Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 5251-TUN

STAFF APPRAISAL REPORT

TUNISIA

EXPORT INDUSTRIES PROJECT

MARCH 20, 1985

Regional Projects DepartmentIndustrial Development and FinanceEurope, Middle East and North Africa Region

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

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CURRENCY EQUIVALENTS

Currency Unit = Tunisian Dinar (TD)

1980 1981 1982 1983 1984

TD 1 = $ 2.4691 2.0251 1.6929 1.3695 1.1985

US$ 1 = TD 0.4050 0.4938 0.5907 0.7302 0.8344

List of Abbreviations

API Agence de Promotion des investissementsBCMA Banque de la Cooperation du Magreb ArabeBCT Banque Centrale de TunisieBDET Banque de Developpement Economique de TunisieBNDA Banque Nationale de Developpement AgricoleBNDT Banque Nationale de D6veloppement Touristique (formerly (COFIT)BTEI Banque de Tunisie et des Emirates d'InvestissementsBTKB Banque Tuniso-Koweitienne de DeveloppementBTQI Banque Tuniso-Qatari d'InvestissementsCOTUNACE Compagnie Tunisienne d'Assurance de Commerce ExterieurEIB European Investment BankEMI Electro-Mechanical IndustriesERR Economic Rate of ReturnFRR Financial Rate of ReturnMEN Ministere de l'Economie NationaleSSI Small-scale IndustriesSTUSID Societe Tuniso-Sgoudienne d'Investissements et de DeveloppementUTICA Union Tunisienne de l'Industrie, du Commerce et de l'Artisanat

(Chamber of Commerce)

FOR OMCIL USE ONLY

REPUBLIC OF TUNISIA

EXPORT INDUSTRIES PROJECT

LOAN AND PROJECT SUMMARX

Borrower: Republic of Tunisia.

Beneficiaries: Banque de Developpement Economique de Tunisie(BDET), Banque Tuniso-Koveitienne deDeveloppement (BTKD), and SocieteTuniso-Seoudienne d'Investissement et de!4veloppement (STUSID).

Amount: US$5G million equivalent.

Terms. 17 years, including 4 years of grace, at thestandard variable interest rate.

Onlending Terms; The Government would onlend $50.0 millionequivalent in Dinars of the Bank loan to BDET($20 million equivalent), BTKD and STUSID ($15million equivalent each) at the Bank's standardvariable interest rate. BDET, BTKD and STUSIDwould repay their loans to the Governmentaccording to a composite amortization scheduleof the sub-loans financed out of the proceeds ofthe loan. The Government '.ould bear theforeign exchange risk. Sub-borrowers would becharged an effective interest rate of at least11 percent per annum.

ProjectDescription: The project would assist the Government of

Tunisia in developing Tunisia's exportindustries through a line of credit to BDET,BTKD and STUSID. The Project also includes theestablishment of an Export Promotion Fund andtechnical assistance to Compagnie Tunisienned'Assurance de Commerce Ext6rieur (COTUNACE),the Government's newly established export creditinsurance company. The project consists of aline of credit of US $50 million equivalent toBDET, BTKD and STUSID to enable these banks tomake sub-loans for eligible export projects.

I This docment has a rstricted distrbution and may be used by recpients only in the performance of ltheir official duties. Its cntents may not otherwise be discbosed without World Bank authorization.

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Assistance from bilateral sources and UNDP willfinance a $0.15 million equivalent technicalassistance package to COTUNACE. The Governmentis financing from its own resources ExportPromotion Fund. The project will increaseexport earnings and job availability, strengthenthree development banks and COTUNACE, and,through the Export Promotion Fund, encouragesuch marketing and promotion. The projectinvolves no special risks, though some risk isattached to external factors which could depressexport possibilities.

Estimated Disbursements:

(in 9'000)

Bank FY FY86 FY87 FY88 FY89 FY90 FY91

Annual 2550 11075 17000 11250 5525 2600Cumulative 2550 13625 30625 41875 47400 50000

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TUNISIA

EXPORT INDUSTRIES PROJECTSTAFF APPRAISAL REPORT

Table of ContentsPage

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

Chapter II. THE MANUFACTURING SECTORStructure and Performance ............................ 2Constraints in the Manufacturing Sector .............. 4Bank Role in the Manufacturing Sector ................ 5

Chapter III. THE EXPORT SECTORStructure and Performance *....... ... ... * 7Plan Objectives and Strategy 8........................ 8Recent Developments ................................... 9Fiscal and Financial Incentives ..................... 10Institutional Framework ...... ....................... 11

Chapter IV. THE FINANCIAL SECTOROverview .......... **.....*..*. .............. 13The Financing of Exports ............................ 14Interest Rates .. ..................................... 15Review of the Financial Sector ..... .................. 15

Chapter V. THE INSTITUTIONAL FRAMEWORKA. Financial Intermediaries . . . 18

I. Banque de Developpement Econ. de Tunisie (BDET) 18II. Banque Tuniso-Koweitienne de Div. (BTKD) 24III. Soci6t6 Tuniso-Seoudienne d'Investissement

et de Developpement (STUSID) ............... 28B. Other Institutions ...................... ........ 31

I. Export-Credit Insurance Company (COTUNACE) ... 31II. The Center for the Promotion of Exports (CEPEX) 32

Chapter VI. THE PROWECTProject Objectives and Components . . .33

A. Investment Financing of Export Projects . .33

B. Technical Assistance to theExport-Credit Insurance Company (COTUNACE) 36

C. Export Marketing and Promotion . .37D. Improvement in Procedures related to Exports 37E. Project Benefits and Risks. 38

Chapter VII. RECOMMENDATIONSAgreements Reached During Negotiations. 39Conditions of Loan Effectiveness. 40

This report was prenared by Mr. B.H. Pottker on the basis of a pre-appraisalmission that visited Tunisia from October 11-26, 1983, and consisted ofMessrs. Pottker, Farsad, Bonnier (Consultant) and Piers de Ravenschoot(Consultant) and an appraisal mission that visited Tunisia from April 9 toApril 27, 1984 and consisted of Messrs. Pottker and Hanel (Consultant).

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LIST OF ANNEXES

ANNEX 1 Investments in Manufacturing Industries (1980-1983)

ANNEX 2 Rates of Growth of Exports 1976-1981

ANNEX 3 BDET

table 1 List of Shareholders as of 12/31/84table 2 Summary of Operations 1980-1984table 3 Analysis of Approved Operations 1980-1983table 4 Audited Balance Sheetstable 5 Audited Income Statementstable 6 Spread Analysistable 7 Loan & Equity Portfolio 12/31/83table 8 Organization Charttable 9 Forecast of Operationstable 10 Projected Income Statementstable 11 Projected Balance Sheetstable 12 Projected Cash-Flow Statements

ANNEX 4 BTKD

table 1 List of Shareholders (as of 12/31/84)table 2 Organization Charttable 3 Approvals, Commitments and Disbursementstable 4 Analysis of Approved Operations (1981-1983)table 5 Income Statementstable 6 Balance Sheetstable 7 Forecast of Operationstable 8 Projected Income Statementstable 9 Projected Balance Sheetstable 10 Projected Cash-Flow Statementstable 11 Outstanding Loan and Equity Portfolio

ANNEX 5 STUSID

table 1 List of Shareholders as of 12/31/84table 2 Organization Charttable 3 Summary of Operations (1981-1984)table 4 Analysis of Approvals (1981-1983)table 5 Forecast of Operationstable 6 Actual and Forecast Income Statementstable 7 Actual and Projected Balance Sheetstable 8 Projected Cash-Flow Statementstable 9 Loan and Equity~-Rx-tfolio (12/31/83)

ANNEX 6

table 1 BDET - Forecast of Approvals for Export Industry Projectstable 2 BTKD - Forecast of Approvals for Export Industry Projectstable 3 STUSID - Forecast of Approvals for Export Industry Projects

ANNEX 7 Law establishing Export-Credit Insurance Company

ANNEX 8 Estimated Disbursement Schedule

I. INTRODUCTION

1.01 This report appraises a project designed to provide financialsssistance to Tunisia's export industries and provide institutional support to

an Export-credit Insurance Company, an Export Promotion Fund, and threedevelopment banks. It also aims at bringing about improvements in theadministrative procedures related to exports. This project was prepared byBank missions in 1983 and 1984 in response to the Government's desire to giveincreased emphasis to exports of manufactured products.

1.02 The proposed Bank loan of $50.0 million would be made to theGovernment of Tunisia which would pass on the proceeds to the threedevelopment banks which would utilise the proceeds of the loan to financeeligible export projects in the industrial sector. This amount would bedistributed over the three banks as follows:

- Banque de Developpement Economique de Tunisie (BDET); US$ 20.0million;

- Banque Tuniso-Koweitienne de Developpement (BTKD): US$ 15.0 million;

- Societe Tuniso-S&oudienne d'Investissement et de Dgveloppement(STUSID): US$ 15.0 million.

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II. THE MANUFACTURING SECTOR

Structure and Performance

2.01 Manufacturing industry in Tunisia has been a relatively fast-growingsector of the economy: in real terms the sector grew by 7.4 percent per annumin the 1960's and by an average annual growth rate of 11.5 percent in the1970's. Growth was adversely affected by the poor economic performance of1982, reflecting the slowdown in the production of food processing industries,due to weak agricultural output, technical delays in the operation of somemanufacturing units, notably chemicals and cement, and the general slowdown ofthe world economy, particulary in Europe. Growth resumed, however, in 1983 toan annual growth rate of 12% in real terms, bringing the average for 1980-1983to 7.3%.

2.02 Growth of the manufacturing sector during the 1970's was one of themain sources of growth of GDP which grew in real terms at an average rate of7.5% per annum for the entire decade. GDP growth slowed down in the lastthree years to an average of 4.3% but this compares favorably with the growthrates experienced in the other Middle-East and North African countries whichaveraged less than 2Z. Consequently, the share of the manufacturing sector inGDP increased from an average of 7.5 percent in the 1960's to 10.0 percent inthe 1970's and to 14.2 percent in the 1980-1983 period, as can be seen in moredetail from the following table:

Contribution to GDP of Manufacturing Industries(1971 - 1983)

(in million TD at 1980 prices)

Av. Growth Rates1971 1980 1981 1982 1983 1971-81 1980-83

Total GDP 1,594.0 3,036.0 3,206.0 3,238.0 3,442.0 7.3 4.3GDP manuf. indus. 150.2 415.6 444.0 459.0 514.0 11.5 7.3GDP manuf. ind/GDP(%) 9.4 13.7 13.8 14.2 14.9 - _

Source: Ministry of Planning

2.03 Tunisia's manufacturing sector is well diversified. Until 1981 foodprocessing remained the most important sub-sector, contributing 25.5% tomanufacturing value-added. In 1982, the textile sector became the largestsub-sector mainly because of climatic problems in agriculture. The fastestgrowing sub-sectors in the period 1971-1981 have been construction materials(18.9% average growth in real terms), miscellaneous industries (14.0%),textiles (14%) and electro-mechanical industries (12.8Z). The table belowshows the changing structure of the manufacturing sector since 1971 as aresult of these developments;

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Composition and growth of value-added in the manufacturing sector(in million TD in 1980 prices)

Share in total Growth rates1971 1980 1981 1982 1983 1971 1981 71-81 80-83

Food processing 62.3 101.6 113.4 104.4 113.5 41.5 25.5 6.2 3.8Textiles 29.2 99.3 108.3 119.0 128.0 19.4 24.4 14.0 8.8EMI 18.1 54.3 60.2 66.4 75.5 12.1 13.6 12.8 11.6Construction mat. 11.9 60.0 67.0 72.6 84.0 7.9 15.1 18.9 11.9Chemicals 13.3 49.5 38.1 32.3 41.0 8.9 8.6 11.1 (6.1)Miscellaneous ind. 15.4 50.9 57.0 64.3 72.0 10.2 12.8 14.0 12.3

Total 150.2 415.6 444.0 459.0 514.0 100.0 100.0 11.5 7.3

Source: Ministry of Planning

2.04 In 1980-83, Tunisia has maintained a high investment level of over30% of GDP. Investments in manufacturing industry, which constituted 11.7% oftotal investments in 1971, increased constantly reaching 19.7% of totalinvestments in 1983, as can be seen below:

Investments in manufacturing industries(in million TD in 1980 prices)

Growth Rates1971 1980 1981 1982 1983 1971-81 1980-83

Total investments 355.3 982.0 1,110.0 1,170.0 1,180.0 12.8% 6.3%Total investment as

% of GDP 22.3% 32.4% 34.6% 36.1% 34.3% - -Investments inmanuf. industries 41.5 130.8 186.7 203.8 232.3 16.2% 21.1%

