Document of

The World Bank

FOR OFFICIAL USE ONLY FLE _ p

Report No. P-3818-ZR

REPORT AND RECOMMENDATION

OF THE

PRES IDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO T HE

EXECUTIVE DIRECTORS

ON A

PROPOSED DEVELOPMENT CRED IT

IN THE AMOUNT EQUIVALENT TO US$36.0 MILLION

TO THE

REPUBLIC OF ZAIRE

FOR A

SEVENTH DEVELOPMENT FINANCE COMPANY (SOFIDE) PROJECT

May 10, 1984

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

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CURRENCY EQUIVALENTS 1/

Currency Unit = Zaire (Z)

September 12, 1983 - February 24, 1984

Zaire 1.00 = US$0.04 (0.03)US$1.00 = Z 26.93 (29.93)

February 24, 1984

Zaire 1.00 = US$0.03US$1.00 = Z 33.0

WEIGHTS AND MEASURES

1 meter (m) = 3.28 feet1 kilometer (km) 0.62 mile1 sq kilometer (km2) 0.386 square miles1 metric ton (ton) :2,204 pounds (lbs)

1/ On September 12, 1983, Zaire introduced a transitionaldual exchange rate regime, comprising an official rateand a free market rate shown between brackets above.The two rates were unified on February 24, 1984;thereafter the rate has floated on a weekly basis.

FOR OFFICIAL USE ONLY

ACRONYMS AND ABREVIATIONS

BDZ - Banque du Zaire(Central Bank)

CCCE - Caisse Centrale de Cooperation Economique (France)(Economic Cooperation Fund)

CEPETEDE - Centre de Perfectionnement aux Techniques de Dgveloppement(Training Center in Economic and Financial Analysis)

EDI = Economic Development InstituteEIB - European Investment BankFAC - Fonds d'Aide et de Coopgration

(French Aid and Cooperation Fund)INS - Institut National des Statistiques

(National Institute of Statistics)KfW - Kreditanstalt fUr Wiederaufbau

(The Development Credit Organization ofthe Federal Republic of Germany)

ONATRA - Office national des Transports(National Transport Bureau)

OPEZ - Office de Promotion des Petites et Moyennes EntreprisesZairoises(Office for the Promotion of Small and MediumEnterprises in Zaire)

OR Office des Routes(Highway Authority)

PIP Public Investment ProgramSNCZ Socigt4 Nationale des Chemins de Fer Zairois

(National Railway Company)SOFIDE Socigtg FinanciAre de D4veloppement

(Development Finance Corporation of Zaire)

FISCAL YEAR

January 1 - December 31

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

ZAIRE

SEVENTH DEVELOPMENT FINANCE COMPANY PROJECT (SOFIDE)

CREDIT AND PROJECT SUMMARY

Borrower: Republic of Zaire

Beneficiary: Soci6tg Financiere de D6veloppement (SOFIDE),Centre de Perfectionnement aux Techniques deD6veloppement (CEPETEDE) and Government.

Amount: SDR 34.0 million equivalent to US$36.0 million.

Terms: Standard IDA terms.

Relending Terms: The Government would onlend US$33.5 million toSOFIDE at a minimum interest rate of 8.5 percentper annum with a flexible amortization schedulethat would substantially conform with theaggregate of the amortization schedules ofsubloans made by SOFIDE and financed under thisproposed project, subject to a maximum of 15years, including a grace period not exceeding 3years; SOFIDE would relend the funds at a minimumrate of 15.5 percent per annum to its borrowers,who will bear the foreign exchange risk. US$0.25million would be passed on to CEPETEDE as agrant. The remaining US$2.25 million would beused by the Government for policy relatedstudies.

Project Description: The Credit would finance the foreign exchangecomponent (US$33.5 million) of the capitalinvestment requirements of subprojects approvedby SOFIDE in the agricultural, transportation,industrial and agro-industrial sectors. At leastUS$5.0 million would be for export oriented

projects and at most, US$4.0 million may bereserved for SOFIDE's equity participations,provided SOFIDE finds measures satisfactory toIDA to protect itself against the foreignexchange risk. The remaining US$2.5 million ofthe Credit would finance (a) technical assistanceand studies to improve industrial sector policyformulation and project selection (US$2.25million); and (b) training and other assistanceneeded by CEPETEDE to help it improve itseffectiveness as a training institute in projectanalysis and implementation (US$0.25 million).

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Project Benefits: The main benefits of the project would be tocontinue strengthening SOFIDE, help improveformulation and implementation of industrialpolicies, and preserve Zaire's productivecapacity diuring a difficult adjustment period.The main risk r,elates to the impact on SOFIDE and

its clients of the recent macro-economic reforms,which could, in the short-run, affect the quality

of SOFIDE's portfolic. This risk, however, islimited (a) becaiuse many of SOFIDE's borrowersare long established companies with goodfinancial resilience; and (b) because of thestrong acition SOFIDE has already taken to improveits supervision and loan collection efforts, and

the comprehensive measures proposed in thecontext of this project to limit portfoliodeterioratFion (these measures will be implementedin close consultation with IDA).

Estimated Dusbursements

IDA Fiscal Years 1985 :1986 1987 1988 1989 1990-- (US$ Million)---------------…--

Annual 0.3 7.9 13.2 8.2 5.5 0.9Cumulative 0.3 8.2 21.4 29.6 35.1 36.0

Appraisal Report No. 4943-ZR, daied May 9, 1984.

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED

CREDIT TO THE REPUJBLIC OF ZAIREFOR A SEVENTH DEVELOPMENT FINANCE COMPANY (SOFIDE) PROJECT

1. I submit the following report and recommendation on aproposed development credit to the Republic of Zaire in the amount ofSDR 34.0 million (US$36.0 million equivalent) on standard IDA terms tohelp finance a Seventh SOFIDE Project. The Republic of Zaire wouldonlend US$33.5 million equivalent to SOFIDE at a minimum interest rateof 8.5 percent per annum with a flexible amortization schedule conform-ing to the aggregate amortization schedule of SOFIDE's sub-loans,subject to a maximum of 15 years, including a grace period notexceeding three years; US$0.25 million would be passed on to CEPETEDEas a grant; and the remaining US$2.25 million would be used by theGovernment for financing policy related studies.

PART I - THE ECONOMY I/

2. An economic mission visited Zaire in March 1982; its reportwas distributed in January 1983 (Report No. 4077-ZR). Its majorfindings and those of a follow-up visit in February-March 1983 aresummarized below.

Background

3. Zaire is the third largest country in Africa in terms of areaand the fifth largest in terms of population, but its GNP per capita,estimated at about US$210 in 1981, ranks among the lowest in thecontinent. Approximately one-third of its population of about 30million live in urban areas, and the population density is 12 personsper sq. km. Urbanization has been proceeding at a rate of about 7percent per annum, or more than twice the rate of population growth.Although agriculture (commercialized and subsistence) normally accountsfor 30 percent of GDP, it provides employment and income for more thanthree-quarters of the population. Mining and mineral-processingnormally account for about 18 percent of GDP; this sector hastraditionally been the largest source of public revenue and providesmore than two-thirds of the country's export earnings.

4. When Zaire gained independence in 1960, it was ill-preparedfor the change, both technically and institutionally. The first six to

1/ This section is reprinted verbatim from Report No. P-3787-ZR, ofApril 23, 1984; (Report and Recommendations of the President fora Second Railway Project).

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seven years following independence were! marked by violent politicalstrife and a severe disruption of the economy. But after therestoration of political order and stability in 1967, GDP grew by about7 percent in real terms annually until 1974. Since then, however,Zaire has been experiencing serious economic difficulties which areattributable to both external and internal factors. The weakness ofworld copper prices through most of this period was a major contributorto both the severity and the duration of the crisis.

Evolution of Current Difficulties

5. Until the late 1970s, Zaire's attempts to cope with thecrisis were uneven and uncoordinated. As a result, by 1978,commercialized GDP contracted to about 10 percent below the pre-crisis(1972-74) level; the overall budgetary deficit attained a record level;and deficit financing, together with the worsening shortage of basicconsumer goods, fuel and intermediate products, pushed the annualinflation rate to about 50 percent. Although the decline of GDP wasarrested in 1979, the economy continuedl to face serious difficultiesthat year. The expansion of credit to the Government (to finance thebudgetary deficit) and to the rest of l:he economy continued to exertpressure on prices, which rose by more than 100 percent in the capitalcity during the year. The balance of payments also remained understrong pressure, as evidenced by the continued accumulation of externalpayment arrears -- a trend which had started in 1975. Although twostabilization programs, supported by the IMF, were adopted and threedebt rescheduling agreements under the Paris Club were concluded duringthe 1975-79 period, these could not be implemented and thereforebrought limited relief.

6. The year 1979 saw the beginning of more systematic efforts byZaire and its major donors to deal withi the crisis. These included anew stabilization program supported by the IMF; debt reschedulingagreements with the Paris Club (December 1979) and the syndicatedprivate banks (April 1980); the preparation of a public investmentprogram (PIP) for 1979-81 with the help of the World Bank; theinstallation of external adviseris at the Central Bank and the Ministryof Finance; the revamping of some institutions (the Customs Office, theMinistry of Agriculture, the Investment Commiission), and the creationof others (a Central Pay Directorate at the Ministry of Finance).These and other efforts produced considerable improvements in 1980.GDP expanded by 2.4 percent in real terms, aided by a strong recoveryin copper production. The budgetary deficit was reduced substantially,and the inflation rate was cut by more than half -- to about 44 percent-- despite the devaluation of the zaire by aLbout 30 percent vis-a-visthe SDR early in the year. At the sames time, Zaire observed all theperformance criteria under the new IMF-supported stabilization programand complied with the debt rescheduling agreFements with the Paris Cluband the syndicated private banks.

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7. Largely on the strength of this improved performance, inmid-1981 Zaire adopted a three-year program of economic and financialadjustment supported by an "Extended Fund Facility" (EFF) from the IMFin an amount equivalent to SDR 912 million. Zaire also concluded (inJuly 1981) a new debt rescheduling agreement with the Paris Club.However, economic performance during the year fell below expectationsbecause of external and internal factors. The weakening of the copperand cobalt markets caused Zaire's merchandise exports to fall by aboutUS$540 million (or 26 percent) in nominal terms. Real imports werelower than at any year during the crisis and amounted to 40-50 percentof the pre-crisis level. As a result of these developments as well asa weakening of fiscal discipline, the budgetary deficit expandedfour-fold in nominal terms -- to the equivalent of 7 percent of GDP.Zaire could not comply with either the criteria under the EFF or theJuly 1981 debt rescheduling agreement; it began accumulating externaldebt arrears in the third quarter of 1981; and the EFF was formallycancelled effective June 21, 1982.

8. World copper prices fell sharply in 1982 -- to the lowestlevel (in real terms) in more than 30 years -- thus accentuatingZaire's economic difficulties. By year end, external debt arrearstotaled about US$940 million, of which US$690 million were on publicdebt and US$250 million on commercial debt and invisibles. Thebudgetary deficit expanded, too, to about twice the level of 1981 (innominal terms), and was equivalent to about 10 percent of GDP. Afterrecovering by 2.4 percent a year in 1980 and 1981, GDP contractedmarginally (by about 1 percent) in 1982; the inflation rate edgedupward, averaging 37 percent; and the exchange rate came under strongpressure, the spread between the parallel market rate and the officialexchange rate of the zaire rising to 3.5 to 1.

Government Action

9. In mid-1981, in conjunction with the medium-term programsupported by the EFF (paragraph 7), the Zairian authorities took anumber of interrelated steps toward stimulating supply, keeping thegrowth of demand within appropriate limits, and improving foreignexchange management: the zaire was devalued by a further 40 percentvis-a-vis the SDR; interest rates were adjusted upward; and theexisting price controls on most goods were removed in order tostimulate the private sector. In addition to completing a revised PIPfor 1981-83, Zaire began preparing an Agricultural Action Plan designed

* to bring about improvements in the following areas: (i) strengtheningof institutions; (ii) policies for pricing, marketing, credit, andforeign exchange allocation; (iii) implementation of on-going projects;(iv) investment programming for the sector; and (v) research, extensionand training. The Action Plan was discussed at a meeting of theConsultative Group for Zaire held in June 1982. The Zairianauthorities cooperated with the IMF and the Bank in the preparation ofa fiscal study which comprised the budgetary process, (with emphasis on

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the control over expenditures), tax reform and the tax regime ofGgcamines (the state-owned company producing most of Zaire's copper andall of its cobalt). This study was comipleted in May 1982, and sincethen, a number of reforms recommended by the study have been adopted bythe Government.

10. In 1982, Zaire made additional attempts to improve economicmanagement and institutional performance. The Ministry of Agriculturewas significantly reorganized as part of a broad program ofinstitutional reforms for the sector. The Government appointed new,more broadly-based Executive Boards for G&cataines and SOZACOM (thestate-owned company marketing the bulk of GMcamines' output); importantchanges were made in the top management of G6camines; and a newmarketing arrangement between the two firms was approved. Furthermore,the Government announced the decision to "pr:Lvatize" the ownershipand/or management of 37 public enterprises, and it further relaxed theremaining price controls. The Government proceeded at the same time toimplement a policy of "decentralization" whose apparent objective is togive Zaire's regions more autonomy.

