. SiknIunTnetmnsh \Incrasep - ubtatill fro r L.3 vilo to ur.l,in fw.LU years 1964 to 1969 are given in Annex C. B. Capital Structure 111.5 !DEM's capital 'funds consist of loans from the Government, debentureN bonds issued to private and quasi-public bodies and reserves. DBM has no share capital. The change in DBM's capital funds between 1964 and 1969 has been 29 Canital Funds (Os millions) 1969 1964 Government Loans 23.07 .55 Debentures and Bonds 18.01 19.89 Reserves 8.56 4.56 49.64 25.00 The entire increase in capital funds .has come from Gcrernment loans and increases in reserves. Over this +,, --^ n,I" ^P Vi 11 JL "A. V %.J.. period,,DEM's debentures and bonds.to private and quasi- III.6 The debentures and bonds currently amount to about 35/, of total capital (h 18.01 million out of Rs 49.64 million). The debentures and bonds were issued between 1950 and 1963 and carry rates of interest ranging from 3i/2 to 5Y2 per cent. The average cost is about 3.75 to 4 per cent. These funds fall due over the period 1976-1983, and a sinking fund of Ps 5.73 million (invested in securities) has been built up against these loans. Annex D contains a more detailed descriotion of the terms of the debentures and bonds. III.? The Development Bank has obtained from the Government % 21.21 million in loans to carry on its industrial financing activities. These loans are repayable at the end of 40 years and carry interest at the rate of 21/2 per cent. A sinking fund is to be set up against these loznc after the end of 20 yea.s, i.e. beginning about 1984. Interest for the first 3 years on the amounts drawn under these loans is allowed to be capitalised, 0. Sinkn -und III. 0 b3i nas foLLo:ea a po-Lcy of creating a sining fund to cover its maturing debt obligations. This is required under the provisions of the Ordinance, although tne actual amount to be transferred to the sinking fund Uetermining tIsLZJ aiQuIlt is not specified nor are any criteria for -4 laid do-wn. These matters are left to the discretion of the Board of the Development Bank. Using this discretion, the Board has increased its investment in seurities for sinking fd 4 p e m o a 4 4oA 4- J.AAU 6.01 ml L.L n Ju I 0 19." U11 Uv Rs 6.01 million on june 30, 1969. III.9 w~ile it mi,ht be dec:ied fiscn_ prudence to pr-vovide a ;: g fu-nd to meet murin oblig;ations, an exiandings business enterprise gienerally tries to mäeet i ts n lo-n nhl i atinsn Qut ofi i n' is arnl n ncsr fl ow frnom eurr era tions o r by re Vneing -I, fJLloa - - tig n suchfooliJations. Even i. a sJining fand is set up, it is,,sualny .n,t bnecessary that mniaeys placed in the sinking .fund be inverte outside the business of the enterprise. This type of ;:etion reduces the scale..of operations of the enterprise in its substantive line ofz aetivity. T T 7 1 niXi *. +r'-kl-+ 4 - , ý,P1-4^,1 ý ln-r IC-n r-.-~~ in.J2ficus of~ £und5s to matin --~y c its agriultura'.l opeaton rather than let them shrink. Ihi finan1cial conservatis ahows to us a lack of business drive to expand operations and a lack of .ability to plan the current use of reso,urces witMin the' buesiness so as to achieve a desired flow of funds in the fa.ture. III.11 One indirect conseauence of this policy has been to inflnte the :income and profitabilitv of the Develcnnent Man, from no-prtoa activities. _^st of the - - loan Ir hich thefsinking fund is being built up to cove' carry rates interest in the range o ' - 5` per cent, while the sinking Z C 32 fund itsel' is- invested in 7-7- per cent securities (some of them outside Iiauritius). Tius the Development Eaik makes a clear 2 per cent profit outside its range o-- 'h-uinessc ý -ctir>ii - Irn 'tYTlr 'hr is -,(i -rrro we frnds iL the past at a low cost. D. Profi-tabi-lity 11.12 DBI's two main sources of incomue are interest received (iL 2.61 million in 1q96-6Q and fee etc. ( 0.20 million .in± 1968-69) . .nterestb uicome coSi.S of uinte.re Irom loans anu a-so inueres-G fromn LOThJa sixuü±ing 1lund ana short term i-nvestments. Fees consist of lease rent on buildings and a..ricultural charges. III.13 Total expenses in 1968-69 nounted to as 2.02 million (F.S 1.43 million as interest and discoun.t, i' 0.57 million on salariesý and administrative expenses and L 0.02 millio jon inur1i >ia~1lvi uild,ings). The Deelopmnt~ 1Ban, ina additio;, provided 0410 million for depreciation on in.dustrial buildings and ofZic'e property, leaving a net profit of R 0.69 million; DBM. is not subject to tax. Gut of the net profit, Es 350,000 was transferred to Contingencies R r-t-er _alaLs00, RElserve (aaintaine d to p.rovide¿agýainst bad debts), Es 250,000 33 to General Reserve, and the balance was carried forward. A comparative Profit and loss statement for the years 1964 to 1969 is coitained in Annex E. I..L...14 It is not p i to Irela the ret,Urn on LuLnds to efficiency criitèria, partly because substantial funds are obtained on soft terms and partly because there is no share capital to which the return can be related. An attempt is made below to relate net pr.ofit to reserves and to a notional share capital of Es 10 million. YTT I Cý - Yn, cent ofU th eeve s c).L I`s 8.53 lo. If on adjus. D 3±M-' s capital structure to allow ior a share capital of Rs 10 million (which produces a debt/equity ratio of apprc.- irately 2:1) then adjusting correspondingly for a reduc- tion in interest at 2.5 per cent, the return on share capital becomes 9.4 per cent and on net worth about 5.1 per cent. III.16 DE's financial statements are nt f r-mally liowever, a tentative distribution of the balance sheet and profit and loss statemient, for the year ending June 30,1969, 34 was iaade to show the differences in profitability between agricultural (including tea) operations and industrial operations (see Annex F and G ). This distribution shows that about 75% of the profit conies from agriculture and about 251 from inrstr- At te s-lame tim, nhoit 60 of 4o4al fNd Ar use in agiuAr and abu 40 of the funds are totatL used in industry. 111.17 The margin earned on both these,: operations is about the same. Industriail funds are obtained at a cost of 2j per cent and are loaned out at 6V per. cent; agricul- Lu.l:al f lc obtai.e ai, El Cust U! aQoút 34 Per cen, and loaned out at about 7" uer cent. The main reasons for (1) t I + + «n ý Chapter. ~~ n Then re"nngpwrnawlb e-o the issue directioks on genera oc m the power to a.pprove the pointment of staff and teris and condit-ions of employmient IX.25 As far as written directions are concerned, there is only one general policy direction which has been given. This is a broadly-worded d.irective, given at the time DBL was formed, which specifies the general purposes for which funds are to be used. We do not consider that this direction is restrictive of the operations of -:he Develooment Bank - except to the small extent that new funds are earmarked for the financing of industry. IX.20 The Governrment has the power to approve the appointments of staff and the terms and condit-ons of eiployment under Section 12 of the Ordinance. The objéctive of this section i.s to maiintain a close relationship between emoluments in Government off-ices and in the Development Bank and to control the total staffing of DBM. IX.27 Vihile appreciating the Govern.ment' s conoern to prevent excessive 'Etaffing or staff emoluments in 105 DBM, we would emPnhsie th.t DE5M1' s emndr(9. on professional stafsf are difrn in charater from thI-Lose of Gover nm venu1. d Lat U I..L . DiffLe r exiV i n th -e niatu re ofC w ork ino d in the status andA prestige attached, and in the security offered in~ the two uositions. DEMIJ, therefore, needs to offer diffe-p- aiI0 V-t,ve2 to( 2 atlr`2' bulfe andL- 11 efficient staff in couetition with the Goverriment on the one hand and the private firms on the other. IX.28 Vle understand that the Development Bank is handicapped in recruiting and retaining professional staff because of the non-compUetitiveness of the terms it offers: two of its officers have left so far; the present three officers have been with DBM for less than 3 years. At the same time, the Development Bank has found it dif.ficult to get the approval of the Governnent to amend the terms it offers to its staff. '.e consider this an impediment to the efficient working of the Development Bank and suggest that the Development Bank be given gr6ater freedom in fixing the terms of its staff. The terms should be such as would enable the Development Bank to retain and reeruit staff of the quality and quantity reasonably requir-ed. v 106 nAPTP y : PRT.TON WTITTH TTH ~3[= INE.~...-OMMUNITY X.i The Development Banik's relations with business interests are primarily divided into those with its clients, those with other industrialists, and those with other business groups (such as bankers and insurers). We met and talked to various persons in all these categories during our stay in Mauritius. X.2 The Development Bank's relations with its clien-ts are determined to a large Oxtent by the client s experien1Éëé in dealiig wit i±B, Which in turn is influenced by DBL's procedures. As we have shown, there is no real analytical system for examination of proposals. The Development Ban2k generally accepts the data and figures submitted by the clients and approves the reciuest for provision of finance, subject to its satisfying the three mechn-istic testn refer-red to iarlierå On these rounds, the DlT)P pmn.tit Rnk' relations with i1 , rli ents seemed to be good. The expected complaint - that thPvlomn MBnkr dono,t g-ie as much1V1111 fuI nd As 2 the s cli wants - %,5a and cn be d niscu e.- U~~~L'~~ad - AL~.U IL.> iL..J~ C~ A ---.W 1,- AJs V...u-ted~ 107 X.3 However, in the course of our discussion, we also came across some comments on the procedures and calibre of the Development Bank's appraisals. It was suggested to us that there was no scrutiny of projects in discussions which clients had with Development Bank officials. Questionir.g by D-P-M was thniught to be routine andi not guch aq to give thp rnmot-e furtnpr i-nsit into thpi-r projects. We had th i-ression +ha+ tr viBn+ diidnor enrjo n i c1 i n+e -n rspec frits exertise and^ an apreci ton+ fr,its- proce-..,-dures which acn deveopmetba k sld lamiliar with the Development Bank by name. HUvVCr, industrialists werZe appareii±ly no familiar wilt ie broad range of DBM1's functions. DBM enjoys some natural publicity because of publication of notice relating to the mortgages which it takes as security .. s f ,]S.:nonymity for its loans. We consider tat 1. has come about mainly due to the. fact- that the Development Bank has not undertaken any promotional activity. It has confined itself to receiving clients and their applications, rather than offering its facilities to potential clients and converting businessmen to the idea of entering industry.. 108 X.5 In -regard to other 1usiness groups. such as bankers and insurers, we found the relationships which the Develoment Bank had cultivated to be inadenuate. DBv' s links with these groups could have heen estnblished through its directors (it has one ex-banker on its :Board , tnnough joint financing ofitsclients' proj eJ'c an thri dre f- A nin or~ pronaUl ont~+acts. WeÖ haveC fond hwever, that use has not-I been made ofI thILe direCitors on the B oar1 d to estabish uins -.tat and relationships. 4~-- l- DJ1V.UU U LbU gCbILCLY bUUIIU0 UbJU VV-U eja ~ ~uIUULI DBM has also genera.lly sought to provide by itself all the funds asked for by promoters and has not uried to mobilise resources for individual projects f:roIher finanicial institutions. in some instances (Critall Hope, for example), almost the whole cost of the project (inciuding working capital) was projected to be found between the promoters and the Development Bank. DBM has also not so far raised capital funds from no:n-Government sources, and has not developed financial contacts with these potential lenders. Moreover, the Development Bank has not built up personal contaets - other than those which would arise in a small community like Mauritius - with the financing.ag9ncies. DBM appears to ,work in isolation; and the relationships between the Development Bank and other institutions and business groups can i ne) thuh decrbe as bein of ora naturnare only. X. *6 -ie conside r ttht this L state of affairs is disadvatag>eous t.o thie inte,rests of the Development Bank. Firstly, it has deprived the Deveiopment B,Ek of a second view on projects and clients, which consultation with other firnanig agencies in the course of joint finaneing would have brought about. Secondly, this proceduxre has prevernted the mobilisation of resources fron other agencies for financing individual projects; it has only helped to infla-te the DeveIopment Bank' s approvals. Thirdly, the lack of contacts with the financial community is likely to inhibit DEI from raisin . capital funds 01n the market in the future. Wihile at present the Development B3ank depends upon the Government for funds on soft ters, we envisage that the Developmrent Bank will increase its operations and need to use the Government funds as a leverage for obtainirg local funds at market rates. This would pa,rticularly be necessary in periods when the Government faces budg4etary stringency. Finally, as a result of keeping aloof from the financial community, the Development Bank has come to be identified as a Government-_alaency and not as a part of the financial Community. 110 X.7 We consider these inadequacies in DBL's relationships to be a result of the present management policies and procedures. We do not consider these inadeouacies to be inherent in the organisation or structure of the Development Bank. It should be possible in the future for the Development Bank to build up healthier and more independent relationships, is when the management structure/changed. 