Investments in manuf.ind./Total invests. 11.7% 13.3% 16.8% 17.4% 19.7% - -

Source: Ministry of Planning

2.05 The public sector has traditionally been a dominant force in thesector with an average of 55% of total investments and has concentrated itsinvestments in chemicals (fertilizers), construction materials (cement) andagro-industries (sugar). Public sector investments are generally capitalintensive and have high incremental capital-output ratios. Whereas 45.3Z oftotal investments in 1980-1983 were in construction materials and chemicals(the two sub-sectors where the public sector dominates) their contribution tomanufacturing value-added was only 25.3%. In contrast, the two sub-sectorsdominated by the private sector (textiles and miscellaneous industries)accounted for only 19.4% of total investments but contributed 36.8% to totalmanufacturing value-added during this period. The table below showsinvestments and value-added in manufacturing by the public and private sector(see also Annex 1):

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Investments by activity and sector(1980-1983)

(in million TD; current prices)

InvestmentsPublic Private Total Value Added

Amount % Amount Z Aount Z Amount X

Agro-Industries 96.8 57.3 72.2 42.7 169.0 18.5 514.8 24.3Constr. Materials 173.0 69.7 75.1 30.3 248.1 27.2 351.4 16.6Electro-Mech. Indus. 58.3 38.0 95.2 62.0 153.5 16.8 291.2 13.7Chemicals 145.7 88.4 19.2 11.6 164.9 18.1 184.1 8.7Textile & Footwear 18.6 18.8 80.5 81.2 99.1 10.9 504.6 23.8Miscellaneous 14.2 18.4 63.1 81.6 77.3 8.5 274.8 13.0

TOTAL 506.6 55.5 405.3 44.5 911.9 100.0 2,120.9 100.0

Source: Ministry of Planning

2.06 Employment creation has been one of the main objectives of industrialpolicy. Between 1975 and 1980 over 30% of total new employment (equivalent to65,000 jobs) was created in manufacturing industries and the share ofemployment in manufacturing industries in total employment increased from17.2Z to 19.1Z. However the 5% annual increase in employment in manufacturingindustries remained well below the increase in capital stock in the sectorwhich averaged around 10% per annum during the period 1975-81. The averageinvestment per worker increased from about TD 4,300 in the mid-1970's to TD6,000 at the end of the 1970's. This higher investment cost was to a largeextent due to the very large investments in the chemical and constructionindustries.

Constraints in the Manufacturing Sector

2.07 A significant part of Tunisian industries have developed with importrestrictions, price controls, investment licensing and direct subsidies.These measures, which were initially justified for infant industry reasons,have, over time, developed into a system that does not encourage efficiency,productivity and optimal use of installed capacity. This can be seen from theresults of the fir.t part of a Bank-financed study under the EMI Project (Loan2113-TUN) on the protection system, related to the mechanical and electricalindustry, which shows that industries with the highest level of protection,serving the domestic market, have the lowest economic and financial rates ofreturn. The same study shows that public enterprises have generallybenefitted from the highest levels of protection while showing the lowestrates of return:

Protection, resource use and profitabilityby market orientation and ownership (EMI-sector)

(1980)

Domestic Resource Rate of ReturnType of Enterprise Effective Protection Cost Economic Financial

By market orientation10OZ dom. market 1.63 1.55 3.52 5.0XPartially exporting 1.45 1.46 6.8X 7.02lOOZ exporting 0.99 1.14 21.42 9.2Z

By ownershipPublic 1.51 1.37 4.7Z 5.2ZPrivate 1.34 0.93 14.1Z 13.92

Source: Institut d'Economie Quantitative

The Effective Protection Study is being carried out for several other sectors(chemicals, textiles, footwear, construction materials), and further resultsare expected to be available during the course of 1985. As is illustrated inthe above preliminary results, domestic-based industries are clearlysignificantly less efficient than exporting ones. A rationalisation of theprotection system is thus likLely to be an important policy tool for furtherencouraging the growth of exports. The whole issue of the protection systemis now under study and is expected to be addressed in 1985-1986 (para 2.09).

2.08 There are other reasons that account for the low productivity ofTunisian industry. First, wage increases of 232 on average in 1982, and 162in 1983, have been substantially higher than productivity increases. Togetherwith relatively high social security contributions by employers, the higheffective cost of labor is an obstacle to employment creation, particularly ifcombined with relatively low interest rates. The increase in wages, and itsresulting effect on costs and the general price level, has led to restrictionson imports and tightening of price controls in 1983. An Employment Study ispresently being carried out with a view to recomend appropriate income andother employment oriented policies. Second, the limited domestic market hasmeant that for many industries, economies of scale could not be fullyexploited. A re-orientation of some of these industries towards exportsshould help overcome some of the above constraints.

Bank role in the Manufacturing Sector

2.09 The dialogue between Tunisia and the Bank on industrial developmenthas been a productive and multifaceted one. It has aimed at addressing themajor contraints noted above. Reference was made in para. 2.07 to a studyfinanced by the Bank to assess effective protection and its effect onindustrial efficiency. The results of this study will be used by the Bank inits continuing dialogue with the Tunisian authorities to adopt policies moreconducive to improving industrial efficiency. In this connection, a highlevel Bank mission is planned for early 1985 with a view to makerecommendations on improving pricing policies, reducing tariffs and

quantitative restrictions, and reorienting public enterprises towards higherproductivity and efficiency. The mission will also rely on the results of theemployment study as well as the recently completed review of the FinancialSector which is scheduled for discussion with the Tunisian authorities inearly 1985 (see para 4.10).

2.10 Through its loans to industry, the Bank aimed at promoting industrialdecentralization, labor-intensive industries and financing high priorityindustries (e.g. EMIs and SSIs) in support of the Government's priorities forindustrial development. Bank financing of manufacturing in Tunisia has mostlytonsisted of loans prc ided through BDET which received eight Bank loanstotalling $129.2 million (net of cancellations), of which $14.48 millionremained undisbursed as of December 31, 1984. Most of these funds financedmanufacturing industries. In addition, Bank loans have helped meet BDET'sresource requirements while assisting it in strengthening its organization andin improving its performance. Through its representative on BDET's Board, IFChas offered a substantial contribution in this regard. The ProjectPerformance Audit Report of September 1981 on loans Nos. 648-TUN, 798-TUN and881-TUN, covering the third (1969), fourth (1972) and fifth (1973) loans toBDET, concluded that considerable progress had been made in terms ofinstitution building and management performance, and that these loans havecontributed to changing BDET's role from a supplier of equity funds for publicsector industries, to that of financier and advisor of private investors.However, BDET's promotion and supervision capacity, and its evaluation ofphysical and financial contingencies of projects needed strengthening. Theseventh loan to BDET (Loan 1504-TUN of 1978) addressed some of these issues,and included a credit line for a pilot Small-Scale Industries (SSI) scheme(Loan 1505-TUN of 1978) which prepared the ground for a $30 million loan toSSI through commercial banks and BDET as intermediaries (Loan 1969-TUN of1981). The last operation with BDET was Loan 2113-TUN in March 1982 for thefinancing of Electro-Mechanical Industries. The present project will continueto build upon the last three projects in addressing some of the shortcomingsnoted in the Project Performance Audit Report.

2.11 The Bank loans have strengthened the leading role that BDET hasplayed, and should continue to play, in the development of medium andsmall-scale manufacturing industries in Tunisia. The proposed project wouldrepresent a continuation of Bank support for Tunisia's industrialdevelopment. It would establish credit lines for supporting export generatinginvestments, assist in the establishment of an Export Promotion Fund and helpsimplify the administrative procedures for exporting. The project wouldprovide further support to BDET and initiate Bank cooperation with two otherdevelopment banks the Banque Tuniso-Koweitienne de Developpement (BTKD), theSociete Tunisienne SEoudienne d'Investissement et de Developpement (STUSID) aswell as with the newly established Export-Credit Insurance Company (COTUNACE).

III. THE EXPORT SECTOR

_ Structure and Performance

3.01 In the 1960's industrial development consisted mainly of developingimport substitution industries and the public sector was dominant. In theearly 1970's, partly in order to overcome the constraints imposed by the smallmarket of six million people, the Government shifted this policy at the sametime that the private sector was accorded a more important role. Thus, theGovernment put greater emphasis on developing export-oriented industries whichwas reflected in L2'# 72-38, enacted in 1972, which gave important tax, customsand foreign exchange incentives to exports (para 3.10). As a result,manufactured exports increased by an average rate of 14.4% in real terms from1971 to 1981 (13.6% between 1976 and 1983), leading to a more than four-foldincrease in their real value between 1971 and 1983 (from TD 120.0 million toTD 526.4 million). This was substantially faster than the increase inmanufacturing value added which increased by 11.5% in the period 1971-1981(8.4% between 1976 and 1983). At the same time, exports of manufacturedproducts accounted for an increasing share of these products in total exports:manufactured exports (excluding processed food) rose from 32% of non-petroleumexports in 1971 to 79.3% in 1983, as can be seen from the table below:

Composition of Exports and the Share of ManufacturedExports in Total Exports (1971-1983)

(in million TD at 1980 prices)

Growth rates1971 1976 1980 1981 1982 1983 71-81 76-83

Total exports 240.8 487.4 970.0 1,115.4 940.0 1,003.0 16.6 10.9Petroleum exports 64.5 206.3 545.6 593.8 430.4 428.8 24.9 11.0

Non-Petr. exports 176.3 281.1 424.4 521.6 509.6 574.2 11.5 10.7Manuf. exports 120.0 216.0 372.6 462.0 468.8 526.4 14.4 13.6(o/v proces. food) (63.5) (78.1) (43.1) (73.5) (71.8) (70.8) 1.5 (1.4)Extractive & raw

agric. products 56.3 65.1 51.8 59.6 40.7 47.8 0.6 (4.3)Share of manuf. prod.(excl. proces. food)in total non-petro.exports 32.0 49.0 77.6 74.5 77.9 79.3 n.a. n.a.

An international comparison of exports of finished products shows thatTunisia's exports grew 2.4 times as fast (35.7% per year in current Us$) asworld exports of these products (14.9%) in the period 1976-1981. Tunisia'sexport performance also compared favorably with that of the mediterraneanregion where exports grew by an average rate of 17.8% per year 1/.

1/ Morocco, Algeria, Tunisia, Egypt, Turkey, Greece, Yugoslavia, Spain,Portugal. Data compiled from World Bank Trade System (in current US$)(see Annex 2 for details).

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3.02 During the 1970's the composition of Tunisia's expo.ts changedsubstantially. In 1970, 95% of its exports consisted of processed andunprocessed phosphates, foodstuffs and petroleum products. Ihis percentagehad fallen to 55% by 1983; and wherea3 52.9% of all manufactured exportsconsisted of processed foods in 1971, this share fell to below 13.5Z in 1983.On the other hand, textiles and leather increased their share from less than6% in 1971 to almost 40% in 1981. Over the same period, chemicals almostdoubled its share in total manufactured exports to almost one-third ofmanufactured exports by 1983. Exports of electro-mechanical industries alsogrew substantially in the second half of the seventies and now represent 9.5%of total exports. The table below shows the changes in the composition ofTunisia's exports between 1971 and 1983:

Composition of manufactured exportsand their growth (1971-1983)

(in percentages)

Growth Rates (real)1971 1976 1981 1983 1971-81 1976-83

Processed Food 52.9 36.2 15.9 13.5 1.5 (1.4)Textiles & Leather 5.7 28.9 39.4 39.3 38.9 18.6Chemicals 17.8 23.7 31.3 32.4 21.1 18.8Electro-Mechanical 8.6 6.5 8.0 9.5 13.6 19.8Miscellaneous 15.0 4.7 5.4 5.4 3.3 15.7

TOTAL 100.0 100.0 100.0 100.0 14.4 13.6

Total value of Manuf.Exports (current TD) 58.4 149.9 502.4 687.5 24.0 24.3

3.03 Tunisia's exports are increasingly oriented to markets ofindustrialized countries. Exports to the United States, negligible in 1970,represented 21 percent of total exports in 1983. The relative importance ofTunisia's two traditional partners, France and Italy, decreased slightly, from45 percent in 1970 to 38 percent in 1983, but the overall importanCe ofexports sold to the EEC remained about the same, fluctuating between 55 and 60percent. On the other hand, there was a striking decline in exports toTunisia's closes neighbours, Libya, Algeria and Morocco. These threecountries were absorbing between 10 and 14 percent of exports at the beginningof the 70's but only 3% in 1983. Although exports to Arab countries of theMiddle East increased over the period, their importance remains very marginal(1.2 percent in 1983).

Plan Objectives and Strategy

3.04 The Sixth Five-Year Plan's (1982-86) main objectives are to ease thegrowing unemployment problem, to reduce inter-regional income disparities andto maintain the country's long-term social stability and credit-worthiness ata time of growing financial and balance of payments constraints caused by theexpected decline in petroleum exports. To achieve these objectives the Planforesees the need to slow down substantially the growth of private consumptionand reduce the high investment rate which was inceasingly financed by foreignsavings in the last few years.

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3.05 Increased exports of manufactured products are, in the Plan scenario,essential to achieve these objectives. The Plan projects exports to continueto grow at an average rate of 15% per year in real terms. Export-led growthwould relieve the pressure on the balance of payments and foster higher growthfor the economy. Equally important, export industries are generallyrelatively labor intensive. In the longer term, traditional exports, such asphosphates-based chemicals and agricultural products, can offer only modestgrowth prospects. The growth of non-traditional manufactured exports shouldtherefcre become one of the principal instruments for stimulating the growthof the economy and alleviating the balance of payments constraint as well asfor creating employment.

