Document ofThe World Bank

FOR OFFICIAL USE ONLY

Report No. 20058

IMPLEMENTATION COMPLETION REPORT

TRINIDAD AND TOBAGO

BUSINESS EXPANSION AND INDUSTRIAL RESTRUCTURINGPROJECT

(LOAN 3432-TR)

March 31, 2000

Finance, Private Sector and Infrastructure Sector Management UnitCountry Management Unit for the CaribbeanLatin America and the Caribbean Region

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

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CURRENCY EQUIVALENTS

(As of December 30, 1999)

Currency Unit = TT DollarUS$1.00 = IT Dollar 6.299

FISCAL YEAR

January 1- December 31

ABBREVIATIONS AND ACRONYMS

BEIRL Business Expansion and Industrial Restructuring LoanCARICOM Caribbean Integration Common MarketCARIRI Caribbean Industrial Research InstituteCEIS Computerized Environmental Information SystemDFC Development Finance CompanyDFL Development Finance LimitedEDC Export Development Corporation (now defunct)EIA Environmental Impact AssessmentEIB External International BorrowersEMA Environmental Management AgencyETAF Export Technical Assistance FacilityFIAS Foreign Investment Advisory ServiceGDP Gross Domestic ProductGNP Gross Natural ProductICR Implementation Completion ReportIDB Inter-American Development BankIMF International Monetary FundISO International Standard OrganizationISONET International Standard Organization NetworkNEIS National Environmental Information SystemOED Operations Evaluation DepartmentPE Public EnterprisePFI Private Financial IntermediariesRSU Restructuring Support Unit, Ministry of PlanningSAL Structural Adjustment LoanSAR Staff Appraisal ReportSOE Statement of ExpensesTAL Technical Assistance LoanT&CPD Town and Country Planning Department, Ministry of PlanningTHA Tobago House of AssemblyTIDCO Tourism and Industrial Development CorporationTM Task ManagerTT Trinidad and TobagoTTBS Trinidad and Tobago Bureau of StandardsWTO World Trade Organization

Vice President David de FerrantiDirector, Country Management Unit Orsalia KalantzopoulosDirector, Finance, Private Sector & Infrastructure Unit Danny LeipzigerTask Manager Sonia Plaza (Consultant)

FOR OFFICIAL USE ONLY

IMPLEMENTATION COMPLETION REPORTTRINIDAD AND TOBAGO

BUSINESS EXPANSION AND INDUSTRIAL RESTRUCTURING PROJECT

(LOAN 3432-TR)

TABLE OF CONTENTS

Page No.

PREFACE ........................................................... i

EVALUATION SUMMARY ............................................................ iiA. PROJECT OBJECTIVES AND DESCRIPTION .................................................... iiB. IMPLEMENTATION EXPERIENCE AND RESULTS ...................... .................. iiiMajor Factors Affecting the Project ............................................................ vBank and Borrower Performance ........................................................... viProject Sustainability ............................................................ viiOperational Plan ........................................................... viiiC. KEY LESSONS LEARNED ........................................................... ix

PART I: PROJECT IMPLEMENTATION ASSESSMENT ....................................................1

A. INTRODUCTION ........................................................... 1B. BACKGROUND ............................................................ IC. PROJECT OBJECTIVES AND DESCRIPTION ............................................................2D. ACHIEVEMENT OF PROJECT OBJECTIVES ......................................................... 3E. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING

THE PROJECT ............................................................. 5F. MAJOR FACTORS AFFECTING THE PROJECT ......................................................... 11G. PROJECT SUSTAINABILITY ............................................................ 11H. BANK PERFORMANCE ........................................................... 12I. BORROWER PERFORMANCE ........................................................... 14J. ASSESSMENT OF OUTCOME ............................................................ 15K. FUTURE OPERATIONS ............................................................ 15L. KEY LESSONS LEARNED ............................................................ 15

PART II: STATISTICAL TABLES ........................................................... 17

Table 1: Summary of Assessments ........................................................... 18Table 2: Related Bank Loans ........................................................... 20Table 3: Project Timetable ........................................................... 20Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual ...................... 21Table 5: Key Indicators for Project Implementation ....................................................... 21Table 6: Key Indicators for Project Operation ........................................................... 21Table 7: Studies Included in Project ........................................................... 22Table 8A: Project Costs ........................................................... 23

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

Table 8B: Project Financing .................................................. 23Table 9: Economic Costs and Benefits .................................................. 24Table 10: Status of Legal Covenants .................................................. 25Table 11: Compliance with Operational Manual Statements ........................................... 27Table 12: Bank Resources: Staff Imputes .................................................. 27Table 13: Bank Resources: Missions .................................................. 28

Appendix 1: Mission's Aide Memoire ........................................................ 30

Appendix 2: Borrower's Contribution to the ICR ........................................ 34

Appendix 3: Firms Assisted under the Credit Line by PFIs .................................................

Appendix 4: Firms Assisted under the Matching Grant Program (ETAF) .......................... 48

MAP

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IMPLEMENTATION COMPLETION REPORT

TRINIDAD AND TOBAGO

BUSINESS EXPANSION AND INDUSTRIAL RESTRUCTURING PROJECT(LOAN 3432-TR)

Preface

This is the Implementation Completion Report (ICR) for the Business Expansionand Industrial Restructuring in Trinidad and Tobago for which Loan 3432-TR in theamount of US$27 million equivalent was approved on December 20, 1991, and madeeffective on March 30, 1993. The Project was closed on June 30, 1999. Finaldisbursements took place on November 30, 1999, and a balance of US$ 4,794,869.23 wascancelled.

This ICR was prepared by Sonia Plaza (LCSFP, consultant) and Paul Meo(consultant). It was reviewed by Jyoti Shukla (Senior Economist, LCSFP), SusanGoldmark (Sector Manager, PPI/E), Max Pulgar-Vidal (Sector Leader, LCC4C), andMaria Victoria Lister (Quality Assurance Officer, LCSFP). Preparation of ICR beganduring the Bank's final completion mission, November 29 to December 3, 1999. TheICR is based on materials in the Bank's project files, interviews with Bank staff,including two previous task managers (Chris Barham and Anil Kapur), as well asinterviews with and materials provided by, a wide variety of Trinidad and Tobagogovernmental and parastatal staff and managers as well as private sector representatives.The Government of Trinidad and Tobago also commented on the Bank's contribution tothis ICR and has provided its own views on project implementation and results, which arereproduced in Annex 2.

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EVALUATION SUMMARY

TRINIDAD AND TOBAGOBUSINESS EXPANSION AND INDUSTRIAL RESTRUCTURING PROJECT

(Loan 3432 TR)

1. The Business Expansion and Industrial Restructuring Project (BEIRL) wasidentified and approved in 1991 to complement the Government's stabilization andpolicy reform program supported by the IMF and the World Bank. The BEIRL wasdesigned to provide focused financing and institutional support to private enterprises soas to re-energize growth and create a diversified and sustainable economic base.

A. PROJECT OBJECTIVES AND DESCRIPTION

2. The main objectives of the Project were to' (i) assist in financing productivefacilities and resources in the territory of the Borrower as will contribute to the economicand social development of such territory; (ii) support business expansion in industrial andservice enterprises in Trinidad and Tobago (except primary producers of oil, gas andagricultural or livestock products), in particular, by undertaking the adjustments requiredby such enterprises to become export oriented and internationally competitive; (iii) assistin strengthening TCPD's capabilities to review environmental impact assessments forpublic and private sector development projects, as well as improving nationalenvironmental pollution control standards; and (iv) strengthen the regulatory frameworkof the Borrower's financial sector and insurance industry.

3. To achieve these objectives, the Project included two main components:

(a) A credit line of US$20 million to help private enterprises finance plantand equipment, incremental working capital, and technical services relatedto productive activities;

(b) A technical assistance component (US$7.2 million) to finance: (i) theestablishment of an Export Technical Assistance Facility (ETAF) to assistprivate businesses firms enter new markets through matching grants fortechnical assistance (US$ 1.5 million); (ii) the creation of institutionalcapacity and technology infrastructure in metrology, standards and qualityassurance (US$ 3.4 million); (iii) the development of improvedenvironmental pollution control standards (US$0.79 million); (iv) studies

1 As defined in the Loan Agreement. Intererstingly, the objectives as defined in the Staff Appraisal Report weresomewhat different. The primary objective was to promote the development and/or restructuring of privatemanufacturing or service firms (excluding primary producers of oil, gas, agricultural or livestock products) sothat they could compete in export markets. Ancillary objectives included: (a) strengthening the supervision offinancial intermediaries and the safety and soundness of the financial system; (b) improving the technicalstandards used to assess the environmental impact of public and private sector projects; and (c) strengthening thecapacity of the Town and Country Planning Division (T&CPD) to review Environmental Impact Assessments(ElAs).

iii

on the role of private investment in the steel and petrochemical industries,the adequacy of the foreign investment regime, and the development of anew foreign investment promotion strategy (US$ 0.85 million); and (v)strengthening the regulatory framework for the insurance Industry (US$0.25 million).

4. The first two Project objectives were justified in the context of economicstagnation, high unemployment and weak performance of the private sector at the time ofProject identification. In an era of windfall oil revenues, the public sector had dominatedthe economy, stifling private enterprises. Weaknesses in the financial sector and aninadequate business environment and institutional support mechanisms required someactions on part of the Government to help jump-start private sector exports and toenhance the competitiveness of Trinidadian firms. To achieve these objectives, theProject incorporated what were deemed to be appropriate components at the time ofappraisal - line of credit, technical assistance in accessing export markets and technicalsupport to obtain certification of quality standards. The Project also included an objectiveof improving technical standards and monitoring capacity of environmental impacts, thejustification for whose inclusion is not clear as it was only tangentially relevant to theother main objectives of the Project. These additional components also made the Projectcumbersome and later overlapped with on-going dialogue in the environmental sector.The final objective of strengthening the soundness of the financial sector was justified,though actual Project activities to achieve this objective were limited to technicalassistance to improve regulation of the insurance industry, which could have had only alimited contribution to overall financial sector reform.

B. IMPLEMENTATION EXPERIENCE AND RESULTS

5. The Project was approved on December 20, 1991, but became effective fifteenmonths later. Even after effectiveness, the implementation of the loan was delayed onmost components, with only the technology sub-component proceeding well. It was notuntil 1995-96 that most of the sub-components and expenditures began. Towards the endof the Project, implementation lagged again as the institutional capacity of theRestructuring Support Unit (RSU), the coordinating unit for the Project, deteriorated dueto high staff turnover and many staff vacancies. Several issues also emerged related tolack of adequate project accounts and internal control procedures. In the presence ofthese outstanding issues on project accounts and reconciliation of the Special Accountwithdrawals, and the failure on the part of the Borrower to submit an action plan tocomplete the remaining Project activities, the Loan was closed on June 30, 1999 in spiteof a request by the Borrower to extend project implementation as no agreement wasreached on a workplan for the extended period. After final disbursements, an amount of$4,794,869.23 was cancelled.

6. Overall performance of this Project is rated Unsatisfactory because of the mixedimplementation record of the project components, and their marginal contributions to theachievement of Project objectives. On the first two objectives of the Project - to financeproductive enterprises and to support business expansion in industrial and service

iv

enterprises - T&T did have some success as its private sector adjusted in some measureto a more open economy.

7. Non-traditional exports (excluding hydrocarbons and raw agricultural products)rose from US$324 million in 1990 to US$423 million in 1998, though their overall sharein total exports increased only marginally from 17% to 19%. This performance ofnontraditional exports reflects the stimulus provided by the reforms of the trade andexchange systems. More labor-intensive agricultural products, namely beverages andfood products, and manufactures other than chemicals and iron and steel, registered thegreatest improvement, growing at an average rate of over 22% during this period.Notwithstanding, export diversification has been modest, as exports remain heavilyconcentrated on a few products, with petroleum and petrochemical exports accounting forover 70 percent of total exports.

8. However, the contribution of Project activities to the increase of non-traditionalexports is not clear and is judged to be marginal. Specific project activities contributingto this objective included the credit line, the matching grants scheme, and the technologycomponents.

9. The credit line component disbursed $16.1 million (80.5% of the initialallocation) to 51 enterprises, largely in the manufacturing and the services sectors.Unfortunately, the Project did not develop any monitoring indicators to measure theimpact of the project on job creation, exports, or new business operations, and we areunable to make a definitive evaluation of this component. However, interviews with sixbeneficiary enterprises and three PFIs revealed that the contribution of the credit linetowards Project objectives was marginal at best as all enterprises reported that at the timeof their application to the credit line, financing from alternative sources was notconstrained, and this line of credit did not make an additional contribution to firmrestructuring beyond what firms would have invested anyway. Nor did the sub-loansfrom the credit lines reach many new enterprises as the PFIs preferred to lend to existingclients.

10. Of the other two sub-components designed to meet the objective of private sectordiversification, the matching grants sub-component implemented by the ExportTechnical Assistance Facility (ETAF) was implemented with partial success. Thiscomponent, which disbursed $1.1 million (TIDCO estimates), provided a 50:50 matchinggrant and assisted 43 recipients to explore and access export markets. Though littleinformation is available on the impact of this assistance on the firms' operations, firmsassisted demonstrated the value of the services provided by matching payments of 50%.The technology sub-component (US$ 3.4 million), which included the adoption ofinternational technical and quality standards to local norms by TTBS and certification byCARIRI, in contrast, was one of the better implemented sub-components that met andsurpassed its targets. TTBS met its targets of training programs and certifying about onethird of the country's exporters with ISO-9000 certification. In terms of participation inthe development of international standards, TTBS was ranked a respectable 17th in theworld, and the highest of all Caribbean countries. TTBS also met its self-sufficiency

v

targets, with income covering 65% of operating costs in 1996. Project implementationalso proceeded well in the CARIRI sub-component, as CARIRI obtained internationallaboratory accreditation and IS09000 certification, and provided laboratory testingservices to several private sector clients, increasing its customer base by 45%. ThusProject activities had a positive impact in creating an institutional infrastructure forMetrology, Standards Testing and Quality (MSTQ) which would foster the growth ofproductivity.

11. The third objective - to improve technical standards to assess environmentalimpact of projects and to review environmental impact assessments - was not achieved,as Project activities were only partially completed. Moreover, the environmental reviewand monitoring functions of the Town &Country Planning Development (T&CPD)supported by this Project were transferred to the Environmental Management Agency(EMA), undermining the value of Project interventions.

12. The final objective of developing a sound and efficient financial system wasachieved as the country avoided the severe financial problems caused by the 1994/95"Tequila effect," or the more recent financial contagion that affected most of thedeveloping world. The IMF has indicated that bank soundness in Trinidad and Tobagohas become stronger in 1998. This positive outcome, however, was more due to theresult of many on-going interventions, rather than the specific contributions of thisProject. In fact, this sub-component did not meet its limited objectives of developingcapacity for effective on-site supervision of insurance institutions.