11. The year 1983 witnessed more systematic efforts toreestablish the conditions for recovery. First, in order to facilitatethe negotiation of a new agreement with the IMF, Zaire implemented a"shadow" program for six months, focused on reducing the budgetarydeficit and improving financial maanagement. Second, as part of aprogram of major changes affecting the mining sector, the tax regimeapplying to G6camines was substantially revamped in line with therecommendations of the IMF/Bank study referred to above (paragraph 9).Third, in September 1983, Zaire started implementing a series ofeconomic and financial measures .as a prelude to a formal agreement withthe IMF and a debt rescheduling linked to it. In support of thesemeasures, in December 1.983, the IMF approved a 15-month Stand-byArrangement in an amount of SDR '228 million (US$246 million),equivalent to 100 percent of quota. The IMI' approved concurrently thepurchase of SDR 114.5 million (US$124 million) under the CompensatoryFinancing Facility. This was immediately followed by a meeting of theParis Club at which the creditors agreed to reschedule outstandingarrears and maturities falling due in 1984 at terms compatible with theIMF agreement. In the meantime, the authorities prepared an InterimEconomic Recovery Program which brought together under the sameframework the program of economic and financial adjustment and anupdated three-year pub:Lic investment program. The Interim Program waspresented to a meeting of the Consultative Group which was held onDecember 21-22, 1983. The participants concurred with theappropriateness of the measures taken by Zaire as well as with thepriorities of the public investment program, and they indicated theirwillingness to increase their support to Zaire in the medium term.

12. The adjustment measures announced in September 1983 andincorporated in the IMP program compri.se tne following: (i) theimmediate devaluation of the zaiLre by about 80 percent vis-A-vis the US

dollar; (ii) the introduction of a transitional dual exchange rateregime consisting of an official rate and a free market rate, leadingto the unification of the two rates (i.e., a total "float") in February1984; 1/ (iii) a substantial liberalization and simplification of theexchange and trade system as a whole; (iv) a comprehensive revision ofcustoms duties involving significant reductions in tariffs on essentialfoodstuffs, raw materials and intermediate goods and major increases onluxury goods; (v) a considerable adjustment and liberalization of theinterest rate structure, including the lifting of all administrativecontrols on lending rates of commercial banks (except for thoseapplicable to the non-coffee agriculture sector, for which they are 15percent); (vi) the further decontrol of prices, including producerprices of all agricultural commodities; (vii) the adjustment ofpetroleum prices to take full account of the change in the exchangerate; and (viii) the decision to limit wage increases in the publicsector to about 40 percent through 1984, well below the estimated rateof inflation. The objective of the program is to improve Zaire'sbalance of payments position and to begin reviving the economy. On thefiscal side, the program aims at eliminating the budgetary deficit (notcounting external debt payments) in 1984, thus bringing downsubstantially net government borrowing from the domestic bankingsystem.

13. Zaire's latest public investment program covers the years1983-85. The thrust of the program continues to be rehabilitation ofexisting capacity and infrastructure. The new program represents astep forward in several respects. In particular, it is the product ofan attempt for the first time to tailor the program to resourceavailabilities using a macroeconomic scenario. It is 13 percentsmaller (in real terms) than its predecessor for that reason and theprojects have been selected with a view to minimizing foreign exchangerequirements. As a result, the new program's external financing gap(US$290 million over 1983-85) is much smaller than that of the last onein both absolute and relative terms. Furthermore, the program isconsistent with both the stabilization program and the investmentbudget for 1984. The program has benefitted from a continued effort bythe Zairian authorities since 1979 to identify and either improve oreliminate "problem projects". The monitoring effort was strengthenedin 1982 and 1983 and is to be intensified with the on-goingintroduction of a new project control and supervision system andstrengthened inter-ministerial coordination. At the Consultative Groupmeeting held in December 1983, the participants took two importantsteps relevant to the execution of the Public Investment Program. Theyagreed on the appropriateness of convening co-lender meetings ontransport (highways) and Gecamines around May/June 1984, and theyendorsed Zaire's decision to reactivate the External ResourcesCoordination Committee (which had not met for about two years) partlyin order to review progress in providing Zaire with assistance,financial and technical, required in the crucial and difficult yearsahead.

1/ The two rates were unified on February 24, 1984 at US$1 = Z 33.0

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Current Situation and Direction

14. The difficulties experienced by Zaire since 1975 have had aheavy economic and social cost. Much of the country's productivecapacity and infrastructure has deteriorated, and real wages andsalaries have declined by more than half. In the last two years, withthe cooperation of the internatiornal comimunity, significant progress

has been made in defining the policies and actions necessary forrecovery, and a number of important decisions have already been takenby Zaire. The developments of 1983 in particular represent a netgain. This can be demonstrated by taking stock of the cumulative

changes achieved with respect to the liberalization of the economy.Three years ago, all commodities (industrial and agricultural) weresubject to controls at the producer, whclesale and retail levels.Today controls apply only to petroleum products, public utilities anddomestic transport. Virtually all commercial bank lending rates havebeen liberalized. The exchange rate has been brought to its most

realistic level in recent years, and a pihased program toward a totalfloat has been implemented.

15. Overall, Zaire seems in a better position to make progressthan two years ago for several reasons. First, the measures takenrecently are more comprehensive, more coherent and better prepared than

before. A case in point is the adoption of t'he new fiscal regime forGecamines, which enables both the Government and the company to improve

resource planning, and the revision of the Customs Code to complement

changes in the exchange rate regime. Second, some of the improvementwhich has taken place, especially in the budgetary sphere in 1983, isstructural in nature: some expenditures have been curtailed for good(e.g., through efforts to rationalize the government payroll); and somecategories of revenues (e.g., customs, tax contributions by G6camines)have received a permanent boost through the exchange rate adjustment.

16. Although Zaire's exports are expected to improve in the nextthree years largely because of the anticipated recovery of copperprices, Zaire's resource constraints will remain severe. This ispartly due to the external public debt burden. The latest Paris Club

agreement affects only arrears and. 1984 maturities; although as aresult of the agreement the debt service ratio in 1984 has been reducedto 18 percent, the contractual debt service due in 1985-89 isequivalent to nearly 35 percent of projected exports of goods and

nonfactor services -- a ratio which would seemn incompatible with even amodest economic recovery. Moreover, as a reslult of thne sharp drop in

commitments over the last few years, the undisbursed project pipeline-- the source of future disbursements -- has been reduced to US$670million, compared to US$112 billion in 1.975. T4hile the donors haveindicated their disposition to increase their aid to Zaire

progressively, this will take time and depend on the improvement ofexternal confidence.

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17. The Zairian authorities are aware that in these circumstancesthey will need to make a determined and sustained effort to execute thenew stabilization program, implement the debt rescheduling agreement,continue to improve economic management and stimulate the privatesector.

PART II - BANK GROIJP OPERATIONS IN ZAIRE 1,

18. From 1969 to date, the Association has approved 34 creditstotalling about US$498.0 million for agriculture, transport, develop-ment finance company operations, water supply, power, petroleum techni-cal assistance and education projects. The Bank Group has also extend-ed grants totalling US$400,000 as contributions toward the cost of twoplanning assistance projects in Zaire. In 1975, the Bank made a loanof US$100 million for the Gecamines Mining Expansion Project, which wascofinanced by the European Investment Bank and by the Libyan ArabForeign Bank, and which provided for special repayment arrangementslinked to the project's export earnings. A Technical Assistance Creditwas recently approved to assist Gecamines with its efforts to restruct-ure its organization, improve its manpower and prepare a long-termrehabilitation and expansion program. The IFC, which has a US$760,000equity participation in the Societe Financiere de Developpement Econo-mique (SOFIDE), approved a US$4.1 million loan in 1978 for an offshoreoil production project and a US$230,000 loan in 1982 for studiesrelated to the development of an aluminium complex at Banana. AnnexII contains a summary statement of Bank loans, IDA credits and IFCinvestments as of March 31, 1984.

19. A main objective of Bank Group operations in Zaire has beeninstitution building. The development finance company (SOFIDE) wasestablished in 1970 with assistance from IFC and IDA. The majortransport agencies, ONATRA, Societe Nationale des Chemins de FerZairois (SNCZ), Regie des Voies Fluviales (RVF), Regie des VoiesMaritimes (RVM) and Office des Routes (OR), have received technical andfinancial assistance from the Association, which also helpedestablish the National Livestock Development Authority (ONDE). In thecase of Gecamines, the Bank loan originated a dialogue, still ongoingand now supported by a technical assistance credit, intended to defineways and means to strengthen the management, financial position andplanning of the company.

20. In general, project implementation has been difficult due tothe country's inadequate manpower and management capability and, inrecent years, because of the economic crisis. In the last two or three

1/ This section is reprinted verbatim from Report No. P-3787-ZR, ofApril 23, 1984, on a Second Railway Project.

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years, release of the required budgetary funds has been difficultperiodically because of budgetary constraints. Lack of foreignexchange to finance spare parts and fuel, and the deterioration of thetransport network and marketing system have resulted in severe supplyproblems for most projects. Recruiting and retaining adequate staffhas also been difficult. In January 1980 the Bank undertook withZairian officials an overall review of Bank Group projects which, forthe first time, provided an integrated view of implementation problems;this resulted in an acceleration and improvement in the utilization ofBank Group assistance, particularly in the agricultural sector. Asecond overall review, focussing on macro-economic and sectoral issuesand on their impact on project implementation, took place in May 1983and assisted the Governmlent in formulating the important economicmeasures of September 1983 (para. 12).

21. Fourteen credits and one loan have been totally disbursed:Credits 152, 292, 536 and 916-ZR (First, Second, Third and FourthHighway Projects); Credit 255-CK (River Transport Project); Credits272-CK and 264-ZR (First and Second Education Projects); Credit 398 and697-ZR (Livestock Deve'Lopment and Ituri Livestock Projects); Credits190, 271, 463 and 710-ZR (First, Second, Third and Fourth SOFIDE Pro-jects); Credit 625-ZR (Water Supply) and Loan 1090-ZR (Gecamines).Completion reports have been issued for all projects except Gecamines.Performance Audit Reports have been issued for the First SOFIDE, theFirst, Second and Third Highway Projects, the River Transport Project,the Rail/River Project and the First Education Project. The conclusionof the audit and completion reports was that the Bank Group's impact oninstitution building had been mixed. SOFIDE was evolving as aneffective and competent institution, and the Office des Routes, thehighway agency, had been able to establish an effective administra-tion. On the other hand, ONATRA's performance had not improved as aresult of the first River Transport Project but did improve under theRail/River project; implementation by RVF and RVM had disappointingresults. As for education, more attention to institution buildingactivities would have been beneficial; administrative weaknesses in theDepartment of Education were cited as partly responsible for poorperformance under the First Project and the inability to implementinvestment components under the Second Education Project which resultedIn cancellation of US$18.8 million in February 1983. A proposedEducation Technical Assistance and Training Project would strengthenadministrative, financial and planning practices in the Department ofPrimary and Secondary Education. All project entities had encounteredoperating difficulties beyond their control as the economy deterio-rated, financial resources grew scarcer and the problems besetting theinvestment environment were exacerbated by Government's zairianiza-tion/radicalization measures. Bank Grcup support to SOFIDE and the ORis continuing under the Fourth and Fift:h SOFIDE projects (Crs. 710 and998-ZR) and Fourth and Fifth Highway Projects (Cr. 916-ZR and Cr.1290-ZR). ONATRA is benefitting from the ongoing Modernization (Cr.1180-ZR) and Matadi/Kinshasa Ports Rehabilitation (Cr. 1335-ZR)projects..

22. The rate of disbursement to Zaire is average for the EasternAfrica Region. For fiscal years 1981-83, disbursements totalled US$92million compared with new commitments of US$218.6 million. Thedisparity between disbursements and commitments is a result of asignificant increase in commitments in FY82 and FY83. In this sameperiod, the average annual disbursement rate was 20 percent, onlyslightly lower than the rate for other countries of the region. Whiledisbursement performance in general is satisfactory, difficulties havearisen in several projects. In the case of early credits fortransport, education and livestock (Credits 255-ZR, 272-ZR and 398-ZR),the lack of a strong project entity caused implementation delays.Economic conditions were also a factor in slowing project programs ininstances where government counterpart funds were not available (ThirdHighway, Credit 660-ZR; Second Education, Credit 624-ZR) and where theinvestment environment experienced slow recovery from the aftermath ofabrupt nationalization (Fourth SOFIDE, Credit 710-ZR). Future projectimplementation should be less affected by the above influences giventhe strengthening of institutions under subsequent projects and effortsby the Government to improve budgetary support of IDA-financedprojects. At the end of 1982, the Bank Group's share of Zaire's totaldebt disbursed and outstanding was about 10 percent.