111 CHAPTER XI : TOURISM A. Growti of- Tourism XI.1 The most important development in the Mauritian economy in renent vears has been the growth of tourism. Enptwpnn 1992 nnd 1967 the -numbpr nf tourints hag almost tripled and the n rf g nights ha more than *- dobe. The- follwing- v ch tal givres daton the castskfor th period 1968-19741 Growth of Tourism Number of Number Nights Tourist + 0f per fear NgQts Tourists Tourist Actual 1962 78,957 5,875 13.4 19:3 10R-,n 7,27 14.0 1964 144,584 10,033 14.4 1965 144,875 10,058 14.4 1966 162,269 13,040 12.4 1967 17196 14,814 11.6~ Forecast 1968 192,855 15,477 12.4 1970 268,945 22,286 12.1 I nl~- rv1 24 nl t - n^ n r I17 -24 -4 n 1972 376,675 32,092 11.7 1973 446,430 38,510 11.6 1974 529,580 46,212 11.5 * Propsal for the Establishment of a Development,.. 112 + The number of hotel nights equals approximately$.. 112 112 Most-people in Mauritius now recognise that tourism is likely to become Mauritius' second largest industry, after sugar - in terms of investment, employment and foreign exchange earnings. B. Growth of New Mauritius Hotels XI.2 The early recognition of this potential growth belongs mainly to Mr. Maingard, who has joined together-a group of enterprises which revolve around a group nalled New Mauiiritips Fotels (e acomp;nving .chart on the -corporate tree on pg. 113). Mr. Maingard promoted New Mauritius Hotels through a firm he controlled called Rogers, which is a travel agency firm with peripheral interests such as car hire and shipping. Rogers has recently become a subsidiary of a British firm called Lonhro. We understand that, under this purchase arrangement for Rogers by Lonhro, Mr. Maingard is to remain the Managing Director of Rogers. Finance Corporation in Mauritius by the Coimonwealth Development Corpn., March 1969, pages 23 and 25. half of the number of tourist nights. NEW MAURITIUS HOTELS AND ITS FAMILY OF ENTERPRISES LONHRO controlling interest (purchased from Mr. Maingard; Mr. Maingard. to remain as Mg. Director of Rogers) ROGERS & CO. T.T.B AIR M'TIUS M'TIUS STEAM SCOTT MAURITIUS* AIRLIE AGENTS SHIPPING AGENTS LTD. NAVIGATION & CO.. STEAMTSHIPS (all airlines (for approxi- callin- at mately 50%o of Mauritius except all ships call- BIGAFI MAUTOU one) ing at Mauritius) Travel lAgency B.0.A.C..17 D. B. M 12 + SOTHES 29' (TOTAL PAID-UP EQUITY O s 4.2 million Controlled, but not necessarily NEW MAURITUS HOTELS LONG-TERM DEBT held by wholly-owned, by Rogers & Co. Govt. & DBM R 3.5 million. These are special, redeemable 100% 100% preference shares which each have L CHALAND LA MORNE PARK VATEL LES LE FLORE only 93 of a-vote. Thus, DBM's BEACH HOTEL BRABANT BEACH HOTEL MASCAREIGilES MAURICIENNE financial interest in share capital HOTEL LTD. HOTEL RESTAURANT is approximately equal to that of [H H_LTD._H_TE L Rogers & Co., although DBIM's voting power is only-, /3 as great. XI.3 The negotiations for the formation of New Mauritius Hbtbls began around 1964 and took place mainly between the 2r:Lme Minister and Mr. Maingard. Mr. Maingard via Rogers and Co., was able to put in only a small part of the eouity required (mainly in the form of Rogers' then existing stake in three small hotels - La Chaland, Park, and Vatel), and he proposed to bring in additional equity through the building contractors for the proposed new hotels. He also asked the Government to help provide finance. XI.4 Mr. Malngard proposed a large nolei con- struction programme involving an outlay of Pz 6.3 million. The programme was for the construction of a new beach hotel (La Morne), a city hotel (initially at Curepipe, later changed to Port Louis, and construction for which has so-far not started), and renovation of a restaurant (La Flore). XI.5 As part of the finance required. Mr. Maingard asked the Government to take un such equity as might be offered to the public and not taken up by it, he alsoaske fo alltheloanfinnce eedd fo th 115 hotels. Mr. Maingard additionally asked the Government for some exclusive facilities. He requested, inter alia, that the hotel be allowed duty-free import of all materials (including provision requirements), that the hotel be given a tax holiday, and that "the Government undertqkes not to facilitate the establishment of any comparable hotel venture for five years as from the date of opening of the new Curepipe'Hotel." These privileges were all given, except fQr the privilege of duty-free import of provisions. A Development Certificate enumerating these privileges was isted ±o the -New r1?.JitJi. Hotels, and the privileges granted were published in its prospectus to the public for a share offering. XI.6 The public issue of share capital was made, but it was not fully subscribed. The original arrangement was that the Government would acquire the unsubscribed equity. This was changed so that DBM acquired special, redeemable preference shares, each with 1/3 vote. DBM has to-date subscribed and paid up R 1.2 million of its commitment of Rs 1.5 million for preference shares (the remaining Rs 0.3 million is to be subscribed when it isineeded). The remaining equity not taken up by the.public has been issed to building and catering contractors for the hotels (we understand that the arrangement with the cater- ing con±ractor, Fortes. has recently been brought to an end and thir shareholdings taken over by Lonhro/ Rogers). XI.7 As regards loan finance, the Government, which had already provided a loan of R 1.4 million in the past. asked DBI to provide and DBM agreed to provide Rs 2.5 million. Of this s 2.5 million, Rs 1.9 million has been disbursed and R 1.8 million is outstanding. In addition, two loans have been made to a wholly-owned subsidiary of New Mauritius Hotels, Les Mascareignes, on which there is n outstanding balance of s 0.3 million. The current capital s c oNew Vniiu HTels No. of No. of co of Shares Votes Votes ORDINARY SHARES (Par Value 1s 10) 116,560 35.3 % 87,220 Rogers ) 58,680 B.O.A.C. 58,680 17.3% Blyth 10,000 Taylor Smith & Comrany 10,000 Desmarais 10,000 General Con- struction 7,000 Others 58,277 270-517 REDEEMABLE PREP. SHARES (Par Value Fi 10) 25,000 Government of Mauritius 25,000 7.37 0 crn"~ en ^1F ( i -n Rogers above) 5 Others 5 27,933 REDEEMABLE PREP. "A" SHARES (3 Shares = 1 vote) (Par Value R 10) 121.400 D.B.M. 40.466 12.0-% Total Enuitv 338.918 100.0L LONG TERM DEBT OUTSTANDING Government of Mauritius Do 1- . 4 millio D.B.M. (Rs 2.5 million approved) R 1.3 million D.B.M. (Rs 0.6 million approved) s 0.5 million R 3.2 million 118 C. Coneeatienoes of the New Mauritius Hotels iionopoly XI.8 Since the New Mauritius Hotels was formed, there has been considerable growth in tourist traffic - justifying the optimism of the promoters of New Mauritius Hotels. The number of air services touching Mauritius has increased, and there are periods (July/August and December/January) when no accommodation is available at beach hotels. In addition, there has been'considerable growth in business traffic, and the one city hotel at Curopipe (owned by New Meuritiu-- Hotels) is not always able to meet the demands on it. There are periods 'when auritius loses traffic (particularly tourist traffic) for lack of accommodation. XI9The exist-4Oence e-of the ex clu sive -Vrivlee -A 1US T 1 , o " e -It h granted to New Mauritius notels, combined wih t failure of New Mauritius Hotels both to meet its commitment to build a city hotel and to construct added beach hotel accommodation, has resulted in this situation of unfilled.demand. During our investigation of tourism, we came across five specific 119 VLbuLlebb LULb MLWlL gop i .LJ. ImLy .tLe rs U in setti up hoteIs. They have so far been deterred from doing so because New iuuritius Hotels has made wiAdely known (through its prospectus) that the Government has undertaken "not to facilitate the establishment of any comparable hotel venture ...." The Government has, to-date, not denied the existence of this provision. XI.10 The provision has been generally inter- preted to mean that -no new hotel group -can receive tbe privi Iegor cgorferre1 b-vr p e p~n such as a tax holiday, exemption from import duties, etc: moreover, the exclusivity privilege has been interpreted to enn to financing by DBrM. No new 'hn+,0 c ~- i -n C5 rl U O +ri «ho ol i rri 'l 4L +nc -~rn ngi -i hTel grou nn ip is deemQnedi to le elgie t 2'npo PT-receiveýr et upU-2hoel An haVe- notV been n r tprce XI.11 In this situation, potential new hotel groups have been put at a major competitive 120 di sadvanta'je i- a-v iNew M.avr'i tiusHol a ndr~c thus A ni A -I: -V . 1.1. i a - V 11 C! -4 ,x r. , + C Tr I C err n ri. tj I-n a ILy. e e L " AIn -he d1usA has"^rn + 'k grow Iirei a 4. 4_A s+" '-- -^- rr. slowl- 1y thant It oth.LU1 1erwi'se would h11ave grown ha d monopolistic privileges not been conferred. XI.12 An additional consequence of the monopoly has been, in our opinion, the general low quality of service given by New auritius -Hotels and the relatively high prices charged. This low quality service/relatively-high cost attribute -of New Mauritius Hotels. has been widely commented upon by residents of and visitors to Mauritius. We believe this attribute adversely affects repeat tourist traffic and the word-by-mouth reputation of Mauritius as a tourist resort. XI.13 We have earlier shown that the number of tourists to Mauritius has been estimated to almost triple from about 15,000 to 45,000 people between 1968 and 1974 (see this chapter, section A, supra)d Similarly, the New Mauritius Hotels estimates that there will be a substantial increase in tourist traffic over the next five years. The Government and local Mauritian business groups, who are not now in hotel ventures but who would like to enter the hotel field are similarly optimistic about the future growth in tourism. The World Bank Tourism mission to Mauritius has estimated that, subject to confirmation by a market survey, a hotel expansion programme of U. S. $ 2-3 million is presently justified (Tourism Lission Report, June, 1969). XI.14 We understand that New Mauritius Hotels has plans to set up approximately five new hotels to provide about 1,000-1,200 additional beds over the next five years (this number of beds represents its estimate of the additional tourist needs for all of Mauritius over this period). We assume that this project will be looked into carefully by potential financiers of New Mauritius Hotels, in- cluding the International Finance Corporation to which we understand an approach has recently been made. 122 XI.15 We believe the following points should be taken into account in a scrutiny of the proposal : (i) The record of New Mauritius Hotels, in adhering to its commitments in the past, is not satisfactory. Its expansion programme has been determined not by its promises but by its ability to put up its own funds and obtain the maximum leverage on them. When its resources have.not been sufficient, although others-have fully funded their commitments, it has pruned the construction programme and left the balance-unprovided-f-or. (ii) The.market estimates in the propcsal a-pear to be b.ased c the fin=ncial capacity of New Mauritius Hotels rather than on an unbiased forecast of the market. The size of the total market needs to be determined independently. (iii) We also understa.d that the expansion pro- gramme is to be carried out through the formation of new hotel companies, all controlled by New Mauritius Hotels. The formation of the new hotel companies appears to be a-transparent device intended to circumvent changes of monopoly. The breaking of the monopoly involves not merely the formation of new hotel companies but also the introduction of new ornership and new managemert grnurs. XI.16 We are of the firm view that whatever its initial justification, the monoly of New Mauritius Hotels is today a factor inhibiting the full development of the tourist potential of Mauritius. As mentioned above, there is considerable interest * among parties to set up hotels; but if the hotel monopoly of New Mauritius Hotels is-allowed to remain, this enthusiasm is likely to wane and a similar interest in hotels might not arise for some time. Moreover, if adequate or even excess hotel accommodation is made available, it should induce greatei tOurist promo-ion eforts than wouua otherwise be made in an undercapacity situation. E. Conclusions 11.1"t We discussed the question of the hotel monopoly with Mr. Ringadoo, Deputy Prime Minister and * t has en that the interesit snwn by th6ge parties in setting up hotels is "loose talk" and not genuine. We do not share this opinion. However, assuming this opinion i0;. re A th+e'reor + th. Ao he+. do no r ve a genuine interest in setting up hotels, then the:e is ty for perpetuating the monopoly by fiat. In such a case the monopoly could be perpetuated by lack of entrepreneur interest. Finance Minister, and later .