Report No. 1213-TA FILE COPYTanzania: Appraisal of theMorogoro Industrial ComplexMarch 3, 1977

Industrial Projects Department

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distribution and may be used by recipientsonly in the performance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS

US$ 1 = Tanzanian Shilling (Tsh) 8.3Tsh 1 = US$ 0.119Tsh 1,000 = US$ 119.00

WEIGHTS AND MEASURES

1 metric ton = 1,000 kilograms (kg)1 meter = 3.28 ft.1 kilometer = 0.62 miles1 hectare (ha) = 2.47 acres1 bale = 187 kg of cotton

ABBREVIATIONS AND MEASURES

EDF = European Development FundEIB = European Investment BankFA = Fixed AssetsFE = Foreign ExchangeIACP = Industrial Advisory Center of PakistanICB = International Competitive BiddingLC = ' Local CurrencyNATEX = National Textile Industries CorporationNDC = National Development CorporationNPC = National Price CommissionNESPAK = National Engineering Services (Pakistan) Ltd.RCC = Reinforced Concrete ConstructionSIDO Small Industries Development OrganizationTANESCO = Tanzania Electric Supply Co. Ltd.TEXCO = National Textile CorporationTW = Third Window (Special IBRD Loan Facility)

FISCAL YEAR

Government July 1 - June 30NDC January 1 - December 31

FOR OFFICIAL USE ONLY

TANZANIA

APPRAISAL OF THE

MOROGORO INDUSTRIAL COMPLEX

TABLE OF CONTENTS

Page No.

SUMMARY AND CONCLUSIONS ................................ i -iii

I. INTRODUCTION .1..........................................

II. THE INDUSTRIAL SECTOR ........ . . . .......................... I

A. General ................... ........ ....... ... IB. Project Related Subsectors ........................ 3

III. NATIONAL DEVELOPMENT CORPORATION - THE EXECUTING AGENCY 6

IV. THE PROJECT ............................................ 8

A. General Description ............................... 8

B. Detailed Features ................................. 8

C. Markets and Marketing ..... ........................ 14

D. Project Management ................ .. .............. 15

V. COST ESTIMATES, FINANCIAL ARRANGEMENTS AND EXECUTION

SCHEDULE . ............. 16

A. Capital Cost - By Project Component .... ........... 16

B. Capital Cost - Consolidated Estimate ............... 17

C. Financing Plan .................. . .................. 17

D. Allocation of Bank Loans, Procurement and

Disbursements .................................. 19

E. Project Execution Schedule ........................ 21

VI. FINANCIAL ANALYSIS .................................... 21

A. Industrial Estate .......................... 21

B. Shoe Factory ..................................... 23

C. Leather Goods Factory ............................. 23

D. Consolidated Financial Return, Audits and

Financial Management ........................... 26

E. Risks and Sensitivity Analysis .................... 26

This report was prepared by C. Goderez, E. Siou and B. Cu Kok of the In-

dustrial Projects Department.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. ItU contents may not otherwise be disclosed without World Bank authorization.

-2-

Page No.

VII. ECONOMIC ANALYSIS ...................................... 28

A. Economic Return ................................... 28B. Other Benefits .................................... 28

VIII. AGREEMfENTS ...................... ....................... 29

ANNEXES

1. The Industrial Sector - Structure and Performance2. Regional Breakdown of Cattle Population, 19723. National Development Corporation - Structure and Performance4. Industrial Estate - General Description5. Water Requirements and Resources6. Shoe Factory - General Description7. Shoe Factory Prime Contractor - Corporate Profile8. Leather Goods Factory - General Description9. EIB/EDF Financing Plan - Canvas Mill10. Canvas Mill - General Description11. Markets and Marketing12. NDC Project Management Organization13. Industrial Estate - Capital Cost Estimate14. Shoe Factory - Capital Cost Estimate15. Leather Goods Factory - Capital Cost Estimate16. Calculation of Price Escalation Factors17. Working Capital Estimates18. Disbursement Schedule19. Project Implementation Schedule20. INDUSTRIAL ESTATE Financial Projections, 1977-1998

Addenda:1. Revenue and Operating Cost Statements2. Income and Cash Flow Statements3. Balance Sheets and Financial Return

21. Calculation of Price Deflators, 1975-199822. SHOE FACTORY Financial Projections, 1977-1998it - Addenda:" - 1. Operating Cost Breakdown, 1982

2. Loan Amortization Schedule3. Depreciation Schedule4. Operating Cost Projection

" - 5. Income, Cash Flow and Balance Sheets6. Financial Return

" - 7. Break-Even Chart

-3-

ANNEXES (Continued)

23. LEATHER GOODS FACTORY Financial Projections, 1977-1998

if - Addenda:1. Operating Cost Breakdown, 1982

" - 2. Loan Amortization Schedule" - 3. Depreciation Schedule

4. Operating Cost Projection5. Income, Cash Flow and Balance Sheets6. Financial Return7. Breakeven Chart

24. Financial Return Sensitivity Tests25. Economic Analysis26. Foreign Exchange Impact27. Glossary of Technical Terms

MAPS

IBRD 12052IBRD 12053

TANZANIA

APPRAISAL OF THE MOROGORO INDUSTRIAL COMPLEX

SUMMARY AND CONCLUSIONS

i. This report appraises a project to establish an integrated factorycomplex at Morogoro, a large town located 180 kms west of Dar es Salaam,which will produce shoes and other leather and canvas products. It consistsof three components: (i) an industrial estate of 65 ha to provide developedland, power, waste treatment, housing and other common services for theinitial factories of the complex as well as other small- and medium-scalefactories expected to be attracted to Morogoro in the future; (ii) a shoefactory to produce canvas and leather shoes, primarily for export; and (iii) aleather goods factory to produce valises, wallets, handbags and garments, alsoprimarily for export. Financing requirements for the project are estimatedat US$36.2 million equivalent, to which the Bank would contribute two loanstotalling US$23.0 million. The project implementation period is six years,1977 to 1982, including three years of construction and three years of start-up and initial operations.

ii. Not included in the Bank-financed project, but functionally in-tegral parts of the Morogoro industrial complex, are (i) a tannery which isalready under construction with Bulgarian technical assistance and financialsupport, and (ii) a canvas mill to process Tanzanian cotton into canvas andother coarse count cloth for shoes, tents, tarpaulins, etc., to be financedby the European Investment Bank and European Development Fund. All threecomponents of the Bank-financed project, as well as the tannery and the canvasmill, will be owned by the National Development Corporation (NDC), Tanzania'slargest parastatal holding company, and will be organized and managed asindependent corporations.

iii. NDC has shareholdings in 22 corporations producing beverages andtobacco, leather, shoes, packaging materials, rubber tires, chemicals andmetal products. These corporations have earned, on average, about US$10million equivalent per year in after-tax profits since 1971, and have paidNDC about US$5 million per year in dividends. The trend of profits anddividend payments has been rising. NDC has a professional staff of 92Tanzanian and 17 foreign experts, who have shared considerable experienceover the years in implementing turnkey factory projects and operations.

iv. Tanzania is one of Africa's largest producers of hides (cattle)and skins (sheep and goat). Most of the hides and skins are presently ex-ported in raw form. Only about 20% are processed to semi-finished andfinished leather in the three existing tanneries, of which only one, atMoshi, can be classed as a large and modern unit. About 40% of the outputof this plant is exported; the rest, with the output of the two smallertanneries, is marketed for domestic use. The new tannery under construc-tion at Morogoro is planned to process annually about 280,000 hides and900,000 skins and would raise Tanzania's capacity for leather production

- ii-

to about 80/%O of the hides and skins expected to be commercially available in1980.

v. Tanzania is the fourth largest producer of cotton in Africa butprocesses only about 15% of its annual crop (430,000 bales in 1973) to yarnand cloth. Low grade cotton, which constitutes about 10% of the crop, is ex-ported at discounted prices. This would be suitable for the production ofcanvas and othier coarse count cloths. At present there is no domestic can-vas production in Tanzania.

vi. One fairly modern shoe factory presently produces leather and can-vas shoes for the internal market. The output is of acceptable quality with-in Tanzania, but does not meet international standards. The new shoe factoryplanned as a project component would produce about 4 million pairs of shoesto international standards, primarily for export, but it is expected that asmall part of the production will be sold internally.

vii. The basic objective of the project is to use domestic hides, skinsand cotton, which are presently exported as such, to produce finished pro-ducts of internationally competitive quality for export markets, and therebyincrease domestic employment and foreign exchange earnings. The total numberof jobs to be generated by the project is estimated at about 1,500, and thenet foreign exchange earnings are projected at US$153 million equivalent (inconstant 1975 terms) for the period, 1979-1998. The entire complex, includ-ing the tannery and canvas mill, will employ about 3,000 people.

viii. Total financing required for the project would amount to US$36.2million equivalent (Tsh 300 million) of which US$23.6 million is the directand indirect foreign exchange content. The proposed Bank loans totallingUS$23 million would be made to the Government and consist of: (i) US$11.5million at 8.5% interest repayable over 20 years including 4-1/2 years grace,and (ii) US$11.5 million on "third window" terms, i.e., 4.5%. interest withthe first principal repayment due on January 15, 1983 and final maturity onJanuary 15, 2001. The Bank loans would cover 97.4% of the estimated foreignexchange requirement.

ix. Both Bank loans would be on-lent to N4DC at 10% interest, repay-able over 15 years including 4-1/2 years grace. NDC will provide a suitabledebt:equity structure for each project corporation. Its contribution to theproject will amount to US$13.2 million equivalent to be provided out ofinternally generated funds or, if insufficient, funds from the nationaldevelopment budget.

x. Adequate technical assistance will be provided through consultantsand contractors for implementation of both the project design and construc-tion as well as the first three years of operations. For the shoe andleather goods factories, a qualified Italian consortium has been selected toprovide engineering design, construction supervision, plant commissioning andmanagement of operations, including international marketing, during three

- iii -

years after start-up. A substantial training component has been built into

the project to ensure eventual takeover of management by Tanzanians. Thesemeasures provide sufficient assurance of efficient project execution andachievement of planned production and marketing objectives.

xi. The main element of risk in this project is associated with theinternational marketing of shoes in a rapidly growing but highly competitiveworld market. Even assuming the production of quality products at competi-tive cost, there is still a need for a high degree of specialized skills andadequate marketing channels in various countries, primarily within the OECDcountries. These will be provided by the Italian group, which includescompanies already in the business of marketing internationally shoes manu-factured in the lesser developed countries.

xii. The aggregate after-tax financial return is calculated at 15.4%in constant 1975 terms and the economic return at 26.4%, reflecting thehigh level of net foreign exchange earnings and intrinsic national benefitsto be derived from the project. The associated tannery and canvas mill areexpected to yield comparable financial and economic returns.

xiii. On the basis of the agreements negotiated and summarized in thisreport, the project is suitable for two Bank loans totalling US$23.0 millionon the terms indicated in paragraphs viii and ix.

I. INTRODUCTION

1.01 In response to a request from the Government of Tanzania, the Bankhas been advising and assisting the National Development Corporation (NDC)since 1974 in preparing a multi-plant industrial project at Morogoro, a townlocated 180 kms west of Dar es Salaam. NDC is a parastatal organization under

the Mlinistry of Commerce and Industries with equity interests in a number ofindustrial companies and will act as the project executing agency and ownerof the Morogoro Industrial Complex.

1.02 Based on the project parameters defined during the early assessmentphase, two feasibility studies were commissioned covering the basic components

of the proposed project: (i) an industrial estate to provide prepared landand common services for small-, medium- and large-scale factories and (ii) anintegrated 4-factory complex consisting of a tannery, a canvas mill, a shoefactory and a leather goods factory, which will be the first industries to belocated on the estate. The industrial estate study was prepared by NationalEngineering Services (Pakistan) Ltd. (NESPAK) and the factory study by the

Industrial Advisory Center of Pakistan (IACP); both studies were received inmid-1975.

1.03 NDC negotiated Bulgarian technical and financial assistance for thetannery and this component of the Morogoro Industrial Complex is already underconstruction with start-up scheduled by late-1977. The remaining componentswere split between the Bank and the European Economic Community (EEC) on aparallel finance basis as follows: (i) the industrial estate, shoe factoryand leather goods factory were taken up by the Bank, and (ii) the canvas millby the EEC. It is expected that this first joint industrial developmenteffort by the Bank and EEC will lead to other cooperative projects in thefuture.

1.04 An appraisal mission consisting of C. Goderez (Chief), E. Siou(Engineer) and B. Cu Kok (Economist), all of the Industrial Projects Depart-ment, was carried out in October 1975. The project in its present form hasemerged after subsequent meetings in Washington, Luxembourg and Dar es Salaamof Bank, NDC, European Development Fund (EDF) and European Investment Bank(EIB) personnel to reach agreement on various questions.

II. THE INDUSTRIAL SECTOR

A. General

2.01 As detailed in Annex 1, industrial output (manufacturing value

added) experienced sustained growth between 1964 and 1973 of 9.5% per annumin real terms. In reality, however, the growth rate was less significantthan it might appear since the starting base was very small and incremental

A glossary of technical terms commonly used in the leather and textileindustries is given at the end of the report (Annex 27).

-2-

,utput wa-s not corimensurate with the large resources invested. Furthermore,since 1974 industrial production has stagnated. The economy is still pre-dominantly based on agriculture and industry accounts for only 10% of GDP,as compared to 8% in 1964.

2.02 Certain exogenous factors such as acute balance of payments problemssince 1974, when imports rose sharply without a concommitant increase inexports (mainly cotton, coffee, sisal and other agricultural products), aswell as an extended drought and power shortages, all contributed to the poorperformance of the industrial sector in the last two years. But the Govern-ment acknowledges that in addition there are serious structural deficiencieswhich must be overcome if industry is to become the leading sector, asplanned, in the short- to medium-term. These deficiencies are discussedbriefly below since they have a direct bearing on the expected performance ofthe proposed project.

2.03 Industrial facilities are largely owned by the "parastatal" organi-zations, 1/ government-owned holding companies operating under the overalldirection of various ministries (Table 1, Annex 1). In 1974, the parastatalsthrough their operating companies accounted for 75% of value added, 50%of employment 2/ and 90% of new capital formation in the manufacturing sector.Generally, the performance of the parastatals has been deficient for avariety of reasons, including: (i) limited senior and middle managementcapabilities; (ii) excessive overhead costs; (iii) price controls basedon manufactured cost plus fixed profit which tend to generate process ineffi-ciencies together with a lack of competition; (iv) low worker productivitybecause of overstaffing and absence of worker or management incentives forsuperior performance or disincentives for poor performance; and (v) lowcapacity utilization because of weak production planning, poor maintenanceand lack of spare parts, raw and intermediate materials. 3/ Correctivemeasures needed range from those within the control of the parastatals (e.g.,management improvement) to areas requiring Government policy adjustment (e.g.,pricing). NDC, the largest parastatal and the executing agency for theMorogoro project, has begun to address these problem areas and, as noted inpara 3.03, there has been encouraging progress.

2.04 The Government's industrial development strategy aims at increasedprocessing of local raw materials for the national and foreign markets.Given the current balance of payments crisis (Annex 1) which is likely tocontinue for some time, highest priority is given to projects with strong netforeign exchange earning potential. This is the basic justification for the

1/ There are 11 parastatals which control 72 operating companies in themanufacturing sector.

2/ In 1972, the total work force in firms employing 10 or more was 59,000.

3/ A more detailed discussion is given in IBRD Report 647-TA, "TANZANIA:Industrial and Mining Sector Survey", March 31, 1975. Vol. 1.

Morogor, Industrial Complex in which locally available hides, skins and cotton

are to be upgraded into finished leather, canvas and a variety of leather and

canvas finished products for the export market.

B. Project Related Subsectors

1. Livestock

2.05 Depending on the source, various estimates are available regarding

the present cattle population of Tanzania, ranging from 9 to 15 million.According to a census made in 1972, the national herd was 9.3 million head(Annex 2). Since there are indications that there was some undercounting in

the census, however, a reasonable estimate (for 1972) would be nearer the 10million mark. 1/ An estimate of the cattle, goat and sheep population, their

growth rates and off-take is given below from data supplied by the Livestock

Development Authority:

Tanzania - Herd Population, Growth Rate and Off-Take

Annual Projected Estimated HidePopulation Growth Population and Skin Avail-

Livestock (1972) Rate Off-Take (1982) ability (1982)(million) (%) (%) (million) (million)

Cattle 10.0 2.5 14 12.8 1.8

Goats 4.5 2.5 33 5.8 1.9

Sheep 3.0 2.5 21 3.8 0.8

2.06 The off-take of livestock is composed of official and unofficialslaughterings, and fallen animals. MAost of the animals are individuallyowned but grazed on communal land according to established tradition. Thegreater part of the herd is located in the Mwanza, Shinyanga, Musoma andSingida regions (Map, IBRD 12052) where cattle are kept by the Sukuma peopleas an auxiliary activity to growing cotton and maize. Large concentrationsare also found in the Dodoma, Arusha and Kilimanjaro regions where animalsconstitute a major source of income for the Gogo and the Masai tribes.Extensive livestock-keeping in the south-east and in large areas of the westis precluded by the presence of the tsetse fly. Although the cattle herd has

increased from about 3 million head in 1924 to the 1972 figure of 10 millionnoted above, its productivity is extremely low - a calving rate of about 50%,

1/ In the appraisal report, "Tanzania Dairy Development", Project ReportNo. 765-TA, para 2.06, the figure used is 10 million head.

-4-

a calf and adult mortality of about 20% and 10% respectively and an averageliveweight at slaughter of about 250 kgs. Low productivity can be attributedto inadequate nutrition, high disease incidence and parasite infection,inadequate herd management, and the poor genetic quality of the native cattle(small East African shorthorn Zebu).

2.07 The potential for livestock development in Tanzania is enormous,both through an improvement and intensification of husbandry in existingcattle areas, and by extending these areas through tsetse control. There arealso areas where the size of herds could be increased substantially if wateringfacilities were provided. IDA has already approved two credits for livestockdevelopment in Tanzania, the first (132-TA) in 1968 for US$1.3 million (fullydisbursed) and a second credit (382-TA) in 1973 for US$18.5 million. Thesetwo credits are aimed at creating a growing modern (non-traditional) cattleranching and slaughtering sector.

2.08 It is estimated that the animal population in the country willimprove steadily both in quantity as well as quality and the raw hide andskin requirements for Morogoro - 280,000 hides and 900,000 skins annually -will be available in the foreseeable future. Because of Morogoro's centrallocation as a highway and railroad transportation hub, delivery of hides andskins will not be a problem.

2. Leather and Leather Goods

2.09 Hides and skins are by-products of the meat and dairy industriesand, as such, their availability is directly linked to the growth in produc-tion of the primary products. The value of hides and skin ranges from 5 to15% of the value of the animal.

2.10 Currently, three commercial tanneries are operating in Tanzaniacapable of processing some 200,000 hides and 310,000 skins per year or about20% of local availability (1.0 million hides and 1.5 million skins in 1975).The balance is exported as wet-salted and dried hides and skins. The largestis the Tanzania Tanneries Company Ltd. at MIoshi which alone handled 140,000hides and 300,000 skins in 1974, producing wet-blue, crust and finishedchrome-tanned leather for both the domestic and export markets. Expansionplans already being implemented at this tannery will double the capacity by1977. The two smaller tanneries produce vegetable tanned leather of lowerquality for shoe soles and industrial purposes. Another modern tannery isunder construction at Mwanza with a planned capacity of 360,000 hides peryear. When the tannery at ltorogoro reaches full production at its designcapacity of 280,000 hides and 900,000 skins per year, Tanzania will have anational capacity to process about 80% of the hides and skins expected to becommercially available in 1980.

2.11 Although not of the best quality, Tanzania successfully exportsdried and wet-salted hides from all sources and wet-blue, crust and finished

- 5 -

leather from the Moshi tannery. Sales are at world market prices correspond-ing to the quality of the products and exports are marginally profitable. 1/Improved leather quality is expected at all three of the existing or plannedmodern tanneries at Moshi, Mwanza and Morogoro and there should be no dif-ficulty in exporting tanned leather at acceptable margins of profit in thefuture to a growing world market. Tanzania has not exported finished leathergoods in any significant quantity as yet. Leather and canvas shoes producedat the Tanzania Shoe Co. Ltd. (formerly BATA), while of acceptable qualityin the domestic market, cannot compete internationally. Recently, leatherwork gloves (from scrap leather) have begun to be exported and small quanti-ties of leather jackets and handbags have achieved limited acceptanceamong tourists. Internationally, there is a large and growing demand forquality leather goods and the entire production of these items at Morogoroshould be easily marketable provided they are competitive in price and styleand suitable marketing channels are established.

3. Cotton and Textiles

2.12 Tanzania is the fourth largest cotton producer in Africa withan output of 430,000 bales in 1973, up from 160,000 bales in 1958. Onlyabout 15%, or 63,000 bales, of the cotton crop is processed to yarn and wovencloth domestically; the balance is exported as baled cotton. The textileindustry, virtually non-existent 10 years ago, now ranks first in the manu-facturing sector accounting for about 25% of employment, 13% of value addedand 11% of gross output for the sector as a whole. TEXCO, a governmentparastatal, holds shares in and oversees the operations of the 7 existingtextile mills in Tanzania. In 1975, the Bank extended a US$15 million loan toone of TEXCO's mills at Mwanza to finance expansion of annual capacity from 23to 43 million meters of finished fabrics; implementation of the project isproceeding well within the original cost and time estimates.

2.13 The quality of Tanzanian cotton is above average, falling into themedium to long category (fiber length of 1-1/32" to 1-3/32") and is suitablefor spinning yarn up to 50 counts. Ninety percent of the crop is the so-calledAR grade, which is comparable to U.S. Memphis SM 1-1/16", selling on the worldmarket at about a 10% premium over the price of 1" staple. Ten percent, or43,000 bales, is the BR grade consisting of shorter fiber lengths, overripe,off-color and weaker fibers with a trash content of 12% (vs. 7% for AR cotton).BR cotton sells at a discount of 25-35% below the AR prices.

1/ Part of the problem is the overvalued currency. In October 1975, theTanzanian shilling was devalued by 15% and the exchange rate rose fromTsh 7.10/US$1 to Tsh 8.16/US$1. As a consequence, profit margins onleather and other exports increased in 1976 but even at the higher ex-change rate, the Tanzanian shilling still appears to be overvalued. Foreconomic analysis purposes, the Bank assumes the real value of theshilling to be Tsh 11/US$1.

- 6 -

2.14 Currently, of the 63,000 bales of cotton processed in Tanzania

annually, 60,000 are AR and 3,000 BR grade. All of the remaining 40,000 bales

of BR cotton are exported at discounted prices. Canvas is made from BR cot-

ton, but there is yet no indigenous canvas production (the 3,000 bales of

BR cotton are consumed internally in producing other types of coarse cloth

such as duck and drill). The Mlorogoro Canvas Mill will consume 23,000 bales

of BR cotton annually, about 57% of the current exportable surplus, in pro-

ducing canvas of various types for shoes, tarpaulins, tents, sails, knapsacks,

etc. Canvas and made-up canvas goods are commodities traded internationally

and with good long-range growth prospects. Given the existing production and

consumption pattern for BR cotton noted above, it is self-evident that up-

grading the raw material to higher levels of value added as proposed in the

i>forogoro project is sound policy for Tanzania.

III. NATIONAL DEVELOPMENT CORPORATION (NDC) - THE EXECUTING AGENCY

3.01 The National Development Corporation, headquartered in Dar es

Salaam, is the largest parastatal holding company and Tanzania's principal

instrument for industrial investment since its inception in 1964. As detailed

in Annex 3, it is governed by a 9-man Board of Directors including the General

Manager. IBC's 6 operating departments are staffed by 109 profesionals of

which 17 are foreign experts serving in various managerial and technical

capacities; office staff totals 134.

3.02 NDC holds shares in 22 companies of which 17 are classified as

subsidiaries (over 50%l IDC shareholding) and 5 are associate companies (50%

or less NDC shareholding). The 22 companies operate in the following fields:

metal working (8); tobacco and beverages (4); printing and publishing (4);

chemicals and allied products (3); and leather tanning and processing (3);

together they employ about 9,000 people. Operations of the NDC Group compan-

ies have been profitable every year since 1968 on a consolidated basis,

although some companies had been experiencing losses. In 1974, for the

first time, each of the companies made after-tax profits (Table 2, Annex 3).

Similar results were achieved in 1975 and in 1976. 1/ The overall capitali-

zation of the TBC Group is sound with a debt:equity ratio of 35:65 though a

somewhat tight liquidity. Consolidated sales and profits of NDC's Group

Companies in recent years are summarized below:

1/ With the exception of the Tanzania Fertilizer Co.; fertilizer prices

are controlled as a matter of national policy and profitability is

low or negative as a result.

- 7 -

NDC Group Companies - Sales and Profits, 1971-1976(Tsh millions)

/1

1971 1972 1973 1974 1975 1976

Net Sales 1,062 1,427 1,734 1,083 1,340 1,300

Profit (after-tax) 114 144 103 83 90 104

Profit as % of Sales 10.7 10.1 5.9 7.7 6.7 3.0

/1 Including a number of profitable mining and textile operations which

have been transferred to other parastatals, resulting in the sharp

drop in revenue in 1974.

3.03 Operational results of the Group Companies can be considered

modestly satisfactory. In 1974/75, NfDC instituted a comprehensive program

of in-plant reorganization and efficiency studies to correct known problemsin management, maintenance, inventory control, excess receivables, unbalancedprocess lines, worker skills and incentives. Initial results are promising.Vor example, in 1975 receivables were reduced in aggregate by Tsh 25 million,corresponding to a reduction from 41 days of net sales to 35 days. The in-

crease in profitability from 6.7% in 1975 to 8.0% in 1976 may be partly attrib-utable to the efficiency measures undertaken and performance in future yearscan reasonably be expected to improve progressively.

3.04 Central office management and staff of NDC have developed substan-tial capabilities in the textile and leather sectors. Three of the Group

Companies - Tanzania Hides and Skins, Tanzania Tanneries and Tanzania ShoeCo. - are the country's major processors of hides and skins from the rawstate to finished products. Until 1973/74, N1C also managed the country'stextile firms. These have since been transferred to another specializedparastatal, TEXCO, but NDC's experience in the textile sector provides asolid foundation for planning and implementing the canvas mill component of

the llorogoro Complex.

3.05 To place the project in perspective, when completed it will add3 operating companies to NDC's existing portfolio of 22. Project aggregaterevenue in 1982, when full operating capacity is scheduled, will be aboutUS$33.2 million compared to 1975 revenue for 1MC's existing 22 Group Com-

panies of US$189 million and 1982 estimated revenue of US$450 million to500 million for 27 Group Companies, including the tannery and canvas mill(all in current terms). These figures indicate that the I4orogoro project,

while large, should not per se place an extraordinary burden on NDC's grow-

ing financial and management capabilities.

3.06 NDC is therefore considered to have the basic management organi-

zation and financial and functional capabilities to act successfully as the

- 8 -

executing agency for the project. Specialized technical assistance will beneeded, however, and has been incorporated into the project design asdetailed in the next chapter.

IV. THE PROJECT

A. General Description

4.01 The project, to be implemented over a 6-year period from 1977 to1982, consists of three components:

Component Description

1 Industrial Estate - 65 ha of developed land completewith roads, surface drainage canals, power, water, sewagedisposal, telecommunications, housing and other facilitiesfor small- and medium-scale industries. The 2 factoriesto be constructed initially as project components are:

2 Shoe Factory - to produce 2 million pairs of leathershoes and 2 million pairs of canvas shoes per year;

3 Leather Goods Factory - to fabricate handbags, suit-cases, jackets and various minor items from 183,000 mof finished leather per year.

The 3 project components together with the tannery, already under construc-tion on the estate 1/, and the canvas mill 2/, constitute a vertically inte-grated industrial complex fully owned by NDC. Each operating unit will bean independent company. The chart (next page) graphically illustrates theflow of materials and other related data of the interlinked factorycomplex.

B. Detailed Features

1. Component 1 - Industrial Estate

4.02 For the industrial estate, described in greater detail in Annex 4,an area of 204 ha has been reserved 4 kms north of Morogoro, a large town of

1/ The tannery was designed and is being built with Bulgarian technicalassistance and finance; construction started in September 1975.

2/ To be financed by FIB and EDF.

- a -

TANZANIAMOROGORO INDUSTRIAL COMPLEX

MATERIALS FLOW CHART

HIDES SKINS COTTON(280,000 Pieces) (900,000 Pieces) (4,332 M.T.)

TANNERY CANVAS MILL

300 Days/Year 300 Days/Year

1 Shift/Day 3 Shifts/Day

Employment: 334 Employment: 921

Producing ProducingFinished Leather Canvas

(m2

000) (iM2

000)

For ShoesFrom Hides: 585 (Laminated): 2,800

As Dyed Canvas: 2,062As Waterproof

From Skins: 450 Canvas: 2,800

Total: 1,035 Total: 7,662

1,035,000m2 7,662,000m 2

To Market 4 M 3 To Market

183,000m 2 558,000rn2

I I LEATHER GOODS SHOE

FACTORY FACTORY

300 Days/Year 300 Days/Year

1 Shift/Day Shift/DayLeather Section: 1

Employment: 113 Canvas Section: 2

Other Section 1Producing Employment: 1073

Units Producing

Handbags: 18,000 Shoes:Suitcases: 10,000 PairsBelts: 14,000 Leather: 2 Million

Jackets: 40,000 Canvas: 2 Million

Wallets: 32,000

To Market To Market

World Bank-15843

- 10 -

40,000 population situated some 180 kms west of Dar es Salaam, Tanzania'scapital and major port. The site is on the main hardtop road connectinglhorogoro and Dodoma and is 2 kms from the intersection with the Tan-ZamHighway. Norogoro also lies on the Central Railway line connecting Dar esSalaam with the main centers in the north and west of the country. Because ofits excellent rail and highway connections, and its central location, Morogorois particularly well suited for the proposed complex in terms of raw materialand finished goods transport requirements. Topography, terrain and climateare suitable for factory construction and the operations planned. Sufficientlabor will be available from tiorogoro and nearby rural areas.

4.03 The site plan (Annex 4, Addendum 1), covering the development of65 ha required for the project shows the internal road network and thelocation of the tannery, canvas mill, shoe factory, standard factory buildings(one of which will house the leather goods factory), utilities and a housing

2zone for about 35 residential units totalling approximately 5,250 m . Fourstandard factory buildings are planned, measuring 120 m x 12 m each, or

5,760 m total covered space with clear height under beams of 4 m. The

smallest module will be 240 m and small- to medium-scale factories will be

able to rent one or more modules as needed. About 16% or 240 m of the firstbuilding will be occupied by the administrative offices and maintenance shopsof the estate corporation; the balance will be occupied by the leather goodsfactory. The second building will be built in anticipation of the demand forfactory space of small- and medium-scale industries expected to be establishedin the future, some of which will be ancillary to the major project factories.Initially, only two of the buildings will be constructed until the demand foradditional standard factory space becomes more certain and the decision toproceed with the third and fourth building will be taken in consultation withthe Bank.

4.04 The expected land use pattern of the estate is given below:

Industrial Estate - Land Use Pattern (Phase I)

Industrial Plots for: ha _

Tannery 8.0 12.3Canvas Mill 7.5 11.5Shoe Factory 5.5 8.5Standard Factory Buildings 2.0 3.1Unallocated /1 15.0 23.1

38.0 58.5Residential Area 5.0 7.7Admin. Building 2.0 3.1Roads, Utilities, Landscaping 20.0 30.7

Total 65.0 100.0

/1 15 ha of developed land will be ready for occupancy by non-project indus-tries in 1979; specific factories are not yet identified.

- 11 -

4.05 The Morogoro Industrial Complex, at3full capacity, is expected io

have an average daily water demand of 2,800 m and a peak load of 4,000 m

(Annex 5). 1/ Initially, water will be drawn from the nearby Ngerengere

River but this source has limited capacity and during the dry season each

year operations would have to be curtailed or shut down. A prolonged period

of drought, as has occurred twice in recent years, would be a major disaster

for the complex. What appeared to be a serious impediment to establishing

the Morogoro Complex at the time of field appraisal, however, is being re-

solved by means of a water supply project approved for a Bank loan of US$15

million in December 1976. 2/ This project, to be implemented between Jrne 1977

and July 1979, will expand Morogoro's peak water production by 25,400 m /day

through the construction of a dam at Mindu, 5 kms from Morogoro, and water

treatment facilities, pumping stations and a pipeline to Morogoro. The capa-

city of the system is adequate to meet all demands, including the industrial

complex, for the foreseeable future. Because of the importance of an assured

supply of water, agreement has been reached that a condition for major disburse-

ments 3/ will be that firm financing arrangements acceptable to the Bank have

been made for the Mindu dam and pipeline and that all conditions for initial

disbursements be fulfilled. This condition has been met with the effectiveness

of the Bank-financed urban water supply project on March 2, 1977.

4.06 The feasibility study proposed a 57 ha evaporation/oxidation pond

as the simplest practical method of liquid waste disposal. However, it has

been agreed that this will be studied further by qualified consultants to

determine if ecological considerations dictate a more sophisticated and effi-

cient system and the required study will be part of the TOR for the design

and construction of the industrial estate. Assuming that a higher technology

system may be needed, the project capital cost estimates include a provision

of US$800,000 for this purpose.

4.07 Operation of the industrial estate will be the responsibility of

a resident Estate General Manager and an Engineer, the latter functioning

as Assistant General Manager and Maintenance Supervisor. Staff will con-

sist of no more than 15 (Annex 4, Addendum 2). It has been agreed that by

December 1978 an estate corporation will be established and an experienced

industrial estate manager will be recruited in consultation with the Bank for

an initial period of 2 years. He will be responsible for operation and the

training of a Tanzanian assistant who will take over as General Manager on

completion of the 2-year technical assistance contract. The estate will

1/ Corresponds to consumption when the 4 starting factories are at full

production circa 1982; future expansion of the estate would increase

water consumption proportionally.

2/ For details, reference is invited to the Grey Cover Appraisal Report

No. 1199-TA "Tanzania: Appraisal of Urban Water Supply Project",

November 30, 1976.

3/ Refers to civil works and equipment but not to engineering expenditures.

- 12 -

function as an independent corporation and "profit center" in all dealingswith factories already located within its boundaries or planning to do so.Termination or extension of the General Manager's contract will be decidedin consultation with the Bank. A short list of 6 qualified consulting organi-zations was prepared in consultation with the Bank, and their competitiveproposals for detailed engineering and supervision of construction are beingevaluated (February 1977). The contract is expected to be signed in thesecond quarter of calendar 1977.

2. Component 2 - Shoe Factory

4.08 The factory has been laid out and equipment specified (Annex 6,Addenda 1 and 2) for an annual production of 2 million pairs of leather and2 million pairs of canvas shoes. IACP included a cardboard box-making depart-ment in the factory plan, but the need for this investment, although includedin the cost estimate as a safety factor, will be examined further during thedetailed design phase. 1/

4.09 The IACP feasibility study was reviewed by a firm of experts priorto the field appraisal (Roit Corp. of the U.S.A.), who concluded that thefactory layout and bill of equipment were suitable for the product mix andproposed production levels. Equipment cost estimates were also found to berealistic. It was recommended, however, that if possible and depending onthe recommendations of the contractor responsible for the international mar-keting, the initial product mix be concentrated in one or two basic typesof leather shoes and similarly for canvas shoes rather than the ten varietiesof shoes assumed in the feasibility study. A further recommendation was tosubstitute manual in-factory movement of goods using simple locally-producedcarts instead of the automated conveyor systems specified by IACP. Bothrecommendations will be considered in finalizing the marketing plan and plantdesign. It is also likely that equipment more suitable for hand-made ratherthan machine-made canvas shoes will be procured since international demandis strongly biased towards the former. As a result, labor intensity islikely to be higher than assumed by IACP and capital investment will decreaseto some extent.

4.10 It has been agreed that NDC shall employ, during a period ofat least six years, a qualified firm or firms to provide needed technicalassistance during construction and initial operations. In consultationwith the Bank, two technical assistance contracts have been negotiated byNDC with an Italian consortium headed by Italmacchine Plants S.p.A. ofMilan; detailed information on this group of companies is given in Annex 7.The first contract, signed in February 1977 after review and approval bythe Bank, covers the provision of engineering design, construction super-vision and training services including commissioning of the factory. Thesecond contract covering factory management and international marketingservices for a period of 3 years after factory start-up, is in draft formand has been submitted to the Bank for review and approval. After approvalby the Bank, the contract will be submitted to the Economic Committee ofthe Cabinet whose approval is required for all management contracts signed

1/ NDC owns a large, well-equipped box-making plant in Dar es Salaam -Kibo Paper Industries Ltd. - which could expand its production tomeet the needs of the Morogoro shoe factory.

- 13 -

by parastatals, a procedure that normally takes 6 to 12 months. It has beenagreed that extension or termination of this contract will be decided inconsultation with the Bank. It was further agreed that a corporation will beestablished by December 1978 to take charge of the shoe factory.

4.11 At full capacity, staff requirements will be: (i) general manage-ment and office staff, 60; (ii) production management, 5: (iii) factory staff,about 1,000. Of the total, no more than 10 are expected to be expatriatemanagement and technical personnel; most middle management, foremen and keyskilled workers are likely to be drawn from the existing shoe factory in Dares Salaam with supplemental training to be provided under the technical assist-ance contracts. The 10 expatriates will serve for 3 years and a few may becontinued for an additional 3-year period under the possible contract extensionnoted in para 4.10.

3. Component 3 - Leather Goods Factory

4.12 As discussed in detail in Annex 8, this factory will be housed inone of the standard factory buildings. It will consist of a number of workingareas in which skilled craftsmen using small powered and hand tools producevarious types of leather goods. Planned annual production at full capacity,consuming 183,000 m of finished leather, will be: (i) handbags, 18,000;(ii) suitcases, 10,000; (iii) wallets, 32,000; (iv) leather belts, 14,000;(v) leather jackets, 40,000. In addition to the basic raw material (leatherfrom the 1iorogoro tannery), imported lining material, thread, glue, locks andother assorted hardware will be needed. These imports, amounting to about15% of total raw material cost, may eventually be replaced to some extent bydomestic production in small-scale ancillary shops.

4.13 Staff will total 116, including 3 foreign experts - a leather tech-,nologist, a modellor (to prepare samples and patterns) and a quality inspector.hanagement and marketing services will be provided by the shoe factory primecontractor. As Tanzanians gain the necessary skills, the foreign expertswould be phased out. But, as mentioned in the section on Ilarkets and Mlar-keting, commercial linkages to be established with foreign marketing agencieswill ensure that up-to-date designs will be continually available to keepthe industry "fashion-competitive" even after the foreign experts leave. Ithas been agreed that a corporation will be established by December 1978 totake charge of the leather goods factory.

4. Canvas Mill

4.14 This factory, although not part of the Bank-financed project, isan integral part of the MIorogoro Industrial Complex and was appraised bythe field mission in 1975 along with the 3 project components. Subsequently,it was agreed that EIB/EDF would undertake the financing of the canvas mill.These institutions conducted an independent appraisal in October 1976 andhave scheduled final approval of a combined loan and grant package (Annex 9)by mid-1977.

- 14 -

4.15 The Bank appraisal, detailed in Annex 10, indicates the technical,financial aVd economic viability of the canvas mill. It will produce

7,662,000 m 2of canvas cloth to various specifications of which about 7%or 558,000 m will be delivered to the shoe factory and the balance soldfor other domestic uses or exported. A leading Netherlands manufacturer of

canvas has reassessed the original feasibility study and will be contractedto provide engineering design, construction supervision, mill managementand marketing services similar to the technical assistance to be provided bythe Italian group to the shoe factory. While the canvas to be produced atMorogoro is not essential to the success of the shoe factory (canvas canbe imported), the development of the canvas mill in parallel with the Bankproject would generate numerous benefits enhancing the overall performance ofthe industrial complex. For that reason, the Bank and EIB/EDF projects willcontinue to be closely coordinated through: (i) direct communication betweenBank and EIB project staffs and (ii) central supervision by NDC's projectmanagement organization.

C. Markets and Marketing

4.16 The project is strongly export oriented as shown in the tablebelow:

Projected Sales of Morogoro Complex, 1982 /1

Gross Direct F.E.

Product Annual Production Product Value /2 Export Sales Earnings(US$ million) (%) (US$ million)

Shoes

Leather 1.8 million pairs) 29.8 80 23.9)

Canvas 1.8 million pairs)

LeatherGoods 102,600 pieces 3.4 80 2.7

Total 33.2 80 26.6

/1 1982 is first full year of production at 90% of design capacity./2 In current terms.

4.17 It is apparent that the success of the project as a generator offoreign exchange depends, primarily, on the success of the international shoemarketing strategy and to a lesser extent on the export sales of surplusleather and leather goods. Annex 11, which discusses at length the exportprospects for all of Morogoro's products, indicates that the internationaldemand for finished leather is so large that the modest increments to beoffered by Morogoro starting in 1980 should be easily marketable given com-petitive quality and prices. Tanzania already has established channels forexporting leather from the Moshi tannery to Europe, the Far East and the USA

and every indication is that the exportable surplus from Morogoro can be

- 15 -

absorbed easily, even by the same customers. The paragraphs following,therefore, address the key question of export marketing of shoes.

4.18 The world market for shoes of all types was estimated by FAO at4,000 million pairs in 1973, of which the OECD (developed) countries accountedfor 1,700 million. Among the OECD countries, the USA alone consumes about800 million pairs annually. Some 45% of the OECD market demand - and theproportion is increasing - is currently imported from low or moderate laborcost countries such as Korea, Taiwan, Hongkong, Brazil, Spain, Italy and thePhilippines. As shown in Annex 11, world demand is growing at a rate of 2%p.a. while imports into the developed countries are growing at 3% p.a. In1980, when ilorogoro shoes will become available for export, the OECD marketwill be about 2,000 million pairs, of which 1,000 million or 50% are expectedto be imported. The annual incremental demand for imported shoes in the dev-eloped countries will then be of the order of 25-30 million pairs. Whilethis represents the major potential export market for Morogoro shoes, signif-icant sales are also expected to be developed in other African countries andthe Near East. The maximum planned production of 2 million pairs each ofleather and canvas shoes at Morogoro will represent only 0.4% of the fore-casted imports of OECD countries alone in 1982 or about 14% of the annualincremental demand at that time.