3.06 In addition to the well established main export sectors such astextiles and agriculture, which need to be further developed, electrical andmechanical industries are planned to become an important source of newexports. Tunisia has a well trained labor force, whose wages are still wellbelow European levels; it has liberal investment policies with regard toforeign and private investments, is close to Europe and the Arab countries,and has preferential access to the EEC market. This gives the country acomparative advantage in the production of capital, intermediate and consumergoods, in those sub-sectors using labor-intensive and simple or intermediatetechnologies, where economies of scale are possible at low levels ofproduction.

Recent Developments

3.07 During the first two years of the Sixth Plan (1982-86) budgetary andbalavce of payments conditions deteriorated sharply, due mainly to a sharprise in wages, increases in subsidies and budgetary transfers, and increasesin the trade deficit. Even though the relative magnitude of thedeterioration, as mevsured in relation to GDP, is not as severe as at thestart of the last Plan (1977), there is cause for some concern since, contraryto previous years, the contribution of the petroleum sector to the economy isdeclining and future petroleum price movements are unlikely to restore thefavorable financial position which Tunisia enjoyed during the last decade.

3.08 In 1982-83 the drought-related decline in agricultural production aswell as the slowdown in external demand for exports and tourism induced thesluggish growth of output. The real growth of output which stagnated in 1982,showed a 4.5 percent growth in 1983. Demand continued to expand ratherstrongly in 1982-83. Investment exceeded 30 percent of GDP compared to theplan's average target figure of 27 percent. At the same time, the growth ofconsumption, triggered mainly by the wage increases of the last two years,surpassed the growth of GDP, thus reducing the domestic saving rate fromnearly 24 per cent of GDP in 1981 to 20 percent in 1983. The strong pressureof demand translated itself into the unprecendently high inflation rate of13.6 percent in 1982. Inflation decelerated to about 9 percent in 1983,following the intensification of price controls.

3.09 The current account deficit of the balance of payments alsodeteriorated in 1981-83. This was due mainly to the decline in net petroleumearnings and an increase in imports. Thus, the current account deficitincreased from 7.6 percent of GDP in 1981 to 9.4 percent in 1982. Following

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the tightening of import controls in 1983, the current account deficitdeclined slightly to about 8.8 percent of GDP. These emerging externalconstraints and Tunisia's inceasing debt burden show the importance offostering export growth, including, in particular, the growth of manufacturedexports.

Fiscal and Financial Incentives

3.10 In 1972, when the Government's policy changed from one of importsubstitution to export promotion, a law (Law 72-38) was passed offeringattractive incentives to investors who wanted to take advantage of Tunisia'sskilled and relatively cheap labor force, its closeness to Western Europe andthe well developed industrial infrastructure aLready in place. The lawprovided the opportunity to establish "off-shore" companies, anywhere inTunisia, which would not be subject to customs, foreign exchange and fiscalregulations applicable to other companies. The law gives these companies aten-year corporate tax exemption and reduced rates thereafter, reimbursementof taxes paid on locally procured goods and services, exoneration of allimport duties, exoneration of taxes on rented property and reduced rates ofregistration taxes and on distributed profits. With regards to foreignexchange regulations the law distinguishes "resident" and "non-resident"companies. The latter companies (owned for more than 66% by non-residents)are essentially exempt from all foreign exchange controls but have to executeall their transactions in dinars bought with foreign exchange while residentcompanies have to repatriate all their foreign exchange earnings. TheInvestment Promotion Agency (API), created by the same law, advises theMinistry of National Economy to issue the licence, qualifying a company as aresident or non-resident company under the law. Since its passage in 1972,more than 1,050 projects have been approved, including 99 projects in 1983 (58resident and 41 non-resident). The Law has fostered employment (over 30,000in 1981) and had a substantial impact on increased exports. However,exporters failed to use more intensively local supplies and the effect hasbeen that there have been insufficient linkages between the export anddomestic sectors. It seems that low quality, high price and unreliability ofdelivery dates are more important obstacles to closer integration of the twosectors than the unwillingness on the part of exporters to use local supplies.

3.11 Aware of the problem of insufficient integration of the export anddomestic sectors, the Tunisian authorities passed a second law in 1981 (Law81-56, as amended in 1983) which gives important advantages to domestic or"non off-shore" companies that export only part of their production and arecertified by API. The main advantages for such exporters are the following:(i) a reduced corporate tax of 20% on the part of the production which isexported; (ii) exemption from sales taxes on goods and services bought on thelocal market and used in the production of exports; and (iii) access tosimpler formalities for imports required in the production of exports. Thislaw is recent and it is premature to assess its effect in fostering exportsl/. Nevertheless, it is clear that adminstrative procedures related to

1/ Besides the advantages provided to exporters under the above two laws,exporters also have access to credits at the rate of 6.5% per annum tofinance their operations .pre-financing) and accounts receivable.Commercial banks providing these credits have access to a preferentialdiscount rate of 4.75% per annum without ceiling or prior approval of theCentral Bank.

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exports remain complex and uncoordinated and therefore limit the effectivenessof the incentives provided by the existing laws and regulations. The proposedproject addresses the issue of simplifying export procedures (paras 6.22-6.23).

3.12 Improvements in export finance were also introduced in the last threeyears following a continuing Bank dialogue with the Government. As a result,several constraints in the financing of exports were removed: (i) to avoidthe build-up of stocks of imported raw materials and intermediate inputs, alimitation had been put on pre-financing these imports to 10% of the annualimport requirements. This was considered too restrictive and sometimesimpeded the uninterrupted production for exports. The Bank recommended thatpre-financing should be available for at least 20% of the annual importallocation. This recommendation was subsequently implemented; (ii) Tunisianexporters were limited in their possibility of offering attractive paymentterms on their exports, because banks could only discount claims on abroad ofa maturity of less than 90 days. This was considered too restrictive and theduration for discounting claims was lengthened to 180 days, to be increased inexceptional circumstances to 360 days; (iii) Tunisian exporters could onlykeep 3% of their foreign exchange earnings in convertible dinars. This oftenleft exporters with insufficient funds for their marketing and promotionefforts. Recently, the percentage was increased to 4% and exporters areallowed an additional TD 6,000 per year for travel expenditures. This is astep in the right direction but may nevertheless not provide sufficientforeign exchange to allow exporters to explore new markets and, particularly,market new products. Also, and more importantly, it does not cover newexporters which need foreign exchange to market their products abroad. Toovercome this problem, the project provides for the setting up of an ExportPromotion Fund (paras 6.13-6.17).

Institutional Framework

3.13 The Center for the Promotion of Exports (CEPEX), a publicorganization of industrial and commercial character under the aegis of theMinistry of National Economy, was established by Law 73-20 of April 14, 1973to contribute to the development of Tunisian exports and to assist exportersby conducting market surveys, providing marketing advice, disseminatingcommercial information, participating in trade fairs and helping theGovernment with the formulation of trade policies. CEPEX received financialassistance from the Bank through the Technical Assistance Loan (2197-TUN)which includes a study which has as one of its main objectives to determinehow to strengthen the institutions responsible for export promotion and toidentify projects and sectors that have export potential. These projects maybe financed by the proposed project. The study is underway and is expected tobe completed in early 1985.

3.'4 Institutional improvements were also introduced by two new lawspasse' in 1984. The most important of these was the approval by Parliament inMay 1984 of a law creating an Export-Credit Insurance Company (COTUNACE). Thecompany was estatYlished in September 1984 (see paras 5.48 to 5.50 for furtherdetails). The need to establish an export-credit insurance facility wasidentified by the Tunisian Government and the Bank during missions in 1982 and1983. The creation of such a facility would complement the favorable creditconditions offered to exporters in the form of export credits at the rate of

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6.5% p.a. The objective of export-credit insurance is to cover, through aninsurance policy, the majority of losses which an entrepreneur can incur onits export operations because of non-payment by the foreign buyer forcommercial or political reasons. Such insurance should eucourage banks toprovide loans to exporters with limited collateral. Through the proposedproject, the Bank will be closely associated with COTUNACE with a view tomonitor its continued sound development. The second law provides for thecreation of Export Trading Companies which would benefit from substantial tax,customs duty and foreign exchange facilities. These companies wouldspecialise in selling Tunisian products abroad, especially the products ofsmall- and mediumrsize industries that would otherwise find it difficult tofind markets abroad. Licenses for establishing such companies will be issuedby the Ministry of National Economy on the recommendation of CEPEX.

Conclusion

3.15 The previous sections have outlined the important measures undertakenby the Tunisian authorities in recent years to strengthen fiscal and financialincentives to exporters, simplify administrative procedures and set up andstrengthen institutions to foster export growth. Several of these measureswere taken in the context of the continuing dialogue between the Bank and theGovernment of Tunisia and the proposed project builds up on and continues tosupport many of these initiatives. At the same time, it was pointed out inChapter II (para 2.07) that the protection framework encouraged inefficienciesand production for the domestic market rather than for exports. The TunisianGovernment is aware of this situation and is in the process of undertaking anin-depth study of the protection framework. The results of this work will bereviewed with a Bank industrial sector mission during 1985 and this isexpected to initiate a dialogue with the Tunisian authorities on how best torationalise the protection system in the coming years focusing on pricing,investment licensing and tariffs and quantitative restrictions. At the sametime, Tuniria's record of export growth in recent years, and the priorityaccorded to exports in the current Five Year Plan, as well as the availabilityof a substantial pipeline of viable export projects and the need to furtherstrengthen export institutions, argues in favor of a project that will supportthe Government's efforts in this critical area at this time.

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IV. THE FINANCIAL SECTOR

Overview

4.01 Tunisia's financial system consists of the monetary system, otherfinancial institutions and the stock and bond exchange. The monetary systemconsists of the Central Bank, ten commercial banks and the postal checksystem. The other financial institutions consist of eight operatingdevelopment banks, two savings organizations, eight portfolio managementcompanies, eight off-shore banks and five foreign bank representativeoffices. For the size of the country (seven million inhabitants) and itslevel of development this is a fairly large institutional framework. Inaddition, Tunisia has a stock and bond exchange which is not highly developedon which essentially ten-year bonds issued or guaranteed by the Government aretraded as well as shares of 44 companies of which nine are banks. TheGovernment is shareholder in 39 of the 44 companies and majority owner in 26of them.

4.02 The commercial banks, which are essentially deposit-retail banks, aresmall by international standards. Tie largest bank, Societe Tunisienne deBanque with a share capital of TD 20 million (US $27.6 million) had totalassets of just over TD 1.0 billion (US tl.38 billion) at the end of 1982. Atthat time the total assets of the ten commercial banks did not exceed TD 3.6billion (US $5 billion). Besides short-term credits, commercial banks canalso provide medium-term loans up to a maximum of seven years within limitsset by the Central Bank. Loans over seven years can only be provided bycommercial banks from special resources (i.e. non-deposits) which have amaturity of more than seven years. However, credits over seven years can beauthorised for public enterprises from regular commercial bank resources aslong as these credits do not exceed 3% of total deposits of the bank inquestion.

4.03 The commercial banks are subject to the monetary policy of theCentral Bank, its credit controls and particularly the requirement thatcommerciaL banks invest 43% of their deposits and savings accounts inGovernment paper (20%), National Home Savings Company (CNEL) bonds (5%) andmedium-term loans to industry (18%). This requirement has made the commercialbanks important sources for industrial medium-term finance.

4.04 Up to 1980 there were only two development banks: Banque deD6veloppement Economique de Tunisie (BDET) and Banque Nationale deDeveloppement Touristique (BNDT) which essentially were the only institutionsspecialized in medium and long-term financing of industry and tourism.Between 1981 and 1983, six new development banks were created. Four of thenewly-created development banks were joint-ventures between Tunisia and otherArab countries: the Tuniso-Koweiti Development Bank (BTKD), the Tuniso-SaudiInvestment and Development Company (STUSID), the Tunisian and EmiratesInvestment Bank (BTEI), and the Tuniso-Qatary Investment Bank (BTQI) 1/. In

1/ The other two were the Banque Nationale de Developpement Agricole whichfinances only projects in the agricultural sector and Banque deCooperation du Maghreb Arabe which finances only Algerian-Tunisianjoint-ventures. Other banking joint ventures are being considered withLibya, Senegal and Italy.

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comparison with the commercial banks they have relatively large share capitals(BTKD and STUSID: TD 100 million each; BTEI: TD 50 million; and BTQI: TD 70million) which have been subscribed equally by Tunisia and the respective Arabcountries. A main reason for their creation was to attract capital resourcesfrom abroad and to channel these resources into productive uses on the basisof financial, economic and technical criteria generally used by developmentbanks.