*ith Sir Sewoosagur, Prime Minister. They,,inforred us of approaches that had been made, by varLous parties for a Developmeat Certificate to set up hotels. They gave us the impression that they believed that the existence of a publicly-known monopoly might be deterring the further development of hotels and, therefore, the growth potential of tourist traffic in the country. They also implied that the field mlght be thrown open to other parties. One possible ground for doing SO, mentioned specif.cally to us, was that New Mauiritius gnteI!q hed rnt ffilled its on~ n t rg t-aI commitments to the Governmnert under the revelopment r-rti-ficate A public declaration by thp Pvernment 1 'a~ +4 i -i + a i 1+ &-n+l1 n11 + n -n I -c^,0 1 n-i-ni i-n e ^.p "4 4,- ~+ 1 f4 -p- -1~ ~% f~1 1 4fa,v %pr aing mi the h1vtel fiel onU an et XI.18 The imPortance of tourism is officially recognised by the ereation of a new portfolio of tourism which.has been given to Mr. Duval the leader äf the coalM-irn artyDPMS). Mr Duval alsi nisterL c f State Pr Pia has pee asinenoh pTf oi vi q ofy 1'rroui sm.2 £b vi n c *l * . .. * i' * .SLt o.t "1 -1 oé oJ -E t ri y ra~f L- f-L L f V. L VV AJL01 XI.19 We hope that this recognition of the importance of tourism will manifest itself in a more active policy of tourism promotion by the Government. We agree with the finding of the World Bank Tourism mission that the existence of the monopoly is not justified and that the financing of hotels in Mauritius should be contingent upon removal of barriers to the entry of new groups into the hotel industry. A continuation of the monopoly beyond the present will only help entrench it further-- thus making it even more difficult for XI.X0 There are two important factors, among others, which must be looked into as part of the investigation of new hotel projects. (a) Firstly, there is currently a close tie-up between airline travel agency business and hotel promotion; the Rogers group is the airline travel agent for all the airlines, except one, that currently fly into Mauritius. Hotel accommodations for incoming tourist traffic are often made by airlines through their local agents. The result is that a I OX! substantial proportion of tourist traffic first gets channelled to hotels of the local travel agent and only the overflow goes to other hotels (air- line travel agency agreements are made on a renewable year to year basis). (b) Secondly, there is also currently a close tie-up between the provision of ancillary tourist services and hotel promotion; the Rogers-group provides car-hire, boating facilities, tours, big-game fishing, etc. To some extent it is possible for the tied-together group to divide up-tourist spendings.by a system of haringacor"ding I,- the comwveniencoe of Ihe group. It could, therefore, happen that a group might look for its profits to the tourist and ancillary services (.car-hire, etc.), and carry on the hotel business on a marginal basis. XI.21 It is necessary to have an independent assessment of the tourist potential of Mauritius to determine a specific hotel development programme. But even on a minimum programme as suggested by New Mauritius Hotels, there is a potential for an additional 1,000-1,200 hotel-beds or about five medium-sized hotels over the next five years. We have accepted this as a basis for projecting the development of hotel facilities. nYAP7R XI: FUTURE ROLE AND POLICIES FO0R ThE DEVELOPME NT BANK XII.I In the light of our analysis of the situation in Mauritius, we have given considerable thought to the future role of the Development Eank of Mauritius. Vie consider that the basic framework in which the Development Bank was conceived is appropriate to its future operations; however, we consider that some adjustments in DBM's operating policie-s and- the introduction of standards to measure L -'s erfcrmnco r nccccca.y if hDel. Bank is to play an increasingly important role in the future. A. Number of Development Finance Comnanies in. Mauritius XII.2 A decision was taken by the Governmert in 1964 - and ultimately implemented through the Ordinance setting up DBM - to have only one agency to meet the private sector's needs for finance. This agency was to operate in the various spheres of private enterprise, including sugarcane prodi;ction, tea, and industry (industry has subsequently been interpreted to also cover agricultural diversification and-tourism). 12A Given the size of Mauritius, the likely amount of private investment in each sector, and the likely amount of finance to be obtained from development institutions in each sector, we consider that Mauritius cannot support multiple finance institutions. Specialised finance institution for each sector would be administratilvely expensive, would put a strain on available trained man-power resources, and would not be viable. Chapter III segregates the financial operations of DEM into those attributable to agricultural activities and those -attributable to industrrial activities. Wie have- there. tried to show common personnel which DBM now has, DBL1's industrial activities are only marginally viable. Accordingly, an attempt to set up a new institution to handle for example, only industrial activities, is not in our opinion justifiable. XII.3 We, therefore consider that the Development Bank should continue to operate in the three major fields it is at present engaged in : agriculture:, industry and tourism. We would, how ever, like to enlarge the role that the Development Bank Plays in each of these fields. B. Policies in Agriculture XII.4 So far, partly due to the directive from the Goverrnent, the Development Bank has played a passive role in agriculture, particularly sugarcane cultivation. Vie consider that this policy of self- abnegation is not in the interest of the country. There are two areas where we would like the Development Bank to play a more active role in agriculture. Firstly, the Development Bank should provide more loans to improve the yields on lands under sugarcane cultivation. -.hile there is no economic, justification for increasi-ngthe amount of land under sugar cultivation, there is a case for increasing yields on the existing land. As yields increase, marginal su,-arcane land can be diverted to cultivation of other crops thereby achieving the objective of agricultural diversification. Secondly, we would suggest that the Development Bank should more aciveli o -pr)a- the direct provision of finance and technical guidance, the diversification of agriculture. While the Development Bank has undertaken substantial financing of poultry and cattle farming activities (which we consider to be a right approach), it does not appear to have taken the same interest in financing the irowing of other crops (besides sugarcane and tea) 04 Policies in Industry YTT It s in the idti fiel that ie +:,-c like the Bank to play rn mch broader role than it has be en do ing at pre sent. Under+ theexitin vircumtances threexst a -limit-14-ed rang 'f reaieycear LflL4~Z Wd..L UU~ -L ýLI. LJ- UWU L _LUe.L V-LjL UJ.L~ indus>tria-1 opportunites The oprtin o h Develop)ment.Bank'- have Gjo some extent used - th 1 e ts e opporTIunities - without repLenishing tue field by new ideas. If this state of affairs continues, we foresee that the Development Bank will soon come to a dead-end in its industrial business. XII.6 It is, therefore, necessary that a vigorous attempt be made to widen the scope for industry in Mauritius by probing the numerous possibilities that we believe exist. There are three broad avenues which can be explored. Firstly, the CDC Report (March 1969) lists a group of projects which can each be taken up for examination. Secondly, there is a proposal for a free zone, whose potentiality needs to be seriously examined. Thirdly, the Government proposes to broaden the basis of economic planning (which now comprises only the Government's capital budget), 'and we expect that the new plan will indicate areas in the industrial sphere in which further development can be made by the private sector. 13'? XII.7 While the above studies indicate, or will indicate, the broad fields in which industrial develooment mi'ht take place in the future, conssiderable planning work remains to be done at the specific pro ject stage. We expect that some of this work will be done by promoters, v':o wil bring worked-out projects to DBM for financing. However, we. suggest that the Development Bank should itself develop a capability to build up projects and thereafter offer them as a Dackage (with finarcing) to potential promotersb As we have mentioned. above, in a country like Mauritius, the cibv7ious investmnt opportunities are limited: and witli _nmp nf' tlný-m ligpr i lhi 1ngt irdn -Kr'' , t<3 ere is need. for developing and pubics ing new in lvpment Oprfn-NTtuniteJ cz- Teconsider that the Developmenn c Bnyfk is the most appropriate agency for carrying out this functi on. XII. Wäe have not ben satisfied rih +ir industrial -ianin pracice of - h -D-1^T-eelopment Bank ~1hcr-by i aemts to meet by itselfI th,e total meimand lIong- t#LI cI'.JklU.u L 14LJ . L L .U.LJ . lp IJ.u j -L.P ~ ~ J LIJ verm financ in ruIrLme nts, ofU jL in1s D.BLI-'s failure bo Muild up jo6int operations and relations withL oth,"ner financing agencies,-particularly those which are engaged in providing medium-term finance and investment finance, 132 has been especially disturbin-0 The financial system and understanding in Mauritius is reasonably sophisticated, and the Development Bank needs to develop the necessary sophistication to make use of it. The cultivation of such relationshins would be immediately beneficial to the Development Bank by reducing its overall requirement for funds. It would also allow DBM to' reduce its stake in any one project, thereby enabling DBMI to spread its resources more broadly over industry. In the long run, the cultJvation of suCh relAatinsips shoul heln the Tevelonfpent BRrnk th raise its oWn resources on ±he 7) 'lell - i i ' s0 i"2 n nunil-r-Az0" XII.9 V.e believe that the Development Bank should take an active interest in financing tourism (mainly hotels), Although the Development Bank is already involved in the existing 'WIew Mauritius Hotels (which enjoys some exclusive privileges), we understand that the Development Banik has discreetly discouraged another existing hotel owner from approaching it for an expansion prograrmme - even though the hotel owner hdnot sout any special privileges or needed to depend upon thei for continued viability. 133 XII.1O Výe foresee the largest expansion in activity in Mauritius in the field of tourism. As exolairNd in Cha-ter XI, this will involve setting up nw hotels under clifferent managements. Vle have found ;,ithin Mauritius sufficient awareness of the potentialities in tourism and a desire to exploit them. W,e understand from the Government that it is planning to open up the field to other parties. There are presently five groups of people who expressed to us a definite intention to enter this field.when it is opened up. These.groups of people will each need some degree of financial assistance and DB1, sh,ould help to provide it. XII.1i. fe consider that if the World Bank agrees to come in into a hotel-financing programme, its funds should be used to give loans for purchase of imDorted materials, and the Development Bank should provide complementary investment finance (loan ani/ or equity) in local currency. Given our findings on the appraisal capabilities of the Development Bank (Chapter VI) we do not consider it presently advisable for the World Bank to provide funds to DBI for on-lending on the basis of DB' s own appraisals whatever the minimum free limit set. We consider that in the initial stages the World Bank should seek to appraise all hotel proposals with its own staff. XIT.12 e would, however. make two suggestions -.4 *' cýJ iwA ....Å. +,--,, c *: ý 4 .. - all these proposals ec aus e vi L v of e ne or e local currency finance (by yéÆ I~~11iU of loans or investmen) BIbi will e directi y concerned with the pVtraisal of the projects. It woulid be desirable to associate one of DBM's investment officers with the 'orld Bank appraisal missiorn for each of the specific) hotel projects; this would help-to develop hotel appraisc.l capability amongst DEi's staff. Secondly, the World Bank- shiould use the Development Bank as a disbUrsing. agency for any funds it approvs è indivildual hotel projects. Here again the association of the Developinent Bank staff ,,ith the World Bank appraisal mission would be useful in working out the required procedures. 7,hether DBM can be used as a follow-up agency depends upon whether DBM decides to hire additional staff (discussed below). XII.13 Wie envisage that after the above stage is crossed, it should be possible for the World Biankf to consider giving direct loar.s to the Developmient Bank for hotel finance. 135 E. Other -fields of Activity XII.i4 A prroosal has recently been made that DBM be givern special funds on soft terms for projects includ.ed in the Government's capital develo-oment nrnogamme and thact. tDB, nfte r apprainsing th e pro rjctsn-, on-lend th f to theiy a commercial intrest rates. The mra nin r a vn for this proosal was thet this wuld ensure the economi UUV i a ity af the pr jct i the capital~r~ deeomn rogramme of the various~i GovermentDepa tent. L U~gvriIeL pro jects and to te 0 t-er (pr Vat-s eCU L.) atU i Vi Lie of DBM. Even ifaone assume s arguendè that the preiises of the propopsal are valid, the working of the scheme is expected to produce serious problems. DBM must necessarily find, if it is to justify the necessity for its perusal, that some projects sponsored by a inistry and approved by the Finance 1,inistry require major changes or are non-viable. But this is likely to land the Development Bank into inter- ministerial or -olitical conflicts and thereby jeoporcize DEL's other activities. 136 xiI16 P,oreover, we uo not W acept I;te reumle U1ha the ljeveloriment 13anlr has uilt up tne specialise-c expertise needed to a -pr- se capitai nevetonmen programme pro jects of the Government. D i does not have the techil 1 1biity needed to a praise pro jects such as roads, ports, sewege systems, water supplics, electric po er etc. Not o2ly are these pro jectE of a highly specialised nature, with which EiLh is completely unfamiliar, but these pro jects are also of a mufic"-, g-reater size thin ee the normal projects which r'E is used to financing. If DE,' -were to hire consultants each time a Governient -r- ject needed to be appraised, then the appraisals would become that of the consulta,'ý rather than of DEI, and the objective of securing an indeperdent view from DBL; would not be served. XII.17 Finally, we do not accept the pre:-ise i at it is a6visable to give D31 slpecial fund s or so f ter , have these funds on-lent to Govermient rrojects or hard terms, and have DEM used the differential profit to finance DEM's other activities in the private sector. vý If DEM is to be given a subsidy, then the Pmount and timing of the subsidy should be made explicit. The subsidy sh ouLzld not depend, for example, as it wcuild under the proposal, on the number and size of Goverrent projects, on the cost over-runs of Government projects etc. XII.18 Dren without havilng DBM enter the field of Govern- ment capital development projects, DBM can become an important instrument for financing diverse fields of activity in the private sector. These activities are generally similar enough,. in our judgment, to be effectively analysed by a single institution. Grouping these activities together will also create a volume of activity which will help ensure the financial viability of the institution. At this stage in the development of Mauritius, we consider the proper scope of activities for DBM to.be the private sector defined to include cominercial agriculture (sugarcane, cultivation, tea and other cash crops), industry and tourism. F. Staffing attern XII.19 There are two major changes in the staffing pattern that are necessary if DBI is to carry out effectivelv and efficiently the finrtion envisaged above. pirtly it is n e ces E3arv that the t ondi irecrt+ion on tle <: 'nn".21 be changed. As we have suggested in Chapter VII, the Board of ~~ ~ Diecor needsto be.