4.19 Italy, Spain and, for higher priced leather shoes, England andFrance have been the traditional net exporters of shoes. Since the 1950's,a number of low-labor-cost countries - Japan, South Korea, Taiwan, Brazil,and Hongkong - have become major suppliers of the world market. Othercountries, including China, the Philippines, Malaysia, Greece, 1Mexico, Iran,Pakistan and India are assuming increasing importance as exporters of shoes,both leather and canvas. The proliferation of new country sources of shoesin recent years strongly supports the assessment that, given Tanzania's com-parative advantages - basically, the availability of indigenous cotton andleather and relatively low labor costs - there are no inherent reasons toprevent tiorogoro from joining the expanding list of suppliers to the largeand growing world market. Price and quality must, of course, be competitive.This was the conclusion of the IACP feasibility study as well as a specialstudy conducted by an English firm in 1975. 1/

4.20 More importantly, in support of this assessment, two leading worlddistributors of shoes were actively competing for the marketing contract.After joint evaluation of both proposals, the Italian group was selected andthe proven marketing capabilities of this group will go a long way to ensurethe commercial viability of the project.

D. Project Management

4.21 Project implementation comprises 3 years of construction followedby a 3-year start-up period to reach full capacity production. Central man-agement responsibility will reside in NDC's Research and Development Depart-ment in Dar es Salaam headquarters which has carried out similar projects

1/ "Export Miarkets for Tanzania Leather and Leather Products", AtkinsPlanning (UK), November 1975.

- 16 -

in the past. A Project Manager, Mr. A. Ng'amilo, has been appointed in con-sultation with the Bank; his qualifications are given in Annex 12.Mr. Ng'amilo will head the project management staff and report directly tothe head of the R. & D. Department of NDC as shown in the chart attached toAnnex 12. The duties of the project management staff will be inter alia:(i) preparation of a project execution plan based on modern strategic pathconcepts; (ii) screening, evaluation and selection of consultants and con-tractors; (iii) coordination and monitoring of the work programs of con-sultants and contractors; (iv) preparation of periodic progress reports asrequired by NDC and the Bank; (v) review and approval of billing submitted byconsultants and contractors. The Project Manager and staff will be providedwith office and other facilities (e.g., vehicles) required to fulfill theirduties and will be assisted as appropriate by other NDC corporate staff whowill provide necessary engineering, legal, accounting, recruitment and train-ing services.

4.22 Field management personnel, based in Morogoro, will consist of:(i) a Supervising Engineer and (ii) a Works Accountant, both of whom willreport to the Project Manager. Their duties will be: (i) as owner'srepresentatives, general on-site liaison with consultants and constructioncontractors, and (ii) checking and processing of workdone certificates.

4.23 On the completion of construction, start-up and operation of eachproject component will become the responsibility of the Operations Depart-ment of NDC. Planning for all management and staff requirements will takeplace during construction, and recruitment of key operating personnel foreach factory is scheduled to be completed no later than 6 months before theplanned date of start-up, in close collaboration with the contractors res-ponsible for start-up, training and initial operations.

V. COSTS ESTIMATES, FINANCIAL ARRANGEMENTS AND EXECUTION SCHEDULE

A. Capital Cost - By Project Component

5.01 Capital cost estimates summarized in para 5.03 from Annexes 13, 14and 15 are realistic for the following reasons: (i) the feasibility studieswere well prepared in this respect; (ii) for the industrial estate component,the Bank has up-to-date cost data on several comparable projects in othercountries; and (iii) for the shoe factory, the project engineering contractorreviewed the design and cost estimate in November/December 1976 and com-municated its revised cost estimate to NDC and the Bank in January 1977;this estimate has been incorporated into the contract as the basis for cal-culating fees. For all civil works, the Bank appraisal mission in October1975 checked actual costs being incurred at that time in civil works ofsimilar nature under execution and, in addition, has been receiving periodicreports since on actual escalation taking place in Tanzania. (Depending onthe type of construction, by end-1976 costs had escalated by 40 to 100% abovethe estimates in the feasibility study).

- 17 -

5.02 For the reasons given above, physical contingencies of 10% oncivil works and 5% on equipment, respectively, are considered safe upperlimits. Price escalation was calculated according to the methodology outlinedin Annex 16 and reflects the Bank's estimate of annual rates of inflation

to 1979. Since Tanzania's price index appears to follow the internationaltrend closely, the same escalation factors were applied to both LC and FEexpenditures. Working capital was estimated as shown in Annex 17.

B. Capital Cost - Consolidated Estimate

5.03 The table below summarizes the capital cost estimates for the proj-ect by major expenditure category and then by project component:

Capital Cost - Consolidated Project /1(millions)

Tsh US$Expenditure Category LC FE Total LC FE /2 Total %

Equipment 3.8 44.6 48.4 .5 5.4 5.8 36.3Civil Works 28.7 32.1 60.8 3.4 3.9 7.3 45.6Cons. & Eng. Serv. 3.4 17.2 20.5 .4 2.1 2.5 15.6Training .6 2.5 3.2 .1 .3 .4 2.5

Base Cost Estimate 36.5 96.4 132.9 4.4 11.7 16.0 100.0Contingencies 17.2 43.5 60.7 2.1 5.2 7.3 45.6

Installed Cost 53.7 139.9 193.6 6.5 16.9 23.3 145.6Net Working Capital 42.9 30.5 73.4 5.2 3.7 8.8 55.0Interest duringConstruction /3 8.4 25.4 33.8 1.0 3.1 4.1 25.6

Total Financing 105.1 195.8 300.9 12.6 23.6 36.2 226.2

Project Component1. Industrial Estate 31.1 47.8 78.9 3.7 5.8 9.5 26.22. Shoe Factory 69.2 144.3 213.5 8.3 17.4 25.7 71.03. Leather Goods Factory 4.8 3.7 8.5 .6 .4 1.0 2.8

Total Financing 105.1 195.8 300.9 12.6 23.6 36.2 100.0

/1 Discrepancies to a tenth of a million occur due to rounding.

/2 The estimated indirect foreign exchange component is US$2.0 million.

/3 Interest during construction consists of: 8.5% p.a. capitalized interest,plus 0.75% p.a. commitment fee on the undisbursed portion of the loan,and 1.5% p.a. guarantee fee paid by NDC to Government.

C. Financing Plan

5.04 The proposed financing plan is given below, first for each projectcomponent and then on a consolidated basis:

- 18 -

Financing Plan /1

By Project Component

---- Tsh Millions---- ---- US$ Millions----INDUSTRIAL ESTATE LC FE Total LC FE Total %

Debt (IBRD) - 45.7 45.7 - 5.5 5.5 57.9Equity (NDC) 30.7 2.5 33.2 3.7 .3 4.0 42.1

Total Finance 30.7 48.2 78.9 3.7 5.8 9.5 100.0

SHOE FACTORY

Debt (IBRD) - 127.8 127.8 - 15.4 15.4 59.9Equity (NDC) 68.9 16.6 85.5 8.3 2.0 10.3 40.1

Total Finance 68.9 144.4 213.3 8.3 17.4 25.7 100.0

LEATHER GOODS FACTORY

Debt (IBRD) - 5.0 5.0 - .6 .6 60.0Equity (NDC) 3.3 - 3.3 .4 - .4 40.0

Total Finance 3.3 5.0 8.3 .4 .6 1.0 100.0

Consolidated

Debt (NDC)Financed by:

IBRD - 178.5 178.5 - 21.5 21.5Total Debt - 178.5 178.5 - 21.5 21.5 59.4

Equity (NDC)Financed by:

IBRD - 12.5 12.5 - 1.5 1.5 4.1NDC (Own Gen.) 102.9 6.6 109.5 12.4 .8 13.2 36.5Total Equity 102.9 19.1 122.0 12.4 2.3 14.7 40.6

Total Finance 102.9 197.6 300.5 12.4 23.8 36.2 100.0

/1 Discrepancies to a tenth of a million occur due to rounding. See table,para 5.05, for details of Bank three-step flow of funds.

5.05 Two Bank loans to the Government totalling US$23.0 million areproposed consisting of: (i) US$11.5 million at 8.5% interest repayable over20 years including 4-1/2 years grace, and (ii) US$11.5 million on "thirdwindow" (TW) terms, i.e., 4.5% interest, with the first principal repaymentdue on January 15, 1983 and final maturity on January 15, 2001. In turn,the Government will on-lend the proceeds of the loans to NDC at 10% interestrepayable over 15 years including 4-1/2 years grace. NDC will then allocatethe funds to the industrial estate, shoe factory and leather goods factory

- 19 -

mainly as debt (US$21.5 million) on the same terms as those governing its ownpayback to the Government and the balance (US$1.5 million) as equity. The

4-1/2 year grace period corresponds to the 3-year construction period plus1-1/2 years of operations during which the project should achieve sufficientcash flow to cover the debt service without difficulty. 1/ Interest will becapitalized during the 3-year construction period. The foreign exchange riskwill be borne by the project companies. The flow of funds from the Bank to theproject companies, through the Government and NDC, may be tabulated as follows:

Three-Step Flow of Bank Funds to Project Companies

US$ MillionsStep Source of Funds Beneficiary Debt Equity Note

1 IBRD Govt. of Tanzania 23.0 - /a2 Govt. of Tanzania NDC 23.0 - /b3 NDC (Ind. Est. Corp. 5.5 1.0 /c

(Shoe Factory 15.4 0.5 /c(Leather Goods Factory 0.6 - /c

/a Terms - 50% of loan @ 8.5% interest, 20 years including 4-1/2 yearsgrace; 50% of loan @ 4.5% interest, with first repayment dueon January 15, 1983 and final maturity on January 15, 2001.

/b " - 10% interest, 15 years including 4-1/2 years grace./c " - Same terms as in /b on loan portion.

5.06 Additional equity to be provided by NDC amounts to US$13.2 millionequivalent to be invested in the project companies in the amounts shownin the financing plan (para 5.04). These funds will be derived from NDC'scumulative earned surpluses or, if such funds prove to be inadequate, thenational development budget. As indicated in Annex 3, cumulative earnedsurpluses are expected to total some US$36 million equivalent over the projectexecution period. It has been agreed that the Government will promptly cover,on terms and conditions satisfactory to the Bank, any shortfall in NDC'sfunding capacity to carry the project through to completion.

D. Allocation of Bank Loans, Procurement and Disbursements

5.07 The Bank loans totalling US$23.0 million will cover 97.4% of theestimated direct and indirect FE content of the project as shown below:

1/ The first repayment of principal will actually occur 2 years afterplant start-up, forecasted for January 1980.

- 20 -

Allocation of Bank Loans - Consolidated Project(US$ millions)

Total FE Bank RatioExpenditures Content Allocation Bank/FE

(%)

Equipment 8.4 7.7 7.7 100Civil Works 10.7 5.7 5.3 93Cons. & Eng. Serv. 3.6 3.0 3.0 100Training 0.6 0.4 0.4 100Working Capital 8.8 3.7 2.0 54Interest during Construction 4.1 3.1 3.1 100Unallocated - - 1.5 -

Total 36.2 23.6 23.0 97.4

5.08 All procurement of goods and services financed by the Bank will becarried out in accordance with Bank guidelines. The shoe factory and leathergoods factory technical assistance group was selected after NDC's evaluationof competitive proposals. The industrial estate engineering design contractwas internationally tendered to a short list of 6 firms in December 1976; thelist had been reviewed and accepted by the Bank. Equipment and civil worksof above US$100,000 equivalent will be bid internationally. Local manufac-tures will be granted a preference of either 15% or the actual tariff onequivalent imported goods, whichever is lower, and local contractors a pre-ference margin of 7-1/2%. Off-the-shelf purchase of imported items will beassumed to have 85% FE content for purposes of Bank disbursement. Civil workscontracts and procurement of equipment and materials in amounts of up toUS$100,000 equivalent will not require formal international tenders but com-petitive offers from prequalified lists of suppliers will be obtained interna-tionally in accordance with the Borrower's usual procedures and evaluated asto suitability, delivery and price in awarding such purchase contracts.Regarding the shoe factory, the project engineering contractor has closelinkages with one or two Italian manufacturers of shoe production machinery.In order to ensure that international tendering will be equitable to allappropriate sources of such equipment, specifications will be written ingeneric form, i.e., without bias to any specific trademark, and compliancewill be closely monitored by both NDC, through its Project Manager, and theBank (documents will be released for tender only after review and approval bythe Bank). The expected disbursement schedule is given in Annex 18.

5.09 The bulk of the technical assistance to be procured will be in theform of contracts with corporate groups who will provide engineering, cons-truction supervision, training, plant management and marketing services.Unit consultant costs have been estimated as follows: (i) for technicians,US$35,000 - 45,000/man year, and (ii) for management personnel, US$55,000 -65,000/man year. These estimates refer only to the FE cost and includedirect salary plus corporate overhead and profit.

- 21 -

E. Project Execution Schedule

5.10 The projected time schedule for project implementation is given inthe bar chart, Annex 19, covering the 6-year period from early-1977 to end-1982. It is important that the contractor executing the shoe factory startwork before loan approval since any delays in the early design, engineeringand procurement phases would cause serious slippage in the planned 3-yearconstruction schedule. Therefore, retroactive finance of up to US$150,000under the Bank loan is provided to cover approved costs incurred, prior toloan signing, in connection with this contract.

VI. FINANCIAL ANALYSIS

A. Industrial Estate

6.01 Revenue accruing to the estate corporation will consist of:(i) rent paid by factories for developed land they occupy, (ii) rent paidby occupants of standard factory buildings, and (iii) rent paid on housesprovided by the estate. As discussed in Annex 20, all rents have been setat levels which generate an appropriate financial return on investment 1/;the Government has agreed to this pricing principle. The financial statementson the next page, summarized from the detailed tables of Annex 20, assumethat: vi) construction will be completed by mid-i981, (ii) revenue will beginin 1978 and build up through added occupancy to 1982, and (iii) there will bereasonable increases in rent and service charges averaging 8.3% p.a. innominal terms.

1/ Understood to be about 8% in constant 1975 terms.

- 22 -

Industrial Estate - Financial Statements, 1977-1985(Tsh Millions) /1

--------Construction--------1977 1978 1979 1980 1981 1982 1983 1984

Land for Lease (ha) - 8 24 32 36 36 36 36Standard Factori5s(units of 240 m ) - - 6 16 24 24 24 24

Housing _ - 35 35 35 35 35 35

Income

Revenue - 0.5 5.7 8.2 10.4 11.2 12.2 13.2Operating Costs - 0.2 0.4 0.4 1.6 1.7 1.8 1.9Depreciation - - - - 1.3 1.3 1.3 1.3Interest - - - - - 2.2 4.0 3.5Net Income before Taxes - 0.3 5.3 7.8 7.5 6.1 5.1 6.5Taxes (45%) - 0.1 2.4 3.5 3.4 2.8 2.3 2.9Net Income after Taxes - 0.2 2.9 4.3 4.1 3.4 2.8 3.6

Cash Flow

Sources of FundsNet Income after Taxes - 0.1 2.9 4.3 4.1 3.4 2.8 3.6Depreciation - - - - 1.3 1.3 1.3 1.3Paid in Equity 10.0 13.3 10.0 - - - - -increase in Debt 11.4 18.3 13.7 2.3 - - - -Payment from Pub. Util. Co's - - - 17.1 - - - -

Total Sources of Funds 21.4 31.7 26.6 23.7 5.4 4.6 4.1 4.8

Uses of FundsEstate Development 16.8 27.7 24.9 6.6 2.9 - - -Debt Repayment - - - - - 2.3 4.7 4.7Total Uses of Funds 16.8 27.7 24.9 6.6 2.9 2.3 4.7 4.7

Surplus (Deficit) 4.6 4.0 1.7 17.1 2.5 2.4 (0.5) 0.3Cumulative Surplus 4.6 8.6 10.2 27.4 29.9 32.3 31.8 32.1

Debt Service Coverage - - - - - 1.5 0.9 1.0

Balance Sheets

Current Assets 4.6 8.6 10.2 27.4 29.9 32.3 31.8 32.1Net Fixed Assets 16.8 44.5 69.4 58.9 60.5 59.2 57.9 56.7Total Assets 21.4 53.1 79.6 86.3 90.4 91.5 89.7 88.7

Current Liabilities - - - - 2.3 4.6 4.6 4.6Long-term Debt 11.4 29.7 43.4 45.7 43.4 38.8 34.2 29.7Equity and Retained Earnings 10.0 23.4 36.3 40.6 44.8 48.1 50.9 54.5Total Liabilities & Equity 21.4 53.1 79.6 86.3 90.4 91.5 89.7 88.7

Current Ratio - - - - 13.1 7.1 7.0 7.0

Debt:Equity Ratio 53:47 56:44 54:46 53:47 49:51 45:55 40:60 35:65

/1 Discrepancies to a tenth of a million occur due to rounding.

- 23 -

6.02 The project reflected in the financial statements is the base casein which capital cost is assumed to include an incremental investment ofUS$800,000 (9.3% of total estate project cost) for a sewage treatment plant(para 4.06). This may be conservative, since it is not at all certain thatthe treatment plant will indeed be needed in place of tlhe aeration/settlingpond specified in the feasibility study. The before-tax and after-tax returnson investment are 14.0% and 9.2% respectively in constant 1975 terms. Theinherent financial viability of the estate component is further supportedby the standard financial ratio tests. The debt:equity ratio, current ratio(liquidity) and debt service coverage are satisfactory in the early yearsand improve steadily over time. The assumed deflators used in convertingfrom nominal (or current) terms to real (or constant 1975) terms are givenin Annex 21; they have been used in this and all other project components.

B. Shoe Factory

6.03 Revenues are based on the expected f.a.s., port of Dar es Salaam,prices for canvas and leather shoes whether intended for export or solddomestically. Shoe prices in the base year (1975) as specified in the fea-sibility study were checked by a major U.S. based international distributorand found to be realistic. Ilore recently, the Italian contractor for theshoe factory has reviewed the price and revenue assumptions and considersthem conservative. In addition, reasonable factors of safety have beenbuilt into the estimates of operating costs, capacity utilization, qualityof product and market acceptance. The financial tables on the next pagehave been summarized from Annex 22 and forecast a financial return of 24.4%before taxes and 17.2% after taxes, in constant 1975 terms. The standardfinancial ratio tests - debt service coverage, current ratio and debt:equityratio - are at acceptable levels.

C. Leather Goods Factory

6.04 The leather goods component is small compared to the other twoproject components. Revenues are based on the assumption that factorystart-up will take place in 1979, about 6 months before the scheduledstart-up of the shoe factory. Capacity utilization is expected to in-crease from 60,% in 1980 to 80% in 1981, and 90%, i.e., effective fullcapacity, in 1982. Prices assumed in Annex 23, are about 20% below worldmarket for comparable quality goods, the reason being that Horogoro leatherproducts may have to be discounted for some years before trade acceptanceis achieved. Financial statements given on page 25 have been summarizedfrom Annex 23. The forecasted return of 33.7% before taxes and 23.2%, aftertaxes, in constant 1975 terms, should be capable of improvement with intensivesupervision, training and marketing.

- 24 -

SHOE FACTORY - FINANCIAL STATEMENTS, 1977-1985(Tsh Millions) 1/

Project Execution Period 2/ Commercial Operations1977-79 3/ 1980 1981 1982 1983 1984 1985

Production (in million pairs) - 2.4 3.2 3.6 3.6 3.6 3.6

Capacity Utilization (%) - 60 80 90 90 90 90

Income

Revenue - 143.9 205.3 247.5 264.1 282.6 302.4Cost of Goods Sold - 96.7 121.8 144.5 157.6 169.1 181.5Gross Profit - 47.2 83.5 103.1 106.6 113.5 120.9Operating Costs - 8.7 11.9 14.3 15.2 16.3 17.5Operating Profit - 38.5 71.6 88.8 91.3 97.2 103.4Non-operating Costs - 28.3 28.3 28.0 26.8 25.6 24.3Net Income before Taxes - 10.3 43.3 60.8 64.5 71.6 79.1Taxes (45%) - 4.6 19.5 27.4 29.0 32.2 35.6Net Income after Taxes - 5.7 23.8 33.5 35.5 39.4 43.5

Cash Flow

Sources of FundsIncrease in Equity 85.7 - - - - - -

Increase in Debt 127.8 - - - - - -Net Income after Taxes - 5.7 23.8 33.5 35.5 39.4 43.5Depreciation - 15.4 15.4 15.4 15.4 15.4 15.4Total Sources of Funds 213.5 21.1 39.2 48.9 50.9 54.8 58.9

Uses of FundsEquipment 113.0 - - - - - -

Civil Works 32.6 - - - - - -Debt Repayment - - - 12.2 12.2 12.2 12.2Total Uses of Funds 145.6 - - 12.2 12.2 12.2 12.2Surplus 67.9 21.1 39.2 36.7 38.8 42.6 46.8Cumulative Surplus 67.9 89.0 128.2 164.9 203.7 246.3 293.1

Debt Service Coverage - 2.6 4.0 2.5 2.7 2.9 3.2

Balance Sheets

Current Assets 67.9 118.6 172.1 211.1 252.2 297.3 346.8Net Fixed Assets 145.6 130.2 114.8 99.3 83.9 68.5 53.0

Total Assets 213.5 248.8 286.9 310.5 336.1 365.8 399.8

Current Liabilities - 29.7 43.9 46.2 48.5 51.0 53.7Long-Term Debt 127.8 127.8 127.8 115.6 103.5 91.3 79.1Equity and Retained Earnings 85.7 91.3 115.1 148.6 184.1 223.5 267.0

Total Liabilities & Equity 213.5 248.8 286.9 310.5 336.1 365.8 399.8

Current Ratio - 4.0 3.9 4.5 5.2 5.9 6.5

Debt:Equity Ratio 60:40 58:42 53:47 44:56 36:64 29:71 23:77

1/ Discrepancies to a tenth of a million occur due to rounding.2/ Covers construction period of 3 years, January 1977-December 1979 plus start-up

of 2 years, January 1980-December 1981; at conclusion of start-up, forecastedutilization will be 90%.

3/ Financial statements as of December 31, 1979.

- 25 -

LEATHER GOODS FACTORY - FINANCIAL STATEMENTS, 1977-1985(Tsh Millions) 1/

Project Execution Period 2/ Commercial Production1977-79 3/ 1979 1980 1981 1982 1983 1984 1985

Production (in thousand pieces) - 34.2 68.4 91.2 102.6 102.6 102.6 102.6

Capacity Utilization (%) - 30 60 80 90 90 90 90

IncomeRevenue - 7.6 16.3 23.2 28.0 29.9 32.0 34.3Cost of Goods Sold - 6.5 13.6 16.3 19.6 21.4 23.0 24.6Gross Profit - 1.1 2.7 6.9 8.3 8.5 9.1 9.6Operating Costs - .4 1.3 1.6 2.0 2.1 2.3 2.4Operating Profit - .7 1.3 5.3 6.4 6.4 6.4 7.2Non-operating Costs - .4 .9 .9 .9 .8 .8 .8Net Income before Taxes - .3 .4 4.4 5.5 5.6 6.0 6.5

Taxes (45%) - .1 .2 2.0 2.5 2.5 2.7 2.9Net Income after Taxes - .1 .2 2.4 3.0 3.1 3.3 3.6

Cash Flow

Sources of FundsIncrease in Equity 3.5 - - - - - - -

Increase in Debt 5.0 - - - - - -Net Income after Taxes - .1 .2 2.4 3.0 3.1 3.3 3.6Depreciation - .2 .4 .4 .4 .4 .4 .4

Total Sources of Funds 8.5 .3 .6 2.8 3.4 3.4 3.7 3.9

Uses of FundsEquipment 3.0 - - - -Debt Repayment - - - - .5 .5 .5 .5Total Uses of Funds 3.0 - - - .5 .5 .5 .5Surplus 5.5 .3 .6 2.8 2.9 3.0 3.2 3.5Cumulative Surplus 5.5 5.8 6.5 9.2 12.2 15.1 18.3 21.8

Debt Service Coverage - 2.3 2.2 6.6 4.0 4.3 4.7 5.2

Balance Sheets

Current Assets 5.5 8.8 9.6 13.1 16.2 19.4 22.9 26.7Net Fixed Assets 3.0 2.8 2.4 2.1 1.7 1.3 .9 .6

Total Assets 8.5 11.6 12.0 15.1 17.9 20.8 23.9 27.2

Current Liabilities - 2.9 3.1 3.8 4.1 4.3 4.6 4.9Long-Term Debt 5.0 5.0 5.0 5.0 4.5 4.0 3.6 3.1Equity and Retained Earnings 3.5 3.6 3.9 6.3 9.3 12.4 15.7 19.3Total Liabilities & Equity 8.5 11.6 12.0 15.0 17.9 20.8 23.9 27.2

Current Ratio - 3.0 3.1 3.4 4.0 4.5 5.0 5.5

Debt:Equity Ratio 60:40 58:42 56:44 44:56 33:67 24:76 19:81 14:86

1/ Discrepancies to a tenth of a million occur due to rounding.2/ Covers construction period July 1977 to June 1979 and start-up period July 1979 to

December 1981; at conclusion of start-up period, forecasted capacity utilizationwill be 90%.

3/ Financial statements as of June 30, 1979.

- 26 -

D. Consolidated Financial Return, Audits and Financial Ilanagement

6.05 The financial return of the project, in aggregate, is forecast at15.2%o after taxes in constant 1975 terms (22.2% in current terms) as shownbelow:

Consolidated Financial Return (in Constant 1975 Terms)

Weighting /1 IFRComponent Factor Before Tax After Tax

(1) Industrial Estate .262 14.0 9.2(2) Shoe Factory .710 24.4 17.2(3) Leather Goods .023 33.7 23.2

Total Project .21.8 15.2

/1 Ratio of component project cost over total project cost.

6.06 NDC has already set up project accounts in its books, according toestablished procedures. The Accounting Department of NDC will also prepareBank loan withdrawal requests periodically, based on the documentation ofapproved expenditures forwarded by the Project Mlanager. Audits will becarried out annually by the Tanzanian Audit Corporation, the Governmentagency responsible for all auditing of Government parastatals; this is satis-factory to the Bank.

6.07 NDC, as the project owner and beneficiary of the Bank loans, willbe responsible for debt service. All aspects of financial management forNDC's Group Companies, of which debt service is one element, is under NDC'scontrol. To ensure conservation of the financial soundness of the threeproject operating companies in general, and timely debt service in partic-ular, without impairing unnecessarily NDC's management prerogatives andflexibility, it has been agreed that, over the life of the Bank loans, NDC:(i) will not permit the project companies to borrow additional funds aftercompletion of their respective projects if this would result in a debt:equityratio in excess of 60:40; (ii) will limit dividends and other forms of cashdistribution by the project companies to amounts which will not reduce theircurrent ratios to less than 1.5:1; (iii) will maintain special reserve accountsin IHDC's books equivalent to 2 years of the combined debt service related tothe project companies.

E. Risks and Sensitivity Analysis

6.08 The forecasted return on investment indicated in para 6.05 reflects,of course, only the production/distribution model assumed in the flowchart,para 4.01. While the project is being implemented as an integrated indus-trial complex, each factory will be an independent profit-center and willdeal with all other factories, at M4orogoro or elsewhere, on an "arm's length"

- 27 -

basis. (This is established policy for all of NDC's Group Companies and hasbeen found effective in fostering cost-competitiveness and efficiency). Itis quite likely, therefore, that the Morogoro tannery will be actively com-peting with the Moshi and Mwanza tanneries as suppliers to the shoe factory.Similarly, the canvas mill may find itself competing with one or more ofTEXCO's textile mills at some future date (as well as with imported canvas,conceivably), as suppliers to the shoe factory. This is as it should be.Consonant with this policy, NDC will have to be vigilant in enforcingindependent decision-making by the managements of the project factoriessince close proximity at Morogoro may tend to induce comfortable supplierlinkages which may be less than optimum in terms of generating operatingefficiency.

6.09 Overmanning of factories and low worker productivity have beennoted in para 2.03 as contributing to poor industrial performance in Tanzania.Both the Government and NDC are actively seeking to improve the situation.Recognizing this problem, labor costs in this appraisal were assumed to be25% higher than specified in the feasibility study and this is consideredto be a reasonable upper limit. If, in fact, labor costs go significantlyhigher, project profitability would be adversely affected.

6.10 Regarding the major project component - the shoe factory - othermanagerial, technical and commercial risks are apparent but the projecthas been designed to minimize the potential problems. NDC is an establishedorganization whose staff has gained considerable experience in the planning,construction and management of diverse industrial plants since the mid-1960's.In addition to the basic back-up strengths of NDC, competent specializedengineering and management services will be provided through the technicalassistance contracts outlined earlier. International marketing of shoes- perhaps the single most critical feature of the integrated project - willbe handled by a firm with demonstrated capabilities to undertake this keyresponsibility.

6.11 Pricing of raw materials, intermediate products and finishedgoods is the responsibility of the National Price Commission (NPC) underthe Regulation of Prices Act of 1973. In practice, NPC works closely withthe operating parastatals in revising prices periodically to assure pricestructures which yield reasonable returns. Export prices are, of course,subject to world market constraints and NPC's role in this respect canonly be nominal. As a practical consequence, therefore, price controlsby a separate agency are not expected to have a negative impact on projectreturn.

6.12 In a sense, the aggregate financial return of 15.2% correspondsto the lower bound of a reasonable probability range. Nevertheless, afurther test was made based on a "worst case" set of assumptions, whichis highly unlikely to occur, as follows: (i) a slippage of 1 year in pro-ject execution, (ii) capital cost increases by 10% and (iii) an across-the-board reduction in revenue of 10%. Under these conditions, the financialreturn in real terms after taxes is 7.6%. This is marginally acceptable

- 28 -

in view of the satisfactory economic return estimated in the next chapter.Annex 24 tabulates the financial return for various sets of assumptionsbetween the base case and the "worst case", indicating the extent to whichthese returns would be affected as a result of changes in capital cost,project implementation schedule and revenue.

VII. ECONOMIC ANALYSIS

A. Economic Return

7.01 The assumptions applied in converting financial to economiccosts and benefits are discussed in Annex 25. The two basic guidelinesare: (i) internationally tradable items are valued at the c.i.f. borderprice, expressed in local currency at the official exchange rate; thisapplies to both imports and exports as well as to transfers between fac-tories; (ii) non-tradable items are valued at their equivalent borderprices by applying conversion factors established for Tanzania within theBank. Where no specific conversion factor is available, a standard conver-sion factor (SCF) of 0.75 is used. 1/

7.02 The aggregate economic return in constant 1975 terms is 26.4% andis the average of the weighted individual returns of each project componentwhich are: for the industrial estate, 15.9%; shoe factory, 29.8%; and leathergoods factory, 46.5%. Under the assumptions applying to the "worst case"- project completion delayed by 1 year, revenue decreased by 10% and operat-ing costs and capital costs increased by 10% (Annex 25, para 7) - the econo-mic return drops to 10.6%.

B. Other Benefits

7.03 The estimated net foreign exchange (FE) impact of the project hasbeen tabulated in Annex 26 over the life of the project (20 years, datingfrom start-up in 1980). A net positive FE flow is first registered in 1980,increasing steadily thereafter. Over the period 1979-1998, cumulative netFE earnings total US$153 million in constant 1975 terms.

7.04 Employment at full capacity will be about 1,500 (3,000 for theindustrial complex as a whole). No attempt has been made to quantify up-stream and downstream linkage effects on employment but they are expectedto be considerable. Capital investment per job created will be US$24,000and falls within the range characteristic of modern medium-scale industries.

1/ This methodology is equivalent to traditional Bank practice usingshadow prices. Assuming a shadow exchange rate of Tsh 11 = US$1.00and a shadow rate for unskilled labor of .45, the economic returnwould be the same as given in para 7.02.

- 29 -

During the detailed engineering design phase, efforts will be made to substi-tute labor for capital without compromising product style, quality and cost-competitiveness (para 4.09) but the extent to which this can be done islimited in export-oriented industries.

7.05 Finally, as discussed in Annex 4, the factories and the industrialestate in aggregate are expected to act as a growth pole, catalyzing furtherproject investment and jobs which otherwise might be delayed. The location atMorogoro has been planned to contribute to the decentralization of industryaway from Tanzania's capital and largest urban center. There is littledoubt that in time Morogoro will become an attractive alternative to Dares Salaam for migrant rural workers, thereby relieving to some extent thepressure on urban infrastructure in Dar es Salaam.

VIII. AGREEMENTS

8.01 Agreements and assurances were obtained from the Government and NDCas listed below:

(a) Construction of the third and fourth standard factory buildingswill be undertaken only when demand justifies the added invest-ment and the decision to proceed with construction will betaken in consultation with the Bank (para 4.03);

(b) A condition of major disbursement will be the availability offinancing for the Mindu dam and pipeline. This condition hasbeen met with the effectiveness of the Bank loan for the urbanwater supply project (para 4.05);

(c) As part of the industrial estate project engineering contract,the need for more elaborate waste disposal facilities than theevaporation pond specified in the feasibility study will beevaluated (para 4.06);

(d) By December 1978, NDC will establish an estate corporation and willappoint in consultation with the Bank a resident Estate GeneralManager, on terms and conditions acceptable to the Bank, for aninitial period of 2 years. He will be responsible for the estateoperations and the training of a Tanzanian counterpart. Terminationor extension of the General Manager's contract will be decided inconsultation with the Bank (para 4.07);

(e) A corporation will be established by December 1978 to take chargeof the shoe factory. NDC shall employ, during a period of at leastsix years, a qualified firm or firms to provide needed technicalassistance during construction and initial operations. A contractwith the firm responsible for the engineering design, procurement,construction, equipment installation, start-up and training, onterms and conditions acceptable to the Bank, has been signed and a

- 30 -

draft of the proposed Management/Marketing Agreement has beensubmitted to the Bank for review and comment. Termination orextension of the Management/Marketing contract will be decidedin consultation with the Bank (para 4.10);

(f) A corporation will be established by December 1978 to takecharge of the leather goods factory (para 4.13);

(g) The Project Manager and staff will be provided with officeand other facilities and will be assisted as appropriateby other NDC staff who will provide necessary engineering,legal, accounting, recruitment and training services (para4.21);

(h) Government will pass on to NDC, and NDC will in turn passon to the project corporations, the proceeds of the Bankloans as debt and equity in the proportions shown in thefinancing plan (paras 5.04 and 5.05);

(i) NDC will provide equity finance of US$13.2 million equivalentin a timely manner consonant with the needs of the project;any additional financing that may be required to complete theproject will be provided by NDC or the Government on terms andconditions acceptable to the Bank (para 5.06);

(j) For the industrial estate, rentals will be set to yieldan appropriate financial return on investment (para 6.01);

(k) Annual audits of all project corporations will be conductedby the Tanzanian Audit Corporation (para 6.06);

(1) Over the life of the Bank loans NDC: (i) will not permit theproject companies to borrow additional funds after completionof their respective projects if this would result in a debt-equity ratio in excess of 60:40; (ii) will limit dividends andother forms of cash distribution by the project companies toamounts which will not reduce their current ratios to lessthan 1.5:1; (iii) will maintain special reserve accounts inNDC's books equivalent to 2 years of the combined debt servicerelated to the project companies (para 6.07).

8.02 Based on the above agreements and assurances, the project is suit-able for two Bank loans totalling US$23.0 million equivalent to the Governmenton the terms specified in para 5.05, to be relent to NDC also on the termsspecified in the same paragraph.

Industrial Projects DepartmentMarch 3, 1977

ANNEX 1 -l

TAiNZANIA

MOROGORO INDUSTRIAL COMPLEX

THE INDUSTRIPL SECTOR - STRUCTTJRE, PERFORMANCE AND OUTLOOK

1. Since the Arusha Declaration of 1967, Tanzania has been moving towardsa centrally planned economy with direct public sector control of importanteconomic activities including banking, insurance, wholesale trade and manufacturing(excluding small-scale units). The economy is still based predominantly on agric-ulture which contributes 40% of GDP, 51% of exports and supports 90% of the popula-tion. I^1hile industry accounts for only 10%O of GDP, as the leading growth sectorin recent years it is rapidly assuming a more important role in the economy.

2. Industrial facilities are largely owned by the "parastatal!l' organizations--government-owned holding companies operating under the overall supervision of variousministries. Many of the factories were taken over from private owners after 1967 onthe basis of negotiated compensation payments which, on the whole, have been made onschedule and are now substantially completed. The general pattern was the acquisitionof 50 to 100% of the shares by the Government. Since 1967, nearly all importantindustrial projects have been undertaken by the parastatals although, in some cases,with mrnority private foreign investment participation. In 1974, the parastatalsaccounted for an estimated 75% of value added, 50% of employment and 90% of newcapital formation in the manufacturing sector. Nevertheless, of the totel 500registered factories employing 10 or more, 4¢30 are still privately-owned. Theseinclude a few relatively large establishments such as a Danish sugar factory(employing 200), a radio and gramophone assembly plant (140), a glassware factory(270) and a metal furniture factory (325). Table 1 (page 2) lists the industrial

holdings of the nine parastatals under the 1linistry of IndustryandConirlerce, the largectof which is the IHational Development CorporEtion(NDC) with 22 operaiting companies as ofOctober 1975.3. Between 1964 and 1 973, the average annual growth of value added inmanufacturing was 9.5% in real terms while the sector's contribution to GDPincreased from 8% to 10%. Enployment in the organized sector (firms of 10 ormore employees) expanded from 28,000 in 1965 to 59,000 in 1972, an annual increaseof 11 .2%. When placed in perspective, however, these growth rates are less encour-aging than they appear since the starting base was very small, anl ~increases inoutput have been small reletive to the capital resources invested-'(capital invest-ment ranged between Tsh 100-200 million or US$12-28 million per annum from 1966 to 1972).Industrial output stagnated in 1974, partly because of imported raw material shortagesattributable to the balance of payments crisis and disruptions in power and watersupplies. This downturn was undoubtedly accelerated by the constraints on neededexternal inputs but a more fundamental problem causing increasing concern to theGovernment is the general suboptimal performance of the parastatals attributable tointernal deficiencies.

1/ CPP Draft, September 16, 1975, para. 11.

ANN1( 1-2

Table 1Chart of Parastatal Organizations

'050.0? fOLNliTtY ttYTNlUTT0S PAODUCiNCTht 55) FS iLPAWT BINISTRY Ilhoollo stsotd csDteN n

I hti Prla nilosOar LOatsb Adoistiost Cata (d.ldsy * pIolry produ-tion)And 2nd ViI_e lAsot ansanl La

55i corporiton (TLC)

macssatt oI.Sg ~)ia ndi,, sodpndcoct5i67 DIat-iot DAnslop_et Conponstions (ros par DitirCt) Iusuall oooIPI_nga Ithin District

Vttlsin ccl Capital Dfaiplonn.n-t CApItal Dsloio.n Attionity druati Piastota

rrtal uststilstaan nlosutitt of Dsusiopsent NaaoF attt (lot) Lirrtrod Vale DretopotAnt Conpornion, Lcd.f ~~~~~~~~~~~~~~~Ln rdcsDnooostCnca o,Ltd.raloance Bank of raoaaniaS tn aAncl san products. l dOI...NationsBnk of Cfnos (N-C) -nsAn iii (50T)

nationsI lnousnane Conpotatitst INtO) fSaflo Cototun (50T)TanIanitesrl Dcavlopat Bank (TrDD) _ National Ccld Chain .. a. iOn (WCCV)T.naani. Audil Corporation (TAC) Wknt llinaoioto PapasT _lInootat bank (TIN) Ol)onV nation

.oanis Nooing Bk (Th Elft WaII EataitsNational yoAtdot Ancootisot ndlAwditors Tnansono nSedtCponny. Ltd.Dir .5 5ralon ichool oT OiuoAtintst Tannanlo sNvy teats Cospany, ud.(nriotAts of Pi,utcs Osnag.nst DStasioyo Fan..

Klb ha. ProJeca 7o11 l-o CSnnany Naniinnos Soya Doans IVi Ittiton

Vidlna Las 1zEtatas 1- -DAkotaAs Entsts - i lotioteo Sugon CoanoVDytnosna tienlops nn Snhnmn Ittitos Sugan LonotosFans ooaani Instiocia-(linsano Kngnna logan

Taosa,tl A -trinultis I AcitnM testing Unit 1(TA1TU)Nations) Agil utonal Food Cnnpsnstion )NAICV) Tatosoa Li-nstock Mankntins Cowaoy ITLdCISugar Daoiwo_ntt CTOsnItooion tatlynal nanctlog looipsoy mtd (NiAhCO)Lisstoik scavloptant Vttioni ny (LIDA) _- Dolny panning ConpVnaiIon Ltd. (WCONatiopAl DAiry Noand TiaNnaiN oinirHts- LtdC (TDLlOsoganyikA Ctffn A-arid T.n.nna If-at Proonsing CV.pony (TmPCiTOo.. il Sisal AAuhnCliy Tan.n..n Vidno and Skins Ltd.fanlsai nta A.uihonttyT.onai Coffs Ttotnnity _ Tnaanyika Coff-n Caning noepatyCgat-anut A-tho-ity of Tanis (CATW)T.nsan.I Tobatto lth-Ofty Tan...lo Sinai Ccnnnnanion (TSC)Tansanylik Pynsthrw b-adTha Ocdlt and Sunerola ion Fond t fAnita Conpony Ltd. itS5)

tttnans Castihnoo C-npsny Ltd (507)National Cash_n Cpapany Ltd.

V i-- ools ToiEta °onosainN C-p5nyV.nsnoyka Cat-an Cot-n

lin (T .. na n) Ltd. )50%)- Shl I and dP (Tan ana.. Co) Ltd. E 0)

Ita 11Lan_ Pen.IVe. Co. (TlPtt) (50%)

nitiaih Annrian To1an.. C-nny Ltd. (fAT) (50%)ibo Faynn Induatrina Ltd.

| a iona Fro) Ptsisnl CIndutnrns Corpona.ion I-NSC)

T.::.ayyk: ltant CAffta LonPany Ltd. (90%)s.Natylkntngny PlastI- Ltd.

aT.8

T.. lt tSbrtiCe L tron^ania Unof CCP DY Ltd.