The financing of exports

4.05 (a) Short-term credit. The financing of export and importtransactions is strictly controlled by the Central Bank. Exporters arerequired to repatriate the proceeds of their exports and are allowed a maximumamount (4% of the proceeds) in convertible dinars to pay for incidentalexpenditures related to their export business. On the basis of agreed importallocations, which have been liberalised progressively, co;amercial banksprovide pre-financing credit for imported goods and services required by theprospective exporter. These credits, as well as those to finance claimsoriginating from actual exports, are subject to favorable interest rates(6.5%), unlimited rediscount facility (at 4.75%) and are not subject to priorapproval for rediscounting. In future COTUNACE will insure these credits:this will be a significant improvement since credit was often limited by theinsufficient collateral of exporters.

4.06 (b) Medium- and long-term credit. Medium-term export credit isprovided by the Central Bank through the commercial banks on a case-by-casebasis and is tailored to the particular needs of the very few manufacturerswho export capital equipment (transformers, railway wagons, metal structuresetc.). A medium-term export-credit scheme to finance exports of capital goodsis under study. Mediur-term credit (up to seven years) to exporters forinvestment purposes is available from the commercial banks to a limitedextent. However, given their relatively small size and their limited projectappraisal capacity tailored principally to smaller projects, commercial banksgenerally provide mediumrterm finance only in conjunction with long-termcredits from the development banks. Commercial banks can only providelong-term credit from long-term resources specifically mobilised for thatpurpose. Unless these resources have particularly attractive features, forexample risk sharing by the Government and provision of low cost resourcesunder the FOPRODI schemes 1/, commercial banks have little incentive toprovide long-term finance. Thus commercial banks are principally providers ofshort-term and medium-term credit which they finance from their short-term andmediumrterm deposits. Long-term lending to industry is essentially providedby the development banks which have been created for this purpose and whichhave been equiped with organisations and staff to appraise, supervise andpromote industrial ventures in all industrial sub-sectors. In 1983-84development banks financed roughly 60% of MLT credit with 40% coming fromcommercial banks. In prior years, before the formatioa of the new developmentbanks, commercial banks provided significantly more MLT financing (about 70%of the total in 1981-82).

1/ FOPRODI: Industrial Promotion and Decentralisation Funds (see firstSmall-Scale Industries Development Project: Loan 1969-TUN).

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Interest Rates

4.07 Tunisia has a very detailed structure of interest rates which isregulated by the Central Bank. This structure determines all the discountrates of the Central Bank for short and mediunrterm paper. There aredifferent discount rates according to the sector (industry, agriculture,housing, tourism etc.) and purpose (construction, seasonal credit, loans formedium and small-size industry, loans for under-developed regions of thecountry, exports etc.). Interest rates or loans by commercial banks are alsofixed at levels that depend on whether they are discountable or not, the rateof discount as well as the maturity of the loan, the sector and the purpose.Thus for mediumr-term loans (maximum of seven years) to industry for investmentpurposes, the interest rate is set at between 9.5% (minimum) and 9.75%(maximum) for rediscountable loans and between 10.0% (minimum) and 10.25%(maximum) for non-discountable loans. Development banks are free to determinetheir own interest rates on long-term loans, which are presently at around12%. However, for loans below TD 500,000, BDET charges 11.0% in order toremain competitive with the terms on medium-term loans offered by commercialbanks. The other development banks do not generally make loans below TD500,000. The rates of 11-12% on MLT credit compare with an inflation of 9X in1983. The inflation rate is expected to be 9% through project implemen-tation. Thus local rates are, and are expected to remain over the life of anindividual loan, positive in real terms.

4.08 Interest rates on deposits (both sight and term) and savings accountsare also fixed by the Central Bank with rates changing according to maturity(i.e. longer maturities having higher rates), the nature of the saver(individual or corporation), the size of the deposit (small savers havespecial rates) and purpose (e.g., savings for housing). Typically, termdeposits over two years pay 7.75% (after tax) and savings accounts of the samematurity pay 8.75%.

4.09 Periodically the Central Bank revises the general level of theinterest rate structure; the last such adjustment took place in April 1981when interest rates were increased by about 1.5%. This increase was inresponse to the general rise in interest rates abroad and the experiencedinflation rate in the country. The development banks have no access to therediscount facility of the Central Bank. However, BDET has access to aspecial facility of TD 8.6 million at 9% (the normal discount rate formediumrterm loans for industry by commercial banks is 71).

Review of The Financial Sector

4.10 A Financial Sector Study (FSS) is currently in progress. It reviewsoverall monetary and credit policies, the institutional framework and theutilisation of monetary instruments, particularly interest rates, to achievebetter mobilisation and more efficient allocation of resources. The FSSconcluded that the Tunisian financial sector is basically efficient but canbenefit from some adjustments to improve the country's resource andmobilisation efforts and the efficiency of the intermediation process. TheFSS proposes an overall upward adjustment in the structure of interest ratestogether with a simplification and harmonisation of the overly complexexisting schedule. While on-lending rates have been positive in real terms,

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deposits have been barely positive in recent years and well belowinternational levels. It also proposes the introduction of a more flexiblesystem to allow rates to be adjusted more frequently to changes in theliquidity situation, the domestic inflation rate and interest rates abroad.Finally, it proposes that subborrowers bear a share of the foreign-exchangerisk on foreign currency loans. Two aspects of the FSS's generalrecommendations are of relevance to the proposed project and these arediscussed in more detail below. More generally, the recommendations of theFSS are relevant to improving the efficiency of the intermediation process inTunisia and domestic resource mobilisation and allocation. The findings ofthe financial sector report will be discussed with the Tunisian authoritiesbeginning during 1985 and this will provide the basis for continuing theBank-Tunisian dialogue on the reform of the financial sector.

4.11 Cost of funds of development and commercial banks. There is a largediscrepancy in the cost of funds and lending rates between the commercialbanks and the development banks, which is undesirable. The relatively lowinterest rates on deposits at commercial banks has kept the average cost offunds for these banks at about 6%, taking into account that sight deposits,which constitute between 55% and 60% of banks' resources, are remunerated atthe rate of 1% for enterprises and 2% for individuals. Development banks onthe other hand are not allowed to accept deposits and are thereforeessentially dependent on the international market or lines of credits frombilateral or multilateral agencies. In particular BDET, which raised $60million in 1983 from the international market, has seen its average cost ofborrowing increase to about 8.5% in 1983, while the marginal cost of borrowingincreased to over 11%. This rate has since come down to about 10%.Commercial banks make mediumr-term loans to industry at the rate of 9.5% - 10%,which allows them a financial spread of 3.5% - 4%. The average rate on newloan commitments by BDET is presently about 11.5%. The financial margin onits portfolio, 1/ which had declined between 1979 and 1982 because ofincreases in the cost of borrowing, increased to 2.3% in 1983. This margin isforecast to remain at 2% in the future (see para 6.12 and Annex 3, Table 6) inpart because of Government support, which will be phased out, however, at theend of 1986, and in part because of increased interest rates on lending.Nevertheless, BDET's relative position vis-a-vis commercial banks can bestrengthened further by upward adjustments in the structure of interest rates(for both deposit and especially lending rates) as recommended in the FSS inorder to improve overall domestic resource mobilisation and allocation. Thisgeneral issue will be pursued in the context of the discussion of the FSS andour general economic dialogue with the Government. While an upward adjustmentof interest rates will further strengthen the financial position of BDET whichis already and is expected to remain sound, this would only be expected tohave a significant effect on BDET's financial position in the medium term.

I/ Difference between the average borrowing and average lending rate.

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4.12 Foreign Exchange Risk. The Government now carries the foreignexchange risk on the foreign borrowings of BDET and BNDT. Up to 1981 thispractice resulted in profits for the Government because of the dinarappreciated in relation to the basket of currencies. Since 1981 the situationhas changed, particularly vis-b-vis the dollar which has appreciated.Nevertheless, over a period of ten years, the result has still been positivefor the Government. The question of the foreign exchange risk coverage isbecoming more important since the new development banks will need to borrow asignificant part of their resource requirements abroad. An appropriateforeign exchange coverage scheme should therefore be designed. The FSS hasproposed a new basis for subborrowers to cover foreign exchange risks inrelation to the risk of devaluation of a particular currency. Theseprinciples need to be translated into a detailed scheme. During negotiationsagreement was reached with the Government to undertake a study for institutinga suitable foreign exchange scheme on the basis of the principles included inthe FSS. The study will be completed and discussed with the Bank by March 31,1986. This agreement is reflected in the loan documents (Section 4.04 of theLoan Agreement). The Government will continue to bear the foreign-exchangerisk under the proposed loan as under previous loans to BDET, until agreementhas been reached on an alternative coverage scheme as a result of the study.

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V. THE INSTITUTIONAL FRAMEWORK

A. Financial Intermediaries

5.01 Three financial institutions, BDET, BTKD and STUSID, will be theintermediaries for the proposed project. BDST is the country's leadingdevelopment bank and has received eight Bank loans since 1966. BTKD andSTUSID, two new development banks, were selected as intermediaries in responseto the Government's request that the Bank project relies on several channelsto support the financing of investments for exports. The inclusion of BTKDand STUSID in the project will significantly add to the number of viableexport projects. They have given priority to export projects in the past andthe proposed Bank loan has already led them to identify additional viable

export projects. The two institutions are financially viable and wellmanaged: they have put in place competent organizations and staff toidentify, appraise and supervise projects financed by them. A relation with

the Bank is considered important by BTKD and STUSID because of theinstitutional support the Bank can provide in terms of overall developmentbank policies and practices and more specifically on appropriate projectappraisal/supervision standards. Financial support by the Bank to theseinstitutions is also expected to strengthen their ability to raise resources

from international sources. Detailed descriptions and analysis of theiroperations, financial position, resource requirements and organizationalstructures are provided in paras 5.23 - 5.34 (BTKD) and 5.35 - 5.47 (STUSID)

I. Banque de Developpement Economigue de Tunisie (BDET)

5.02 BDET was created in 1959 and reorganised, with the assistance of theBank Group, in 1966. Since then the Bank has provided eight loans totalling$134.5 million, representing between 33% and 40% of BDET's total resource

requirements. IFC is a shareholder in BDET since 1966 (see list ofShareholders, Annex 3, table 1). The institution is well managed, has acompetent staff and has well established procedures for appraisal and

supervision. A number of developments have, however, put strains on itsoperations, financial position, profitability, portfolio and staffing.

5.03 Operations. BDET's approvals almost doubled between 1980 and 1982

(Annex 3, table 2). However in 1983 approvals fell by 35Z mainly for thefollowing reasons: (i) investments in the electro-mechanical industries andtourism sectors returned to more normal levels after the exceptionally highapproval levels of 1981 and 1982 reflecting, in particular, large investmentsin the these two sectors; (ii) competition from the new development banks tookaway business from BDET; and (iii) demand for financing by SSI 1/ projectsstagnated. Although SSI projects remain BDET's most important activity interms of number of projects, the amounts approved for such projects havedecreased in importance in 1982 and 1983. BDET expects approvals to increaseby about 10% in the next three years (see para 5.17). BDET's approvals in theperiod 1980-1983 were mainly for new projects (73%) in the private sector(88%). Its operations were well distributed over the several sectors andregions of the country (Annex 3, table 3).

1/ Defined since 1980 as enterprises having total investment cost of less

than TD 500,000. The limit is presently under review and may be increasedto TD 750,000.

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5.04 Financial Position. BDET's audited balance sheets for the last fiveyears are attached in Annex 3, table 4. During the period 1980-1984 assetsincreased by an average rate of 21.3Z per year reflecting the general growthof industrial investments in Tunisia. BDET's share capital was increased fromTD 10 million to TD 20 million in 1982/83, partly by incorporating reserves.BDET's debt-equity ratio (5:1) on December 31, 1983 remains well below themaximum allowed under previous Loan Agreements (8:1).

5.05 TWo developments in recent years are worth noting: First, theincrease in short-term liabilities mainly on account of short-term borrowing.These short-term borrowings, were required to meet BDET's cash requirementsfor loan disbursements at a time when it was difficult and expensive to raiseresources from the capital market. In 1983, BDET borrowed US$60 million inthe form of Floating Rate Notes (FRN), which enabled it, among others, torepay about US$ 13.8 million (TD 10 million) of short-term borrowings.Although the terms of the FRN are attractive by international comparison (1/2Xabove LIBOR, 7-years), the cost of the issue increased BDET's overall resourcecost. Borrowing of an additional $60 million on medium-term is planned forearly-1985, which should enable BDET to retire the remainder of its short-termborrowings, which had increased again in 1984, and thus further improve itscurrent ratio.

5.06 The second noteworthy development concerns the increase inreceivables, which includes TD 10.5 million due by the Government on accountof foreign exchange losses incurred on borrowing abroad. These losses havebeen accumulating since 1981 and concern losses on principal payments only(Interest payments have been substantially paid by the Government-para 5.08).During negotiations the Government committed itself to reimburse BDET beforethe end of 1985 for outstanding losses on principal incurred up to the end of1983. A commitment was also obtained from the Government to reimburse BDETfor losses resulting from foreign exchange rate fluctuations in 1984 beforethe end of 1986. The Government will continue to cover BDET's foreignexchange risk until such time as the foreign exchange coverage system may berevised in the light of theresults of the study, referred to in para 4.12.