~j mor buinss-riete and' younge in JitS CompoCSition. Comevun iidu LexI. isL U -i Maur.kI;us to llJ_ k.tesýe BoardIL_ loiio y e alSO consider that the present Managing Director is neither suited to give the required impetus to the Development Bank's activities nor able to provide the leadership and guidance that the staff require. What the Development Bank needs is a dynamic business leader, who can visualize. a broad-future f.or invest- ment, who is willing to actively promote new enterprises, who 138 will take the risks inherent in investing in pioneering enterprises (and who will not take the risks arising out of inadequate analysis). We do not think the present Managing Director has these necessary qualities, and we consider it essential that a new top executive be appointed to head the Development Bank. It will at present be necessary for this new Managing Director to be found from outside of Mauritius. I XII.20 Secondly, we consider that the existing staff of investment officers is not adequate both in number and in quality to handle entirely the proposed additions to the Development Bank's activities. We consider that the indus- trjPJ prt of the Tevelopment Bank (including tourism) should have two major departments - Promotion and Investment. The Promotion department would investigate in detail new project possibilities and then seek out business groups to take up the projects. The promotion department would also attempt to get other institutions to contribute to the projects" total financial requirements. The Investment department would appraise projects brought to DBI for financing and follow-up on the projects once they were financed. XII.21 Each department should have a complement of four staff members - three senior officers and one junior officer. For the first vear or two. eacPh denartment should be headed byan expatriate whn will provide the necessrv leadershin -A ^ehn 1a gu 4inc ro +thp ew cal staff in rojc 139 preparation and appraisal. When the expatriate staff leave, one of the three se-nior officers in each deoartmernt should be made the new department head. DEM will then have only local staff in each denartment,. comnrising a department head, two senior officers, and one junior officer. XII 22 Of the six senior staff required, three ofthem can be th veist+ing, indusria+.-l investmnt o~ffice,'~r f' TB.T The experience in technI and/or financi analsis. TE- two Junior officers should be local people, perhaps recen graduates with an economic, accounting, or technical background. -XII.E,A We have discussed Tnis proposed staifing pattern with both the Prime Minister and the Deputy Prime Minister and Finance Minister. They have indicated that the Government would be agreeable to this staffing pattern, including its recommendations on expatriate staff. They have also .indicated that they intend to seek World Bank assistance in locating the expatriate staff. G. Pinancial Structure XII.23 Although the Development Bank at present has no share capital, the Government has given it considerable funds on very soft terms (low -interest 140C rate., long repqayim,ent4, -ceriod). The only u.,ined enuity that the D eve].o--),-enI; Par-Jr has is its reserves, w%hich have been formed out of annual eii~" XII .24 'We wiould su-,g,est that t'Uhe Governm,,ent consider the d.iesirab:ii.AJty of changinG this arrangement. W envisage a greater role for the Development Bank in the future - more functions, more risk-tuaking and more autonomy-and conseQuently a need for funds more suit-ed to theSe activities and a need for better measuring performance and en-suring responsibility.- XII.25 7.,e conside:r that the Drovisioni of share capita-1 (wlaolly ovined -by the Governm&n'U, in view of th pecial conditions in Lauritius) would hel- ~e some of these requirem_,ents. Firstly, althou6h it w'ould not subs tantially chan-e the overall cost oDf funds received from the Governz-ent, it would make available to the llevlo-onent Bank an amount, of- lon,,- term no-cost finance which would help it to more actively undertake promotion work (which, by its nature, has a long gestation period). Secondly, it would make available to the DeveloDment Bank the increased samount of risk capital needed for its enlarged role - es-pecially in the area'of providing equity-finance for projects. Thirdly, a share c. .ital,! . -X .A. would provide a measure against which it would be possible to start JudAging the profit/benefit record of the Develonment -ank. At oresent there is no such ineasure, and only by laborious analysis can one determine the efficiency or inefficiency of DEL. Finally, we appreciate and respect the Government' s concern about the possibility of having a Government institution using money in an irresponsible way. We believe, however, that with a good Board and managing director, the l2titude given to DBM with a share capital will result in greater rather then less responsibility. being exercised. H.. Government Control I.264 At presen. the J C U ov me exercise cont.oL"Il over LPZIii Thro1ULI VaiuLs povisions of theV OqLdin2Unce. Pursuant to the Ordinance, the Government: (i) appoints the Board of Directors, approves the appointment and terms of the Managing Director, and approves the terms on which staff is obtained, (2) determines the conditions under which DBM can borrow funds, (3) exercises the right to issue directions to DBM on general policy matters, and (4) has zhe power to make regulations \not inconsistent with the Ordinance for the administration of the Bank. 142 XII.27 In line with DEI's new role and policies, we consider that there is need for some slight modification in the control which the Government has over DEM. We accept that, as at present, the Government should continue to have powers to appoint the Board and approve the appointment and terms of the Mianaging Director, and should contirnue to have powners 'to issue directions to DEM on general policy matters (with continuationL of the existing provision for covering DBM against consequential financial loss1 UJe would like to bring to the notice of the Governmient the views expressed in this report regarding criteria to be used ir the ajpointment of directors and the need to relax the restriction on financing sugarcane cultivation. XII.28 We understard that the Government has not in the last 5 years used its power to make regulations for the general administration of DEMT. This appears to reflect the lack of need for suc aFTpower; and we expect that, under the changes proposed, it will be even less necessarr to use this power in. the future. Accordingly, we would sug.gest that the Government examine the possibility of deleting this provision from th....T. riance. 143 XII.29- We would suggest slight modifications in the remaining powers enumerated above. Firstly, we suggest that the terms of appointment of staff, other than the Managing Director, be left to the DBI Board. As pointed out in Chapter VIII, this will enable BM ) to overcome the current.Troblems in recruiting necessary Staff. Secondly, with the formation o.f the Bank of Mauritius, thO Government now has a central bank available to operate its monetary policy and advice it on its borrowing programme. We suggest that IM's powers to bo:rrow funds, including the terms on which. this is done, sho.uld be, -made subject of power to the central bank will give more flexibility to DBM in raising funds, while at the same time naking DBM subject to stringent financial and -economic criterila. This would also help in maintaining an orderly market for Government and Gcvernment-guaranteed securities. I. . Priority of Changes: 'IBRD Assistance XII.30 We consider that, provided the more important of the changes mentioned above are carried out, h31,1 should. be deemed eligible for obtaining funds from the World Bank. Mauritius provides a stable, political climate and has a reasonably developed infra-structure of law and finance. The country has made beginnines 144 in its industrial development and should be able to go further in this direction with the help of `Jorld Bank funds channelled throug.,h DBJ. XII.31 However, there are some changes which we believe are absolutely necessarv if DEM is to become a borrower from the ".7orld åak. le consider it a necessary precondition to "iorld Bank financing that the Government carry out the suggested changes in the Board end in the top management of DEM and in the recruititment of staff (see Chapters VII and VIII). We have discussed these matters in detail with the Prime. 1,inister aré] ±kip Diputyr P-rime MinJi tr n Finance Minister, and we understand that the Government would be willing to carry these recoimmendations out. e suggest that the '-orld Bank, if approached, help the Government of Miauritius in findinr- the required top management personnel XII.32 There are two other changes which we consider to be, althougli not absolutely necessary, desirable. First, the changes in DBM's lending policies for agriculture and industry, as discussed in sections B and C of this chapter, would greatly improve the effectiveness of DEMs economib development efforts. These policy changes might be brought about, for examile, by amend.ing the general nolicy directive issued to DBM in 1964. Seonrd, the provision of r 145 e 'o eniCIýVU I share capital (.wholly owned±j by the~ GoUverrLnent) wouuld better enable DED.` to match the terms on which it obtains funs' with th.e expected need for funds ir the new areas of promotion and ecuity investment. The provision of a share capital would also help to lay a framework for beginning to measure DEM's performance. XII.33 If the absolutely necessary changes are carried out and if some movenent towards the desirable changes is made, then we believe the World Bank should consid.er at the first stage, giving a. small loan to DBM. The amount of the loan needed would be about U.S. $1 illion, would be used for industry (and possibly comercial cgriculture) , and would have a free limit of about U.S.'f,25,000. In view of our observations about the past workings of DEV11 and the substantiality of the changes to be brought about by the new management, we consider it desirable that an over-all review of DL' s operations be made by the World Bank not later than one year after the loan is made. XII.34 As we have mentioned earlier, we do not consider that DBM is at present qualified to receivell World Bank funds for tourism. We expect that the amount of WVorld Bank funds involved in each of these -orcjects would be rel'atively substantial (U.S.250,000 - 750,000); 146 and, sinceL U E doe not UUZ LIV ycit huave eihe U. he spcaiV knowiedge 'r exuerience reuIired to do ani effective app raIsal in this area, - iti «r, we reco:inend that the appraisal of hotel projects be done by åorld Bank staff. However, efter the new mnar:.gement, staff, and practices are built up, DEPI then should be able to effectively absorb l2rger funds from the World Bank; and, at that second stage, the World Bank migcht consider providing finance for projects which include those is tourism as well as those in industry ~(and perhaps agü"lg~rüi-iu ) XII.39 ,e envisage this second stage to occur in about 1973. At that time, our financial projections show a need for a second World Bank loan of about U.S.$L5m-illion. CHAPTER XIII : FORECAST OF ACTIVITY XIII.1 We have based the forecasts of future operations of DEM on our definition of the role of DEM as enunciated in Chapter XII and on the consequential changes in managelent and staff. We ,have assumed that the new management and staff will be brought in around june, 19?0 and that the effects of their efforts in relation to promotion of new grojects will be felt starting from june, 1?1. A. Apfprovals XIII.2 We estimate that over the next five years DEM's operations will be as follows: 1-96 9-70 1970-71 1971-72 1972-73 193-74 Agriculture 1.00 1.50 2.30 2.30 2.30 Tea 0.50 0.50 0.50 0.50 u.bc Industry:- Loans 5.00 ?.00 9.00 9.00 9.00 Equity Investments 0.25 1.25 1.50 1.50 2.00 Buildines - 0.40 0.40 - 0.40 Total 6.75 10.65 13.70 13.30 14.20 148 XIII.3 We envisage that DBM will follow a more active sugarcane cultivation loan policy in the future. In contrast to the present run-down in sugarcane loan operations to about 0.0.5 million a year, we expect loans to increase gradually, reaching about P.,2.3 million a year in three years' time and then continuing at this rate. This policy should be ooerated to raise yields on existing sugarcane land and using the marginal sugarcane land so released for agricultural diversification. XIII.4 _ Tea is a highly competitive industry, and tea prices show large fluctuations over time. At present free market tea prices are very low. The main market for hauritian tea is South Africa, which at present is paying a price which is higher than that prevailing on international free markets. Given the special altitude requirements for growing tea, the area avAilable for tea cultivation is limited. In view.of these price and land factors, we have allowed for the maintenance of approvals of tea loans at the average of 1.0.5 million each year. XIII5 V#e expect DBE's operations in the industry category to increase substantially. The industry I A ( category is defined to include, in addition to manufacturing, agricultural diversification, tea processing, and tourism. XIII.6 Loans for agricultural diversification have, to date, been made for rice growin., general farming, poultry production, cattle rearing, etc. In the future, we expect loans to be made for extending the production of agricultural crops (rice, oilseeds, maise, etc.), vegetables (potatoes, tomatoes, green peas, onions, beans, etc.), and fruits (pineapples,-.bananas, mangoes,.paw paw, citrus fruit, etc.). All the prodcts are currontly being grown in Mauritius; and studies indicate that the return to the farmer per arpent for growing these products, provided proper farming know-how and marketing facilities are made available, is higher than the return per arpent for growing marginal sugarcane. In addition, we expect DBM to continue making loans for poultry production and cattle rearing, especially in view of the increased demand for these products that will result from the increased member of tourists likely to visit Mauritius. XIII.7 Loans for tea procesing are exnpeted to increase si1y1 as a result of small increase envisaged fr'+c ten1 ul-ivation. 