Tna nia pti°lialtio douso Ltd

N Lorgo Fotoi S npsnts Mnanofotornig Conpany Ltd.

| Alas-- AfrIt Ltd. (AlF) (6D%)CT....tio F-ntuinn- Lo-sy Ltd. iTIC) (60%)

tyno -oot Anica Ltd. (74%)

|FronD Pok Tatoonla Lid. 602%' fnl Vt Cn-st and lndotn Natiobal Diatnib-Aors Ltd L'D3-Meal A`tt of Ta-noIs Ltd.

NationaFl Pnloo Coesoissiot --Gsna D-an AKncVtnuna Pnodocc topono Conponotion (CdPfY)Ul Conzntanis > c itref Iloln itd (44%) Cd(22T'--an. Pstolooe -ncion-n C.n.on.. inn (T?.) .---- A Indoa-is I FooinSoroIc ifT-nsial Ltd. 124%)nationsI Dsn aop.ann Co -tPatio (N_ 1 octal to Cnany of Osnasnio Ltd. (50T)llata "ginal" Copnto feOc iani Tr-cc I caD mml AsamAIse. Ltd. (NIAVA) 12551Nagionat OatXtil tonponatloF (TEXC0)-NoTnd of loannal Trads (BIT) k boon Alr pnds Ltd (502)fS-il Scats Indoatnia I -snlonnsot Vrgsnsat ion (SIW) Tatnania Disnond Cuttiig Cowany Ltd. (50D)

T.onstiL P-orls-d C-ont Conpany Ltdt*ny -ngo Connay Ltd.

Oyan.. Uam coon Ltd.| ooch sando tniog Cepany Lid.Tatnonis Cansatooto Indoannien Ltd.I snnatIdtaun ianns Lind td

440 Co 'Id F;o7dN pn-s Ltd.

Fcaondstip Ta-cil Hil Ltd)Te..aa nT-iss1 Ltd. L40%)IlIaa In_ Voottd5ls CoC---otn Ltd. (15%)

wIntarry ot Works Nwnrinchi bWlo¢ering and Crsstructlon CoS Ltdursnh2CC0d._(Ottantfrican Lfana Ind-stnsl Ltd.

f(tninty of Crenicato $ b trnA^l bipping4oFDcls Cpapay Ltd NA5AC0)houCensanis ppBag CFconso Lnanion "' Ltd.d(1600)

TnAsoLrst Naofiocos Ltd. 1 0)

HtY N sd C rt n . Ltd. (noCCO) Lir Nst.l o Ti nd n Cn-ion Ltd. (NOTfF).aDttonsl a gdls a. 1NR(2 o) 2D Itoloansl1 ad Industrial Soppliss C.oy Ltd. (AISCOl

NiAdlA ys d flstti-IlCoway Ltd. (NHESCO)-inistnu oanicatna national Shtpping Aganina Cowany Ltd. (nASACc) H...uae ld ppltin rs(payLtd. L NONObi)a(nd ryansof Nont l Cangaan. agorar Conponstin Ltd. tonnaIit ppi-s sod nItln Csay Ltd. (0fI001S ato nalty nanpon s L -- S National Eosnsaaottoai C.,sny Ltd (MI.)Tan ln Air Asrolss Ltd. T_- LI Cnana FoodsTN R .. n. tC.ly LLtd. (VEP)Tansng onstia taty . httioty (TROog) 2Egional Onding Cowanins ions p.I -ngo)TOZOANI Pipa..nsa Ltd.

lirnslin.gdn Tranport to. Lad. (DtO)i

Ir f -d.. .ou nd mrtite^l H .. S C-rp .arla (oDdC) a ...s sai Coa -o laAlogn Lld (TACa L A)

srban~~~~~~~~~~ ~ ~ ~~~~~~~~~~ Defta DoppOa manorsrg Ltd.lil

Sig h SA_dll Lt ud.h(n~~~~~~~~~~~~T I:r ori ...on^ I¢ es Tp^l SLon nk. A-uh. Fib-y Yv.d Ltd.sod hourlss Isnasnin pianiaseZ CunTponatio I (TAFICV) Tobn Chip -oand Ltd.

Tanaanta W-sd IndutIlls Co.pFnat.on 1TWiC0) .- Tbors Ntt Prodott Ltd.T.n.nsn T-nIst Corponanion 10TC) __ GinsfOn tonact Co s_ ny l.td.

Oumleono of Asoen nsvelonoont Taosnls EtsonicTty .ApplY CgtipAtiy Ltd. (TASYESC0) oTodan)d OntelH.acd Poont

Stntr Chaos) tncitn

_ 7n1t y of Ltcionglc Affair. sod ntane- is National Sclantt I R.e.esn.h CtuD f IRia n n.tI. Ltd.Inol (onwett Planning Ta=asnia tout. Ltd. (TL)

cc,x, Nati"ronal Cu ituct mae National toIasits of yansanisA You th

stsof Cation and Sotial VenuicAs tsoloos I Pnotdat rnod (OF)State Locteny Octalorat ionnational uports 0VuPtilyanasehls maNaifl SAsiaKtzlns

ANNEX 1 -3

4. Evidently, given the paramount role of the public sector holding companies,the performance of the manufacturing sector as a wbole depends directly on the manage-ment of these parastatals and the operational capabilities of the manufacturing plantsunder their jurisdiction. There is a shortage of competent managers, particularly onthe middle management level in functional areas such as engineering and maintenance,financial planning and accounting, production and general administration. Cperatingcompanies, with few exceptions, are producing at low capacity utilization and low pro-ductivity. There is little incentive for improved efficiency since ex-factory pricesare based on the total cost of production plus a fixed margin set by the NationalPrice Commission averaging about 10%. Prices are reviewed once a year so that inthe nornal course of events as factory costs increase, either by Government decree(e.g. wage increases) or through the effects of world-wide inflation (e.g. increasesin cost of fuel, raw materials, spare parts), the theoretical 10% margin is reducedand can actually become negative before a subsequent price increase is granted.Dividends payable to the holding parastatal are often inadequate to cover theiroverhead costs and special supplementary fees, commissions and interest charges arelevied against the already limited income being generated by the operating companies.Planned surpluses have not been realized; on the contrary, the parastatals need foradditional resources to carry out their investment programs is an increasing burdenon the national treasury. During the period 1967 to 1973, total parastatal investmentincreased by four times, but most of the resources have come from borrowings ratherthan internally generated funds.

5. As a matter of urgent priority, the Government is studying measures toimprove the efficiency of the parastatals. These will involve both policy andstructural changes in such areas as technical assistance and training, the useof performance indicators and incentives to motivate better operating efficiency,streamlining of procedures, pricing policy, coordination of planning and investmentdecisions.

6. In the short- to medium-term, however, planning of new factory investmentsmust take into account the deficiencies noted above since upgrading of corporateorganization and performance will be a slow laborious process. Fortunately, theGovernment accepts and is prepared to negotiate suitable joint venture arrangementswith foreign firms as a vehicle for obtaining needed management, technical andmarketing expertise. The rights and obligations of private foreign investors areregulated under the Constitution (which precludes discriminatory action by theGovernment with respect to the ownership of industrial assets), the InvestmentProtection Act of 1 963, and the Fbreign Exchange Control Act, 1965 as amendedfrom time to time. The last Guide to Investors issued in January 1971 is now outof date because of changes in the fields of price control, import licensing,dividend transfer restrictions and income taxes.

7. Tanzania's overall balance of payments, after being in surplus in 1972and 1¶:73, turned into a deficit of Msh 92C million ("S=129 million) in 197h.Despite higher world prices for its main commodities such as cotton, sisal andcoffee, the trade deficit alone in 1974 was Tsh 3 billion (US$294 million).Since prices and, in some cases, volume of Tanzania's export commodities have fallenwhile the costs of imports (oil, food products and capital goods, among others)are risinr, the halance of pa ments is not expected to improve over the short-term. Faced with this situation, the Government has reacted with a pragmatic shift in

ANNEX 1 -h

policy. The Third 5-year Plan 1975-80, which envisaged substantial expendituresfor social development, has been postponed while Government reassesses developmentalpriorities, resource needs and availability. Basic industrial strategy is nowheavily export oriented as opposed to the Plan's original emphasis on productionfor domestic consumption (which relegated export industry to a secondary role). Incarrying out the new industrial export strategy, the parastatals have the paramountrole. New projects in the planning or implementation phase include cashew processing,leather tanning, shoe manufacture, meat processing, cotton textiles, hardwood saw-milling and several mining projects. The Morogoro Industrial Complex analyzed inthis report is the largest of the planned new projects and, when implemented, shouldcontribute significantly to closing the foreign exchange gap through processing oftwo major indigenous raw materials--hides and cotton--to higher levels of value addedin products suitable for export marketing.

Industrial Projects DepartmentFebruary 1977

ANNEX 2

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

ESTIMATED R}3ICNIAL BREAKDOWN OF CATTLE POPULATION IN 1972 1/

Region Head of Cattle( '000) -

Arusha 2,376.9

Dodoma 767.4

Iringa 235.7

Kigoma 79.5

Kilimanjaro 241.5

Mara 769.9

Mbeya 522.7

Morogoro 92.5

Mtwara/Lindi 6.5

Mwanza 872.8

Coast 9.0

Ruvuma 25.8

Shinyanga 1,381.9

Singida 775.8

Tabora 872.3

Tanga 176.5

West Lake 164.3

Total 9,271.0

1/ No regional breakdom of sheep and goat population available;for the ihole country, there were 3 million sheep and 3.5million goa,ts in 1972.

Source: Ministry of Agriculture & Cooperatives (KILIMO)

Industrial Projects DepartmentFebruary 1977

ANNEX 3-1

TANZANIA

MOROGORO INDUSTRIPL COMPLEX

NATIONAL DEVELOPMENT CORPORATION - THE EXECUTING AGENCY

A. Organization and Management

1. Nlfational Development Corporation (NDC), a parastatal holding companyorganized in 19(4 and wholly owned by the Governnent, is Tanzania's principalinstrument for industrial investment. It is intended to function as a profit-making corporation. It has a 9-man Board of Directors, including the GeneralManager, and six operating departments: (i) Planning and Finance, (ii) Accounting,(iii) Manpower Development, (iv) Administration, (v) Operations, and (vi) Researchand Development. A number of foreign experts hold staff managerial and technicalpositions to strengthen the operational capabilities of NDC while Tanzanian pro-fessionals are being developed through formal courses and on-the-job training. Thestaffing pattern is tabulated below hy department:

TabLe 1 - NDC Staffing Pattern. October 1 975

Department Professional Other

Planning and Finance 17 4Accounting 15 15Manpower Development 10 5Administration 25 83Operations 16 8Research & Development 23 16Gen. Mgr.'s Office 3 3

Total 109 134

Of the professional staff, 17 are expatriates.

B. Operations

2. In 1973, NDC activities were reduced in scope by transferring 17companies to newly formed specialized parastatals in the mining, textile andcashew processing sectors. Currently, as detailed in the table (next page),NDCts Group Companies total 22 in 5 industrial sectors: (i) leather;(ii) tobacco and beverages; (iii) printing, publishing and packaging; (iv) chemicaland allied products; (v) metal working. Shareholdings in NDC's portfoliorange from 55% to 100% in 17 subsidiary companies and from about 20% to 50% in5 associte companies. Each operating company has its own management but NDCprovides planning, financial, marketing, and other technical services from itscentral headquarters in Dar es Salaam. Operating results both for individualcompanies and consolidated are published in annual reports; auditing is doneby the Tanzania ludit Corporation (a Government agency).

ANNEX 3-2

Table 2 : "DC GTROUP COI{TANIES SELECTED FIN\1ANCIAL DATA, FY 1971(Tsh Millions)

lssaed Gross After-TaxSector hare Capital Revenue Profit 23?ployees

Total N1al(pLeather(1) Tanzania Hides & Skins 5.0 70 55.7 4.8 171(2) Tanzania Tanneries 6.0 83 19.4 n.a. 183(3) Tanzania Shoe Co. 6.o 98 79.0 4.2 1,528

Tobacco and Beverages(4) BAT (Tanzania) 48.0 lO0 484.7 22.2 l,l0(5) Tanzania Breweries 20.0 55 535.5 1.5 1,650(6) Tanzania Distilleries 2.5 45 15.9 1.4 84(7) Tanganyika Instant Coffee 6.o 90 6.4 0.8 82

Printing, Publishing & Pck'ging(8) Kibo Paper lnd. 3.9 70 41.5- 2.6 406(9 National Printing Co. 1.0 100 21.0 2.9 330(10 Printpak Tanzania 3.7 100 22.4 2.9 322(11 Tanzania Publishing House 1.0 60 15.1 2.0 22

Chemical and Allied Products(12) General Tire East Africa 30.0 74 152.7 8.9 632(13) Tanganyika Tegr-y Plastics 6.0 100 31.9 2.8 169(14) Tanzania Fertilizer Co. 25.0 60 201.2 13.2. 701

ieDtal T6rking(15) Metal Box Co. (Tanzania) 10.0 50 36.1 2.4, 368(16) 1I TAVA 1.0 23 4.6 0.3- 115(17) Steel Rolling Mills 6.0 86 40.4 8.9 129(18) Ubungo Farm Imnpements 1.0 100 56.0 1 .4 314(19) National Steel Corp. 2.0 100 65.3 2.9 61(20) Aluminum Africa 36.3 60 201.6 8.0 670(21) National Bicycle Co. 1.1 100 3.2 (1.6)(22) Industrial Promotion Services 11.0 18.2 n.a. 1.4 n.a.

Total 32.5 68.3 2,089.37- 104.o0/ 8,953

1/ NDC portfolio shares are valued (original cost) at Tsh 158.7 million.2/ Net revenue, after sales and export taxes, was Tsh 1,340 million.3/ Tnclvhes extraordinary items and1 gains (and losses) carried forward or deferred.

ANfEX 3-3

3. Only a limited number of completely new projects are planned for imple-mentation in the near-term (to 1978) and of these, the Morogoro Complex is by farthe largest. Another tannery is under construction at Mwanza and an asbestos sheetplant is under study. Emphasis has shifted from new projects to: (i) improvingcapacity utilization and production efficiency and (ii) expansion and diversifiactionof existing factories.

4. Performance of the NDC Group Companies is mixed. In 1973, for example,4 companies had significant operating losses, including a Tsh 29 million loss atTanzania Fertilizer Co. (TFC) alone, while others were marginally profitable.Nevertheless, 1973 was an improvement over 1972 when 8 companies operated at aloss. In 1974, TFC closed the year with a profit of Tsh 6.2 million and all ofNDC's companies (with the exception of National Bicycle Co.) generated profitsin 1975, although, in a few cases, the amounts were minimal. The trend since1972, however, is clearly encouraging.

5. On a consolidated basis, annual net revenue and profits since 1967 aretabulated below:

Table 3 - NDC Group Companies - Sales and Profits, 1967-77(Tsh millions)

1967 1968 1969 1970 1971 1972L2 1973/? 174 1975 1976 1977(forecast)

Sales/L(net) 806 724 711 969 1,062 1,427 1,734 1,083 1,340 1,300 1,500

Profits (aftertax) - 93 80 69 11)4 144 103 83 90 10)4 120

Profits (% ofsales) - 12.8 11.3 7.1 10.7 10.1 5.9 7.7 6.7 8.0 8.0

/l Net sales - gross sales less export and sales taxes. Revenue drop in 1974 reflectsdivestiture of 17 companies in 1973; on a prorated basis, revenue increased forthe 22 companies remaining in NDC's portfolio. In 1975, all 22 companies (exceptNational Bicycle Co.) were profitable.

/2 Operating results include a number of profitable mining and textile operations sincetransferred to other parastatals.

6. For NDC as a holding company, the trend in portfolio share investments,revenue and profit between 1967 and 1976 is given below:

ANNEX 3-4

Table 4 - NDC - Investments. Revenue and Profit, 1967-1976(Tsh millions)

1967 1968 1969 1970 1971 1972 1973 1974 1975 1976T-s)

Net Inv. (cum)/' 211 311 261 334 430 451 356 267 324 n.a.Inc.(Dec.) in Inv. - 100 (50) 73 96 21 (95)L (89 )L2 57. n.a.

PortfolioRevenue/2 46.8 4o.3 35.3 21.3 26.9 39.0 35.5 26.0 40.0 57.0Head Off. Adm. (6.7) (10.3) (12.2) (15.2) (20.2) (23.1 ) (22.8) (21.0) (23.6) (22.0)

Fbp.Operating Surplus 31.8 26.0 21.0 6.1 6.8 15.8 12.7 5.0 16.4 35.0

/1 Cumulative Net Investments - Cumulative gross investments (equity and loans)less transfers of investments to other parastatals,and including' long-term bridgingfinance.

/2 Revenue - Income from subsidiary and associate companies + interest iered_less interest paid on short-term obligations and interest on bridging financeand profit on exchange transactions and profit on sale of fixed assets +miscellaneous income.

/3 Reflects divestiture of 17 companies in 1973-74.

The relative increase in head office administrative expense compared to revenue isa cause for concern. In FY 1973, administrative expense was 64% of revenue,up froman average of 19.5% in FY 1967-1968. NDC projects a decline in this ratio for the1975-1977 period as revenue rises more rapidly than administrative costs. In 1976,with revenue projected to reach Tsh 57.0 million, administrative expense, if heldat Tsh 22.0 million as expected, will amount to only 38.6% of revenue. While theoverhead cost would still be relatively high, the trend is in the right direction.

7. Summarized data from NDC's December 31, 1975 audited balance sheet aretabulated below:

ANNEX 3-5

Table 5 - NDC Balance Sheet, FY 1975

Assets Tsh millions 1/

Current 102.5Fixed (land, buildings, etc.) 13.6Investments and Loans in:Subsidiary Co's 194.6Associate Co's 116.1Projects 30.6

Total Inv. and Loans 341.2

Less:Prov. for Dep.of Inv. & Loans 56.6Net Inv. and Loans 284.6

Long-Tern Bridging Finance 39.3

Total Assets 440.0

Liabilities

Current 56.2Long-Term Debt 138.1

Capital and Reserves

Share Capital 183.9General Reserves 61.7

Total Liabilities, Cap. & Res. -440.0:=#-

1/ Discrepancies to a tenth of a million occur due to rounding.

Financing of the share capital and long-term debt has been provided by the Govern-ment and totals Tsh 322.0 million (US$38.8 million). For all practical purposes,NDC's long-term debt may be treated as quasi-equity.

8. Among the notes appended to the balance sheet is a reference, with nodetails, to "...contingent liability towards guarantees furnished on behalf ofGroup Companies as of December 31, 1975 stands at Tsh 460.3 million",(US$55 5 million)./i schedule of payments due could be built up from the individual Group Companybalance sheets. While there is a risk that some of the obligations may not bemet on time by a few of the Group Companies, it is considered unlikely that, giventhe rising trend in cash flow on an aggregate basis, NDC would not be able to honorits guarantee obligations, if needed. As a last resort, the Government may occa-sionally have to advance funds temporarily for such debt service.

9. NDC's organization and internal procedures (information system, decision-making and controls) have been completely overhauled and standardized over the lastfew years under the direction of a well-known international firm of managementconsultants contracted for that purpose. Since 1972, NDC has carried out intensiveconsolidation and reorganization programs at the Gm up Companies and has strengthenedits central planning and monitoring activities. In 1975, detailed efficiency studieswere initiated by NDC to identify and correct problems connected with procurement,excess accounts receivable, excess inventories, production bottlenecks, marketing, etc.,

ANNEX 3-6

at the Group Company factories. Although it is still too early to assess theresultant operational benefits, NDC is confident that with constantly improvingmanagement methods and closer control of and assistance to operating factories,performance will improve. According to NDC's Three-Year Investment and Develop-ment Program, 1975-1977, sales and profit growth to 1977 are projected by sectoras tabulated below:

Table 6 - NDC Group Companies - Forecast of Sales & Profits, 1974-77

Tsh millionsSales After Tax Profit

Sector 1974 1977 % Increase 1974 1977 % Increase

Leather 134.2 178.2 30% 11.1 11.0 -Tob. & Bev. 269.5 420.3 56% 29.9 39.5 32%Ptg./Pack. 61.0 128.9 111% 6.6 13.0 97%Chem/Allied 391 .3 719.2 147% 15.7 58.6 273%Metal Working 326.3 659.9 102% 19.0 30.2 53%

Total 1,083.3 2,106.5 95% 83.1 152.3 83%

10. NDC recognizes that achievement of the 1977 goals tabulated above dependson: (i) improved management at the factory level; (ii) improved worker skills andproductivity; (iii) availability of capital resources to carry out essential balancingand expansion of productive facilities now in optr,ation. To this end, in July 1975NDC published a comprehensive detailed analysis Llof Group Companies' performance,problems and prospects. The report has been carefully reviewed by the Bank missionand was found to reflect a high level of financial planning capability coupledwith a realistic and businesslike appreciation of the managerial, technical andconmercial problems that must be overcome in the near-term. Effective measuresare being taken. Fbr example, receivables have been reduced in aggregate from aprojected mid-1975 level of 41 days (of net sales) to 35 days, releasing Tsh 25million as liquid funds. A training school for shoe operators is under constructionto help meet the need for an estimated 2,000 skilled workers and technicians by1 978/79 at both the existing shoe factory and the Morogoro project. Procurementpractices are being tightened; capacity utilization studies have been initiated;markets and marketing practices are being reassessed and improved.

11. In summation, NDC appears to have the basic organization, staff andfunctional competence needed to manage its existing group of companies and toplan and implement a long-range strategy of operational improvement and expansion.Special assistance will, of course be needed in carrying out the major projectat Morogoro; the elements of such assistance are incorporated in the project plan.

12. According to the proposed financing plan of the Morogoro Project, NDCis required to invest US$13.2 million of equity funds. Table 4 shows NDC'soperating surpluses since 1974 in an upward trend and this trend should continueto 1980 because of growth and better operational efficiency in the Group Companies(also reflected in Table 5 forecasting Group Company profits to 1977). Assumingthat NDC's annual operating surplus averages US$6 million between 1976 and 1980,

1/ "Consolidated NDC Group Company Plan, 1975 to 1977", July 1975.

ANNEX 3-7

the cumulative surplus available for reinvestment in that period wil1 be US$30million. On this basis, NDC will be able to allocate US$13.2 million to theMorogoro project as equity during the project execution period. In any event, theGovernment will be obligated to fund any shortfall that might occur.

Industrial Projects DepartmentFebruary 1977

ANNEX 4-1

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

MIDUSTRIAL ESTATE COMPONENT - SPECIFICATIONS AND ES1XTED COST

Justification for the Industrial Estate

1. The original project scope defined by NDC in 1973, was limited to the 4nucleus factories - tannery, canvas mill, shoe factory and leather productsfactory. Since it was planned to locate all 4 factories at Morogoro, andin close proximity to each other, it was readily apparent that the neededinfrastructure - developed land ready for construction, roads, power, water,telecommunications, waste disposal and housing - could be planned and executedmore efficiently as common services rather than each factory assuming respon-sibility for its owni infrastructure needs. Therefore, an industrial estatecomponent was added to the project as the functional means by which sites andservices would be provided to the factory components. The estate would bemanaged by a corporation owned by NDC which would install, operate and maintainthe common facilities, collecting rents from the industrial occupants. Duringthe preliminary planning phase, the estate concept was expanded to provideeventually sites and services for additional small and medium industries.These would comprise ancillary industries providing goods and services to the4 major factories as well as other industries (not directly linked to thelorogoro Complex per se) wiich can be expected to appear in response to the"growth pole" effect of the large resources invested in the project. Standardfactory buildings are also provided for rental to amall-scale industries and,eventually, SIDO may locate an industrial extension services center on theestate.

Site Characteristics and Development Plan (Addendum 1)

2. The total area reserved by the Government of Tanzania for the estate is204 ha located just outside the boundaries of Morogoro Township on the Dodoma-Morogoro Main Road. The plot generally slopes gently to the East and thiswill facilitate surface drainage, sewage reticulation and render cut and fillwork almost negligible.

3. It is proposed to develop the Estate in phases according to the demandfor developed sites and factory space. Essentially the Estate will bedeveloped in its first phase around a nucleus of four industrial units -tannery, canvas mill, shoe factory and leather goods factory. The construc-tion of the tannery has already started and is expected to be conmissioned byearly 1977. Apart from the four above mentioned factories the Estate has notbeen planned for any specific group of industries but provision has been madefor various categories of industries to be grouped together and located inzones most appropriate to their particular needs and processes.

4. The first phase will comprise the development of 65 ha including 21 haoccupied by the 4 nucleus plants, 2 ha for 4 standard factory buildings forsmall-scale industries, a residential zone of some 5 ha and 15 ha reservedfor additional meditum-scale industries; the balance is allocated to rights of

ANNEX 4-2

way and landscaping. Estimated cost of this first phase has been based ona preliminary layout of the estate prepared in 1974 by NESPAK and informa-tion gathered by the mission in October 1975.

Site Preparation

5. Includes levelling, compacting, fencing and miscellaneous earthworks:

Item Total Cost(Tsh)

Levelling and compacting -65 ha at Tsh 6,000/ha 390,000

Fencing 935,°°°Total I.,

Roads and Surface Drainage

6. The roads within the Estate are classified in two categories, mainand secondary roads, according to their expected volume of traffic. Theplanned widths of land and paved surface are given below:

Road Specifications

Tjrpe of Road Rigt of Wa Paved Widthmeters) (meers

Nain 30 8Secondary 20 5

The roads will be built according to international standard specificationswith concrete stonn water drains on both sides, culverts where necessary andsidevalks 1.5 meters wide on both sides of main roads and one side ofsecondary roads. The cost of the roads and surface drainage has been estimatedas follows:

Item Quantity Unit Cost Total Cost(lin.meter) (Tsh)lis)

Main Roads 960 1,000 960,000Secondary Roads 3,650 725 2,646,250Sidewalks 5,570 112.50 626,625Storn Wlater Drains 9,220 130 1 198 600

Total I375

Water Supply

7. Pending the construction of the Mindu Dam and pipeline, water will¾e drawqn from the Ngerengere river using a weir or well intake. Some4,000 n3/day will be pumped through a 1,525 m long, 300 mm diameter pipe-line to a treatment plant built on the Estate. On the completion of theMindu dam, the installations used for this temporary supply of water will'Oe utilized for the water distribution of the whole Estate for which some18,Q000 n3/day will he required when fully developed. Daily consumption

of -water for Phase I has been estimated at 2,775 m3 average and 4,200 m3

peak load. The estimated cost of the Phase I system is given below:

Item Units Quantity Unit Cost Total Cost(Tsh) (Tsh)

i) water pumpsa) 3,000 litre/min,

pumping head 50 m Nos. 2 45,000 90,000b) 3,000 litre/mi-n,

pumping head 15 m Nos. 4 30,000 120,000ii) pump houses, (4m x 4m) Nos. 2 12,500 25,000

iii) underground tank litre 600,000 .75 450,000iv) overhead RCC reservoir litre 400,000 150 600,000

v) filtration and chLorinationplant (capacity 4 m litresper day) Nos. 1 Lump sum 250,000

vi) distribution system - pipesfittings, valves, firehydrants, installed 2,700,000

Total 4,235,000

Power Supply

8. Presently there are two high tension lines of 132 KV and 33 KV thatfeed the Morogoro ELectric Subostation which is situated at less than onekilometer from the Estate site. The station has flexibility of expansionand no difficulty is envisaged in meeting the power demand of the Estate,Phase I, estimated at 7-8 MVA. It is proposed to connect 5 JAVA in 1976/77to accommodate the tannery and other industries and 5 MVA later when thedemand w7ill increase. The cost of the power supply system has been esti-mated at Tsh 2,050,000 detailed as follows:

Item Total Cost- ~~~~~~~~~~~~~~~(Tsh)

Transformers (11 KV/415N, 3 phase and 230 v. singlephase) and high tension line from existing stationto Estate 1,230,000

High Tension Line 5.0 Km (inside Estate) 225,000Low Tension Line 5.0 Km ( if " ) 125,000Accessories, street lighting, control system,

lightning arrestors, etc. 200 0001, 780,OO

Installation, supervision and contingencies L5' 270,Total 2,050,000

Sewage Disposal

9. In view of the wide variation in the types of senage produced on theEstate, each industrial unit will pre-treat its effluent to acceptable stan-dards before discharging it into the sewrage system leading to the settlingpond or to be treated in a central waste treatment plant. This is to ensurethat the .waste entering the pond or central treatment plant meets minimumacceptable standards of biological oxygen demand (BOD), pH, metal content,

ANX4-4

salts (such as chlorides, sulphates, sulfides and cyanides) etc. The dis-charge from the treatment plant will also be controlled. The use of oxida-tion ponds as specified in the feasibility study will have to be studiedby the Consulting Engineers to be contracted for the design of the systemto ensure that it will be an adequate means of wiaste disposal. A moresophisticated treatment plant is an expensive item roughly estimated atsome Tsh 6.0 million or US$750,000, but may be necessary to meet modernecological standards. A safe estimated cost for the estate sewage disposalsystem, assuming the high cost installation is tabulated below:

Item Total Cost(Tsh)

- Central waste treatment plant with sludge dryingbeds, centrifugal system, aerobic digestors, etc.,including installation 5,700,000

- Piping, installed 1,480,0007,180,000

Buildings

10. For Phase I, it is proposed to have simple standard factory shedscovering some 5,760 m2 consisting of four blocks measuring 120 m x 12 m -ceiling height 4 meters under beams. The sheds could be partitioned intounits of 240 m2 or more according to the requirements of individual factories.In order not to burden the project with non-revenue earning components,during the initial phase it is proposed to defer the construction of theadministration building to a later stage. In the interim, the administra-tion offices would occupy part of a standard factory shed.

11. Housing will consist of two storeyed blocks, detached and semi-detachedtype, designed in keeping with existing Tanzanian standards. In the initialstage, housing accomiodations will be provided for expatriate personnel,Tanzanian supervisory personnel and visitors and later on will be rented toestate employees. Estimated cost of buildings (also referred to as super-structure in this report) is given below:

Item Total Cost

Standard FActory Buildings5,70mThml 1/ 8,6h0,000

R%esidential Houses35 totalling 0 mz0-*7cn) Tsh/nm2 9,187,500

Summarized Cost

12. In terms of late 1975 prices, the total estimated cost for the Phase Iestate is:

1 Estimates that were given by a consulting fir in Dar Es laam is l,4dOTsh per m2 for more elaborate buildings made of pre-stressed concretecolumns with imported metal trusses and a clear height of 8 meters undereaves

ANNEX 4-5

It em Total (.'jt(Tsh?J)

Site Preparation 1,325.0.ciPi.s and Sltrfeca Dr_anage 5),1 ;.

*LS8~ ~ ~ ~ ~ ~~~~~~,3 .-0>.P-er *Su,pp_y 2 , Ct5 + .Serage Ei r.-cea 7 ,LB.O

Lana Fse Pattern

13. NESPAK's study of the Estate covers sonse 210? ' a. 1tr ii-. pmt;dunder Phase I to develop 65 ha. The land use pattern fo- rThe I _also for the full 204 ha is given below:

IIorogoro Estate - Land Use PatternPhase 1 (65 -h6-Y lihole Estate (204 ha)

Industrial Plots For: (ha) (%) (ha)Tannery 8.0 12.3 8.0 3.9Canvas ?-ill 7.5 U115 7.5 3-7Shoe Factory 5.5 8.5 5 5 2.7Standard Factory Buildings 1/ 2.0 3.1 10.0 4.9

2 7. 57. =7 75 157.Unallocated 15.0 23.1 103.0 50.5

Residential Area 5.0 7.7 17.0 8.3ANistration Center 2.0 3.1 2.0 1.0Roads, Utilities and Landscaping 20.0 30.8 51.0 25.0

Total 65.0 100; 204.0 156T

1/ Initially, administration offices and the Leather Goods Factory will behoused in the Standard Factory Buildings.

114. The first phase development will provide developed sites and services forthe 4 nucleus factories, the standard factory buildings and additionalfactories that can be accommodated within 65 ha. Pollution causing industrieswill be located on the northern part of the estate and some 9 hectares havebeen earmarked for that purpose. The standard factory bIalding plot will besouth of the tannery and shoe factory, with the Administraiton Center separa-ting it from the developed plots for light and medium sized industries. Theresidential zone occupies the southern part of the estate, separated from itby a 100 m wide greenbelt. The design of the estate allows flexibility inlot size so that sites can be varied to suit individual requirements of onehectare or more. Estimated operating costs are given in Addendum 2 attached.

Industrial Projects DepartmentFebruary 1977

I/e~~& 0/<ozCo

z: J > / 7 TANZANIA/ ~~~~~~~~~~~~~NATIONAL DEVELOPMENT CORPORATION

CD'4- / ,/

tn / o ,' MOROGORO INDUSTRIAL COMPLEX0 / / 480.00 rn INDUSTRIAL ESTATE -PHASED DEVELOPMENT PLAN

Are // / //--_

rj ! i~~~~~ Standard Factory Buildings / /| - 02-;04!;i;E$;EiS;iE :l:i:485.00 rn & \

100 0 200 400 0400 600 t 800 MetersLeather Goods Factory I O

I / / | (iAt#<iEC: S: A; fL:Xi 7 : AREAS: SUBSEQUENT PHASE

Disposal /R |it ash,| X' 141 esidentilavArea < t E ''L,: __ OS: SUSQE Zone PHSE

S0ale:21: 100 600 - ROADS8PST 00 APHASEI

200 E 400 S : SUBMeter E Q AREAS:TPHASE

Scale: 1: 10000 ROADS: FIRST PHASE 3;ROADS: SUBSEQUENT PHASES

ANNEX 4-7Addendum 2

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

INDUSTRIAL ESTATE OOMPONENT

ANNUAL OPERATING COST ESTIMATE

I. Salaries and Wages No. t hAnnual Cost

Estate Manager 1 3,500 42,000Engineer (Asst. Mgr.) 1 3,000 36,000Accountant 1 2 ,500 30,000Clerks 2 750 18,000Typists 2 600 14,1400Maintenance 10 480 57,600(incl. 4 watchmen)

Total 198,000(say) 200,000

II. Administration Costs

Transport 45,°00Printing and Stationery 30,000Communications 4.,000Utilities 6,000Miscellaneous Expenses 15,000Insurance (0.25% of Investment in Buildings) 50.000

Total 150,000

III. Maintenance Costs (2% of Investment cost) 1,300,000

j During first 2 years of operations, the Estate Manager will be a foreign expertat a higher salary, the cost of which will be covered under a technical assistancecontract.

Industrial Projects DepartmentFebruary 1977

ANME 5 -1

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

INDUSTRIAL ESTATE COMPONENT

Water Requirements and Resources

1. Morogoro, like most towns in the arid area of Tanzania, has limitedavailability of water. Based on extensive studies made in 1974 by Messrs. H.P.Gauff K.G., Consulting Engineers, of various possible sources of water for thegrowing needs of Morogoro, construction of the Mindu Dam across the Ngerengereriver at a site situated some 4.5 kms upstream from Morogoro is now planned.The proposed dam will have a storage capacity of 10 million m3 , providing areserve which will amply cover the water requirements for the whole town tothe close of the century when estimated consumption will be 55,000 m3/day. Theestimate takes into account usual losses due to evaporation and seepage, popula-tion growth, agricultural and industrial expansion, including the Mar ogoroComplex.

2. The existinp source of water for the town is from the Mor6goroRiver, and the treatment plant is currently being expanded from its presentfull treatment capacity of 2,775 m3/day (0.6 mgd) to douhle this figure totake advantage of periods of higher flow in the comparatively inexpensivegravitational system used. This expansion, however, will be insufficientto assure an uninterrupted water supply to both Morogoro's growing populationand the industrial estate. Water requirement for the estate, Phase I, alonehas been estimated at 2,775 m3/day growing linearly from this figure to18,000 m3/day on full development and occupancy of the estate scheduled totake place by 1995. Estimated water requirements for Phase I is given below:

Estimated Water Requirement forIndustrial Estate, Phase I

m 3/day

Tannery 1,480Canvas Mill 700Shoe Factory and Leather Industries 20Administration and General Services 50Residential Zone 75Other industries on unallocated plots 450

Total 2,775

/1 The figure of 2,775 m3 is the estimated average demand, the peak qe'mand istaken as 1.i44 of average demand and amounts to approximately 4,000 m3/dav.

ANNEX 5-2

3. Construction of the Mindu dam and pipeline is therefore essential forthe success of the Morogoro Complex. A Bank-financed project for the Mindu damand pipeline!/ has been approved in December 1976. This will resolve the potentialwater supply shortage at Morogoro.

4. Since the implementation of the Mindu Dam and pipeline will take sometime it is proposed for Phase I of the estate, as an interim measure, to pumpwater from the Ngerengere river as outlined in Annex 4.

5. Available hydrological data for the Ngerengere i'iver cover only a ten-year period from 1950/51 to 1958/59 during which there have been critical yearswhen for varying periods in the months of January and February the minimum flowwas as low as 0.026 m3 /sec, i.e. approximately 2,250 m3 /day.- This volume fallsshort of the estate Phase I demand by some 525 m3 /day.

6. The possibility of using underground water has also been explored.Boreholes located some 2 kms from the estate have yielded saline water at therate of 1,h00 m3/day. The water is unsuitable for domestic use because of itshardness and salinity but could possibly be used for some operations in thetannery.

1/ IBRD Report No. 1199-TA, "TANZANIA: Appraisal of Urban Water Supply Project,"November 30, 1976.

Industrial Projects DepartmentFebruary 1977

ANNE 6-1TANZANIA

MOROGORO INDUSTRIAL COMPLEX

FOOTWEAR FACTORY COMPONENT - GENERAL DESCRIPTION

A. Justification of the Footwear Factory

1. Demand for footwear is very much related to income levels. Asincome levels rise, footwear consciousness becomes greater. As peoplebecome more affluent, they switch from rubber and plastic footwear tomore expensive forms of leather footwear.

Canvas Footwear

2. There is a big and growing market for canvas shoes in the world.(See Annex 11, Markets and Marketing,for more detailed discussion). For theOECD countries, the estimated consumption of footwear wholly or principallyof textile materials for 1972 and 1973 were 4h3.3 and 466.6 million pairs,respectively. Of this, the U.S. market accounted for 226.0 and 241.5 millionpairs, respectively, for the years 1972 and 1973. Moreover, the share ofimports in the total consumption of footwear wholly or chiefly of textilematerials has been large and growing. The tendency of the developed countriesto import has arisen from the increased costs in shoe manufacturing in thedeveloDed countries and the comparatively inexpensive exports from the devel-oping countries. More recently, the plain basketball-type shoes have givenway to more elaborate styles, combining canvas with other materials. Thiscalls for increased labor and hence increases the competitive advantage ofthe developing countries, where labor is comparatively abundant and inexpen-sive. The proposed canvas shoe factory r4t Morogoro envisages an annual outputof 2 million pairs of canvas shoes for the export market, ThiF: would consti-tute at most .5% of the woild market for canvas shoes. Given technical andmarketing expertise, aiming to capture at most .-5 of the iwrldmarket iscertainl-y not overly ambitious.

3. In Tanzania, the demand for canvas shoes, uppers made of cottoncanvas and soles of rubber and plastic, has been estimated by some to havebeen increasing at the rate of as high as 15 percent per annum. Localproductian has not kept pace, however, and even with imports, there has beensubstantial unfulfilled demand for canvas shoes. Table 1 below shows theestimated demand, production, imports, and unfulfilled demand for canvas shoesin Tanzania.

Table 1: Estimated Demand, Local Production, ImportsandUnfulfilled Demand for Canvas Shoes

Tin T000 pairs)Unfulfilled d/

Year Demand a/ Local Production b/ Imports c/ Demand19Z- 1,000 780 -5 25

1969 1,15o 320 360 4701970 1,320 35o 305 6651971 1,520 535 425 5601972 1,750 585 510 655

a/ IACP estimatesI/ Figure for 1972 estimated.c/ Includes Fast African transfers; figure for 1972 estimated.d/ Figure for 1972 estimated.

Sources: IACP Estimates and NDC, Three Year Investment and Development Plan 1973-75.

ANNEX 6-2

4. The 15 percent per year estimated growth rate in the demand forcanvas shoes was based on expected growth in Tanzania of: per capita income,population, school enrollment, etc. Even with a lower growth rate, Tanzaniawould have to expand footwear production, chiefly through expansion of produc-tive capacity in Tanzania Shoe Co. and other footvear factories in thecountry. Thus, even if for some reason Tanzania cannot produce snoes for the

export market, the Morogoro canvas shoe factory would still have portions ofthe domestic market to satisfy. However, as the rationale for the MorogoroIndustrial Complex is to increase domestic processing of exports and to earnforeign exchange, the canvas shoe factory should attempt to produce exportquality shoes.

Leather Footwear

5. -The leather footwear industry is the most important user oftanned hides and skins. WIorld demand for leather footwear has been estimatedby FAO to be 4,000 million pairs a year growing at the rate of 2 percentper annum. For OECD countries alone, the consumption of footwear with leatheruppers has been estimated at 1,262.1 and 1,205.3 million pairs for 1972 and1973, respectively. Moreover, the share of imports in the consumption ofleather footwear in selected OECD countries has been increasing from 1963 to1973, demonstrating the trend that leather and leather goods industries havebeen shifting to the developing countries.

6. FAO estimates that the demand for footwear in the developed countrieswill grow at roughly the same rate as the population growth rate, while in thedeveloping countries, it estimates the growth rate at about 4.8 percent. Withan overall world demand growth rate of 2 percent per annum, the leather foot-wear factory at Morogoro should have no problem exporting its output, givencompetitive quality, price, and marketing arrangements. It would, after all,be aiming to capture 2 .5% of the annual increase in demand for leather footwear.Looked at from another angle, in 1979/80, when shoes from Morogoro will becomeavailable for export, the incremental market growth in the developed countrieswould be of the order of 20-30 million pairs. The output from Morogoro repre-sents only 7-10% of this incremental market, not to mention the increased con-sumption expected in other African and Niear Eastern countries.

7. The consumption of leather footwear in Tanzania has been fairly stableat roughly 1.2 million pairs in the years 1968-71.

Table 2: Consumption of Leather Footwear in Tanzania(000 pa_ir_s)

1968 1, 2h01969 1,2101970 1,2201971 1,200

Source: NDC: Investment and Development Plan 1973-75.