Major Factors Affecting the Project

13. Factors generally subject to government control. Implementation on the Projectsuffered from lack of attention by key decision-makers at the Ministry of Planning andDevelopment, who could have improved Project effectiveness by ensuring adequatestaffing and financial resources to the Restructuring Support Unit. Continuity of staff atthe RSU also affected implementation, as the RSU had three different Project Directorsduring implementation, each change generating serious delays in project implementationas each new Director needed time to become familiar with this rather complex project.The implementing unit's performance was also hindered by (i) weak administrativeprocesses; (ii) the lack of experience with Bank procurement at the initial stages of theproject; and (iii) the high turn-over of competent staff.

14. Factors outside the control of the government: A key factor that affected theperformance of the credit line component was the resurgence of economic growth andprivate sector response. Trinidad and Tobago economy has performed well in recentyears, with steady economic growth, low inflation and declining - though still high -unemployment. Real GDP growth in 1994 was about 3.6 % and it is projected to be 4.5%in 1999. This worked towards the positive achievement of the overall objective ofincreased private sector activity, as the economy started growing and private investmentrecovered, but made the credit line component of the Project irrelevant as overall accessto credit improved. The credit to the private sector as a percentage of GDP increasedfrom -1.7% in 1994 to 1.7% in 1998. Project implementation in the later period was also

vi

affected by change in task management within the Bank, a change which also coincidedin some part with a broader management change within the Bank as well as a change inthe portfolio management culture. With a much greater emphasis on realism in projectdevelopment effectiveness, coupled with quality assurance audits, the Bank's ownstandards for judging project progress also evolved during this time, a change which mayhave been perceived by the Borrower as inconsistency of Bank positions.

Bank and Borrower Performance

15. The Bank shares responsibility in the unsatisfactory performance of this project.On the positive side, Project identification of the need for positive interventions tosupport private activity was in the right direction, though Project objectives should havebeen more focused. The credit line component and the matching grants components wereappropriately market based with sub-loans on-lent at market rates and the matchinggrants incorporating elements of cost recovery. The technology and certificationcomponents were also well prepared and incorporated best practice knowledge at thattime. Nevertheless, the total project design was far too complex for effective managementeither by the Borrower or the Bank's supervision team. The inclusion of theenvironmental objectives in particular may have been unwise, both due to the complexitythey introduced as well as their overlap with the environmental sector dialogue. Theobjective on the soundness of the financial sector was also included in the Project designin a very limited fashion, and should probably not have been included as a specificobjective.

16. Overall, the Bank's supervision of the Project was not satisfactory, and severalissues emerging during implementation were not adequately addressed. In the initialyears of the Project, supervision was adequate with a good relationship between the Bankand the Government. Supervision was particularly responsive on the technology sub-component, with the Bank team working closely with the Government and introducingthe business community and technology institutions to counterparts in Singapore, withwhich they ultimately "twinned." However, the changing circumstance of theTrinidadian economy and the continued relevance of the line of credit component was notadequately addressed. During the mid-term review, when foreign exchange availabilitywas no longer considered a key constraint to private sector financing and other creditlines were available to the private sector, the Bank should have cancelled a greaterproportion, if not the entire, credit line component. Another supervision that turned outto be flawed was the decision by the Bank to cancel a part of the ETAF component as itwas considered to be inconsistent with WTO obligations. As it turned out, the Bankcontinued to provide similar services in other countries, and even if the program wasinconsistent with WTO's prohibition of export subsidies, T&T had until 2002 to complywith this. Further, it is notable that until mid-1997, no Bank manager visited theProject, perhaps because the Project continued to be rated Satisfactory. A fresh look atthe Project may have helped the project team with resolving some of these emergingissues

17. Bank supervision should also have been more alert to the declining institutionalcapacity of the RSU, as key staff began to leave. Late and missed project performance

vii

reports were increasingly tolerated; as were late and incomplete audits. Equallyimportant was the Bank's lack of attention to the increasing amounts of moneysdisbursed from the Special Account without adequate documentation. The RSU wasunable to coordinate this process adequately to ensure proper documentation for allamounts advanced. The annual financial audits should have alerted the Bank to thisemerging problem, but did not because of several reasons, including the fact that nointernal control reports were included in the audits, and due to the delays in receiving theaudit reports, the Bank's review normally occurred more than a year after the close of theaudited year. The review within the Bank was also slow, and did not pick up onemerging problems for some time, in large part due to limited capacity in the Bank's ownaudit team. In response to the late and inadequate audit reports, the Bank's initialresponse was relatively passive, sending only reminder letters. It should have engaged ina more active dialogue with the Government much earlier in the implementation process.

18. Towards the end of Project implementation, relations between the Borrower andthe Bank came under strain due to the confluence of several factors. The decliningcapacity of the RSU and emerging project management problems within the countrycoincided with a change in task managers and country management with the Bank, aswell as a change in the Bank's own portfolio supervision culture and greater focus ontransparency and impact evaluation. At this time, the Project implementation status wasdowngraded to Unsatisfactory due to the problems with project management and the lackof adequate accounting records. All these led to a difficult period of transition of taskmanagers around mid-1998 in which the Bank's response was perceived by the Borrowerto be slow and sometimes inconsistent by the Borrower. However, the Project continuedto be rated Satisfactory on the achievement of development objectives, though this ICRhas judged the overall impact to be Unsatisfactory.

19. Borrower performnance is also rated Unsatisfactory. The RSU staff was over-stretched and lacked the capacity to meet the demands of this multi-component Project.There was frequent turnover of staff, and staff was reduced significantly in 1997. Themost important problem was the lack of pro-active project management which led to longdelays and missed opportunities in project execution. The RSU was also not successfulin maintaining adequate project accounts or adequate control to make sure that allwithdrawals were justified with appropriate documentation. The Project was complexand inter-institutional and inadequate coordination on part of the RSU, and slow feedbackfrom several of the implementing agencies meant long delays and many difficulties inreconciling project accounts. Financial audits were carried out by the Auditor General,and were generally late, though they consistently flagged the weakness in overall projectfinancial management in all years after 1996. The lax internal controls led to significantissues in relations with the Bank, as project documentation for a significant amounts ofmoney was not made easily available to supervision mission when problems with theSpecial Account reconciliation were first identified. Though this issue was largelyresolved subsequently, the Government finally reimbursed the Bank for US$413,297.76to account for withdrawals from the Special Account not supported by eligibleexpenditures.

viii

20. The record of the seven implementing agencies involved in Project execution wasmixed. But in almost all cases, work progress was slower than originally scheduled andthis was due, to an extent, to the unevenness over time of the Government's commitmentto some of the Project objectives. Furthermore, the high turn over of civil servants andthe current decision making process that requires trivial decisions being deferred forCabinet consideration, also caused some delays in implementation.

Project Sustainability

21. Overall sustainability of Project outcomes is uncertain. The positive progressmade by the country on improved private sector performance and the soundness of thefinancial system is likely to be sustained with sound economic policy management onpart of the Government. The development of a sound banking system has ensured theavailability of longer-term credit for private firms and banking supervision has improvedsignificantly, and both of these are likely to be sustained. However, the contribution ofthis Project's activities to this outcome is evaluated to be marginal. The contribution ofthe line of credit to the overall improvement in access to financing for firms wasmarginal, and in the financial sector the country did not develop the institutional capacityfor on-site supervision of the insurance industry, which was to be the specificcontribution of this Project to the overall soundness of the financial system. On the otherspecific contributions of this Project, project sustainability is likely to be strong for thetechnology infrastructure sub-component. The Project has helped to develop stronginstitutional capacity in this field and future demand for technology services is expectedto be strong both from Trinidad and Tobago as well as from other Caribbean countries.TIDCO is eager to continue the matching grant program for exporters with financingfrom other international institutions, and its future sustainability will depend on theevaluation impact assessment currently under process. Potential financing for thisscheme may come from the Inter-American Development Bank (IDB). Project objectiveswere not achieved on the environmental components, and therefore the issue ofsustainability is moot. It is unlikely that regulatory capacity in the Chemistry, Food andDrug (CFDD) division of the Ministry of Health will improve unless considerableresources are allocated.

Operational Plan.

22. Towards the end of the Project, dialogue with the Borrower was dominated by thereconciliation of the Special Account, and over-shadowed a potentially constructivedialogue on the substantive interventions of the Project. Nevertheless, on the differentactivities supported by the Project, special lines of credit with Government guarantees areno longer needed as the financial sector has been strengthened considerably. Theinsurance industry regulation function is now being merged with the Bankingsupervision, but still needs considerable strengthening. With respect to the matchinggrant scheme, ETAF is now conducting an impact evaluation, which when completedwill guide the Government on the advisability of its continuation, using either its ownfunds or other sources. The technology activities of TTBS and CARIRI continue toflourish with a high self-financing ratio (65%) and remaining contributions from the

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Government. On the environmental side, the Bank has advised the Government that theunfinished activities on this sub-component be rationalized with and transferred, asappropriate, to the on-going Environmental Management Project.

C. KEY LESSONS LEARNED

* Projects designed to support private sector activities are inherently difficult as thedirect relation between project inputs and outcomes is difficult to predict because ofthe interplay of several economic forces. For this reason, such projects need to be allthe more careful to include monitoring indicators and impact evaluation to facilitate aperiodic review of whether the Project interventions continue to be relevant. Thiswas all the more important given the long implementation period of this Project.

* Even though private sector development is a complex theme, Project design should bekept as focused as possible. This is particularly so in Trinidad and Tobago because ofits complex procurement processes, a tradition of decision-making through consensusCabinet decisions, and cumbersome inter-ministerial coordination. Execution shouldbe by one agency or Ministry, with clear lines of communication designated betweenBank staff and implementing agencies.

* Bank managers should undertake periodic on-site visits to Projects, especially thosewith a long implementation period such as this one. While continuity of taskmanagers is very valued, the task manager should be aided periodically from such on-site visits either by their manager or a peer, which would provide an added advantageof objective input and fresh insights. This applies in particular to a mid-termnevaluation mission. On-site visits by Bank managers should be supplemented bypersonal, detailed reviews of project execution by the minister concerned. Majordelays, significant problems, and management deterioration should lead to swift andsignificant actions by both sides.

* Special Accounts should be used only when there are internal control procedures inplace in the Project Management Unit. Special care should also be taken to ensurethat documented reconciliations are made between prior disbursements and requestedreplenishments.

* Audits should be reviewed rigorously and promptly in the Bank. Poor audits and/orfinancial practices should lead to quick action by the Bank. Supervision missionsshould monitor compliance with agreed internal control procedures, and shouldinclude financial management specialists if this issue is identified to be particularlyimportant. Task teams should also ensure that a strong accounting team is availablecontinuously in all project management units.

* The choice of a project manager is key in Trinidad and Tobago. The Bank andGovernment should agree on a project manager before appraisal of a project, andhis/her replacement should be jointly decided. The government should ensure thatexperienced and able staff are chosen for such sensitive positions, and that such staffreceive appropriate support.

1

BUSINESS EXPANSION AND INDUSTRIAL RESTRUCTURINGPROJECT

(Loan 3432 TR)TRINIDAD AND TOBAGO

PART I: PROJECT IMPLEMENTATION ASSESSMENT

A. INTRODUCTION.

1. The Business Expansion and Industrial Restructuring Project (BEIRL) wasprepared in 1990 in parallel with the Government's stabilization and policy reformprogram supported by the IMF and the World Bank Structural Adjustment Loan (SAL).This Project was designed to complement the on-going policy reforms of the publicsector, trade regime, and the investment framework with focused institutional andfinancing support to spur private investment and restructuring of private enterprises andto make them more efficient and competitive.

B. BACKGROUND

2. As an oil dependent economy, Trinidad and Tobago's (T&T) economic fortuneshave mirrored the rise and fall of oil prices. During the 1970s, when the real price ofpetroleum rose, Trinidad and Tobago found its income and foreign exchange reservesgrowing rapidly. Well-endowed with off-shore oil and gas deposits, and with apopulation of only one million, Trinidad and Tobago's real GDP growth took off and by1982, per capita GNP reached US$6,450. In February 1984, the country graduated fromBank lending due to its high GNP per capita and its favorable access to capital markets.After initially saving much of the windfall from the increase in oil prices, Trinidad andTobago soon began a major public expansion program in heavy industry andinfrastructure. Many public agencies were expanded, new public enterprises (PEs)founded, and the public sector grew increasingly large.

3. The fall in the real petroleum price during the 1980's had a severe impact on theeconomy, as the country's development strategy by that time had become inward-oriented, with state-led growth financed by oil revenues. After 1982, real GDP fell forseven years, fiscal and balance of payments situations deteriorated to critical levels,unemployment doubled, and by 1989 per capita GNP was less than half of its 1982 level.In 1987, a new Government took office and began major reforms to liberalize anddiversify the economy, with a view to making it more competitive and diversified, andreducing its vulnerability to fluctuations in oil prices. The exchange rate was devaluedand unified, fiscal outlays restrained, some PEs were privatized, and major tradeliberalization reforms were initiated. The Bank renewed its lending to Trinidad andTobago in January 1990, when the Executive Directors approved a US$40.0 million SALand a US$4.0 million Technical Assistance Loan. Many of the initial reforms of the trade

2

regime and improved public sector resource mobilization and allocation throughimproved PE performance and divestiture were supported by these two loans.

4. At the same time, the Bank and the Government recognized that policy reformsby themselves may not be enough to spur private investment in the short run, especiallyas private enterprises in Trinidad and Tobago had been sheltered behind a protectivetrade regime for some time. Thus this Project was designed to complement the structuralreforms being implemented by the Government, with business support programs to spurmore efficient, diversified and sustainable private sector production and export activities.

C. PROJECT OBJECTIVES AND DESCRIPTION

5. The main objectives of the Project were to2 (i) assist in financing productivefacilities and resources in the territory of the Borrower as will contribute to the economicand social development of such territory; (ii) support business expansion in industrial andservice enterprises in Trinidad and Tobago (except primary producers of oil, gas andagricultural or livestock products), in particular, by undertaking the adjustments requiredby such enterprises to become export oriented and internationally competitive; (iii) assistin strengthening TCPD's capabilities to review environmental impact assessments forpublic and private sector development projects, as well as improving nationalenvironmental pollution control standards; and (iv) strengthen the regulatory frameworkof the Borrower's financial sector and insurance industry.

6. The Project included two main components: (a) a credit line componentamounting to about US$20 million to help private enterprises finance a wide range ofinvestments, including plant and equipment, incremental working capital, and technicalservices related to development of productive activities within a liberalized incentiveregime; (b) a technical assistance component amounting to about US$7.2 million tofinance: (i) the establishment of an Export Technical Assistance Facility (ETAF) to assistprivate manufacturing and service firms to enter into new markets; (ii) technologyinfrastructure in the area of metrology, standards and quality assurance to support theTrinidad and Tobago Bureau of Standards (TTBS) and the Caribbean Industrial ResearchInstitute (CARIRI); (iii) the development of improved environmental pollution controlstandards to evaluate investment proposals and strengthen T&CPD's capacity to reviewEIAs; (iv) three studies on the role of private investment of the steel and petrochemicalindustries, the effectiveness of the foreign investment regime, and a new foreigninvestment promotion strategy; and (v) assistance to the Ministry of Finance to strengthenthe regulatory framework for the insurance Industry.