150 XIII.8 Loans for tourism are expected to be used entirely for construction of hotels. We assume that five hotels will be started over the next five years, two in 1970-71, two in 1971-72, and one in 1973-74. Each hotel will be for approximately 200 beds and will cost approxim-.tely R,.5 milion (U.S.C 4,500 er bed). We have taken the debt:equity ratio at 60:40, and assumed that the promoters would meet about one-fifth of the total cost, -that the foreign currency cost estimated at 50% of total cost would be met out of World Bank or other external funds, and that the balance -cost of 30% would be met,by DBM_and others. This 30 would be 2/3' s equi uy aid 1/3 deb 1¥ 02 LLS equity, half is expected to be taken up by DBM and half by others.. The capital structure and financing of a typical hotel (for the purpose of forecasting DBM's financing activities) is thus envisared to be as follows: Amount Per Cent Dhbt R.3,000,0D0 IBRI) or others ?.2,500,0o 50 DBM Ps. 500,000 :Lo% Equity s.2, 000,000 Promoters Rs.1,000,000 20% DBM Ps. 500,000 101% Others s. 500,000 10% Rs.5,000,000 100% XIII.9 DE, has at present'a backlog of projects in hand whose total p,roject cost is estimated to be z.60 million,D-M's share in ths financin. of this cost is estimated to be R3.15 mi,llion. (Five of these projects account for P.11.8 million of the Ps.15 million. ,ie Jo not blieve all these five projects will finally materialize.) The projects in the pipeline include a textile mill, manufacture of sewing thread and garments and knitted fabrics, a silk mill, a flour mill, bakery modernization and biscuit making, manufacture of metal boxes, general aluminium fabrication- (including bus body welding), oifua.Pure o per C anacture o eicu.IS (ethyl alcohol and furfural alcohol), menufacture of gin, and mianufacture of rubber products. Development Certificates have already been obtained for some of these projects. In addition, Development Certificates have been issued during the last 12 months for the manufacture of molded plastic products, and crovn corks, dehydration of vegetables. etc.. and we expect that Some of these nröiects will come to DEM for financing. XIII.10 As mentioned above, DEM's promotion of nanniifactuii-ri-ng io not tnv-ns%ne +n pruie resuoilts3 vntil th pe:riod beginning 7ith June, 1971. During the perio June, 1970 to June, 1971, we expect, inter alla, the following types of pro,jects to be inves»tigated: cement manufacture, polishing of diamr-onds, polishing lenses for cameras, binoculars, and spectacies, manufacture of pharmaceutical,s, construction of jewelry for export, construction of an abattoir and use of itsby-products, manufacture of low weight electronic components, assembly of electronic equipment, manufacture of articles for purchase by tourists, etc. We envisage that DB1 will undertake construction of one industrial building (costing bout Ps.800,000) in 1970-71 and begin construction-,:-ork on a second industrial building the construction cost is to be disbursed in the year in which construction commences and the remaining half is to be disbursÉd in, the following year. XIII.11 This forecast of activities in agriculturel diversification% tea processing, hotels. manufacturing enterorises, and industriål buildings produces the following distribution of anrovals under the category industry: or,~ 1968-69 1969-70 1970-71 1971-72 1972--73 1.7973-74 Total Industry 6.52 .25 55 10.20 20J 21.40 Hotels Loan - - 0.50 1.00 0.50 0.50 Equity - - 1.00 1.00 - 0.50 Ii Buildigs - - 0.40 0.40 -4 Other (LEanufacturing, Diversif ication andL ea Processing) - Loan 6.19 5.00 6.50 8.00 S.50 8.50 B. Oommitmens and -S urmet XIII.12 Comitments and disbursements are ass-nned to occur in th- years of approval for agricultur1 loans, tea loans, and enuity investments. Commit;ment of industrial loans is assumed to occur after a lag 0C one year. Disbursement of industrial loans is assuned to take place at the rate of 50% in the year of comitment and -50% in the following year. On these bases, disbursement by DIEM over the period 1970- 1974 will be: 154 Rs.;lillion 1970 1971 1972 1973 1974 Loans - Agriculture 1.0 1.5 2.3 2.3 2.35 Tea 0.5 0.5 0.5 0.5 0.5 Industry 5.3 4.7 5.8 8.0 9.0 EOuity Investments 0.3 1.2 1.5 1.5 2.0 Building;s - 0.4 0.4 - 0.4 Total Disbursements 7.1 8..3 10.5 12.3 14.2 XIII.13 After allowing for internal generation of funds (through repayments by clients and ploughback of profits) , we estinate that DEM will need over the next five years about Es.32 million. VVe expect that the Government ill provide, DEM, about Rs.18 million of this Ps.32 million. This produces a Gove rinment ibsemnt at about the same rate (Fs.3.5 million per year) as the Government has orovided funds in the past; and we understand that the Government is willing to continue to provide funds to DBM at this rate. In the cash-flow statements, we have assumed that the balance of th2se funde would be obtained from the World Bank (U.S.r2.5 million). 155 XIII.14 ie envisaged that a part of the Government funds - amounting to 1.10 million over the 5 year period - would be provided in the form of share capital to be held wholly by the Government. We appreciate the fact that even today the Government provides funds to LE on soft terms(funds which are, therefore, of a cuasi-equity nature). However, the main advantages of providing equity to DBM would be to set up a measurina rod for financial performance and to enable DEM to undertake riskier, longer-yielding activities. We consider the existing financial structure of DEI lacking in these respects. XIII.15 We have assumed that the interest on the loan funds provided by the Government will be 30. If required, this rate can be increased to 51 without seriously affectinG DBM's profitability. We have not provided for the payment of any dividends on DBA"s share capital. XIII.16 If the required chnges discussed in Chapter XII are carried out, DEM should be considered for a Torld Bank loan. in the year 1970-71. This loan would be for DBM's operations, other than hotel financing. On the basis-of the expected volume of operations, other funds that are to be made available to DIM, and. the foreign exchang-e component in project costs, we envisage ;that a first .iorld Bank line of credit of U million would be needed and would be used up over a two year period. XIII.17 'ie suggest that the free limit be placed at U.S.$2S,000, but that DBI be required to send to the World Bank copies of all appraisal reports for all financing decisions made involving rupee enuivalent 250,000, or more, regardless of the source of funds used to ok4 fund the DBI commitmnt. In addition we suggest ..that the W,orld Bank send a over-all operations and capabilities of DBM. XIII.18 At the second stage, DE'Is capabilities sh ,l-d have been built up and DBM's operati'ons siculd have increased substantially. At this stage, which i begins around 1973, we exDect that DBM will require a loan from the World Bank of about U.S.81.5 milliorn XIII.19 For tourism pro jects, we recommend that in the first stage the WJorld Bank nrovide the'reaui.red resources and use DBL orlv as a disburRing agent. The "orld Bank should appraise the proiects itsel?. DEM dces not yet have either the skill or the experience required to appraise large scale hotel projects. e suggest, however, that IEM staff bc- associated with the VUorld Bank appraisal missions [J because DEL! will be financing a part of the local f costs of these hotel projects and because it is desirable that the staff acquire the necessary skills to handle hotel projects independently at the second stage. In. the second stage, we expecI t that DEM will have technical expertise in apraisa- and follo-,-uo work to be capable of undertaking hotel financing .dec.i-ions on its own. I). Profitability XIII.20 Operating income is orecast to increase from -.2.8 million ri 1969 to L.4.8 million in. I'z974n This corresponds to almost a doubling in the irvestment portfolio. A major part of the increase in activity will be in industry, where we expect that funds will continue to be provided at the current "poromotional rate" of 6 1/2%. XIII.21 The average coet of funds - despite the introduction of equi;y capital - will increase slightly, due to the assumption of a rate of 7% for Wvorld Bank funds. The average cost of incremental funds is expected to go from the pres'ent 2.5% to 3.8%. This still 1-eaves a. margin of about 3o on loan operations. XIII.22 'ie expect that staff costs will rise substantially over the next three years. This is because wve expect expatriate staff to be brought in at the oPerational level for a temporary period and. an increase in permanent local staff. Staff costs should, drop slightly after the local staff take over from the expatriate staff. XIII.23 Even though operating costs rise, operating revenues rise even-faster. The profitability of D31M1 -, - -n _ -. _! 1 ..* iS 0oreCast to inrese rom M._. mlLi in 1 to Rs.1.3 million in 1.974. On the assumed share capital of Pb. 10 million, this 1974 profit corresponds to a 13," return on share capital and a 5.5o return on the equity base. XIII.24 Given the context of iauritius, D".M must remain, despite its comprehensive activities, a marginal operation for a c-onsiderable time to come. Its major return must be sought in its economic impact - in setting up viable activities in agricultural/ industrial/tourism fields and in creating more Jobs and more income as a re Plt. 169 CHAPTER XIV - SUMMARY A. Introduction IIV.1 MaUriiu Is a sma-ll iln 500 miles east f Madagascar wi an area of approximately 720 sq. MLsuu wnc a population of approximately 782,000. ThJae UWo major population groups are Creoles (mixed French and African) and Indo-Mauritiu. GNIP is presently U.S.$ 150 million,and per capital income is presently U.S. $ 200. The main source of Mauritius' livelihood and foreign exchange earnings is sugar. Ninety-five per cent of cultivable , is covered by sugarcane; other crops grown include tea, tobacco, rice, groundnuts, vegetables and fruits. XIV. 2 Tauritius achieved independence from the British in March 1968. It is ruled by a coalition of two major political parties under the leadership of Sir Sewoosagur Ramgoolam. Mauritius now appears to enjoy political stability. zIV.3 Mauritius has a fairly well-defined legal system; and some desired changes in property and company law are now being made. Industry consists mainly of 160 consumer goous manufCture recently, soUme ligit engineering, chemical and electrical goods industries have been established. There exists in Mauritius a small but reasonably sophisticated financial infra-structure, comprising (besides the Development Bank) commercial banks, insurance and investment companies, and a bourse (on which dealings in local shares are made). B. Legal and Organizational Framework XIV.4 DBM was formed in 1964 under the Development Bank of Mauritius Ordinance. Pursuant to this Ordinance, MBM tno over the businqPs, assets And 1inhilities of +I functions~ - are top-mtean orvide fi nance to W . &. WJ.LL-iJ ^J. V, V.W jj. %J*J "L U 4;6.. V~ %.r L. %.J V 6 .1 .~ _LL CJL"' .; W W seconUCarLy ..%L& indusry. XIV.5 DBM does not have a share capital. However, the G6vernment has provided it with funds on soft-terms, mainly for the purpose of financing industry (defined as including all activities other than sugarcane cultivation). DBM has been given the power to borrow funds, with the Government's approval, from non-governmental sources; so far this power has not been used. It is required to set up a sinking fund against its maturing obliaations. DBM is required to operate so as to atleast cover its own exnenditures. 161 liV.6 The Board of DBM is appointed by the Govern- ment. The Managing Director is appointed by the Board, subject to the'apprbval of the Government. The terms and conditions of other staff are also subject to the approval of the Government. ,? r - -. -- -L- - - A. - - -- - L.L- - -. AIV .7 -1 In1 aLdition, llt GoVe:-ItrLI le 1t rih1a 15o give directions to DBI on general policy matters. in case such a direction is likely to lead to financial loss, DBX is empowered to refuse to act unless the Government agrees to cover DBM against any resultant loss. To date the Government has issued only one direction, which requires DBM to concentrate its activities on secondary industry. The Government has the power to make regulations for the administration of DBM. To date, this power appears not to have been used. XIV.8 The day-tn-day affairs nf DBM are run by the Managing Director and Are divided into two manor depart- ments: agricultuvre wnd industry. The agriculture department contains nuprfessinate .No- professiona staff number. approX.LImate.ly 20. 162 0. Financial Position, Capital Structure and Profitability XI.9 DBM's:financial position is satisfactory. Its current ratio is 1.4:1, and its debt:reserves ratio is approximately 5:1. .TIT DBM 'as fn 1 iac i+ 4 id a or+a4 p over thfe last -ieyars Vhog.&vene. onso approximately 'ms 20 million. Theae loans have "Deen given on sot ters (iterest rate o-i 2./2 per cent and 40-year maturity, withf provision for a sinking iunldc af-Ter 20 years) . ir1"C.11 - B a o^rt3lstfv er rndw t ^L W * - J..L,a JWå-'.