The reasons for the rather stagnant demand for leather footwear were: therelative costliness of leather footwear compared to other types of footwearand the low income level of Tanzanians. (Non-leather footwear in Tanzaniahad doubled in the four year period 1968-71). If the Government maintains the

ANNEX 6-3

high cost of consumer goods in Tanzania, then the cost of leather footwear wouldcontinue to tend to be high. Presumably, there will be a modest increase in thedemand for leather due to increasing per capita income and due to decreased pricesof leather (because of the increased quantities of tanned leather). On the whole,though, the increases in local demand could probably be satisfied by expanding theproduction capacities of the Tanzanian Shoe Company and other smaller footwearfactories in Tanzania.

Necessity of a Technical Assistance Collaborator

S. The quality of shoes currently being produced in Tanzania does not meetinternational standards. Also, Tanzania does not have the necessary organizationand skills to market shoes internationally, even if quality were not a problem.It is thus imperative for the footwear factory to contract technical assistanceboth in plant design and production as well as in marketing. The ideal situationwould be to attract a joint venture partner with established capabilities in allthese areas; talks were held along these lines with one or two potential foreignpartners but no agreement was concluded. Instead, the necessary services will besupplied by a qualified group of Italian firms as noted in the next paragraph.

Prime Contractor

9. Two contracts have been negotiated between NDC and Italmacchine Plants,S.p.A. of Milan, Italy. The latter will provide NDC with a "package" of services,including engineering, construction, training and plant start-up under terms ofan Engineering Contract and management of operations and marketing of output undera Management/Marketing Agreement.

10. The technical details (i.e. machinery and cost estimates) as contained inthis report have been re-examined and found realistic by Italmacchine Plants. Thefollowing discussion is based on estimates originally prepared by IACP in theirfeasibility study.

. Technical Details

a. Product Mix

11. The IACP study envisaged a complicated product mix of men's and women'sleather shoes and also of two types of canvas shoes, as follows:

(i) Leather Shoes: Operating at 100% capacity, the footwear factoryis envisaged to produce 2,000,000 pairs of leather shoes working1 shift per day for 300 days per year. The output would be asfollows:

ANNEX 6-4

Production perType of Shoes 8-hour day_

(pairs)Leather-upper with prefabricated nolite/

polyurethane/rubber soles attached by cement 2,000Leather-upper with leather soles attached bycement, equally divided between men's andmomen's shoes 1,000Leather-upper wAth injection moulded PVC soles 2,167Leather-upper with direct moulded rubber soles 500Leather-upper and leather soles (Goodyear)welted type 500Leather-upper and leather soles cement lastedblake sewn 500

667

(ii) Canvas Shoes: Operating at 100% capacity, the output of thefootwear factory is envisaged to be 2,000,000 pairs of canvasshoes as follows:

Production perTypes of Shoes o-hour day

Tennis shoes - divided equally between those-with rubber soles and PVC soles 3,334Basketball shoes - divided equally betweenthose with rubber soles and PVC soles 3 333

b. Manufacturing Process

12. Leather shoe manufacturing generally follows the followingprocess:

(i) Pattern making. Brass-bound fiber board patterns are gradedto size and made for use by hand cutters or clickers in the uppercutting section.

(ii) Upper cutting. Uopers are cut according to the patternseither by hand or clickers.

(iii) Upper closing. Cut leather upper components are convertedinto closed uppers.

(iv) Bottom cutting. Leather is converted into preparedsoles,insoles, heels, top pieces, etc.

(v) Assembly. All the components required for making shoes,i.e., closed uppers, prepared bottom stock, and lasts are collected.Components and accessories (e.g., moulded counters, toe puffs, etc.)are also draun out from the grindery and assembled. Insoles aretacked on the lasts and the two-pair shoes carrier of the transportersloaded for issuing to the lasting section.

ANNEX 6-5

(vi) Lasting (Making). The transporters carry the shoe past thevarious lasting machines and operations until the shoes are finishedand readj for packing.

13. The production of canvas shoes is comparatively simpler. Thefollowing describe the major manufacturing processes:

(i) Compounding. Rubber and chemicals are mixed together.Rubber sheets productiQn and combining of rubber with cottoncloth is also done.

(ii) Upper Cutting. Laminated cloth is cut with beam cuttingand clicking presses. Rubber blanks are cut out of uncuredrubber sheets, which are then later used in the vulcanizingprocess.

(iii) Closing. Cut canvas upper components are converted intoclosed uppers.

(iv) Vulcanizing and injecting. Uppers are directly attachedwith rubber soles and vulcanized simultaneously in a vulcanizingpress. In the injection moulding machine, PVC is injected intothe mould and directly attached to the upper.

C. Raw Materials

14. The raw materials used in the manufacture of leather footwear are:upper leather, sole leather, pre-fabricated soles, PVC, rubber, thread, cement,laces, eyelets, lining leather, fabric, leatherboard, chemicals, and polishes.Leather would be available locally; the rest of the items would generally haveto be imported. At 100% capacity utilization the total cost of raw materialsto produce 2 million pairs of leather shoes would be:

Leather Footwear - Annual Raw Material Costs(Tsh '000)

Imported Raw Material 22,129Locally Available Raw Material 37,627

59,756

15. The raw materials required for the manufacture of canvas shoes are:rubber, PVC, chemicals, fillers, counters, canvas cloth, thread, eyelets,cement, laces, etc. Canvas, rubberized cloth, and counters would be locallyavailable; the rest would have to be imported. At 100% capacity utilization,the total rawv material cost of producing 2 million pairs of canvas shoes would be:be:

Canvas Footwear - Annual Raw Material Costs(Tsh ' 0007

Imported Raw Material 10,321Locally Available Raw Dhterial 12,525

22,846

ANNEX 6-6

16. Prices for all material inputs were those prevailing in late1975, adjusted to include transport costs to Mbrogoro.

D. Utilities and Services

17. It is estimated that the connected load of the footwear factory,including workshop, laboratories, and lighting would be 2,100 KW. Operatingat 100% cspity, the annual cost of electricity has been estimated at Tsh1,013,520/yr, assuming standard industrial charges by TANESCO. Should therebe bulk rate savings, these savings would be passed on to the footwear factory.

18. The water consumption is chiefly for drinking purposes. It is esti-mated that 72,720 liters of drinking water will be required daily. Industrialconsumption is minimal, about 204.5 liters/min., and is used as coolant inthe rubber mixing mill. A provision of 36 liters/day is made for make-upwater. Hence, total water consumption is estimated at 21,826,908 liters/yr.At Tsh 6/4545 liters, the annual cost of water is Tsh 28,815.

19. As the vulcanizer of the canvas/basketball footwear plant is tobe electrically operated, there are no fuel charges envisaged for the footwearfactory.

E. Buildings

20. The factory building to house the laboratory, the pattern-makingdepartment, leather footwear department, and the canvas shoe department wouldcover an area of 6,041 m2. The ancillaries -- for office, gate office,canteen, workshop, power house, and warehouses would cover 5,196 m2. At therate of Tsh 2,000/m2 (including consulting and engineering services), thebuildings would cost Tsh 22,474,000. Other civil works include: two water tanksfor 45,450 liters each at a cost of Tsh 125,000 and a fence of 740 meters atTsh 180/m costing Tsh 133,200. Total civil works thus amount to Tsh 22.7 million.

21. Building costs correspond to late-1975 prices for reinforced concreteconstruction and steel trusses supporting corrugated asbestos cement sheetroofing. The cost of fencing may be discarded later as the entire estate boun-dary will be fenced.

F. Ecological Considerations

22. In carrying out this project, every effort will be made to preservethe ecological balance in Morogoro and environs. (See Annex,lO,para 18 formore details). The industrial estate cost includes funds for the establishmentof a common waste disposal system for the industrial complex, and the footwearfactory operating costs include an allowance of Tsh 221,8000 (increasing at 7%p.a.) for iaste disposal.

G. Employment

23. The staffing pattern at full capacity is given in the table below:

ANNEX 6-7

Table 3s Footwear Factory - Staffing Pattern

Managerial Supervisory Sidlled Semi-Skilled Unskilled

A. Production DepartmentI. Leather %ioe Line

1. Upper Department - 1 - -2. Upper Cutting Section - 2 98 10 -3. Closing Section - 4 247 - 104. Bbttom Sectioa - 1 - -5. Bottom Stock - 1 65 - 56. Lasting and Finishing - 4 295 - 15

II. Canvas Shoe Line1. Compounding Section - 2 10 - 62. Upper Department - 1 - - -3. Upper Cutting Section - 1 8 - 44. Closing Section - 1 90 - 45. Vulcanizing Section - 1 48 - 56. PVC Injection Section - 1 5 - 37. Finishing (Packing) Section - - - - 10

III. Production Office 5- - _ 1B. Common Services Department

I. Pattern Making & Grading - 3 _2. liorkshop 1 5 - 33. Laboratory 1 - 2 -

C. General Office 4 9 14 24 8

Total 9 31 888 36 73

At full capacity, the footwear factory will employ 1,037 persons.

H. Training

24. The prime contractor for the footwear factory will be responsible forplanning and implementing a comprehensive training program for both the footwearfactory and leather goods factory personnel. Training -will consist of: (i) foreignexperts stationed at Morogoro providing on-the-job training to Tanzanian staff andtmrkers; and (ii) training at foreign locations for key Tanzanian personnel. FE andLC costs related to the foreign consultants are covered in the "Consulting andEngineering Services" component of the capital cost estimate and those related totraining key Tanzanian personnel at foreign locations are covered in the "Training"component. (Annex 14). The table below gives the breakdown of the latter costelements.

Table 4-Training Cost Estimate of Tanzanians at Foreign Locations(_ s$) 1/

3Dst/Iloyee NO. TotalRound trip 3,000 N 60,066Maintenance US$day , 20 40,000

x 124 days 12,000 20

Contingencies 130,000Total ___,u_

1/ In current terms.

Industrial Projects DepartmentFebruary 1977

TANZANIAANNEX 6-8

MOROGORO INDUSTRIAL C3PELEX Addendum 1-1

OOTWEAR FACTORY OOMPONENT

BILL OF EYQUIPMWNT

Name of Machine No. of Machines

I. LEATHER SHOESA. Model Rom

1. Pattern Grading & Cutting Machine 12. Pattern Shear 13. Pattern Binding Machine 14. Pattern Corner Cutting Machine 15. Pattern Vice 16. Pattern Buffing Machine 17. Vacuum Forming Machine for Last sheels 1

B. Upper Cutting Section1. a) Hydraulic Swing Arm Cutting Press 8LVE 6

b) Hydraulic Swing Arm Cutting Press 32. Leather Splitting Machine C300S 63. Leather Splitting Machine C400S 14. Pneumatically-Operated Lining and Upper

Leather Starmping Machine FP-1 95. Pneumatically-Operated Embossing Machine for

Sock Linings FP-2 6C. Upper Closing Section

1. Skiving Machine 61 232. Single-Needle FLat Bed Sewing Machine

141-705 01 BL 73. High Speed Zig Zag Sewing Machine 438-49/

01 BL x 6.o 54. Two Needle Flat-Bed Seiing Machine 144-944/

01 BL x 2.0 145. Single-neecde Flat Bed Sewing Machine 543-

944/01 BL 36. Seam Rubbing and Belt attaching Machine 122 17. Thermo-cementing and Folding Machine COM 88. Two needle post-bed Sening Machine 192-

61/09 BL x 12.0 99. Two needle Post-bed Sewing Machine 192-

944/31 1110. Single Needle Post-bed Sewing Machine 191-

705/03-725/01 BL 2611. Single Needle Post-bed Sewing M4achine 191-

705/03 BL 1212. Automatic Hole Punching and Eye-letting

Machine 31 1213. Bartacker 3334-11-958/01 BL 1214. Pneumatically-Operated Ironing Machine Up-1 415. Automatically-operated Upper lacing machine

135 816. Upper Leather Marking Apparatus 102 B 1

ANNEX 6-9Addendum 1-2

BILJ OF EQUJFIPtT (Cont'd.)

Name of Maelline No. of Machines

17. Spray Cabinet 10046 118. Two-Needle Flat-Bed Sewing M1achine 3

544-01-CL19. Single-Needle Flat-Bed Sewing 3

Machine 543-944/ol20. Seam Rubbing IMchine FORTA 421. Single Needle Post-bed Sewing Machine 10

591-94V/31 CL22. Lining Edge Cutting Machine 123. a) Pneumatically Operated Hole Punching 1

Press S.12-Gb) Eyeletting Miachine 103K 1

2lj- High-speed Lock Stitching Sewing 22Machine 463-944/01

25. Single Needle Flat-bed Seidng MIachine 4145-H2-2-01 BL

26. Two Needle Post-bed Sewing Machine 6192-63/03 B x 4.0

27. Single Needle Flat-bed Sewing Machine 15143-705/03 BL

28. Cording and Zig Zag Sewing Machine 638-45/12-915/01 CL

29. Single Needle Cylinder-bed Sewing 6Machine 335-B2-17/01 BL

D. Bottom Stock1. IH draulic Beam Die Cutting IIachine 2085 2 32. IHydraulic C-Frame Cutting Press 34-E 113. Sli-ivng IDichine MY-1 34. Cement J1yplying Machine 1016 FL 125. Hrdraulic Twin-Station Insole and Sole 3

I-bulding Press 52C6. Insole WUaist and IHeel part Trimming 1

Machine BGF87. Leather Splitting Machine 37N 28. Bottom Leather Scouring Buffing and Roughing 2

1Hachine 349-x9. Insole Channelling Machine 1,200 1

10. Lip Chopping and Size Marling Machine 1261 111. Cement Applying Machine 1016K 112. Insole Lip Turning Machine 1354 113. Insole Inside Lip Taping Machine 1318 114. Pneumatically-operated stamping Machine FP-1 115. Automatically-operated IHeel Compressor 1228 116. Heel Cupping, Roughing and Height Calibrating 2

Machine 448717. Heel Breast Trimming Cutting Machine 1104 118. Slugging Machine 924 A 219. Toe Puff Sxiring Machine 34 VL 220. Automatically Operated Counter Skiving TkInchine HO 121. Oscillating Bottom Scouring M>achine SG 31 122. Counter Pre-shaping Machine HO 123. Hydraulic Counters Iioulding press HO 2

ANNEX 6-10Addendum 1-3

BILL OF EQUIPIIET (Cont'd.)

Name of M&chine No. of Machines

E. Lasting & Finishing Section1. Sts.oling Machine 9253 72. Machine for Roughing Lasting Margin on

Upper Prior Cementing 87R 73. Counter lDipping Tray 10038 114. Backnart Moulding Machine 2-HCP 03 15. Pneumatic Thin-Stntion Stiffener Ironing

Machine 18-G 66. Pneumatically OperEted Activating Unit S-12-Z 117. Single Station Hydraulic Pulling-over and

Cement Forepart lasting Machine with Hydrauliccontrols 63-H DOMIA III 12

8. Side Lasting Machine 66 Hot melt application 59. Hydraulic Automatic Cement Seat Lasting and

Ironing Iachine 64-E 210. Hot Air Blower F-158 811. Upper Leather Roughing Machine 14C 212. Sole Activating Unit 1013. IWrdraulic Sole Press 755 114. High Speed Edge and Waist TrimTing Machine

V!TCTORIA 515. Electro-t-draulic Universal Heel Nailing

M4achine 027 (N25) 316. Heel Scouring fa chine SG33 817. Cold Polishing Sachine PMB-V 618. hiyraulic Last nipping Machine 148-S 919. SDrz.- Cabiret 10045 1.320. Pneumatic Quarter Reforming Machine 121. Tack Side Lasting Dachine UTLS-A 822. Jlectro-Pneunatic Backpart Tacking M4achine CK-23 623. Roughing and Scouring Machine RAPID 924. 1trdraulic Sole Press 754E 825. PVC-Injection Machine (2 Station) for Moulding

Soles to Upper Desma 701 or 1676 1026. Coment Apply-ing Machine 6,000 1427. Upper Ifullirg Cabinet 128. Upper Pounding-up MIachine 12 129. High Pressure Vulcanizing Press Desns 203 1030. Rublocr 1l,-:b 'rirTqi:nig ML.chine 131. Side . L1;ztii MIchine 1236 A for TWelted work 132. Lpper L.ohar Lrmvlg ,achine ,72 133. W,1elt Stit-ching Machine 519ES 134. Inside WIelt Trimm'ig Machine 135. Stapling Machine for attaching welt 9253-186 136. welt Harmner ni-th Cutting-in Device 1188 137. High Speed Rough Rounding and Channelling

11-chine 134i 138. High Soeed Outsole Stitcher 1289 1

ANNEX 6-11Addennum -)4.!

BIIL OF EQUIP 2;T (Cont'd.)

Name of Machine No. of lachines

39. Roller Levelling Machine 240. Pneumatically Operated Press S-12-D 241. LOCK-Stitch Sole Sewing Machine 4586 1

F. Various Machines1. Knife Grinding Machine 12. Cutting Block Plaining Machine Ideal 13. Compresser Plant B-2 RMD 3740-313 14. Perforating Machine 118A 15. Hydraulic Cutting and Embossing Machine 22ES 16. Heavy Strip and Welt Cutting Machine 2191 1

G. Transoort and Storing Equipment(a) Upper Cutting Section

7. Leather rack 10027 688. Cutting Die container 10022 1009. Cutting die shelves 610. Transport racks for cut parts 120

(b) Closing Section11. Conveyor plant with 60 work places 4

(c) Bottom Stock12. Cutting tables 2013. Moveable cutting die racks 10024 20IL. Material transport racks 2015. Transport racks for cut material 1016. Transport Pallet ,ith lifting device 2

(d) Lasting and Finishing Section17. Conveyor plant for product items V & VI 218. Conve-yor plant for items I, II & III 319. Transport racks for item IV 5020. Last racks 10005 5021. Moveable last racks 3022. Last collecting racks 1023, Box transport racks 1024. Finish racks 100

H. Box Mahing Plant1. Shoe Box Making Plant 738/739-60 52. Box Set-up Press 739

I. IWorkshop1. Bending IMachine SB 32 12. Symbol Marking Machine SLUY 13. Size !M;rking Machine V 7 1L. 'eldcUng Table SV 200 15. ieldang Chuck SF50 16. Grinding 1achine S-1T7 I7. Striking Shear SR-4 18. MK Material Drun 29. I,D Stand 1

10. Make Ready Plate RW 350 111. Magnetic Tensioning Plate S-35 112. Pattern Gripper 113. Pattern Clarps lath 3 pattern screws 1014. Pattern Clams with 2 pattern screws 10

ANNEX 6-12

Addendum L-n

BILL OF EQUIMflT (Cont'd.)

Name of 11achine No. of Machines

15. Set of Staups for numbers made of special steel 1steel 0-9

16. Set of Stanpe for figures made of specialsteel A-Z 1

17. Wooden socle %Lith engraved plate to take up 10 nos. 118. Wooden socle with engraved plate to take up 10 nos. 119. Iboden socle with engraved plate to take up figures 1

from A-Z 120. Machine stand for S-32 or SUY 121. Iachine stand for SV-200 or SF-50 122. Machine stand for S-175 or V-7 123. Column drilling machine 124. Hand drilling machine 125. Lathe machine 90 cm 126. Transportable electric welding set 127. Special & Various hand tools 1 set

II. CANVAS SHOESA. Comopunding Room

1. Bale Cutter 12. iner MLxer G-It-27 13. riixing Mill 361" 34. Four Roll Calenders 15. Extra Rollers for Calender 46. Scales 37. Cement mixer 28. Spare parts

B. Cutting Department1. ILvdrau1ic Bear Cutting Presses conplete 42. Hydraulic Swing Arm Clicking Machine complete 13. Corbining Machine 14. Stamping Machine 25. Clicldng Dies 39 sets6. Folding Tables 27. laterial Stands 28. Material Racks 109. Transport Trolleys 2010. Spare parts

C. Closing Room1. Seeing Machines 872. Eye-letting machines, double 53. ConveSo.rs 24. Seinng Baslcets 2005. Spare parts -

D. Vulcanizing Room1. Automatic High Pressure Vulcanizing Press 482. Itrdreulic Units 23. Tennis/Casual shoe moulds for men and children 134. Basket Ball/Tennis shoe moulds for men & children 265. Tri:Urdng iachine 46. Ankle Patch Vulcanizing Machine 2

ANNEX 6-13Addendum 1-6

BILL OF EQUIPi2ENT (Cor.t 'd.)

Name of Machine No. of Machines

7. Cooling Conveyors 28. Spare parts _

E. General Implements1. Pyrometers 22. Thiclmess Gauges 43. Hardness Gauge 14. Laboratory scale 15. Production Hand Tools 1 set

F. Installation Iaterial1. Light and power installation for complete

connection of all machines end equipmentsfrom and including the main distributionpanel

G. PVC Injection Room1. PVC Injection bottoming machine Desme 12. MoulJds 10 pairs3. PVC Injection bottoming machine Desma 14. Moulds 4 pairs

H. Box-adking Plant1. Shoes Box INaldng Plant 738/739 52. Box Set-up Press

III. LABORATORY1. Wiieghing Scales (Avery) 32. Abraison Tester 13. Tensite Testing Machine 14. Lab. IMUxing IT'll (2 Rolls) 15. Lab. Vulcanizing Press (Electrically Heated) 16. Hardness Tester 17. Plastimeter 1

IV. ELECTRICAL EQUIPfJENT AND M4ATERIALS1. Three transformers of 1,000 KVA each2. Three H. T. Switchboards of 11 KV3. One Main L.T. Switchboard, Rates 1,500 A4. 15 distribution Boards for Motors and Feeders5. 5 Feeder Panels with Light Switches for Outgoing

Circuit to Various Departments6. Electrical Fittings, i.e. Cables, Wires, Bulbs,

Tubelights

Industrial Projects DepartmentFebruary 1977

ANNEX 6-1L

TANIZ1IA Addend=m 2

GMO3W DnSTRIL COMLEX

FWfhR FACTO! -PLANT LAXOTJ

Finished Goods Finished Goods Pvc/

for Leatlher for Canvas .E Rubber

Shoes Shoes Godown

(hecdjwater

Despatch Area E r

Grindoiy E E Despatch AGrindei y E 5¢ Area

Godown 0 Lasting a E __ic E WorkVucnizing

Finishing - MouldinE ut a shopRaw Po~~~~~~~~~~~~~~~~~~!c k ing

Raw~~~~~~~~~~~~~~~~~~~~~~~~-

Material Closing c!Godown ___ Deportme- -I

-nt 2Assemply E a I

A ~~Dep art men t ! - -A±Cutting and

Bottom kE' -toingCutting

C ~~-4I Ev.

o u Uppor E E ouseILf - C

Cutting 8 ' Compounding

E| i LEob,ty l ~~~~~~~R o o m ,El Lb.1 R 00 ' ,m

0 lOm4 201m 22m 40 m

LI m309m~~~~~~~~~~~~~~~~~2

Office C n OfficGotet 9m C anteQn E

Source: IACP

I:aiotrial Projeate Depart.itFebruary 1977

ANNEX 7-`

TANZANIA

MOROGORO INDUSTRIAL CO0PLEX

SHOE FA CORY PRIME CONTRACTOR

ITALMACCHINE PLANTS S.p.A. - CORPORATE PROFILE

The Prime Contractor

1. National Development Corporation (NDC) has selected ItalmacchinePlants S.p.A. (Italmacchine) as the prime contractor for the shoe factory atthe Morogoro Industrial Complex. Italmacchine is a member company of theGruppo Svires International Holdings N.V. (the Svires Group), headquarteredin Cura9ao, the Netherlands Antilles. The Svires Group owns 35% of Ital-macchine and appears to have effective control of the company. Svires isan established international financing group with experience in developingmajor infrastructure projects throughout the world; for example, in Peru,it has been involved in an $80 million program of hospital investment, andin Venezuela, in a development program for railroads. Addendum 1 shows theinterrelationships of the various members of the Svires Group.

2. In turn, Italmacchine controls Technoshoe, S.p.A. and TechnotanItalia S.p.A., two Italian companies providing engineering services in shoemanufacturing and leather tanning, respectively. Italmacchine also controlsIndustria Turbighese Macchine S.r.l., a manufacturer of leather tanningmachinery. In consortium with other companies within and outside the SviresGroup, Italmacchine operates as the main contractor for the supply of en-gineering and construction supervision in connection with turnkey projectsfor factories producing leather, shoes, reconstituted leather, syntheticleather and derivatives (see Addendum 2 for data on projects under study orexecution).

3. One of the companies associated with Italmacchine is Indelco ProgettiS.p.A. (Indelco), another member of the Svires Group. Indelco, a well establishedengineering company will be responsible for civil engineering of the shoe factory.It is a company of proven competence, and its senior management has had experiencewith major, large-scale projects, not only in Italy but also in a substantialnumber of European, African, Asian, and Latin American countries.

4. At present, marketing of leather, shoes, leather goods, and syntheticleather and products are being carried on by a number of Italian and non-Italian companies associated or allied with Italmacchine. However, ltalmacchineis centralizing and strengthening its marketing capability with the formationof Interleather S.A., to be established on July 1, 1977 with an initial capitalof Sw Fr 100,000, of which Italmacchine will subscribe 51%. Interleather willassume all the marketing activities of Italmacchine related to the Morogoroproject.

5. Wobaco Investments Ltd. (Wobaco) of London, and its affiliate, theWorld Banking Corporation Ltd. (Nassau), maintain close business relationshipwith the Svires Group, acting as the latter's financial advisor in connection

ANNEX 7-1

with the overall financial planning of construction projects by Sv-ires ^u';side

of Italy.

6. In its contracts with NDC, Italmacchine will be providing a "package"of services for the Morogoro shoe factory, including: (i) the project en-

gineering contract, i.e., design, detailed engineering, procurement, super-

vision of construction, training, start-up; and (ii) the management and

marketing con-tract, i.e., management of operations and marketing of production.

Italmacchine is staffed with experienced and capable personnel in positions of

senior management; it is also in the process of expanding its staff and

strengthening its capabilities in all aspects.

Organization and Management

7. Italmcchine operates as a holding company through its three operat-ing divisions, each of which has been incorporated, in consonance with Ital-

macchine's corporate philosophy aiming at operating flexibility. Each of

the three divisions specializes in one of the Italmacchine's chief activi-ties: Technotan Italia for tanning, Technoshoe for footwear, and Technosyntfor projects other than tanning and footwear.

8. Technotan's staff consists of 15 senior technicians and specialists,

and it is equipped with a pilot tanning plant for training and tests as well

as a very modern chemical laboratory. Technoshoe's staff consists of 10 senior

technicians and experts. A complete training school for domestic (i.e. Italian)and foreiyn trainees will very shortly be established, with the support of the

Italian Agency for Technical Cooperation. Technosynt, established January 1977,

operates on a case by case basis on projects other than tanning and footwear,

such as synthetic leather, leather board, etc.

9. For machinery supply, Italmacchine relies in the first instance on

Industria Turbighese Macchine (formerly Italmacchine S.r.l.), a manufacturer

of advanced machinery and equipment for the tanning and footwear industries.

This company acts as Italmacchine's machinery manufacturing unit, capable of

designing and developing new machinery required by the group's special require-

ments. With annual sales of US$5 million in 1975, this company has a staff of

80, mostly highly qualified mechanical engineers and technicians. In the

Morogoro project, however, machinery will be internationally tendered in ac-

cordance with Bank giidelines and Industria Turbighese would be simpbr oneof many bidders.

10. The key senior management of Italmacchine consists of Messrs. FeliceAmbrosini (Executive Vice President) and Marco A. Zurleni (General Manager).

Mr. Ambrosini, h, is a tanning engineer by profession with some training in

economics. He has been in the tanning and footwear industry, as well as in

the machinery manufacturing industry since the early 1950's, He has been

dynamic and forceful in his management style, and under his management,Ttalmacchine had grown from a tanning machinery manufacturer to a footwear

ANNEX 7-3

machinery manufacturer and now to a conglomerate capable of providing on aworld-wide basis, the "package" of services noted in para 6.

11. Mr. Zurleni, 38, the General Manager, with some training in economics,assumed his duties in Italmacchine after transfer from Svires as part of theprogram of general strengthening of management instituted early in 1976.Since the early 1960's, Mr. Zurleni has been involved with marketing, bothinternational and domestic, of products as well as major industrial plants.He is experienced in promotion and negotiations of projects, with private orpublic entities, and is familiar with all aspects of implementation of majorindustrial projects.

Potential

12. Italmacchine is in the process of rapid growth. With a successful andqualified team at the helm, and with impressive technical support from the tech-nical divisions of Italmacchine and such engineering firms as Indelco, NDC con-cluded that Italmacchine's proposal for providing the full package of needed en-gineering, management and marketing services was the most attractive and feasibleof the offers received. After field investigations conducted by the Bank in Milanand elsewhere and review of all available data on the Svires Group and Italmacchine,the Bank has endorsed NDC's selection and appropriate contracts have been negotia-ted.

Industrial Projects DepartmentFebruary 1977

ANNEX 7-h1TANZANIA Addendum :

M)ROGORO INDUSTRIAL C)IT,LE

ThE SVIRES GROUP OF COMPANIES

GRUPPO SVIRESINTERNATIONAL

OTHER HOLDINGS N.V.SHAREHOLDERS

SUBSIDIARIES

70 Y . 3f-

I RUPPO SIRES ,-. U SP.A. GRUPPO SVIRES 100% IC0%

EUROPEAN GRUPPOHOLDING B.V. SVIRES

52,5% GRUPPO 1' S3

. - llcos~- - -

SVIRES

75% / ~ ~ , A.G. 98% (%FARMING AND 2

IN DE LCO Sf_____>AGRICULTURE).fPROGETTI S11.9. SA IA

''bruyS197 17. I SVIRES.

j Inc. I

52,5Y. 47.5Y < _ _ _ _ _Q |$ ~~~~~~SVIRESIREL ULDING -GRUPPO SVILUPPO

KN W-O & /ISVIRES(U.K.) I I SP A. IS.A Ltd.Ak___y

2SS | W 1 ~75S- - I B~~~~~DUCATIONAL

DEVELOPMENTIGROUP S. p.A.)