2 As defined in the Loan Agreement. Intererstingly, the objectives as defined in the Staff Appraisal Report weresomewhat different. The primary objective was to promote the development and/or restructuring of privatemanufacturing or service firms (excluding primary producers of oil, gas, agricultural or livestock products) sothat they could compete in export markets. Ancillary objectives included: (a) strengthening the supervision offinancial intermediaries and the safety and soundness of the financial system; (b) improving the technicalstandards used to assess the environmental impact of public and private sector projects; and (c) strengthening thecapacity of the Town and Country Planning Division (T&CPD) to review Environmental Impact Assessments(ElAs).

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7. The first two Project objectives were justified in the context of economicstagnation, high unemployment and weak performance of the private sector in Trinidadand Tobago at the time of Project identification. In an era of windfall oil revenues, thepublic sector had dominated the economy, stifling private enterprises. Weaknesses in thefinancial sector and an inadequate business environment and institutional support toprivate exporters required some actions on part of the Government to help jump-startprivate sector exports and to enhance the competitiveness of Trinidadian firms. Toachieve these objectives, the Project incorporated appropriate components to facilitateTrinidadian firms improve their productivity, quality, and diversification of exportmarkets - line of credit, matching grants-to enterprises for technical assistance inaccessing export markets and strengthening of technical support services to adaptinternational standards to local norms and to certify quality standards and norms.

8. The Project also included an objective of improving the technical standards andmonitoring capacity for environmental impact, but this objective was only tangentiallyrelevant to the over-arching objective of the Project. The additional objective andcomponents made the Project unduly cumbersome and later overlapped with on-goingdialogue in the environmental sector. Indeed, some activities in this Project wereduplicated by a parallel project in the environment sector. Nor did Project designincorporate adequate funds to achieve this objective - only US$ 0.79 million wasallocated to achieve this objective in the environmental sector. Finally, the Project alsoincluded a secondary objective of strengthening the soundness of the financial sector,which was rightly considered to be an important pre-requisite for a vibrant private sector.However, actual project activities to achieve this objective were limited to technicalassistance to improve regulation of the insurance industry, which could have had only alimited contribution to overall financial sector reform. However, the preparation of thecredit line afforded the Bank considerable dialogue with the country on the overallfinancial sector policies.

D. ACHIEVEMENT OF PROJECT OBJECTIVES

9. Overall performance of this Project is rated Unsatisfactory because of the mixedimplementation record of the project components, and their marginal contributions to theachievement of Project objectives. On the first two objectives of the Project - to assist infinancing productive activities and to support business expansion - T&T did have somesuccess as its private sector adjusted in some measure to a more open economy.

10. Non-traditional exports (excluding hydrocarbons and raw agricultural products)rose from US$324 million in 1990 to US$423 million in 1998, though their overall sharein total exports increased only marginally from 17 percent to 19 percent. Thisperformance of nontraditional exports reflects the stimulus provided by the reforms of thetrade and exchange systems. More labor-intensive agricultural products, namelybeverages and food products, and manufactures other than chemicals and iron and steel,registered the greatest improvement, growing at an average rate of over 22 percent during

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this period. Notwithstanding, export diversification has been modest, as exports remainheavily concentrated on a few products, with petroleum and petrochemical exportsaccounting for over 70 percent of total exports.

11. However, the contribution of this Project to the increase of non-traditional exportsis considered to be limited. Specific project activities contributing to this objectiveincluded the credit line, the matching grants scheme, and the technology developmentcomponents. Though initially slow, the credit line finally disbursed $16.1 million (80%of the initial allocation) to 51 enterprises, largely in the manufacturing and the servicessectors. The quality of the portfolio was considered good with extremely low defaultrates. The Project itself did not develop any monitoring indicators or a baseline survey to-measure the impact of the credit line on job creation, exports or new business operations,and we are unable to make a definitive evaluation of its impact. However, anecdotalinformation indicates that its overall impact was likely marginal. Interviews with sixbeneficiary enterprises and three PFIs during the ICR mission revealed that at the time oftheir application to the credit line, financing from alternative sources was not constrained,and this line of credit did not make an additional contribution to firm restructuring beyondwhat firms would have invested anyway. Nor did this credit line reach many newbusinesses, as most PFIs preferred to lend to existing clients.

12. Of the other two sub-components designed to achieve the private sectordiversification objective, the matching grants component implemented by the ExportTechnical Assistance Facility (ETAF) was implemented with partial success. Thiscomponent ($1.1 million as reported by TIDCO) provided a 50:50 matching grant andassisted 43 recipients to explore and access export markets. Again, in the absence of anymonitoring indictors or follow-up surveys, it is difficult to make a positive evaluation ofits overall impact. Anecdotally, firms valued the service and demonstrated this bymatching payments of 50% of the value of the technical assistance provided.

13. The technology sub-component (US$3.4 million) included the establishment oftechnical and quality standards by TTBS and their certification by CARIRI. This sub-component was one of the better implemented sub-components and had a positive impactin creating an institutional infrastructure for Metrology, Standards Testing and Quality(MSTQ) which foster the growth of productivity. TTBS surpassed its performancetargets, certifying about one third of the country's exporters with ISO-9000 certification,covering 65 percent of its operating costs with its income, and is ranked 17th in the worldin terms of its participation in the development of international standards. CARIRI alsoimplemented its activities well and obtained international laboratory accreditation andIS09000 certification. It provided laboratory testing services to several private sectorclients, thereby increasing its customer base by 45 percent.

14. The third objective - to improve technical standards to assess environmentalimpact of projects and to review environmental impact assessments - was not achieved.Project activities were only partially completed, and the institutional development of theTown &Country Planning Development (T&CPD) was undermined by the duplication ofthese functions by the newly created Environmental Management Agency (EMA).

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15. The final objective of developing a sound financial system was achieved as thecountry avoided the severe financial problems caused by the 1994-95 "Tequila effect,"and seems unaffected by the more recent financial contagion that spread from East Asia,Russia and Brazil. The IMF has indicated that bank soundness in Trinidad and Tobagobecame stronger in 1998 with a declining level of problem loans (to 6.25%) and adequateprovisioning. This positive outcome, however, was due to the result of manyinterventions, including collaboration between the Bank and the Banking Superintendentin drafting a new Banking Law, rather than the specific contributions of this Project,which were limited to some training and the creation of an information system. In fact,Trinidad was not able to meet the limited objective of the activities within this Project of-developing effective capacity for on-site inspection of insurance institutions.

E. IMPLEMENTATION RECORD AND MAJOR FACTORS AFFECTING THEPROJECT

16. Approved in December 1991, the Project was made effective in March 1993, aftera delay of 15 months. The Project was closed on the original Closing Date of June 30,1999, and a sum of US$ 4,794,869.23 was cancelled after the final disbursementapplication was processed. Tables 8 A and B present more detailed figures on Projectcosts and financing.

Credit Line Component (Appraisal Estimate: US$ 20 million Actual Cost: US$ 16.1million)

17. This component was administered by the Central Bank as the apex institutionimplementing the credit program through eligible Participating Financial Intermediaries(PFIs). The credit line was designed to finance investments in working capital, start-upinvestments in product marketing and distribution, product research and development,worker retraining, and technical services to prepare enterprise restructuring andexpansion programs. To be eligible, PFIs were required to remain certified on an annualbasis by the Inspector of Banks. Sub-loans from the line of credit were to be of aminimum size of US$30,000 equivalent up to a maximum of US$1.5 million to a singlecompany. Funds were on-lent at market rates, with the interest rate charged by theCentral Bank to PFIs adjusted every six-months. The line of credit was expected to beattractive to PFIs as it was designed to provide (a) long-term resources not supported bytheir short-term deposit base; and (b) access to foreign currency. The PFIs wereresponsible for assessing the sub-borrowers' creditworthiness and bore the credit risk,incentivizing them to undertake a thorough credit analysis and good supervision of sub-projects.

18. The credit line disbursed US$16.1 million ( 80.5% of the initial amountallocated), financing 51 loans largely in manufacturing and services (Appendix 3 lists thesub-projects). Implementation on the line of credit was very slow until 1995, in partbecause of poor promotion of the credit line by the Central Bank. After 1995, thedemand for funds strengthened and disbursement proceeded well. However, by this time

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the financial system had strengthened, and the PFIs not only had ample resources on theirown, including access to foreign exchange as controls had been liberalized, but also hadaccess to other, similar lines of credit as well. Development Finance Limited (DFL), forexample, had access to funds from the European Investment Bank, the CommonwealthDevelopment Corporation, and the Caribbean Development Bank, as well as local bondissues.

19. Participating Financial Intermediaries. Almost all financial intermnediaries inthe country applied to participate as first-tier financial intermediaries under the project,though only five actually utilized the credit line. However, the use of the credit line washighly concentrated, with the DFL (a public sector bank) and the Republic Bank itilizing-four fifths of it, with the participation of DFL alone accounting for 57 percent of thedisbursed credit allocation. One explanation of the high participation of DFL is that as adevelopment bank had in-house capability to perform credit analysis and evaluation ofspecialized projects. Another explanation may be the relatively low participation of otherPFIs due to limited promotion of the line.

TABLE: Credit Allocation in TT Dollars

PFIs Committed Disbursed Share % No. LoansApproved

Royal 9,420,000 9,044,100 8.66 1MerchantRoyal Bank 9,916,434 9,287,110 9.12 2Development 57,347,490 50,251,428 52.75 32FinanceLimitedRepublic Bank 30,462,383 26,841,770 28.02 21Bank of 1,570,000 1,475,525 1.44 1CommerceTotal TT 108,716,307 96,899,933 100.00 57dollarsUS$ 17,311,514 15,429,926Note: US$ = TT$ 6.28

Source: Central Bank of Trinidad and Tobago and ICR mission survey responses from PFIs.

20. Subloans. Of the sub-loans, manufacturing and services sectors accounted for90% of total investment and the number of sub-loans, and the majority of the sub-projectsfinanced acquisition of new machinery and buildings. The line was not used to fundresearch and development activities or technical services to prepare investment plans.According to DFL data, the credit line funded mainly building construction (15 firms andTT$ 29m) and other physical production inputs (16 firms and TT$ 22.4m). The qualityof the portfolio was good and loan default rates were virtually zero. Most of the sub-loans were denominated in the local currency and only US$93, 600 was lent in foreignexchange. Given the choice both PFIs and the sub-loan recipients preferred not to takethe currency risk. This may additionally have been caused by a misunderstandingbetween the Central Bank and some of the PFIs that the credit line was not available inUS dollars, causing some of them to use other sources of financing for tradable goods andservices.

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TABLE: Sectoral Distribution of Loans

No. Loans % TT$ (Millions) _

DFL 30 100.00% 57.300 100.00%-Manufacturing 18 60.00% 27.000 47.12%-Services 10 33.33% 24.500 42.76%-Others 2 6.67% 5.500 9.60%Republic Bank 17 100.00% 30.462 100.00%-Manufacturing 10 58.82% 24.173 79.35%-Services 5 29.41% 4.092 13.43%-Others 2 11.76% 2.197 7.21%Total DFL &Rep. Bank 47 100.00% 87.762 100.00%.-Manufacturing 28 59.57% 51.173 58.31%-Services 15 31.91% 28.592 32.58%-Others 4 8.51% 7.697 8.77%Source: Survey responses from DFL and Republic Bank

21. Little information is available on the actual impact of the line of credit in terms ofjobs, revenues or the facilitation of new firms into export markets. The Central Bankpursued a survey of beneficiaries but only a few firms responded. The PFIs and the apexfinancial institution did not maintain any calculations of rates of return, nor did theProject itself set up any monitoring mechanisms. However, based on the goodperformance of the loans and selected interviews with borrowing firms, it seems verylikely that most, if not all, financed projects had good rates of return. Nevertheless, on-site interviews with six firms visited as a part of the ICR mission and three PFIs indicatethat financing was not a problem at the time they applied for the credit line, and itsavailability did not lead to greater efforts on firm restructuring than would have otherwisebeen undertaken. Anecdotal information also indicates that the line of credit was notvery successful in reaching out to new firms, as most PFIs continued to on-lend toexisting clients, rather than taking risks with smaller and new, non-traditional exporters.

TechnicalAssistance Components (Appraisal Costs:US$7.2 million Actual Costs:US$ 6.0 million )

22. Export TechnicalAssistance Facility (ETAF) Sub-ComponentThe ETAF program was delayed in implementation as the Export DevelopmentCorporation (EDC), which was to administer the program was abolished and the Tourismand Industrial Development Corporation (TIDCO) took over the program in 1996. Onceit started, TIDCO administered the program well, disbursing US$1.069 million to 43grant recipients for a range of activities such as packaging improvement, participation intrade fairs, intellectual property protection and brand registration in foreign markets.TIDCO demonstrated flexibility in implementation, and adapted the program accordingto the firms' characteristics and demands. For example, when the initial marketing plansof interested firms were received, TIDCO found that firms needed significant assistanceeven in preparing the plans themselves in order to meet the eligibility criteria of theassistance program. TIDCO then applied itself to assisting interested firms in thepreparation of comprehensive export plans, accepting the increased costs and delays thisimplied.

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At the mid-term review, it was agreed to reallocated funds from the credit line to theETAF program. However, the Bank cancelled the component in 1997 arguing that theETAF program was inconsistent with the WTO's obligations.

23. The Staff Appraisal Report did not consider the preparation of a baseline surveyor the design of impact assessments evaluation, and a formal evaluation of the programwas not undertaken as part of the Project. Five beneficiary firms interviewed by the ICRmission gave positive feedback on the program. Nevertheless, most firms were stillcompleting their multi-year programs and some had just begun. It seems that the schemewas adequately designed to achieve its objective of helping Trinidadian firms to exploreexport markets, but its actual impact could not be evaluated. TIDCO intends to carry ouLa detailed evaluation in the coming year, with final results being available in 2001. Thisanalysis will be used to decide whether to continue the program, possibly with IDBsupport or with its own resources. The sub-component did not achieve the goal ofestablishing linkages between the Free Zones and the rest of the economy.

24. Technology Sub-Component The implementation of this sub-component wassatisfactory. CARIRI and TTBS have met most of their goals well, with less delay inimplementation than the other components of the project. As a result of the activitiesexecuted under this Project, both these institutions have become much more outward-oriented and closely linked to business needs.

25. Trinidad and Tobago Bureau of Standards (TTBS). The Project also supportedthe Trinidad and Tobago Bureau of Standards (TTBS) in upgrading its laboratoryfacilities and systems with the aim of obtaining international accreditation for specifictesting programs; developing and establishing a national system for registeringcompanies to ISO 9000; training industry personnel in quality management and qualitytechnology; upgrading its overall operations and improving its managerial and technicalcapabilities to make it more responsive to the needs of the industry.