& 1~ 07e t -"e I absv J.Wc. tt4.iiW .&-L6' r-- - -- s, .a tý portfolic of sugarcane cultivation loans and used the funds released thereby to build up a large sinking fund. The sinking fund ls invested in securities outside DBM's business. This policy of running down the sugarcane loan portfolio has indirectly impeded the agricultural diversification program; loans to inerease yields on augarnane lands would have enabled marginal sugarcane 1And t^ e freed for agrilul diverification. The polic ofrv ivesting v oinkfr ig fundi moe in secities + outideDBMs usiesshasunecesarlyincreased 'EDBM S need for funds. 163 IIV .12 DBM's pnrfi+sA Hnv inrpA f-rom 0.24 milio toa .6 milinevrv +he lastM fi-Ve yePArM. In the ae CSfL a share V.pil, i tW V no osb V Igo relate prof:IVs to Liaca1promne.5smn a Share Capital Of 10 milin he Are%Purn1 onU shaMIre * - I ___ I.. __ A$ ^ ^^4 1 - n..'.w n. aaA .. capital in 199 was 9.4 Per cent and the return on net worth was 5.1 per cent. DBM earns only one-fourth of its profits from industrial operations, thepgh the funds employed in industry are 40 per cent of DBIA's total funds. D. Operations and Policies XIV-.13 DBM's annual approvals during the last 5 years have fluctuated -betwen M million and Lsa 8 Il .. Both sugarcane cultivation loan approvals and the total sugarcane cultivation loan portfolio have decreased slightly during this period. Investments in industry have increased substantially, but the rate of approval of new industrial investments shows a declining trend. XIV.14 Annual approvals for industrial investments have fluctuated between approximately Rs 5 million and b million. However, theseF figures somewhat distort the scale of DBM's actual operations: a large s 4.4 million equity approval for a fertiliser project has been kept on the books for five years and is not likely to 164 materialise; a Rs 1.25 million re-financing of a suppliers' credit for an oil refinevy is included in these figures but was unnecessary; and DBM has not yet tried to interest other finance institutions in joining it in its financing activities. XIV.15 Over the past fI years +Ihe investment cutiv4 atio4 n and 4 tw -ar4 A, industr. l Suacne !4 cultia4io %0 L " .L V ~A. CLL%& W ~v1 " G.L 'AV .J.I±. LAQ 0 .L.Y * %J4C.J .iu.1UJ..'W U.i.LU loans have declined from 91 per c ent of4 the oalportfol-io to 46 per cent, while industrial investments have increased from 4 per cent to 46 per cent over this five year period. X.IV.16 DBM's portflic is. rec.oably~ -ietfe both in size of loans and in industries covered. DBM charges 61/2 per cent for its industrial loans and 71/2 per cent for its sugar cultivation loans. Its loans are for durations ranging from 10 to 20 years. XIV.17 In addition to making loans and equity invest- ments, DBM constructs industrial buildings (totalling b 1.6 million) and has a segregated, small industry loan program (totalling R 0.1 million). 165 E. LonPortfolio IIV.18 About half of the total sugarcane cultiva- tion loans of h 19.1 million have gone to five large sugar estates. Another 20 per cent of these 1 19.1 million loans have gone to 27 large borrowers (6 factories and 21 large planters); the remaining 30 per cent have gone to small planters. Two of the large planters are in difficulty; the estates and remaining planters are in sound condition. Arrears on agricultural loans amount to s 703,000. IIV.19 Loans to the tea producing sector amount to b 3.4 million and appear to be sound. XIV.20 loans to the indutrial sector (defined as all loans other than those for sugar and tea cultivation% amouni to 1 1508 million.. (Of this amount, we hove analysed loans aggregating 1 1.84 million; we are await- ing reconciliation by DM of this bs 14.84 million figure with the balance sheet figu're of b 15.6 million.) Loans of s 5.89 million have been given to four large companies; loanB of b 7.07 million have been given to 27 companies (each of these loans is between b 100,000 and R 700,000); and loans of Rs 1.88 million have,been given to 39 companies (each of these loans is below b 100,000). Arrears amount 166 to only s 171,414; however, a number of -oans, aggrega- ting approximately Rs 3 million are in difficulty, some of them serious. VT. 01 nOf +eo + ponl ri about 1 per "" ^cen+ (D, 4 million)~ ~~ is cosdee doutfu of culr vr ; the-ta .LOGSs on Uuese igtamount lCo lä 11a milin mB ia.tta reserves of E 8.6 million. . Appraisal and Foiiow-up Procedures XIV.22 Industrial loans are appraised in two stages. In the first stage,-the-information.supplied by the client is reported to the Board in a etandard tw-pa form. A decision in principle is then taker on the basis of specified norms relating to amount of promoters' equity. proportion of fixed assets and working capital to be ured in the entrnrise. and the amunnt of findls obtained f-rm nther sources. The decisin ig suiiet to the proect "being found vin ble" In the secon d stage, «ugn apisal report ~ prprd A presne + +- Boaýrd; and a- JP-final deC-1iion 1s-aen IIV.23 Agricultural loans are appraised in a one stage nrocess, with a valuer purveving the land ani renrti ng hi c nokmmenitm T1he ymunt1"+ ^.f +h l I i.sv, generall euoal to & hat is k r e w v -u e d , 4 v vct to a 167 financial limit of s 1,000 per arpent. Tea loans are appraised in the agricultural section of DBM (that -part relating to planting) and in the. industrial section of DBM (that part relating to factory production). These loans are approved in two stages, as in the case of industrial loans. Loans to the special category called Tea Project Planters are ap:praised by the Government and guaranteed by the Government. XIV.24 We found the industrial appraisal procedures and analyses highly unsatisfactoryo The two-stage procedure is misleading because (i) the approval at the first atag:e is not based-on any analysis but is based solely on information supplied by the promoters; (ii) the favourable decision in this first stage gives a false impression to the promoters and outsiders of approval of the project-and of a loan by DBM; and (iii) it biases the Board on the basis of the preliminary decision taken at the first stage, in reaching a final decision at the second stage.. XIV.25 The appraisal of projects is inadequate in all respects: the cost of a project is not individually built up; the financial structure of the enterprise is not discussed; the market analysis is usually based solely on import data and does not refer either to income- 168 adpric e trends or to competition tehnca processes are notd; economic justificatio consists only `of enumeration of the number of jobs provided and the foreign exchange saved; finally, cash flow projections are too abbreviated to be useful and pro-forma balance sheets are almost never provided. The amount of finance provided by DBM is generally determined, by mechanistic criteria related to the promoters' contribution, outside funds, and the expected expenditure on fixed assets and working capital. The promoters' data is usually accepted without any question- ing of its validity. The appraisals lack adequate manioulation and analysis. and exce-sive relianc-e in often placed on the personal judgements and beliefs of DBM management. nI.2 Appasl of sugaan -Atecuivio JLL SIQU Ay r i al oi- Z±LLE42L; 1 muuU WCA L;L&.LU.LVV6U.LU"1 .loans are similaJ_L-r.ly indeUae RelaneXsenra.lly placed on the security standing behind the loan rather than on the profitability of the project. XIV.27 Follow-up visits are required to be made once a year and, in difficult cases, once a quarter. In practice, these norms are not adhered to; visits are made on a much more casual basis. Regular financial and production statements on projects are not obtained. When visits or 169 other information reveal that a project is facing difficulty, DBI does not generally follow-up on this information or attempt to determine how the problems with the project might be solved. G. Board of I)irectors XIV.28 About half of the Board of DBM have political and/or civil service backgrounds; the other half have backgrounds in sugarcane plantations, banking and trading/industrv. Most of the members of the Board are old A h Boa'nnrd Tmmr- AiA nok+ appeaonr +no encaal of exercising sound buins demn or&A ing a XIV.29 We recommend that the Board should be composed of people who more represent business, financial and industrial interests. There presently exist in Mauritius some younger people with the necessary back- ground and experience to be effective DBM Directors. It is desirable to stagger the terms of Board members to enable a proper rotation of members to take place without disturbing the continuity of the Board. 170 i. Manaementuu utaL.L XIV.30 The present Managing Director has been with DBM since its inception; before this, he was in British Colonial Government service. He has been financial secretary in the Ministry of Finance in Mauritius for four years. We consider that th-e Managing Director lacks the understanding of business which a top executive of a development bank must have. He has been able to obtain the funds needed by DBM, but mainly because the Govern- ment has attached high priority to setting up industries. In matters such as having DIBM promote new industry or nbtaininv annroval for changes In termn nf ntaff emnIov- whi4 c uL are not of fundamental importace to the Government but are of fundamental importance to DBM, we believe the Managing Director has not been as effective as could reasonably have been expected. uver-all, in relaTion to the Government, he brings a deferential attitude which has not helped foster DBM's independence. The Managing Director has not established close contact with the business community and has not been able to build up a respect for expertise in the functions which DBM performs. The Managing Director has also not been able to provide the required leadership and guidance to DBM and its staff. 171 V.5 tIaff -in +he noriculturral and industrial sections appear to have the renuiYe bacgrounds to learn project appraisal work. However, because of the absence of guidance,- their-abilities have not been effectively used and the quality of their work is less than is desirable. I. Relations with the Government XIV.32 The.Government has the potential to influence the work of DBM in the following ways:- (a) it determines the conditions which govern the establishment of new industry; (b) it has personal relationships with DBM; and () throuIgh the #rovisisn of +be Ordince it can control. some of D3M's activities. XIV.33 The power to give Development Certificates, which entitles a project to various incentives and which is generally necessary for a new enterprise to be viable, enables the Government to effectively exercise a veto power over projects which DBM,intends to finance. We have not found any evidence of this power being used to the detriment of DBM. 472 XIV.34 Personal links between the Government and the Development Bank exist through the Government's anoint- nnt nf MiM' Board nf Dirnetr ri the Governmpnt' approval f the appointment nf 1'-Q Mn-in Direo r. exercise influence on the Board through the Finance Secretary,1 who is a member of the Boarà. iWe have not come across cases where this influence has in fact been r2- - . -- -1 ---- - exerc-isedJ.L.UÅLCVl(LVDC.L LI ~ Iu.DLtu I.35 The Ordinance establishing DBM gives power to the Government over the ~administrative affairs of DB14, aInd, poTC"_ tc 2-y45 "gerer"lirct1r tA.B.4: Government also has power over DBM through DBM's dependence upon the Government funds. We find that the nower to give directions and the finaneial powers over DBM have been eertied fairly bv the Governnent. However, the exernise of the power to determine the ters of aff emplymen ha impeded DM's efforts to- reri andf retainLJ qualified U.. Jd ~ proesioalpesone. 173 J. Relations with the Business Community YIV.36 MPM ae "nt MAkA a detailed Studv of its clien+s' oj and generalv proiHdPs theTn with ill the funds that they reuet Accordingly, ~ DBMT gener~allyi en.joys congeniac-L rela-t-ons wthAGu -its clens owVer, .DM lias not been able to earn 1the respet of its c.lients for its techni.cal competence. DBM waits for projects to come to it for financing and thus is not weil-known out- side its clientele. YTV .'37 IDBM generally finices the Måned of i+e 1e-nCts ',r1 4 +Se&l n VA 1.e~,.. + -#+avn"+gbA . 4 +v~+ ji _ vi v3 C4 v v~. ýL'.J Iiý ub m~uL A..~ £ä V~LU' .J6Mv Mm -4 1 LJV61 " LDIE L ko L 15 ti.'o UI .U l~t~ rather than as part of teI financia community. K. Tourism XIV.38 The tourism sector has grown substantially over the last few years. The number of tourists to Mauritius has increased from 6,000 in 1962 to 15,000 in 1967 and is expected to increase to 46,000 in 1974. Hotel facilities for tourists have, to date, been provided almost exclusively by a single firm called New Mauritius Htelf. New Mauritius Wntels iq nrt of a largr grrnuin nf companies w have broad interests in the field of tourism through e. g. a travel agncy, a car-hir firm ,4 ne agencies, et%c-. Ch.6uL%j 9 a ca n .. .U ~.L.Lån i .LALL v O- 174 XIV.39 New Mauritius Hotels controls three hotels in Mauritius. it enjoys privileges from the Government, such as tax exe:mptions and finance from DBM which the Government has agreed not to extend to other groups interested in entering the hotel business. In return, New Mauritius Hotels has agreed to execute a certain hotel building programe. In fact, it has failed to carry out this programme. XIV40 We found considerable interest among Mauritius entrepreneurs in building hotels. However, they are presently inhibited from entering the hotel business due to the known existence of the exclusive privileges A NeTw MOMAtfu Hotls We Ttel belv t hRt tbip monopoly position is detrimental to the long-term growth of tourist traffic in Mauritius and suggest that Govern- ment throw open the field to other investors. Not only will this increase the overall investment in tourism, but it will also improve the high prifce/10w quaality services which are currently being provided. XIV.41 New Mauritius Hotels has plans to construct over the next five years additional hotels with a toti Tapacity of 1000/1200 beds. We consider that, if New .M0auritius Hotels is -allowed to carry out this whole progrAAlme, it will further entrench its monopoly position. 