73 1 1 ~~~75%I SVIRES I -

I(ACCOUNTING &lADMINISTRATIONI

S.P.A.

- ~~~~~~~~~~EDLZIONII SVIRES I

- ___ - __- formned in No,nembe 1976 | S.P.A. I- - - - - - - -0 P-ess offormation - -- - - --

Industrial Projects Departmuent

February 1977

TANZANIA

MOROGORO INDTJSTRIAL COTeLEX

ITALMACCHINE PLANTS - LIST OF MIAJOR PROJECTS UNDER CONSIDERATION

EstimatedEstimated TotalOutput Investment Partners

Client Country Location Scope of Work (Annual capacity) (in US$ millions)1. Grafton Australia Grafton, New Basic & detailed en- 465 thousand 5.o Weisscredit Bank

Tannery Ltd. So. Wales, gineering, supply of sq. m. (Switzerland and Australia)Australia machinery, technical

assistance & know-how, marketing &output of tannery.

2. Tanne-ie Canada Trois Design, engineering, 465 thousand h4.7I.T.E.M.I. Rivieres, supply of machinery sq. mt.

Quebec, erection, start-up,Canada and commissioning

of complete tanningunit.

3. Ministry of Iraq Ba'qubah, Turnkey execution of 2,323 thousand 34.1 Wobaco Investment Ltd.,Industry Iraq a tanning project in sq. mt. London, U.K. as financialand Minerals, Ba'qubah, i.e., de- advisor, and GruppoGovernment sign, engineering, Svires, S.p A., Milan,of Iraq supply, erection, Italy, as contracting

start-up, tests, & advisor and agent.commissioning.

h. Ballybay Republic Ballybay, Design, supply of 465 thousandTanners Ltd. of Ireland machinery, engineer- sq* mto

Ireland ing, & technicalassistance for atanning unit. :JI

3 <

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

ITALMACCHINE PLANTS - LIST OF MAJOR PROJECTS UNDER CONSIDERATION

EstimatedTotal In-

Client Country Location Scope of Work Estimated Output vestment Partners(Annual capacity) (in US$ mil-

lions)5. Pasig Republic Metropolitan Turnkey implementa- Trairdng 51.0 Financial

Development of the Manila, the tion of an inte- Footwear Training 120 trainees partners ofCorporation, Philippines Philippines grated tanning and School the SviresMinistry of footwear industry, Tannery Training 50 trainees GroupIndustry, including: a tan- SchoolRepublic of nery, a leatherthe tanning training TradePhilippines school, a footwear Export Center 4-5 million

training school, pairs6 shoe factories, Production1 synthetic leather Unitsand leather board Tannery 1,115 thousandfactory, a footwear sq. mt.export center, and Finishingseveral by-product Units 929 thousandmanufacturing sq. mt.units. Synthetic 2.5 million

Leather m.t.

Leather Board 700 thousand kgr.Shoe Factories 4-5 million pairs

Miscellaneous 8.1 million pairsof rubber soles &shoe lasts

i ,

Industrial Projects Department

Februazr 1977

ANNEX 8-1

TANZANIA

NOROGORO INDUSTRIAL COOMLEX

IEATHIR GOODS FACTORY COMIPONENT - GNIERAL DESCRIPTION

A. Justification of the Leather Goods Factory

1. Most developing countries produce some kind of leather goods orfancy leather articles, partly for the local market but mostly for touristconsumption. Travelling bags with motifs, inlaid by hand or simplemechanical processes, are popular with souvenir-hunting tourists. Presentlyin Tanzania, even such curiosity-type leather products are of inferiorquality. That is not to say, though, that if more adequate means of produc-tion were introduced, Tanzania would not be able to produce markedly improvedquality leather goods. For this reason, it is suggested that the leather goodsfactory be established to utilize the leather from the output of the tanneryand to utilize leather scraps from the footwear factory (which would otherwisebe wasted). Some of this waste leather may even pose disposal problems. Usingthem for leather goods would thus produce multiple benefits.

2. AdTnittfdT%r, th0r' is a small domestic demand for sowrenir-t;'pe goods.But the output of the leather goods factory will be primarily directed towardthe export market. Given training and technical advice with respect to manufac-turing techniques as well as the marketing know-how with respect to ever-changing tastes in fashion and channels of distribution, Tanzania should beable to produce export quality leather goods. In this respect, the servicesof expatriates to be attached to the leather goods factory would be indispensable.Addendum 3 of Annex 11 shows the market for leather goods to be US$521.6 millionfor the first six months of 1974. Even if the entire output of the leather goodsfactory, valued at US$ 2.3 million, were to be exported, it would still consti-tute at most .4% of the total world imports of leather goods._ This, of course,assumes that Tanzania is -Eble to produce the "right" styles with sufficientrapidity to meet export marketing demands.

B. Technical Details

a. Product Mix

4. The leather goods factory at the Morogoro Industrial Complex willproduce leather goods of export quality. It will be a modern organized unithaving potential to produce all sorts of handbags, suitcases, wallets, belts,leather jackets, etc. At 100% capacity utilization, the output of the leathergoods factory is estimated to be based on the following product mix:

Table 1: Leather Goods Factory Product Eix('000 pieces per year)

Handbags 18Suitcases 10Tallets 32Leather Belts 14Leather Jackets 40

ANNE( 8-.

5. -The plant shall be so designed that it will have flexibilityto switch to other products should there be demand for other prodtucts. Thecapacity utilization will be assumed to be 60% in the first year, 70Z inthe second year, 80/ in the third year, and 90p in the fourth and su2bsequentyears.

b. Production Process

6. The following describes the various steps in the leather goodsmanufacturing process:

(i) Sanple making: The sample maker creates new styles and preparesthe cutting patterns, which must be ready for the cutting department wheneverrequired.

(ii) Cutting. For small quantities of certain articles, carodboardcutting patterns are used. In case a product is to be produced in largequantities, dres are used for cutting by clicling machines.

(iii) Stitching. The cut parts are first split into uniform thick-nesses and skived for the sewing operation. The linings are glued on, grindenrapplied and some of the accessories fitted to give the required shape. Articlesthat are of a very complicated design may be partly stitched, sent for assem-bling, and then returned for further stitching.

(iv) Cardboard Cutting. A hand-operated guillotine is suggestedfor cutting paper and board, used extensively in leather goods production,to the sizes required.

(v) Assembling. Various parts of the articles are assembled, andaccessories are fitted. Final polishing and cleaning are done.

(vi) Finishing and Storing. Finished goods from the assenmblingroom are packed and stored in cardboard boxes.

C. Raw Materials

7. It is estimated that to produce the product-mix in Table 1 andoperatirg at 100,> capacity utilization, the following raiv material costsi,uld be incurred:

Leather Goods Factory - Annual Raw Material Costs_ -Tsh -T-

Leather (183,102 m2 ) 10,086Imported accessories & grindery 1 868

Total I175

D. Utilities and Essential Services

8. The connected load of the leather goods factony operating is estimatec1to be 35 E.J. LAt 10O0. capacity utilization, the annual electricity charges :Muldbe Tsh 20,30V,/-yr, assuming standard industrial charges by TAiSESCO.

9. The amu2i reo uirement of rater -- chiefly for drinking purposes --amoun' to 2.1 ri-ilion liters/r. At Tsh 6/h51).5 liters, the water chargesould be Tsh 3,060/yr.

10. There i-dl1 be no fuel expenses for this operation.

E. Building

11. The factory will rent four units of a standard factory buildingto be built by the industrial estate. At Tsh9O,0OO per unit, this willentail an annual rental of Tsh 360, iXUXyr to the industrial estate,

F. Employment

12. The staffing pattern of the leather goods factory is given in thetable below:

Table 2: Leather Goods Factory Staffing PatternocpaEine Reqirfed

1InagerStore,en (raw material) 1Head Cutter 1Cutters 4Cementing and Folding Operators 1Cardboard Cutter 1Stitchers 55Assemblers (sldlled) 6Assemblers (semi-skilled) 36Storemen (finished goods) 1Assistant Storemen 1Packers 2M4odeller 1Patterr. lakers 2

Total 113

At full capacity, there are jobs for about 113 persons.

G. Training

13. Aside from the funds included in "Consulting and Engineering Services"which are capitalized, the training cormonent of the leather goods factory pro-vides for three experts during the first tis years of operations. These expertsconsist of: (i) one leather technologist, (ii) one modellor and (iii) one qualityinspector Who will train Tanzanians on-the-job. The prime contractor for thefootwear factory will arrange the foreign expertize needed in the leather goodsfactory under terms of a contract to be negotiated. Costs related to this com-ponent are partially covered in the funds allocated to the prime contractor aspart of the footwear factory capital cost. In addition, during the first twoyears of operation of the leather goods factory (1979 and 1930), a total ofUS$ 112,000 is provided as current ernenditures.

Industrial Projects DepartmentFebruary 1977

ANNEX 8-4Addendum 1

TUHZAIIA

IIOROGORO INDUSTRIAL COMPLEX

ILETHER GOODS FACTORY CO0ONEIT

BILL OF EQUIPHIYT

Iterm No. of Machines

A. IDPORTEDI. Material Storage Departmen-t

1. Cutting Knives 32. Skiving Knife 13. Pair of Scissors 14. Folding Bone 15. Awl 16. Iron Ruler (50 cm) 1

II. Sanple-making Department1. Table Panthograph (hand operated) 12. Awls 23. Cutting Knives 44. Skiving Knive s 25. Pair of Scissors 26. Folding Bones 27. Compass (for leather goods) 28. Iron Ruler (50 cm) 19. Hanmrer (for leather goods) 1

III. Cutting Department1. Hydraulic Sewing-Arm Clicking Machines 22. Upper Cuttirg Knive, 43. Grinding Stones 4)4. Awls 45. Iron Ruler (50 cm) 4

IV. Stitch;ng Department1. SkIving 11 chine 12. Splitting IIachine 13. Sewing Machine (lining stitching) 64. Seizng Machines (single-needle cylinder bed) 85. Zig-zag Sewing Machine (single needle flat bed) 16. Sewirfng linchines (leathernear single needle flat-ed) 407. Cutting Knives 208. Pair of Scissors 509. Grinding Stone 1

V. Cardboard Department1. Guillotine 12. Cutting Knife 13. Skiving Knife 14. Grinding Stone 1

V1. Assembling Department1. The-ro-cementing and Fole'ing Machine 12. Frame-attaching Device 13. Aills 43Ii. Cutting Knives 43

ANNEX 8 -5;Adderurn 1-~2

B:[IL OF FQOTIr.-2 (Co-: tr)

Item ITo. of Iacahinres

5. Pair of Scissors 16. Edge Polibhing Irons 127. Folding Bones k38. Cormasses 129. Cet> of Puflchers 2

i'. Iron a.ulers (50 cm) 18il. H.amers 501 2. Set of' 'rame-f'stening To4rs l1 3. Electric Cool-mrs 1211,.. Brushes 2015L .RivetiLn5 E,, ; c chi r e1

3. LCI-. AsSeniblg De)aft-m.en,

i. Pots (fo- rubber, cement avrd glue) 252. Stone P1ates (50 cr. 25 cm xc 5 ci) 30

,Source: IACP

Tndzistri21 Frc-ectc Den- ;February 1977

TAliZANIA ANNEX 8-6--- ZANIA Addenclur. ?

MR1GORO INDUSTRDA5 C%OPLEX

LEATE: GOODS FACTORY - PLUiT LAfOUT

4m b 14m 6 m

Cutting

E S ,ore

_4m 101n

F inishedG oo d s

E Store

Stitching Assembling

E Sample Office <s

Making Card

Board

E G)ci rm. n t

(N Cutting Ga r mernrt Stitching

H- 24m

--zc n rLL 2ec-ts 3DepartmentFebruary 1977

ANNEX

TANIZANIA

MOROGORO INDUSTRIAL COMPLEX

EIB/EDF FINANCING PLAN - CANVAS MILL

1. Based on a capital cost estimate of 21 million u.a.: and a debt:equity rates of 57:43, the proposed financing plan for the canvas mill maybe tabulated as follows:

AmountStep Source Beneficiary (u.a.million) Terms

1 EDF Government 12.0 1% p.a.; 40 years,with 10 years grace

2 Government NDC 12.0 6% p.a.; 15 yearswith 5 years grace

3 NDC Canvas Mill 12.0 (same terms as step 2)

i EIB NDC 3.0 2% p.a.; 20 yearswith 8 years grace

2 NDC Canvas Mill 3.0 Equity investment

i NDC Canvas Mill 6.0 Equity investment

2. A condition of the EIB contribution is likely to be that, in theevent of dividends exceeding a certain level, the repayment schedule wouldbe accelerated.

1/ u.a. = units of account = US$ 1.20

Industrial Projects DivisionFebruary 1977

ANMEYT 10-1

TANZAN IA

MOROGORO INDUSTRIAL COMPLEX

CANVAS MILL COMPONENT - GENERAL DESCRIPTION

A. Justification for the Crnvas Mill at Morogoro

1. Crnvas cloth is used chiefly in the production of canvas shoes, tarpaulins,tents, awnings, sails, haversacks, webbings, mailbags, kit bags, and allied items.The defense services of the world are major consumers of canivas goods and their needshave been increasing steadily. Other reasons for increased world-wide demand forcanvas and canvas goods have been the increase in population and the growth in primaryeducation. Demand is also directly affected by the level of activity in: construction,transport and storage, tourism and athletic activities.

2. There are no canvas mills in Tanzania, and the country's domestic demandfor canvas and canvas goods has been satisfied with imports. There is a fast growingmarket for canvas shoes, because of increasing primary education, estimated by someto be as high as 15% per annum.

3. Looking beyond Tanzania, there is a big and growing market for canvasgoods in the world as discussed in detail in Annex 11 "Markets and Marketing". Themarket -/in the US for footwear wholly or chiefly of textile materials was estimatedto be 241.5 million pairs in 1973, 98.0 million pairs of which were imported. Theoutput of the canvas mill at Morogoro is intended to produce 2 million pairs ofcanvas shoes a year for the export market as well as canvas for other purposes.Even if the entire output of the mill were geared toward canvas shoe manufacturing,the output could be easily absorbed by the world market provided suitable marketingarrangements existed. Should the market for plain canvas shrink, there is alwaysthe market for yarn. Besides, the machinery in the canvas mill is quite versatile,and can be used to produce drill or denim. There is thus no demand constraint tothe establishment of the canvas mill, a conclusion supported by several independentassessments carried out by US and UK consultants during the evaluation of theproject's feasibility.

4. Cotton is abundantly available in Tanzania at competitive prices. Pro-duction has averaged about 65-70 thousand metric tons per annum ovei the lastdecade. Domestic consumption has been negligible until very recently. Consumptionhas grown slowly since 1966/67 and in 1971/72, consumption was about 9,000 metrictons as a result of the establishment of several cotton textile mills and expansionof their capacity. The gap between production and consumption of cotton has resultedin large surpluses for export and in the past decade 85-100% of the total productionhas been exported as raw cotton in bales.

5. The local manufacture of canvas goods will thus take advantage of Tanzania'sfavored position as a major cotton producer. It will increase the value added ofexports and at the same time save foreign exchange on imports of canvas goods. Thisis the basic economic justification for construction of a canvas mill.

1/ Defined as apparent consumption, i. e. production plus imports minus exports,without taking into consideration inventory changes. Data taken from OECD,The Footwear, Raw Hides and Skins and Leather Industry in OECD Countries,1973/74. Paris, 1975.

ANNEX 10-2

Xv. While the case for producing canvas domestically is self-evident, thereis a theoretical alternative to constructing a new mill as part of the Morogorocomplex, i.e., expanding an existing textile mill. Within the same time frame,an expansion project would be likely to be less costly in terms of both capitalinvestment and operating cost. However, the canvas mill was approved by Govern-ment in 1973 as an integral part of the industrial complex at Morogoro to beowned and managed by NDC and project planning was carried out on this basis, eventhough the textile sector as a whole was transferred from NDC to TEXCO in thatyear. If, for any reason, the canvas mill were now to be transferred to TEXCOand implemented as an expansion project as an existing textile mill, the delaysin carrying out new studies would likely cause a slippage of a year or two. (Themanagement of TEXCO, a new and inexperienced parastatal, is already overburdened withtwo substantial expansion projects.) As a consequence of the time delay, withcapital investment increasing by some 10 to 12% per annum, any potential saving inproject investment would be partially or entirely wiped out. More importantly, theshoe factory at Morogoro, representing the largest single consumer of canvas, wouldalso have to slip by the same time interval, increasing its cost proportionally, aswell as delaying the major foreign exchange earnings of shoe exports. LI From apractical point of view, the canvas mill must be considered "locked in' to theMorogoro project. In the normal course of events, as sales increase, the issuewill arise as to whether canvas production should be increased at Morogoro or atanother textile mill. Planning should begin early enough so that the decision canbe made rationally,.

B. Technical Details

7. Canvas is a thick cloth made out of coarse cotton yarn and is used formaking tents, tarpaulins, haversacks, etc. The most common English counts are 8to 16 with two or more plys. The quality of canvas besides its weave structureis also designated by its weight per unit area e. g., gr/m2. The weight of mostcommonly used canvas varies from 339 gr/m 2 to 613 gr/m 2 . The mill at Morogoro willproduce canvas primarily for canvas shoes, a product which differs from canvasnormally used in tents, tarpaulins, and similar uses. For shoes, two layers of thincanvas cloth are laminated together by means of rubber or chemicals. The uppercloth for preparing shoe canvas is always bleached, and when required, it can alsobe dyed subsequently.

8. The canvas mill will consist of 12,600 spindles and 188 looms (112 forshoe canvas preparation and 76 for medium/heavy canvas). The spindles will spincoarse yarn varying from 1Os to 20s counts. However, as the requirements will bemostly for lOs count, the average count will be 12s. Based on this average, thespinning section will spin about 3,616 tons of yarn per annum.

9. A part of the yarn produced will be converted to two plys or more ontwisting machines. The grey yarn in the form of 20s/1, 16s/1, 14s/1, 10s/2, and1Os/3 will be passed into weaving preparatory for preparation of warp and pirnwinding. There will be adequate provision for finishing facilities such as washing,bleaching, dyeing, chemical impregnation for water-proofing and lamination. Thelooms will produce 7,473,300 meters of 140 cms width per year working 300 days ayear, three shifts a day. The breakdown of output categories is tabulated as follows:

1/ Importing canvas in large quantities for canvas shoe production is, of course,possible but it would reduce substantially the net foreign exchange earnings.

ANNEX 10-3

Table 1 - Canvas Mill Output

Item Quantity(000 meters)

In Grey State

- Upper cloth for shoe canvas 2,000- Lining cloth for shoe canvas 2,000- Canvas 3,473

Total 7_273

After Finishing

- Laminated, bleached and dyed 2,000(for shoe uppers)

- Dyed Canvas (for general use) 1,473- Water Proofed Canvas 2,000

Total 5,473

10. The above figures are based on 100% capacity utilization. It is assumedthat the canvas mill will operate at 25% capacity utilization during the first halfyear of operations, 60% for the next year, 80% for the third year, and 90% for thefourth and subsequent years.

11. The manufacturing of canvas goes through the following stages:

(i) spinning, which converts raw cotton to cotton yarn;

(ii) weaving, which converts yarn into (grey) cotton fabric; and

(iii) finishing, which includes bleaching, dyeing and waterproofingthe grey canvas.

12. The major operatiornand types of machinery used in the various stages ofprocessing cotton to canvas are listed below (from the more detailed data in Addenda 1and 2):

Table 2 - Cperations and Major Units of Equipment

Stage §Steps

Spinning (a) Blowing Room(b) Carding(c) Draw Frames(d) Speed Frames(e) Ring Frames

Weaving Preparatory (a) Cone-winder(b) High-speed Wcrper(c) Sizing(d) Pirn IWnding

ANNEX 10-1

Stage Steps

Weaving (a) Primary motions: "shedding","picking", and "beating up"

(b) Weave Pattern: plain, twill,satin, and figures

Finishing (a) Laying out(b) Designing(c) Bleaching(d) Drying(e) Dyeing(f) Water Proofing

C. Raw Materials

13. At 100% capacity utilization, the raw material costs are tabulated below:

Table 3 - COnvas Mill - Annual Raw Material Costs /1

A. Imported Tsh. '000

1. Sizing for 4 million meters 4002. Eleaching chemicals for 2 million meters 2403. Dyeing chemicals for 1.473 million meters 6634. Water proofing for 2.0 million meters 1,8005. Adhesive chemicals for laminating 2.0

million meters 1,500

Total 4,603

B. Local

Cotton (4,332 metric tons) 36,822

Total 41_,425

/1 Prices for all material inputs are those prevailing in late-1975.

D. Utilities and Services

1. The connected load of the mill will be 2,587 KW, including lighting.vith the standard industrial rates charged by TANESCO, the annual cost of elec-tricity at 100% capacity utilization will be Tsh 2,285,000/yr. It is possiblethat the Morogoro Estate will be able to negotiate a lower bulk rate for the fullestate load. If that occurs, the saving mDuld be passed on in whole or in partto the canvas mill (and the other factories) but, for purposes of analyzingoperating profits, it was conservatively assumed that the higher rates wouldprevail.

ANNEX 10-5

15. Water consumption - mainly for sizing, washing and bleachiqg, dyeing,laminating, air-conditioning and steam generation - will tot4l, 600 mJ/day plus60m3 for sanitary purposes with a peak demand of 30 to 35 mi/hr. The standardwater charge in Tanzania is Tsh 1.4/03 and the annual cost will be Tsh. 278,000based on 330 day, 3 shift operation.

16. Fuel oil requirements are estimated to be 3.55 million liters per yearto generate 32.2 million kg. of steam. At Tsh 462/1000 liters, fuel oil will costannually Tsh 1.64 million (full capacity operation).

E. Buildings

17. The factory building to house spinning, weaving and finishing will cover18,458 m.2 and aecillary structures for warehousing, boilers, canteen and officeswill add 2,271 m . At Tsh 1,400/m , including consulting and engineering charges(10% of civil works), buildings will cost Tsh 29.0 million. Building costs corres-pond to late - 1975 prices for reinforced concrete construction and steel trussessupporting corrugated asbestos cement sheet roofing. Fencing at Tsh 180/m for1,030 m or Tsh 185,400 total was added to the civil works cost estimate in the IACPstudy, but this item may be discarded since the entire estate boundary will be fenced.

F. Ecological Considerations

18. The air quality at Morogoro is relatively good because there are fewindustrial units in the area. In carrying out the project, every effort will bemade to control within acceptable limits the discharge of solid, liquid and gaseouswastes. Flue gases from the steam boiler will be automatically regulated to ensuretotal combustion. The spinning and weaving departments will exhaust air throughfilters to prevent fibers and dust from reaching the outside atmosphere. Cardingequipment will be equipped with floor waste exhaust filters. Liquid effluent fromthe converting operations will be discharged to open settling ponds. According topresent plans, a 57 ha settling pond will be installed as part of the tanneryproject. It is likely that the effluent from the canvas mill could also be runinto a pond of this size but this question requires further study by experts. Afinal option will be a more sophisticated central waste treatment plant for allestate factories. During the design phase, a study of feasible alternatives willbe undertaken and a decision taken on the optimum solution to the problem of liquidwaste disposal. In this report, it has been assumed, conservatively, that a moresophisticated and more costly system will be needed than was foreseen in thefeasibility study. The industrial estate cost, therefore, includes funds to coverthis contingency (!nnex 4, para. 8).

ANNEX 10-6

G. Employment

19. The staffing pattern at full capacity is given in the table below:

Table 4 - Canvas Mill - Staffing Pattern

Managerial Supervisory Scilled Semi-Skilled Unskilled

fi. Production &-partment

1. Blow Room - 11 5 132. Card Room - 21 5 133. Draw Frame and Speed - - 42 21 4

Frame4. Ring Frame - 3 166 6 215. Winding and Twisting - 3 150 16 96. Pirn Winding, iLrping - - 28 8 4

and Sizing7. Weaving - 6 127 45 138. Finishing - - 21 6 169. Making-up Dept. - - 4 2 -

10. Production Office Staff 13 8 8 - 2

B. Service Department

1. Electrical 1 - 12 - -2. Workshop 1 - 13 7 -3. Ebiler - - 3 6 -

C. General Office 7 17 4 23 7

Total 22 37 610 150 102

At full capacity, tha mill will employ close to 1,000 people.

H. Training

20. The prime contractor will be responsible for planning and implementing acomprehensive program of treining. It will consist of: (i) foreign experts stationedat M4orogoro providing on-the-job training to Tanzanian steff and workers; and (ii)training at foreign canvas mills for key Tanzan .an personncil. FE and LC costs relatedto the foreign consultants are covered in the "Consulting aMid Engineering Services'component of the capital cost estimate and those related to training Tanzanian keypersonnel at foreign locations are covered in the "'Training" component totallineUS$430,000 (in current terms) as shown in the capital cost estimate. Thetable below gives the breakdon of the latter cost elementss

ANNEX 10-7

Table 5-Training Cost Estimate of Tanzanians at Foreign Locations(MS$) 1/

Cost/ ! loyees No. TotalRound trip 3,000 - 20 57,-TMaintenance OUS$50/day x 180 days 12,000 20 240,000Contingencies 130,000

Total 430Q,000

L/ In current terms.

I. Financial and Economic Rates of Return

21. Based on the assumptions made by the mission, the financial rate of re-turn was calculated to be 13.6% before tax and 9.5% after tax. The economic rate of

return was calculated to be 18.5%.

Industrial Projects DbpartmentFebruary 1977

TANZANIA ANNEX 11-1

MOROGORO INDIJSTRIAL COMPLEX

MARKETS AND MARKETING

A. Hides and Skins - 'World Production and Trade

1. Hides.and skins are by-products of the meet and dairy industries.olhile there has been an increene in the demand for meat and dairy products, theproduction of hides and skins hat remained fairly constant in recent years. There son has been th&t increased demand for meat and dairy products has been metthrough increased yields rather than through higher slauglhter rates. Withincreases in income levels, people, especially in the developed countries, demandmore leather and leather goods. While synthetics have made inroads into marketstraditionally serviced by leather, there are natural qualities in leather thats.ynthetics have not been able to duplicate. Given increasing demand and a moreor less fixed supply, there have been sharp increases in prices (one weightedaverage before the recent world recession showed a 30 percent increase overprevious years) of hides and skins. During the recent world recession, demandslackened but with the recovery, demand for hides and skins has once again pickedup. Table 1 below shows wrld production and trade in hides and skins for theyears 1968-71. The data show that the production of sheep skins alone has gronnmodestly. Cattle hides and goat skins production has been substantially unchanged.Total world exports do not equal world imports because of stock changes and statis-tical errors in data collection. In the discussion below, the world has beenconveniently divided into three parts: developed, developing, and centrally planned.

Table 1-World Production, Exporta and Importa of HLdea and Skins, 1968-71

Items Production Production Export Import(Million Pieces) -- (MT ' ---)---

1968Cattle Hides & Calf Skins 236.6 l,175.2 1,136.0 1,162.0Sheep Skins 3h8.7 311.3 201.2 208.0Goat Skins Total1 136.3 330 31 6

Total : ~~~699.8 1L624.O 1302 1,4L01.6

1969Cattle Hides & Calf Skins 238.5 L,258.9 1,221.lt 1,227.5Sheep Skins 356.3 307.0 211.2 217.0Goat Skins 116.8 101.2 38 6 35.

Total 711.6 ,670. 1h712 779.7

1970Cattle Hides & Calf Skins 239.7 14 ,27h.h 1,217.L, 1,261.5Sheep Skins 36C.7 327.6 200.0 211.3Goat Skins 115.0 102.6 32.9 35.4

Total 715-L 1, l 50 3 1,508.2

1971C-ttle Hides & Calf Skins 236.1 L,216.o 1,176.2 1,210.0Sheen Skins 38C.0 339.1 223.6 218.3Goat Skins l1L.5 102.0 31.6 36.1

Total : i3C.6 7,657.1 1,431.h 1

Source: FAO, Conriodty Review and Outlook.

ANNEX 11-2

2. Table 2 below shows the production and trade of hides and skins ofthe developed countries in the period 1968-71. The developed countries produceabout 38 Dercent of the world's hides and skins but the bulk of these areexported for processing in low-labor cost countries. From the ratios of exportsto production, we can see the trend that is confirmed by leather experts aroundthe world, i.e., the developed countries are phasing themselves out of the leathertanning business. They are not building new capacity or replacing obsoletetanneries because of pollution problems and because iith rising income levels,fewer people are willing to work in tanneries.

Table 2IJevelopge Countries Annual Production port and Imports of Hides and adins 1968-71

Production Production ExDort ImDort Ratio of Ratio ofItems (Million pieces) (P) (X) (M) (x-/T T77

---------- (MTOOO)----

1968Cattle Hides & C-alf Skins 9J4 .8 1,6L2.7 8l3.5 862.8 51.3 52.5Sheep Skins 119.2 133.2 123.5 20h.3 92.7 153.)JGoat Skins 10.2 12.1 L.6 N.A 38.0 N.A

Total : 72 1,758.0 971.6 7T T3 59.6

1969Cattle Hides &: Calf Skins 9L.0 1,667.8 868.7 915.0 52.0 51!.8Sheep Skins 151i.1 137.5 129.0 211.8 93 .8 15L.0Goat Skins 10.3 9.1 5.1 29.2 56.o 320.e

Total 2 58.7, 1,8TI l,ooT 1,176.Qb 3 63.7

1970Cattle Hides & Calf Skins 93.3 1,666.o 903.3 905.1 51,.2 51 .3Sheep Skins 157.3 TLO.h 12L.6 207.8 89.0 1H8.0Goat Skins 10. 8.0 -3 N.A 56.C N A

Total 260. T,1T 1,032.2 1,112.9 56.8

1971Cattle Hides & Calf Skins 94.0 1,687,5 967.0 855.o 57.3 50.7Sheep Skins 165.0 1L7.3 136.0 215.0 92.3 IJA.CGoat Skins 9-5 8A 1.5 33.0 53.5 92.8

Total: 1,8L3.2 1,107.7 1,103.0) -01

Source : FAO, Commodity Review and Outlook.

3. Table 3 below shows the production and trade of the developing countriesin hides and sldns. The countries in the developing world produce 42 percent ofthe world's hides and skins, and also are net exoorters of these commodities. But,just as the developed countries are phasing out of the business of tanning, thedeveloping countries are expanding their tanning capacity. Many tanneries havebeen and are being dismantled, transported and installed in developing countries

ANNEX 11-3

with the assistance of experts from the developed countries, frequently underjoint venture arrangements of one type or another. The ratios of exports andimports to production corroborate this thesis. Exports as a ratio of productiondeclined from 20 percent in 1968 to 15.8 percent in 1971, and inports increasedsteadily from 5.8 percent in 1968 to 7.8 percent in 1971. Developing countriesare tanning increasing amounit of their omn production of hides and skins andexporting them in the form of semi-finished or finished leather or in leathermanufactures,

T>.ble 3-Developing Countries Annual Production,Export and Imports of Hides and Skins,1968-71

Production Production Export Import Ratio of Ratio ofItems (Million pieces) (P) (X) (M) X to P M to P

---------- (MT0ooo)-

1968Cattle Hides & Calf Skins 95.6 1,707.1 282.2 101.6 16.5 5.9Sheep Skins 115.5 103.1 76.1 3.8 73.8 3.6Goat Skins 101.1 120.3 25.3 o.5 21.0 0.4

Total: 312.2 1,930.5 303.6 105.9 20.0 7

1969Cattle Hides & Calf Skins 98.8 1,764.2 341.4 112.7 19.3 6.3SheepSkins 116.4 103.9 83.8 5.2 80.6 5.0Goat Skins 902.3 .2 26.9 0.6 22.1 0.6

Total: 3l8.5 1,960.3 452.1 1 23.0

1970-tle FTides & Crlf Skins 101.4 1,810.7 304.6 133.9 16.8 7.3

Sheep Skirs 118.3 105.6 72.8 3.5 68.9 3.3To;t Skirs 102.0 91.0 22.6 o.6 24.8 o.6

Totrl: 321.7 2,007.3 400.0 193.0 9.9 7

1971Cattle Hides & Calf Skins 95.5 1,705.3 198.0 145.0 11.6 8.5Sheep Skins 120.0 107.1 85.0 3.5 79.3 3.2Goat Skins 102.0 91.0 18.5 o.6 20.3 o.6

Total: 317.7 1,903.4 3o1.5 149.1 15.8 773

Source: FAO, Comnodity Review and Outlook.

4. Table 4 below shows the production and trade of centrally plannedeconomies in hides and skins. These countries account for about 20 percent ofthe world's production. Centrally planned countries are substantial net importersof hides and skins. These countries export around 2 percent of their output andimport 20-25 percent of their production. The ratio of exports to production isgradually increasing, fromi 1.8 in 1968 to 5.3 in 1971; but so is the ratio ofinDorts to production, from 25.3 in 1968 to 43.5 in 1971. These figures do nottell the story very clearly but because of increasing labor costs, sone of thecentrally planned countries have also been phasing out of the tanning business.

This opens ut an opportunity to increase ta.nning capacit7r i c M-Gries likeTanzania that urgently need to increase domestic value added and foreignexchange earnings.

Table 4 - Centrally Planned Countries Annual Production,Exports and Imports of Hides and Skins, 1966-71

Production Production Export Import Ratio of Ratio ofItems (million (P) (X) (M) X to P M to P

pieces) (MT '000) ( (

1968Cattle Hides & Calf

Skins 46.2 825.0 9.3 223.9 1.1 27.1Sheep Skins 84.0 3.8 1.6 N.A. 42.1 N.A.Coat Skins 3.2 75.0 5.7 4.7 7.6 6.2

TOTAL: 1733 T90 3.7 777- 722. 177.3

1969Cattle Hides & Calf

Skins 45.7 816.0 11.3 199.8 1.3 24.4Sheep Skins 85.8 76.7 2.4 N.A. 3.1 N.A.Goat Skins 3.2 2.8 2.6 5.4 92.8 192.8

TOTAL: 134.7 895.4 16.3 205.2 1.8 22.9

'x970Cattle Hides & Calf

Skins 45.0 803.5 10.5 251.3 1.2 31.2Sheep Skins 85.1 75.9 2.6 N.A. 3.4 N.A.Goat Skins 2.9 2.5 6.o 6.o 240.0 240.0

TOTAL: 133.0 881.9 19.1 257.3 2.2 29.11971Cattle Hides & Calf

Skins 46.6 332.1 11.2 180.0 3.L 54.2Sheep Skins 95.0 84.8 2.6 N.A. I. N.A.Goat Skins 3.0 2.6 8.6 2.5 330.7 96.1

TOTAL: 144.6 419.5 22.; 162.5 5-3 43.5

Source: FAO, Commodity Review and Outlook

Tanzanian Ilides amnd SLcUins

5. Tanzania ranks among the three most import exporters of cattle hidesin Africa, together 7mth fthiopia and Nigeria. As an exporter of goat slidins, itbelongs to the principal four African countries, wLhile it plapys a les,s Signifi-cant role in the trade of sheep slins. In the past, commercial availability ofhides and skins have nveraged about 1.0 million and 1.5 million pieces, respec-tively. Industry sources believe that the availability of hides and skins millremain at their Dresent levels. Even so, there should be no problem in sutp'ng

anzaLni s atanneries with raw hides, since, with an estimrted cattle populationof 10 rilli.on anf aRn aer-e off-t.`-e rate of 10/, there mill be ' million hideaavail:b'-le for an installed cap;acity of 920,000 hides p.a. There m.a, how.ever,

ANNEX 11-5

be some orobla-ms connected 7dth slcnp. ?ecently, due to exchange rate non-alignmets -mon-g -at Africsn countmries, as much as 405, o' the skins have beensmuggled out of Tanzania and sold at better Drices elsewfhere. There may alsobe IlTiiued availability of certain grades of skins. The planned tanneriesshould thus be equipped to utilize different grades of skins flexibly. Addendta 1shows the estimbaed out-'pit and value of hides anrr s1cins from 1965 to 1973. Timeseries data sho-u that due to decreased n-mziber of slaugh;tel-rigs and "'leakyr" borders,hides and skins availabilit-yt withLn Tanzania have registered declines in theperiod between 1965 and 1972: hlides fron 1,131,505 pcs. in 1965 to 996,560 in19723 goatslkns from 1,2J66,700 in 1965 to 8554,53l in 1972; and sheepskins from!4.84,L)3 zin 1965 to 31L7,767 in 1972. The pi-ces, though, have gone up dramaticallyduring the eight years under consideration. Hides have risen fron Tsh 17.37/pcin 1965 to Tsh 7.69/pc in 1972; and sheepsIcUns from Tsh 3.79/pc in 1965 to Tsh 4.31/pcin 1972. More recently, due to the slack demand occasioned by the recent worldrecession, prices have declined and stocks have increased. However, lhen the missionvisited Tanzania ir. late 1975, the stocks w'ere starting to move again, and demandis exoected to strengthen as the world economy moves out from the recession.

6. At Dresent, there is only one modern operating tannery. This is theTanzania Tanneries Coroanv Ltd. (TTC) loceted in Moshi, established by NDC incollaboration Lith a Saredish Conrany to produce finished chrome upper leather forindustrial footwear production in East Africa and semi-finished leather (crust-tanned and *wet-blue) for exoort oversee . Tihere are two smaller tanneries, mostlyproducing sole and lining leather using vegetable wattle. Due to the decline ofcraft-mride shoes and the competition from rubber and srnthetics as sole material,these two tanneries have been eoneriencing substalntial difficulties. The threetanneries process about 20 nercent of the available hides and skins, the restbeing exported in the rawT state, salted or suspension-dried. The finished leatherproduced at Moshi can be improved to meet international standards. At present,however, N-oshi does not produce a top qu lij leather.

7. In order to develo,a the full otenr. .'l of the leather tagimg industry,INDC has, aside fror. the ePa.nsion progr'n -?-' Io-shi (to double its present capacityof processing l G,000 hid5as =nd 300.000 Kdna ;cnnull), initiated three othermaJor -orojects:

(a) s+ .i'lh"vt- of thoe o-nple7 .-t TIorogoro including a tannerycam^ tblr of orocesz7j- 2, n 16 os and 900,000 sldns annually;. shoe factomni, part o:f ,oase -rv,uction wJould be 2 millionp.airs of leather shoes for ecoi;o_t and , leather goods factoryto process 183,000 sq.; of f-nishd Loather into leatherorodu&Cts u va ario u's I cin d

(b) Establisihment of a new tnranori,y at NIvEsanza wi,th an annual through-Put capacity of 360,000 h ies,

(c) Thcaansion of Tanzania Shoe Comoany, Ltd. (BORA) from itspresent ;7roduc',-a 800,000 -to 1,300,000 pairs of leather shoes-?er yrenr for the doriesKL c market.

The chart exhibited Is IYcnduin 2 rhocinJ the projected situation in 1980 wdhen thee.:-aansion and new DrlwT progr^.m cniOJd either ha3ve been conpleted or well underioay.

ANNEX 11-6