23. In the past three years, the Bank Group's main efforts havebeen directed towards assisting in the rehabilitation and developmentof the agriculture and transport sectors, in part through the designand implementation of appropriate new policies. Investments inindustry were also emphasized through assistance to SOFIDE. Initialefforts in support of the energy sector include the Shaba Power SystemRehabilitation Project (Cr. 1224-ZR) and the Ruzizi II RegionalHydroelectric Power Project. Our lending will continue to support thetransport sector (in particular the Voie Nationale); to assist thedevelopment of the agriculture sector within the framework of the newAgricultural Action Plan (see para. 9 above); and to promote thedevelopment of the industrial and mining sectors. In addition, furthersupport will be considered for the energy sector to develop power andpetroleum resources.

Part III. THE MANUFACTJRING AND FINANCIAL SECTORS

A. The Manufacturing Sector

Structure, Ownership and Location

24. The manufacturing sector (including agro-industry butexcluding mining, ore processing and construction) is relatively small,representing in 1981 about 3% of GDP and providing employment for some120,000 persons. Medium and large enterprises (over 100 workers)

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account for nearly 90% of total manufacturing value added and over 80%of employment. The sector is dominated by agro-industrial firms, manyof which are vertically integrated and process the production ofplantations. As in the rest of industry, mLany processing plants areold, and have suffered from inadequate replacement investment andshortages of spare parts.

25. As in many other countries at the same stage of development,manufacturing activity is inward oriented, consisting essentially ofthe production of consumer goods for the domestic market. Processedexports are limited to coffee, palm and palm kernel oil, chinchona,papaine and, recently, cement. These products represent about 12% oftotal merchandise exports.

26. Most of the agro-industrial and basic consumer good producingfirms, which constitute the main core of Zaire's manufacturing sector,were established before independence. These firms generally rely onlocal raw materials and are oriented towards satisfying the basic needsof the population. Newer industries, set up mainly in the late sixtieswith foreign interests, depend to a larger extent on imported inputsand in general have a lower domestic value added than the firstcategory.

27. Until 1973, almost all major industrial enterprises wereowned by foreign and locally-based expatriate interests. Thezairianization and nationalization measures of 1973-75 transferred toZairian hands ownership of about two-thirds of firms in the manufactur-ing sector. These measures had damaging eiffects on production. In1976, Government rescinded these measures and decided to return 60% ofthe equity in zairianized and nationalized enterprises to their formerforeign owners. The zairianization and nationalization measures alsoled to a severe deterioration in the distribution network and infra-structure (mainly roads previously maintained by the large agroindus-trial enterprises and which linked the urban and rural areas) andseverely undermined private sector confidence. As a result, investmentin the sector has bee-n lowS and equipment in many enterprises has notbeen regularly renewed.

28. Over the past 15 years, there has been no significant changein the structure of the sector or the location of enterprises, exceptfor a heavier dependence on imported inputs, given the deterioration inagricultural production and the consequent insufficient supply of localinputs. Zaire's manufacturing industry is still closely linked tocommerce, with many enterprises having substantial commercial opera-tions. The urban centers of Kinshasa and Lubumbashi account for about70% of production.

Past Performance and Present Situation

29. Manufacturing output grew at an annual average rate of 7%between 1970 and 1974, but dec:Lined thereafter at an equally rapid pace

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s0 that by 1982 output at constant prices was about 11% below its 1970level. Since 1970, the performance of the various subsectors hasdiffered considerably with basic consumer products (food, beverages,soaps) registering some growth, and other sectors such as leathergoods, plastics, metal products and transport equipment, decliningsharply.

30. In recent years, Zaire's manufacturing industry has beenfaced with (a) a declining demand for most manufactured products as aresult of falling real wages and salaries; (b) shortages of localinputs; (c) difficulty in obtaining foreign exchange for spare partsand raw materials; and (d) the tight liquidity situation of manyfirms. These factors and persistently high inflation (averaging about45% p.a. from 1979 to 1982), had a serious impact on industrialcapacity utilization (which now averages about 30% of installedcapacity) and on the financial situation of most enterprises. Whilemost enterprises were still able to generate a positive cash flow(because of the cost plus 20% pricing formula) and show some accountingprofits, in the absence of asset revaluation, the profits of mostenterprises were not enough to generate the resources needed to replaceequipment or to remunerate equity.

Industrial Policies

31. Except for the period of the zairianization measures and itsimmediate aftermath, government policy has been not to invest inmanufacturing but to limit its direct investment mainly to theprovision of basic infrastructure. To regulate and promote industrialdevelopment, the Government has used a number of policy instrumentssuch as (a) a cost-plus price control system, and (b) an investmentcode under which enterprises can be granted tax exemptions andguarantees for repatriation of capital investment, profit andinterest. In view of the distortions constraining manufacturingdevelopment and consistent with the recent move toward a freer,market-based economy, the Government initiated, in 1981, a number ofmeasures aimed at (i) increasing price incentives; (ii) encouragingrehabilitation/reconstruction of existing industrial plants as the mainpriority in the short to medium-term; and (iii) strengthening thecountry's investment planning capacity. Prices have been graduallydecontrolled over the last three years. They are now set by theenterprises themselves, the only obligation being to report increasesto the Ministry of National Economy within 30 days. Government hasalso reduced import controls. The exchange rate regime which, untilSeptember 1983 had been characterized by many distortions, is nowfunctioning as an interbank market with the rate floating on a weeklybasis (para. 12). These policy measures have improved the environmentin which firms operate in Zaire. Other important policy aspectsaffecting industrial development which the Government is determined toimprove with IDA assistance are highlighted in the followingparagraphs.

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32. The Tariff Structure. In September 1983, the Government, inconsultation with the IMF, simplified and changed the tariff struc-ture. Duties payable were reduced to two (customs duty and a turnovertax on imports), and nominal rates on raw materials and intermediategoods were reduced to 3%-10%. The lower tariff rates combined with thehigher value of imports in local currency (because of the devaluation)result in tariff payments which, for many goods, are about the same (innominal terms) as before the devaluation. i)uties on finished goods,particularly those on luxury products were increased and now carryrates of up to 200%. The main purposes behind the changes were toencourage manufacturing activity in Zaire and ensure at the same timethat government revenues do not fall. With the new tariff structuresome industries with low local value added (e.g., car assembly) couldnow be sheltered by very high effective protection; this could, intime, encourage activities with poor e!conomic justification. Toaddress this issue, a detailed evaluation ofE the present tariff struc-ture is needed to ensure that in,dustries with actual or potentialcomparative advantage are encouraged. Such a review would aim at (i)reducing the overall level of effective protection; and (ii) establish-ing a more neutral incentive system fc,r all enterprises. At negotia-tions for the proposed Project, the Government agreed to (i) carry outsuch a review before December 1985, under Terms of reference approvedby IDA, and (ii) discuss the results with IDA together with a programto implement the agreed recommendatiorts of the study. The study (to becarried out by the Ministry of P'lanning in consultation with theMinistry of Finance) would cover the structure of tariffs, the systemof import licensing, export incentives and disincentives, and thestructure of effective protection. Some tariff adjustments may,however, be introduced while the study is in progress. Thispossibility will be explored with the Government as the preliminaryfindings of the study become available.

33. The Treatment of Asset Revaluation for Tax Purposes. In thelight of the high levels of inflation in Zaire in recent years, thedepreciation allowed by the Tax Code,which is based on historicalcosts, does not provide sufficient funds for asset replacement andoverstates profits subject to tax. Particularly for manufacturing andmining firms, which in general have a much higher asset to revenueratio than commercial or service firms, the small depreciationallowances for tax purposes constitute a deterrent to investment andhave adversely affected the financial situation of enterprises. Thelaw introduced in early 1983 allowing companies to revalue assets isnot adequate. It only provides for a one time revaluation to take intoaccount the movement of the offiLcial parity of the Zaire up to June1981 and has a 10% tax payable on the extent of the revaluation;furthermore, the revaluation is optionial. There is a need for revisionof the provisions of this law, in such a way as to allow efficientcompanies to build up the necessary reserves to replace equipment. Astudy on the issue has already been completed for Gecamines (the Statemining company) and the Zairian authorities have decided to carry out a

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similar study regarding the manufacturing sector, which would befinanced out of the Studies/Technical Assistance Component of theon-going sixth IDA line of credit for SOFIDE. Terms of reference forthe study, prepared by the Ministry of Planning, as well as arrange-ments for the execution of the study were discussed and agreed duringnegotiations for the proposed credit. The results of the study shouldbe available for discussion with IDA before March 1985 and agreedrecommendations implemented by mid-1985.

34. The Indirect Taxes System and its Impact on IndustrialStructure. Besides corporate income tax (50% of profit), firms pay asales tax with an effective rate on local production of about 13.5percent. In addition, firms are subject to a number of other indirecttaxes, the most important of which is the tax to support the EconomicDevelopment Fund. These indirect taxes are cumulative and amount toabout 10% to 25% gross income. This system of indirect taxation hasnegative effects on industrial efficiency since (i) it discouragesinter-industry exchanges, and (ii) is uneven, with enterprises payingdifferent rates - which distorts incentives. Consideration should begiven to simplifying the regime and making the system more neutral. Aneconomic analysis of the various aspects of indirect taxation wouldhelp identify recommendations for changes in the system. As a start,the Government has agreed to review in detail the application of thetax which finances the Economic Development Fund. The financing forsuch study has already been provided for in the on-going IDA-financedKwango-Kwilu Project (Credit 1152-ZR). Terms of reference for thestudy, which is expected to be completed by June 30, 1985, have beendrawn up with IDA's assistance and these, as well as arrangements forfollow up, were agreed at negotiations for the proposed Credit.

35. Promotion of Small Scale Enterprises (SSEs). The Governmentis trying to revive OPEZ (the office for the promotion of smallenterprises created in 1973 with UNDP assistance) and has prepared astudy which could be used as the basis for an assistance program toSSEs. IDA's role will be to help Government formulate an actionprogram for promoting SSEs. Specifically, one of the studies to becarried out under the technical assistance component of the proposedproject would explore ways to revitalize OPEZ, and establishappropriate financial assistance channels and mechanisms for SSEs,

/ including a guarantee fund.

36. Strengthening of Zaire's Capacity to Formulate and ImplementSector Policies. The Government has requested IDA assistance in thisarea, and the proposed project would include a Studies/TechnicalAssistance component to the Government in the amount of US$2.25 millionto help it strengthen its capability to formulate sector policies, toimprove the statistical base and to identify and carry out subsectorreviews; in addition to the studies already mentioned (paras. 32 and35), this component would finance sub-sector specific studies, tech-nical assistance and data processing facilities (para. 72).

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Bank Group Strategy

37. In the present difficult economic situation in Zaire thestrategy of the Bank Group in the sector is to (i) extend the ongoingdialogue on macro-economic policies to include industrial sector policyissues and specific actions needed for the sound development of thesector. Because of the weak technical capaclty of Government and thelimited information base on the sector, an essential element of thisstrategy would be to help Government build up its capacity in theseareas; (ii) support SOFIDE in a difficult period of adjustment and helpit design and implement an improved operating strategy; and (iii)provide foreign exchange resources for investment needed to help therehabilitation of Zaire's existing industria'. base and to stimulatemanufactured exports.

B. The Financial Sector

38. The financial sector in Zaire consists mainly of the Banque duZaire (BDZ) which is the country's central bank, nine commercial banks,and one development bank (SOFIDE). In 1983, the Government establishedan Agricultural Credit Bank which has just started operations. Thereis also a Social Security Fund (INSS - the Institut Nationale deSecuritg Sociale) and a National Insurance Company (SONAS - the SocieteNationale d'Assurance). Savings and credit cooperatives are notimportant. The Central Bank is responsible f-or regulating all thefinancial institutions in the country and for establishing andadministering national monetary and credit policies. Of the ninecommercial banks, seven have 50% or more part:icipation by a foreignbank. Three of the banks have minority state participation. Thecommercial banks play a particularly important role in the financing ofimports and exports in which they act under regulation of the CentralBank. The main source of long-term finance and the only non-governmentsource of term foreign exchange resources is SOFIDE (paras. 43 to 47).

Credit Controls and Interest Rates

39. In conducting monetary and credit policy, the Central Bank(BDZ) generally relies on global and selective credit ceilings, priorapproval of all credit not subject to ceilings, reserve requirements,and the rediscount tool. By far the most important instruments are theglobal and selective ceilings on most short-term credit. Theseceilings are set for the whole banking system In the first instance,and then for each of the nine commercial banks. These ceilings are seton a quarterly basis, and the allocations per bank depend on theirdeposit and capital resources. For each bank the global ceiling isdivided into (i) freely usable and (ii) regulated. The latter normallymakes up about 90% of credit subject to ceilings and is subdivided intofive categories: agriculture, industry, tranlsportation, distribution

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and other services. These sectoral allocations are justified by BDZ bythe need to ensure that, in this period of tight credit, prioritysectors also receive sufficient bank resources. BDZ also uses arediscount tool to reinforce the selective credit controls; as ofSeptember 12, 1983, the basic rediscount rate was increased from 15percent to 20 percent. BDZ also imposes a minimum reserve requirementwhich, since 1979, has been fixed at 25% of the demand deposits foreach commercial bank.