5.07 Profitabilit. BDET's audited income statements for the period1980-1982 (Annex 3, table 5) show almost constant net incomes before tax (ofabout TD 1.55 million) despite an increase of over 50X in assets during thisperiod. The main reason for this development is that the average cost ofborrowings increased faster than interest rates on lending. As a result ofthe dialogue provided for in Loan No. 2113-TUN (EMI project), BDET hasincreased interest rates on its loans from 9.0% in 1981 to about 11.0% atpresent for small and medium size industries, to 12.5Z for tourism projectsand to 132 for large projects. These increases in interest rates have led toa substantial increase in interest income betweem 1983 and 1984. This washowever counterbalanced by the increased cost of borrowing which was largelydue to the depreciation of the dinar. Part of this increased cost was howeverabsorbed by the Government compensation for BDET's foreign exchange losses(para. 5.08). Further interest rate increases by 0.5% per year may beenvisaged, inter alia in the light of the evolution of the financial sector.The effect of these interest rate increases on income is, however, initiallyslow since the proportion of higher interest rate new loans in the totaloutstanding portfolio remains small.

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5.08 The cost of borrowing has increased mainly because if the increaseddebt service on foreign borrowing due to the depreciation of the dinarparticularly vis-h-vis the dollar. Foreign exchange losses on account ofinterest payments on foreign borrowing amounted to TD 1.0 million in 1981, TD1.6 million in 1982 and TD 2.2 million in 1983. The Government has reimbursedBDET for these losses through its annual compensation payments amounting to TD1.0 million in 1981, TD 0.5 million in 1982 and TD 2.9 million in 1983.Including these compensation payments BDET's financial margin (differencebetween the average rate of lending and average rate on borrowing) has been1.27% in 1982, 2.38% in 1983 and 2.00 in 1984, which is substantially inagreement with the understanding reached during the negotiations for Loan-2113to assure BDET a margin of 2%. The average return on net worth over the lastsix years has been 10.7%, permitting BDET to maintain 8% dividend payments.BDET has reduced its administrative expenses in the last four years; in 1983these expenses fell to below 1% of average assets which is one of the lowestlevels of develoment banks financed by the Bank. Reimbursement by theGovernment of the foreign exchange losses together with che continuedincreases in interest rates on lending will gradually improve BDET'sprofitability and permit the phasing out of Government subsidies by 1986 asagreed under the EMI-project (Loan 2113-TUN) (see para 5.18).

5.09 Portfolio. As of December 31, 1983, BDET had a loan and equityportfolio of TD 192.0 million distributed over 680 loans (TD 168.7 million)and 190 equity participations (TD 23.3 million). Loans to industryrepresented 68% of total loans, the remainder being invested in tourism (21%),and other sectors (transport, services). Loans were well distributed over theseveral sectors of industries with agro-industries, construction materials,EM¢, textiles and chemicals being the most important (Annex 3, table 7). Arelatively larger part of BDET's equity portfolio is invested in tourism (34Z,against 53% in industry) but, this is expected to decrease in future (para5.20).

5.10 BDET's arrears amounted to TD 15.9 million on December 31, 1984 ofwhich TD 11.8 million was overdue for more than three months representingabout 6.1% of the outstanding loan portfolio. These arrears were for TD 7.4million for overdue principal and for TD 4.4 million for unpaid interest andaffected TD 26.9 million in outstanding loans representing about 13.9% of theoutstanding loan portfolio. BDET arrears situation worsened in 1984 sincearrears at the end of 1983 amounted to only TD 9.5 million of which TD 7.1million were for more than three months representing about 4.2% of theoustanding loan portfolio. However, although a total of 132 companies were inarrears for more than three months, 46.2t of these arrears (corresponding to64.3X of the total principal affected by arrears) were concentrated in 22companies which are receiving special supervision attention. BDET's arrearsposition remains acceptable but will need to be monitored closely so thatarrears can be bought down to no more than the level prevailing in 1983 assoon as practically possible.

5.11 BDET's outstanding loans are secured by adequate collaterals. About4% of BDET's loans are covered by Government guarantees. Most of theseguarantees are for small-scale industry projects (FOPRODI) and cover 50 to 75%of interest and principal amounts. Provisions for risks, amounting to TD 5.7million or 3.0% of total portfolio outstanding at December 31, 1983, are

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adequate to cover losses on loans and equity participations. BDET does notmake provision for individual loans, but for the entire loan and equityportfolio. Provisions are however discussed on a case-by-case basis with theauditors but such review is made difficuLt by the high number of companies inarrears for which satisfactory information on financial situation isincomplete.

5.12 Staffin. BDET's total and professional staff has increased littlein the last few years (Annex 3, table 8). Of the 73 professional staff, 27are working in the Project Promotion and Project Appraisal Departments. Arelatively large number of staff is presently distributed over fouradministrative departments (Personnel, Administration, Commitments andResources/Equity Participation). However, this number should be reduced whena computerized administrative system is put in place; this is expected to bedone by the end of 1985. BDET has lost several experienced staff to the newdevelopment banks and to industrial companies set up in the last three to fouryears and is recruiting new profess_onal staff to replenish its ranks.

5.13 The Promotion Department promotes projects which it has identifieditself. The license to establish the project is in BDET's name and it isresponsible for formulating all aspects of the project (financial, technical,economic) and identifying local promoters and foreign partners for them.About twenty projects have been promoted in this way since 1978: they arerelatively large, mainly in the EfI sector and require generally foreignpartners.

5.14 Project supervision has traditionally been BDET's main weakness. TheBank and BDET have agreed on an extensive supervision program for 1984.During the first five months about 50 supervision missions were conducted byBDET and a program for another 50 has been agreed for the remainder of theyear. A better coordination between the Equity Participation and the ProjectAppraisal Department has also been put in place so that all financialdocumentation on companies in which BDET has an equity participation isavailable in the Project Appraisal Department. Staff in the latter departmentis being used for supervision of projects and the department has been enlargedthrough the recruitment of three additional staff in 1984. Early results ofBDET's intensified supervision are already showing a better recovery rate ofpayments in interest and principal in 1984 with the exception of the 22companies referred to in paras. 5.10 and 5.12. A reporting system and aprogram concerning BDET's supervision activities was agreed upon duringnegotiations which will enable BDET's management and the Bank to monitor staffuse for supervision by BDET, the number and type of projects visited, the kindof problems encountered by BDET financed projects and the actions taken byBDET and the project sponsors to overcome them.

5.15 BDET Performance under Bank Projects. The pilot line extended by theBank in conjunction with the seventh loan to BDET (1504-TUN) was designed tofoster the development of SSI's and encourage employment creation throughincreased investments and more participation of commercial banks infinancing. Out of the $7 million earmarked for this purpose, $5 million havebeen lent to the Government (Loan 1505-TUN) for onlending to new SSI projects,through BDET and five commercial banks participating in the FOPRODI scheme;and $2 million have been lent directly to BDET, as part of Loan 1504-TUN, to

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finance the expansion of existing SSIs. The pilot line's target group wereprojects below TD 275,000 of investment cost (including permanent workingcapital) and with a cost per job limit of TD 6,300 in 1980 prices. BDETsubmitted fourteen projects (out of a total of twenty six approved under Loan1505-TUN) for $4.95 million, which had an average investment cost of TD213,000 and created about 600 jobs at an average cost of TD 5,100 in 1980prices. BDET committed forty seven projects under Loan 1504-TUN, out of whicheleven were SSI projects with an average investment cost of TD 160,000 in 1980prices, for a total of t1.8 million. BDET is currently participating, withseven commercial banks, in the SSI I project of $30 million (Loan 1969-TUN)which became effective in July 1982 and is expected to be fully committed byJune 30, 1985. BDET's commitments under Loan 1969-TUN have recently increasedafter a first year of slow commitments where other SSI earmarked resourceswere available to BDET. As of August 30, 1984, BDET had committed $1.6million under this loan, for eight projects with an average investment cost ofTD 284,000 and expected to create about 250 jobs.

5.16 The last loan to BDET (Loan 2113-TUN), approu;d in March 1982, isintended to support the development of electro-mechanical industries. Itincludes (i) a $28.0 million credit line to BDET for lending to EMI prioritysubsectors ($14.0 million) and to other industrial projects ($14.0 million);and (ii) a $2.0 million to the Government for technical assistance for an EMItechnical center (CETIME), a standardization/quality cg,ntrol institute(INNORPI), and for an effective protection study. As cf August 30, 1984commitments and disbursements for 17 projects reached $21.0 million and $11.2million respectively, and were in line with appraisal estimates. CETIME andINNORPI are operating satisfactorily with adequate staff and budget. Progressunder the effective protection study has been satisfactory but somewhat slowerthan originally anticipated. The loan is expected to be fully committedbefore the end of 1984 and disbursed before the closing date of December 31,1987. Overall, the performance of BDET and other institutions involved in theEMI project have been fully satisfactory and the Bank is consideringsupporting t-'.e development of this priority sector through a second EMIproject.

5.17 Projected Operational a-.d Financial Situation. BDET's forecastsestimate its activities to resume a normal 10% growth rate of approvals in theperiod 1984-1986 (Annex 3, table 9). Based on its pipeline of applicationsalready submitted and the rate of new applications (about TD 20 million perquarter), BDET should be able to approve loans and equity participationsamounting to about TD 50 million per annum during 1985-1987. Theseprojections are conservative and reflect BDET's intention to scale down itsexposure in the tourism sector to 25%.

5.18 Interest income (Annex 3, table 10) is projected to increase by 11.0%on average per year in the period 1984-1988 reflecting the growth of loanportfolio (6.2% p.a.) and the increases in interest rates already effected orenvisaged to take effect within the next years. The average interest rate onoutstanding loan portfolio is projected to increase from 8.4% in 1981 and 8.9%in 1983 to 10.3% in 1986. Borrowing costs are projected to increase less:the average cost of new borrowing is projected at about 9.5% (taking intoaccount concessionary borrowings from bilateral sources which will offset tosome extent the high cost of borrowing in the international market) while thecest of existing debt

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will remain at about 8.3%. The reimbursement of foreign exchange lossesamounting to TD 10.5 million by the Government will improve further BDET'sfinancial position. These payments which have been included in theprojections will reduce BDET's borrowing needs, strengthen its equity andgenerally improve its financial position. BDET's profitability will thusremain satisfactory and will permit payment of reasonable dividends (8X),.andthe build-up of adequate reserves and provisions, while permitting the phasingout of the Government subsidy by the end of 1986 (see also para 6.11-6.12).

5.19 BDET's Projected Balance Sheets and Cash-Flow Statements (Annex 3,tables 11 and 12) show further increases in share capital from TD 20 millionin 1983 to TD 30 million by 1986. Long-term debt will increase by about TD 75million but the debt-equity ratio will remain at the reasonable level of about6:1. The debt service coverage ratio remains satisfactory at 1:1. Howeverpart of the improvement stems from the fact that the $60 million FRN-loan isreimbursable in one single payment in 1990. Interest coverage, which fell to1.1 in 1983 because of expenses related to the FRN-loan, is projected toimprove to 1.2 in 1986, which is satisfactory.

5.20 Resource position and resource requirements. BDET's resourceposition, at September 30, 1984, summarized below, shows a resource gap of TD38.95 million or 18.2% of total available resources:

BDET's resource position as of 9/30/84(in TD million)

ResourcesCapital, reserves and provisions 31.18Local borrowing 27.27IBRD loans 37.03Other foreign borrowings 118.32

Total 213.80

Portfolio and fixed assetsLoans Outstanding 189.72Equity Investment 25.83Other 3.12

Sub-total 218.67

Resources available for commitment (4.87)Undisbursed commitments 34.08Resource gap on commitment basis 38.95

IBRD loans constituted about 25% of total foreign exchange borrowings andabout 19% of total resources as of December 31, 1983.

5.21 BDET's projected resource requirements and financing plan for theperiod 1985-1987 are summarized below:

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BDET's resource requirements 1985-1987(in million TD)

Foreign LocalExchange Currency Total

Resource Gap at 12/31/83 27.25 11.70 38.95Resource Requirements 1985-1987 85.90 57.20 143.10

Total Resource Requirements 113.15 68.90 182.05

To be financed byCash Generation (net) 11 - 26.67 26.67Net loan collections - 32.54 32.54Share Capital increases - 10.00 10.00Identified borrowings (excludingnew proposed Bank loan) 79.10 - 79.10

Total Identified Resources 79.10 69.21 148.31

Resource Gap (1985-1987) 34.05 (0.31) 33.74

The existing resource gap plus forecast resource requirements for the period1985-1987 amounts to TD 182.05 million of which TD 113.15 million (US¢ 136million) in foreign exchange and TD 68.9 million ($83 million) in localcurrency. The foreign exchange requirements are forecast to be covered for TD79.1 million by identified sources, of which about TD 48.5 million is expectedto be raised in the international market and the remainder TD 30.6 millionfrom bilateral (French, Italian, German and Arab) and other internationalsources (African Development Bank, European Investment Bank). The Bank alsoenvisages follow-up projects to its EMI and SSI operations in FY85-86. Theproposed loan of $20.0 million would cover about 50X of the remaining resourcegap in foreign currency ($41.00 equivalent) and about 10% of BDET's totalresource requirements for the period. BDET's local resource needs areprojected to be covered by a TD 10 million share capital increase, net loanrepayment and internally generated cash.