8. Tanzanian cattile, sheep, and goats are reared free-ranging on openscrub. Killing is generally sporadic and according to local need. As much as40 percent of the hides and skins come from fallen animals. Flaying is stillcrudely done generally and not yet carried out with sufficient attention to thecormercial value of the hide or skin nor to theeffect of cutting damage on thevralue of the leather products. Drying is not always properlly carried out. Substancesare uneven and hide conformation is poor. Many of these problems can be improvedby educationzl programs in animal husbandry, and such training schemes are alreadyunderway in Tanzania. Surface grain damage, however, such as pock, thorn, ortick and disease marks are the result of natural causes and their eradication isunlikely in thie near future. One has to accept that there will be a relativelylow volume yield of top grade leathers from such raw material source in the shortterni.

9. With sufficient technical training and modern machinery, Tanzanians shouldbe able to produce leather in the lower and middle grades for the international market.Assuming that the right partner is chosen to provide the tanning expertise, Tanzaniashould eventually progress to the stage where it can produce good export qualityfinished leather, starting with wet-blue, and progressing to vegetable crust and chrome-tanned leather, and, finally, to fully finished leather.

Leather, Leather Footwear,and Leather Goods

10. Addendum 3 shows the trade figures in leather and leather products forselected countries in 1970, 1973, and the first six months of 1974. In the firsthalf of 1974, leather inports in these countries amounted to US$570.5 million.Even assuming that the entire leather output of Tanzania were to be exported,(which wmld not be the case per the chart in Addendum 2), Tanzania's output vouldconstitute at most 5 (probably no more than 3%) of the world's imports of leather.Given the right marketing arrangements, Tanzan:a should be able to capture thisnortion of the %or-ld m,rket.

11. Aiddendin '-. shows the apparent consurmtion 1/ of footwear of all types

in the OECD cotultries in 1972 end 1973. These countries account for roughly 500%

of the Li,000 million -:.irs i-^orld mrirket estimated b-y FRO. Addendurm 5 shows theshare o-f inrortE in the consumption of footwear with leather uppers in selected

OECI) countries. The trend has been a general increase in the share of iuportsin the consu tion, reflecting the trend of locating footwear factories outside

of the develooed coulntries becaluse of increasingly prohibitive labor costs. Somecountries have doub)led their imports in the dec-de bett-een 1963 and 1973; others

have tripled and quadrupled. In such a context, the projected output from Moro-

goro, 2 million pairs of leather footear for exports, wuld constitute a mere

2.5% of the total annual increase in the uorld market, estimated by FAQ to be 80

million pairs a year (or 2% of 4,000 million pairs). Again, with the right joint

venture partner- to n-rovide p)roduction and marketing expertise, disposing of 2 million

'pairs of leather shoes in the international world market should not prove to be

an overly amAbitioui -onlc1 coinventonsption = -pnodesion iEpor s expo s.

inventoi,y chlanges.

12. Addendtum 3 above has shown that the import market for leather goodsin the selected countries amounted to US$521.6 million for the first half of1971). The leather goods factory would produce leather articles such as belts,wallets, valises, etc., chiefly for the export markcets. Assiuming that all theoutput were exported, the value of output of Morogoro leather gooad factuorv,estimated at USSl.9 million, would constitute less than .)4 of the wOrld imDortmarket in leather goods for the first half of 1974. If appropriate expertise isprovided so that the right styles and qualities are produced, there is noreason why Tanzania cannot capture this portion of the world market.

Canvas, Canvas Goods, and Canvas Shoes

13. Tanzania is the fourth largest cotton producer in Africa, after E1mnt,Sudan and Uganda. The total crop increased from 160 thousand bales in 1958to 430 thousand bales in 1973. 1Host of the cotton is exported, only about 14-15/of each year's crop is consumed dbmestically. Table 5 below shows the cottoncrop of Tanzania, the domestic constmDtion and the exports of cotton from 1958to 1974.

Table 5-Cotton CroLof Tanzania, 1958-74(thousand oI bales a/)

Year Total Used by Domestic Industry Exported

1958 169 - 1681959 203 - 1951960 189 - 1871961 168 - 1711962 214 - 2001963 263 2591964 293 - 2951965 369 _ 3631966 436 13 4231967 NA NA NA1968 283 30 2531969 386 44 3421970 420 53 3491971 363 58 2261972 423 60 3671973 430 62 3681974b/ 400 63 337

a7 l13l kg per bale._/ Estimated.

Source: IBRD, Appraisal Report of the Msanza Textile Mill, Report No. 743 -TA.

1)4. The oualit- of 2anzanian cotton falls into the medium-long catogo--(11/32 - 1-3/32') hich is suitable to spin yarn up to 50 cotton counts. Ninety

nercent of the crop is so-called AR grade, Which is close to U.S. Ier=hisSI 1-1/16", and --rich sells in world markets at approximately 10% premium overthe price of 11 staple. The other 10i is BR grade which consists of shorterfiber lengths and contsins over-ripe, ieaker fibers. Its color is also inferiorand the trash content is 12.? as comoared to 7" for the AR grade. The BR gradesells at a 25-35/6 discount below the .'R.

ANNEX l-f-8

15. Most of the cotton in Tanzania is underspun, i.e. they could havebeen used to produce higher count and finer yarn. Of the 63,000 bales used bythe domestic textile industry in 1973, only 3,000 bales were of the BR grade.The canvas mill in Morogoro would use BR grade and cotton wastes as its basicrarr material.

16. Canvas is a heavy cloth used for a variety of purposes such as tents,awnings, tarpaulins, boat covers, kit-bags, canvas shoes, etc. The demand forcanvas shoes thus vary niith the level of military activities, construction andtourism activities, and other factors, such as increased elementary schoolenrollments, etc. Because of the durable nature of canvas and canvas goods,these markets do not expand very rapidly and are subject to wide fluctuationsin demand. Nevertheless, there is on average a large market for canvas and canvasgoods in the lorld. Table 6 below tabulates the composite uses of industrialcloth, mostly canvas, in the U.S. from 1968 to 1974. There is another category

Table 6 - COTTON INDUSTRIAL CLO0TH aEND-USE IN THE U.S.(million kg)

1968 43.01969 36.41970 35.O1971 33.61972 32.81973 34.71974 32.5

a/ Includes awnings, boatcovers, tarpaulins, and tents.

Source: Textile Organon, November 1974.

in the Textile Orianon statistics, whose consumption ranged between 42.0 and52.7 million kg p.a. over 1968-1974 wbich must refer to canvas usage in themilitary, among other large end-uses. Elven assuming that all of the 4,332 metrictons of cotton p. a. were converted at Morogoro - into canvas wit1vi waste andexported to the United. States, it would only constitute 10-15% of the U. S.market for canvas goods.

17. The developed world's exports and imports of made-up canvas goods inthe periods 1969 to 1973 amounted to 20,000 metric tons. (Addendum 6 and 7). Inselected African and Middle East countries the imports of made-up canvas goodsamounted to 11,148 and 8,870 metric tons, respectively for 1969 and 1970. (Addendum8). With the on-going military activitiesin the Middle East and Africa, and thetremendous boom of construction activity in the Middle East, the demand for canvasand canvas goods should continue to be robust.

18. But even if, for some reason, the international market for canvas andcanvas goods should decline, there is the possibility of transforming the cottoninto other heavy cloths such as denim, duck and drill. Table 7 below shows theU.S. imports of duck from 1968-1974. If all these potential outlets prove limited,the output from the Morogoro canvas mill can always be exported as yarn.

ANNEX 11-9

TABLE 7 _ UNITED STATES IMPORTS OF DUCK CLOTH 1968-1974

Year Quantity Value0OOO sq. m.) (UsT '000)

1968 54,736 14,3341969 71,924 18,3651970 61,689 17,4371971 65,811 18,3421972 82,609 26,9151973 70,961 30,5981974 69,964 44,089

Source: U.S. Department of Commerce, Schedule A Commodity by Country, FT135- (Washington, D.C., various years)

19. The demand for canvas shoes in Tanzania has been estimated to be growingat a rate as high as 15% by some sources. Even at a lower rate, say 8 to 10% p.a.,there would be a large domestic market for the canvas footwear output of theMorogoro footwear factory should the export market fail. But with a suitablemarketing arrangement, there is no reason for Tanzania not to be capable ofexporting a major portion of its production.

20. Addendum 4 has show the apparent consumption of footwear wholly or princi-pally made of textile materials. The consumption was 443.3 and 466.6 millionpairs respectively for 1972 and 1973 in selected OECD countries. Addendum 9 showsthe rising trend of imports of selected OECD countries, implying that an increas-ingly greater proportion of canvas shoes used in the developed countries are beingimported from the developing countries. Morogoro's canvas shoe output of 2million pairs a year mould constitute at most .5 percent of the OECD market, andeven a smaller percentage of the total world market.

Conclusions

21. From the above discussion, it can be concluded that Tanzania should haveno difficulty capturing adequate markets in leather, leather footwear, leathergoods, canvas, canvas goods, and canvas footwear provided the requisite technicaland marketing expertise can be secured. The outputs of the Morogoro IndustrialComplex would typically represent such small percentages of the world trade inthose commodities that given the right quality and product-mix, they should beabsorbed without any difficulty. The final product-mix and marketing strategywill ultimately rest on the capabilities of the contracted marketing firm(s)whose knowledge of world markets and distribution channels will be crucial to thesuccess or failure of the project.

Industrial Projects DepartmentFebruary 1977

TANZANIA

MOROGORO INDUSTRIAL COMLEX

OUTPUT AND VALUE OF HIDES AND SKINS 1965-73

a!Hides _ Goat Skins Sheep Skins

Yeer lqu.ntity Average pric per Piece Value Quantity _.erage 2Lce pr piece Value Quantity Average price per piece Value Total Value,000 piCC2S) (Tch) (Tsh '000) (000 pieces) (Tsh) (Tsh '000) (000 pieces) (Tsh) (Tsh '000 (Tsh *'000)

1965 1132 17.37 19663 1267 5.56 7045 484 3.79 1834 285421966 1100 24.44 26884 1478 8.20 12120 667 6.12 4082 43p861967 947 19.53 18495 920 6.87 6320 662 5.72 3787 286021968 1058 19.61 20747 1583 4.61 7298 479 5.16 2472 305171969 1089 21.93 23882 1514 5.70 8630 636 4.81 3059 355711970 980 22.33 21883 894 6.27 5605 491 3.76 1846 293341971 912 21.03 19179 1080 5.82 6286 458 3.52 1612 270771972 997 30.75 30658 855 7.69 6575 348 4.71 1639 388721973h/ 875 26.45 23144 1013 8.60 8712 530 4.70 2491 34347

a/ Wet-salted and suspension dried.Based on six-month avcrage. 7cr hide_. -. 1 sperzirn drice hides included.

Source: lACP survey.

Industrial Projects DepartmentFebruary 1977

0

ANNEX 11-11TA11LX Addendum 2

ma INM0IMT3L CUrL X

LUTUK UID LMM !_ tWUCSS iTOUITE! IN Y1114 1W

HIDUS AIM JKINS

00 3T LEATHER PNOWUCS(110 0) (NO.a) (Sq 000)

(Pairs '000)

Hi0 Finibed Leather 418. 5 BORA 1I00KItES 15 1t_SKIS 60 S_ttFidlhad Leather 07. 8 ROG0RO POoLi~~~~~i

iStdh LF ather 139.5 O3i 4008in5 S_-Piei,hed Leather 539 5

LIATHI OODS(Sq.0 '000)

U1 ?8 tatekd Loother 651,0

SKINS U188e -----------------06.

KI P FiuiShOd Leather 41'.5

-18 | _ | n I,t _e Leether 697. 5

SKIN ~ ~ ~ ~ ~ ~ ~ t9 ZIK

OmS"l FtIXI D sm-FIRIFY8 SHOES L ATHIlR GOODSST8l LW,tSIS

1674.0 2165 1OOGOO 866000 Sq..-Pair.

Source: Athins Planting, Sxaor? lHarksSe for TaUCaRian Leather and Leather Product., (8urrly, U.K., Rwrmbr 1975)

Tnc1ustrial. Proiects DepartmentFebruary 1977

Annex 31-12Addendlum 3

I' ;hAN IA

MCtCGOR0 I)_SUSTRIAL COMPLEX

TRADE STATPI',,CS ON VI;A'Il!:R AND iYA11TR GOOOS OF SEU(t1 -:P'9'TR 15

Product 1970 1973 197, _Country Classificationr Imports Exports Imports Exports iorar cXDLr

(US$ millions) (US$ millions) (L,$ idlleJ,I)

Austria Leather 16.2 8.6 .i.a. n.a. 15.5 7.51,erther Goods 10.4 8.6 n.a. n.a. 17.0 9.1

Belgium- leether 18.2 28.2 37.7 42.3 21.6 23.5Luxemboarg L- rlher Goods 17.3 13.3 41.1 22.2 24.8 1?.7

Canada Loacher n.a. n.a. 47.1 11.9 29.7 4.9Lc.ather Goods n.a. n.a. 42.5 10.6 25.4 4.7

France LcaFhnr n.a. n.a. 126.9 181.2 61.3 92.7leather Goods n.a. n.a. 46.7 56.3 31.6 22.5

13est Cermany Lzather 109.5 68,2 227.6 122.9 102.9 62.7Leather Goods 57.2 61.5 131.3 108.3 73.4 59.0

Greece Leather n.e. n.a. n.a. n.a. 1.5 28.8Leather Goods n.a. n.a. n.a. n.a. .5 1.3

Japan/ Leather n.a. n.a. 48.1 66.9 19.0 32.4Leather Goods n.a. n.a. 52.4 77.0 31.0 27.4

taly LTeather - p2.7 _ 3,2 352.8 227.8 89.2 57.1Leather Goods n.a. n.a. n.s. n.a. 8.3 87.8

Netherlands Leatner 22.2 6.4 57.3 56.2 28.3 23.6Leather Coods 21.3 13.8 34.4 28.7 18.4 11.3

Portugal Leather n.a. n.a. n.a. n.a. 1.4 1.4Leather Coods n.a. n.a. n.a. n.a. .4 1.2

Norway Leather 4.9 2.6 13.0 6.1 6.0 3.4Leather roods 8.3 .6 14.1 1.0 8.0 .6

Swcden Leather 17.3 13.7 29.5 24.7 15.3 11.8Leatther Goods 14.8 5.9 23.0 8.7 13.3 4.4

Denmark Leether 13.5 3.9 31.0 8.9 14.3 4.7Leather Goods 6.6 6.2 12.6 10.2 8.7 5.9

Finland Leather 8.7 .6 19.2 1.3 8.6 t.1Leather Goods 2.9 1.9 5.d 5.1 3.2 3.3

Spsin Leather n.a. n.a. n.a. n.&. 10.9 17.5Leather Goods n.a. p.a. n.a. n.a. 2.5 i7.9

Sfwtrzerland Teather 21.9 5.2 32.1 6.6 11.8 3.4Leather Goods 27.4 4.0 51.7 9.3 27.5 4.9

United Kingdom Leather S8,3 73.8 114.7 120.4 54.0 68.0Leather Goods 18.3 28.0 45.5 34.0 29.6 37.6

U.S.A. 7L-ther n.a. n.e. 137.3 83.5 59.4 46.1Leather Coeds n.a. n.a. 256.4 33.4 190.9 27.5

Yugoslavia Leather 16.1 13.6 n.a. n.a. 16.3 7.6Leather Goods 3.8 3.8 n.a. n.a. 7.1 4.4

n.a. not available.

../ ]eatler goois are leather goods aside irto tihore rel8ted to footwear.b/ rnta tor 1974 based on average of first tlhrce twnths' daLa.C/ Data lor 1973 based oni he'ra5a of first :ix ;uonths' data.

Sourc,: Atkins Planring, Ixport Markets fir Tanyanian LUatl,e Ard Lcetlc- _Pr:dtt (Surrey, U.:. roverber 1975)

Industrial Projects DepartmentFebruary 1977

TANZANlA

14OROGORO INDUSTRIAL COMPLEX

a/e..PPARENT CONSUMPTION OF FOOTWEAR IN THE OECD IN 1972 AND 1973

(million pairs)

Footwear with Leather Slippers and Other Foptwcar Whollv or RubberUppers House Shoes rincipaliy of Footwear

Textile M4aterials

Countries 1972 1973 1972 1973 1973 1973 1972 1973

Germany 171.2 153.5 36.3 33.4 28.5 28.0 6.1 n.a.

BLEU 21.1 19 8 10.0 8.2 5.6 4.0 1 4 1.2Denmark 7.2 6 1 1.2 1.4 3.0 1 5 2.0 1.6France' 84.1 76.2 64,3 62.0 34.9 27.7 8.4 5 4Ireland 5 7 5 0 1.2 1.1 n.s. .5 n.a. n-a.Italy 102.1 102.6 6i1 6.5 n.a. 8.3 n.a. n.a.Netherlands 25.8 23.8 6.3 5.9 n.a. n.a. n.a n.a.United Kingdom 105 7 93.4 40.6 43.1 36.3 29.2 n.a 1.5

Total E.E.C. 522.9 480 4 166.0 161.6 108.3 99.2 n.a. na.

Austria 10.8 10.4 3.4 3.6 2 6 2 9 n.a n.a.Spain 36.5 66 1 11 0 22 3 32 6 27.1 17.9 9 1

Finland 6.4 6.8 1.3 1.5 1 6 2.4 2 4 3 0Greece b/Norway 7.3 7.1 1 1 1.3 1.8 2 0 n.a. n.aPortugal 7 8 7 9 3.a. n.a. .3 .2 1 6 4 5

Sweden 14.9 11 7 4.8 5 5 3 6 3.6 4.0 3 2

Switzerland 17.0 14.4 n.a. n.a. n.a. n.a n a s n.

Turkey b/ I

Total Other European OECD 100.7 124 4 21 6 34.2 42.5 38 2 n.a r-acountries

United States 559.6 515.2 98.7 98.5 226.0 241.5 n.a n.a.

Canada 39.5 37.6 13.5 13.8 n.a. n.a. 10.8 7.5

Japan 39.4 42.1 n.a. n.a. 66.5 86.5 13 2 n.a.

Australia n.a. n.a. n.s. n.a. n.a. n.a. n,a n.a.New Zealand 5.6 n.a. _ 1.2 n.6

Total OECD 1262.1 1205 3 299 8 308.1 443.3 4b6.6 n a. n.a

n.a. - not availablea/ Apparent consumption enuals production plus imports minus exports and therrfore takes no account of variations in stocks.b/ No data given.

Source: OECD, The Footweer, Rawhides and Skins and Leather industry in OECD Countries, 1973/74 (Paris, 1975)

Industrial Projects DepartmentFebruary 1977

ANNEX 11-14Addewim 5

TANiZAfIA

IOROGCO 21jnUSTJRS I COIPLEX

S.,.Z OP P_I.-TVS TI CO1' '7TIOIi OF

l9e:6 C 03 L UTRIES- ill percen.tagesj

CouMj. ,' 1963 1972 1973

Gerrz~j..;. 114 43 45

BLEU 35 72 74

Denv.n'rk 19 60 80

l?ance 4 18 17

ireland - 31 35

Unit&i i:n-dorn 8 20 19

Netbherlands 19 64 63

Aust.ria 7 38 - 42

F T.hT h 10ar 3.6 25

Norwa .y 214 66 67

t> e d.j) 35 78 74

31 61 6h

7 1. 17

Uni.+t t.si 2W 27

,.:-7+'<.,rc *as t{,;L of 19968.fo F,nJi UnL t-et -ti do nct nt>c: sarily correspond with those of

Ul .8 Crtr t oi Coi7 .rce fi.gUnx.( due to difL."rent daata sources andcKiaEF-,ica-Lic-rx;t-:odolooles. Vl :. *'ecxr Though that frorm eitherthne.e or i.ne (C,r-^marce Dcpir'tmcnt's 1-ioures that imports as a percentageor Co3-'r!rmptl.on has bcen oi1 t,he ri,s-t~

fiOR; : (?'>5? ', Fott-AeY.l1-;l.es nr:vl Sk!Or, ancl T.ea-thJir 'Inutyi

Industrial Projects DepartmentFebruary 2977

TANZANIA

1MOROGORO INDUSTRIAL COMPLEX

EXPORTS OF MADE-UP CANVAS GOODSBY DEVE-LOPED COUNTRIES 1969-1973

1969 1970 1971 1972 1973

Country weight 1alue Weight rValue veight Value Wcei ght Value weIg.at Val

(rn.t ) `LS$'000) (m t ) (LS$'000) (m t ) (US$'000) (in. t ) (US$'000) (m t.) (US$'

U.S. 1,231 3,053 635 1,988 822 3,151 719 2,145 1,263 4,C'

Belgium-Luxemburg 531 1,225 521 1,212 435 1,06- 699 1.510 564 2,4w

France 3,881 8,450 4,762 10,789 4,/ 43 11 951 6,048 18,527 5,521 21,'-2

GSermany Federal 1,515 3,400 1,648 4,386 1.556 4,601 2,151 6,776 2,056 8,59u

Italy 186 497 178 510 101 361 140 453 147 517

Netherlands 881 2,374 933 2,486 929 2,483 1,129 3,080 1,693 6,181

U.K. 2,06S 4,163 2,181 4,470 1,675 4,138 1,184 4,394 1,136 4,045

Dermark 793 2 203 1,108 3,369 1,176 3,871 1,451 5,576 1,166 5,971

'iorsJavi 55 170 49 154 -- 61 2i5 83 413 114 675

Yu;oslavia 1,274 2,165 920 1,671 709 1,429 403 1,086 99 356

Sweden 1,121 1,958 1,143 2,267 700 2,092 396 1,354 409 1,899

Austria 1,110 1,799 858 1,416 801 1,599 1,131 2.632 618

Pottual 178 289 149 242 204 3811 1;8 311 152

Switzdvland 10 51 13 74 32 203 25 182 31 2

Fir;land 144 335 183 386 140 377 349 1,101 172 6

Auatralia - 189 - 722 - 361 - 567 - 9

Japan 3,841 6,527 469 795 6,183 11,652 6,101 14,321 5,021 16,0' .Israel - - 25 80 63 204 600 296 75 24

I reland - - -- - 209 - 215 252 604

Nexz Zealand - - _ 81 _ 166 - 2'

Total 38,848 44,473 50 429 65 105 77,73 -

Sc'lrce: Wrld Trade Annual, 1969-1973 (New York: Un-ited Natigns Statistical Officc)

Industrial Projects DepartmnentFebruary 1977

TAN ZANTA

MO]'OGORO INDUSTY IAL CMT=LEX

I,P,OR'i'S OF MADE-UP CANVAS GOODS

BY DEVELOPED COUNTRIES 1969-L973

1969 1970 1971 1972 1973

CountryWeight VAlue Weight Value Weight Value . eei ght Value Weight Value

(m.t ) (US$ tooo) (m.t.) (US$'000) (a.t ) (US$'000) (mr t > (US$1000) (rn.t.) (Us$'O00)

CAnads - 1 035 - 1)238 - 1 618 - 3 695 - 4.339

Be1uium-Luxemburg 799 1.711 782 1 661 1 008 2 211 1 110 7 995 1 135 3 870,

Fr-.-nce 693 1,156 856 1 579 674 1 377 1.2?' 2,368 1 519 3 902

Ge-rTmny Federal 3,634 6 299 3 712 6 981 4 165 8 040 4 336 9 689 4,054 11 226

1 t.- *V 1 017 2 0)9 1 573 3 283 2 198 4 775 9 850 7,645 3 652 12 168

N-:ther1ands 1.7191 3 403 1 830 3 619 1 805 3 807 2 5,6 5 859 2 266 - 6 686

U K 1 60? 3 015 1 971 3 933 2 446 5 401 2 6S8 7 198 2 177 7 034

PeruTmerk 424 904 533 1 21h 373 787 16b 4S1 465 1 4,70

No rway 797 1,912 947 ? 164 943 2 444 779 2 326 9u3 3 280

1 131 2 496 1 345 3 187 911 2 415 7, 4 2.608 855 3 508

Ailt 217 453 217 470 308 821 341 911 424 1.350

Switzerland 552 1 454 636 1 755 642 2 036 769 2.804 780 3 606

Ireland 120 233 154 307 ?00 332 [89 296 254 567

Greece 30 69 - - 32 73 148 121 46 136

Finland 217 465 260 562 224 557 145 522 163 625

Yuaoslevia 325 734 762 558 308 738 373 828 82 1 7

Australia - 502 - 639 - 1 042 - 650 - 3 506

Israel - - 14 105 - - 7 62 22 100

Spr.in - 41 76 33 73 45 91 0l5 205

Ja au _ - - - 79 80 73 116 88 631

Iceland - _ - - 28 51 - - -

Portugal - - 1 '9 23 __ 21

Total 27 870 33 303 38 678 52 324 68 t0. I

Source: World Tr.^de Annual 1969-1973 (New York: United NAtions Statistical Office)

Industrial Projects DepartmentFebruary 1977

ANNEX 11-17

Addenru.Ri -d

TANZANIA

MOROGORO ThDUSTRIAL COS'LEX

IMPORTS OF CANVAS GOODS BY SELECTED

AFRICAN AND MIDDLE EASTERN COUNTRIES, 1969-70

Quantity(m. t.)

Country 1969 1970

Saudi Arabia 3,923 305

Kinzai t 700 700

Jordan 1,000 400

Algeria 2,000 3,000

Syria 500 500

Somalia 300 275

Lebanon 500 400

Nigeria 200 1,000

Ethiopia 250 300

Libya 250 300

Sudn 250 '250

l4orc~-o 300 300

Zambi. 125 100

Ghana 250 250

Malawi 100 100

Ugarnda 200 250

Kenya 3°° 35To ta]: B.R - 8,o7

So!urce.e -LA Estimates Derived from UN: Yearbook of International Thade Statisticss19l0l-71.

Industrial Projects DepartmentFebruary 1977

ANNEX 11-18AdIdendum. 9

TANZJZATA

1DROGORO INDUSTRIAL COMPLEX

SHARE OF TIPORTS IN CONSTMIrTION OF FOOTWEARWHO.[LY OR CHIEFLY OF TEXTILE TATERIALS

IN SELECTED OECD COUNiTRIES_ 1973

Courn$ Consumtion Imports Imports as % of(million pairs) (million pairs) Consumption

Grerminy 28.0 19.7 70.4

BLEU 4.0 4.0 100.0

Denmark 1.5 1.5 100.0

France 27.7 10.9 39.4

Italy 8.3 4.2 50.6

Ulnitied Kingdom 29.2 24.3 83.2

Austria 2.9 1.5 51.7

Spa-in 27.1 1.4 5.2

KTin:Land 2.4 .7 29.2

Yor;iay 2.0 1.3 65.0

Swel.er 3.6 3.0 83.3

United 3L ate s 21t1l5 98.0 40.6

Tapan 86.5 158 18.3

Sour'ce: OFCD, The Footw-nr Raw Hides and Skins, and 1-ather InduarinOECD Countr:ies. jLLY793'',C i(aris,l 971

InduLtrial Projects DepartmentFebruary 1977

ANNEX 12-1

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

NDC PROJECT MANAGEMENT ORGANIZATION

1. The Project Manager nominated by NDC is a staff member, Mr. Adam 0.Ng'amilo, whose qualifications are given below:

Curriculum Vitae - Mr. A. 0. Ng'aimilo

Name: Adam Oswald Ng'amilo

Age: 31 years

Marital Status: Married with two children

Nationality: Tanzanian

Education: (i) B.A. (Economics) University ofEast Africa, Dar es Salaam

(ii) Diploma in Industrial Management(Delft Institute of Management,Holland)

(iii) Fellow of EDI - Washington World Bank

Experience: 1970 - to date

Immediately after graduating, joined the National Development Corporation ofTanzania as Assistant Development Officer; promoted to Development Officer afterone year and Senior Development Officer in 1973. Present appointment as DeputyDirector became effective in 1975. Throughout stay with NDC, has been attachedto the Research and Development Department which is responsible for developmentof new industrial projects from conception to commissioning. Specific dutiesare listed below:

(a) Preparation and Implementation of New Projects

(i) Seek out and define opportunities for new development projectswithin agreed development priorities.

(ii) Initiate, schedule and carry out the evaluation of projects toestablish their feasibility, costs, benefits and degree of priorityto the economy. Recommend and present project proposals to the NDCBoard.

(iii) Recommend to the Director implementation schedules for approvedprojects.

(iv) Identify, contact and negotiate with potential partners, advisers,agents, consulting engineers and contractors.

ANIEX 12-2

-2

(v) Participate in negotiations for raising funds fordevelopment projects from major financial institutions.

(vi) Review regularly progress on the implementation ofprojects, ensure corrective action is taken to meetplanned perfonmance, and secure approval of majoradjustments to plans.

(vii) Arrange for orderly and timely transfer ofresponsibilities for supervision of projects to theOperations Department in accordance with agreedprocedures.

(b) After the projects are implemented and a full management of thecompany is formed, a post investment audit is prepared. Thisincludes:

(i) Original work plan and cash flow schedule.

(ii) Survey of progress to-date including activities com-pleted, problems encountered, methods used to resolvethem, and effect of problems on the time and cost ofimplementation.

(iii) Decisions recommended by the implementation teamincluding:

- contracts for approval

- changes in significant features of the project

- actions required to resolve any outstandingproblems.

Projects implemented include a steel roUling mill,a distillery plant, a farm implement plant, atannery and a bicycle factory.

2. Mr. Ng'amilo will head the project staff as shown in the attachedorganization chart.

1ndu-tr Tlrc- ects DepartmentFebruary 1977

TANZANIA

MOROGORO INDIJSTRIAL COMPLEX1/

NDC PROJECT MANAGEMENT - ORGANIZATION CHARTSUPPORT FROM RJD

SUPPORT FROM N D CN.D C

DIRECTOR OF RESEARCH MANAGING DIRECTORAND DEVELOPMENT INDIRECTLY DIRECTOR PLANNING AND FINANCE

PROJECT MANAGER __ CHIEF ACCOUNTANTDIRECTOR OF ADMINISTRATtONDIRECTOR OF MANPOWER

ENGINEERING ANDD

CONSTRUCTION COORDINATOR _

AND 3 DRAUGH TSME N

INVESTMENT ANALYST SENIOR PROJECT ADMINISTRATIVE PROJECT__OFFICER MANAGER ACCOUNTANT

3 PROJECT OFFICERS SECRETARIALSHOE &LEATHER GOODS STAFFCANVAS MILLINDUSTRrAL ESTATE

RESPONSIBILITIES

RESPONSIBILITIES RESPONSIBILITIES FINANCIAL TRANSACTIONPROJECT SUPERVISION ALL ADMINISTRATIVE TIME BUDGETSL IMPLEMENTATION MATTERS COST CONTROL

Source: NDCi/ Headquarters staff. The field staff will consist of supervising engineer and a works accountant when cons-

trvction starts.

Industrial Projects DepartznentFebruary 1977

A2NEX 13

TANZANIA

MOROGORO INDUSTRIAL CaMPLEX

INDUSTRIAL ESTATE CCMPONENT - CAPITAL COST ESTIMATE

Tsh ('t0O) u$ ('000)Local Foreign Total Local Foreign Total %

I. Infrastructure 9,070.9 11,150.6 20,221.5 1.092.9 1,343.4 2?436.3 48.0-site preparation 9933.7 Y 73 325. 11907 39.9 53.i-roads & drainage 4,345.2 1,086.3 5,431.5 523.5 130.9 654.4 12.9-water supply 1,270.5 2,964.5 4,235.0 153.1 357.2 510.3 10.1-power supply 307.5 1,742.5 2,05000 37.1 209.9 247.0 4.9-sewerage 2,154.0 5,026.0 7,180.0 25905 605.5 865.0 17.0

II. Superstructure 9 345. 7 8 4818 17 827 5 1,126.0 1 021 9 2 147.9 4203-standard factories 4,752.o -3, B.o0 572.5 1,041.0 20.5-housing 4,593.7 4,593.8 9,187.5 553.5 553.5 1,106.9 21.8

III. Site Equipment 60.0 240.0 300.0 7.4 29.4 36.8 007

IV. Consulting & J$a4 e-Serv.10)! 951.2 2.853.7 3,804.9 114.6 343.8 .4 2.0

Base Cost 19,427.8 22,72601 42,153.9 2,340.7 2,73801 5,078.8 100.0

V. Contingencies-Physical (10%) 1,942.8 2,272.6 4,215.4 234,1 273.8 507.9 1000-Price Escal. (37%) 7,806.3 9,350.3 17,156.6 940.5 1,126.5 2,067.0 4007

Installed Cost 29,176.9 34,349.0 63,525.9 3,515.3 4,138.4 7,653.7 15007

VI. Interest During Con-struction 1,919.3 13,410.9 15,330.2 231.2 1,61508 1,847.0 36.4

Total Financing 31,096.2 47,759.9 78,856.1 3,746.5 5,754.2 9,500.7 18701Percentage (%) 39.4% 60.6% 100% 3904% 60.6% 100%

1/ Estimated at 10% of infrastructure and superstructure costs, and divided into local and

foreign components in the proportion of 25:75,

Z/ Composite factor calcuJ ted as shown in Annex 16,

Industrial Projects Departnent7~' -- ar- 1977

TANZANIA ANNEX 14

MOROGORO INDUSTRIAL COMPLEX

FOOTWEAR FACTORY COMPONENT

CAPITAL COST ESTIMATE-/

Tsh ('000) US$('000) 7 of

Local Foreign-/ Total Local Foreign Total BCE

I. EquipmentLeather Shoe Plant

Upper Cutting Machines - 3,386 3,386 - 408 408

Upper Closing Machines - 4,548 4,548 - 548 548

Bottom Cutting Machines - 3,171 3,171 - 382 382

Lasting and Finishing Machines - 10,466 10,466 - 1,261 1,261

Other Various Machines - 340 340 - 41 41

Transport and Storage - 3,835 3,835 - 462 462

Canvas Shoe PlantCanvas Shoe Plant-/ - 6,673 6,673 - 804 804PVC Injection Machines - 3,204 3,204 - 386 386

Other MachineryModel Room Machines - 133 133 - 16 16

Workshop - 100 100 - 12 12

Laboratory - 91 91 - 11 11

Electrical Equipment - 1,303 1,303 - 157 157

Inland Freight 58 - 58 7 - 7

Erection and Installation 1,793 1,038 2,831 216 125 341

Miscellaneous Expenses 116 125 241 14 15 29

1,967 38,413 40,380 237 4,628 4,865 45.2

II. Other AssetsFurniture and Fixtures 224 100 324 27 12 39

Office Equipment 50 183 233 6 22 28

Vehicles 332 1,328 1,660 40 160 200

Preproduction & Setup Expenses 1,038 3,113 4,151 125 375 5001,644 4,724 6,368 198 569 767 7.1

III. Civil WorksPattern Making and Laboratory 116 145 261 14 17 31

Leather Shoe Department 3,893 4,768 8,661 469 574 1,043

Canvas Shoe Department 1,419 1,741 3,160 171 21t0 381

Ancillaries 1,436 1,756 3,192 173 212 385

Godowns 3,237 3,963 7,200 390 477 867

Water Supply Tanks 58 67 125 7 8 15Fences 58 75 133 7 9 16

10,217 12,515 22,732 1,231 1,507 2,738 25.5

IV. Consulting & EngineeringServices d/ 2,407 14,210 16,617 290 1,712 2,002 18.6

V. Training 689 2,490 3,179 83 300 383 3.6

Base Cost Estimate 16,924 72,352 89,276 2,049 8,706 10,755 100.0

VI. ContingenciesPhysical 847 3,619 4,466 102 436 538Price Escalatione/ 6,516 27,697 34,213 785 3,337 4,122

Installed Cost 24,267 103,666 12,955 2,936 12,479 15,415 143.3

VII. Net Working Capita f/ 38,612 29,266 67,878 4,652 3,526 8,178

VIII. Capitalized Interest 6,192 11,479 17,671 746 1,383 2,129

Total Financing Required 69,091 144,413 213,504t 8,334 17,388 25,722

% of Total 32.4 67.6 100.0 32.4 67.6 100.0

a/ Assumes an exchange rate of US$1 = Tsh 8.3.

b/ The foreign exchange components of local purchases are assumed as follows:i) Office equipment and vehicles - 80%

ii) Furniture and fixtures - 30%(iii) Preproduction and set-up expenses - 75%( iv) Civil Works - 55%( v) Erection and installation charges as detailed in the feasibility study.

c| Including compounding, cutting, closing, and vulcanizing machinery.

d/ Includes 6% of equipment and civil works for project engineering and $1.5 million for

management and marketing.

e/ For equipment, other assets, training, and consulting and engineering services, a price

escalation of 36% has been assumed; for civil works 377%. See Annex 16.

f/ See Annex 17

Industrial Projects Department

February 1977

TANZANIA

MOROGORO INDUSTRIAL COMPILX

LEATFER GOODS FACTORY COIMPONENT - CAPITAL COST ESTIMATE-/

Tsh ('000) US$('OOO)

Local Fore' v/ Total Local Foreign Total PCh

I. EquipmelltImported Equipment - 971 971 _ 117 117Local Equipmer.t, Inland 66 - 66 8 - 8Freight, and Miscella-neouis Expenses

Erection and Installation - 100 100 - 12 12166 ,071. 1,137 129 137 77.0

II. Other AssetsFurniture and Fixtures 17 8 25 2 1 3Office Equipment 8 42 50 1 5 6

Vehicles 25 91 116 3 11 14Preproduction & Start-upExpenses 17 25 42 2 3

67 T1,6 233 T 20 28 15.7

IlI. Consulting and EngineeringServicesE/ 8 100 108 1 12 13 7-3

.;.ase Cost Estimate m4i 1,337 1,078 17 i61 i78 1O.C

IV. ContingenclesPhysical (5%) 8 66 74 1 8 9Price Escalation 50 540 590 6 65 71Installed Cost 1 99 i,9h3 -2,2 -24 234 2 11.44.9

V. Net Working Capital 4,283 1,220 5,503 516 147 663

VI. Capitalized Interest 299 548 847 36 66 1102

Total Financing Required 4,781 3,711 8,492 576 447 1,023

% of Total 5623 43.6 100.0 56,3 143-6 100.0

a! Assumes US$1 = Tsh 8.3.b/ The foreign exchange component of local purchases has been assumed as follows:

( i) Office equipment and vehicles - 80%( ii) Furniture and Fixtures - 30%(iii) Preproduction and start-up expenses - 60%

c/ Assuned to be 8% of equipment. The foreign exchange component is assumedto be 85%.

d/ See Annex lbe/ See Annex 7iY.

Industrial Projects Department

ANNEX 1

TANZA N I

MIOROGORO INDUSTRIAL COIMPIEX

CALCULATION OF PRICE ESCALATION FACTORS

1. In calculating the price escalation factors, Bank CPS guidelineson anticipated inflation rates for equipment and civil wo:'ks have been fol-lowed:

A. Assumed Price Escalation for Equipment

International CompoundFiscal Year Inflation Rate Inflation Rate

1/1975/76 12 6-/197 /77 9 1f1977/78 8 251978/79 8 35

. Assumed Price Escalation for Civil Works

International CompoundFiscal Year Inflation Rate Inflation Rate

1975/76 14 71976/77 13 211977/78 12 361978/79 12 52

2. As the industrial estate, canvas mill and the shoe factory will be imple-nented in parallel within the sanLe time frame, it is anticipated that they willhave similar expenditure patterns. The weighted escalation factors have beencalculat..d as follows, taking into account their expenditure patterns: equip-ment, 3("; civil works, I?7. Tne leather goods factory, on the other hand,has a different implementation schedule and the weighted escalation factor forequipment has been calculated at 3t*. (Civil works for the leather goodsfactory will be provided by the industrial estate and are not chargeable tothe leather goods factory except as rent on occupied factory space).

1/ Corresponds to inflation during first half of calendar 1976 applied to baseprices at end-1975.

Industrial Projects DepartmentFeL,,ruar-c "

TANZANIAANNEX 17?

MOROGORO INDUSTRIAL COMPLEX

WORKING CAPITAL ESTIMATES

Estimates of permanent working capital for the footwear and leathergoods factory appear in the tables below. Working capital amounts to 4.3months of production cost of the footwear factory and 3.5 months for theleather goods factory.

Table 1: Footwear Factory - Net Permanent Working Capital

Amount-'(us$ '000)

1. Raw MaterialsLocal (3 mo) 1,890

Imported (6 mo) 3,623

2. StoresMaintenance Parts and Materials (12 mo) 500

Miscellaneous (6 mo) 200

3. Salaries and Wages (1 mo) 200

4. Gioods in Process (1 mo) 1,000

5. Receivables (1 mo) 1.000

6. Layables (1.5 times receivables) (1,500)

7. Short-term Credits from Banks (1,000,

8. Cash 100

Total (in late 1975 prices) 2/ 6,013Escalated Permanent lWorking CapitaT 8,178

Ta'-le 2: Leather Goods Factory - Net Permanenit W'orking Capital

1/Amount-

(US$ 'ooo)

1. Raw MaterialsLocal (3 mo) 236

Irported (6 mo) 163

2. StoresNTairtenance (1-2 mo) 50

Miscellaneous (6 mo) 20

3. Salaries and Wages (1 mo) 30

h. Goods in Process (0 mno) 120

eceivables (1 mo) 120

6. Payables (I.5 tLmes receivables) (180)

7. Short-Term Credits from Bank (8L1)

8. Cash 20

Total (in late 1975 prices 9Escalated Working Capital 663

1/ Assumes US$1.00 = Tsh 8.30.2/ Escalation factor assumed to be ,60 for the footwear factory and 34% for the

leather goods factory.

Industrial Projects DppartmentFeLritary 1977

ANNEX 18

TANZANIA

MDROGORO INDUSTRIAL COMPLEX

AVERAGE QUARTERLY DISBURSEMENT - IBRD LDAN(TJS.$ 000)

Industrial Shoe Leather Goods Consolidated CumulativeCalendar Year Quarter Estate Factory Factory Project Disbursement

1978- 1st 300 1,000 - 1,300 1,3002nd 300 1,000 200 1,500 2,8003rd 450 1,500 200 2,150 4,9504th 450 1,500 200 2,150 7,100

1979 1st 650 1,500 - 2,150 9,2502nd 650 1,500 - 2,150 11,4003rd 500 1,500 - 2,000 13,4004th 500 1,500 - 2,000 15,400

1980 1st 45n 1,000 - 1,450 1j,8'802nd 450 1,000 - 1,450 18,300

3rd 400 500 - 900 19,2004th 400 500 - 900 20,100

1981 1st 300 250 550 20,6502nd 300 250 550 21,2003rd 200 200 - 400 21,6004th 200 200 - 400 22,000

1982 1st - 125 - 125 22,1252nd - 125 - 125 22,2503rd - 125 - 125 22,3754th - 125! - 125 22,500

1983 1st - 125 - 125 22,6252nd - 125 - 125 22,7503rd - 125 - 125 22,8754th - 125 - 125 23.000

Total 6,500 15,900 600 23,000

1/ Expenditures incurred prior to first quarter of 1978 are not significant.

Industrial Projects DepartmentFebruary 1977

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

PROJECT IMPLEMENTATION SCHEDULE

1977 1978 1979 1980

J F IMIAIM I J I J A S O ND J FMAM J JAS ND JFMA MI J JAlSON ID J IFMAM J JA S ON ID

1. Seletion of Consultants

(a) IndustrIal Estate

(b. Fo.twea. Factory

(c) Leather Goods Factory

2. Detailed Engineering

(a) Indlustral Estate(b) Footwear Factory

Ic) Leather Goods Factory

3. Proc..rement2

Ia) In dastrial Estate mm

(b) Footwear Factory

)c) Leather Goods Factory

4. Construction

1' 3/~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~1

(a) Industrial Estate Inf-ant-ature-

(b) Footwear Factory

(c) Leather Goods Fatctry -/

5. Equipment Installation 6

(a) Industrial Estate

(Is) Footwear Factory)c) Leather Goods Factory ILL

6'Training(a) Ir,dustrial Estate(bI Footwear FactoryEl(oJn 91

(c) Leather Goods Factory

7/7. Start Up-

(a) Industrial Estate

(b) Footwear FaCtory

)c) Leather Goods Factory *..um

More detailed schedaling. asing "PERT" or "Critical Path" techtniqaes will be prepared during "'Will occupy first standr,c.d factory building scheduled to be ready by third quarter of 1976.

th. detailed engine.,ing desig,,. 1,,~~~~~~~~~~~~Iclades installation of atilities anid machines, (ally connected.

Frocarement inclades tendering, selection, ordering and shipment of goods to Morgoro. I3/ ~~~~~~~~~~~~~~~~~~~~~~~~~~Assamed p-oductio0n of the Footwear Factory and Leather Goods Factory

In,frastratare includes fencing, roadwork and drainage, sewerage, power, water. is 60% in first year of operation, 80%. in the second year, 90% in 3rd and

Saperstructure includes standard factory baildings and hou-mg. sulbsequent years.

Industrial Proiects Department hWorld Bunk-i 7076

February 1977

ANNE1C 20-1

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

INDUSTRIAL ESTATE - FINANCIAL PROJECTIONS, 1977-1998

1. Government-owned industrial estates, even in market economies,function primarily as catalysts of industrial development. They are locatedand operated to achieve specific regional development objectives. Profits,as such, are secondary. Notwithstanding, well-managed estates can generatea suitable return on the resources invested while providing sites and servicesat prices under those that would prevail if profit maximization were the goal.The benefits of efficient large-scale development of infrastructure are, ineffect, shared between the estate and the occupant factories. These conceptswill be applied in Morogoro. Rents have been set for the industrial estateto yield an acceptable financial return and to foster rational economic de-velopment. By sharing the benefits of efficient infrastructure development, theestate will attract industries which otherwise might "go-it-alone" at higherfinancial and economic costs. The estate will then be functioning effectivelyas an industrial "growth pole" in accordance with the Government's long rangeplanning objective for Morogoro.

A. Revenue

2. Sources of revenue will be from rents paid by industry occupants ofdeveloped plots, standard factory buildings and occupants of houses providedby the estate. Water supply revenues have not been taken into account becausethe supply of water all over the country and the collection of water charges isvested in the Ministry for Water Development, Energy and Minerals. It hastherefore been assumed that once the water supply installation has been com-pleted, it will be handed over to the Ministry for Water Development whowill be responsible for the supply of water and maintenance of the system as wellas collecting the water charges. The same assumptions have beenmade regarding the supply of power and the treatment of waste from the estate.Adequate compensation will be paid to NDC for the transfer of these facilitiesto the respective authorities, and such recovery of capital cost has beenassumed in the financial analysis.