26. This component's policy objectives of creating a minimum public institutionalinfrastructure for Metrology Testing and Standards and Quality (MTSQ) related serviceand raising awareness in the country of the importance of a national quality system wereachieved. The component's physical targets were also met. TTBS upgraded itslaboratory facilities and has certified about one third of the country's exporters with ISO-9000 certification, and expects to achieve an ISO-9000 certification itself by the end of2000. These targets, which were expressed in terms of financial self-sufficiency (incometo operating cost was set at 15% for the mid-term review; this ratio reached 50% by 1994and currently represents about 65%), number of training programs implemented, and thestaff composition at TTBS, have all been surpassed. A caveat to the self-sufficiencyindicator is that TTBS receives part of its income for charging for certification of importstandards -- which importers view as a monopoly rent, if not a technical trade barrier.Nevertheless, the institution achieved substantial improvements in getting recognition ofTTBS's ISO 9000 registration program. As a result, a Memorandum of Understandingon joint certification with the Society General of Surveillance was signed in 1996. Sincethen, joint registrations have been conducted. Furthermore, TTBS upgraded its library to

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that of a standards information center. This center became a member of ISONET and isthe designated World Trade Organization enquiry point for Trinidad and Tobago for theTechnical Barriers to Trade Agreement Three TTBS laboratories (Chemical, Electricaland Materials testing) were accredited by the United Kingdom Accreditation Services.

27. TTBS and industry personnel now participate in ISO technical committeemeetings of importance to the country. In terms of participation in the development ofinternational standards work, in 1998, TTBS was ranked 17 th in the world, third in theAmericas and first in the Caribbean. Other accomplishments attributable to the projectare: the expansion in the range of tests and the establishment of TTBS as a regionalQuality Training Course Provider. On the less positive side, TTBS still lacks a detailedmarketing strategy, one of the major outcomes for the component. And the Law adoptingInternational System of Units to regulate weights and measures has not been approvedyet in the Parliament.

28. CARIRI. The Project supported CARIRI in its institutional strengthening effortsto ensure it would provide a range of high quality consulting and testing servicesresponsive to industry needs. This activity was successful in that CARIRI saw athreefold increase in its self-generated revenue, from TT$2.4 million in 1994 to TT$7.9million in 1999. CARIRI also obtained international laboratory accreditation under theUnited Kingdom Accreditation Service (MI0 Laboratory Quality System) and IS09000certification in 1997. Since the attainment of the international laboratory accreditation,CARIRI has increased the number of accredited tests it provides from 28 in 1997 to 53 in1999, enabling it to increase its client base by 45% between 1995 and 1998. Forexample, Bechtel International paid CARIRI TT$1.5 million for laboratory testing ofconstruction materials used to construct the Atlantic LNG plant, and the engineering ofsoil monitoring at the plant was due in a large part to CARIRI's internationalaccreditation. The increased revenues and the greater tendency among local and foreignfirms to use quality related services bode well for the institutional sustainability ofCARIRI's improvement.

29. Program to Develop Pollution Standards and Strengthen EL9 Review Capacity.Both the implementation and outcome of this sub-component is rated unsatisfactory.This sub-component was only partially completed by June 30, 1999. Implementation onthis sub-component was difficult as the first major consultant contract to undertake all theactivities on this sub-component was cancelled. The sub-component was then dividedinto several activities bid separately, and implementation remained slow and protracted.The Town & Country Planning Department held a series of training courses andseminars, and sixty (60) senior staff of Government Ministries, Statutory Authorities,State Enterprises including the environmental Management Authority (EMA) and theTobago House of Assembly (THA), today know how to review Environmental ImpactAssessments (EIA). However, the baseline data work, crucial to development of country-specific standards, had only begun by project closing. The information system programfor environmental data has been developed, but the program has not been tested with datacollected from the field, and its relevance is now in question because of the developmentof a similar data base by the Environment Management Agency (EMA). During the

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1990s, the Government passed major environmental legislation, creating anEnvironmental Management Agency (EMA), and responsibility for implementing thepollution standards and monitoring system was passed from T&CPD to the EMA. TheEMA is supported by another World Bank loan, financing a similar environmental database and information system. Although, the computerized environmental informationsystem (CEIS) supported by the BEIRL project is compatible with the EMA's broaderNational Environmental Information System, the two initiatives were not coordinated,and are in many ways duplicative. In retrospect, with the creation of the EMA, the wholeenvironmental component probably should have turned over to EMA during the mid-termreview in 1995 (only two activities were transferred). The ICR mission recommendedthat the unfinished BEIRL environmental tasks be combined with the ongoing activitiesunder the Environmental Management Project.

30. Studies. Two out of the three originally planned studies were completed. ThePetrochemicals Sector Strategy was rightly dropped during the mid-term review as itsjustification vanished with the divestment of petrochemical companies. The Steel SectorStrategy was undertaken in 1994, and assisted in the information requirements for thedivestiture of the steel plant and laid out a strategy for further development of the steelindustry. The studies of the foreign investment regime was done by the ForeignInvestment Advisory Service of the IFC (FIAS) during 1993-1994, and some itsrecommendations on land ownership limits and work permit requirement have beenimplemented by the Government. The Project was expanded to also include a ForeignInvestment Strategy Study and the drafting of the Foreign Investment Act. The programfor foreign investment promotion by TIDCO laid out by the former will begin to beimplemented in 2000.

31. Supportfor Reform of the Regulatory Framework for the Insurance IndustryAlthough the Insurance Division implemented some of its activities, it still does not haveeffective capacity to regulate the insurance industry as it did not develop capacity for on-site inspection of an insurance company. An inforrnation system was developed, but isnot considered to be Year 2000 compliant. Some training was successfully conductedand the staff was increased, but a recent Government decision to consider amalgamatingthe bank, insurance and other financial supervision capacity into one institution hasdeferred training decisions. Thus, this Project sub-component is rated as unsatisfactory.

32. Chemical and Food Division. This component was not part of the initial loan,but was agreed to at the mid-term review. This $200,000 activity supported theChemical, Food, and Drugs Division of the Ministry of Health to set and enforcestandards applicable to producers and exporters and provided limited support in the formof laboratory infrastructure and equipment and the provision of information systems andtraining. Given the limited funds and time to implement the component, it was agreedthat the activities would only cover immediate upgrade needs. These limitedinterventions were implemented, though the overall strengthening of the Division was inno way comparable to that of CARIRI and TTBS.

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F. MAJOR FACTORS AFFECTING THE PROJECT

33. Factors generally subject to government control Implementation on the Projectsuffered from lack of attention by key decision-makers at the Ministry of Planning andDevelopment, who could have improved Project effectiveness by ensuring adequatestaffing and financial resources to the Restructuring Support Unit. Continuity of staff atthe RSU also affected implementation, as the RSU had three different project directorsduring the life of the project, and these changes generated serious delays in projectimplerrentation since each new director needed time to become familiar with this rathercomplex project. The implementing unit's performance was also hindered by (i) weakadministrative processes; (ii) the lack of-experience with Bank procurement at the initialstages of the project; and (iii) the high turn-over of competent staff.

34. Factors outside the control of the government: A key factor that affected theperformance of the credit line component was the resurgence of economic growth andprivate sector response. Trinidad and Tobago economy has performed well in recentyears, with steady economic growth, low inflation and declining - though still high -unemployment. Real GDP growth in 1994 was about 3.6 % and it is projected to be 4.5%in 1999. This worked towards the positive achievement of the overall objective ofincreased private sector activity, as the economy started growing and private investmentrecovered, but made the credit line component of the Project irrelevant as overall accessto credit improved. The credit to the private sector as a percentage of GDP increasedfrom -1.7% in 1994 to 1.7% in 1998. Project implementation in the later period was alsoaffected by change in task management within the Bank, a change which also coincidedin some part with a broader management change within the Bank as well as a change inthe portfolio management culture. With a much greater emphasis on realism in projectdevelopment effectiveness, coupled with quality assurance audits, the Bank's ownstandards for judging project progress also evolved during this time, a change which mayhave been perceived by the Borrower as inconsistency of Bank positions.

35. Project implementation in the later period was also affected by change in taskmanagement within the Bank, a change which also coincided in some part with a broadermanagement change within the Bank as well as a change in the portfolio managementculture. With a much greater emphasis on realism in project development effectiveness,transparency in project financial management, and quality assurance audits, the Bank'sown standards for judging project progress also evolved during this time, which mayhave been perceived by the Borrower as inconsistency of Bank positions.

G. PROJECT SUSTAINABILITY

36. Overall sustainability of Project outcomes is uncertain. The positive progress madeby the country on improved private sector performance and the soundness of the financialsystem are likely to be sustained with sound economic policy management on part of theGovernment. The development of a sound banking system has ensured the availability oflonger-term credit for private firms and banking supervision has improved significantly,both of which are likely to be sustained. However, the contribution of this Project'sactivities is evaluated to be marginal to this outcome. The contribution of the line of credit

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to the overall improvement in access to financing for firms was marginal, and in thefinancial sector the country did not develop the institutional capacity for on-site supervisionof the insurance industry, which was to be the specific contribution of this Project to theoverall soundness of the financial system.

37. On the other specific contributions of this Project, project sustainability is likelyto be strong for the technology infrastructure component. The project has helped todevelop strong institutional capacity in this field and future demand for technologyservices in Trinidad and Tobago as well as from other Caribbean countries is expected tobe strong. TIDCO is eager to continue the matching grant program for exporters withfinancing from other international institutions, and its future sustainability will depend on-the evaluation impact assessment currently under process. Potential financing for thisscheme may come from the Inter-American Development Bank (IDB). Project objectiveswere not achieved on the environmental components, and therefore the issue ofsustainability is moot. It is unlikely that regulatory capacity in the Chemistry, Food andDrug (CFDD) division of the Ministry of Health will improve unless considerableresources are allocated to upgrade the CFDD's facilities.

H. BANK PERFORMANCE

38. The Bank shares responsibility in the unsatisfactory performance of the Project.On the positive side, project identification and overall approach was in the right direction,correctly recognizing that policy reform alone would not be sufficient to catalyze privateinvestment and increase the competitiveness of Trinidadian firms that had gotten used toa protected trade regime. The preparation work for the credit line component and thematching grants components incorporated the lessons learned from the financial sectorreport completed prior to project preparation, and were appropriately market based withthe matching grants incorporating some elements of cost recovery. The credit componentalso enabled the World Bank to engage in a two-year dialogue over the draft banking law,particularly its supervisory aspects. The introduction of technology and certificationcomponents was also appropriate to include in an export oriented Project, and the jointdevelopment of performance indicators with CARIRI and TTBS was commendable.

39. However, the eventual project design was too complex and wide-ranging foreffective management either at the level of the Borrower or supervision on the Bank'spart. The preparation team may perhaps have been overly responsive to theGovernment's ideas, and overestimated the implementation capacity of different agenciesand the ability of the RSU to coordinate the different components effectively. Thewisdom of including the environmental components is debatable, both due to thecomplexity they introduced and their overlap with the environmental sector dialogue.The objective on the soundness of the financial sector was also included in the projectdesign in a very limited fashion, in that the overall intervention on this sector was limited,and should probably not have been included as a specific objective. On the technologycomponent, project preparation did not adequately recognize TTBS' monopoly incertifying standards for many imports, and may have perpetuated these monopoly rents,which function as a trade barrier. It was also thus inappropriate to use financial self-

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sustainability as a performance indicator because a significant proportion of this incomeis derived from its monopoly rents. Finally, preparation was also deficient in not settingup monitoring indicators or incorporating any triggers to give feedback on theappropriateness and continued relevance of the Project activities for the achievement ofproject objectives.

40. The Bank's supervision of the Project was not satisfactory as several issuesemerged over implementation that were not adequately addressed. In the initial years ofthe Project, supervision was adequate with a good relationship between the Bank and theGovernment. Supervision was particularly responsive on the technology sub-component,and the team assisted the in preparing draft of terms of reference and contracts, aridintroduced the business community and technology institutions'to counterparts inSingapore, with which they ultimately "twinned." However, the continued relevance ofthe line of credit component in the changing circumstances of the Trinidadian economywas not adequately addressed. During the mid-term review, the virtually negligibledisbursements on the credit line should have prompted a more careful review of whetherfinancing was a key constraint to private enterprise. Given the resurgence of the financialsector by that time and the availability of other credit lines, the Bank should havecancelled a much greater proportion, if not the entire, line of credit. Another supervisiondecision that turned out to be flawed was the declaration by the Bank, in 1997, that theETAF inconsistent with the nation's WTO obligations. As a result, the Bank cancelledthis component. In fact, the Bank has similar loans to a broad variety of Bank clients,and even in the event that the ETAF program was inconsistent with the WTO'sprohibition of export subsidies, Trinidad and Tobago has until 2002 to comply with theAgreement.

41. Bank supervision should also have been more alert to the declining institutionalcapacity of the once enviable RSU, as key staff began to leave. In particular, the absenceof adequate accounting capacity at the RSU was a major issue that did not get addressed,and late and missed project performance reports were increasingly tolerated; as were lateand incomplete audits. The annual financial audits should have alerted the Bank to thisemerging problem, but they did not do so for several reasons including the fact that nointernal control reports were included in the audits, and that due to delays in receivingand reviewing the reports, the Bank's review normally occurred more than a year afterthe close of the audited year. Even though the financial audit reports were late, theBank's initial response was relatively passive, sending only reminder letters, and uponreceipt the Bank was slow to review the reports and the emerging problems in the SpecialAccount were not picked up soon enough due to limited capacity in the Bank's own auditteam. In retrospect, the Bank should have taken a much more pro-active approach withengaged dialogue much earlier in project supervision.

42. Equally important was the Bank's lack of attention to the increasing amounts ofmoneys disbursed from the Special Account without adequate documentation. For manymonths, there was a large amount (usually about US$1 million) of UnclaimedExpenditures reported on Withdrawal Applications. In the future -- and in other projects-- these amounts should be monitored more carefully, since a lingering "Debits not yet

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claimed to IBRD" is an indicator that some problem of expenditure dGcumentation mayexist. In the case of the BEIRL, this came to pass because the RSU was unable tocoordinate this process adequately to ensure proper documentation for all amountsadvanced.

43. Relations between the country and the Bank became strained towards the latterpart of the Project due to several factors. Though the original task manager had stayedwith the Project since inception (an unusual occurrence), a change of task managers inthe final stages of project management, as well as a more demanding project managementculture within the Bank with a stronger emphasis on development effectiveness andtransparent project management coincided with a declining RSU capacity for projectmanagement. In this environment, many of the brewing problems with the Project cameto the fore suddenly and were perceived by the Government as inconsistent behavior onpart of the Bank. At that time, Project implementation status was downgraded toUnsatisfactory, though it continued to be rated Satisfactory on development objectives, invariance with this ICR. In retrospect, though the continuity of task managers is avaluable commodity in Bank portfolio management, some of the later problems may havebeen addressed earlier if the continuity factor had been balanced by some input from theBank with fresh eyes.