5.22 During negotiations, BDET's resource mobilization plans were reviewedand understanding on a plan for the mobilization of resources in the local aswell as in the international market in 1985, particularly with a view todecrease short-term borrowing, was reached with the Government and BDET.Annually the Government, BDET and the Bank will review BDET's resourcemobilization needs (see Section 4.06 of the Loan Agreement).

II. Banque Tuniso-Koweitienne de Developpement (BTKD)

5.23 BTKD was officially created on February 25, 1981, following an

1/ Including reimbursement by Government of TD 10.5 million foreign exchangelosses.

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agreement between the Kuwaiti and Tunisian governments signed on October 29,1980. It started operations in March 1981, and its main objectives are theidentification, promotion and financing of economically and financially viableprojects in all sectors of economic activity in Tunisia and to strengtheneconomic and financial relations between Tunisia, Kuwait and other Arab andAfrican countries.

5.24 The company has a share capital of TD 100 million equally owned bythe two countries (see Annex 4, table I for list of shareholders). Onequarter of its capital was paid in at its creation; the remainder was to bepaid in over a period of five years. BTKD can take equity participations,make loans, give guarantees and provide a number of banking services includingthe acceptance of deposits from abroad. The Policy Statement states that BTKDhas also as one of its objectives the development of Tunisia as aninternational financial center.

5.25 BTKD does not generally finance projects with an investment costbelow TD l million. The Policy Statement indicates a sectoral distributionfor its operations: 60X in industry, 20% in agriculture, 15% in tourism and5X in other sectors. BTKD is particularly interested in technologicallyadvanced projects. Its equity participations are limited to 50% of BTKD's networth and it cannot normally take more than 15% of a firm's share capitalexcept for companies when BTKD is the promotor and lead financer, where itsparticipation could go as high as 30%. Its maximum exposure in a singlecompany is limited to 10% of its own net worth but in exceptionalcircumstances can go up to 15% (see para 6.10). The interest rates BTKDcharges are 12% per year for loans up to 11 years rising to 13% for a loanwith maximum duration of 15 years. These rates are revised from time to time.

5.26 The Policy Statement stipulates a debt equity ratio of 4:1 and thatBTKD should lend only at fixed rates from its own funds or from borrowed fundsat fixed rates; otherwise variable rates should be used. Also maturities ofits lending should approximately match the maturities of its borrowing. Ingeneral BTKD's financial and operational policies as contained in the PolicyStatement are satisfactory.

5.27 BTKD has a Board of Directors of ten members of which the Presidentis Kuwaity. BTKD's first General Manager, who is not a member of the Board ofDirectors, has had about ten years of service with BDET and is known as anexperienced development banker. As of December 31, 1984, BTKD had a totalstaff of 74 of which 30 were professional staff. BTKD is organized in fivedepartments: Promotion, Appraisal/Follow-up, Equity Participation/Representation, Controllers/Treasury and Administration (see OrganizationChart Annex 4, table 2). The department directors are experienced andqualified people; the directors of the two operational departments are bothengineers with considerable experience in industry, while the AdministrationDepartment is managed by a former commercial banker. The two operationaldepartments have in total ten professional staff members, while three staffmembers are in the Equity Participation Department. The Controllers andAdministration Departments are presently directed by one director, who is alsoresponsible for the legal services.

5.28 The financial, technical and market analysis of BTKD's reports is of

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satisfactory quality. However, BTKD's appraisal reports sometimes lackcomprehensive economic analysis, which may partly be explained by theconsiderable number of operations in the first two years of operation. Inmost cases where such detailed appraisal is missing, BTKD relied on the workdone by other financial institutions (joint or parallel financing), byGovernment agencies or by independent consultants. However, BTKD has thestaff and know-how to prepare appraisal reports according to the formatdescribed in para's 6.07 - 6.09. On the basis of a sample of appraisalreports, particularly those concerning export industries, BTKD's appraisalstandards and procedures are considered satisfactory. BTKD has still toorganize its supervision activity for which plans and procedures are beingworked out. These plans have been completed satisfactorily and a program toimplement them as well as BTKD's reporting requirement, was agreed duringnegotiations.

5.29 As of December 31, 1983, BTKD had approved 197 loan and equityoperations for 118 projects for a total amount of TD 193.2 million, of whichTD 158.4 million in loans and TD 34.8 million in equity participations.Commitments amounted to TD 102.6 million, while disbursements up to December31, 1983 totalled TD 51.3 million (Annex 4, table 3). BTKD finances mainlyprojects with total investments of over TD 2 million; of the 118 projectsfinanced by BTKD, 28 companies had investments over TD 10 million andoperations of over TD 5 million accounted for almost 25% of the total amountapproved till December 31, 1983. The remaining 90 companies had an averageinvestment of about TD 3 million. In total, 60 projects received financialassistance in the from of loans and equity participations of less than TD 1million.

5.30 Three quarters of BTKD's approved financial assistance was for newprojects, while private sector projects accounted for 62.9% (Annex 4, table4). Public sector projects included mainly four transport projects, fourenergy projects, four projects in EMI and construction and two projects forurban development and industrial estates. It is likely that BTKD'sinvolvement in public sector projects will diminish but it may play a role,with the other development banks, in the privatization of public sectorprojects. Of the 63 industrial projects financed by BTKD, 26 export part orthe totality of their production. BTKD emphasizes projects which introducenew or advanced technology into Tunisia and partly for this reason 15 projectshave been financed with foreign equity participation irnvolving TD 19.2 million.

5.31 BTKD's financial position is sound. Of its TD 100 million sharecapital, TD 75 million has been paid in as of December 31, 1984, the remainderto be paid in over the next year. The company has no outstanding debt andmade a net profit of TD 4.1 million up to December 1982 and TD 4.3 million in1983, equal to 8% return on average equity, which is considered satisfactory.In 1984, BTKD's net profit amounted to TD 6.67 million (8.7% of averageequity). These net profits have been retained as reserves. Profit and LossStatements and Balance Sheets are attached in Annex 4, tables 5 and 6.

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5.32 BTKD's loan approval level is expected to come down to TD 40 millionin 1984 and grow thereafter by about 10% per year, which is consideredreasonable (Annex 4, table 7). Equity investments will be one-fifth of totalapprovals. CoDmitments for the period September 1984-1987 are projected at TD203.3 million. BTKD's resource position and needs forSeptember 1984-1987 are as follows:

Resource position as of 9/30/84 (TD mln)Capital, reserves and provisions 89.20BorrowingsTotal Resources 89.20

PortfolioLoans outstanding .66.33Equity investments 19.43Other 0.24Total Portfolio 86.00

Resources available for commitment 3.20Undisbursed commitments as of 9/30/84 42.23Resource gap on commitment basis 39.03

Foreign LocalTOTAL Currency Currency

Resource gap on commitment basis (9/30/84) 39.0 22.2 16.8Resource requirements 9/30/84-12/31/87 203.3 141.7 61.6

Total 242.3 163.9 78.4

Cash generation (net) 35.4 - 35.4Net loan collections 27.2 - 27.2Share capital increase 25.0 12.5 12.5Identified borrowing (excluding 41.0 41.0 --new proposed Bank loans)

Total identified resources 128.6 53.5 75.1

Resource Gap (1984-1987) 113.7 110.4 3.3

The existing resource gap plus forecast resource requirements for the periodseptember 1984-1987 amounts to TD 242.3 of which TD 163.9 million (US$ 197million) in foreign exchange and TD 78.4 million in local currency.

5.33 Local currency resource requiremeats are expected to be covered bycash generation, loan collections and share capital increases. Foreigncurrency requirements are expected to be covered by share capital increases(foreign partners) and through an issue of $50 million in the internationalmarket. The proposed loan of $15.0 million would be small in relation to theremaining resource gap of TD 110.4 million but would mainly serve to help BTKDin its resource raising efforts and to provide institutional support throughthe normal supervision activity of the Bank. Understanding was reached withthe Government and BTKD during negotiations on a realistic plan for themobilization of resources by BTKD during 1985 and BTKD's resource mobilizationplans and needs will be reviewed annually with BTKD and the Government (LoanAgreement section 4.06).

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5.34 BTKD's projected Balance Sheets, Income Statements and Cash-Flows(Annex 4, tables 8, 9 and 10) show satisfactory levels of profitability. Nopayments of dividend are forecast as has been agreed by the shareholders. Thedebt:equity ratio remains below 1:1 during the period and debt service ratiosremain accordingly very healthy (above 2).

III. Soci4tg Tuniso-Seoudienne d'Investissementet de Developpement (STUSID)

5.35 STUSID was created by an agreement between the Saudi-Arabian Kingdomand Tunisia on January 6, 1981. The company started operations on May 30,1981 and has as its main objectives the promotion and financing of industrial,tourism, agricultural and other econnmically and financially viable projectsin Tunisia and the mobilization of capital abroad for these projects.

5.36 The company has a share capital of TD 100 million equally owned bythe two countries (Annex 5, table 1, list of shareholders). One quarter ofits capital was paid in at its creation, the remainder to be paid in over aperiod of five years. STUSID can take equity participations, make loans,provide guarantees and give technical assistance. One of its objectives isalso to help in the development of the capital market and to participate inimport and export finance. With regards to the latter, the Policy Statementmentions that this type of finance will await legislation and creation of anexport guarantee system.

5.37 STUSID focusses its attention on projects having a favorable impacton the balance of payments and employment. It also orients its operationstowards larger projects with investments over TD 2 million for industrialprojects and over TD 3 million for other projects. Equity participation inprojects is considered important and in practice STUSID provides its financialassistance in the form of equity and loan in the ratio 1:2. No particularlimit is stipulated on the equity investment in one single company but thePolicy Statement gives a margin of 15-30% of its capital. The agreementcreating STUSID limits the total amount of equity investments by STUSID to itsnet worth.

5.38 The Policy Statement stipulates a debt-equity ratio of 4 to 1 andthat STUSID will not bear any exchange risks. In general STUSID's financialand operational policies, as detailed in its Policy Statement, aresatisfactory.

5.39 STUSID has a Board of Directors of ten members of which the Presidentis Saudi-Arabian. STUSID's first Chief Executive Officer, who is member ofthe Board of Directors, was a former Director General of the Plan, formerPresident of STEG (Societe Tunisienne d'Electricite et du Gaz), DirecteurGeneral of CNEI (Centre Nationale d'Etudes Industrielles) and President ofSFAX-GAFSA (Phosphates Company). He is an experienced manager and competentprofessional. STUSID has recruited 45 professional staff including eightmanagers in the 2-1/2 years since it started operations. STUSID has sevendepartments of which five are operational (industry, tourism,agricultare/agro-industry, promotion and planning/follow-up). The lastdepartment coordinates the activities of the other four and, because it isSTUSID's policy to take an equity investment in the projects it finances, isresponsible for managing the equity portfolio and

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the follow-up on the loans. The remaining two departments concernadministration and finance (Annex 5, table 2 Organization Chart).

5.40 The company has put in place sound appraisal procedures and methodswhich emphasize financial, economic, and technical criteria. On the basis ofa selection of appraisal reports, it appears, however, that improvements canstill be made particularly with regards to the economic merits of projects.STUSID has also established a detailed follow-up policy for projects it hasfinanced. The follow-up activity is important given STUSID's emphasis onequity financing. Although this activity would, as conceived by STUSID,require a substantial manpower input, its cost is expected to be largelycovered by representation allowances (directors' fees). During negotiationsreporting requirements were discussed and agreed including those pertaining tothe supervision of projects.

5.41 STUSID makes extensive use of computer facilities. The system coversthree sub-systems:

- project appraisal, supervision and loan administration;- accounts, budget and payroll; and- management information system.

Every department has its terminal and STUSID has its own personnel to developand implement new computer usage. Thanks to these facilities STUSID has beenable to limit the recruitment of support staff.

5.42 Operations. As of December 31, 1984, STUSID had approved 99 projectsfor a total amount of TD 157.9 million of which TD 107.4 million in loans andTD 50.5 million in equity participations. Commitments amounted to TD 92.2million while disbursements were TD 61.5 million (Annex 5, table 3). STUSIDfinances mainly large companies: 38% of the projects financed had investmentsof over TD 10 million and operations of over TD 5 million accounted for 51.6%of the total amount approved (Annex 5, table 4). Nevertheless, 37 projectsrequiring less than TD 5 million in total investments, involving TD 18.9million were approved indicating that a substantial number of smaller projectsbenefitted from STUSID's assistance. Two of the larger projects financed bySTUSID (and BTKD) have received financial assistance from the Bank (SOGITEXand SOFOMECA). STUSID's involvement in tourism is so far limited to only twolarge projects which are cofinanced with Saudi partners. Among the "other"projects are included three financial institutions (BNDT, BNDA and a leasingcompany jointly promoted with IFC) as well as a large urban renewal projectfor the city of SFAX. Altogether 62.5% of STUSID's approvals have been forindustrial projects. The TD 157.9 million approved have financed projectscosting in total TD 1.051 million which shows that STUSID was oftenco-financer in these projects.