3. Factory buildings in Tanzania are generally occupied by the owner.In the few instances where tenancy still exists, the rent charged has not beenrevised for a number of years so that rental rates do not reflect true economiccosts. The estate itself, covering eventually some 204 ha, will be on govern-ment land to be leased to NDC for an estimated annual rent of Tsh 6,500. Thisnominal charge is based on the rent presently paid by NDC for a 40 ha ploton which the tannery is being constructed. Leases are usually for a 99-yearperiod.

4. The cost of providing the necessary infrastructure for Phase I is esti-mated at Tsh 1,015,000 (US$122,300) per ha and it is proposed to charge initiallyin 1978 an annual rent of Tsh 120,000 (US$14,458) per hectare for developed land.Since the tannery has already started with some infrastructural work, e.g., sitepreparation, roadworks and water works, it has been assumed that it will pay 50%of the normal rent. Alternatively, there could be a transfer of the infrastruc-ture investment to the Estate Corporation which will then charge the tannery fullrent.

ANNEX 20-2

5. Lease agreements for developed land and standard factory buildingsprovide for a yearly upward revision of rentals by 8-1/3%. This increase has beenassumed in the financial projections to offset the projected inflation rate of 7%per year and to provide an additional margin to cover increases in real values dueto land scarcity.

6. In Tanzania, rental rates for residential houses are linked tothe occupant's income and varies from 7.5 to 12.5% of occupant's salary. Sincethe houses will be occupied by the technical, administrative and supervisorypersonnel and the present rental policy, if applied, will cover only part of theeconomic rent, it has been assumed that the difference between the economic andthe subsidized rents will be met by the enterprises whose personnel will occupythese houses. An average of Tsh 72,000 per house per annum has been assumed inthe financial projections for the revenues derived from housing, with a yearlyincrease of 7%, paralleling the inflation rate.

7. Based on the above assumptions, the total revenue build-up between1978 and 1998 is given in Addendum 1. It has also been assumed in the revenuebuild-up that the 36 ha of developed land and 24 standard factory units of240 m2 each will be gradually taken up from 1978 to 1981 when Phase I willbe fully occupied. All housing will be leased as from 1979.

B. Income and Cash Flow Staements

8. Income and Cash Flow Statements covering the period 1978 to 1998are given in Addendum 2.

9. Depreciation on buildings has been assumed at 4% per year and onother assets at 10% per year. Investment in developed land has not beendepreciated; these assets, however, are maintained and the costs of main-tenance taken as 2% of investment cost have been included as operatingexpenditures.

10. Based on the above assumptions, debt service coverage in 1982, thefirst year of debt amortization is 1.5 This decreases to 0.9 in 1983, the-first year of loan repayment, but improves gradually thereafter to 5.3 in 1992.the last year of loan repayment. -

C. Balance Sheets and Financial Return

11. Pro-forma balance sheets and financial return are given in Addendum 3.The current ratio of the project is a maximum of 7 throughout the period of repay-ment of debt. Debt/equity ration starts at a comfortable 53:47 in 1977 andgradually improves. In the first year of repayment of loan it is 45:55.

12. The financial rate of return of the project calculated in constant1975 currency is given in Addendum 3. Based on the rate of occupancy asdescribed in para 7, over a project life of 20 years and with residual valuesequal to the total investment cost of infrastructure and half the investmentof buildings the after-tax return is 9.2%.

Industrial Projects DepartmentFebruary 1977

TAN2ANIAMOROCORO INDUSTRLAL cOMPLEX

NDUSTRIAL ESTATE COMPONENTREVENUE STATEIEhIT 978-1998

(Tab '000)

1978 1979 1980 - 1981 19 2 1903 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

A. RENT FROM DEVELOPED PLOTS -

Dectare Rent per hectare/ ly-

(Th '0DD3)

8 120.0 480 520 563 610 661 7L6 776 840 910 986 1.068 1,157 1.254 1,358 1,471 1,594 1,727 1,871 2,026 2,194 2,378

16 130.0 - 2,080 2 253 2,441 2,644 2,865 3,103 3,362 3,642 3,945 4,274 4,633 5,015 5,433 5,886 6,376 6,907 7,482 8,106 8,781 9,512

8 140.0 - - 1,176 1,220 1,322 1,432 1,551 1,680 1,820 1,972 2,136 2,314 2,507 2,716 2,942 3,167 3,453 3,740 4.052 4,390 4,755

4 152.5 - - 6190 661 716 776 840 910 986 1,068 ,L57

1,254 1,358 1471 1_59.. ,727 1,871 2 n26 2194 1.21.

Total fr2o dn-elopeO plots 480 2,600 3,942 4,881 5,Z8t 3,729 6 206 6,722 7,:282 7,889 8,546 9 256 10,030 10,865 11,770 12,751 13,814 14,964 16,210 17,559 19,023

B. RENT FROM STAN0 ARD FACTORY UNITS1Units R_nt per tanitfsnan

(Tab 900O)6 90.0 - 540 585 634 686 744 806 873 9145 1,024 1,110 1,202 1,302 1,411 1,528 1,655 1,793 1,943 2,124 2,280 2,470

10 97.5 , - - 975 1,056 1,144 1,240 1,343 1,455 1,176 1,707 1,849 2,003 2,170 2,351 2,547 2,759 2,989 3,238 3,507 3,8D0 4,116

8 105 6 - _ - 845 915 991 1,074 1,163 1,260 1,365 1,479 1,602 ,736 1,880 2,030 7,207 2_390 2,59q 2,805 35039 3,292

T-ota Icon Eactory unics 540 1,540 2,535 2,745 2,975 3,223 3,a91 3,181 4,096 4,438 4,807 5,208 5,642 6,112 6,621 7.172 7.771 8,416 9,119 9,878

C. ENT PROM AOSE 2/Untts Rent per hoOSn/ynar

(Tah '000235 72.0 -2,520 2,730 2,957 3,204 33,471 _760 4,073 4,4112 4.780 5_178 5,609 6_0760 ,582 7, 131 7_Z , _3 9,065 9 _820 , 0638 11,525

TOTAL RdVENUES 480 5,660 8,232 10,373 11,237 12,175 13,189 14,286 15,475 16,765 18,162 19,674 21,314 23,089 25,013 27,097 29,354 31,800 34,446 37,316 40,426

OpERATINE loFL AEPL0ENtS (INCLODEM68IO8S5 , 1978-1998

A, Sslaries and Wages 100 200 214 229 245 262 281 300 321 344 368 394 421 450 482 516 552 590 632 676 723

0. 40nin1tbotSSn 1 0O0 150 161 172 184 197 210 225 241 258 276 295 316 338 361 387 414 443 474 507 543

C. Maintenance _ - 1.196 1,237 1,324 1,416 1,815 1,621 1,735 1,85f6 1,986 2_125 2,271 2,433 2,604 2,786 2,981 3,189 3,413 3,652

TOTAL OPERATING COSTS 200 350 375 1,557 1,666 1,783 1,907 2,040 2,183 2,337 2,500 2,675 2,862 3,062 3,276 3,507 3,752 4,014 4,295 4,596 4,918

1/ Asaumed eo increase by 8-1/3% per naaoa.

2/ Ansoned to ianrease by 7, pnr -nnln.3/ Rent ch-rged no -a-aery han be .. . d t 50I of the beg r rate -eae part of the land development haa bteen ?0idsb the company.

4/ Assumed to increse. by 7'i per annn.aa fro- 1979.

3/ Inclndes printing aod statio-ery, tbanSp-bt, atilities, i..n.a-ce nf boilding. etc. and incre-aing at 7T. p7. annun as Scrn 1979.

61 Assupted as 2-/ nf investment in land de-elopment, buildinga and equipment a-d iocre.aing by 7b per annun.

Itd.atrial Pr-jtbt Dep-rtneetFebroary 1977

TANZANIAM0R0G080 INDUSTRIAL COMPLEXINDUSTRIAL ESTATE COMPONENT

I8COR SATEMNTS 197-98(Tsh '0001

1077 1978 1979 1960 1991 1982 1983 1984 t985 1086 1987 1988 1989 1900 1991 1992 1993 1994 1995 1996 1997 1998

REVENU'ES

Totl .... oe .- 480 5,660 8.232 10,373 11,237 12,175 13,189 14,296 15,476 1b8,765 18,162 19,674 21,314 23,089 25,013 27,097 29,354 31,800 34,446 37,316 40,426

Uotal Operaing Cost - 30 350 3215 1,557 1,666 1.783 1,907 2,040 2,183 2 ,33 7 2.500 2, 6275 2,862 3.002 3,276 3,507 3,752 4,014 4.295 4,596 4.918

Ineet 008D Loa) - - - - 2,168 3,994 3,544 3,081 2,625 7,168 1,012 1,255 799 34 2 114 --

- - - 1~~~~~~~~-, 27 1 ,2 72 1 ,2072 1,~272 1,272 1 ,2 72 1. 2722 1-,2 72 1 ,2 72 1 ,2 72 1 ,2 72 1 ,2072 1,2 7 2 1 ,27 2 1,272 1,272 1,272 1 ,27 2

Total Costs 200 3502 3 75 2,829 5,106 7,049 6,773 6,393 6,080 5 ,7 77 5484 5,702 4,933 4,676 4,662 4,779 5,074 5,786 5,562 5,868 6.198

Incoe Rlat Tao 280 5,310 7,857 7.544 67,131 5,126 6,466 1,8923 9,395 10.988 12,678 14,472 16,381 18,413 20,351 22,318 24,330 26,514 28,879 31,448 34,236

Coprt la 45%) - 26 2390 3,536 3,395 2,79 2,307 2,910 3,552 4,228 4, 945 5,705 6,512 2,371 8.286 9,158 10,043 10,949 11,931 12,996 14,152 13,406Iomafter Ta - 154 2,920 4,321 4,149 3.372 2,819 3,556 4,341 5,167 6,0"3 6,923 7,960 9,0101 10.127 11,919 12,229 13,381 16.583 15,883 17,796 18,930

Ca..a. e apls(Dels-it) - 54 3,074 7,395 11,544 14,916 17,735 21,291 75,632 30,799 36,84 2 43,815 5,75 60,785 70,92 82,05 94,380 107,761 122.344 138,227 155,523 174,353

CASH FLOW STATEMENTS, 1.977-98

SOURCES lOE F.UNDS

Incm ferTn. 154 2,920 4,321 4,149 3 .3 72 2,8191 3,5 4,341 5,167 6,043 6,9213 7,96 9010 10,2127 1~1,193 12,275~ 113,31 14,593 15,883 17,26 18,830

Ierelteo 1,272 702 1,22 1 ,27 120 1272 71,272 1,22 1272 12,22 1,72 1,72 1,2 2 1, 272 1 272 122 .2 72 1,272Paid En Eqolty 33,206 13,282 9,962 - - - - - . - -- - - -

InreseS loam. UsilhR C-6- 18, 260) 13,695 2,282 - - - - --

Total Santoes 21,375 31.696 ~~~~~~~~~~~~~~~~26 ,57 7 23,696 541 4,644 4,091 4,828 5,613 6,3 ,35 824 ,3 10,282 11399 12,46 13547 14,653 1585 17,155 19,568 20,102

APPLICATION OF FIJNDIS

Decreaanin Loan . - - - 2,283 4,565 4,565 4,565 4,565 4,565 4,565 4,565 4,565 4,365 2,2824 -5 -565 -565 -65 45b5 ,565 ,565 4,565 2-28Lan Ieeoen ,2 2i7 1,7 - - - - - - - - - - - ------

RooldRegs 4 rqsipennt 6~~~~~,:829 10,926 8,195 1,366 - - - - - - - - . - - -..---

ConaalttnR 4 tagiorettoo Se-I.es 1430 2,27 2,001 - - - - -

lateres- d-icEss Urare Petid 871 2,331 4,841 5,184 2,984 - - - - ------Total AppisoatEons ~~~~~~~~~~~~~16,753 27,741 24,909 6,550 2,904 2,282 -4,565 4,6 455 455 455 458 455 455 455 222 ----

Sorplos (Deftolt) ~~~~~~ ~~~~~~ ~ ~~~~4,622 3,5551 1.668 17,,146 2,:51 2,361 74741 263 1,48 1,874 2,50 ,8 4,667 5I.717 6,034 12,183 313,57 14,653 15,853 17.155 18,568 201, 102Coaslattte 4,~~~~~~~~~~ ~~~~~~~~~~~622 8,17 0,245 7391 29908 3229 3,92205 316 3,8 7.031 431,4"10 46,077 51,74 58,628 69,811 82358 9,1 1,6 3,2 4,8 6,9

Debt Sernic I - -_- 4,451 8,59 8,109 1.646 7.190 6,233 6277 5,870 5,3694 4,907 2396 ---

lebs leroRre Ennetage - . - ~~~~ - -- - - -- - 1. 0. 10 1 .3 14 6 18 21 24 53- - - - -

1/ From Re-na taeens A..e. 19, EddeRdOls 12/ Fr om perting Coa Statement,, Annr 19 , O~d.de-o I

3/ P-t of enpen-c imote orE-rsrntete -otd from. p.bl- t altty conpanes

Ind-st,i.1 Proecsi eatm-PFlpo,1977

TAKANX,6IA

MrlRS10OR87 INDUSTRIAI. CVMPI tXiNVf7R4IL ESTATE COMPONENT

PR,FORMA BALANCE ShEETS INCI.UDIN H8US INGC 1977- 1998

1977 1978 1979 1980 1981 982 1987 1984 1985 1986 1987 1988 1989 1990 1991l 1992 1993 1994 1495 1996 1997 199P

ASSETSCurrent Asses - Cash 4,622 8,577 10,245 27,391 29,908 32,269 31,795 32,058 33,106 34,980 37,738 41,410 46,077 51,794 58,628 68,811 82,358 97,011 112,866 130,021 148,589 168,691

fixed A-neLs- Buildings & Isfrasrsut-ure 16,753 44,494 69,403 58,860 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764 61,764

'TLess J)epreniue - - - - 7,272 2,544 3,816 5,088 .6,360 7,632 8,904 10,176 11,448 12,720 13,992 15,264 16,536 17,808 19,080 20,352 21,624 22,896TAItl Net Fined Asset.s 16,753 44,494 69,403 58,860 60,492 59L220 57,948 16,676 55,404 94,132 52,868 51,588 50,316 49,044 47,772 46,500 45,228 43 4956 42,684 41,412 40,140 38,868

Total Assets 21,375 53,071 79,648 96,251 90,400 91,489 89,743 88,734 88,510 89,1L2 30,590 92,998 96,393 100,838 106,400 115,311 127,586 140,967 155,550 11L,433 188,729 207,559

LIABILITLE S- Manr-ig Lang lern Loan - - 2,283 4,565 4,565 4,565 4,565 4,865 4,565 4,565 4,565 4,565 2,282 - - -- Lung Term Loan 11,413 29,673 43,368 45,650 43,367 38,802 34,237 29,672 25,107 20,542 .5,977 11412 6,847 2,282 - - - - -

E OU ITY- NOCE & Governmsent Share Capital 9,962 23,244 33,206 33,206 33,206 33,206 33,206 33,206 33,206 33,206 13,206 33,206 33,206 33,206 33,206 33,206 33,206 33,206 33,206 33,206 33,206 33,206

Surplus (IeEicit) 154 3,074 7,395 11,544 14,916 12,735 21,291 25,632 38,799 16,842 43,818 51,775 60,785 70,912 82,105 94,388 107,761 122,344 138,227 155,523 174,353

Total Liabiliti-s & Eqsily 21,375 53,071 79,648 86,251 90,400 91,489 89,743 88,734 88,510 89,112 90,590 97,998 96,393 100,838 186,400 115,311 127,586 140,967 155,550 171,433 188,729 207,559

Csrreni Eatie - - 13.1 7-1 7.8 7.0 7.3 7.7 8.3 9.1 10.1 11.3 25.7 - - - - - - -DebI/Equity Raris 53:47 56:44 54:46 53:47 49:51 45:55 40:60 35:65 30:70 24:76 19:81 13:87 7:93 2:98 0:100 - - - - - _

FINANCIAL RATE OF RETURN (INElOING HOESING) , 1977-1998A. CE8BENP VALUE BASIS

Investenet CDStS tl- Land DevelopmntL 7,623 12,197 10,672 (17,093)/2 -

- Buildigng & Equipment 6,829 10,926 9,561- C-us-lting & Eng'g Sertlie 1,430 2,287 2, 001

Total Inesestent Custp 15,882 75,4 0 22,234 (17,093) - _ _ - _ _ _ _ _ - _ - - - - -

Operating Profir 4 Lanes- Operating Profit73 - 280 5,310 7,857 8,816 9,571 10,392 11,282 12,246 13,292 14,428 15,662 16,999 18,452 20,027 21,737 23,590 25,602 27,786 30,151 32,720 35,508- Tames 126 2,390 3,536 3,395 2,759 2,307 2,910 3,552 4,228 4,945 5,705 6,512 7,371 8,286 9,158 10,043 10,949 11,931 12,996 14,152 15,406

Finanuial Return: 21.17, (ReEfre Tan)FiPnunial Ret-n: 14.87, (After Tin)

B. CONSTAN4T VALUE BASISIutesiteen Cents 13,932 20,659 16,717 (11,953)/2

Oper-ting Pr-fit - 228 3,992 5,494 5,762 5,836 5,938 6,001 6,123 6,182 6,273 6,367 6,463 6,543 6,653 6,751 6,838 6,938 7,034 7,162 7,239 39,657 /5Tanes - 102 1,797 2,473 2,219 1,682 1,318 1,548 1,776 1,967 2,150 2,319 2,476 2,614 2,753 2,844 2,911 2,967 3,021 3,087 3,L31 3,183

Pinancial Return, i,,nidieg residual -uise: 14.0% (Before Tan) and 9.2% (After Tan)Financial Return, exuluding rentd-al -a-ue: 12,9'4 (Eelnee Tan) and 7.17. (After Tan)

/I EIcluding interest d-ring -anstruutin.72 Pant uB eupennen incurred f-r infrastr.ct- re recoune-d fram public rtility c-panies./3 Operating prefit = Rene - Openating Cents (enrnIding depreciation)./4 At ranstant 1976 prices./5 Inrluding Residnal raise takes as tptal Band deve-lp-ent plus half sn-etenet casts as building,.

Industrial Prajects DepartmentFebusr-v 1977

wi

ANN(EX 21

IIOROGOPlo 1DUSTDTM-AL COMPLEX

CALCULATI014 OF PRICE DEFLATORS

In ord'er to dcflfue the cost an(d benefit figures to constant late 1975

nrices for r-te of return analyses, t-ic -±creases in the international manufac-

turing price index were assumed, as follows:

A. International Price Index of 11nufactures

Year Price Increase Rate

1975 10.5i976 8.81977 8.01978 7651979 7-51980 on 7.0

B. Deflrtor

Year Price Increase Rate Defletor

1975 1J O,8 1.001976 - 8.0 1.051977 7.8 1.141978 765 1.231979 7.3 1.331980 7.0 1. 431931 7.0 1.531982 7.0 1.61t1983 7.0 1.751984 7.0 1.881985 7.0 2.001986 7.0 2.151987 7.0 2.301988 7.0 2.2461989 7.0 2.631990 7.0 2.821991 7.0 3.011992 7.0 3.221903 7.0 3.145199J4 7.0 3.691995 7.0 3.951996 7.0 4.211997 7.0 4.521998 7.0 4.84

a/ Source: Economic Analysis and Projections Department, IRRD.b/ Corresponds to the base price year.

Industrial Projects DepartmentV'efruar 11977

ANMEX 22-1

TANZANIA

MDROGORO INDUSTRIAL COMPLEX

FOOTWEAR FACT1ORY-FINANCIAL PROJECTIONS, 1977-1998

Operating Costs and Revenues

1. The footwear factory is expected to start operations in the beginningof 1980. The assumed capacity utilization rate for the first year is 60%,increasing to 80% in the second year of operations. Tn the third and sub-sequent years of operations, capacity utilization is assumed to be 90%. Pro-jected ex-factory raw material and product prices, as well as production costsestimates, are based on late-1975 prices and escalated to show the anticipatedrates of inflation. We have assumed that the footwear factorywill producetwo types of shoes: a flat-lasted leather shoe with leather soles and a tennistype of canvas shoe. The flat-lasted "average" shoe that the footwear factorywill produce has been assumed to be about 10% cheaper than world prices forcomparable shoes. The mission believes that the Morogoro footwear factoryshould produce utilitarian shoes before producing higher-priced fashion shoes.The canvas shoe is assumed to be relatively good (similar to Converse type ofcanvas shoe). The mission believes that, as the manufacturing process wouldbe automatic, there is no reason why Morogoro footwear factory should only pro-duce the cheaper, "sneaker" type shoe. The prices assumed for the canvas shoesare conservative on the average, 250' belowT those assumed in the IACP feasibilitystudy, the prices of which were based on manufacturing experience of Pakistanifirms. It is assumed that all the output will be sold, 80% exported overseasand the other 20% consumed domestically. The ex-factory prices adjusted fortransport costs of the footwear are assumed to be the prevailing internationalprices as well. The product-mix and prices are given below:

Table 1: Annual Sales Revenue aX

Item Quantity Price Per Pair Annual Revenue(000 pairs) (Tsh) (Tsh 'OOOs)

Leather Shoes 2,000 62.25 124,500Canvas Shoes 2 000 21.60 3,200

Total 167,700

a/ At 100% capacity utilization, late 1975 prices.

AlI? EX 22-2

2. The recurrent operating costs at 90% capacity utilization areshown in Addendum 1, in both late-1975 prices and 1982 prices. In 1975prices, the local raw material, consisting mostly of leather and canvas,amounts to Tsh 45,137,451t Imported raw materials, consisting of chemicals,rubber, eyelets etc. amount to Tsh 29,204,761. Staff salary and wages plusbenefits are assumed to be Tsh 12,185,694, or 1,25 times the feasibilitystuLdy estimate, reflecting the mission's opinion that it would be difficultto prevent overstaffing in Tanzanian factories. The salaries and benefitsare assumed to increase 2% p.a. in real terms to compensate for increasesin factory skills. Factory overheads are estimated to be Tsh 6,764,000 andinclude power, maintenance, water and rent, etc. Power is estimated atTsh 912,000, water at Tsh 26,000 and maintenenace at Tsh 1,984,000 (3% of thevalue of equipment and civil works. The maintenance figure is 3 times theIACP estimates). Factory supplies are taken at 1% of the raw materials con-sumed during the year, and amount to Tsh 720,732. All of the ebove costs are_ssiuned to increpse at 7% p.a. when converting to current terms. Rent istaken at TshleO,0001ha. For 5.5 ha, the rent for the footwear factory isset at Tsh 660,000 growing at 8.33% p.a. Waste disposal charges are setat Tsh 166,000 for the footwear factory, growing at the anticipated rate ofinflation. Miscellaneous expenses are estimated at Tsh 2,414,00 and includeallocation for technical assistance to the footwear factory.

3. The operating expenses include office administrative salaries andbenefits, general expenses, and selling and distribution expenses. Officeadministrative expenses are estimated at Tsh 905,000, 1.25 times the feasibi-lity study estimate to reflect the mission's opinion concerning the likeli-hood of overstaffing in Tanzanian offices. Administrative salaries andbenefits are estimated to increase at 2% p.a. in real terms to compensatefor increases in productivity. General expenses are estimated at Tsh 1,300,000or 2.4 times the estimate of the feasibility study, and includes legal fees,incurance fees, and assessments made to NDC for special services, as well assubsidized housing for the staff of the footwear factory. Selling and dis-tribution expenses are assumed to be 5% of sales revenue and amount toTsh 6,503,000 and include port-factory transport costs.

4. I on-operating expenses include interest charges, depreciation, andbank charges and commission. Interest and principal repayment schedules areseen in Addenda 2 and 3. The depreciation schedule is shown in Addendum 4.Eiquipment, other assets, training, and capitalized interest are depreciatedaccording to the straight line method, assuming an 8-year operating life.Civil works are depreciated on a straight line basis at the rate of 4% p.a.For purposes of financial analysis a residual value of 25% of the capitalcosts (exclluding interest during construction) in constant 1975 prices has beenassumed.

ANNEX 22-3

5. The production costs are broken down as follows:

Table 2: Fixed and Variable Costs(Tsh 'OOOs) 1/

1975 Prices 1982 PricesVariable

Local Raw Materials 45,137 74,025Imported Raw Materials 2920~5 47,896Labor 12,186 19, 85Utilities 938 1,539Maintenance 1,984 3,987Selling , Distribution & Transport 6,503 10,665Other 3.178 5,213

99,131 163,310

FixedOffice Adm., General, and Housing Subs. 2,205 3,617Depreciation 15,l33 15,34l3Rent, Waste Disposal and Other (20 1 2

18 3.8 20,232Total Cost Before Interest 117,481 183,520

Interest 12,478 12,478Total Cost 129,967 196,020-

1/ At 90% capacity utilization in 1982.

Income Statement. Balance Sheet. Cash Flow Statements

6. Forecasted financial statements based on late-1975 prices and es-calated to indicate expected inflation rates have been done for 20 years upto 1998. These are shown in Addenda 5 and 6.

Financial Rate of Return

7. The financial rate of return before tax has been estimated at 24.4%and after-tax at 17.2%. The cost and benefit streams are shown in Addendum 6.

MaJor Risks

8. The major risk lies in NDC's ability to find a suitable joint-venture partner to arrange for the export marketing of leather and canvasfootwear. Without such expertise, the domestic demand for shoes does notjustify the footwear factory at Morogoro. Also to keep production costslow, NDC must aim for the efficient management of the footwear factory andtry to keep overstaffing to a minimum.

Industrial Projects DepartmentFebruary 1977

ANNEX 22 4Addendum 1

TANZANJI

MOROGORO INDUSrRIL COMLEX

FOOTWEAR FACTORY - OPERATING COST BREAKDWNhTs '0000s_i~

In Constant In Current7 rices (1982) Prices

Costs of Production

Raw- MWterialsLocal 45,137 74,025Inported 29,205 47,896

Factory Staff Salaries and Benefits 12,186 19,985Mnufacturing OverheadcsPower 912 1,496Water 26 43Naintenance 1,984 3,987Factory Supplies l,182Rent 54 910Waste Disposal Charges 166 272Miscellaneous Expenses 7,414 3,960

6,764 .11,828Total Cost of Production 93,305 153,756

Operating ExSpensesOffice Administrative Salaries & Benefits 905 1,484General Expenses b/ 1,300 2,133Selling, Distributing & Transport Expenses 10 66

Total Operating Expenses

Non-operating Expenses

Interest on IBRD Loan 12,428 12,478Depreciation 15,433 15,433Bank Charges &k Corrissions 143 71

Total Non-operating E;penses 27,954 27,982

a/ At 906 capacity utilzation.b/ Include legal andl insurance fees and special assessments to Iil)C

for special services as well as subsidies for housirng.

Industrnl Pro.iects DeDnrtment_'ebmarv 1977

ANNEK X-Addeiiduri

TANZANIA

MORO(ORO INDUSTRIAL COMPLEX

FOONEAR FACTORY - LOAN AMORTIZATION SCHEDULE - IERD(Tsh 'OOO)

AmountInterest Principal Repayment Outstanding

Jan. 1, 1982 6,391 6,087 12July 1, 1982 6,087 6,087 109 59Jan. 1, 1983 5,78? 6,087 97,38SJuly 1, 1983 5~,458 6,087 103, 72

Jan. 1, 1983 5,17b 6,087 972385

July 1, 198 5 42,869 6,087 9128Jan. 1, 1985 4h,565 6.,087 85.,211

July 1, 1985 4.216,087 79',124Jan. 1, 1986 3v956 6,087 73,037July 1, 1986 3s652 6,087 66,950Jan. 1, 1987 3,348 6,087 60,863July 1, 1987 3,0h3 6P087 54,776Jan. 1, 1988 2,739 6,087 4B,689July 1, 1988 2,h34 6,087 42,602Jan. 1, 1989 2.130 6,087 36,515July 1, 1989 1,826 6,087 30,4h28Jan. 1, 1990 1,521 6,087 2hj3hiJuly 1, 1990 1,217 6,087 184254Jan. 1, 1991 913 6,087 12,167

July 1, 1991 608 6,087 6,080Jan. 1, 1992 304 6,o80o

Industrial Projects DepartmentFebrua n 11977

ANNEX'-',Addendum 3

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

FOOTWEAR FACTORY - FINANCIAL PROJECTIONS

DEPRECIATION SCHEDULE(Tsh 'IOO)

Equipment Civil Works Total

1980-1986 14,129 1,304 15,4331987 14,128 1,304 15,4321988-2003 1,304 1,3042004 1,299 1,299

1/ Equipment is depreciated on a straight line basis at 12.5% p.a.Civil works are depreciated on a straight line basis at 4% p.a.For purposes of financial analysis, a residual value of 25% ofcapital costs (excluding interest durlng construction) inconstant 1975 prices has been assumed.

Industrial Projects DepartmentFebru,rv 3977

Addendum 4

LASTANIA

IRLAL CoMPLEX

OPRAIG oTT IROJECION

1980 1981 1982 1983 1984 1985 1986 1987 1998

IT EMS

LAPACITY LUTIL IZATION 60.0 80.0 90.0 90.0 90.0 90.0 90.0 90.0 90.0OFENING STOCK 21093.0 12656.0 18054.0 21771.0 23232.0 24858.0 26598.0 28460.0 59905.0

PURCHASES IMFORTED 43031.0 61387.0 74025.0 78991.0 84520.0 90436.0 96767.0 103541.0 217937.01.OCAL 27842.0 39719.0 47896.0 51108.0 54686.0 58514.0 62610.0 66993.0 141010,0

RAW MATERIALS AVAILA8LE 91966.0 113762.0 139975.0 151870.0 162438.0 173808.0 185975.0 198994.0 418852.0L f sS CL OSINGi STOCK 12656.0 18054.0 21771.0 23232.0 24858.0 26598.0 28460.0 30452.0 64098.0

RAW MATERIAL CONSUMED 79310.0 9070B.0 118204.0 128638.0 137580.0 147210.0 157515.0 168542.0 354754.0

EXPENDITTURES F rR THE YEAR

FACTORY STAFF SAL ANI' WAGES 16439.0 17941.0 19608.0 21325.0 23274.0 25401.0 27723.0 30257.0 79184.0MANUFACTURING OVERHEADSFUEL -P OWER 870.0 1241.0 1496.0 1596.0 1708.0 1828.0 1956.0 2093.0 4408.0WATER 25.0 35.0 43.0 45.0 48.0 51,0 55.0 59.0 124.0MT t) OF IE O MACH, 3254.0 3402.0 3726.0 3987.0 4266.0 4S65.0 4805.0 5227.0 11004.0hFNI 775.0 340.0 15'0.0 986.0 1068.0 1157.0 1253.0 1357.0 3273.0f AL,TORY SULJFLIES 793.0 957.0 1182.0 1286.0 1376.0 1472.0 1575.0 1680.0 3548.0WASrE qISpOSAL CHARGES 222.0 237.0 254.0 272.0 291.0 311.0 333.0 356.0 752.0MISCELLANErIS EXPENSES 2145.0 3060.0 3690,0 3938r0 4214.0 4509.0 4825.0 5163.0 10867,0

IOFAL FOR THE YEAR 24523.0 27793.0 30909.0 33435.0 36245.0 39294.0 42605.0 46197.0 113160.0OFENING WORK* SN PROCESS STOCK - 2419.0 2934.0 3543.0 3859.0 4140.0 4442.0 4766.0 10380.0

TOrAL WtORN IN PROCESS 103833.0 125920.0 149113.0 162073.0 173825.0 186504.0 200120.0 214739.0 467914.0LESS WORK TN PROCESS STOCK 2419.0 2934.0 3543.0 3859.0 4140.0 4442.0 4766.0 5114.0 11144.0

…, _ _ _ _ _ _ _-- - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - -- _-- - - - - - - _ _- - _ _ - -_ _ _ -_ _- - _ _ _- - __ - _ _ _- - _ _ - -

TOTAL COST OF HooDfs MFG. 101414.0 122986.0 145570.0 158214.0 169685.0 182062.0 195354.0 209625.0 456770.0OFPENING STOCK OF fIN.GOODS - 4726.0 5951.0 7061.0 7702.0 8266.0 8869.0 9517.0 20725.0

_ _________--------- .-----.--- … .- -… __ _ --- - - - - ----------

TOTAL GOOIDS AVAIL FOR SALF 101414.0 127712.0 151521.0 165275.0 177387.0 190328.0 204223.0 219142.0 477495.0LESS FINISHED GO(1'S 4726.0 0951.0 7061.0 7702.0 8266.0 8869.0 9517.0 10212.0 22251.0

TOTAL L(OSr LOF GOODS SOLD 96688,0 121761.0 144460.0 157573.0 169121.0 181459.0 194706.0 208930.0 455244.0

OPERATING EFXPENSES

OFFICE ADMIN.SALARIES 1221.0 1332.0 1456.0 1584.0 1729.0 1887.0 2059.0 2247.0 5879.0HOUSING SUBS.+GEN. OFF. EX 1240.0 1769.0 2133.0 2276.0 2435.0 2605.0 2787.0 2982.0 6278.0

SELLING + TRANSPORT EXP. 6200.0 8845.0 10665.0 11380.0 12175.0 13025.0 13935.0 14910.0 31390.0

TOTAL OPERATING EXPENSES 8661.0 11946.0 14254.0 15240.0 16339.0 17517.0 18781.0 20139.0 43547.0

NON-OFERATINO FXPENSES

INTEREST ON I8RD LOANS 12782.0 12782.0 12478.0 11260.0 10043.0 8826.0 7608.0 6391.0 -INTEREST ON EDF LOAN - - _rANK CHARGES AND COMM. 41.0 59.0 71.0 76.0 81.0 87.0 93.0 100.0 211.0

,FPRECIATTON 15433.0 15433.0 15433.0 15433.0 15433.0 15433.0 15433.0 15432.0 1304.0…-- - _ _ _ _ - - - - - - - - - - --- _ - - - - - - - - - - - - - - - - - - - - _ - - - - - - - - - - _ - - - - _ _ _ _ - - - _ _ _ _ - - - - _ _ _ _ - - - - _ _ _ _ - - - _ _ _ _ - - -

rOTAL NON-OFERATING EXPENSES 28256.0 28274.0 27982.0 26769.0 25557.0 24346.0 23134.0 21923.0 1515.0

IndF striaY Pro1 ects 97Feabruaty 1977

TANZANIA

MoRLLORo INDUSTRIAL COMPLEX

I AIWFAR PA(:TORY CGMP)NEN1

NCOME STATEMENT L I,A W I,i AND BALANCE SHEFT

1980 1981 1982 1983 1984 1A82 1986 1987 1998

INCOME STATEMENT

ITSH 000)

SALES RFLENLJE 143887.0 205265.0 247525.0 264128.0 262617.0 302490.0 j23568.0 346218.0 7 2

8738.,)L ESS COSE OF GOODS SOLT' 96688.0 121761.0 144460,0 157573.0 169121.0 181459.0 1947^6.0 208930.0 455244.0

---------- ---------- ---------- ---------- ---------- ------ r --- --- -- ---- ---- - --- -- ------ ---

GROSS FROFIT 47199.0 83504.0 103065.0 106555.0 113496.0 120941.0 128862.0 137288.0 273494.0LESS OFFRATING EXPENSES 8661.0 11946.0 14254.0 15240.0 16339.0 175A7.0 18781.0 20139.0 43547.0

…--- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - --- - -OPERATING PROFITS 38538.0 71558.0 88811.0 91315.0 97157.0 103424.0 110081.0 117149.0 229947.0

LESS NON-OPERATING EXPENSES 28256.0 28274.0 27982.0 26769.0 25557.0 24346.0 23134.0 21923.0 1515.0

BEE PROFIT BEFORE TAXES 10282.0 43284.0 60829.0 64546.0 71600.0 79078.0 86947.0 95226.0 228432.0TAXE S AT 45 0 OP NETPROFIT BEFORE TAXES 4627.0 19478.0 27373.0 29046.0 32220.0 35585.0 39126.0 42852.0 102794.0

NET PRUIFr AlTER TAXES 5655.0 23806.0 33456.0 35500.0 39380.0 43493.0 47821.0 52374.0 125638.0

FUNDS FLOW STATEMENT

(TSH 0001

ikjE CFS OF FIJNES

PIET PEROFIT AFTER TAX 5655.0 23806.0 33456.0 35500.0 39380.0 43493.00 47821.0 52374.0 125638.0hIF F I,[ IJDI TION 15433.0 15433.0 15433.0 15433.0 15433.0 15433.0 15433.0 15432.0 1304.0

IS, .1 I. 11 -tiNrEs 21088.0 39239.0 48889.0 50933.0 54813.0 58926.,0 63254.0 67806.0 126942.0

USES i18 FIONDS'

IBRD IL8AN kEPYIS, - - 12174.0 12174.0 12174.0 12174,0 12174.0 12174.0 -r ElF 11OAN RSFAYMENT - - - - - -

fOIAI USES J1 FIINDL - - 12174.0 12174,0 12174.0 12174.0 12174.0 12174.0 -831111k IFS IEE ID .IT) 21088.0 39239.0 36715.0 38759.0 42639.0 46752.0 51080.0 55632.0 126942.0[G1M, ISIIRFPIIiE (DEFII:IT) BEG. 67878.0 88966.0 128205,0 164920.0 203679.0 246318.0 293070.0 344150.0 1260957.0COM. SURPLUS DtilFI LT) ENI' 88966.0 128205.0 164920.0 203679.0 246318.0 293070.0 344150.0 399782.0 1387899.0DEBT SERVUIC COVERAIF 2.6 4.1 2.5 2.7 2.9 312 3.6 4.0 -

BALANCE SHEET

<TSH 000)

ASSE 1!.

CULRRENT ASSETS 118639.0 172127.0 211124.0 202166.0 297347.0 346819.0 400809.0 459555.0 1488088.0

tIXEt' ASE I S

THTAl VAI liF OF ASSETS 141.626.0 L45626,0 145rB?t ,S 145626.0 145626.0 145626.0 145626.0 145626.0 145626.0LESS 8121.. DEPRECIATION 1:s433.0 10866.0 462Y9.0 61732.0 77165.0 92098.0 108031.0 123463.0 1378O7.0

NET ISSF ES AT Yh.LNII 1301Y T.,) t14'60.C 9932' .S0 83894.0 68461.0 53028.0 37595.0 22161.30 7819,0

TEiEAl 8ASF) E. 248833 0 2566'.. ,129' 1o 336060,0 365808.0 399847.0 438404.0 481718.0 1495907.0

LIABIL ITlFS toWNERS EGUITY

CURRENT LIABILITIES 29673.0 43922.0 46204.0 48487.0 51029.0 53749.0 56659.0 59773.0 100189,0LONL-TERM DiLBT 127820.0 127820.0 115646.0 103472.0 91298.0 79124.0 66950.0 54776.0 -EQIIITY 85684.0 85684.0 85684.0 85684.0 85684.0 85684.0 85684.0 85684.0 85684.0RETAINED EARNINGS 5655.0 29461.0 62917.0 9B417.0 137797.0 181290.0 229111.0 281485.0 1310034.0

TOTAL I IABIL ITIES EGUIOY 248832.0 286887.0 310451.0 336060.0 365808.0 399847.0 438404.0 481718,0 1495907.0

I-IIRRFNI RATIO 4.0 3.9 4.6 5.2 5.8 6.5 7.1 7.7 14.9

Industrial Projects DpePrt-etFebruary 1977

TANZ7ANIA

MOROGORO INDUSTRIAL COMPLEX

FOOTWEAR FACTOXRY - FINANCIAL PROJECTIONS

FINANCIAL RETUlRN(Tsh '(X)0)-

- - - - -_ Current Terms- Constant Terms_-----

Cost of Cost ofCapital Goods Operating Defla- Capital Goods Operating

Revenues Costs ~a/Sold Costs Taxes tor Revenues Costs S old Costs, Taxes

1977 - 58,750 --- 1.14 - 51.,535---1978 - 58,750 --- 1.23 - 47,,764---1979 - 39,167 - - - 1.33 - 29,4h9 - --1980 143,887 19,583 96,688 8,661 14,627 1.43 100,620 13,694 67.,614 6,057 13,,231981 205,265 9,792 121,761 11.,946 19,478 1.53 134,160 6.,400 79,,582 7.,808 12.,731.1982 247,525 9,791 144,60 J-.~,254 27,373 1.64 150,930 5,970 88.,08C5 8,691 16,69]1983 264,128 157,573 15.,240 29,04t 1.75 150,930 9o,042 8,709 16,5981984 282,617 169,12] 16,339 3?,2? 1.88 150,328 89,956 8,691 17.,13P181,459 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 0,3 879 17,,7931985 3024400 17.,517 35.,181 2.00 151,200 90O5673] 8,7359 1,91986 323.,568 194,706 18,781 39.,126- 2.15 150,497 9.51 3 819302,400 ~ ~~28 3090,839, 8,7 18.,6311987 346,,218 2890 20,139 42,52Z 2.30 150,530 9119 8,780 21591988 370,453 224,202 21.,598 55.,131 2.46 150,591 91,4139 8,7806 21,773P1989 396,385 40 )602 23,160 57,262 2.63 150,717 148880 21731990 424,132 258,921-6 24,839 61,613 2.82 150,401 91,566 8,808 21,8481991 453,821 277,131 26,642 66,19) 3.01 150,771 92,072 8,851 21,9901992 4588297,451 28,577 71,01' 3.22 150,8049236 875 20.1993 519,579 319,272 30,653 75,690 3.45 150,603 92,543 8,885 21 ,9?1994 555,950 3421,713 32.,878 80,502 3.69 150,664 92,87( 8,910 21,8Th"1995 594,867 367,895 35,267 85,(o3 3.95 150,599 93,138 8,928 21,671996 636,508 3496 37,834 91,007 4.21 151,190 93, 8,987 21,63-~

1997 6 81, 064 424,012 40,589 96,73~ 4.52 150,678 9,P ,8 14~1998 728,738 455,244 43,547 102,791, 4.84 150,566 (38,703) 94.,059 8,997 21,29'

a! Excluding interest during construction.b/Residual value assumed to be 25%/0 of capital costs in constant 1975 prices.

The financial return is 24.35/, before taxes and 17.15%, after taxes.

Industrial Projects DepartmentFebruary 1977

AN= 22-10-dendum

TANZANIA.

MDROGORO MUM=AL aOM

FOOTWEAR FACTORY-PROFIT BREAZ-EVEN PO2IT.1982

- 4I 4"Y

, I . ._ H , .. . ..F .I _77 _ __

1 I~~~~~~~~~~~~I_-T- _ _j. _ --- '---- 10- - 964- - ttt5' ___ ,0_.

-t _

Industr Tal P-rojets t.ent

Ferux 1977t.AlX

8--11t0wjt

Industrial Projects DepartmentFebruary 1977

AhiNEX 23-1

TAN3ZAKIA

MOROGORO INDUSTRIAL C IPLEX

LEATHER GOODS FACTORY-FIUANCIAL PROJECTIONS, 1977-1998

Operating Costs and Revenues

1. The leather goods factory is expected to start operations byJuly 1, 1979, starting with an annual capacity utilization of 60%, increasingto 80% in the second year of operations, 90% in the third and sub-sequent years. The projected raw material and ex-factory productprices, as well as production cost estimates, were all based on late-1975prices and escalated to allow for anticipated inflation. The product-mixand prices of the leather goods factory are given below. It is assumed thata volume of goods equal to that of capacity utilization will be sold. Theex-factory leather goods prices, adjusted for port-factory transport costs, areassumed to be f.o.b. Dar-es-Salaam prices as well. These prices are con-servative estimates, and are the lower range of comparable productsavailable in Pakistan.

Table 1: Annual Sales Revenue a/

Item Quantity Average Total Amount('000 units) Price Per Unit (Tsh '000)

TshiHandbags 18 720O0 1,296Suitcases 10 242.00 2,420Wallets 32 18.00 576Leather Belts 14 12.10 169Leather Jackets 4o 362o25 14,490

Total 114 18,951

a/ At 100% capacity utilization

2. The recurrent operating costs at 90% capacity ut11iza;tion areshown in Addendum 1. The following discussion is all in terms of 1975 pricesand at 90% capacity utilization. Leather - 164,792 m2 - is to be bought atan estimated amount of Tsh 9,077,210. Accessories and grindery, assumed to beimported, amount to Tsh 1,681,200. Factory staff salaries and benefits areestimated at Tsh 1,172,000. This is 1.25 times the feasibility study estimateand reflects the mission's opinion of the likelihood of overstaffing inTanzanian factories. Salaries and benefits are expected to grow in real termsat 2% p.a. to reflect increases in factory skills. In the first two years ofoperation, an allowance of Tsh 330,000 each year has been made for technicalassistance to enable Tanzanians to produce leather goods of internationalquality. Factory overheads amount to Tsh 646,000 and include: lubricants,utilities, maintenance, etc. Lubricant and water consumption have been estimatedat Tsh 2,439 each, power at Tsh 18,293. Maintenance has been estimated atTsh 31,700 annually, at 2% of the cost of equipment. Factory supplies areestimated at Tsh 105,000. Miscellaneous expenses are estimated at Tsh 225,000include allowances for further technical assistance to the leather goodsfactory, if necessary. At Tsh 90, 000 per unit in a standard factory building,the leather goods factory incurs a rent of Tsh360,000 for the 4 units it willoccupy. Waste disposal charges amount to Tsh 13,400,

ANMNEX 23-2

30 Operating expenses include administrative and general. expenses aswell as selling and distribuiting expenses. It is assumed that the adminis-tration of the leather goods factory will be part of the functions of thefootwear factory administration. Office administrative expenses and generalexpenses amount to Tsh 353,050 and include, among others, insurance fees.nmd premia, legal fees, as well as fees paid to NDC for special studies andservices. It also provides for housing subsidy for staff of the leather goodsfactory. Selling and distribution expenses are assumed to be 7% of salesrevenue and include allowances for port-factory transport costs.

4. Non-operating expenses-include interest on IBRD loan, depreciation,and bank charges and commissions. The Bank loan is expected to be repaid bvthe leather goods factory in 15 years including 4-h years grace, in 20 equalinstallments of principal and interest (see Addendum 2). Depreciation ofequipnent and other assets are taken at 12.5p on a straight-line basis. (SeeAddendum 3). For purposes of financial analy&is, a residual value of 25% ofthe capital costs (excluding interest during construction) in constant 1975prices has been assumed. Bank charges and commissions are estimated atTsh 16,000 to local banks for overdrafts and other services.

5. Production costs are broken down as follows:

Table 2: Fixed and V able Coats(Tsh OOOs).L/

1975 Prices 1982 PricesVariable

Leather 9,077 14,886Accessories and Grindery 1,681 2,757Labor 1,172 1,922Utilities and Lubricants 22 38M4aintenance 32 52Selling and Distribution 848 1,390Other 346 568

13,178 21,613

FixedOffice Administration and General 353 579Depreciation 374 374Rent, Waste Disposal and Other 267 45&

891 1,288

Total Cost Before Interest 14,172 23,004

Interest 486 _486

Total Cost 1 4,656 23,,490

1/ At 90% capacityutilization.

Income Statement, Balance Sheet, Cash Flow Statement

6. Forecasted financial statements based on late-1975 prices and escalatedto indicate anticipated inflation rates have been made for 20 years up to 1998.These are attached as Addenda 4 and 5,

ANNEX 23-3

Financial Rate of Return

7. The financial rate of return for the leather goods factory is 33.7%hefore taxes and 23.2$O after taxes in constant terms. This amounts to a 30.2%after-tax return in current terms, which is considered satisfactory. The cashflows for financial analysis are attached as Addendum 6.

Major Risk

8. The major risk lies in the ability of the leather goods factory tomanufacture leather goods of acceptable international quality and style andto have the marketing network to handle the sales in overseas markets. Giventhe expertise to be contracted from Italmacchine, this risk is consideredminimal.

Industrial Projects DepartmentFebruary 1977

ANNEX 23 -4Addendum 1

TANZANIA

NOROGORO DnUSRLL GOEX

LEATHER GOODS FACTOR - OPERATING COST BREAKDOWN a/