175 IrI-V4 e undersool from our discussions wi4h .&uLV 140i i un e st . L. J_L U11tIjL 8 flW '~ important minsters that the Government is now willug to allow other hotel groups to :on:truct hotels in Mauritius,, if the field is thrown open to other hotel groups and if a market survey confirms the potential of tourism, we recommend that the World Bank examine the possibility of financing these new hotel groups. L. Recommendations : Future Role and Policies for the Developnent Bank XIV.43 We agree with the Government decision to have only one institution in Mauritius to finance various activities in the Drivate sector. In the future. DBM should continue to operate in its three traditional areas: agriculture, industry.and tourism. However, we. recommend that some changes be made in DBM's operating policies and financial and organizational structure. XIV.44 In the ±ield of sUgarcane cultivation, DBM should give loans for increasing yields on existing land, thereby freeing marginal land for agricultural diversi- fication. XIV.45 In the field of industry, DBM should take up an aetive promotion program. DBM should not only encourage people to set up new industrial enterprises, but DBM should itself undertake feasibility studies and try to interest potential investors in them. 176 YTV.4 In the. field of tourism. we do not believe that 1n urnl as +1Sh phili-tv to praiRp large-slal hotel p,ro j+e If +1e W^r1 tanlr pro-vide finner fnr io+e we_ < +1 reomen eha at hi sae,£%t3ne World A k pprais these hotel projects itself. Howv-Tever, DBML can be use32vd CasE a disbursiLng agenu for anLy OrJld Bakus hoL_ Luoanl made.Å DBM staff should be associated with the world Bank appraisal teams so that DBM develops the necessary skills and experience to appraise large scale hotel projects. rV A.7 W" hanmåe P^ aroan sugsin t'a+ TYRVB 2hould A ~undrtk apriv ofr V"he Go%vermn Deatmnw gnypital, programm=Ues adbfi.L nan .eX. the a. com e V i r out Wif uns providadl f to ' , itr l4.,r n s 4- trm. a in do'4a not f elieve UV J.- VJI O L Lo V.VMU0 o q= hu u UL.Ln;v v that DBM has the required appraisal capabilities, particularly mor public works projeets. Such a function woul. also enevitably embroll DWm in inter-ministerial disputes. YTV haQ M o functions will re1udre a in dBs v .a...4 p aL ve.Lni. e irecome tu m ljhav DBMä obtain ta new Managing Director who understands business, who can effectively work with the Government, and who will be able to provide DBM with .leadership and guidance.. In -the industry section, DBM should -establiåh two departments : indus.trial promotion and industrial appraisal. Each de.partment should have a complement of 4 local staff (three sen:Lor officers and one junior officer), under an expatriate as departmental head. We have discussed 177 this staffing pattern win The Gover-nment: anu Uy have indicated their general agreement. IV.49 e r ommen that the ovrnmn ive DBM a hare ec M ^ a l%,J p a c al inf vew o hnew fuvnctionsa .A I14~44 "k-9,~ 1r~ 4+4 cad re ies iLLsa.ge.dLf..or. XIV.50 The Government needs to give greater autonomy to DBM, especially in relation to determining terms of employment of staff. Ire recommend that D3M's borrowinff poweri h mvdla subent to the cnntml nf the Rnk of Mar" ti vto xi.5i Provided the above changes are carried out. the World Bank should consider giving DBM a loan of U.S. $ 1 million. We recommend that the free limit should initially be set at U.S. $ 25,000 and that DBM's wrovgress AnA nanabili+y beo -revwiewedprodclA XIV.52 If the changes listed in Chapter XII are carried out, we estimate that approvals of DBM will increase from R 6.75 million in 1969-70 to as 14.20 million in 1973-74. Total approvals for this 5 year period are estimatedto be s 58.7 million. We exDect that one major portion of the increase in approvals will result from the start of new hotels. We exDect that 178 another major portion of the increase will result from the promotion of industry and agricultural diversifica- tion. AL.LVT WWI C3. VVJ' 164 %. J I' U.L.L. .6 " J ~SJ LC""% WJJ.LL VkT4. 7Y1.ff 4J- - .4-.- i. f% -P¶1 . 14 DBM)%tt L to bJain new reso-Urces of TLI Z32 -Mllion. OfL khis V 32 Inl-.lon9 We exp thalUtRill khe GvenUmenL"t w.L. proviU resources amounting to RMs 18 million (s 10' million of3 this in,he form oI share capiuai). Th18 fs 18 million corres- ponds to a continuation of providing funds at the same rate which.the Government has provided in the.past. We understand from the Finance Minister that the Government _would be willing to continue to provide funds to DBM at the current rate.. I. Un ine above Vasis, we expect that DBMVs profits will rise from s 0.7 million in 1968-69 to s 1.3 million in 1973-74. However, given the context of Mauritius, DBM must remain, despite its comprehensive activities, a marginal operation for a considerable time to come. Its major return must be sought in its economic impact - in setting up viable activities in agricultural/industrial/ tourism fields and in creating more jobs and more income as a result. PnI T-i i-r+i vin T to T I am directed by the Premier and Minister cif FXin-ance tCO r1efer to ASectiJOn4 15 icf thine eelpntBan-tK of auritius Ordinance (No.34 of 1963), and to inform you that it is his wi that thLe Banks ing its operations, be guided by the diagnosis of the economic problems facinig Mauiius, contained in: the report of the Economic Mission led bý Professor J. 1. Meade (Sessional Paper No. 7 of 1960) and endorsed in paragraphs 1.44 and 1.46 of the report on the Commission of Enouiry into the Sugar- Industry undertaken by Professor T. Balogh and Mr. C. J. M. Bennett (Sessional Paper No.4 of 1963). The main recommendations in that report,which are of concern to the Development Bank relate to the need for the diversification cif agriculturé and thé promotion of industrial development. In pursuance of this general policy, it is the Minister's wish that the Board of the Bank should adhere to the following precepts :- a) The new capital funds to be made avail- able to the Bank by the Government should be auplied exclusively to the promotion of nev enterprise in the industrial and agricultural fields or to the development of existing industry and agriculture other than the cultivation and milling of sugar; b) The ML5i-nis,ter is Pnxini that e Pry attemnt should be miade to foster the development of such secondary industries as cn derived from the Gugar industry e.g. the mnu,facture o-f induAst ial alcohol orr. plastios; u) £Avr Would ULhe Mlinistk-er wis1h bo I.U.in Ii the1 Board from making loans to finance the cultivation or milling of sugar from within the, proceeds of. the .annual repayments received Dy the Bank on iU- exi UtI mortgage assets, provided that Sinking Funds. are established on a sufficient scale to pernit the full redemption of the existing 1'ong-term liabilities of the Bank without recourse to further assistance from Government; d) Wherever possible, the Board should give preference to the encouragement of pro- jects which will, either directly or indirectly, be labourrintensive; e) The Board should, in conjunction with the Government, give particular con- sideration to the .implementation of the proposals contained in the Meade Report for the establishment of industrial estates; f) The Bank should make arrangements to work in close liaison with the Government so as to ensure that unity of ourpose in policy matters relating to the economic develo-nment of' Mauritius is both achieved and maintained. April. 1964 ANNEX B 0 R GANI ZATI 0 N 0 HART BOARD OF DIRECTO7-- NA _lGfiN DIRECTOR M-r. Bates 1F~fNDUTRAL SECTIOITI. (Scrutn of SECRETARY/ACCOUNTANT1 (scru y o pplications Mr. nrdy for industrial loans and investi- (Secretary to Board. General gation of prof)tability, and the administration, suo rvision of economic and technical efficiency staff and Overall supervision of industrial .projects) of accounts) .Siour. ohe r. Kistnassamy - 'AGRICULTURAL SECTION ACCOUNTING SECTION I 5EORETARIAT (Scrutiny of applications (Responsible for the keep- (Typing, General (Perusal, checking for agricultural loans ing of all accounting Clerical Duties, and custody of and their technical records banking trans- Mail, Control of Notarial Deeds) appraisal) actions, and preparation Industrial Files) of final accounts) AGRICULTURAL OFICER (Mr. Dullooss ir. ChinYan Mr. Randene r.Csse *Rames demarcate professional staff. Owher staff numbuer ' proimately v. ANNEX C DEVELOPMENT BANK OP MAURITIUS COMPARATIVE BALANCE SHEETS (Rs. Million) June 30 June 30 June 30 June 30 June 30 June 30 1969 1968 1967 1966 1965 1964 Short Term Deposits 2.9 3.2 -3.3 3.6 4.1 4.5 O:0ther Current Liabilities 1.5 1.3 1.6 .4 .5 .1 Long-Term Loans Governmc.nt 23.0 18.7 14.6 7.3 4.2 .6 Public 18.0 18.0 18.4 18.9 19.4 19.8 Reserve-s 8.6 7.9 7.2 6.6 6.2 6.0 Total Equities 54.0 49.1 45.1 36.8 34.4 31.0 ANNEX C (Contd.) DEVELOPMEN'TT BANK OF I'AURITIUS COMPARATIVE BALANCE T (hLs. Diillion) ASSETS June 30 June 30 June 30 June 30 June 30 June 30 1969 1968 1967 1966 1965 1964 Current Assets Cash .8 1.1 1.5 1.7 2.6 1.1 Other Current Assets 3.4 1.1 .8 .6 .5 .5 Fixed Assets (net) 1.5 1.5 1.5 1.5 _1.6-: 116 Loans Agriculture 19.1 20.2 20.9 21.6 .21.8 22.7 Tea 3.4 3.4 3.1 2.1 2.0 1.6 Industry 15.5 12.6 9.9 4.7 1.8 1.0 Other - .8 .8 .6 - Industrial Investments Industriial Buildings 1.6 1.5 .6 .3 - Shares in Industrial Companies, etc, 2.1 1.4 1.4 - - Sinking Fund Securities (at cost) 6.0 4.9 4.0 3.3 2.8 1.8 Liauidity Reserve Fund .6 .6 .6 .6 .7 .7 Total Assets 54.0 49,1 45.1 36.8 34.4 31.0 Annex D nEMOPlIT B.K OF MAURITIUS C.APIT AL LOANS (BOROmIs) Rate of Maturity Sinking Fund Type kaount Date Interest Date at 30,3.:1969 fR. R. Debentures 6,000,000 1950/51 53 50.6.76 2,925,390 2,650,000 1951/52 5 51.12,77) ) 1,406,532- 1,495,250 1952/53 4t 31.12.77) 1,854,750 1953 44- 30.6.78 356,o91 " 1,000,000 1954 53 3142,79) " 1,120,000 1955/56 4 51.12.79) 628.548 1.623.000 1956/57 51.12.79) 17,000,000 5,726,235 L4anO 258,574 n 195/6 n 19£3--7 L2,39 Bonds 750,000 5t 1983 214,258 13,006,74 6,007,172. Loan 21,206,652 1964-5 2 2004-2009 Nil. Develýopment ANNEX E DEVELOPMENT BANK OF MAURITIUS COMPARATIVE INCOME STATE7TENTS (R3 Millions) 4 months ending June 30, June 30, June 30, June 30, June 30, June 30, 19.69 1968 1967 1966 1965 1964 Revenue Interest 2.610 2.459 2.103 1.856 1.590 .545 Fees,etc. .203 2.813 .179 2.638 .159 2.262 .161 2.017 .231 1.821 .112 .657 Expenses Interest & Discount 1.435 1.424 1.040 1.016 .996 .322 Salaries & Admin. Expenses .572 .550 .550 .479 . .498 .143 Other -1-t J21 .053 2.027 .050 1.640 .115 1.610 .086 1.580 .043 .508 Net Profit .692 .611 .622 .407 .241 .149 AM=K I THE VEWIMNT BAR OF MAURITIUS Balanmn Sheet 2, at 30th Jun- 1969 ULABILTIES ASSETS Arrculture ladut Ar culture IMASS Governmini 19,700,000 3,370,278 23,070,278 CASH at Bank and in hand 435,680 589,577 823,057 Iong Tam 18,008,574 18,088,574 INTERET ACCRUJED and Short Tam 2,938,456 2,958,456 current assets . 160,000 1,291,477- 1,451,477 19,700,000 24,517,508 44,017,508 SHORT TERM LOCAL INVESTMENT 900,000 950,000 1,850,000 10AN DEPOSITS andl IDNS current liabities 1,300,000 560,557 1,460,357 Agriculture 19,141,010 19,141,010 Tea 5,409,302 5,409,502 Indnetw 15,55589 15,555,389 INDUSTRIAL INVESMNTS 58,105,701 eneral reseres .7,200,000 7,200,000 Industrial buildings 1,650,244 1,650,244 Contingendes Beaerve 1,050,000 1,050,000 Shares etc. 1,594,882 1,594,882 Profit & Tess Aeount 511,281 511,281 Machinery on lease 525,806 525,805 8-SR1'81 ,750,951 IZQ01IDITY n sREmRVE wn (at cost) 588,591 588,591 SINKING FUNDS (at cost) 6,0(,172 6,007,172 FIXED ASSETS at cost less depreciation 1,462,217 --1,462,217 20,800,000 55,258,946 54,038,946 20,800,000 35,238,946 54,058,946 *MostlY (about hs 1 million) Tea Loans where interest accrues at lmole rate for 8 years (Tea Project Plantors have option to capitalise this at the end of 8 years) Annex G THE DEVELOPMENT BANK OF MAURITIUS Profit and Loss Account For The Year Ended 30th June 1969 Agriculture Industry (nc. tea) Industry Agriculture _s TO INTEREST.AND DISCOUNT 500,000 934,445 1,434,445 BY INTEREST RECEIVED 875,000 1,735,443 2,610,443 SALARIES & OTHER ADIINISTRATIVE BY FEES ETC. EXPENSES (Say) 200,000 372,167 572,167 RECEIVED 65,000 137,792 202,792 .E~XENSES FOR. INDIUS- TRIAL BUILDINGS 14,053 14,053 DEPRECIATION (General) 40,105 40,105 DEPRECIAToRn (Ind. Building) 60,128 60,128 774,181 1,346,717 2,120,898 NET PROFIT FOR THE YEAR ENDED 30th June 1969 c/d 165,819 526,518 692,337 940,000 1,873,235 2,813,235 940,000 1,873,235 2,813,235 Annex H INDUSTRIAL LOA1S BY SIZES AND SECTORS OF ECON0MiIC ACTIVITY * A i,ne Ir -F- g% ^- M" -P A- å~f ~I%im" A ^imrn" I -k?~q R?'T~ Jul ^LizZ).L, 0 f v JUX~L± rV~N i.± it'.LJ li DXAL JJJ.J Ji.m.1 (Exclusive of Small Loan Program) (in R 000) 1.3.1964 to 30.6.1969 VALUE No. Amount -< I. BY RT7 -R 5,000 2 10 4 R 5,001 - R 50,000 23 647 4 ~Nn nni - D: 9RCn (nVnFnr( 50,00, -r nq5,q04 ,02 2 250,001 - 15 11,919 (38 TOTAL 84 17,598 100 II. SECTORS OF ECON0101IC ACTIVITY. 