5.43 Of the projects financed, six have majority government ownership(three energy and three urban development projects). STUSID's participationin some of the large industrial projects, has permitted the Government towithdraw from those pro;ects. Sixteen of the 43 projects in industry andagriculture export the totality or part of their production. STUSID'smanagement attaches great importance to projects able to export at least partof their production. A considerable number of projects are joint-ventures

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where STUSID has attracted capital from Arab and other sources and obtainedtechnical or marketing experience for the projects it has financed. In 1983STUSID approved TD 16 million in equity participations for companies in whichforeign shareholders participated for TD 30 million.

5.44 Financial Position. STUSID's financial position is sound (Annex 5,tables 6 and 7). Of its TD 100 million share capital, TD 70 million has beenpaid in as of December 31, 1984, the remainder to be paid-in over the next twoyears. The company made profits of TD 2.8 million in 1982, TD 3.0 million in1983 and TD 4.6 million in 1984. Its liquid assets of about TD 20 million areinvested in the money market at an average rate of 10%.

5.45 STUSID's Projected Balance Sheets, Income Statements and Cash-Flows(Annex 5, tables 6, 7 and 8) show lower levels of profitability than BTKD.This development is mainly due to STUSID's rather important equityparticipation portfolio on which returns are uncertain and generally low inthe early years. No dividend payments are forecast as agreed by STUSID'sshareholders. The debt: equity ratio remains below 1:1 till 1987 and debtservice ratios remain accordingly very healthy (1.8 in 1987).

5.46 Resource Position. STUSID's loan approvals are projected to growfrom TD 21.3 million in 1984 to TD 38.0 million in 1988 (Annex 5, table 5).Equity participations are forecast to remain at about one-third of totalapprovals, averaging about: TD 15 million a year. Commitments for the period9/30/84-12/31/87 are projacted at TD 132.1 million, about TD 70 million lessthan BTKD and about TD 10 million less than BDET. STUSID's resource positionand needs for September 1984-1987 are forecast as follows;

Resource Position as of 9/30/83 (TD mln)

Capital, Reserves and Provisions 79.43Borrowings

Total Resources 91.43

PortfolioLoans Outstanding 28.56Equity Investments 22.65Other 0.34

Total Portfolio 51.55

Resources available for commitment 27.88Undisbursed commitments 31.30Resource gap on commitment basis 3.42

Foreign LocalTOTAL Exchange Currency

Resource gap on commitment basis(9/30/84) 3.4 2.0 1.4

Resource requirements 9/30/84-12/31/87 132.1 68.7 63.4

Total Requirements 135.5 70.7 64.8

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Resource Position as of 9/30/83 (TD mln) (cont'd.)

Foreign LocalTOTAl Exchange Currency

Financed byCash Generations (net) 19.3 - 19.3Net Loan Collections 18.9 - 18.9Share Capital Increase 30.0 15.0 15.OIdentified Borrowing (excluding 18.0 15.0 3.0new proposed Bank loans)

Total Identified Resources 86.2 30.0 56.2Resource Gap 49.3 40.7 8.6

5.47 Local currency requirements are expected to be covered for 86Z by,cash generation, loans collections and share capital increases. Foreigncurrency requirements are partly covered by share capital increases andthrough an issue of TD 15 million in the international market, leaving aforeign exchange gap of TD 40.7 million (US$ 50.0 million). The proposed Bankloan of S15.0 million would cover 30% of this gap and would mainly serve tohelp STUSID in its resource raising efforts and to provide institutionalsupport through the normal supervision activity of the Bank. Understandingson a realistic plan for the mobilization of resources by STUSID during 1985was reached with the Government and STUSID during negotiations. Each year,the Government, STUSID and the Bank will review STUSID resource mobilizationplans and needs (Loan Agreement section 4.06).

B. Other Institutions

I. Export-Credit Insurance Company (COTUNACE)

5.48 The objective of export-credit insurance is to cover, through aninsurance policy, the majority of losses which an entrepreneur can incur onits export operations because of non-payment by the foreign buyer forcommercial or political reasons. Such insurance should encourage banks toprovide loans to exporters with limited collateral. A draft Law creating thisFacility was approved by Parliament in June 1984 (Annex 7), and the company(Compagnie Tunisienne de l'Assurance du Commerce Ext6rieur: COTUNACE) wascreated September 11, 1984. COTUNACE has a share capital of TD 1 million tobe increased to TD 2 million in 1985. The shareholders are the Central Bank,the Government, commercial banks, development banks and insurance companies.Obligations arising from insurance policies should be covered by premiumincome (commercial risk) and payments by the Guarantee Fund (political risk)(Annex 8 Article 12). It is expected that the company will be operational inmid-1985. The law states that all exports loans, must be insured in order tobe eligible for rediscounting at the Central Bank. The facility would beavailable to all resident companies. Non-resident companies (see para 3.10)can, on a voluntary basis, insure themselves only for commercial risks. Thislimitation is similar to those prevailing in other countries providingexport-credit insurance. The facility will cover the risks of default on thepart of the foreign buyer during all phases of the transaction (start-up,

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production, storage, transportation and settlement). In principle thefacility can also insure medium- and long-term export credits. However, theintroduction of insurance policies for these credits will have to await thesetting up of special credit facilities for this type of transactions. Theseare presently being studied.

5.49 The head of the COTUNACE is an experienced Central Banker who hasassembled a number of competent staff to help him in setting up the company.His most immediate tasks are to draft the Statutes, the Insurance Policies andtheir general conditions and undertake actuarial studies to determine thefinancial needs of the company based on risk evaluation, establish premiumsand evaluate the re-insurance possibilities and costs. He will also have todesign the organisation chart, determine the most important posts to be filledand recruit the required personnel.

5.50 Originally the Bank, which helped design and establish COTUNACE withthe assistance of an expert from COFACE, had identified a need for financialassistance to finance experts to help it in its early phases of operations.However, in the meantime, the Tunisian authorities have identifiedconcessionary sources which will provide the required funds to finance atechnical assistance program that is presently being prepared by theInternational Trade Center of Geneva. The development of this program isbeing co-ordinated with the Bank. During negotiations the Bank satisfieditself that COTUNACE will employ suitable consultants to assit it in itsoperations. It was also agreed that the Bank will be informed on the progressof their work as well as on the general program of COTUNACE's activities.

II. The Center for the Promotion of Exports (CEPEX)

5.51 CEPEX established in April 1973 to promote exports (see para 3.13)has four departments: Marketing Studies, Promotion, commercial Informationand Textile, the latter because of its prominent place in Tunisia's exports.It has a staff of 37 of which 21 are professional staff. CEPEX is governed bya Board of Directors, whose president is also president of BDET, and includesrepresentatives of the most important ministries (National Economy, Plan,Finance), the Central Bank, as well as the Chamber of Commerce (UTICA). A newmanaging director was appointed in early 1982. He has helped to make CEPEXmore dynamic by recruiting qualified personnel and establishing directcontacts with exporting firms in order to help them in overcoming problems.

5.52 To further strengthen the institutional framework with regards toexports, the project provides for the setting up of an Export Promotion Fund(para's 6.13 to 6.17) in CEPEX which was created in December 1984 (1985 Loi deFinances) and which provides for its funding through a small levy on certainimports. The Export Promotion Fund would assist new exporters in themarketing of their products abroad and help existing exporters to promote newproducts and explore new non-traditional markets. The Fund would give CEPEXan important additional instrument to compiement its existing activities.

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VI. THE PROJECT

Project Objectives and Components

6.01 The main objectives of the proposed project are to;

(a) promote the efficient development of export industries by financing,through BDET, BTKD and STUSID, the establishment, expansion andmodernization of industrial enterprises engaged in exports;

(b) improve the institutional environment for exporters in threecomplementary ways:

(i) the provision of funds through the Export Promotion Fund inCEPEX for assisting exporters with the promotion of exports todevelop new markets and promote the export of new products;

(ii) assist the Export-credit Insurance Company (COTUNACE) with theproper formulation and execution of a technical assistanceprogram; and

(iii) help in improving administrative procedures related to exportsparticularly in the fields of customs formalities, foreignexchange controls and import regulations.

6.02 The project would consist of a loan of $50.0 to the Government whichwould pass on the proceeds to BDET ($20.0 million), BTKD ($15.0 million) andSTUSID ($15.0 million) to cover part of their resource needs for the financingof eligible export industries projects.

A. Investment Financing of Export Projects

6.03 Pipeline of Export Projects. On the basis of recent experience and areview of the pipelines of projects of BDET, BTKD and STUSID the proposedamounts will be sufficient to meet only a small part of the financialresources needed by the three development banks to finance export orientedprojects. BDET estimates to approve about TD 12.5 million per year forprojects exporting the total or part of their production. This estimate isbased on its past approvals of loans for Law 1972-38 export projects (1982:TD 8 million), new projects in the pipeline exporting part of theirproduction, requiring an estimated TD 9 million in financing, and expansion ofprojects which will export part of their production. The proposed loan of$20.0 million would therefore cover about 40% of BDET's total projectedapprovals ($46.9 million at current exchange rate) for such projects in theperiod 1985-1987 (Annex 6, table 1).

6.04 BTKD financed in 1981-1983, 26 export projects, of which 14 willexport 100% of their production. The total financial assistance involved inthese projects amounted to TD 53.6 million ($73.4 million). BTKD's existingpipeli. of export projects requires about TD 10 million (Ml2.5 million atcurrent exchange rates) in financing. Based on this pipeline and itsintention to put a special emphasis on the promotion of export projects BTKDexpects to approve at least TD 10 million p.a. in the next three years (Annex6, table 2). STUSID provided TD 15.1 million ($20.7 million) for 13 export

- 34 -

projects in the period 1981-1983. Its pipeline includes 14 projects for whichthe expected finance is calculated at over TD 16.7 million ($20.9 million atcurrent exchange rates). On the basis of this pipeline and its experience,STUSID estimates its approvals for export projects to amount to TD 8 millionp.a. (Ml0.0 million at current exchange rates) (Annex 6, table 3). Theproposed loan of $30 million for the two institutions would cover about 40X oftheir estimated approvals for export projects.

6.05 Eligibility criteria for sub-projects. The proposed loan wotAldfinance the foreign exchange cost of works, machinery and equipment foreligible export oriented sub-projects. The definition of export orientedsub-projects would include (i) new enterprises which would export at least 30%of their production and (ii) balancing, modernization and/or expansion ofexisting enterprises which would export at least 50% of their incrementalproduction. To ensure their overall positive contribution to the balance ofpayments of the country and optimum use of domestic resources, including rawmaterials, labor and technology, eligible sub-projects would have to recovertheir foreign exchange cost through net foreign exchange earnings within afive year period commencing six months after completion of the investments.Besides these specific requirements, these projects would meet regular Banksub-project criteria of being technically sound, and financially andeconomically viable, i.e. meeting the test of a minimum 12% FRR and a minimum10 ERR.

6.06 To ensure that the proceeds of the proposed loan will be used for alarge number of projects, the maximum loan amount for an individual project tobe financed by BTKD and STUSID will not exceed $1.5 million. For BDET, a $2million limit would apply. In case projects are jointly financed by two ormore institutions such projects can only benefit up to a maximum of $3 millionin finance from the proposed Bank loan. No free limit would be granted forprojects submitted by STUSID and BTKD to allow a maximum of Bank review of thelimited number of projects to be financed by them. For BDET-financedprojects, a free limit of $750,000 equivalent would apply. It is expectedthat about 60% of the amount and 40% of the number of projects to be financedby BDET from the proposed loan would be for projects above the free limit.

6.07 Appraisal Format. Sub-Project reports would provide satisfactoryjustification concerning the export potential and would include inter alia:

(i) detailed market analysis with statistics of demand, supply andimports in target markets;

(ii) justification of price/quality competitivene-3 of products to bemanufactured by the enterprises; and

(iii) steps taken by sponsors to secure an export market;

(iv) marketing channels abroad and purchase orders received or contractsmade on long-term basis, if any;

(v) past export performance in case of balancing, modernization and/orexpansion sub-projects;

- 35 -

(vi) detailed calculations of net foreign exchange earnings annually for aperiod of five years showing breakdown of income and cost in foreignand local currencies;

(vii) eligibility to the Government's export incentives and details thereof.

6.08 All new and expansion projects should pass an ERR test in which alloutputs and tradeable inputs including capital equipment are valued in borderprices while appropriate conversion factors are applied to non-traded inputssuch as buildings and labor. Detailed justification of the border prices usedshould be provided in each case and the conversion factors used should beshown. Balancing, modernization or restructuring projects should be similarlyjustified. All three development banks have sufficient qualified staff tomake the necessary analysis to demonstrate the economic viability along thelines described above.