44. In particular, it is notable that during its nine year implementation period, noBank manager visited the Project for an on-site visit until mid 1997. An earlierintervention at the managerial level may have assisted the task manager with fresh insightand may well have led to some mid-course corrections that could have avoided some ofthe later problems. A higher level intervention by the Bank may also have spurredgreater action within the Government to address emerging problems with project staffand management capacity at the RSU level.

1. BORROWER PERFORMANCE.

45. Borrower performance is also rated Unsatisfactory. The RSU staff was over-stretched and lacked the capacity to meet the demands of this multi-component Project.There was frequent turnover of staff, and staff was reduced significantly in 1997, andlack of pro-active project management led to long delays and missed opportunities inproject execution. Lack of knowledge of Bank procurement procedures as well ascumbersome internal and external clearance processes resulted in major delays incontracting, especially at the beginning of the Project. The RSU was also not successfulin maintaining adequate project accounts. The Project was complex and inter-institutional and inadequate coordination on part of the RSU, and slow feedback fromseveral of the implementing agencies meant long delays and many difficulties inreconciling project accounts. Financial audits were carried out by the Auditor General,and were generally late but consistently flagged the weakness in overall project financialmanagement in all years since 1996. The lax internal controls led to significant issues inrelations with the Bank, as project documentation for a significant amounts of money wasnot made easily available to supervision missions. Though this issue was largelyresolved subsequently, and US$413,297.76 reimbursed to the Bank as its withdrawal

15

from the Special Account could not be supported by eligible expenditures, it strainedrelations between the Government and the Bank and distracted from other Project issuestoward the end of the project.

46. The record of the seven implementing agencies involved in Project execution wasmixed. Where the implementing agent was a parastatal agency (TIDCO, CARIRI, TTBS,Central Bank), implementation performance varied from extremely good to satisfactory.Where the implementing agency was a part of general government (Insurance Division,Chemical, Food and Drug Division, Town & Country Planning Division, RSU), theperformance varied from marginally satisfactory to extremely poor. In almost all cases,however, work progress was slower thani originally scheduled and this was due, to anextent, to the unevenness over time of the Government's commitment to some of theProject objectives. Furthermore, the high turn over of civil servants and the currentdecision making process that lead to trivial decisions being deferred for Cabinetconsideration, caused also some delays during the implementation of the project. TheBorrower was also unable to resolve inter-institutional problems that arose duringexecution causing some delays during implementation.

J. ASSESSMENT OF OUTCOME

47. Based on project results, project outcome is Unsatisfactory.

K. FUTURE OPERATION

48. Towards the end of the Project, dialogue with the Borrower was dominated by thereconciliation of the Special Account, and over-shadowed a constructive dialogue on thesubstantive interventions of the Project. Nevertheless, on the different activitiessupported by the Project, special lines of credit with Government guarantees are nolonger needed as the financial sector has been strengthened. The insurance industryregulation function is now being merged with the Banking supervision, and still needsconsiderable strengthening. With respect to the matching grant scheme, ETAF is nowconducting an impact evaluation, which when completed will guide the Government onthe advisability of its continuation, using either its own fiuds or other sources. Thetechnology activities of TTBS and CARIRI continue to flourish with a high self-financing ratio (65%) and remaining contributions from the Government. On theenvironmental side, the Bank has advised the Government that the unfinished activitieson this sub-component be rationalized with and transferred, as appropriate, to the on-going Environmental Management Project.

L. KEY LESSONS LEARNED.

* Projects designed to support private sector activities are inherently difficult in that thedirect relation between project inputs and outcomes is difficult to predict due to theinterplay of several complex economic forces. For this reason, such projects need tobe all the more careful to include monitoring indicators and impact evaluation tofacilitate a periodic review of whether the Project interventions continue to be

16

relevant. This is all the more important given the long implementation period of theProject.

* Even though private sector development is a complex theme, Project design should bekept as focused as possible. This is particularly so in Trinidad and Tobago because ofits complex procurement processes, a tradition of decision-making through consensusCabinet decisions, and cumbersome inter-ministerial coordination. Execution shouldbe by one agency or Ministry, with clear lines of communication designated betweenBank staff and implementing agencies.

* Bank managers should undertake periodic on-site visits to Projects, especially thosewith a long implementation period such as this one. While continuity of taskmanagers is very valued, the task manager should be aided periodically with on-sitevisits either by their manager or a peer, providing the benefit of fresh insights. Thisapplies in particular to a mid-term evaluation mission. On-site visits by Bankmanagers should be supplemented by personal, detailed reviews of project executionby the minister concerned. Major delays, significant problems, and managementdeterioration should lead to swift and significant actions by both sides.

3 Special Accounts should be used only when there are internal control procedures inplace in the Project Management Unit. Special care should also be taken to ensurethat documented reconciliations are made between prior disbursements and requestedreplenishments.

* Bank staff should be particularly alert to existence of substantial amounts ofUnclaimed Expenditures reported on Withdrawal Applications, since a lingering"Debits not yet claimed to IBRD" could an early indicator of expendituredocumentation. In the case of BEIRL this was apparently due to inadequate follow-up by the RSU to obtain documentation for amounts advanced under the creditcomponent.

* Audits should be reviewed rigorously and promptly in the Bank. Poor audits and/orfinancial practices should lead to quick action by the Bank. Supervision missionsshould monitor compliance with agreed internal control procedures. This isparticularly important as most task managers leaders do not have a background infinancial management, and all supervision teams do not include a financialmanagement specialist.

* The choice of a project manager is key in Trinidad and Tobago. The Bank andGovernment should agree on a project manager before appraisal of a project, andhis/her replacement should be jointly decided. The Government should ensure thatexperienced and able staff are chosen for such sensitive positions, and that such staffreceive appropriate support. The mixed results from the BEIRL could have been farbetter if an aggressive, agile project manager supported by appropriate staff had beenin place throughout. The Government should also ensure that a strong accountingteam is available continuously in all project management units.

17

PART II: STATISTICAL TABLES

Table 1: Summary of AssessmentTable 2: Related Bank Loans/CreditsTable 3: Project TimetableTable 4: Loan/Credit Disbursements: Cumulative Estimated and ActualTable 5: Key Indicators for Project ImplementationTable 6: Key Indicators for Project OperationTable 7: Studies Included in ProjectTable 8A: Project CostsTable 8B: Project FinancingTable 9: Economic Costs and BenefitsTable 10: Status of Legal CovenantsTable 11: Compliance with Operational Manual StatementsTable 12: Bank Resources: Staff InputsTable 13: Bank Resources: Missions

18

Table 1: Summary of AssessmentsLoan 3432 Trinidad and Tobago

A. Achievement of Objectives Substantial Partial Negligible Not applicable

Macro Policies El a ElSector Policies El E3 lFinancial Objectives (Credit E E E a

Institutional Development l X 0 0

Physical Objectives El E ElPoverty Reduction a E a

Gender Issues l El [mOther Social Objectives nl E ElEnvironmental Objectives n 1 X] Public Sector Management nl ] [ oPrivate Sector Development E [ E ElOther: Financial Management E E El

(Continued)

B. Project Sustainbii Likely Unlikey Uncertain

HighlyC. Bank Performance Satisfactory Satisfactory Deficient

(1) (1) (if)

Identification El ElPreparation Assistance E El Appraisal E ElSupervision l E X

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D. Borrower Performance satisfactory Satisfactory Deficient(/) ~(v') (v.)

Preparation I]

Implementation El l g

Covenant Compliance Cl L

Operation (if applicable) ] a ]

Highly ~~~~~~~~HighlE. Assessment of Outcome satisfactory Satisfactory Unsatisfactory unsatisfactory

LI (L) (L) (i (1

20

Table 2: Related Bank Loans/Credits

Loan/credit title Purpose Year of approval Status

Preceding operations

1 .Loan 3152-TR - 1/90 ClosedStructural AdjustmentLoan

Following operations No following operation in private sector development.

Table 3: Project Timetable

Steps in Project Cycle Date Planned Date Actual

Begin Preparation 0 1/91 01/15/91Appraisal 05/91 05/15/91Negotiations 10/91 10/28/91Bank Approval 12/91 12/20/91Signing 07/92 07/10/92Effectiveness __= _ 03/30/93Project Completion 06/99 06/30/99Loan Account Closing 01/30/00

21

Table 4: Loan/Credit Disbursements: Cumulative Estimated and Actual(US$ thousands)

Fiscal Year Appraisal Estimate Actual Actual as % ofAppraisal Estimate

1992 420 0 01993 2,180 0 01994 6,220 1,290 211995 11,900 2,952 251996 19,460 10,415 541997 22,980 16,812 731998 25,800 19,556 761999 27,000 22,328 83

Table 5: Key Indicators for Project Implementation

Indicators for project operation not included in SAR.

Table 6: Key Indicators for Project Operation

Indicators for project operation not included in SAR.

22

Table 7: Studies Included to Project

Study Purpose Status Impact of StudyStrategy Study for the To strengthen the Government's Dropped N/APetrochemical capacity to (i) establish appropriateIndustry policies, institutions and programs to

attract private participation and tomaximize national risk-adjustedreturns from T&T's endowment ofhydrocarbon feedstocks; (ii) makeinformed decisions aboutdevelopment strategy and investmentchoices inter alia when reviewinginvestment proposals.

Strategy Study for the Strengthen the Government's capacity Completed It assisted in theSteel Industry to (i) establish appropriate policies, divestiture of the steel

institutions and programs to attract plant and laid outprivate participation and to maximize strategy for furtherrisk-adjusted economic returns from development of theT&T's steel industry; and (ii) make steel industry.informed decisions aboutdevelopment strategy and investmentchoices, inter alia regardingdivestment of ISCOTT (state-ownedsteel plant), and respond toinvestment proposals.

Foreign Investment The study will: (i) assess the Completed Some of thePromotion Study effectiveness of the recently recommendations of

introduced foreign investment regime; this study has beenand (ii) develop program for implemented by thestrategically promoting the country as Government (i.e.an attractive location for land ownership limitsinternationally competitive and work permitmanufacturing and service industries. requirements).

23

Table 8A: Project Costs

Appraisal Estimate Actual

Item Local Foreign Total Local Bank Totalcounter- disburs

part ements

(est.)

Private Sector Credit 20.0 20.0 40.0 4.0 16.1 20.1Export TA Facility 0.1 2.8 3.0 1.07 1.07** 2.14Other TA and Project 1.9 4.1 6.0 n.a. 5.03 5.03AdministrationPrice Contingencies 0.2 0.3 0.5 _

Total Cost 22.2 27.2 49.5 n.a. 22.20 27.27*

Note: * Not including an estimate for the local contribution for these components, which was likelysmall. The ICR text has already noted the inadequacies in project accounting system and the absence ofaudited financial statements. Though all disbursed expenditures were verified to be valid and eligible,project accounts did not give us adequate information on counterpart funds readily. In addition, appraisalestimated for local counterpart funds were flawed in that the private sector credit component only requireda 15-25% beneficiary counterpart, i.e. $5 million instead of the $20 million estimated in the appraisalreports. Similarly the ETAF facility was a 50:50 matching grant and would have mobilized an equivalentlocal contribution, rather than the $0.1 million in appraisal estimates. With these correct numbers,appraisal estimate for project costs should have been about $36 million. ** TIDCO numbers.

Table 8B: Project Financing

Appraisal Estimate Actual/Latest

Item Local Foreign Total Local Foreign Total

Private Beneficiaries (Credit) 14.8 - 14.8 4.0Private Beneficiaries (ETAF) 0.1 1.4 1.5 1.07PFI - - 5.2 n.a.Government 0.9 0.1 1.0 n.a.IBRD 1.2 25.7 27.0 22.2

Total Cost 22.2 27.2 49.5 27.27

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Table 9: Financial and Economic Costs and Benefits

No formal financial or economic cost benefit analysis was undertaken for this project.

Table 10: Status of Legal Covenants

Agreement Section Type Status Original Revised Description of CovenantFulfillment Fulfillment

Date Date3.01 (e) 05 Complied with 07/10/1992 The Borrower to maintain the RSU throughout the project,

to be managed by a Director with experience andqualifications satisfactory to the Bank.

3.01 (f) 05 Complied with delay Maintaining Project Coordinatorbetween theappointments.

3.04 (c) 13 Complied with The Central Bank to publish at least monthly theprevailing weighted average of time deposit interest rates(including their range) set by commercial banks, includingthose for the rates on 6-month time deposits (the DC ratedefined by the project).

3.07 (a) 09 Complied with 01/01/1994 By December 31 of each year, beginning in 1992, theCentral Bank will review with the Bank the adequacy ofthe interest rate charged under the credit program.

3.08 (a) 09 Complied with By December 31 of each year, beginning in 1992, EDCwill review with Bank procedures and criteria adoptedunder the EDC guidelines.

3.09 09 Complied with 06/30/1992 The Borrower shall maintain its trade policy reformprogram supported by the Bank under the SAL agreementdated January 25, 1990.

3.10 (a) 13 Partially complied 09/30/1992 By September 30, 1992, the Borrower shall submit towith Parliament Bills to amend: (i) the Standards Act; and (ii)

the Metrology Act.3.10 (b) 06 Not complied with 12/31/1996 By June 30, 1995, the Borrower shall adopt and enforce

the environmental standards developed under the project.3.11 (a) 09 Complied with Between 18 and 24 months following loan effectiveness,

the Borrower and the Bank shall carry out a mid-termreview on the progress and achievement of objectives ofthe project.

Agreement Section Type Status Original Revised Description of CovenantFulfillment Fulfillment

Date Date4.01 01 Not Complied The Borrower shall maintain, or cause to be maintained,

seven sets of records and accounts for the project, viz: (i)RSU for MOPAM (Part C.2) and TCPD (Part C.!); (iii)MOF (Part D.3); (iv) TTBS (Part D.1); (vii) CARIRI (PartD.2). Borrower to have these accounts and that for theSpecial Account audited and furnished to the Bank by June30 of each year. Separate opinion on SOEs also to beincluded in audit reports.

5.01 (e) 09 Complied with Interest rates on time deposits and loans to be freelydetermined

Schedule 12 Complied with PFIs to comply with agreed performance and eligibility1, Section criteria. Condition of the disbursement for first US$7.53 million from credit component is that a satisfactory Bill for

the reform of banking legislation has been tabled in VQParliament. Disbursement of the remaining US$12.5million would be conditioned on the implementation ofsuch legislation.