40. Traditionally, commercial banks have been free to set theirown commissions, while BDZ regulated interest rates on both depositsand loans. Over the past two years, however, BDZ adopted a moreflexible policy and in September 1983, it freed all lending rates withthe exception of those on loans for non-coffee agriculture (set at15%). The rates paid by commercial banks on time deposits of 3-24months were set at 8%-30% per annum. Interest rates on deposits ofover 24 months are now freely negotiable.

41. Despite these recent liberalization measures interest ratesare still negative in real terms, with lending rates ranging from 25%to 35% including commissions and other charges while inflation isexpected to be around 30% to 45% in 1984-85. This situation however isexpected to change, as the banks move towards allowable higher interestrates and as inflation levels off.

Part IV. THE PROJECT

42. The staff appraisal report for this project, entitled "Zaire,Staff Appraisal Report of a Seventh IDA Credit for Socifte Financiarede Dgveloppement" No. 4943-ZR, is being circulated separately. Theappraisal mission visited Zaire in October 1983. Negotiations wereheld in Washington from April 9 to 13, 1984. The Government delegationwas led by Mr. Massakidi Lusilao, Adviser, Ministry of Finance, Budgetand Portfolio.

Background on the Institution

43. SOFIDE was established as a limited liability company in 1970with IFC subscribing 18 percent of its initial share capital. It hasso far received six IDA credits totalling US$75.0 million. SOFIDE'sobjectives at its inception were to foster the development of a capitalmarket and to finance investments in the productive sectors. In thedifficult economic situation prevailing in Zaire since the early 1970sSOFIDE concentrated on meeting the second objective. It has thussuccessfuly established itself as the main term lending institution inZaire and has been able to mobilize significant amounts of resourcesfrom several foreign lenders. Much of SOFIDE's investments over thepast ten years has been for the rehabilitation and modernization of

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existing industrial capacity and for irLcreasing agricultural produc-tion. More recently SOFIDE started to increase its financing of smallscale enterprises. SOFIDE's loan portfolio is composed of loans toprivately (or private majority) owned companies.

44. Two Project Performance Audil: Reports (PPAR) covering thefirst three Credits to SOFIDE were prepared by OED in 1976 and in1982. The first PPAR concluded that SOFIDE had succeeded in rapidlybuilding up a competent organization and in maintaining its independ-ence in a difficult environment, but pointed out that there was scopefor improved performance, particularly in appraisal and economicanalysis of projects. The second PPAR covering the second and thirdcredits to SOFIDE (271-CK and 463-CK) zommented positively on theinstitution building achievements of both projects but noted again thenegative effects of the environment, particularly of inflation onSOFIDE's profitability. It also concurred with the views of IDA staffthat SOFIDE needed to further strengthen supervision efforts andimprove its organizational structure and accounting system to bettercope with the increasing volume and diversil:y of operations. SOFIDEmoved rapidly to address these issues by increasing supervision andinstituting better cost controls, by reorganizing its structure alongthe lines suggested in the PPAR and by raising interest rates. Inconnection with the sixth credit, SOFIDE made further progress inimproving arrears collection and its supervision and accountingprocedures. Progress made to date, as described below, has beensatisfactory. The proposed Credit aims at assisting SOFIDE further inthese areas.

Share Capital and Ownership

45. SOFIDE's authorized share capital at December 31, 1983, stoodat Z 12.0 million (US$0.4 million) all of which was paid in and washeld as follows: public sector shareholders (including Government andthe Central Bank) 40 percent, local private shareholders 35 percent,IFC 4.7 percent and other foreign shareholders 20.3 percent. Inaddition to its share capital SOFIDE has long-term, low interestsubordinated loans from Government whLch have quasi equity characteris-tics. As of December 31, 1983, these loans amounted to Z 376.6 million(about US$12.5 million). To restore the value of SOFIDE's equity basefollowing the September 1983 devaluation of the Zaire, on April 19,1984, SOFIDE's Board approved a general capital increase to Z 260million (US$8.7 million). This will enable SOFIDE to increase its loanlimit per client (set at 20 percent of its equity and quasi-equity) andthus better serve the needs of industry, including the largerindustrial firms in Zaire. A condition of effectiveness of theproposed credit (Section 5.01 (c) of the draft Development CreditAgreement) is that the share capital would be increased by at least Z200 million -- which has already been authorized at Z 260 million -- of

which Z 100 million would be paid-in.

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Management, Organization and Staff

46. SOFIDE's Board consists of ten members and is chaired bySOFIDE's President and General Manager. SOFIDE also has an ExecutiveCommittee, composed of the five locally based directors, which meetsmore frequently than the Board and approves all loans below Boardlimits. Both the Board and Executive Committee act in a sound andbusinesslike manner. IFC's continued presence on the Board remainsimportant, as it brings to it IFC's wide experience and helps to

* provide guidance and oversight. Other institutions represented on theBoard consider IFC the informal leader of SOFIDE's non-governmentalshareholders. SOFIDE's President and General Manager, a Zairiannational, joined SOFIDE in 1973. He is capable and well respected bythe Government and business communities in Zaire. The position ofDeputy General Manager had been held by various Bank staff onsecondment until 1981 when it was filled by a high level expatriatemanager whose contract was recently extended to 1985. SOFIDE's topmanagement has performed well in a difficult environment. In this ithas been supported by its middle management consisting of sevenDepartment Directors who are all Zairian and have been with SOFIDE forseveral years, some since its inception. They are all competent andhighly motivated and constitute the backbone of the institution. Thequality of SOFIDE's other staff is also good.

47. SOFIDE's organizational structure is relatively simple,

consisting of seven operational departments reporting to top manage-ment. Overall this structure is satisfactory. SOFIDE also has fourregional offices. In 1981 SOFIDE established, in association withGovernment and the Central Bank, a training center (called CEPETEDE)for its professional staff and that of Government, other para-publicbodies and the private sector. This center has performed well and hasenabled SOFIDE's partners to offer their staff a more comprehensivetraining program than they could provide themselves. Assistanceprovided under the sixth IDA credit to SOFIDE enabled the CEPETEDE toimprove its capabilities. Because of its success and continued needsit is proposed that this assistance be continued under this project.

Policies and Procedures

48. SOFIDE's operating and financial policies are set by theBoard and documented in a formal policy statement which was approved byIDA and which remains a sound basis for operations under the proposed

MI project. SOFIDE's promotion, appraisal, procurement, disbursement andloan administration procedures are adequate. Over the past two years,SOFIDE has considerably strengthened and improved its supervision andloan recovery efforts, and these are also now satisfactory.

Accounts and Audit

49. Accounts are produced on time and are accurate. TJnder theSixth IDA credit SOFIDE drew up a plan to improve its accounting

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system, to correct deficiencies which became evident in 1980/81. Theplan is being implemented and SOFIDE's accounting system is nowsatisfactory. The audited annual report and accounts for 1981 and 1982were received on time. Both were unqualified and of a qualityacceptable to IDA.

Lending Terms

50. SOFIDE's loans have maturities typically ranging between twoand ten years. The average loan maturity is about 6.5 years. SOFIDEtakes adequate security and does not accept subordination to any otherlender.

51 About 10% of SOFIDE's present port:folio is in local currencyand the rest is in foreign currency, with the final borrower carryingthe foreign exchange risk. About 15% of the portfolio is financed outof foreign lines of credit with conditions regarding interest rates.On foreign currency loans financed out of other resources, SOFIDE wascharging, until recently, an interest rate of 20% p.a., a commitmentfee of 1.5% on the undisbursed committed amount and an appraisal fee of5%, with the full exchange risk being passed on to the client. Follow-ing the recent devaluation and the establishment of a floating exchangerate SOFIDE's board decided to reduce the interest rate charged on newloans to 18% p.a. and the appraisal fee to 2%. This level of interestrates is positive in real terms as internatJional inflation is expectedto be below 10% over the next few years.

52. SOFIDE's interest rate on local cuirrency loans is 30% p.a.with commissions similar to those on foreign exchange loans. This rateis negative in real terms as Zaire's inflati.on rate is forecast to be45% to 50% in 1984; but is projected to decrease to about 20% - 25% in1986-87. SOFIDE agreed to exchange views regularly with IDA on theadequacy of its lending rates and to adjust them if conditions require(Section 2.01 (b) of the draft Project Agreement). Thus far, thedemand for term lending for investment purposes in local currency hasbeen limited, because most SOFIDE loans had been for equipmentrehabilitation and thus necessitated foreign currency with little localcurrency content. However, local currency Lending is expected toincrease following the September 1983 reformas.

53. Prior to 1979, Government bore the foreign exchange risk onall foreign loans to SOFIDE. In 1979, however, the Government informedSOFIDE that in future it would no longer be willing to carry theforeign exchange risk on SOFIDE's foreign debt, other than on anexceptional basis. Accordingly, SOFIDE started passing on the foreignexchange risk to its sub-borrowers and agreed with Government on amechanism to protect it from the foreign exchange risk on loanscontracted prior to that time. This mechanism also covers the residualforeign exchange risk where repayments by sub-borrowers are earlierthan SOFIDE's repayment schedule to outside creditors. These arrange-ments have worked well and adequately protect SOFIDE.

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Operations

54. As of September 1983, SOFIDE had approved 699 loans andequity investments amounting to Z 1.4 billion, equivalent to aboutUS$261 1/ million. Although by 1983 the share of manufacturing(including agro-industry) still accounted for about 53 percent of total

* approvals, SOFIDE has been increasing its activities in theagricultural sector and approvals to that sector by 1983 reached about23 percent of total. Construction (9 percent), transport (8 percent),mining and services (7 percent) make up the rest. A substantial partof SOFIDE's investments, both by number and value has been forrehabilitation and expansion (77 percent in 1983). All of SOFIDE'sloans are to private (or majority private) firms. SOFIDE hasprogressively increased regional diversification of its investments.Thus in 1983, lo-ans to firms in Kinshasa accounted for 24% of totallending, compared to 36% in 1980. Bas Zaire was second, with 19% andShaba was third, with 14% and the rest in other regions.

Loan and Equity Portfolio

55. As of December 31, 1983, SOFIDE had a very small equity port-folio of Z 25.2 million outstanding in ten companies and a loan port-folio of Z 803.9 million in 264 projects of which 110 representing 45percent of the total portfolio were still being implemented. Totalarrears of more than three months at the same date amounted to 4 per-cent of the total outstanding loan portfolio and affected 79 projectsrepresenting 17 percent of the value of the total loan portfolio. Mostof these projects were small agricultural and industrial projects.Despite the substantial increase in operations over the last threeyears, arrears of more than three months relative to total portfolio,as well as the percentage of the portfolio affected by arrears, werereduced almost by half between September 1980 and December 1983.SOFIDE's portfolio is basically sound. The impact of the recenteconomic reforms, however, while beneficial for the economy in themedium- and long-term, could result in some short-term difficulties forsome companies among SOFIDE clients: this could affect SOFIDE'sportfolio health. A major objective of this project would therefore beto assist SOFIDE implement an action program, agreed with IDA atnegotiations, to limit the extent of any portfolio deterioration. Theprogram consists of a series of specific actions based on the detailedanalysis of the financial situation and prospects of individualborrowers; such actions include reduction in the scope or redesign ofindividual projects, obtaining additional security from some borrowers,sale of some assets, and loan rescheduling.

Financial Situation

56. Although SOFIDE's nominal profitability increased from Z 0.6million in 1980 to Z 14.6 million in 1983 when it represented a return

1/ At the average exchange rate for each year.

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on equity of 26%, this was not e!nough to compensate for the erosion ofSOFIDE's equity by inflation. Thus, diespite the serious efforts SOFIDEmade to increase profitability by raising interest rates and cuttingcosts, its equity base (including reserves) decreased from theequivalent of US$4.7 million in 1979 to about US$1.2 million followingthe devaluation of September 1983. This low level of profitability,despite SOFIDE's general efficiency and competence, is due mainly tothe effect of sustained high inflation on a fixed rate, term lendinginstitution. The increase in administrative costs, which climbedroughly in line with domestic inflation, could not be readily passed onin higher interest charges. Although much of the portfolio carried theforeign exchange risk,devaluations did not take place regularly enoughto compensate for the increase in costs. Moreover, the limited spreadsthat some foreign lenders allowed SOFIDE on subloans financed out oftheir lines of credit was not sufficient to cover (i) the administra-tive costs, overheads and related provisions for risk and (ii) to allowSOFIDE to earn a reasonable return on equity. Recently, SOFIDE hassucceeded in obtaining higher spreads from its most important foreigncreditors. Prospects for SOFIDE's future profitability are nowbrighter following the recent exchange rate and other reforms.

57. SOFIDE's long term debt to equity (including quasi-equity)ratio as of December 31, 1983 stood at 1.0:1--well within the maximum5:1 agreed to with IDA (Section 3.03 of the draft Project Agreement),mainly because of the substantial quasi-equity contributed by theGovernment as SOFIDE's pure equity was eroded by inflation andsuccessive devaluations, including the massive devaluation of September1983. However, as described above (para. 45), SOFIDE's Board hasapproved a general capital increase (to Z :260 million) to take placebefore the end of 1984. This should substantially strengthen SOFIDE'scapital structure. Overall, SOFIDE's, financial situation remains soundand creditworthy despite low profitability. Its liquidity situation isgood, and its asset/liability structure (with most of its debts beingof a much longer duration than its loans) provides the flexibility tocope with portfolio problems that migtht develop in the next two tothree years.