1.3.1964 to 30.6.1969 VALUE No. Amount Primnry-v Tnruty rv 8 nR M-anufacturing Industry - (Import substitute) 30 4,906 28 b) Mainly for ertort L"kt. - - - Clothing and shoes 5 357 2 vood duci+ o nA 0 Q A 7 1 Food Processing 4 3,319 19 Ag,r iultura Services,n a (Comnost, Fertilizer, etc.) 1 175 1 Tourism 3 3,451 20 ishing4 417 2 Unclassified, Industrial 1 50 05 TOTAL 84 17,598 100 CHANGES IN INTMENT PORTFOLIO (P 000is) March 1, .June 30, June 30, June 30, June 30, June 30, June 30, 196 . . _ i j.6 L 1967 1968 .969 . LOMM 4griculture (Sugar) 23,308 91 22,679 90 21,835 84 21,614 74 20,867 57, 20,218 51 19,141 48 Tea 1,293 5 1,587 6 2,019 7 2,149 7 5,102 8 3,376 8 3,409 8 industry 1,007 4 986 4 2,428 9 5,259 18 10,671 29 13,384 '4 15,555 37 Total 25,608 100 25,252 100 26,281 100 29,022 99 34,640 94 36,978 93 38,105 91 INDUSTRIAL IVTS fIS Industrial buildJ'iGs - - 302 1 590 2 1,477 4 1,630 4 Shares etc. - - - 1,355 4 1,371 3 1,595 4 Machinery on lease - - - - - - 526 1 Total - - - 302 1 1,945 6 2,848 7 3,751 9 TOTAL 26,608 IC0% 25,252 100% 26,201 100' 29,324 1001 36,585 100% 39,826 100% 41,856 100% Annex J _ TDUSTRIAL -OAN~+ Amount Amoun1 Rs Rs CLOTHING Mauritius Garments Factorv (Jaddoo Bros.) '58,000 58,000 Aurdallv Freres 32,000 32,000 Mrs. Serge Henry 60,000 60,000 A.S. Henry Ltd. 10,000 360,000 - 150, 000 MACHINERY, ,ETAL GOODS, ETC. A. Velvindron 17.,000 17,000 A..G. Nebee & Co. 250,000 250000 Gritall-Hope (Mtius)Ltd. 550,000 550,000 Forges Tardieu Ltd. 337,500 337,500 Joonas industries Ltd. 75,000 75,000 General Development Co.Ltd 100,000 100,000 Gustave Maurel & Co.Ltd. 144,000 144,000 Rima Industries 37,.500 37.500 Raphul .Ltd,(Light Ind.) 325,000 25,UUU Joonås Industries 30,000 30,000 Electrical Starter and Storage Batteries 185,000 185,000 Sayed Ismael r,.:amnode 60,000 50,000 The Building & Engineering 107,000 107,000 - n ti 80,000 80,000 Desbro International )70000 2,913,000 25,000(4) 2,858,000 M±ius. Paints Ltd. 59,000 59,000 Mtius. RituminouR BRv Product Ltd. 150,)00 150,000 Anount Amount Name jgroved Paid Mauvillac 88,000 88,000 Mahebourg Paint Co.Ltd. 51,000 348,000 51,000 348,000 Resiglas (115, 115,000 PRINTINilG AND STATIONERY Lim Kee Chang 12,000 12,000 Mtius. Stationery Manf. Co.Ltd. 800,000 800,000 Mtius. Stationery 100,000 100,000 Standa.rd Oontinuous Stationery 75,000 987,000 - 912,000 BAKERY Aj-am joufi,an & Bros. 86,600 86.600 Cie. La Concorde Ltee 86,000 86,000 Ivlerven Ltd. 97,500 97,500 Lochee & Sons 77,500 77,500 Mtius. Bakers Co.Ltd. 86,000 86,000 1. Soormally 17,U U - M. Gheengoor 30,430 511,530 30,430 464,030 FOOD AN,D BEVERAGES United Dairy & Co.Ltd. 550,000 550,000 United Dairles Co.Ltd. 125,000 100,000 Margarine Ind. Ltd. 600,000 600,000 Wong 'Woon Chong 19,000 19,000 Yltius. Oil Refineries 250,000 748,130.98 ltius. Oil Refineries (250,000)(3) 250,000 (250,000) - De Montagu Ltd. 40,000 - Dehydration of Ginger 250,000 3,334,000 - 2,267,130.98 3 Amount Amount Name Aproved Paid ~~ RsRs CONFECTIONERY & BISCUITS Mtius. Sugar Confectionery & Bisnuits ilanf. Co. Ltd. 200,000 200,000 GENERAL FARMING Mrs. Cllovis Velin~ 5,0005,00 Ramphul Ltd. 40,000 40,000 Soc. de La Balise 60,000 60,000 Cie. de G-ros Cailloux 10,000 10,000 Hurrype.rsd I R,ajuttun\ ,0 Mon Desert Alma 1,000,000 Vivian de Roquefeuil Noel 50,00() Cie. Sueriere de Bel Ombre 50,00) 1,219,O0 - 115,000 POUITRY FARY:ING M. de Speville (Food & Allied ind. Ltd.) 78,000 78,000 A. Desvaux de Marigny 47,000 47,000 B.B. du Coudray 35,000 35,000 Mayfair Co. Ltd. 70,000 70,000 Indurjeet Dewan 5,000 1,500 Food and Allied Ind. Ltd.. 271,000 271,000 .,> nnn n-I 3 ac d Macusem 0 ,(020, 00)4 Mayfair Co.Ltd. (53,0 3 (42,900)(4) Food and Allied Ind.Ltd. 75,000 75,000 Food and Allied InÅd.Ltd. 90,000 £ A. Desvaux de 1arigny 14,500 788,575 14,500 684,900 FISHING Mtius. Fishing Co.Ltd. 150,000 150,000 Limuria Fishing Enter- prises Ltd. 250,000 250,000 4 Arount Amount Name A,oroved Paid PR -2 Satyamurthi Pyndiah 13,300 13,300 Blyt i ros. &": P C--. T. 4.j v1 UJJ U.J " ' -' i' 0 ~J "' (Tuna Fishing) 1,700,000 2,113,300 - 413,300 CATTIE FARMIEG Paul de Maroussem 90,000 90,000 Soc. du Morne Brabant 112,500 112,500 Nouvelle Soc. de Tamarind Falls 75,000 75,000 Koenig Freres & Cie. 42,000 42,000 Soc. du Morne Brabant 37,500 357,000 - 1,500 T(T Happy World Ltd. 675,000 675,000 Chue Wing 150-,000 825,000 - 675,000 TOOTHPASTE & COSM1ETICS Mtius. Cosmetics' Co.Ltd. 103,000 103,000 Mtius. Cosmetics Co.Ltd. 138,200 241,200 138,200 241,200 Tanneric Mauricienne 80,000 80,000 Guy Lo Tin Lan ?.000 7,000 Bata Shoe Co.(DMtius.)Ltd. 200,000 287,000 200,000 287,000 LAUNDRY ATAD DRY CLEANING Dry Cleaning and Steam LaUndry VMJojULU C,0JV00 , Dry Cleaning and Steam Launudlry Co.d. 715,000 - 0090 5 Amount Amount Ps HOTEL Les Mascareignes LiTep 35l0,00 350,000 Mtius. Hotels Ltd.) 1,214,000(3) La Flora &: Morne Plage 4,000,000 1,305,000 Mtius. Hotels Ltd. (L ChalAnd) 582,000 582,000 Lai Min 200,000 5,132,000 - 3,451,000 TEA FACTORY Soc. Madhoo & Sons &Co. 810,0o00 210,000 J. Taibot & F.A. Hopper 135,000 135,000 Corson Tea Estate 50,000 50,000 Doc. R. Ramdin LIC4,U .,09,0p U0 - COMPOST Port Louis Compost 175,000 175,000 FERTILI Z-ERS Mius. iCem-ical &ÄFrt Industries Ltd. 4,400,000- A.I. Goburdhun 8,000 8,000 J. Oreste Lefebure 7,500 15,500 7,500 15,500 SYNTHETI C JEVEL BEARINGS Mtius. Micro Synthetic Stones 303,331(2) 303,331(2) Stones (Extension) 225,000(2) 249,149(2) TUTAmT-m.EC YTewu TAiht ra,c Facor 7r257 ,- Amount Amount Name Approved Paid . SHIPSs Mtius. Steam Navigation 2,000,000 2,000,000 PAPER & ALLIED PRODUCTS Yim Lim Bros. Co.Ltd. 20,000 - itius. Packagiig Ind.Ltd. 140,000 140,000 Paper Converting Co.Ltd. 50,000 210,000 50,000 190,000 "Du g,Dy A rVTTrTimr rl AT. oD vrnUrr'm .1. I l".LU~tAJ..U L-L VJ.M.UL A. IL .J, Vi. L Mtius. Pharmaceutical (50,000)(3) Manf. Ltd. (200,000)(2) BAGASSE BOARD aol & . 1,250,000 - 29,870,711 16,955,265.9, (1) Bank Overdraft (2) Advance on Buildings (3) Preference Shares (4) Advance on Loan FORECAST OF OPERATIONS Forocast of pprovals, Comitmants and Disbursements (Rupes in m-illion) 1970 1Q71 1q79 1071 1974 4APPROVALS Loas- Agriculture 1.0 1.5 2.5 2.3 2.3 Tea 0,5 0.5 0.5 0.5 0.5 Industry 5.0 7.0 9.0 9.0 9,0 Equity investments 0.5 1.2 - 1.5 1.5 Total Approvals 6.8 10.2 13.3 13.3 1.3.8 COMMITM4ElfS Lov ns- Agriculture 1.0. 1.5 2.3 2.3 2.3 Tea 0.5 0.5 0.5 0,5 0.5 Tndustry _A L c __. .ry _9. .L"uU4 v.Z- ______ - * 84v . ..7 JL 6.3 7.0 9.8 11.S 11.3 Equity Investments _O. 1.2 _I1.5 __-_5 _ otaL" ^CommiTAmOents . 8.2 11.3 13. -3Q DISBU".S ENTýS Loans - Agriculture 1.0 1.5 2.5 2,3 2.3 Tea ~ ~ ~~0.5. 0. 0. 0. . Industry __ 4.7 5.8 .0 _Q 6.8 6.7 8.6 10,8 11.3 lkquity investments j _& _. .2 Total D rrmets 7.1 7.9 10.1 12.3 13.i THE~~~~~ DAvM..VIT BTTF RI U Projected Cash FloF-w Statement (?s in million) Year ending Juno -,, .7 9 9.. 273 !g 74 SOURCES Nf-t profit 0.9 0.8 0.9 1.2 1,3 Add back depreciation 0.1 0.1 0.1 0.1 0.2 Cash generation from operations 1.0 0.9 1.0 1.3 1.5 5a nf tpnrrv invetments 1.9 - - - - Increase in share capital - 2.5 2.5 2.5 2.5 Increase in Govornment loans 2.5 - 2.0 1.0 2.0 Increase in IBRD lows - 2.8 2.7 4.2 4.1 Ljoan CVL.lec,tions- jgriculture 0.4 0.5 -0.6 0.8 0.9 Tea - - - 0- nel Industry 1.4 1.7 2.2 2.8 3.4 7.2 8.4 '11.7 12.7 14.5 USES Disbuirset~ of lons - ågrLculture 1.0 1.5 2.3 2.3 2.3 Tea 0.5 0.5 0.5 0.5 0.5 Induztry 5.5 4.7 5.8 8.0 9.0 EMpendt1.1-u"re L-j 11"ndulstralb- b.4 0.4 - 0. Equity Investments 0.5 1.2 1.5 1.5 2<6 Repayments - IBRD loan - - - 0.4 Increase in receivables, accrued income etc. 0.2 0.1 0.3 0.2 0.5 _L§.: Increase in payables etc.. (0.2) (0.1) (0.3) (0.2) (0.3) Increase (decrease) in cash 0.1 0.1 0.5 0.4 (0.1) 7.2 8.4 11.0 12.7 14.5 TABLE" III Annex K THE DEVELOPMENT BLFK OF ,,AURITIUS Corprtive TIome Statements ( lus MI -L -lio n) Year endinr Ju-ne 30. 199 1970 1971 1972 1973 1974 (Actual) Revenue Interest on lons and teraporary investments 2.813 2.979 3.220 3.568 4.052 4.53? Dividend income - 0.057 0.093 0.138 0.183 0.243 Expenses Interest 1.435 1.451 1.591 1.809 2.103 2.417 Salaries and oth.er administrative expenses 0.572 0.600 0.800 0.825 0.800 0. 85 Expenses for indus- trial buildings 0.014 0.014 0.018 0.021 0.021 0.025 Depreciat;ion (general) 0.040 0.040 0.040 0.040 0.040 0.040 Depreciation (indus- v~ 'l V '. 7 2.121 2.165 2.524 2.785 3.054 3.437 Net Profit 0.692 0.871 0.789 0.921 1.181 1.344 THE, DEV350."EET1, BAI.K 02F 1JM=ITUS Uomparative Balance Sheets (Fs in million) Year ending June 30, 1969 1970 197. 1972 j7 Qj4 (Actual) Gash 0.8 0.9 1.0 1.5 1.9 Short term investments 1.9 - - - - - Receivables, accrued income etc. 1.4 1.6 1.7 2.0 2.2 2.5 4.1 2.5 2-7 5.5 4.1 4.5 Agriculture 19.1 19,7 20,7 224. 15.3t9 5 Tea 3.4 5.9 4.4 4.9 5.3 5.7 Industry 15.6 19.5 22.5 26.1 51.5 36.9 INDUSTRIAL IiVSTINTS industrial buildings 1.6 1.5 1.9 2.2 2.1 2.4 Shares etc. 1.6 1.9 3.1 4.6 6.1 G,f Machinery on lease 0.5 0.5 0.5 0.5 0.5 0.5 41.8 47.0 55.1 60.7 69.2 78.0 Liquidity Reserve Fund (at cost) 0.6 0.6 0.6 0.6 0.6 0.6 Sinkinz Fuands (at cost) 6.0 6.0 6.0 6.0 6.0 6.0 TIta Assts (nt) 1.S 1.5 1.4 1.4 1.4 1.5 Total Assets 54.0 57.6 65.8 72.2 81.5 91.1 TABLE IV (Contd) Annex K IPTH DEPvTOPtMNT BANI f AUTIUTTTS Comparative Balance Sheets (R million) Year ending June 30, 1969 1970 1971 1972 1973 1974 (Atual) - - LIABILITIES Share capital - - . . 1u.u Reserves 8.6 9.5 10.3 11.2 12.4 13.7 8.6 9.5 12.8 16.2 19.9 23.7 IBRD loans - - 2.8 5.5 9.7 13.4 Other,long-term loans 18.0 18.0 18.0 18.0 18.0 18.0 Short-term loans 2.9 2.9 2.9 2.9 2.9 2.9 44.0 46.5 49.3 54.0 59.2 64.9 Accounts payable and other current liabilities 1.4 1.6 1.7 2.0 2.2 2.5 Total Liabilities and Equity 54.0 57.6 63.8 72.2 .81.3 91.1 v Il i A JI / ANNEX K THE ElONT ANK OP MAURITIUS NOTES ON TAEES I - IV Commitments and Disbursements Equity investmen.ts, agricultural loans and tea loans are committed and disbursed in the year of approval. Industrial loans are comnitted one year after approval; 50 per cent of these loa-:s are disbursed in the year of commitment and the balance 50 per cent in the second year. Repayment by Borrowers Repayments ofi industrial loans begin 6 months after full Idisbursement, on agricultural loans 1,2 months disbursem,ent. All loans are repaid over a period nf 19 yers, in equated instalments of principal and interest. Interest and Commitment Charge on Loans For paic-,s+ loa03:Lns intferest receivable is +taklrn, as given in the balance eheet for the year ended June 30, 1969. Interest releivabl-e 0 future lUib L CalC-Ul1ateu at 7.5 per cent for agricultural loans, 6.5 per cent for industrial. and tea Lurs and for machinery On lease. Income from industrial buildings is calculated at 6 per cent one year after the completion of the buildings. 2 Interest pa.able i.s caiculated at 2.5 per cent on outstanding Governrment loans, 3.75 per cent on other long-term loans and at 5.5 per cent on short-term loans. Interest payable on future Government loa-ns has en calulated< at 3 pc-r ce,nt (but can be inreasd to 5 per cent, if necessary) and on IBRD loans at 7 per cent. r^räw m-; +rr n k.~c~-c a ~k -v r~ T`P 7 T) t- c 1 - -,c c u, 1-,z.n, calculated at 3/8 per cent. Dividend Income Dividend income during a year nas been estimated at 3 per cent of the outstandin- investments at the end of the year. Salaries end Other Administrative Exrenses These have been estimated on the basis of three expatriate staff being brcught in at the management level in 1970-71 for a two year period (one Ienaging Director and two Departm-ent Heads); and permanent local staff being increased by five -in1970-71. Expenses for Industrial Buildings These are based on the figures in the balance sheet for the vear ended1 June 30, 1969. This is based on the figures in the balance fhee11-o:1the year ended Jun 30, 2n 969. These are based on the figures in the balance sheet for thI-e yealr e-nded June 30, '1919. .fLnr%. IjOaISB Two loans, one of U.S. P 1 million (8 5.5 million) and another of U.S. ' 1.5 million (s b.o million), would be required in 1971 and 1973. Dis- bursement on these loans is exDected to be 50 per cent in the year of sanction and the balance 50 per cent in the following year. Dividends Wn 81vi9erd iq proposid to be rpid rr the Bank's capital during the five years 1970-74. AN`NEX I AND PROJECT FILES STUDIED 1. Universal Boards Limited* (Bagasse Boards) 2. Critall-Hope (Mauritius) Timited* (Window Frames) 3. Aurdelly Brothers & Company** (Shirt Maaing) 4. The Mauritius Sugar Confectionary and Biscuit Manufacturers Co. Ltd.** (Candy) 5. Dry Cleaning and Steam Laundry ** (Laundry) 6. Blyth Brothers and Company **..(Tuna Fishing) 7. New Mauritius Hotels* (Hotels) 8. Electric Starter- and Storage Batteries Ltd.* (Storage Batteries) 1. Ramul Lmed (IIaU Razor Blades/ 11. Mauritius Stationery Manufacturing Company td . (Stationery) * Both complete files and appraisal report studied ** Only anraisal -repor+ ;tudied. PEOPIE, INSTITUTIO1S AM PLA'S VISITED A. Minis-ters Sir Seewoosagur Ramgoolam Prima Minister 1r. V. Ringadoo Dy. Prime Minister & Minister of Finance 4r. Duva31 Minister of Foreign Affairs & Tourism Mr. G. Marchand Minister of Commerce & Industry Mr. K. Jagatsing Acting Minister of Agriculture Mr. Jondar Minister of Eaucation Mr. A. Rima Minister of State , M ' CA Mr. G. Ollivry Minister of Plinning & DeveloDment B. Government Officials & Ar,ointees al - AI--- if J.¶ J Ar A. ocjadulur Uovernor BanK of Lurlulus Mr. R. lPyndiah Financial Secretary Ministry of Finance rÅr. D. keys Managing Director BanK 01 llurliu Mr. Sidambaram General. Manager Co-operative Central Bank Mr. Gyanchand Baveja Consultant to Economic Planning Unit. C.* Financiers /I Yx. L. Eynaud General 14Anager Mauritius Commercial Bank Mr. Sheshadri Manager Bank of Baroda Mr. Ehsanuddin Manager Habib Bank Mr. Fernie General Mzaager Barclays Bank D.C.O. Mr. Diamond Manager Life Insurance Corporation of India S. Samarth ianager New India Assurance Co * .L. Mr. Lahausse Acting Manager Anglo-Mauritius Assurance Lociety D. Businessmen and Industrialists Mr. Vigier de Latour* President Chamber of Commerce & Industry VA A3oull ch.='y'be of 00=vnr,'e F Nx. 14. Paturau Chairman Ireland Fraser (Orer risLt. y oL Commerce & Industry) Mr. J. Poncini* Director Micro Jewels r. A. MLaingard* Managing Director New Mauritius Hotels Mk. G. Joonas* Chairman Joonas Industries Ltd. Mr. Johnson Manager Mtius. Breweries Mr. Antoine 17arel, Jr.* Managing Director Harel Mallac & Company Yx. North-Coombes* General Manager Mon Desert Alma Sugar Estate Ltd. Mr. Dumee Managing Director Mauritius Oil Refineries Mr.. Noel Director Critall Hope Mr. F. North-Coombes Chairman Isle de France Hotel Mr. Fakhri Currimjee Managing Diector Currimjee Jeewanjee & Company Mr. Currim Currinjee Currimjee Jewanjee & Company AIA "A.q j AWI-e * j..VU%or r r1z,.4vaLLLU QC v~ULLLPUAq Mr. LA. G.o PeeeMaaig ietr rlMVlc& op NW. Rafffray* Director Harel Mhllae & Company M miAnt rif DEM.