Covenant Types:

I - Accounts/audits 8 - Indigenous people C - complied2 - Financial performance/revenue 9 - Monitoring review, reporting CD - complied with delay

generation from beneficiaries 10 - Implementation not covered by cat. 1-9 CP - complied partially3 - Flow and utilization of project funds 11 - Sectoral or cross-sectoral budgetary or NC - not complied4 - Counterpart funding other resource allocation5 - Management aspects of the project 12 - Sectoral or cross-sectoral

or executing agency policy/regulatory/institutional action6 - Environmental covenant 13 - Other7 - involuntary resettlement

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Table 11: Compliance with Operational Manual Statements

There was no significant variation with applicable Bank Operational Manual Statements.(OD or OP/BP)

Table 12: Bank Resources: Staff Inputs

Stage of Project Cycle Weeks US$

Preparation to Appraisal 79.1 172.6Appraisal-Board 12.6 28.4Negotiations through Board Approval 8.3 .20.5Supervision 138.7 379.1Completion 16.5 60.0TOTAL 253.2 660.6

Table 13: Bank Resources: Missions

Stage of Project Month/ Number Days in Specialized Staff Skills Implementation Development Types of ProblemsCycle Year of Field Represented Status Objectives

PersonsTlrough Appraisal 02/90 3 8

07/90 1 2 - trade & finance _ - unclear government commitment- recentpolitical developments

09/90 4 21 - trade & finance - weak preparation capacity within- petro-chemical government- export develpmt. - slow-decision making due to

attempted coup10/90 4 17 - financial economist

- financial markets andanalysis

12/90 3 12 - trade & finance - export - weak preparation capacity witindevelpmt.- financial markets governmentand analysis __ _

Appraisal through 01/91 4 14 - trade & finance - export _Board Approval develpmt. privatization

02/91 1 4 - steel industry _ - steel plant inefficient03/91 1 2 - privatization04/91 I 3 -

06/91 3 13 - trade & fmance

Supervision 03/92 2 10 - trade & finance no report- environmental specialist

07/92 2 4 1 110/92 2 7 1 l02/93 1 7 no report04/93 1 5 - steel industry No report04/93 2 3 - financial markets & - worries of higher interest rates

analysis - reserve shortfall- trade & finance

11/93 4 No report01/94 3 4 S S03/94 2 8 No report05/94 1 4 - steel No report

06/94 2 4 - trade & finance No report03/95 3 4 - trade & finance No report - institutional realignments in T&T

- financial economist since project's inception07/95 1 6 - fnancial management No report08/95 1 3 No report11/95 2 6 - industrial standardization S S - poor relations and extremely poor

consultant results on environmentalcomponent

04/96 1 - trade & finance S S

09/96 1 4 - trade & finance S S - replacing Foreign Investment Actwith Investment Promotion Act- inadequate market survey work

03/97 2 3 - trade & finance S S- standardization

08/97 1 - trade & finance S S03/98 3 10 - standardization and quality U S

- financial analyst- trade & finance

02/99 1 5 - privatization U S _

06/99 1 -privatization U SCompletion 1T1/9 Y -trade & FinancE U U -project has not achieved

development objectives

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Appendix 1

ICR Mission Aide Memoire

TRINIDAD AND TOBAGO: Business Expansion and Industrial RestructuringProject

Loan 3432-TT

Implementation Completion MissionNovember 29-December 3, 1999

A mission composed of Sonia Plaza (Task Manager of BEIRL) and Paul Meo(Consultant) visited Trinidad and Tobago during November 29-December 3, 1999 toprepare an Implementation Completion Report on the World Bank/Government ofTrinidad and Tobago Business Expansion and Industrial Restructuring Project supportedby World Bank loan 3432-TR. The mission was received by a multitude of government,parastatal, and Central Bank officials as well as a wide variety of businessmen andrepresentatives of business organizations, thanks to an ambitious agenda of visitsprepared by the Restructuring Strengthening Unit (RSU) of the Ministry of Finance andPlanning. We should first of all wish to express our appreciation to the manyTrinidadians--from both the private and public sectors--who spent a considerable timewith us to reflect on the progress of the BEIRL, its reasons for success or failure and todraw lessons from experience. These discussions greatly aided the mission inunderstanding the strengths and weakness of the project and its many components, fromboth their original design and conception to final implementation.

During the mission the Bank team agreed with the Government that it wouldattempt to prepare a draft ICR on return to Washington before the year-end, hopefullybefore Christmas, and transmit it to the authorities for their comment. The authorities aswell undertook to prepare their draft contribution during the same time framework.Given the intervening Christmas and New Year's holidays, both teams understood thatcomments on the drafts could not be expected until mid-January, although the receipt ofboth the government's comments on the Bank draft, as well as the Government'scontribution, shortly thereafter would permit the Bank to finalize and circulate the ICRwith only a short delay (ICRs are supposed to be approved and circulated to the Bank'sBoard of Directors six months or less after the closing date of a loan).

The mission discussed with the RSU and the government the requirements tocomplete the report. The first draft have to be exchanged by Mid December given thatthe RSU will closed on December 30,1999. It was discussed that the reconciliation of theSpecial Account deviated resources for preparing the ICR. Given the delays in thereconciliation, it will clearly not be possible to finalize the ICR and send it to Print Shopby that date. The ICR guidelines provide for an automatic one month extension of the

31

normal six month period for sending an ICR to the Board if the Government so requestsit. It was agreed with the Government, that they would submit such a request, whichwould allow us an extension until January 31, 2000 to submit the ICR to the Board.

During the mission, the RSU will still in the process of compiling data from themany executing agencies involved in the loan, so the mission--and the RSU--had not yetreceived some key data by mission end or analyze some that was produced by the finalday of the mission. Moreover, the many helpful discussions have encouraged the missionto rethink some of its tentative conclusions and test them with Bank staff and managersinvolved in earlier stages of the loan. Finally, the great variability in performance of themany subcomponents has led the mission to develop a relatively cautious approach inoverall evaluations. Nevertheless, some conclusions can be made by the mission now,particularly on key components of the project, and could serve as a guide for theGovernment as they prepare their own contribution to the ICR.

First, the general goals of the project--to promote the development of privatemanufacturing and service firms, especially to enter and compete in export markets; tosupport the development of a sound and efficient banking system; and improve thetechnical standards used to assess the environmental impact of private and publicprojects--have been mostly met. But the role the BEIRL played in meeting these goals-ascompared to the impact of more general government policies, the support of otherfinancial and nonfinancial institutions, and the entrepreneurial capacity of the nation'sable private sector--will remain difficult to judge. The draft ICR will attempt to make ajudgement in this area, but any such determination will likely be based on the effect ofthe project's components and the ancillary Bank and Government support and actionsduring implementation. Nevertheless, the end result has been achieved, and thus leaves afar better environment to assess cause than if it had not been.

Second, some components of the project seem to have been implemented quitewell, if a bit slowly, and clearly have led to the success the mission found. CARIRI istoday a far better and stronger research institution, more closely linked to the privatesector and its needs, and much more self-reliant for its financing. TTBS has bettertrained staff, and active in certifying Trinidadian firms for ISO-9000 status. CARIRIitself is ISO-9000 certified, and TTBS expects to achieve that status next year. TIDCOseems to have administered the matching grant program for exporters relatively well,although the change from EDC to TIDCO as executing agency did indeed lead to asignificant delay in implementing the program. Some components seem to have beenexecuted less well; the environment component in particular was only partially completedby loan closure; the financial management of the project deteriorated over time andfinally led to significant problems in accounting/auditing; and the insurance study wascompleted but its institution-building effect seems modest. The contribution of the largecredit component to the development of the nation's industrial and service diversificationseems modest indeed, ironically partly because of the soundness and efficiency of thenation's banking system itself.

32

Thirdly, the mission repeated earlier requests to the government that the auditreports for 1998 and 1999 to be completed in a timely manner, at least by December 30,1999. Since the RSU's accountant ended his contract onNovember 30, 1999, this willrequire a special effort from the Government.

The reconciliation of the Special Account was not reviewed at this time. Aprevious mission conducted an internal control review of the Special Account of BEIRone week ago.

While, as noted above, the mission will be finalizing its conclusions only afterreceiving and digesting further information requested, there do appear to be some lessons-learned so far that can be shared as both the mission and the government prepare theirdraft reports:

Lessons:

1. In retrospect, the design of the project was probably too complex. Industrialstudies, insurance supervision strengthening, matching grants for small exporters, a largecredit line, major institutional strengthening of both a standards bureau and a researchinstitute and later a Chemical, Food and Drug Administration, and the initiation ofsignificant environmental work would have taxed any Government, and Trinidad andTobago's was hard pressed to execute such a project in a timely manner. Trinidad andTobago's collegial, cabinet-level decision making process, extremely weak administrativecapacity (and performance expectations) in some government offices, and detailed,lengthy procurement procedures do not ease the implementation of complex projects.With 20-20 hindsight, it seems more likely that--given the marginal contribution of theindustrial studies, credit line, and insurance components; as well as the delays in theenvironmental component--a more focussed technical assistance loan directed toCARIRI, TTBS, the matching grant program, and only environmental training mighthave been more effective.

2. Project implementation was variable, but the central management of the project(as noted) showed a secular deterioration over time. This was partly owed to a naturalevolution (which both the Bank and Government might have foreseen), and partly to poormanagement decisions by both the authorities and the Bank:

a) Like Chile, Mexico, and many other transforming countries, Trinidad andTobago's major economic reforms led to a drastic reduction in the need for--andpolitical influence of--a Planning Ministry; throughout the hemisphere, theseministries have been merged with Finance Ministries, but only after their staff andinfluence has declined. This seems to have occurred in Trinidad and Tobago,thus reducing the capacity of the Ministry to encourage actions by other agenciesas well as retain the best staff.

b) That said, the authorities could still have ensured that the RSU had more able,experienced management and a stronger support role. Far from being the sole

33

contact for the Bank, with a staff able to trouble-shoot and assist agencies as wellas push for decision-making, the RSU has for some time been simply atransmission belt for agency documents to be delivered to the Bank, and itsinternal capacity to even monitor and account for project items became limited.

c) The Bank, as well, could have drawn the attention of the Minister (or Cabinet)of the need for a stronger RSU in a timely manner, but it did not. Moreover,lapses in the appointment of task managers seemed to have had a significant andadverse effect on the project during the crucial year 1998. Moreover, someproblems might have been addressed in a more timely and collegial manner ifBank managers--as opposed to task managers--had reviewed progress on site with-the Cabinet more frequently.

These lessons noted, there are many positive lessons we have learned. Forexample, when support is both timely and based on strong expertise, it can lead toextremely good results indeed. The Inspector of Banks and his staff mosteffectively used Bank support in revising the banking legislation during 1990-91.The support to CARIRI and TTBS was both timely and used most effectively.After a significant delay, TIDCO implemented the matching grant program quiteefficiently; it may expand it with IDB support in the future. And the continuationof sound and modern economic reforms and policies has led to a majorimprovement in the depth and diversity of economic activity in the country.

Sonia PlazaTask Manager for the BEIRL ICROn behalf of the World BankPort of Spain, Trinidad and TobagoDecember 3, 1999

34

Appendix 2

BORROWER'S CONTRIBUTION TO THE ICR:

PROJECT REVIEW FROM THE BORROWER'S PERSPECTIVE:

1.0 PROJECT CONTEXT:

1.1 The Business Expansion and Industrial Restructuring Loan ( BEIRL), signedin 1992 and effected in 1993, with a completion date of June 30, 1999, wasintended to provide a framework of support for businesses in the productive sectorseeking to respond positively to the new competitive environment resulting fromeconomic liberalization and structural adjustment.

2.0 PROJECT OBJECTIVES AND DESCRIPTION:

2.1 Project Objectives:

2.1.1 The BEIRL program contained two (2) major components viz.:

(i) a line of credit of US$20.0 million (original amount stated in the1992 Loan Agreement) to assist the local private sector inundertaking restructuring, expansion and modernization activitiesto improve efficiency and competitiveness; and

(ii) a technology component of US$7.0 million to assist in improvingthe quality of goods produced locally, for the enhancement ofenvironmental impact assessment capability, support of exportgrowth, the undertaking of strategic industrial studies, furtherimprovement of the investment climate and increasing theeffectiveness of investment promotion.

2.1.2 In 1995, in agreement with the Bank, project funds were re-allocated to include anumber of institutional strengthening projects and the credit component wasreduced from US$20 million to US$15 million. In 1997, new projects alsoemerged and funds were reallocated accordingly. At this point, the creditcomponent was increased to just over US$18 million.

2.1.3. The objectives of the BEIRL were to:

(1) Assist in financing such productive facilities and resources in theterritory of the Borrower (Trinidad and Tobago) as will contribute tothe economic and social development of such territory;

35

(2) Support business expansion in industrial and service enterprises in Trinidadand Tobago (except primary producers of oil, gas and agricultural orlivestock products), in particular, by undertaking the adjustments requiredby such enterprises to become export oriented and internationallycompetitive;

(3) Assist in strengthening the capabilities of the Town and Country PlanningDivision (TCPD) to review environmental impact assessments for publicand private sector development projects, as well as improve nationalenvironmental pollution control standards; and

(4) Strengthen the regulatory framework of the Borrower's financial sector andinsurance industry.

3.0 THE ROLE OF THE RESTRUCTURING SUPPORT UNIT (RSU)

3.1 The main functions of the Restructuring Support Unit (RSU) were to carry outproject management and monitoring functions to ensure the timely and effectiveimplementation of the BEIRL. More specifically, the RSU was assignedresponsibilities for:

co-ordinating and monitoring the Special Account as well as theutilization of funds advanced to the State organizations (CARIRI,TIDCO, TTBS); and

* timely and cost-effective procurement of consultants and equipment,as well as provision of technical assistance to all line-ministries andState institutions;

3.2 The position of Director was filled in February 1998 and a new Senior ProjectAdministrator was recruited in April 1998 to manage the BEIRL. This proved tobe a critical juncture, as the infusion of new personnel into the RSU virtuallycorresponded with the departure of the task manager who was there from theinception of the loan. Cognizant of the fact that the project activities hadencountered some slippage and that the 1997 accounts was past due, the"reconstituted" Unit had to do more with less.

3.3 Given that finalization requires reviewing the entire project from the initial stagesand accounting for it in its entirety, the Unit with its limited resources,approached its task with that sense of purpose and rectitude in order to satisfy theBank's policies/procedures and to bring the program back on track in its technicalaspect as well as exercise prudential criteria in its accounting dimensions.

36

4.0. PROJECT IMPLEMENTATION AND RESULTS:

4.1 By 1995, modifications to the Agreement were necessary in order to enable theBorrower to achieve its objectives. A reallocation of US$ 5.0 Million from theCredit Component was achieved and additional but relevant project activitiesadded. These were the Chemistry, Food and Drugs Division (CFDD) LaboratoryUpgrade, the Tourism and Industrial Development Company (TIDCO)Institutional Strengthening, and the Insurance Regulatory Reform.

4.2 Project implementation improved in 1995, and this was confirmed during theBank's mission of March 1997. Additional reallocations were made during 1997-as several areas [CARIRI, Private Sector Component, TIDCO (ETAF, theForeign Investment Strategy Study, drafting of the Foreign Investment Act) andTTBS] required additional resources. Funds were also allocated to three (3) newprojects which included the development of: a telecommunications policy; anational total quality culture; and a financial sector reform program which was tobe implemented by the Central Bank.