Costs of Production In Constant In Current1975 Prices (1982) Prices

Paw MqEterialLeather 9,077 14,886Accessories and Grindery 1,681 2,757

Factory Staff Salaries and T^lages 1,172 1,922Manufacturing Overheads:

Lubricants 2 4Power 18 30Water 2 4Maintenance 32 52Factory Supplies 17Rent 257 422Waste Disposal Charges 10 16Miscellaneous Expenses 25 369

Total Cost of Production 1561

Qperating ExpensesOffice Administrative & General Expenses b/ 353 579Selling and Distributing Expenses - 8L8 1 ,90

Total Operating Expenses 1,20 1

Non-Operating Expenses

Interest on IBRD loan 486 1X86Bank Conmnission and Charges 16 27Depreciation 374 324

Total Non-Operating Expenses B7L

a/ At capacity utiLization.b/ Includeslegal and insurance fees; special assessments to NDC,

and subsidized worker housing

Industr-ial Projects DepartmentFebruary 1977

ANNE2Addendum 2

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

LEATHER GOODS FACTORY - LOAN AMORTIZATION SCHEDULE - IBRD(Tsh tOOO)

AmountInterest Principal-Repayment Outstanding

Jan. 1, 1982 249 237 4,743July 1, 1982 237 237 4,506Jan. 1, 1983 225 237 4,269July 1, 1983 213 237 4,032Jan. 1, 1984 202 237 3,795July 1, 1984 190 237 3,558Jan. 1, 1985 178 237 3,321July 1, 1985 166 237 3,084Jan. 1, 1986 154 237 2,847July 1, 1986 142 237 2,610Jan. 1, 1987 131 237 2,373July 1, 1987 119 237 2,136Jan. 1, 1988 107 237 1,899July 1, 1988 95 237 1,662Jan. 1, 1989 83 237 1,4?5July 1, 1989 71 237 1,188Jan. 1, 1990 59 237 951July 1, 1990 48 237 714Jan. 1, 1991 36 237 477July 1, 1991 24 237 240Jan. 1, 1992 12 240 -

Industrial Projects DepartmentFebruary 1977

Add enridm. 7

MORPO(GORO INDUSTRIA-L COMPL

LEh'l'hZk .3ONODS FACTOR' - FINANCIAL PROJECTIONS

DEPRMCIATION SCHEDULE(Tsh "O00)

1979 187]98()-1986 37h4

8i937 1.8

E auibmerit is depreciated on a straight line basis at 12.5% p.a.For piurposes of financia'l analysis, a residual value of 25of capital costs (excluding interest during construction) inconstant 1975 prices has been assumed.

Industria. Projects DepartmentvevZ-",-rs ? '

\NI A _

TANZANIA

MOROGOR0 INDUSTRIAL COMPLEX

LEAITHER ,;OOD FACTORY COtP0NENT

OPERATINO COST PROJECTIONS(Tsh '000)

1979 1980 1981 1982 1983 1984 1985 1986 1998

I TENS

CAPACITY UTIL IZATION 30.0 60.0 80.0 90.0 90.0 90.0 90.0 90.0 90.0OFENING STOCK 293.0 626.0 1346.0 1920.0 2316.0 2478.0 2651.0 2837.0 6390.0ADD L EATHER PURCHASES 4717.0 10096.0 12345.0 14886.0 15928.0 17043.0 18236.0 19513.0 43947.0

ACCESS. AND GRINDERY 745.0 1603.0 2286.0 2757.0 2950.0 3157.0 3378.0 3614.0 8142.0

RAW MATERIALS AVAILABLE 5755.0 12325.0 15977.0 19563.0 21194.0 22678.0 24265.0 25964.0 58479.0LESS CLOSING STOCK 626.0 1346.0 1920.0 2316.0 2478,0 2651.0 2837.0 3036.0 6837.0

RAW MATERIAL CONSUMED 5129.0 10979.0 14057.0 17247.0 18716.0 20027.0 21428.0 22928.0 51642.0

FXFE.NDIIIURES FOR [HE YEAR

FACTORY STAFF SAL AND WAGES 1470.0 1613.0 1759.0 1922.0 2098.0 2290.0 2499.0 2727.0 7290.0MANUFACTURING OVERHEADSTECHNICAL ASST. 439.0 472.0 - - - -I lUBRICANTS 1.0 3.0 4.0 4.0 5.0 5.0 5,0 6.0 13.0POWER 8.0 17.0 25.0 30.0 32.0 34.0 36.0 39.0 88.0WATER 1.0 3.0 4.0 4.0 5.0 5.0 6.0 13.0

ITYC. (IF BLDG MACH. 43.0 46.0 49.0 52.0 56.0 60.0 64.0 68.0 L53.0RENT 360.0 390.0 422.0 457.0 495.0 536.0 581,0 629.0 1643.0FACTORY SUPPLIES 51.0 110.0 141.0 172.0 187.0 200.0 214.0 229.0 516.0WASTE DISPOSAL CHARGES 13.0 14.0 15.0 16.0 17.0 18.0 19.0 20.0 45.0MLSCELI.ANEOUS EXPENSES 100.0 215.0 306.0 369.0 395.0 423.0 453.0 485.0 1095.0

TOTAL FOR THE YEAR 2486.0 2883.0 2725.0 3026.0 3290.0 3571.0 3876.0 4209.0 11356.0OF EN [NG WORF IN PROCESS STOCK - 177.0 327.0 399.0 482.0 524.0 562.0 603.0 1398.0

TIOTAL WORK IN PROCESS 7615.0 14039.0 16782.0 20273.0 22006.0 23598.0 25304.0 27137.0 62998.1,LESS WORK IN FROCESS STOCK 177.0 327.0 399.0 482.0 524.0 562.0 603.0 646.0 1 500.(

rOTAl COST OF GOODS MFG. 7438.0 13712.0 16383.0 19791.0 21482.0 23036.0 24701.0 26491.0 61498.0OFFNING STOCK OF FIN.GOODS - 589.0 700.0 796.0 959.0 1046.0 1122.0 1203.0 2792.0)

TOTAL GOODS AVAIL FOR SALE 7438.0 14301.0 17083.0 20587,0 22441.0 24082.0 25823.0 27694.0 64290.0l[ES FINISHED GOODS 938.0 700.0 796.0 959.0 1046.0 1122.0 1203.0 1291.0 2996.0

[101AL COST OF GOODS SOLD 6500.0 13601.0 16287.0 19628.0 21395.0 22960.0 24620.0 26403.0 61294.0

OPFRATING EXPENSES

OFF. ADM. +HOUS. SUBS, 313.0 393.0 480.0 579.0 620.0 663.0 709.0 759.0 17tL.(SELl INS + TRANSPORT EXP. 37.0 943.0 1152.0 1390.0 1488.0 1591.0 1702.0 1822.0 4106.0

(0lA1 OPERATING EXPENSES 350.0 1336.0 1632.0 1969.0 2108.0 2254.0 2411.0 2581.0 5817.0

NON-OFERATING EXPENSES

INTEREST ON IBRD LOANS 249.0 498.0 498.0 486.0 438.0 392.0 344.0 296.0 -BANK CHARGES AND COMM. 7.0 15.0 22.0 27.0 29.0 31.0 33.0 35.0 78.0DIEFRECIATION 187.0 374.0 374.0 374.0 374.0 374.0 374.0 374.0 -

TOTAL NON-OPERATING EXPENSES 443.0 887.0 894.0 887.0 841.0 797.0 751.0 705.0 78.0

Ind-strial Projects Departmenty bruary 1977

ANNEX 23-8Addendum 5

TANZANIA

HOROORO INDUSTRIAL COMPLEX

LEATHER GOODS FACTORY COMPONENT

INCOME STATBEMNT. CASH FL- AIID BALANCE SHBEET

1979 19t0 1961 1982 i913 t984 1905 1986 1998

INCOME STATEMENT

(TSH 000)

SALES REVENUE 7161.0 16260.0 23196.0 27972,0 29930.0 32025.0 34267.0 36666,0 82579,0LESS COST OP GOODS SOLD 6100.0 13601.0 16287.0 19628.0 21395,0 22960.0 24620.0 26403.0 611294.0

GROSS PROFIT 1061.0 2659.0 6909.0 8344.0 8535.0 9065.0 9647.0 10263.0 21'25.0LESS OPERATING EXPENSES 3550 .1 1336.0 1632.0 1969.0 2108.0 2fl54.0 2411.0 2581.0 5817.0

LESS TIN G EPEROI 711.0 1323.0 5277.0 6375.0 6427.0 6811.0 7236.0 7682.0 15468.0LESS NN-OPEATINGEXPENSES 443.0 987.0 894.0 987.0 841,0 797.0 751.0 705,0 75,Q

NET PROFET BEFORE TAXES 268.0 436.0 4383.0 5499.0 5586.0 6014.0 6485.0 6977.0 15390.oTAE T4%OP NETPROFIT BEFORE TAXES 121.0 196.0 1972.0 2470.0 2514.0 2706.0 2918.0 3140.0 6926.0

NET PROFIT AFTER rAXES 12-_a=.0 ------ 24I040.0~ ~ ~ ~ ~ ~~ ~~~~ S_NET PROFIT AFTER TAXES 147.0 240.0 ~2411.0 3018.0 3072,0 3309,0 3567.0 3837,0 8464.0

FUNDS FLOW STATEMENT

(TSH 000)

SOURCES OF FUNDS

NET PROFIT AFTER TAX 147.0 240.0 2411.0 3018.0 3072.0 3304,0 3567.0 3837.0 8464.0DEFRECIATION 187.0 374.0 374.0 374.0 374.0 374.0 374.0 374.0 -…-- - - -_ _ _ _ _ -- - - - - - - - -_ - - - - - - - - - -_ - - - - - - - - - -_ - - - - - - - - - -_ -- - - - - -- - -_ - - - - - - - - - -_ - - - - - - - - - -_ -- - - - - - - -

TOTAL SOURCES OF FUNDS 334.0 614.0 2785.0 3392.0 3446,0 3682.0 3941.0 4211.0 8464.0

USES OF FUNDS

IBRD LOAN REPYTS. - - - - 474.0 474.0 474.0 474.0 474.0 -

TOTAL USES OF FUNDS - - - 474.0 474.0 474.0 474.0 474.0 -SURPLUS (DEFICIT) 334.0 614.0 2785.0 2918.0 2972.0 3208.0 3467.0 3737.0 8464.0CUR. SURPLUS (DEFICIT) BEG. 5503.0 5837.0 6451.0 9236.0 12154.0 15126.0 18334.0 21801.0 89557.0CUM. SURPLUS (DEFICIT) END 5837.0 6451.0 9236.0 12154.0 15126.0 18334.0 21801.0 25538.0 98021.0DENT SERVICE COVERAGE 2.3 2.2 6.6 4.0 4.3 4.7 5.2 5.9 -

BALACE SHEET

(TSH 000)

ASSETS

CURRENT ASSETS 8751.0 9584.0 13062.0 16221.0 19445.0 22922.0 ' 26677.0 30722.0 108630.0

FIXED ASSETS

TOTAL VALUE AT YR. END 2999.0 2999.0 2999.0 2999.0 2999.0 2989,0 2999,0 2999.0 2989.0LESS ACC. DEPRECIATION 187.0 561.0 935.0 1309.0 16r83.0 2057.0 2431.0 2805.0 2989.0

NET ASSETS AT YR.END 2802.0 2428.0 2054.0 1680.0 1306.0 932 0 558.0 194.0 -

TOTAL ASSETS 11553.0 12012.0 15116.0 17901.0 20751.0 23054.0 27235.0 30906,0 109630.0==__ss__ = ==a=so==........ ......... ...... ... ssss ......... sss= =mu=us s= 2. =.==..=

LIABILITIES OWNERS EQUITY

CURRENT LIABILITIES 2914.0 3133.0 3926.0 4067.0 4319.0 4509.0 4976.0 5194.0 10609.0LONG-TERM DEBT 4990.0 4980.0 4990.0 4506.0 4032.0 3559.0 3084.0 2610.0 -EQUITY 3512,0 3512.0 3512.0 3512,0 3512.0 3512.0 3512.0 3512.0 3512.0RETAINED EARNINGS 147.0 387.0 279890 5816,0 8898.0 12196.0 15763,0 19600.0 94509.0

TOTAL LIABILITIES EGUITY 11553.0 12012.0 15116.0 17901.0 20751.0 23954.0 27235.0 30906.0 109430.0

CURRENT RATIO 3.0 3.1 3.4 4.0 4.5 5.0 5.5 5 10.2

IndU.trial PmojoctC D.p.rtSftFeSrtwT 1977

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

LEATHER GOODS FACTORY - FINANCIAL PROJECTIONS

FINANCIAL RETURN(Tsh '000)

-Current Terms - - - - - - - - - Constant Terms_ _ - - - - - _Cost of Cost of

Capital Goods Operating Defla- Capital Goods OperatingRevenues Costs Sold Costs Taxes tor Revenues Costs Sold Costs Taxes

1977 765 _ _ _ 1.14 - 671 _ _ _1978 - 6,880 - - - 1.23 - 5,593 - - -1979 7,561 - 6,500 350 121 1.33 5,685 - 4,887 800 911980 16,260 - 13,601 1,336 196 1.43 11,371 9,511 934 1371981 23,196 - 16,287 1,632 1,972 1.53 15,161 10,645 1,067 1,2891982 27,972 - 19,628 1,969 2,470 1.64 17,056 11,968 1,201 1,5061983 29,930 - 21,395 2,108 2,514 1.75 17,102 12,226 1,205 1,4371984 32,025 - 22,960 2,254 2,706 1.88 17,035 12,213 1,199 1,4391985 34,267 - 24,620 2,411 2,918 2.00 17,134 12,310 1,206 1,4591986 36,666 - 26,403 2,581 3,140 2.15 17,054 12,280 1,200 1,4601987 39,233 - 28,316 2,761 3,458 2.30 17,058 12,311 1,200 1,5031988 41,979 - 30,372 2,955 3,785 2.46 17,065 12,346 1,201 1,5381989 44,918 - 32,573 3,162 4,044 2.63 17,079 12,385 1,202 1,5381990 48,062 - 34,939 3,383 4,314 2.82 17,043 12,390 1,200 1,5301991 51,426 - 37,476 3,621 4,599 3.01 17,085 12,450 1,202 1,5281992 55,026 - 40,201 3,876 4,898 3.22 17,089 12,484 1,204 1,5211993 58,878 - 43,122 4,148 5,198 3.45 17,066 12,499 1,202 1,5071994 62,999 - 46,262 4,437 5,508 3.69 17,073 12,537 1.202 1,4931995 67,409 - 49,629 4,746 5,837 3.95 17,066 12,564 1,202 1,4781996 72,128 - 53,245 5,080 6,181 4.21 17,133 12,647 1,206 1,4681997 77,177 - 57,127 5,437 6,543 4.52 17,075 12,639 1,203 1,4481998 82,579 61,294 5,817 6,926 4.84 17,062 (1,566) 12,664 1,202 1,431

a Excluding interest during construction./ Residual value assumed to be 25% of the capital cost in constant 1975 prices.

The financial return is 33.7% before taxes and 23.2% after taxes.

Industrial Projects Department a NFebruary 1977 4 s

ARE 23 -10Addendum 7

TANZANIA

NDFROGOP nrDUSTRTAI COMPI2X

T-EATBR GOODS FACTOR-PROMIT BREAK-EVEN POSIT, 1982

1n llionTsh

t 28 28.0

26

24

23.0

121

i22../3 °

7~~~~~~~~~~~~~~~~~~~~~~~

20

,<~~Beak-even Pointl

6~~~~~~

, K / ~~~~~~~Fixed Costs7.9

10 20 30 10 50 60 70 80 90

Percentage of Capacity

Lndustrial Projects DepartmentFebruary 1977

-/JTNEX 24

TANZtAUI

MOROGORO INDUSTFL COMPLEX

FINANCIAL RETURN SMISITIVIT TESTS

Before Tax After Tax

(1) Base case - analyzed in main report 21.8

(2) Project implenentation delayed by 1 yearand capital costs increased by 10% 20.2 14 0

(3) Project implementation delayed by 1 yearand operating costs increased by 10% 14.2 10.0

(4) Wdorst case - project delayed by 1 year,capital cost increased by 10%, andrevenue decreased by 10% 12.0 8.h

1/ Internal financial return is the rate of return that equates the discountedpresent values of the financial cost and benefit streams of the pro,,ect overthe project life. For the industrial estate, a residual value of Tsh 32.3 m(US$3.9 m) in constant 1975 prices has been assumed. For the manufacturingcomponents, a residual value of 257% of the capital costs (excluding interestduring construction) in constant 1975 values has been assumed.

Industrial Projects DepartmentFebruary 1977

A SNEX 25-1

TARZANIA

MOROGORO INDUSTRIAL COMPLEX

ECONOMIC ANALYSIS

Adjustment of Costs

1. The general methodology used in this Annex for converting thefinancial return to the, economic return was based on the work of L. Squireand H.G. van der Tak.- Financial capital and manufacturing costs have beenconverted to their economic values and are shown in Addenda 1 to 4. Fordirect imports, the c.i.f. border price, expressed in local currency at theofficial exchange rates, has been used. For local purchases and non-tradedgoods, the financial costs have been converted to their border price equiva-lents through the application of conversion Cactors calculated for allTanzania projects by the Program Division. For exported goods, the f.o.b.prices used are equal to the ex-factory prices at the border. Where nospecif'c conversion factor was available, the standard conversion factor(SCF)- has been used. The SCF for Tanzania has been established at .75e3/

2. The labor at Morogoro will consist of a mixture of urban andrural, skilled and unskilled workers. It is assumed that the unskilledlabor attracted to Morogoro will be mostly rural, and thus they have beenpriced at .45 in border prices. The semi-skilled and skilled labor areassumed to come from other urban centers and have been priced at .55 and.75 in border prices, respectively.

30 1.s each of the factory component's outputs are to be sold atinternationally competitive prices, the relevant opportunity costs to thediownstream factories are the f.o.b. prices of these outputs, adjusted fprport-factory transport costs of raw material inputs and finished goods.-Thus, the raw material supply of leather from the tannery and

1/ Squire, L. and HoG, van der Tak, Economic Analysis of Projects, publishedfor the World Bank by Johns Hopkins University Press, Baltimore and London,1975.

2/ The SCF represents the weithted average of ratios between internationalprices (expressed in local currency at the official exchange rate) anddomestic prices for a wide variety of goods.

3/ In terms of corresponding traditional practice, this implies a shadowexchange rate of Tsh 11 = US$1 as against the official exchange rate ofTsh 8e16 = us$1.

4/ Transport costs have been assumed conservatively at Tsh 290 per ton tripfrom Morogoro to Dar es Salaam on the Tan-Zam Highway. The actual trans-port rates charged by trucking companies in Tanzania for general cargobetween Dar es Salaam and Morogoro ranged from Tsh 140 ton trip to Tsh 290per ton trip for a distance of 180 kms. Companies in Tanzania usually havetheir own trucks for transporting goods, and the costs of such trarsportservices are usually lower than the lower bound of Tsh 140 per ton trip.

-2--A, _X 25-2

of canvas from the canvas mill to the footwear factory have been pricedat the f.o.b. prices, adjusted for transport costs, of the importedequivalent. The same is true with the leather supplied to the Leathergoods factory. Revenues for the industrial estate are economic rentscharged for land, building and housing.

4. Capital goods are imported duty-free into Tanzania. All othertaxes and duties have been taken into account in the economic return cal-culations.

Economic Rate of Return

5. Each of the individual project components in the Morogoro In-dustrial Complex has been analyzed as an independent entity. This is sosince each manufacturing component relies only in a small way on the othercomponents either as a source of raw material or as a market for finishedgoods. Transport charges have been conservatively estimated. Power andwater rates have been charged at individual usage rates. The economic ratesof return for the project components are thus to be treabed as those ofeconomically independent projects, each justifiable on its own merits. Itcan be seen from Table 1 below that each of the project components has aneconomic rate of return higher than 15%, the discount rate suggested forTanzania. The weighted average of 26.4 can be regarded as a lower bound,as the common location on the industrial estate will probably generate econo-m,ies with respect to transport costs, infrastructure charges, and chargesfor power and water. No estimate has been made by the mission on the magni-tude of these economies because of limited information. To the extent thatthese economies exist, the total project return is bound to be higher.

Table 1: Economic Rate of Return

Component Weight Rate of Return

1. Industrial Estate .262 15.92. Footwear Factory .710 29.83. Leather Goods Factory .023 6.5

Total for Project 1.000 26.4

Sensitivity Analysis

6. It has been assumed that the footwear factory will export 80% ofits output to international markets. The base case takes the shoes at f.o.b.prices adjusted for transport costs (para 2). It is reasonable to assume thatthe export prices of shoes will remain constant even with the incremental out-put of the footwear factory, as the total output of the Morogoro footwearrepresents an insignificant percentage of total world supply of footwear.

ANNEX 25-3-3-

7. If semi-skilled and skilled labor are border priced differently, withsemi-skilled labor at .75 and skilled labor at 1.00, then the total projectcost decreases to 22.9% as shown in Table 2 below. As can be seen, the totalproiect return is robust with respect to assumptions about shadow rates ofskilled and semi-skilled labor.

Table 2: Sensitivity Test on Shadow Wage Rate

Component Weight Economic Return

1. Industrial Estate .262 15.62. Footwear Factory .710 26.43. Leather Goods Factory .023 41.9

Total for Project 1.000 22.9

8. As in the case of financial analysis sensitivity tests, the results offour sets of assumptions are tabulated below:

Table 3: Economic Rate of Return (ERR) Sensitivity Tests

1. Base Case: ERR = 26.4 (discussed in para 4) of this annex.2. Project implementation delayed by 1 year, capital costs increase bhv 10:

ERR = 23.2.3. Project implementation delayed by 1 year, operating costs increase by 10%

ERR = 19.0.It. Worst Case: project implementation delayed by 1 year, revenues decrease by

10%, capital costs increase by 10%, and operating costs increase by 10%:ERR = 10.6

Other Benefits

9. The Morogoro Industrial Complex will also provide employment opportuni-ties for close to 1,500 people. The complex will act as a "growth pole" to whichnew industries will be attracted, and will also foster economic growth in general.The initial industries will in particular stimulate the creation of small andmedium ancillary industries with numerous concommitant benefits such as skillupgrading (both management and vocational), fiscal income, regional growth, etc.

Industrial Projects DepartmentFebruary 1977

ANNEX 25-4 Addenaum -1-

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

INDUSTRIAL ESTATE - ECONOMIC ANALYSIS

ADJUSTMENT OF CAPITAL COSTS FOR ECONOMIC EVALUATION(Tsh '000)

Financial Value Economic Value at Border PriceDirect Local Direct LocalImports Purchases Total Imports Purchases Total

I. Infrastructure- site preparation 497 1,491 1,988 497 1,118 1,615- roads & drainage 1,638 6,550 8,188 1,638 4,913 6,551- water supply 4,476 1,918 6,394 4,476 1,439 5,915- power supply 2,632 165 3,097 2,632 349 2,981- sewerage 7,040 3,773 10,813 7,040 2,830 9,870

II. Superstructure- standard factories 5,859 7,162 13,021 5,859 5,372 11,231- housing 6,924 6,923 13,847 6,924 5,192 12,116

TIII Site Eggipment 36(. 90 450 360 68 428

TV. Consulting & Eng'zServices 4.296 1,432 5,728 4,296 1.44 370

Total 33,722 2980O4 63,526 33,722 22,355 56,077

Percentage of Financial Value 100.0% 88.3%

1/ Direct imports are valued at cif prices, and SCF = .75 is applied to all local purchasesof non-traded goods and/or for which specific factors were not available. Local pur-chases of traded goods are border priced at f.o.b. export prices.

Industrial Projects DepartmentFebruary 1977

ANINEK 25-Addendiz. 1-2

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

INDUSTRIAL ESTATE - ECONOMIC ANALYSIS

ADJUSTMENT OF OPERATING COSTS FOR ECONOMIC EVALUATION(Tsh '000)

Economic Value atMarket Value Border Prices Remark

Sa'Laries and Wages 229 138 See Note

Administration 172 129 SCF

Maintenance 750 563 SOF

Total 1,151 830

Percentage of Financial Value 100% 72%

Note: Unskilled labor has been border priced at .45, semi-skilled at .5*,and skilled labor at .75.

Industrial Projects DepartzentFebruary iP77

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

INDUSTRIAL ESTATE - EOONOMIC ANALYSIS

ECONIOMIC RETURN(Tsh 'Ooo)

a/Current Terms Constant TermsCapital Costs-' Operating Costs Revenues Deflator Capital Costs Operating Costs Revenues

1977 1h4,024 - - 1.14 12,302 1978 22,437 144 480 1.23 18,241 117 3901979 19,633 252 5,660 1.33 14,762 189 4,2561980 (15,093) 270 8,232 1.43 (10,555) 189 5,7571981 - 1,123 10,373 1.53 - 734 6,7801982 - 1,201 11,237 1.64 - 732 6,8521983 - 1,286 12,175 1.75 - 735 6,9571984 4 1,375 13,189 1.88 - 731 7,0151985 - 1,471 2h,286 2.00 - 734 7,1431986 - 1,574 15,476 2.15 - 732 7,1981987 1,685 16,765 2.30 - 733 7,2891988 - 1,803 18,162 2.46 - 733 7,3831989 - 1,929 19,674 2.63 - 733 7,4811990 - 2,0614 21,314 2.82 - 732 7,5581991 - 2,208 23,089 3.01 - 734 7,6711992 - 2,362 25,013 3.22 - 734 7,7681993 2,529 27,097 3.45 - 733 7,8541994 2,705 29,354 3.69 - 733 7,9551995 2,894 31,800 3.95 _ 734 8,0511996( 3,097 34,4146 4.21 . 736 8,1821997 - 3,314 37,316 4.52 - 733 8,2561998 2/ 3,546 40,426 h.8% (20,932) 733 8,352

1/ Excluding interest during construction.2/ Residual value taken as total land development cost plus half of the investment cost on buildings. ;N

The economic rate of return is 15.85%.Industrial Projects Department

February 1977

ANNEX 25-7Addendum 2-1

TANZANIA

MOROCORO INDUSTRIAL COMPIEX

FOOTWEAR FACTORY - ECONOMIC ANAIYSIS

ADJUSTMENT OF CAPITAL COSTS FOR ECONOMIC ANALYSIS(Tsh '000)

Financial Value Economic Value at B3order PricesDirect Local Direct local

Imports Purchases Total Imports Purchases Total Remarks

Ecuipment 38,L13 1,793 40,206 38,413 1,345 39,758 See NoteOther Assets - 6,368 6,368 - 4,776 4,776 SCFCivil Works - 22,732 22,732 - 17,049 17,049 SCFConsultancy &Eng'g Services 9,187 7,430 16,617 9,187 5,573 14,760 SCF

Training 2,490 689 3,179 2,490 517 3,007 See NoteContingencies 21,702 16,977 38,679 21,702 12,733 34,435 See NoteNet Working Capital 29,266 38,612 67,878 29,266 28,959 58,225 See NotePost Factory Trans-

port Costs - 174 174 - 131 131 SCF

Total 101,058 94,775 195,833 101,058 71,083 172,141

Percentage ofFinancial Value 100.0 87.9

Note: Direct imports are border priced at c.i.f. import prices, and SCF , .75 isapplied to all local purchases that are non-traded and/or for which specificfactors were not available. Local purchases of traded goods are border pricedat f.o.b. export prices.

Industrial Projects DepartmentFebruary 1977

TANZANIA

MOROGORO INDUSTRIAL COMPLEX

FOOTWEAR FACTORY - ECONOMIC ANALYSIS

ADJUSTMENT OF OPERATING COSTS FOR ECONOMIC EVALUATION(Tsh '000)

Financial Value Economic Value at Border Prices RemarksDirect Imports Local Purchases Total Direct Imports Local Purchases Total

Local Raw Material - 47,896 47,896 - 47,896 47.896 f.o.b.Imported Raw Material 7h,025 74,025 74,025 7h,025 - 74,025 c.i.f.Factory Staff Sal. & Benefits - 19,608 19,608 - 14,706 14,706See note belo-Power _ 1,496 1,496 - 1,122 1,122 SCFWater _ 43 43 - 32 32 SCFMaintenance - 3,726 3,726 - 2,795 2,795 SCFFactory Supplies - 1,232 1,232 - 924 924 SCFRent - 910 910 - 683 683 SCFWaste Disposal Charges - 254 254 - 191 191 SCFMiscellaneous - 3,690 3,690 - 2,768 2,768 SCFOffice Adm. Sal & Benefits, - 1,456 1,456 - 1,092 1,092 SCFHousing Subs. & Gen. Exp, - 2,133 2,133 - 1,600 1,600 SCFPost Factory Transport Costs - 2,320 2,320 - 1,740 1,740 SCFOther Selling Exp. - 8.345 8,345 6,259 6.259 SCF

Total 74,025 93,109 1T?,114 74,02.t 81,808 1558033

Percentage of Financial Value 100.0% 93.2%

Note: Direct imports are border priced at c.i.f import prices, and SCF = .75 is applied to all local purchases that arenon-traded and/or for which specific factors were not available. Local purchases of traded goods are border pricedat f.o.b. export prices. Unskilled, semi-skilled, and skilled labor are border priced at .45, .55, and .75, respec-tively.

Industrial Projects DepartmentFebruary 1977

X) C

TANZANIA

MOROGORO INDUSTRIAK COMPLEX

FOOTWEAR FACTORY - ECOINOMI7 ANALYSIS

ECONOMIC ANALYSIS(Tslh '0)7

1/ Current Terms Constant Terms _e_Capital Costs Operating Costs Revenues Deflator Capital Costs Operating Costs Feveiiues

1977 51,641 -l 1.14 45,2991978 51,641 -- .23 41,98 _1979 314,428 - 1.33 25,886 1980 17,213 105,3h' 143,887 1.143 12,037 66,t61 100,6201981 8,607 133,70' 025,265 1.53 5,625 81,b48 134,1601982 8,606 158,71L 4147,525 1.64 5,208 90,196 150,9301983 - 172,813 261 ,1212 1.75 - 92,035 150,9301984 _ 185,b(,- 282 617 1.88 - 91,941 150,3281985 _ 198,976 302,1400 2.00 - 92,723 151,2001986 - 213,487 323,568 2.15 - 92,514 150,4971987 - 229,0(f' 346,218 2.30 _ 92,823 150,5301988 - 245,800 370,4153 2.46 - 93,124 150,5911989 - 263,762 396,385 2.63 - 93,17C 150,7171990 - 283,055 424,132 2.82 - 93,514 150,4011991 - 303,775 453,821 3.01 - 94,059 150,7711992 _ 326,028 485,588 3>22 - 94,366 150,8041995 349,925 519,579 3.145 - 94,53C 150,603i994 - 375,591 555,950 3.69 - 94,865 150,66141995 1 403,162 594,867 3.95 - 95,12( 150,5991996 1 432,782 636,508 4.21 - 95,808 151,1901997 1 (Lb,(01 681,0014 1.52 - 95,798 150,67Th1998 2/ 1098,791 728,738 4.84 (34,020) 96,014 150, >66

1/ Excluding interest during construction.2/ Residual values are assumed to be 25' of the capital costs ln constant 1975 prices.

The economic rate of return is 29.8k

Tndustrial Proiects DepartmentFspbria~' 7977

TANZANIA

MORPGORO INDUSTRIAL COMPLEX

LEATHER GOODS FACTORY - ECONOMIC ANALYSIS

ADJUSTMENT OF CAPITAL COSTS FOR ECONOMIC EVALUATION(Tsh '000)

Financial Value Economic Value at Border PricesDirect Local Direct LocalImports Purchases Total Imorts Purchases Total Remarks

Equipment 1,071 - 1,071 1,071 - 1,071 See Note belowOther Assets - 233 233 - 175 175 SCFConsulting & Eng'g 102 6 108 102 5 107 SCFContingencies 525 139 664 525 104 629 See Note belowPost-Factory Transport - 66 66 - 50 50 SCFNet Working Capital 1,220 4,283 5,503 1,220 3,212 4,432 See Note below

Total 2,918 4,727 7,645 2,918 3,546 6,1464

Percentage of Financial Value 100.0 84.6

Note: Direct imports are border priced at c.i.f. values and SCF .75 is applied to all local purchases that arenon-traded and/or for which no specific factors are available. Local purchases that are traded are valuedat their f.o.b. prices.

Industrial Projects DepartmentFebruary 1977

I

ANNEX 25-_lAddendum 3-2

TANZANIA

I4DROGORO IINDUSTRVIP L iCOLEX

LEATIER GOODS FACTORY - ECONOIIIC ANALYSIS

ADJTJSTiTU=T OF OPERATING COSTS FOR ECONOMIC EVALUATION(Tsh 1000s)

Financial Value Economic Value at B3order PricesDirect Local Direct LocalImports Purchases Total Imports Purchases Total Remarks

Leather - 14,88( 14,88C - 14,886 14,886 f.o.b.Accessories 2,757 - 2,757 2,757 - 2,757 c.i.f.Factory Staff, Sal. - 1,922 1,922 - 1,468 1,468 see Note be]& enefitsLubricantS - 4 - 3 3 SCFPower 30 30 - 23 23 SCFWater _ 4 4 - 3 3 SCF2-iaintenance - 52 52 - 39 39 SCFFactore Supplies - 172 172 - 129 129 SCFXent - 414 414 - 311 311 SCFw-'aste I D:spCharges - lc - 12 12 SCF<.sceri Mleos - 369 369 - 277 277 SCFOffice d&., Housing

Subs. & Gen. Exp. - 579 579 - 3 434 SCFPori-Factor Trans-

porL C(sts - 250 250 - 188 188 SCFOtben Sel]inc

Dist.Lxp. 1,14i 11140 - 85 855 SCFTotal 19,838 22,595 2,757 18,628 21,385

Percentage of Financiai value 100.0 94.6

Ilote: Direct imporLs are valued at c.i.f. prices and SCF=.75 is applied to all localpurcrases that are non-Lraded and for whicii no specific factors are availalble.Local purchases that are traded are valued at their f.o.b. prices. Unskilled,semi-skilled, and skilled labor are border priced at .15, .55, and .75, respectively.

Industrial Projects Depart-ment

February 1977

ANNEX 25-12Addendum 3-3

TANZA NIA

MORCGORO INDUSTRIAL COMPLEX

LEATHER GOODS FACTORY - ECONOMIC ANALYSIS

ECONOMIC RETURN

Current Terms Constant TermsCapital OperatingCo0ts i Costs Revenues Deflator Capital Costs Operating Costs Revenues

1977 647 - 1.14 568 _1978 5,820 - _ 1.23 4,732 _1979 - 6,480 7,561 1.33 - 4,872 5,6851980 - 14,130 16,260 1.143 - 9,881 11,3711981 - 16,951 23,196 1.53 - 11,079 15,1611982 - 20,431 27,972 1. 614 - 12,458 17,0561983 - 22,234 29,930 - 1.75 - 12,705 17,1021984 - 23,852 32,025 1.88 - 12,687 17,0351985 - 25,571 34,267 2.00 - 12,786 17,1341986 - 27,419 36,666 2.15 - 12,753 17,0541987 - 29,399 39,233 2.30 - 12,782 17,0581988 - 31,527 41,979 2.46 - 12,816 17,0651989 - 33,805 44,918 2.63 - 32,854 17,0791990 - 36,253 48,062 2.82 - 12,856 17,0431991 - 38,878 51,426 3.01 - 12,916 17,0851992 - 141,697 55,026 3.22 - 12,949 17,0891993 - 44,717 58,878 3.45 - 12,961 17,0661994 - 47,961 62,999 3.69 - 12,998 17,0731995 - 51,439 67,409 3.95 - 13,023 17,0661996 - 55,175 72,128 4.21 - 13,106 17,1331997 - 59,186 77,177 14.52 - 13,094 17,0751998 h/ 63,487 82,579 )1.84 (1,325) 13,117 17,062

a/ Excluding interest during construction.

b/ Residual values are assumed to bo 25% of the capital costs in constant 1975 prices.The economic rate of return is V .1j).%

Industrial Proiects DepartmentFebrua ' 971

ATNNEX 26-1

TANZANIA

MOROGORO INDUSTRIAL CCMPLEX

FOREIGN EXCHANGE IMPACT

1. The table on the next page estimates the foreign exchange effects ofthe manufacturing component of the project, assuming that the sources of foreign ex-change are: (i) IBRD capital contributions during the project construction periodand (ii) the foreign exchange generated by the two manufacturing units afterstart-up. The assumptions for the table are: (i) revenues from exports arein foreign exchange; (ii) 80% of the output are exported overseas; (iii) foreignexchange component of operating costs were derived from assuming that theforeigncomponents of the following categories were: chemicals, imported grindery - 100%,fuel - 80%, maintenance - 90%, office administration expenses - 25%, general ex-penses - 50%, selling and distributing expenses - 75%; (iv) leather and canvasin the production costs were assumed to be costed at their economic values, i.e.as if thev had been exported.

2. As shown on the attached table, the cumulative net foreign exchangesurplus amounts to US$153.2 million in constant 1975 prices (or US$741.5 mil-lion in current prices) over the years 1977-1998.

Industrial Projects DepartmentFebruary 1977

TANZANIA

MOROGORO INDUSTRLAL COMPLEX

FOREIGN EXCHANGE EFFECTS-

(U8$'O0 - 1975 priren)Z'

foul pmentExpart and Consulting & Capitalized Perm nent Debt To.t. Net CumulativeIBRD Revenues_ Total Inflows Other Assetu Civil Works Engineering Servires Training Interest Working Capital Operating Casts_/ Repayments Outflows Surplus (Deficit) Srplus (Deficit)

1977 4,237 - 4,237 1,975 569 647 - 425 - - 3,616 621 621

1978 3,878 - 3,878 1,977 526 612 175 525 120 4 - 3,939 (61) 560

1979 2,391 548 2,939 1,220 324 369 162 338 2,651 6 _ 5,070 (2,131) (1,571)

1980 1,112 10,794 11,906 521 151 171 - - - 3,557 - 4,400 7,506 4,935

1981 520 14,392 14,912 243 71 80 - - - 4,236 - 4,630 10,282 15,217

1982 485 16,191 16,676 227 66 75 - - - 4,688 7,227 12,283 4,393 19,610

1983 - 16,196 16,196 - - - - - - 4,783 6,728 11,511 4,685 24,295

1984 16,131 16,131 - - - - - - 4,779 6,324 11,103 5,028 29,323

1985 - 16,225 16,225 - - - - - - 4,819 5,883 10,702 5,523 34,846

1986 - 16,150 16,150 - - - - - - 4,810 5,499 10,309 5,841 40,687

1987 - 16,153 16,153 - - - - - - 4,824 5,141 9,965 6,188 46,875

1988 - 16,160 16,160 - - - - - 4,840 4,809 9,649 6,511 53,386

1989 _ 16,173 16,173 - - _ - 4,856 4,485 9,341 6,832 60,218

1990 - 16,139 16,139 - - - - - - 4,862 4,202 9,064 7,075 67,293

1991 - 16,179 16,179 - - - - - - 4,888 3,928 8,816 7,363 74,656

1992 - 16,183 16,183 - - - - - - 4,904 70 4,974 11,209 85,865

1993 - 16,161 16,161 - - - - - - 4,912 - 4,912 11,249 97,114

1994 - 16,167 16,167 - - - - - - 4,930 - 4,930 11,237 108,332

1995 - 16,161 16,161 - - - - - - 4,943 - 4,943 11,218 119,550

1996 - 16,224 16,224 - - - - - - 4,979 - 4,979 11,245 130,795

1997 - 16,169 16,169 - - - - - - 4,978 - 4,978 11,191 141,986

1998 _ 16,157 16,157 - - - - - - 4,991 - 4,991 11,166 153,152

1/ Only the n-nuEacturing o.ponentn are taken into account2/ DIflator an per Anmex 21.3/ Anssues diract enparts of the nanufa-tring unitn as follows: 80% of hoen and 807, of leather good.4/ These foreign eachenge rompnenntsof operating costs san derived from the coot atructures as of 1982 and were the reult. nf the following foreign exchange perrentages as foliow: Fuel - 80%, Msintenance - 90%, Offie andAd=iniatr-tiv Ex .pnses - 25%, General Enpennes - 507, Selling *nd Distributing Enpenses - 755%, Chemirals - 100%, Aceneorien and Grindery - 100%, Other Imported Mterinln - 100%, Miuellanenos Expenses -.60%. Facto-y labor,power, water, rent, waste dispnsal rharges, etc. wre -ssneed to be expenditures in locl currency. Leather and casno, nlthnogh locally ovailable, were tbern ot their economic cats, i.e. at the prices they world have mallardif eported.

Industrial Projccts DepartmentFeiruary 1977

TAN'Z i7IA

N,jO` oi T T. CorITL,EX

A. Textiles5

CJ Ott t,c: izLix-long staple cotutor (1 -1/32-1-3/32 i) suitable forspinidri- yarn ur to 50 cc.

pe.'ter: A de-ahee for the opening and/or cleaning or fibers, foundon the opener or on picker machines. Its teeth, blades, orbars beat against lazyers of fibers -i4'ich are fed to it at asloi- rate.

Blow room The machinery for opening/blending and cleaning of cotton andequipment: forming a uniform fiber sheet called a lap.

-,R cotton: Shorter staple cotton, consisting of overripe, off-color andwealker filers vith a trash content of up to 12dp.

Cardin;g: -An operation w-hich opens and cleans fibers, separ,.tes theindi-Adit.1 fibers and delivers them in sliver fonr.

I, -l-S ThI-uck fabric maade of coarse yr-n. (In Tanzania, B,R cottonwid.l be the raw ijmaterial').

Co n er txi General term for a vJariety of processes by which gre-y wovanfabrics are converted into finished goods. Bleacingfl, mercer-isin-, dyeing, lpriLnt ag as well as applicationL of resins andchemicals in finishing are some of the converting processes.

Denim/drill: IvashEble, inexmensivae, strong, stout twilled cloth, made ofsi-,g,e yarns, eithn d&yed in the piece or woven with coLoredr;m a,nd whi-e filling; used for overalls, s1cfts, etc. Now

also made in fancy plaids, dobbies, stripes and soi-etines-rinted.

D,eig- Tne process of coloring msterials. Piece dcreing: .e;ing 'sin

the piece"l after wea-ving.

Fabric: A collective term applied to cloth no matter how.f consI1t-ructedor manufactured and regardless of the kind of fiber from WhichmaRde. In structwire it is planar produced by interlacing yat-rns,fibers or filamernts. Teftile fabrics include tne followmigvarieties: bonded, braided, felted, knitted, and woven.

Finished Cloth f.ter passing through finishing processes, ready forGoods: market.

Grade: Cotton: the quality for rawf cotton determined by its color,dirt content, etc.

Grey goods: WIoven or knitted fabrics which have received no bleach ig,dyeLng, or finishing treatment.

Lanminated Two types of thin canvas glued together by means of rubberCanvas: or chemicals.

Loom: A weaving machine for producing a fabric by interlacing warpand filling yarns.

Scouring: (L) Removing the sizing a d tint used on the warp yarn in weaving.(2) General cleaning of the fabric prior to dyeing.

Sizing: (1) Operation consisting of applying onto yarns compoumds suchas starch, gelatin, oil, wax, or any other suitable ingredientsto aid the process of fabrication or to control fabric charac-teristics, e.g. crepe fabrics. (2) The conpounds used in thisprocess. (3) Warp sizing is generally referred to as slashing.

Spinning: (1) General: The process of making yarns or cordage from fibers,tow, or liquid materials. (2) Yarn from fiber: The formationof a yarn by a combination of drawing or drafting and twistingoperations applied to prepared fiber masses such as rovings.

Spinning A machine by means of which the roving is drawn out to the requiredFrame: fineness, the twist is inserted, and the finished yarn is wound

onto bobbins or other packages. There are four types: cap, ring,flyer, and mule.

Wviater The process of passing canvas through vats containing waterProofing: proofing solution and then passed on to three roller padders to

impregnate the solution. The wet canvas is then dried throughhot flue chambers.

Weaving: The process of manufacturing a fabric by interlacing a seriesof filling (crosswise) yarns with a series of warp (lengthwise)yarns at right angles.

Width: The distance between the two selvages of moven cloth.

Yarn: A generic term for continuous strands of textile fibers or fila-ments in a form suitable for kiitting, weaving, or otherwiseintertwining to form a textile product. It may comprise: (a) anumber of fibers twisted together, (b) a number of filamentslaid together without a twist (a zero-twist yarn), (c) a numberof filaments laid together with more or less twist, or (d) asingle filament with or without twist, a monofilament.

Yarn, Yarns made from fibers that have been carded but not combed incarded: the manufacturing process. Note: Most spun yarns are of this

type.

Yarn number- A measure of linear density. For cotton, the cotton count (c.c.)ing system: is defined as the number of basic hanks (840 yd. lengths) per

pound. Hence, the finer the yarn the higher the count.

B. Leather

Chrome Tanning with chrome salts, the process is usally carried outtanning: in revolving dr&n=s; tanning renders the animal hides and skins

resistantQ to deconposition and bacterial decay and inprovestheir physical properties.

Crust Semi-finished leather (second stage of leather processing oftenleather: wet-blue).

Dried Hides: Air-dried cattle hides or goat and sheep skins to inhibit bacterialdecay during preservation prior to transfer to tanning; the wordhides is usually used for cattle and skins for goats and sheep.

Vegetable Tanning process vhereby extracts derived from tannin-bearing plantstanning: or barks are allowed to act on hides and skins.

Wet-blue Semi-finished leather (first stage of processing of raw hidesleather: and skins).

Wet-salted Hides and skins that have been treated with a brine solution andhides and coarse salt over a period of days to inhibit bacterial growth;skins: after ci-Ing with salt, hides and skins may be stored for prolonged

periods 'without deterioration.

Industrial Projects DepartmentFebruary 1977

UG AN DA K E 36 TANZANIA7>Rs2- 1 C ORI AeTo KEN YA XMOROGORO INDUSTRIAL COMPLEX

PROJECT LOCATIONRWANDA Bukimo M A / A

S ~ ~ ~ ~~~~~o~UPROJEC LOCATiIN -MUIN BMOWARIESMAIlROADS DISTRICT QARIES

LAJKE - RAILWAYS W61-INATIGNA1,6010NDARES

b AfA TR ~~~~~~~~~~~~~~~~~~~~~---- i-TARZAM RAILWAY

/ ; bondo SH I T AN A L

\~~~~~~~~~ 'N ( . Kho A b K ugr Idu LVNJARO

| o mbomi

Urambo ~ -- o o MsOZU 4O aj ZAMBiA <---tJ o M ig L Cle D L bdi~~~~~~~~~~~AEMB

l f > / \> 2, > 4 J < Nachingwe~~~Kibrosh

| f | gOKiLOkE7Ew5 \ ) i. 8 I/<Songea f <t<anyon_(

5V [QO t50 i300 > \ D \ / / 9 Tunduru r- SI I r I P

+]E Js mu G Sbmb D R UErS SALAATA ElNil.I)dood hildomY;2eVM LA WI P+ 6o ,, JM OZ M IQ UE 00 n

nSplyedrSl LIC cup;s yr I I

IOFi2tdjt.lw. 1 .{,ing

IBRO 12053

_~~~j Z X jZ .

0 \t\X t <<-J ' ' ,, ' "' '' 0 'x '~~~~~~~ ~Y18

,1 ? \ X --' i:;~~/) aX X\ ' ' " S~~~~~~~~~

Nt? § ~1alW \ \ ) q_ \0