Resources

58. As of December 31, 1983, SOFIDE had the equivalent of US$21.6million equivalent available for approval, of which US$1.9 million wasin local currency and US$19.7 million in foreign exchange. SOFIDE hasbeen remarkably successful in diversifying its borrowing sources. Theclose and constant support of IDA played an important catalytic role inenabling SOFIDE to attract resources from eight different foreigncreditors. SOFIDE, however, cannot fully satisfy the demand forrehabilitation/renewal investments (para. 60).

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Prospects

59. SOFIDE's Strategy: SOFIDE is likely to remain the onlyfinancial institution providing term foreign exchange resources to theproductive sectors in Zaire. Its investment strategy will continue tostress the rehabilitation of enterprises producing basic goods and its

fe investments will remain concentrated in the manufacturing, commercialagriculture, agroindustry and transport sectors. SOFIDE has alsoadopted a comprehensive business plan aimed at achieving sufficientprofitability to maintain intact the value of its capital base. Animportant element of this strategy calls for SOFIDE to pursue a moreactive policy of equity participation: SOFIDE is considering makingequity investments in a number of profitable firms with good growthprospects; this would help protect SOFIDE's own equity base fromerosion by inflation and therefore part of the funds under the proposedproject may be used for this purpose if ways can be found to protectSOFIDE against the related foreign exchange risk (para. 67).

60. Credit Demand and Project Pipeline. The recent stabilizationmeasures adopted by the Government of Zaire had a major impact on theproductive sectors in Zaire and could adversely affect investment plansand thus investment credit demand in the short term. It is unlikelythat this will affect SOFIDE's level of operations however because: (i)the needs of the productive sectors for rehabilitation and moderniza-tion by far exceed the resources that SOFIDE could possibly mobilize.In the textile sector alone, a Bank report prepared in 1981 estimatedthe rehabilitation needs to be more than US$100 million; (ii) manycompanies want to make investments to lessen their dependence onimported inputs (particularly energy related); (iii) the increase inSOFIDE's lending limit per client should improve its ability to assistlarge firms in Zaire which have substantial investment needs. SOFIDEalready has a strong pipeline of 43 industrial (including agro-industry) and transport projects which would require financing of aboutUS$21.0 million and 50 agricultural and forestry projects which wouldrequire about US$15.0 million. These projects are expected to beappraised and approved within the next year or so. Most of them arefor rehabilitation or modernization of existing concerns.

Forecast Operations and Financial Condition

61. SOFIDE expects its approvals to increase from about US$25million equivalent in 1984 to about US$34 million in 1987. Commitmentsover the same period (which covers the commitment period of theproposed Credit) would total US$116 million of which about 80% would bein foreign exchange. Disbursements over the period would total aboutUS$103 million.

62. SOFIDE's financial projections, which are based on conserva-tive assumptions, show that the recent devaluation of the zaire (whichincreased SOFIDE's portfolio threefold in zaire terms) has

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significantly improved its profitability prospects. The projectedincrease in interest income will outpace the rise in administrativeexpenses which are expected to attain, by 19835-86, a level of about 2%

of average total assets, comparable to similar development bankselsewhere (the ratio in recent years was about 7-8%). During thecoming years, SOFIDE will have to improve its financial performance tobuild up adequate provisions and to retain its local and foreignprivate shareholders, who in the past, have lost most of their equityin SOFIDE because of high inflation andl periDdic devaluations. Forthis reason, it was agreed at negotiations that funds from the proposedCredit would be onlent by the Government at a minimum rate of 8.5% perannum and that SOFIDE would be requiredl to charge at least 15.5% perannum on sub-loans financed under the Credit. At present, SOFIDEcharges 18% p.a. on its foreign exchange loans, but is under pressureto reduce interest rates as its clients bear the foreign exchange riskunder a floating exchange system. The recommended onlending conditionsare intended to give SOFIDE the flexibility to adjust interest rates inthe future if it appears that the cost of its loans inhibits demand, orif overall economic conditions improve. Should SOFIDE set its interestrate at a level higher than 15.5%, the onlending rate by Governmentwould be similarly adjusted, so as to maintain a 7 percent spread(Section 3.01 (b) of the draft Development Credit Agreement). Thiswould allow SOFIDE to show a return on equity, in real terms, of about15% over the 1984-90 period. To ensure that SOFIDE continues to givepriority to the constitution of its provisions for risk, it was furtheragreed that, as in Credit 1273-ZR (SOF'IDE VI), SOFIDE would not declareany dividend unless provision fcr risk attained at least 4% of thetotal loan portfolio (Section 3.07 of the draft Project Agreement).The projections also show that the financial structure of SOFIDE willremain sound, particularly with the projected capital increase and thequasi-equity contributed by Government:. In fact, SOFIDE's net worthwould increase from about US$8 millioni in 1984 to US$11 million in1987.

Resource Requirements

63. SOFIDE's projected foreign exchange resource requirementsshow that it would need about US$62 million for new commitments inforeign exchange through end 1987. The recommended amount for theinvestment component of the proposed Credit (US$33.5 million), wouldprovide 54% of SOFIDE's needs. SOFIDE plans to cover the balance ofits requirements through further borrowings from EIB (at least US$12million), KfW (an indicated US$4 million) and from the AfricanDevelopment Bank. SOFIDE is also pursuing other sources of funds suchas CCCE (France). Local currency resource requirements would be metout of "rolled-over" IDA and ot:her funds, and a loan from the EconomicRecovery Fund.

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Objectives and Justification of the Proposed Credit

64. The principal objectives of the proposed Credit would be to(a) provide the foreign exchange needed to finance the rehabilitation/reconstruction and modernization of high priority projects; (b)continue to support SOFIDE to enable it to retain its effectiveness asthe only institution in Zaire providing term investment finance to theproductive sectors; and (c) improve the dialogue with Government onsector issues and policies.

Rationale for IDA Involvement

65. For more than a decade IDA has been associated with SOFIDE,providing resources, advice and technical assistance and has closelymonitored its progress in developing into a strong institution capableof financing sound projects. SOFIDE has performed well, but given thedifficult environment in which it has operated since 1973, it willcontinue to need support and assistance to maintain and improve itseffectiveness. In the immediate future, as the Zairian economy goesthrough major adjustments, SOFIDE will require IDA's assistance to helpimplement an action program aimed at maintaining the quality of itsportfolio and increasing profitability (para. 55). At the same time,the project would also enable IDA to initiate a dialogue withGovernment on policy issues related to the industrial sector and tohelp build up the capabilities of the Zairian Government in this area.

Amount, Use and Terms of the Credit

66. The proposed IDA credit of US$36.0 million would be made tothe Republic of Zaire, which would onlend US$33.5 million to SOFIDEunder a Subsidiary Loan Agreement, providing for a maximum term of 15years, including a grace period not exceeding three years, a commitmentcharge of 0.75 percent and a minimum interest rate of 8.5 percent perannum, or such other rate as will give SOFIDE a seven-point spreadbetween the onlending rate and SOFIDE's lending rate for sub-loans(Section 3.01 (b) of the draft Development Credit Agreement). Thesigning of a Subsidiary Agreement satisfactory to the Association,would be a condition of effectiveness of the proposed Credit (Section5.01 (a) of the draft Development Credit Agreement). The Credit wouldinclude the following components: ( a) Investment Component (US$33.5million): to finance the foreign exchange costs of SOFIDE's subpro-jects; (b) Technical Assistance/Industrial Policy Studies Component(US$2.25 million): to finance the cost of technical assistance toGovernment, sector policy and subsector studies, and a limited amountof equipment to improve the collection and treatment of statisticaldata on industrial sector performance (US$200,000); (c) TechnicalAssistance to (i)CEPETEDE (US$0.25 million): to finance the foreignexchange cost of internationally recruited experts to run high levelcourses in project appraisal and related subjects, overseas training ofCEPETEDE staff and a limited amount (US$80,000 maximum) for equipment

- 24 --

(mainly for data processing), and (ii) INS (the National StatisticalOffice) a maximum of US$200,000 to help improve its data gathering andprocessing ability.

The Proposed Line of Credit for .Investments

67. This component would finance the foreign exchange costs ofcapital investments, including initial working capital, in subprojectsapproved by SOFIDE. The funds would be available to financesubprojects in the industrial, transpoirt, agroindustrial andagricultural sectors. Projects financed would be selected by SOFIDE inaccordance with its investment strategy and justified on the basis of afull economic analysis, including calculation of the economic rate ofreturn on all non-service sector projects. Priority would be given toprojects for the rehabilitation of existing industrial and agriculturalcapacity and for export. At least US$5.0 million equivalent would bereserved for projects which are expected to export at least 25% oftheir production (Section 2.02 (a) (iii) (A) of the draft DevelopmentCredit Agreement). Subject to finding ways of protecting itselfagainst the foreign exchange risk, up lto US$4.0 million equivalent maybe used by SOFIDE for equity pariticipations. Any such participationwould require the prior approval of IDA (Section 2.02 (a) (B) and (C)of the draft Development Credit Agreemtent).

68. SOFIDE's Lending Terms: SOFIDE would lend to sub-borrowersat an annual interest rate of nolt less than 15.5 percent, (if theinterest rate charged to sub-borrowers were higher, the onlending ratewould be adjusted upwards so as to keep a seven-point spread betweenthe Government's onlending rate and SOFIDE's rate to sub-borrowers); acommitment fee of at least 0.75 percent per annum on the undisbursedamount of the sub-loan, a term of not more than 15 years and a graceperiod not exceeding 3 years. The foreign exchange risk would be borneby the sub-borrowers (Section 3.01 (b) of the draft Development CreditAgreement).

69. Free Limit. The individual subproject free limit would beraised from US$300,000 applied under the sixth IDA Credit to US$500,000equivalent in recognition of the general quality of SOFIDE'sappraisals; the aggregate free limit would be US$12.0 millionequivalent (Section 2.02 (b) of the draft Development CreditAgreement), representing 35% of the amount of the line of Credit. Withthis free limit, it is estimated that about 20-25 subprojects wouldrequire IDA review prior to approval. This is sufficient for the

purpose of effective subproject imonitoring by IDA. S

70. Amortization Schedules. The Subsidiary Loan Agreement(Government to SOFIDE) would have a flexible amortization schedule thatwould substantially conform to tlhe aggregate of the amortization

- 25 -

schedules of the subloans made by SOFIDE and financed under theproposed Credits. In order to inhibit prepayment, SOFIDE would imposeits normal prepayment commission on any subloan financed out of thisinvestment component that is repaid earlier than the initialamortization schedule agreed upon between SOFIDE and the sub-borrower.

71. Commitment Period. The funds would be available forcommitment by SOFIDE until December 31, 1987 (Section 2.05 (a) of thedraft Project Agreement).

Technical Assistance/Industrial Policy Studies

72. The funds from this component, lent to Government and managedby the Ministry of Planning and SOFIDE, would finance the costs of (i)technical assistance to Government (essentially Ministry of Planning)to improve its capability to formulate and implement industrial sectorpolicy and to improve the statistical data base on the productivesectors, (ii) policy studies aimed at addressing specific sector issuessuch as existing distortions in the incentive system (para. 32), (iii)sector and sub-sector studies aimed at identifying and preparing pro-jects for possible financing by external donors, and (iv) data process-ing and related equipment for INS (the National Statistical Office) toenable it to improve its ability to gather and process data on sectoralperformance on a regular basis. At negotiations, Government and IDAagreed on a priority list of specific tasks to be carried out under thetechnical assistance program as well as a list of studies to befinanced under this component. Among the studies already identified,the most important ones are the tariff structure study (para. 32), thepromotion of Small Scale Enterprises (para. 35), a review of exportprospects, and an assessment of the textile sub-sector. In additionthe Government agreed to carry out a study of asset revaluation underthe ongoing SOFIDE VI Project (Credit 1273-ZR) and confirmed itsintention of undertaking a study of the Economic Recovery Fund, asagreed under the Kwangu-Kwilu Project (Credit 1152-ZR). These studieswould enable the Government and IDA to pursue a more meaningfuldialogue on sector issues, following the major improvements inmacroeconomic policies carried out in late 1983.

73. Terms and Conditions. Each request for financing under thiscomponent would be submitted to IDA for review and approval along witha brief justification, detailed terms of reference, cost estimates andfinancing plans for the local currency counterpart (Section 2.04 (b) ofthe draft Project Agreement). Consultants financed out of this compo-nent would be recruited in accordance with Bank Group Guidelines(Section 3.02 of the draft Development Credit Agreement). The findingsof all the studies undertaken would be discussed with IDA andappropriate follow up arrangements agreed upon. Within the context ofthe supervision of this project, IDA would also retain the right toreview the work and progress of all experts financed under thiscomponent.

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74. Administration and Administrative Eixpense Fee. SOFIDE wouldbe responsible for submitting all the relevant requests fordisbursements in respect of this component to IDA. SOFIDE would chargea one-time fee of 3.5% of the approved amount of each study acceptedfor financing to cover the expenses it incurs in administering thisfacility (Section 2.04 (d) of the draft Project Agreement).