4.3 The year 1998 proved to be a difficult year for project implementation. By May1998, the task manager was no longer available to provide technical assistance tothe BEIRL and there was a delay by the Bank in appointing a replacement. Vitalsupport required by the GORTT from the Bank by way of no-objections, feedbackregarding project progress and overall technical assistance took longer thannormal during this period.

4.4 Administrative hiccups on the part of the GORTT also contributed to a less thansatisfactory project performance during 1998. The Accounting Assistant, the lastof the original four member team which comprised the RSU's accounting unit,resigned at short notice. As a result, project activities under the BEIRL suffereddelays until a new Accountant and Accounting Technician were recruited.Consequently, while project management and monitoring functions continued, theaccounting lagged behind.

4.5 The delay in recruitment of the new accounting team contributed to the latesubmission of the 1997 Audit Report to the Bank. The resultant effect was thatthe 1998 and 1999 Audit Reports have also not been timely.

4.6 In light of these delays, the GORTT formerly requested from the Bank, by letterdated May 01, 1998, a six-month extension of the closing date for the BEIRLfrom 30 June, 1999 to 31 December, 1999. The GORTT was surprised to leamfrom the new task manager during a Bank Mission in March 1999, and with nowritten advice to this effect, that the Bank had deemed the project"Unsatisfactory" and that no extension would be granted. The LineMinistries/Agencies, despite taking measures to complete the remaining activitieshad to reluctantly abort project implementation when it was learnt that no fundswould be made available for project completion. As a result, project

37

implementation, during the last two (2) years of the BEIRL project was extremelydifficult due to lack of available funding.

5.0 PROJECT IMPLEMENTATION CONSTRAINTS:

5.1 The implementation of the project activities under the BEIRL were constrained ina number of ways and by all the actors - from lack of capacity to administrativeinefficiencies and by both parties- the World Bank and GORTT.

5.2 The main constraints were related to:

5.2.1 Gestation/Start Up:

There were administrative delays in the initial stages. The procurement andinstallation of some equipment, especially those to be customized, requiredadditional time for installation and testing. Procurement of some consultantsrequired lengthy negotiation in areas where the agency was not familiar, and, inone project necessitated some redesigning because the services of the consultantchosen had to be terminated for specific non-performance.

5.2.2 Export Technical Assistance Facility (ETAF):

The ETAF component served as an important instrument to facilitate the exportmarketing efforts of local enterprises. The rate of implementation of this programand the support it provided to local industry were so effective in stimulatingexport performance, that Government requested an increased allocation of loanresources for it in the fourth quarter of 1997. However, by letter dated November17, 1997, not only did the Bank decide to discontinue funding this component, butit also advised the GORTT to "...cease providing such matching grants." Thisdecision was based on the Bank's perspective that due to WTO Regulations whichhad come into existence since the Project was approved, the reallocation of fundstowards matching grants for export development would violate those rules. It isof note that local authorities did not share this view and that the Bank continuedto approve similar facilities for other countries, including Brazil, after this time.The GORTT was therefore denied the opportunity to utilize and expand one of themost effective elements of the BEIRL program.

5.2.3 Multisectoral Credit Program:

The agreement for this component was signed in 1992 however, implementationcommenced in 1994. This occurred as a result of the lack of competitiveness ofthe interest rates offered; and the complexity of enlisting Participating FinancialInstitutions (PFIs) and the loan application process. Subsequently, applicationsfrom the PFIs increased as these institutions became familiar with the operationsand benefits available to their clients. Only 4% of the sum allocated to thiscomponent remained unutilized and the consensus of the Central Bank and the

38

PFIs is that these remaining funds could have been accessed if the extensionsought by the GORTT was approved by the Bank.

5.2.4 Turnover at the Restructuring Support Unit (RSU):

The rate of turnover of experienced personnel at the RSU was high during thelatter half of the project and critically affected the operational capacity of theRSU. Vacancies existed at various times in the offices of Director, ChiefAccountant, Accounting Unit and Senior Project Administrators, resulting in lossof expertise and lack of continuity. Project management funds provided by theloan were not utilized for staff training or institutional strengthening at the RSU.

5.2.5 Technical Assistance from the Bank:

Technical assistance from the Bank was also curtailed in May, 1998 after whichthe slow and often non-receipt of essential feedback from the Bank createdbottlenecks to project implementation.

5.2.6 Change of Task Manager:

The Bank appointed a new task manager in late 1998 who ushered in a phase inthe Bank's relationship with the RSU/GORTT that appeared to be less supportiveof the country's efforts rather than helpful. The former Task Manager led aSupervision Mission over the period March 31 to April 10, 1998 and produced anAide Memoire dated April 21, 1998 followed by a letter addressed to theHonorable Minister of Planning and Development dated May 1, 1998. The newtask manager seemingly followed a course of action that was not consistent withthe contents of the Aide Memoire and letter of the forner task manager.Consequently, GORTT was acting in conformity with one approach while thenew Task Manager was operating from a different perspective.

There was also a hiatus after April 1998 as the channels of communication withthe Bank broke down, with the Bank taking unusually long periods of time torespond to correspondence from GORTT generally relating to "non-objections"and loan applications requisite to advancing the program. In addition,information on the termination of the task manager in 1999 and appointment of anew one was not provided. As a result, the working relationship between theGORTT and the Bank became strained. The result was that the project lost ayear.

5.2.7 Lack of an Accountant:

Perhaps the single most critical constraint was the lack of Accounting resources atthe RSU over long periods of time. When the Chief Accountant demitted officein December 1998, the RSU was left without an Accounting Unit. As a result, the

39

payment process was severely affected as there were no personnel to processinvoices for both consulting services and payment for equipment delivered.

5.2.8 Audit Reports:

The late submission of the 1997 Annual Audit Report to the Bank due to theaccounting problems experienced by the RSU, also affected projectimplementation. The Bank did not accept the 1997 Audit Report and in late 1998requested clarifications and modifications to it. The Report had to be revised andresubmitted. The 1998 and 1999 financial statements also experienced delays inpreparation due to the lack of accounting personnel. An attempt at correctiveaction in the form of a short term contract of a Certified Accountant for the periodAugust to November 1999 did not achieve the desired results of accelerating thepreparation of the statements for submission to the Bank.

5.2.9 Reconciliation of the Special Account:

The Bank's decision to cease disbursement of funds on the loan pending thecompletion of a comprehensive reconciliation of the Special Account wasconsidered unreasonable by the GORTT, especially since the Central Bankpresented continuous reconciliations with each request for replenishment of theSpecial Account. It should be noted that no concern was ever expressed by theBank about the integrity of these exercises.

5.2.10 Extension of the Loan:

Because of the reconciliation exercise in mid-1999 there was for the first timesince May 1998, greater dialogue and communication between the RSU/GORTTand the Bank. The discussions also focused on whether the request by theMinister of Planning and Development, dated May 01, 1999, for a six-monthproject extension would be granted or whether the project would close on thedesignated completion date of June 30, 1999. The Bank decided to close theproject, a decision, which it noted subsequently, was taken as early as May 1998despite the aforementioned Aide Memoire and letter from the former taskmanager of even date which advocated an extension and advised the Minister torequest it.

This action on the part of the Bank speaks to the perception of negative attitudesand lack of good faith which pervaded the project from May 1998 - a full thirteen(13) months before the closing date of the agreement. It marked the derailment ofthe project.

6.0 INITIATIVES FOR PROJECT SUSTAINABILITY:

6.1 As mentioned, the completion date for the BEIRL was June 30, 1999. Theexpectations of line ministries/agencies for implementation of remaining project

40

activities did not materialize as the closure of the project was consideredpremature. However, a number of projects benefited from the procurement ofconsultants, who made recommendations for project sustainability and continuity.Some of these recommendations have been executed while others are in theprocess of being implemented.

6.2 A number of other agencies benefited from the BEIRL. Specifically, theprocurement and installation of computer equipment (hardware and software)enabled various Institutions to improve, expand and restructure their operations tobecome stronger, more focused and effective.

6.3 Environmental Component:

6.3.1 The Town and Country Planning Division (TCPD) environmental component hasbeen beneficial and demonstrates sustainability. Training through three (3)intensive courses for sixty (60) senior staff of Government Ministries, StatutoryAuthorities, State Enterprises including the Environmental ManagementAuthority (EMA) and the Tobago House of Assembly (THA), in 'best practice'Environmental Impact Assessment (EIA) and review was satisfactorilyundertaken. The participants in the advanced courses are well equipped toundertake integrated EIA reviews of development proposals.

6.3.2 In addition, a data collection system for environmental data relevant to the needsof the private sector and state agencies for EIAs has been developed, with stafffrom key environmental agencies trained to continue and expand the pilot projectinto other critical geographic areas of physical development activity. Datacollection which extended beyond June 30, 1999 to capture rainy season data forthe country was completed in December 1999, and data testing completed byJanuary 20, 2000.

6.3.3 A computerized environmental information system (CEIS) specific to EIAs,(designed in liaison with the EMA) with compatibility with the EMA's broaderNational Environmental Information System (NEIS), has been developed, testedwith dummy data and personnel have been trained on the computers of the localcounterpart consultants - the University of the West Indies - in the use andapplication of the system. The broader more comprehensive NEIS which theEMA will operate, linked with the specialized information systems of agencieswith environmental functions is consistent with the overriding role which theEMA is statutorily mandated to execute in national environmental management.

6.3.4 The TCPD CEIS networked system will be completed with GORTT resources.The server has already been acquired and the purchase and installation of theancillary units for which funds have been released, is well in progress to enablegreater efficiency in accessing, disseminating, analyzing and managing EIA data.

41

7.0 BANK PERFORMANCE:

7.1 For the most part (1993 to mid 1998), Bank Performance during theimplementation of the BEIRL was satisfactory and during its many supervisionmissions, Bank officials provided adequate and timely technical guidance.

7.2 This relationship between the GORTT and the Bank became a bit strained in thelatter part of 1998, when requests for "no objections" were late in coming, andurgent requests for feedback to facilitate early and effective projectimplementation were not granted in a timely manner. At times the GORTT feltthat Bank officials provided mixed and unclear signals.

7.3.1 By late 1998, the BEIRL was more than eighty percent (80%) implemented andthe project was poised to ensure that all outstanding activities were completed. Inthe latter part of 1998 and in the first quarter of 1999, Bank supervision tended tofocus mainly on the financial aspects of the project: disbursements, reconciliationof the Special Account, withdrawal applications and audited annual statements ofaccounts. At this time, no financial resources were being provided by the Bank,in response to requests from organizations through GORTT, for additional humanresources, refurbishment of old premises and purchase of additional equipment inorder to achieve their new strategic goals.

8.0 BORROWER'S PERFORMANCE:

8.1 The GORTT is aware of the constraints experienced in the implementation ofsuch a complex project and remained steadfast in its commitment to thesuccessful implementation of the BEIRL. However, it is recognized that thedownsizing of the RSU at the end of 1998 had negatively affected the BEIRL'simplementation. The slow pace of recruiting accounting professionals to addressand resolve critical financial issues contributed to delays in projectimplementation.

8.2 Notwithstanding these delays, by the end of 1998, project objectives were largelyachieved (85%), and line ministries/agencies were requested to prepare realisticwork plans for project completion. The mandate was given to implement theremaining project activities in a timely manner, sticking to set time frames.Regrettably, no one was aware that the Bank had already taken a decision tofreeze all remaining project funds and at the same time embark on a reconciliationexercise to recover all outstanding funds with the GORTT and stop the release ofany new funds for project completion.

8.3 In 1999, mixed signals given by the Bank to the GORTT, including the likelihoodof a project extension of six (6) months to facilitate special projects such as theEnvironmental Component and Central Bank Credit Line led to a communicationbarrier between both parties. This action by the Bank precipitated an

42

unprecedented ministerial visit to the Bank's senior members to clarify andconvey the GORTT's dissatisfaction with Bank officials.

8.4 The Borrower held the view that the Bank officials at the supervisory mission andtask manager levels seemed inflexible and insensitive to the needs of theBorrower. Line ministries and agencies which had the impression that time wasavailable for final implementation of project activities were entirely disenchantedto learn of the Bank's position.

9.0 KEY FINDINGS AND LESSONS LEARNED:

9.1 The original objectives of the project were met and the beneficiaries of the projectfunds were able to improve and strengthen their capabilities in order to expandand restructure their operations as well as increase their potential to become moreexport-oriented. Although project implementation had been hindered and affectednegatively within in the last one and a half (1 1/2) years, the project has had apositive impact on the economy.

9.2 The design of the BEIRL was complex and ambitious. However, if assessed fromits original intent, namely, "Business Expansion and Industrial Restructuring",one can conclude that the project was successful. It is also critical to highlightthat the design of the project was not the real problem. It is without doubt that, upto the period of the change in task manager, the project was manageable andeighty percent (80%) complete. There are some agencies which utilized all theproject funding, and because of their success, had a need for additional resourcesas the project benefited a number of businesses. Some other agencies improvedand expanded their client base as the need for their services increased.

9.3 The economic climate in which the BEIRL project was developed was one inwhich the GORTT saw the need to encourage, and in some cases create, aclimate of investment for small and medium-sized businesses.

9.4 The ETAF, implemented by the Tourism and Industrial Development Company(TIDCO) also sought to assist private sector enterprises through the provision ofconsulting services aimed at increasing the capacity of such enterprises to exportgoods and services. The offering of fifty percent (50%) grant funds to assist inthis venture proved to be an incentive for participation.

9.5 The three (3) main regulatory bodies (TTBS, CARIRI, CFDD) received fundingto upgrade and expand their testing facilities and laboratories to enable them tobetter and more efficiently serve their clients. One major achievement in this areawas that both TTBS and CARIRI can now grant ISO 9000 certification to theirclients. This certification has also enabled CARIRI and TTBS to make inroadsregionally as their services are now being demanded by other Caribbean islands.

43

9.6.1 Because of the dynamics of both the domestic and international economicenvironment, key developments would have impacted on the project. The strongperformance of the economy and GORTT's overall economic managementprogram has made it difficult to precisely gauge the magnitude of success of theproject.

9.6.2 Under the BEIRL, businesses expanded, testing services and testing facilities(laboratories) were upgraded and improved, key investment legislation wereenacted, institutions were strengthened and expanded and their data basescomputerized, thus improving efficiency and effectiveness. The project activitieswhich remained to be implemented are minimal and would be funded by theGORTT.

A summary of the key lessons learned are described hereunder:-

(1) Projects which require implementation periods as long as six (6) yearswould be prone to difficulties. In the case of the BEIRL, these difficultieshave been exacerbated by changes in: (a) the economic environment and(b) personnel in both the GORTT and the Bank.

(2) Complex projects such as the BEIRL require a technically and financiallystrong project management unit from the inception to the conclusion of

project activities.

(3) The infrastructure and ownership structure of some agencies (semi-private)which showed a less bureaucratic style of administration and more privatesector initiative in solving problems demonstrated better utilization of projectfunding. The implementation of project activities was more timely andefficient for their agencies than for those with a more bureaucratic structure.This affected preparation and certifying of invoices for payment,procurement of consultants and equipment as well as recruitment of staff.

Bureaucracy apart, the efficiency and effectiveness of some agencies couldhave been derived from the nature of their funding. They operated fromaccountable advances as against others who had to procure the service andthen on the basis of invoices, be reimbursed.

(4) Constant and free communication between the GORTT and the Bank duringall stages of project implementation is imperative. Decisions taken but notcommunicated to all parties affected the project, causing unnecessary delays.

(5) The change in task managers should be carefully considered by the Bankwith formal notification given to the Borrower in the event of such change.It takes some time for a country to get accustomed to the style of a taskmanager and vice versa, making it imperative to have a period of transition.

44

Differing styles and modus operandi can result in communication problems,which did occur in the case of the BEIRL.

(6) The strength and success of a project's implementation may depend to alarge measure on the strength of its accounting personnel. If an institutiondefines success of projects only on the basis of disbursements/drawdowns,as appeared to be the case with the BEIRL, then a diminished and ineffectiveaccounting unit places a project in double jeopardy.

10.0 PROJECT COST FINANCING AND ACCOUNTING:

10.1 The Bank's policy on recovery of project funds six (6) months prior-to closure,severely hampered project implementation. The GORTT was of the view that theremaining funds of the BEIRL could be utilized prior to June 30, 1999(designated completion date) and thus line ministries/agencies were advised toproceed with the implementation of remaining activities. When it was noted thatthe Bank was recovering project funds and not replenishing the Special Account,GORTT realized the remaining project activities would not be funded by BEIRLfunds.

10.2 A large part of the last fifteen (15) months prior to the scheduled date of projectcompletion (June 30, 1999) was spent on accounting and financial matters.During the last six (6) months of the project, the GORTT had to meet the Bank onseveral occasions to clarify and explain funding/budgetary matters especially thereconciliation of the Special Account and auditing of the expenditures of theentire BEIRL loan.

45

Appendix 3

FIRMS ASSISTED UNDER THE CREDIT LINE BY PFIs

Ite Applicant PFI Sub- WB Date Amountm Loan of Approved

No. No. Approval (USDollars)

1 Allied Caterers Ltd Royal Merchant Bank A-01 15/3/94 1,500,0Q0(formerly AirlineCaterers Ltd)

2 Scrip J Printers Ltd Republic Bank Ltd B-01 14/10/94 374,003 Century Eslon Ltd Development Finance A-02 23/3/95 500,000

Ltd4 CASFAB Ltd Republic Bank Ltd B-02 23/12/94 163,5005 L.J. Williams Ltd Republic Bank Ltd A-03 28/6/95 1,500,0006 Neal & Massey Royal Bank B-03 23/12/94 231,800

Enterprises

7 K.C. Confectionery Royal Bank A-04 29/8/95 1,347,250Limited

8 Tye Manufacturing Co. Development Finance B-04 23/3/95 136,750Ltd Ltd

9 Vanguard Hotel Ltd Development Finance A-05 19/9/95 1,275,000Ltd

10 Toucan Inn Development Finance B-05 23/3/95 85,000Ltd

11 Manta Resorts Ltd Development Finance B-06 23/3/95 460,000Ltd

12 Mecalfab Ltd Republic Bank Ltd B-07 23/3/95 30,60013 Indico Ltd Development Finance B-08 9/6/95 (56,700)

Ltd cance 9/10/96lied

14 Trinidad Salt Co Ltd Republic Bank Ltd B-09 9/6/95 116,2401 17/7/96 11,544

15 K.C. Confectionery Ltd Republic Bank Ltd B-10 9/6/95 (727,770)cance 23/6/95lled

16 Patrick Young Sing & Republic Bank Ltd B-l1 9/6/95 (85,000)Co Ltd cance 7/10/96

lled17 Wilson's Millworks Ltd Development Finance B-12 19/6/95 54,000

Ltd18 Scrip-J Printers Ltd Republic Bank Ltd B-13 14/7/95 257,38019 Hotel Coconut Inn Ltd Development Fin.Ltd. B-14 28/8/95 42,500

46

Appendix 3

20 United Engineering Development Finance B-15 28/8/95 289,000Services Ltd Ltd

21 Varma Iron Steel Co Ltd Development Finance B-16 28/8/95 297,500Ltd

22 Label House Ltd Development Finance B-17 28/8/95 85,000Ltd

23 KGH Holdings Ltd Development Finance B-18 19/9/95 (170,000)Ltd cancelled 18/1/96

24 ZMMA Holdings Ltd Development Finance B-19 19/9/95 566,667Ltd

25 Printmaster W.I. Ltd Republic Bank Ltd B-20 15/12/95 137,02026 Damus Ltd Development Finance B-21 15/12/95 354,450

Ltd27 Picoplat Enterprises Ltd Republic Bank Ltd B-22 15/12/95 146,50028 Trinidad Tissues Ltd Republic Bank Ltd B-23 15/12/95 230,77529 Patrick Young Sing & Development Finance B-24 1/2/96 468,750

Co. Ltd Ltd30 Trinidad Oilfield Development Finance B-25 16/2/96 189,075

Supplies Ltd Ltd31 Caribbean Steel Mills Republic Bank Ltd B-26 27/2/96 467,901

Ltd32 Advance Foam Ltd Republic Bank Ltd B-27 27/2/96 60,22033 Hyline Label Co Ltd Bank of Commerce B-28 13/5/96 250,00034 Malabar Farms Ltd Republic Bank Ltd B-29 cancelle

d35 Hotel Coconut Inn Ltd Development Finance B-30 17/7/96 125,000

Ltd36 Neal & Massy Holdings Development Finance B-31 14/11/96 1,187,000

Ltd Ltd37 The Threadworks Ltd Development Finance B-32 14/11/96 31,250

Ltd38 Superb Printers Ltd Development Finance B-33 14/11/96 31,250

Ltd _39 Coconut Growers Asc. Republic Bank Ltd B-34 21/11/96 251,370

Ltd40 Aleg Development Ltd Development Finance B-35 9/12/96 900,000

Ltd41 Triple A Marketing Ltd Development Finance B-36 9/12/96 250,00

Ltd42 Navarro & Fahey Republic Bank Ltd B-37 27/1/97 71,250

Agencies Ltd43 Albrosco Ltd Republic Bank Ltd B-38 10/3/97 188,42644 Advance Foam Ltd Republic Bank Ltd (73,433)

cancelled 14/11/97

47

Appendix 3

45 Splendid Foods Ltd Development Finance B-39 12/02/98 71,429Ltd

46 Kasha Feeds LTD Development Finance B-40 12/02/98 59,524Ltd

47 General Packaging Ltd Development Finance B-41 12/02/98 214,286____ ~~~~~Ltd_ _ _ _

48 Dyna Plas Ltd Development Finance B-42 12/02/98 35,714___ ________________ _ .Ltd

49 Golf View Apartments Development Finance B-43 12/02/98 71,429-Ltd

50 N.M. Ghany Ltd Development Finance B-44 12/02/98 71,429Ltd

51 Cuffie River Nature Development Finance B-45 12/02/98 148,810Retreat Ltd

52 Central Concrete Development Finance B-46 12/02/98 148,810Products Ltd

53 Trinidad Systems Ltd Development Finance B-47 12/02/98 327,381Ltd

54 Trinidad Tissues Ltd Development Finance B-48 12/02/98 654,762_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ L td

55 Trinidad Salt Ltd Republic Bank Ltd B-50 21/04/98 84,00056 Ace Printery Fed-Traders Republic Bank Ltd B-49 23/3/98 178,572

Ltd

SUBTOTAL 16,730,114

Ite Applicant PFI Sub-Loan WB Date of Amountm No. Approval Approved

No. (USDollars)

B/F 16,730,114

57 H. Williams Republic Bank B-53 6/7/98 675,000Bookstore Ltd Ltd

TOTAL 17;405,239

PRIVATE ASSISTED FIRMS UNDER THE MATCHING GRANT PROGRAM (ETAF)

I TYE Manufacturing October 8",1996 Advertising, Pakg Adaptation, Training, Overseas Travel, 60,000.00 40,769.31 19,230.69Limited Overseas Field Market Research, Exposure

13 PLabel House Limited March 14 1997 Advertising, Package Adaptation, Training, Overseas Travel, 60,000.00 55,463.19 4,536.81Overseas Field Market Research, Exposure

4 Caribbean Coffee House Nov. 6', 1996 Advertising, Package Adaptation, Training, Overseas Travel, 60,000.00 26,477.02 33,522.98Limited Overseas Field Market Researh anxpoysure

4 Aogw!=. _r

5 Amin's Manufacturing May 13' 1997 Advertising, Package Adaptation, Training, Overseas Travel, 60,000.00 2,432.32 51,567.68Limited Overseas Field Market Researcha Exposur

_ I | j = l~~~~~~~n~, ,_ , ' j 0

7 Island Casuals Limited July 14-,1997 Advertising, Package Adaptation, Training, Overseas Travel, 60,000.00 10 D618.75 49,381.25Overscas Field Market Research, Exposure, ,

9 Sunburn Clothing July 22', 1997 Advertising, Package Adaptation, Training, Overseas Travel, 35,318.50 9,891.75 25,426.75Limited Overseas Field Market Research, Exposure

10 Vinita Limited July 29', 1997 Advertising, Package Adaptation, Training, Overseas Travel, 26,400.00 9,501.11 16,898.89Overseas Field Market Research and Travel by CompanyExecutives, Trade Fair Participation

Trinpad Limited August 25', 1997 Overseas Field Market Research and Travel by Company 60,000.00 58,795.93 1,204.07Execuie Adsrtsn

13 Peake Industries Limited Nov. 4"', 197 Advertising, Package Adaptation, Training, Trade Fair 60,00U.00 54,818.55 5,181.45Participation, Overseas Field Market Research and Travel by,,Company Executives, Quality Assurance & ProductInspection Services - ISO 9000 Series Certification

14Agos Manufacturing -Nov. 4', 1997 Advertising, Package Adaptation, Training, Trade Fair 43,810.00 36,628.87 7,181.13limited Participation, Overseas Field Market Research and Travel by,,

Company Executives1 5 Trinidad and Tobago No-v.12, 1x997 Advertising, Package Adaptation, Training, Trade Fair 29,750.00 23,747.89 6,002.11

Instrumcnts Limited Participation, Overseas Field Market Research and Travel by tCompany Executivese

. __ _ N~~~~~~~~~~~~

16 Radical Designs Dec. 5'1, 1997 Advertising, Package Adaptation, Training, Trade Fair 43,850.00 42,632.68 1,217.32Participation, Overseas Field Market Research and Travel byCompany Executives

17 Advance Foam Limited Dec. 22"", 1997 Advertising, Package Adaptation, Training, Trade Fair 60,000.00 7,900.57 52,099.43Participation, Overseas Field Market Research and Travel byCompany Executives

18 Verena Batiks Limited Dec. 22"", 1997 Advertising, Package Adaptation, Training, Overseas Travel, 13,000.00 6,039.78 6,960.22Overseas Field Market Research and Travel by CompanyExecutives, Trade Fair Participation

19 Trinity Paints Limited Dec. 22"", 1997 Advertising, Package Adaptation, Training, Trade Fair 26,000.00 5,159.55 20,840.45Participation, Overseas Field Market Research and Travel byCompany Executives, ISO Certification

20 Arn k i ted De. 22 1997 A :veisig A A atd Taimog, Trade Ftr 36P( 00.00.PgttIcipalon, OveaseaX rield M4aet Researh and.Trave by

21 Alstoms l)sstidlg De,13.197 Ov la MarkeWeaSlI Ryewsesh 7500 730 0OA)0Enieipds Limited(ABEL) .______________________________ ._._._..._._._._ ._._

22 Meiling Limited Jauryl5', 1998 Advertising, Training, Trade Fair Participation, Overseas 34,530.00 18,270.19 16,259.81Field Market Research and Travel by Company Executives

23 Trinidad Aggregate April 3"', 1998 Product / Market Research and Feasibility Studies 30,000.00 20,734.74 9,265.26Products 4s

24. Chase Foods Limited April 7"', 1998 Trade Fair Participation, Overseas Field Market Research, and 15,000.00 220.96 14,779.04 0Travel by Company Executives

25. Heather Jones Designs March 23', 1998 Trade Fair Participation, Overseas Field Market Research, and 27,500.00 27,500.00 00.00Limited Travel by Company Executives

26. Glory Entertainment Feb. 6", 1998 Product Development and Overseas Field Research and 19,524.00 12,989.45 6,534.55Television Travel by Company Executives

27. <;~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ti; )_m__X, _1 - - ------ 00-g27. Rituals:Limited Feb. 25"', 1998 Adv"#*svg Paegage Adaptatos Trin, T-rade ~Fai 0OQ,06,000 P.rtidp4.on, Ov s Pd :Market es ain Travel by

_______ Company E~~~~~~~xcctVwes28. Alkebu- Lan March 2-d 1998 Trade Fair Participation, Overseas Field Research, and Travel 25,625.00 19,901.60 5,723.40

by Company Executives29. Harricrete Limited February 19", 1998 Product / Market Research and Feasibility Studies, Overseas 25,397.00 13,873.49 11,523.51

Market Research and Travel by Company Executives30. 3Bilmor Limited April 7 1998 Training, Productivity Consultants and Technicians 17,000.00 13,413.66 3,586.3431. NowCitb;i Res TeiariandcOvasFleldR and Travel'by . 41,275W0 4.75.0

32. AiRat Pokts I .=et $* _ 5000,00Trinidad ymd . .' 'raj'i. ' . .' .

33. Keemi's Garments April23, 1998 Trade Fair Participation, Overseas Field Market Research and 8,000.00 4,192.53 3,807.47Travel by Company Executives

34. ke Ti utiw- 7Apil3". 1is ; T es0 0 edd : ' ie R r a ',""' . ' .'.'.,'

35. Genuine Trinbago April 22X, 1998 Package Adaptation, Trade Fair Participation, Overseas Field 4,454.50 00.00 4,454.50Products Market Research and Travel by Company Executives F 4

36. Regency (iarments April 23'P, 1998 Overseas Field Market Research and Tavel by Company 9,500.00 2Executives

37. The Chocolate House April 23ta, 1998 Overseas Field Market Research and Travel by Company 1,000.00 840.23 159.77Limited Executives

40. Sacha Cosmetics Luz t May 20b , 1998 Advertising, Package Adaptation, Training, Trade Fair 4 00U.00 3 591.19 1 408.81Participation, Overseas Field Market Research and Travel by,,Company E xecutivesA general conversion rate of TT$6.299 to US$ 1.00 has been utilized in most of the calculations.

The total funds expended on reimbursements to grant recipients amount to US$1,069,605.01.Funds utilized from the promotional budget of US$50,000.00 to date amount to US$9,607.20. The unutilized balance is US$40,392.80.

Promotional expenses are disaggregated as follows:Promotional expenses to 30/06/1999: TT$60,515.76 (US$9,607.20) o

MAP SECTION

I

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