750 Maximum Amount for Each Study. In view of the limited amountof this component, no more than US$300,000 would be allocated to anysingle study/technical assistance project (para. 2.02 (A) (d) of thedraft Development Credit Agreement).

76. Commitment. 'he funds under this component would beavailable for commitment until December 31, 1987 (Section 2.04 (e) ofthe draft Project Agreement).

Technical Assistance to CEPETEDE

77. CEPETEDE is emerging as a well run institution that ishelping Government, SOFIDE and private enterprises to train staff inproject evaluation and -management techniques. Up to US$0.25 million ofthe proposed IDA credit would be provided to enable the CEPETEDE to:(i) recruit foreign experts to run short-term high level courses forSOFIDE, Government and Banque du Zaire officials and private sectorexecutives in project analysis and management and on industrial sectorpolicies and related issues; (ii), provide, on a selective basis,training abroad for CEPETEDE staff; and. (iii) finance the purchase ofdata processing (micro-computer) equipment aad pedagogical material.This component would assist in the long-term task of developing Zaire'shuman resource base. CEPETEDE is also expected to continue receivingsignificant assistance from FAC aLnd CCCE.

78. The funds allocated for this component would be passed on asa grant from Government to CEPETEDE and would be available forcommitment until December 31, 1987. To facilitate administration ofthe Credit, SOFIDE has agreed to administer this component on behalf ofCEPETEDE and to submit all disbursement requests to IDA in respect ofthis component. SOFIDE would charge a one-time fee of 3.5% of theamounts withdrawn as administrative fees (Section 2.05 (b) of the draftProject Agreement).

Project Implementation

79. Reporting Requirements. SOF'[DE would be required to submitquarterly reports, as it has done under previous Credits, which wouldinclude financial statements, resource position, statement of arrearsand notes on subprojects encountering serious operational difficul-ties. SOFIDE would also be requiLred to submit its annual report andaudited annual accounts prepared by qualified accountants for itsoperations, as it has done in the pasts, as well as for the TechnicalAssistance/Studies and CEPETEDE components that it has agreed to manageon behalf of the Government (Section 3.02 of the draft ProjectAgreement).

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80. Procurement and Disbursement. Procurement for subprojects(US$33.5 million) financed under the investment component of the Creditas well as goods financed under the TA/industrial policy studies andthe CEPETEDE components would be on the basis of competitive quotationsfrom at least three of different suppliers (including foreign), aprocedure acceptable to IDA. Given the relatively modest size ofprocurement packages, there is little scope for internationalcompetitive bidding. The proceeds of the proposed Seventh Credit wouldbe disbursed as follows:

(a) On the technical assistance/studies and thetechnical assistance to CEPETEDE components: (i)100% of the costs of technical assistance andpolicy studies related to the industrial andagro-industrial sectors, and the foreign exchangecosts of eligible equipment up to an aggregateamount of US$2.25 million; and (ii) 100% of theforeign exchange costs of staff training, technicalassistance, and supplies required by CEPETEDE up toan aggregate amount equivalent to US$0.25 million.

(b) On SOFIDE subloans: (i) 100% of the c.i.f. cost ofimported goods or services for eligible subpro-jects; (ii) up to 85% of the cost of previouslyimported equipment purchased locally in Zaire forthe subprojects; (iii) up to 70% of the cost ofequipment produced in Zaire from previouslyimported components or raw materials; and (iv) upto 55% of the local cost of construction worksincluded in subprojects and carried out by Zairiancontractors.

81. The projected disbursement schedule is based on the disburse-ment profile for DFC projects in Eastern Africa modified to reflect theexperience with the fourth and fifth credit of relatively quick dis-bursement. Disbursements are expected to be completed over sevenyears, by December 1990.

Project Benefits and Risks

82. The proposed project would provide term investment resourcesto the productive sectors in Zaire to help rehabilitate industrial andagro-industrial projects, improve private transport facilities andincrease agricultural production. It is expected that the investmentcomponent (US$33.5 million) would support productive investmentstotalling about US$60 million and would help rehabilitate or improveproductive capacity of a much higher value. The project would enableIDA to continue helping SOFIDE, the main term lending institution inZaire, to improve its effectiveness and institutional strength and thushelp it to retain financial independence and autonomy. The action

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program for portfolio improvement. and maonitoring would also enable IDAto assist SOFIDE in containing any short-term deterioration inportfolio quality as a result of the recent macroeconomic policymeasures. As in the past, continued IDA support would enhance SOFIDE'scapability to mobilize additional foreign exchange resources from otherexternal lenders and enable it to play a more significant role inassisting the recovery of the productive sectors in Zaire. Finally, byfinancing a number of studies on key sector issues and by helpingimprove the capability of Governmaent in sector policy formulation andimplementation, the project would open the way for Government and IDAto engage in a comprehensive dia:Logue on sector issues, such as tradepolicies, export promotion, and small-scale industry development inZaire.

83. The September 1983 pol:icy reforms have removed many of thepolicy distortions which had hitherto affected the industrial sectorand SOFIDE. The devaluation and floating of the Zaire currency, inparticular, have improved the outlook :for SOFIDE's profitability in themedium term. Because of these changes and 'SOFIDE's proven management,the risks associated with this project are acceptable. These risksrelate mainly to the impact on SOFIDE's borrowers of the difficulteconomic situation as Zaire goes through the current adjustmentprocess. Cases of corporate financial difficulties could become morefrequent, and could thus adversely affect the quality of SOFIDE'sportfolio and overall financial situation. This risk is howeverlimited (i) because many of SOFIDE's borrowers are long establishedcompanies with good financial resilience, and (ii) because the strongaction SOFIDE has already taken to improve its supervision and loanrecovery efforts and the comprehensive measures proposed in the contextof this project aim to limitportfolio deterloration. These shouldensure that SOFIDE will remain creditworthy and that it will continueto be an effective term lending institution that promotes economicallyjustified investment projects. This risk is further justified by thecontribution that SOFIDE's operations are expected to make to increasedproduction of basic manufactured goods and agricultural products, andto exports.

PART V. LEGAL INSTRUMENTS AND AUTHORITY

84. The draft Development Credit Agreement between the Republicof Zaire and the Association, the draft Project Agreement between theAssociation and SOFIDE, and the Recommendations of the Committeeprovided for in Article V, Section 1 (d) of the Articles of Agreementof the Association are being distributed to the Executive Directorsseparately.

85. Special conditions of the project are listed in Section IIIof Annex III. Additional conditions of effectiveness of the Credit

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would be that (i) the share capital of SOFIDE had been increased by atleast Z 200 million and at least Z 100 million of such increase hadbeen paid in (para. 45); and (ii) the Subsidiary Loan Agreement hadbeen signed (para. 66).

86. I am satisfied that the proposed Credit would comply with theArticles of Agreement of the Association.

PART VI - RECOMMENDATION

87. I recommend that the Executive Directors approve the proposedCredit.

A. W. ClausenPresident

AttachmentsMay 10, 1984Washington, D.C.

30 -

ANNEX IA B L E 3A Page 1 of 5

BURUNDI - SOCIAL INDICATORS DATA SHEETBURUNDI REFERENCE GROUPS (WEIGHTED AVERAGES) |a

MOST (MOST RECENT ESTIMATE) /b/b6116 197 lb RECENT /b LOW INCOME MIDDLE INCOME

1 9 6L-b 197,0- ESTIMATE- AFKICA S. OF SAHARA AFRICA S. OF SAHARAAREA (THOUSAND SQ. 1Ot)

TOTAL 27.8 27.d 27.8AGRICULTURAL 18.2 18.8 22.2

GNP PER CAPITA (US$) 60.0 100.0 230.0 254.6 1147.9

ENERGY CONSUMPTION PER CAPITA(KILOGRAMS OF COAL EQUIVALENT) 11.0 IL.u 16.U 79.d 724.2

POPULATION AND VITAL STATISTICSPOPULAT1ON,AiID-YEAX (THOUSANDS) 2851.0 3350.0 4229.uURBAN POPULATION (% OF TOTAL) 2.2 2.2 2.3 19.5 28.5

POPULATION PROJECTIONSPOPULATION IN YEAR 2000 (MIlLL) 7.3STATIONARY POPULATION (MILL) 26.1YEAR STATIONARY POP. REACHED 2155

POPULATLON DENSITYPER SQ. KM. 12.4 120.4 147.8 29.5 56.5PER StQ. EM. AGRI. LAND 153.1 178.2 185.7 94.1 131.8

POPULATION AGE STRUCTURE (7)0-14 YES 42.6 43.8 44.1 45.0 45.9

15-64 YRS 54.6 53.2 52.9 52.1 51.265 AND ABOVE 2.9 3.0 3.1 2.9 2.8

POPFLATION GROWTH RATE (2)TOTAL 1.6 1.6 2.1 2.8 2.8URBAN 1.6 1.6 2.7 6.2 5.3

CRUDE BIETH RATE (PES THOUS) 46.9 44.4 46.3 47.9 47.6CRUDE DEATH RATE (PEK IHOUS) 26.7 24.1 20.3 19.2 15.2GROSS REPRODUCTION RATE 3.0 2.9 3.2 3.2 3.2

FAilILY PLANNINGACCEPTORS, ANNUAL (THOUS)USERS (2 OF MARRIED WOMEN)

FOOD AND NUTRITIONINDEX OF FOOD PROD. PER CAPITA(1969-71=100) 103.0 10D.0 99.0 S7.i 95.7

PER CAPITA SUPPLY OFCALORIES (Z OF REyUlREMESTS) 97.0 9d.0 96.0 88.0 97.1PEOTEINS (GRAMS PER DAY) 60.0 61.0 59.0 51.2 56.0OF WHICH AN1IAL AND PULSE 30.0 30.0 3L.0/c 18.1 17.2

CHILD (AGES 1-4) DEATH RATE 32.8 29.4 24.0 25.7 23.6

HEALTHLIFE EXPECT. AT BIRTH (YEARS) 37.2 39.7 45.0 47.4 51.9INFANT F1ORT. RATE (PER THOUS) 150.3 138.7 119.6 126.5 117.6

ACCESS TO SAFE WATER (oPOP)TOTAL .. .. .. 24.7 25.4URBAN .. 77.0 94.0 56.8 70.5RURAL .. .. .. 18.3 12.J

ACCESS TO EXCRETA JISPOSAL(% OF POPULATION)

TOTAL .. .. .. 2S.1URBAi .. 96.0 95.0 65.7RURAL .. .. .. 21.9

POPULATION PER PIYSICIAN 96570.0 55830.0 45020.0/d 27423.6 12181.6POP. PER NURSING PLRSON 4530.0 7490.0 6Blo.oWd 3456.2 2292.0POP. PER dOSPLIAL BED _

TOTAL 880.0 740.0 *- 1ld3.2 1075.4 4URBAN 30.0 110.0 ..

38.6 402.3

RURAL 3720.0 1070.0 .. 3177.3 3926.7

Ai*NESSUONS PER iiOSPITAL BED .. ..B

HOUSINGAVERAGE SIZE OF HOUSEHOLD

TOTAL.

URBAN ..

RURAL .. ..

AVERAGE NO. OF PERSONS/ROOMTOTAL .. ..

URBAN .. ..RURAL .. ..

ACCUSS rO EdLET. (Y. OF WEELLINUIS)TOTAL ..

URBAN

RURAL .. ..- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ -_ _ -_ _ _ - -_ - -_ - -_ - -_ - -_ - -_ -_ -_ _ -_ - _ -_ _ -_ _ -_ _ -_ _ -_ _ -_ _ -_ _ -_ _ _ - -_ -

- 31 -

ANNEX I

T A B L S 3A Page 2 of 5 BLIRUNDI - SOCIAL INDICATORS DATA SREETBURUNDI REFERENCE GROUPS (WEIGHTED AVERAGES) /a

MOS5T (MOST RECENT ESTIMATgE) lb'6 R/b KECENT /b LOW INCOME MIDDLE INCOME

19LO-b 1970/E-b ESTIMATE- AFRiCA S. OF SAHARA AFRICA S. OF SAHARA

EDUCATIONADJUSTED ENROLLMENT RATIOS

PRIMARY: TOTAL 18.0 29.U 29.0 63.9 97.2MALE 27.0 39.U 35.0 73.6 103.1PEMALE 9.U 19.O 23.0 51.6 88.5

SECONDARY: TOTAL 1.0 2.U 3.0 12.5 17.2MALE 1.0 3.0 4.0 16.7 23.5FLl;ALE L.u 1.u 2.U d.1 14.2

VOCATIONAL (1 OF SECOU4DARY) 35.0 13.6 18.0/e 7.3 5.2

-PUPIL'EACLrR RATIOPREMARY 3d.u 37.0 37.0 46.4 42.9SECDNuARY 15.0 11.U 14.0/f 25.1 23.7

ADULT LI'rRACY RATE (1) 13.9/g .. 25.0 36.5 37.1

CONSUiMPTIONPASSENGER CARS/T;bOUSAND POP 1.1 1.1 1.3/h 3.3 18.8RADIO tECEIVLRS/TROUSAND POP 20.0 19.4 37.3 45.3 97.8TV RECEIVLRS/TllOUSAND POP .. .. .. 2.2 18.6iEWSPAPER ("DAILY GENERALIUTEREST-) CIRCULATIO,iPER IdOUSAND POPULATION .. 0.1 0.4/i 4.7 18.2

LlN;EMA ANNUAL ArTENDANCE/CAPITA U.1/g *- 0.0 1.0 0.6

LABOR FORCETOTAL LABOR FPRCE (THOUS) 1494.0 1676.0 1995.0,FE.MALE (PERCENT) 45.9 45.3 44.1 34.5 36.1AGRICULTURE (PERCENT) 90.0 87.0 84.0 76.9 56.8I:iOUSTRf (PEtRCENT) j.U 4.U 5.0 9.8 17.5

PARTLCLN'TI0D KATE (PERCEST)TOtAL 52.4 50.0 47.2 40.9 37.0MALE 56.3 56.0 53.6 53.0 47.1FEMALE 46.9 44.4 41.1 28.9 27.0

ECU.NIIIC OL;PENUENCY R.Atl 0.9 U.9 I.0 1.2 1.3

INCOME DISTRIBUTIONFtRLiN.f OF PKLVAFL I;GUoMLKECEIVED D5Y

HIG,LEST 5N 0L NiOUSr8(/LLS . . .. .

h:LGdEST 2OR OFP AuIOSIIOLJS .. ..

LOWEST 0Z. OP HOUS4EOLDS ..

LOWEST 407. OP dOUSOSEOLDS ..

POVERTY TARGET GROUPSiisDrTMATUD ABSOLUTU PO VEKIY liCC;41LEVEL (US$ PER CAPITA)

URBAN .. .. 213.0_j 165.9 534.2RURAL .. .. 136.0/1 87.4 255.9

ESTIŽIATED RELATIVE POVERTY INCOMELEVEL (3S$ PER CAPITA)

URBAN .. .. .. 100.8 491.5RURAL .. .. 37.0/j 64.6 188.1

ESTIEATED POP. DELOR' ABSOLUTEPOVERTY INCOME LEVEL (U)

URBAN .. .. 55.oQ 39.5RURAL .. .. 85.O7 69.U

.. NUT AVAILA3E-NOT AP?LICAELE

/a The group averages for each indicator are populatioe-weiglkted arithmetic means. Coverage of countries among theindicators uepe-ds on availability of data and is not uniform.

/b Unless otherwise noted, "Onto for 1960" refer to any year between 1959 and 1961; "Data for 197U between *969 and1971; and data for '"ost decent Lstimate& between 1I79 anc 1981.

/c 1977; /d 1975; /e This improvement is based un increase to technical education sector; /f Including secondaryteacner s vocatlonal education; /g 1962; /b 1976; /i 1975; /j 1973.

May 1983

-32 -

ANNEX IPage 3 of 5

ityfOTyLio op SOCIAL, ttitflchhR

flte: lhouh rh too no. drtu Iri poths -enrle jola ti ans - u.sotsiasd ce.ilubis. ho shoud -m to totd that thuy tar not he I-oonuciuiiopsrisbu-mo of theA Lack ofsonedie deiitos o cosa se by dtffrsn o-mtrims in oniotiog th d-t. Th. daaea,ontnia,sedit

d-soibs d orsr of snio o. dl-la -sod, s-hoeororaeosoin mjo dfiots i- Mano_ eris

Tm . soru... oos.. sCL o hsZ- nos outry group of ohs eres- onutty and C2) A coutry Ureor with s-sntl: higM,Istwseg isha- thuK t t tonaiCy grsa P theb

grop= bo ...o fop thet04kchn hit h Onro of o.ots 'nn h- ludisno dapstlda 'h. -niisbLitn of J.a a isttoifoe uta etbssorhaidin t.lning neoges f On.. u Lod atorcoonoth-c ffbs -srgs art only oefni to taprin thut calus. of Ju 'todtutro tius sf g h n_sty

Sf1 C-oeo a.qIn.) - Piio .o .dW. rfo%4gpo,yf .rupLst1n d1iotid be n--uc of oatii- Tots ufc iscsran adesedtho sss no tddliiulilr naditol e1hod ut mei-yit isalno IM dta. Z. -t Ps.tttw. dteidsd by a*ae of PhanaLtuq

ftrinultocI - Osthant of sttitcira .sd -L.oa fMr rnsti si sod .t grlut nus,neautnssspstui es sC or 0g., pntoran,nurhs sod kltohu eSrdsoso to its ftiios; uhf, nuring .. oeLi-tecims

LM)0 eud into dot. Cpps A~jMeia od-nt uw-u ua r-uI eplses anl

GM? C Ct(diA {it -LPpt aiaasins s utnters pit.awlai In public usd r~n sse uSs =ciitsdsAytl 5--IoSloCb Pewoooio _mehod as nrd Lak Mie C7M9-ML heals); csaiitiio atas tositel r nohi"eo posasuty statfs1960 1970, sod 1991 dnts. t b soI_en "L heit. =4tbli0 -o prundiac pniecipeIlly stndiul

tar ea otOtinod tRsi1 bopitets, Mosost iwoint ba,ks endKUttY toj"t7igPTN PtIK C.nrTAi MoAt p,st-ulotuyto f -osrci- adni ntsct P.sraatsntL .atfid by A Fphsicte (1ha by u rtdetoan

priser snug Lc-ui sod Linis.., poosp cuEi e en hydre .I-,o e .s..tnt sue- m, sidoife, etc.) ubLob of, spi-punso oeneia dmud guofiai s1-otriciyL in "ILngr- of co- s.orion rcaiupont W_LPi.iai reng of sed "ni ftiliotm_. Fot sttutni p_eL9n0. 1970, sod LM8L dehu. oris bnsptai .wid n l yisniptICs-uri hupnt,u rece

huspttsis, LocL o r-1n hnapiti sod. andi-ut 55srrao mnmCOtiioIpt AND VITAL. STATISTICS tpsoei.itad hapi"iaL r ioludnd osly under tnts.

nTmi1 yylptionii, f1Ud-Ts_rtChouwods) - eo Joly i; LML, LM7L, nod LML19ata srt1f5j T-1TtLwse u,fteosi noriahr a

Inhen foonutio ..tmns of l.ini) - teic ofareotos-si pupietion;diff-rn miiin fohnaesm sffcccunsrhiioyof nt wiatih

- oorrrcn opilutioncroleoctus era hewe no LM*C end thuic safe a.a. A hoader or Ldgr -Y oruYmo be dnitnd totone) pognIof fu by es sod sa ,sd thoir nor-lity and fortuity ohs heauhed furs. iste poirpsnae

root. Prjaifo putnasfo oil reth hopieo yhea otygf pngr of7 pseus par I onu ee,uO, n oe nr

essusod Isine i fmoiiitys....rdtne to i-cso i-a nAm pest fantiy sm to EI-sott,os Ce-osi of dosimsn) - tetui. apa. and reI pLetoia emroaeto, 'uc toutr In 'boasioa oun- of ohn nsC.nmoo. deiiisaihsirriiy in ihele neartar Mepran

Ota -osc n tiLsoiu To-fus tlonacY prit tharm is me er--h

dsniiowootatwriuoano LsosL f .nif -o r"odttotio rats shtPtincy oIno - -tie.:maim nd f-oal - iruem -ot1, sei. ne fsmsianti onsoicunof o "nIraL... ioneLf -ouiL. Th ctiar nrLen ofaL gsn thu s p-,so loa a- aranes f rop-ties

popoitiutsineas tti-sna on the hesis of tVe etJs....d chrett-yiasysfoo-g PoPgInieto ; -ut 1ii tocioda mci.d- "a 6-liiLoit of th oM Lio in nod faut LiD), and oNs rts of Zndi of yrLot adjusted Coo dotffa-it Lmo

5t of prtuy odsnu-aa ftc

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fp Mjs l-y,- ropoLaion par- ur q-. ilosryCt he0 Mtiaras Cf prnds$0-fL talni-. or isttr imbue iwetrunuln for00051 ensa; LMhL, Leot, sit LM'ti. I'l 1,to dun17ti salyo Li LI ost of sg;ooracaso ar5

hr w. a. ari,iLoos~~.~o"I Lea - to"ite as. shoot forarcios Lnlaani suniLadad.oi,fS,CL alLSdt.uteitlsmlsniCsnn faondrl-MdioaiIatoim

cognisniut; LMML, inCh. end LMML doom. Conoti-isunhur ratio - trissey. sod sotoodmen - LuteS students aaooiieId ta-- - - - -

yPrryhaitft fi-h,Ln-t and8 Lhld-MC ftesr1odl, Isetia. . - d1 I

pototo teh usXyrmt - -ohe - .-oIs proth riss-o orhecAdoi is ut ct litra duLts (able to omed ad ria) mP.tltin foe iMOA, OI). en iOh-. -acet-p of .totL adnitPowpaisti sd Li mac sa.W so

truda tInih toot Cuntho-nnd ~- hns Iio- hirohn par thouen of mLd- CRPaso- npiot;IMi. gLMIt ed 1bh1 dat.- cfltW Of1

Clou. DKtib tot Coon he1so-d - doos umtho pat oh-sso of ai-at ageanCtsCo ohossa npulutho- Caum-ge ours osois mass

.: t tato A-Atrgono cd-ohhru5 t u- si hash1 in all liy -shlim-he&iiill#iohouiI§c ltC h turrtodi rain se-prfc I,oMthsa(a hena snale ALL oyyua uf raeete Par, indI

fnriiltortn;aslL Lo-tano-teotLt IILh iDL0, and bodats nos Ioa pobi it thos-nd of peiton mlIm91MM; icansud -in-oer is o-atria an in year nbnrsliot of aSIA

ral inia- dAtaccor -- dno.usL thusnd)I-heus nhe of -op-or ses-a to sofa; dla foo caot -ut ay out h. epseimmneaa

orfrn - TOii '-i heala- Loa 1 hease totuIlgtth-T aserofrbodeet

ramlie fientina (m oct00 oh ouctit ansec) - Parcanags nO saprieL gemrei patiic par housand pa nisoln p ocindas oniloeamd pad renoteornasa f chod-bertooeam 51-il acnC ho ca biob-co -ru dnuics c Loco--ritac in.ar eM aisrto of TV mt am taafmt.

oLl. estro F noccowntauro r.l "L 196u-ncacaI'd bl-tirco-luo ortome ooahn - t-hdea the aarago -

P00 scMCpLco ciroLio ofdfyonrluers esprndfudtoaoedc

ntni odoto n of aLl1 focd -cadiciam. rr-otL aa- us mad an)toh ade1yn If it upypar -t I-as forIe t- mmk.fend ond Is 00usada ha Moi. CtooedLnticoes - lpoi-ay eunds (.ae. Ciomm M-1oa doitoduno o Carita Pao T- - hand no th uar ofsogora_ instant of sueo ouch am adibL. end cohin -ti.... Csa cet ai dooLn the yer ni- igs'lmoat drie-I eisa sad

cof %-01 a sw outLded . ARgEogn ploducoico at eth countr is 0hL abil int.he __onnu ioa a..ra. r~ontc-c -Ic o,tt

5t; 19h6-c. IM70, mod L9t)

FIr.eoieotofuofo ..r...s os_iahIr in c.-"Y Per capita gao foccn au nusylyn bhu m-cdiwa heue-in- musn, tO.,ouordor. oollhia aceiim c-pr- d-ossoic nrod-oluo, isposless I...latP. of alL its. hfioltotl to -nriou -oollia acm san

porta. uf then us in noch. tt sopoius anids a-i-ui fed, toads, taperehi.; Ib60. 1970 nodCIii1 data.

oryocoasta wre simeslbh rut head on phy1ito.i-g1s mends for -n iriotntrot L.nho Poma. in fIncao f-ratry, On-tog Wacii d n henith ota..udotiog -nica--1a itusyn-tur. body shts, fihn ooouao itllhrfrs .1,910 s W" daMn.

ya =t nte ooloIf 1rnoo o 0o peIdy -, rrtaionstofproytaLL n IMb Iot., do 1LM - ;I

slio -utcm c0 ooao oa cr-blin~ ber "s DIl -l grs oI misll noPaooer 0 oo,sL sdfsi aeintoo l ga sNntro 60rhc,o hc 0 cn hndh naiprii.tssLS,1b noid LSiRInt. timm nom heaI d no 1t' peniefs en

shtndo.ie en boorthen nc o CS g-a of tois1 p-otin a- O rs -sicla g-a Ir_ iu oif thec ielt and Lang na trend. A

Thrdholh od h.. cny; CM9L-h5, 1070 end L9b0 Ist.l.aEosmic tuop enttiy - hello of p.upolatino colo CS ssd Miea - tofor tarO rci coyfa anima an cd -Prtlo lopy of food the -oelbo oredosra tIs noisult ant tolo.m in som par day; 1961-6i, 197h sod 195)7dats. INICCt! OLSTRLCfIdUTol

thudCue. 1-) toch ocoCoo thousnd M- hna &-aho e thouen It. Pocoso-ta ZrIFITeut ina Choh i nhen ind) - tattle hyrlbait gon 7-0 ar, to cblllla inthn o gotop; forsan da-eiuing Per.n. rceTO "C t-l00 p-oras Wfrmao. u ore i oa

toerLss dunn d-rio- fins Life cuhisa; i9b0, LO7h sad 19L dtta. h.-eh.l 5,.

MIALT COVERTY TARisC GROUPS,UPLnaronnuf t icnt Conos C- o-rau oushe of hour of life aann .utlo aoon er. -eyapnoleast of poosoy L.-Ia, al

ec. ~biro; uhf 1010 un IMO I deg. e-huLd ho istarpr-ca ouib -asder-bia usunheCWt..totair st puo th-ouad) --unsI Istlhs of, innt,nw o ntstd Mo-I-un P-omte faua Ie-I Ct e caia)-aha n re

Y_r f e P par "heu.- Lie births; Lhh, 1010 And OM Iot.1baout Peemot in_ Lund Is thn1 las eaySa 5a

.. ha of goo. Conal obd, odcoaLlrthrusothi shea o et sfodahdisetor piyCltia ltcnand -nfoc sens. o atat botIimtdiltn oot iculni(lo ulo ftm -An teal

usontaaioisdemoo tus sethet fcspotndhculaapoinog, sod MRe_.oIate oe mine m~14iniI o-hidof -erg paweaantroLII)mmpeoocgm _o ,-srra a -co Apindo. oo psrmue moose of the o tty tr MM.frI ..o L .e do I.Wne fra the rsn

ocheosrean AoLcfotoo atuotom L-ste n- sor ibs 000 stars s-n with adjnst-s f- higi- -os of ftiaIAubs snfro n h-om say hoL iosurd. no hin u.hio ... bineis ncmof otMto tmtisid frPito au bet o,ttelo, a hao ssbsi nt

inoau. Inrorut s -n asobie Aca -ctd ispLy ohen the hen-snih nosd rriCatn opntIu. Curhet an trnri raamntosnocaofotolonnoelddo ettuo tospol uiycpariomtspart of po

th dy a coiongthu funiiy's oto eds..lassi uohU doaosa )prMn nf ptiuton ot l.brhn_s,

one -htero Innl toa,crwI ndrrIhsrm nyur

prioco and olil-r in-tLCafn.- fay Leh3

- 33 -

ANNEX IPage 4 of 5

ZAIRE EXXJMIC INDICATOIRS

NATIONAL ACXXSAnm,mt hare of CDP at

(million US$ at Market Prices (%) Amnral Growth Rates (x)current prices (at current prices) (at constant 1970 prices)

1981 1981 1979 1980 1981

Gross Domestic Product l/ 5383.9 100.0 0.3 2.5 2.4(GDP CCmmercialized) (4222.3) (78.4) (0.2) (2.4) (2.4)

Agriculture 17Z2.2 32.0 3.1 2.8 2.7industry 1269.5 23.6 -6.1 4.4 4.8Services 2183.7 38.7 4.6 0.1 0.4

Comaanption 4312.0 2t 80.0 4.3 -0.2 6.1Gross Investment 1410.3 7/ 26.2 56.8 81.8 -35.2Exports of GNFS 1575.4 29.3 -21.0 23.8 -44.6Inports of GNFS 1913.8 35.5 21.8 95.8 -46.0Gross National Savings 985.8 18.3 62.8 -19.6 128.7

PUBLIC FIDUNA (Central Goverrment)

(million Z) x of GDPA c t u a 1 (at market prices)

1980 1981 1982 1980 1981 1982 P

Current reveres 3738.6 4858.8 6259.1 21.7 20.6 19.5Current expenditures 3948.5 5832.1 8448.1 22.9 24.7 26.3Current deficit -209.9 -973.3 -2189.0 -1.2 -4.1 -6.8Capital experditures 246.4 744.9 1084.9 1.4 3.2 3.4Overall deficit -456.3 -1718.2 -3273.9 -2.6 -7.3 -10.2

MIEY, CREDIT AND PRICES1980 1981 1982

(million Z outstanding end period)

Money and Quasi xney 3367.3 4644.9 8015.9Bank Credit to Public Sector 2329.4 3783.6 7057.3Bark Credit to Private Sector 1014.3 1342.4 1971.9

(Percentages or Index Numbers)

Mbe and Quasi Motey (as % of GDP - market prices) 19.6 19.7 25.0Consumer Price Index (1975 = 100) 1339.0 1813.1 2487.9

Anal percentage changes in: 46.7 35.4 37.2Consrer Price Index 13.0 62.4 86.5

* Bark Credit to Public Sector 37.1 32.3 46.9Bank Credit to Private Sector

NOTE: All cmversions to dbllars in this table are at the average exchange rate prevailingduring the period covered.

1/ Zairina national accounts have rierous shDrtcanings and should beinterpreted with caution.

2/ At market prices; components are expressed at factor cost and will not add due to tieewlusion of net indirect taxes and subsidies.

3/ Estimate.4/ Based n national accounts data. Balance of payments estimates given in

page 2 are more reliable.

- 34 -

AI0EX IPage 5 of S

ZAIRE - EC(1C INDICA2URS

BALANCE OF PAYMllTS (Mill US$) 1979 1980 19gL 1982

Exports of goods and services 1926.3 2185.2 1632.0 1537.9of which: Merchandise F.O.B. (1834.6) (2038.1' (1499.9) (1454.0)

Imports of goods and services 2056.9 2523.6 2300.6 2385.5of which: Merchandise F.O.B. (1213.2) (1472.0) (1290.0) (1128.3)

Private transfers (net) -63.3 -79.4 -3.5 -15.5Ourrent Account Balance -193.9 -417.8 -672.1 -563.1Official grants (net) 226.1 266.8 247.6 187.7Public capital (net) -115.0 -22.1 -168.6 -156.8Private capital (net) and errors and

oirissions -173.1 -82.0 -147.4 -128.1SIR Allocation 20.7 20.8 18,9 -Other Financing 267.5 282.4 608.4 624.8

Change in net international reserves(- = increase) -32.3 -48.1 113 2 35.5

EXCHANGE RATES: (Z/US$) (US$/Z' (SUR/Z)

August 24, 1979-February 22, 1980 2.05 0.49 0.375February 22, 198D-June 19, 1981 3.05 0.33 0.2625June 19, 1981-Septesber 12, 1983 5.62 0.18 0.1575Septemher 12, 1983 1/ 26.93 0.04 0.03542

(29.93) (0.03)February 24, 1984 1/ 33.0 0.0^3 0.028

AVERALE EXCHANGE RATES:(Z/Ys$)

1978 0.8361979 1.7291980 2.80n1981 4.3841982 5.750

MRZCHANMISE EXPORTS

Minerals and Petroleum 1407.5 1626.8 1178.4 1235.2Others 427.1 411.3 321.5 218.8

Total 1834.6 2038.1 1499.9 1454.0

REXIERAL DE8T, (As of Dec. 31, 1982, Mill. US$)

Public Debt, incl. guaranteed 4087Nmk-Guaranteed 250Total outstandirE & Disbursed 4337

DEBT SERVICE RATIO FOR 1982

Public Debt, incl. guaranteed 10.7 3/Non-Guaranteed Private Debt 9.7

IBRD/TA LEIDING(As of March 31, 1984, Mill. US$)

Outstanding & Disbursed 279.55UrAsibursed 216.85Outstarnding, incl. Undisbursed 46.40

1/ On SeDtember 12, 1983, Zaire introduced a transitional dual exchange rateregime, consisting of an official rate and a free market rate, saon inparenthesis above. The twa rates were unified on February 24, 1984:;henceforth, the rate will float on a weekly basis.

2/ Estimate.

3/ Reflects external public debt service actually paid.

EA2April 23, 1984

- 35 -

ANNEX IIPage 1 of 2

SrATUS OF BANK CGRUP OPERATIONS IN ZAIRE

A. SEAnE OF BANK IOANS AND IDA CREDITS (As of March 31, 1984)

loan orCredit Year Amnxt in US$ MillionNmiber Siged Borrower Bark IDA 1/ Undisxursed

Priorto June Congo & Transport 91.58 2/1960 Otraco Infrastructure

One Loan Fully Disbursed 100.00Fourteen Credits Fully Disbirsed 167.10

571 1975 ZAIRE Rail-River II 26.00 0.47660 1976 ZAIE Cotton Rehabilitaticn 8.00 1.17796 1978 ZAIRE Oil Palm 9.00 7.29902 1979 ZAIRE Railways 20.00 6.45998 1980 ZAIRE Fifth Dev. Finance 18.50 5.57

1040 1980 ZAIRE Snmllholder Maize 11.00 8.611089 1981 ZAIRE Kwilu Ngongo Sugar 26.40 3/ 6.19 4/1152 1981 ZAIRE Kwango-4wilu Technical Assistance 2.90 3/ 1.71 4/1180 1982 ZAIE ONATRA Mxdernization 26.0073/ 22.06 4/1224 1982 ZAIRE Shaba Power System Rehabilitation 19.00 3/ 15.24 4/1241 1982 ZAIRE Water Supply II 18.00 3/ 12.584/1244 1982 ZAIRE Agriculture T.A. 5.0073/ 3.844/1264 1982 ZAIRE Second Cotton 11.30 3/ 10.38 4/1273 1982 ZAIRE Sixth DFC 21.50 3/ 18.454/1290 1982 ZAIRE Highway V 43.50 3/ 33.37 4/1325 1983 ZAIRE North East Rural Development 13.00 3/ 12.48 4/1335 1983 ZAIRE Ports Rehabilitation 25.00 3/ 24.49 4/1336 5/ 1983 ZAIRE Gecamines T.A. 7.00 3/ 7.001409 1983 ZAIRE Petroleum Sector T.A. 4.50 3/ 4.50 4/1421 5/ 1984 ZAIRE Ruzizi II Hydroelectric 15.00 3/ 15.00 4/

Total less cancellations): 191.58 497.70 216.85- of ufich has been repaid 126.63 1.62Total now outstanding: 64.95 496.08 216.85Anount sold: 54.47

of which has ben repaid 54.47Total now held by Bank and IDA 1/ 64.95 496.08Total Undisbursed: 0.0 216.85

1/ Prior to exchange adjustnert.2/ auaranteed by the Kingdan of Belgium.3/ US dollars anrts caouted at the rate of approval dates.4/ US dollars anounts conputed at the March 31, 1984 rate.5/ Signed by not yet effective.

-- 36 -

ANEX IIPage 2 of 2

B. SAET OF IFC INVESEr, (As of March 31, 1984)

Fiscal Type of Amonxt in US$ MillionsYear Obl-igor FRisiness Ian Equity Total

1970 Soci&t6 Financiere de DFC - 0.76 0.76DCveloppemnt (5DFIDE)

1979 Zaire Qilf Oil Company Oil prcducticr. 2.50 2.50& expl. Comparny

1979 Zaire Petroleixn Company Oil prcductiort 1.61 1.61& expl. Campary

1983 Nord-Sud Irdustrie-R)HSIOFF QRBH, for studieson an aluiniun project 0.23 - 0.23

Total gross commitments 4.34 0.76 5.10

Less repyments 3.70 - 3.70

Held by IFC 0.64 0.76 1.40

- 37 -

ANNEX IIIPage 1 of 2

SUPPLEMENTARY PROJECT DATA SHEET

ZAIRE

SEVENTH DEVELOPMENT FINANCE COMPANY (SOFIDE) PROJECT

Section I: Timetable of Key Events

Because this Credit (the seventh to SOFIDE) is a repeatoperation with an institution which has been closely monitored by theBank Group since it was created in 1970, the project did not requirespecial preparation before the appraisal mission visited SOFIDE inOctober 1983. The planned date of effectiveness is September 30, 1984.

Section II: Special Project Implementation Actions

None.

Section III: Special Conditions

(a) The Borrower would carry out a number of studies,including studies of the incentives system; the treat-ment of asset revaluation and of indirect taxes(paras. 32, 33 and 34);

(b) SOFIDE would exchange views with IDA on the adequacyof its lending rates (para. 52);

(c) SOFIDE would carry out an action program to limit thedeterioration of its portfolio (para. 55);

(d) SOFIDE would not distribute dividends until it hasreconstituted its provisions for risk to at least 4percent of its loan and equity portfolio (para. 62);

(e) SOFIDE would maintain its debt/equity ratio below 5:1(para. 57);

(f) at least US$5.0 million equivalent of the proposedline of credit for investments would be reserved forprojects which are expected to export at least 25% oftheir production (para. 67);

- 38 -

ANNEX IIIPage 2 of 2

(g) SOFIDE would onlend at a mninimum of 15.5% per annumand pass on the foreign exchange risk tosub-borrowers; and, subject to finding ways ofprotecting itself against the foreign exchange risk,up to US$4.0 million may 'be used for equityparticipation with the prior approval of IDA (paras.67 and 68);

Special Conditions of Effectiveness are:

(a) increase in SOFIDE's share capital of at least Z 200million and paying-in of at least Z 100 million ofsuch increase (para. 45); and

(b) signing of the Subsidiary Loan Agreement (para. 66).