6.09 In order to ensure that sub-projects do not depend for theirprofitability on excessive protection on that part of their output sold in thedomestic market, sub-project reports should briefly describe the relevantprotection environment and the projected profitability of the project'sdomestic sales by comparison with its export sales. The description of theprotection environment should include the import protection for the project'soutputs (quantitative import restrictions, foreign exchange licensing andtariff levels) and the import protection for the principal inputs. Projectsin the EMI sector should conform, as regards protection in the domesticmarket, to the principles agreed under the EMI loan.l/ The relation, if any,between the project and export compensation agreements should also bedescribed.

6.10 Financial and other covenants. All three banks will have theirannual accounts audited by auditors acceptable by the Bank. As agreed underthe previous Loan Agreement with BDET its debt: equity ratio will not exceed8:1, while a maximum debt: equity ratio of 4:1 will apply to BTKD and STUSID.On the basis of the projected financial statements of the two banks this ratiowill not be attained in the next five years. BDET's maximum exposure in asingle enterprise should remain at 25% of BDET's networth as agreed in thepast; this exposure limit should be fixed at 15% for BTKD and STUSID as ispresently stipulated in their respective Policy Statements 2/. Any amendmentsin the Statutes, Policy Statement and Establishment conventions should not bemade without the Bank's approval. The reporting requirements usual in DFCloans and applied to past BDET loans would be required. BDET, BTKD and STUSIDhave provided detailed supervision plans for 1985 which were reviewed duringnegotiations and considered satisfactory.

1/ essentially, non-consumer electrical and mechanical products should have atariff protection duty of 18% or less and in the case of steel structureand platework a protection of 21% or less.

2/ During negotiations it was agreed that STUSID and BTKD v'u-ld inform theBank whenever their exposure in a single company would exceed 10%.

- 36 -

6.11 Loan terms. Bank funds would be on-lent by the Government to thedevelopment banks in local currency at an interest rate equal to theprevailing Bank rate. The Government would bear the foreign exchange risk.The development banks would repay their respective loans to the Governmentaccording to the composite amortization schedule of the sub-projects financedby the subsidiary loans. Signature of subsidiary loan agreements, between theGovernment and each of the three development banks satisfactory to the Bank,would be a condition for effectiveness. The loan to the Government would berepaid to the Bank according to a fixed amortization schedule of 17 years,including 4 years of grace.

6.12 The development banks would charge a minimum effective interest rateof 11% p.a. to the sub-projects financed from the proceeds of the loan. $hebanks' interest rates will be reviewed annually between the development banksand the Bank (Section 4.10 of the Project Agreement), with the main objectiveof assuring the development banks a reasonable financial margin 1/ on theirborrowed resources of at least 2%. Thus, while the development banks wouldbear the interest rate risk on the Bank loan, the annual review would assurethe development banks a reasonable spread on its total resources. In linewith understandings already obtained under the first EHM project, theGovernment will ensure that a minimum spread of 2% will be maintained for thedevelopment banks (Section 4.03 of the Loan Agreement). Also in line withthis agreement, this spread could include a subsidy until 1986. Thereafterthe minimum spread would have to be based solely on the interest rate policy.The maturity of the sub-loans to be made by the development banks from theproceeds of the loan would not exceed 14 years. including a maximum graceperiod of 3 years. The final date of submission of sub-projects would be June30, 1988.

6.13 Procurement and Disbursements. BDET's procurement and disbursementprocedures are satisfactory; appraisal reports usuallv describe in detail andjustify the equipment to be purchased, its technical characteristics, thenames of suppliers and prices quoted. Procurement will continue to be carriedout, as under previous loans, in accordance with BDET procedures whichrequire, in particular, borrowers to obtain at least three price quotationsfrom suppliers/manufacturers. Similar procurement and disbursementsprocedures will apply to BTKD and STUSID and were agreed to duringnegotiations.

6.14 The proposed loan would finance the foreign exchange cost of goods,works and services for export projects submitted by the development banks forfinancing under the loan. It is estimated, that about 60% of the investmentcost of projects would be in the form of goods and services supplied fromabroad. Disbursements would be made on the basis of standard documentation asdescribed in the Bank's disbursement procedures, except for expenditures below$20,000 which would be made against statements of expenditures. The closingdate would be June 30, 1991.

B. Technical Assistance to the Export-Ciedit Insurance Company (COTUNACE)

6.15 A detailed description of the objectives for the creation of the

1/ Difference between the interest rate received on the average outstandingportfolio and the interest paid on the average outstanding amount ofborrowing.

- 37 -

company, its establishment and the need for technical assistance to ensure itsproper functioning and development is given in paras 5.48 - 5.50. Thetechnical assistance program will be financed by non-Bank funds. However,given the important role that rhe Bank has played in establishing the companyand the importance that the Bank &-taches to its sound development, the Bankwill maintain a continuing involvement with the progress of COTUNACE'soperations as noted in para 5.50. Also, if non-Bank funds would not beavailable by December 31, 1985 to finance all or part of the program, theGovernment agreed during negotiations to finance any shorfall, that could notbe met through other financial sources. This is be reflected in the LoanDocuments (Section 5.01 (g)).

C. Export Marketing and Promotion

6.16 The financing of export marketing activities is generally difficultand in many developed and developing countries special organisations have beenset up to provide financial assistance to potential exporters. The problem isexacerbated in Tunisia because of the prevailing foreign exchange constraintsand ensuing foreign exchange regulations. The Central Bank is in thesecircumstances reluctant to increase the amounts in foreign exchange freelyavailable to potential exporters. The recently created Export Promotion Fundwould provide CEPEX with an additional export promotion tool. This newactivity will foster closer relations between CEPEX and potential exportersand allow it to better adjust its programs (market studies, trade fairactivities, publications etc.) to the specific needs of these exporters.

6.17 The Export Promotion Fund would finance marketing and promotionactivities mainly of new exporters, and similar activities for new products ornew markets of existing exporters. It would provide funds to permit theexporter to finance his marketing plans, for which the exporter would have toprovide the Fund with documentation justifying the actual expendituresincurred.

6.18 The need to establish an Export Promotion Fund had been identified bythe Bank and the Tunisian authorities during appraisal of the project.Although no Bank resources would be channeled through the fund its sounddevelopment and operation is important in encouraging the growth of exports.During negotiations agreement was therefore reached with the Government thatan Export Promotion Fund with procedures, organisational structure andstaffing satisfactory to the Bank would be set up by December 31, 1985 andthat it would be provided with adequate financial resources (Section 3.04 ofLoan Agreement).

D. Improvement in Procedures Related to Exports

6.19 Complex and often uncoordinated administrative proceduresparticularly with regards to imported and locally procured inputs used byexporters, foreign exchange controls, drawback and temporary admission, hinderexport activities. These procedures furthermore impede the integration ofdomestic and export markets in the sense that firms basically producing forthe local market would not find adequate incentives to supply exporters. Forexample, firms which supply export companies are not treated equally in termsof drawback and temporary admission as offshore firms which only produce for

- 38 -

export markets. Whereas the procedures for the latter firms are simple, theformer firms are required to go through a series of import content checks anda more cumbersome and lengthy procedure for drawback, temporary admission andto obtain foreign exchange.

6.20 In view of the complexity of procedures which exporters face,involving several ministries and departments (Ministry of National Economy,Ministry of Finance, the Central Bank, Customs) and considering that manyregulations are either unclear or unknown to exporters, a comprehensiveguidebook describing the procedures for exporters is being prepared by CEPEX.These procedures would include the reimbursement of exporters or domesticsuppliers to exporters for taxes and duties paid on locally produced orimported inputs incorporated in exports. The Government is also aware thatthe procedures require simplification, harmonization and general improvementin their application to ensure that they do not stand in the way of expandingexports. Recommendations to improve the existing procedures were prepared byCEPEX and were reviewed during negotiations. Understandings were reached onthe issuance of the guidebook before December 31, 1985. Simplifiedprocedures, specifically concerning simplified payment and documentationprocedures with regards to exports and with regards to temporary admission ofimports used in the manufacture of export products were adopted. Anothermeasure, the creation of an exporters service in the customs office, whichwould assist exporters with the formalities related to the imports requiredfor their production and the exports of their final products, is beingimplemented.

E. Project Benefits and Risks

6.21 Benefits. The loan is expected to finance projects whose total costwould be about t125 million equivalent over the next three years. Iheseprojects are expected in time to generate exports worth about $100 millionp.a. On the basis of statistics provided by API (Agence de PromotionIndustriel), export projects have an average cost per job of about $12,500.It is, therefore, expected that investments financed by the proposed loanswould create about 10,000 jobs.

6.22 Furthermore, Tunisia's exports in general will be assisted by thecreation of the Export Promotion Fund and the Export-Credit Insurance Company(COTUNACE). This institutional strengthening should help address the majorconstraints of future export growth: markets and finance. Together with animprovement in administrative procedures, these measures have a potentialbenefit in terms of increased export that far exceeds their costs. While itis not possible to assess quantitatively the effect of these measures, even anincrease of 1% in the value of export growth would translate into about TD 50million over a period of about 5 years --far in excess of any posssible costfor the proposed measures.

6.23 Risks. The major risk of the proposed project is that a shortfallcan occur in the expected increase in exports. Ihe past impressive growth ofTunisian exports of industrial products, and the priority accorded by theGovernment to this sector are reassuring in this respect; also the Bank willneed to devote sufficient resources in the supervision of this importantproject to minimize the risk that the funds under this project are usedwithout a commensurate increase in exports. On balance the risks areacceptable and well worth taking in relation to potential benefits.

- 39 -

VII. REC0MMENDATIONS

7.01 The proposed loan of $50 million equivalent to the Republic ofTunisia, consists of three lines of credit to BDET ($20 million), BTKD ($15million) and STUSID ($15 milion) to be used for the financing of viableexport-oriented projects. Besides providing financial assistance, theproposed project aims at establishing and providing institutional support toan Export Promotion Fund and an Export-credit Insurance Company. It issuitable for Bank financing given the following agreements and understandingsreached during negotiations.

7.02 Agreements reached during negotiations

(i) Government to undertake a study for instituting a suitableforeign exchange risk coverage scheme (para 4.12);

(ii) BDET, BTKD and STUSID's to implement supervision plans agreedduring negotiations (paras. 5.14, 5.28 and 5.40);

'iii) Government to review each year, with BDET, BTKD, STUSID and theBank, the resource mobilization needs of the development banksand agreement with BDET's, BTKD's and STUSID's resourcemobilization plans for 1985 (paras. 5.22, 5.33 and 5.47);

(iv) supervision of the execution of COTUNACE's technical assistanceprograms and its operations (paras. 5.50 and 6.15 );

Cv) eligibility criteria for export projects to be financed throughthe development banks (para 6.05 and 6.06);

(vi) appraisal format (para 6.07-6.09);

Cvii) financial covenants applicable to the development banks (para6.10);

(viii) maintenance of a satisfaccory financial margin of at least 2%for the development banks concerned through appropriateinterest rate policies (para 6.12);

(ix) BDET, BTKD and STUSID shall review with the Bank annually byDecember 31, starting in 1985, the rates and structure of theirinterest rates (para 6.12);

(x) Export promotion fund to be provided with adequate financialand human resources and satisfactory organisation structure andprocedures by December 31, 1985 (para 6.18).

- 40 -

(xi) the Government shall ensure that funds from bilateral ormultilateral sources are available by December 31, 1985, forthe financing of the COTUNACE technical assistance program orshall make available funds from other sources (including, ifneed be, its own) for this purpose (para 6.15);

7.03 Conditions of Loan Effectiveness: signature of Subsidiary LoanAgreements between the Government and BDET, BTKD and STUSID (para 6.11).

SXORT INDUSTNI3S nIGJCT

wvectm_ts in ManufacturiaX Indutries (1980-1983)(oin ua TD)

1980 1981 1982 1983 19*X983Pub. Pri. Total Pob. Pri. TotAl PIb. Pri. Tota I Rbb. Pri. lot-lT

Aro-Lndustries 12.7 14.8 27.5 34.0 17.5 51.5 34.0 18.0 52.0 16.0 21.9 38.0 96. 72.2 169.0Oonstruction )Ateriala 24.7 13.5 38.2 40.2 16.7 56.9 43.7 20.9 64.6 64.4 24.0 88I4 173.0 75.1 248.1Flectro-Mechanical 6.3 14.3 20.6 11.4 15.0 26.4 18.0 24.3 42.3 22.6 41.6 64.2 58,3 95.2 153.5Chemicale 13.1 2.5 15.6 33.1 3.2 36.3 43.4 4.6 48.0 56.1 8.9 65.0 145.7 19.2 164.9Textile A Leather 2.0 13.7 15.7 4.3 16.7 23.0 4.3 21.3 25.6 8.0 26.8 34.8 18.6 80.5 99.1HMicellaneous 2.2 11.0 13.2 2.3 13.8 16.1 5.2 18.3 23.5 4.5 20.0 24.5 14.2 63.1 3.1

Total 61.0 69.8 130.8 125.3 84.9 210.2 148.6 107.4 256.0 171.7 143.2 314.9 506.6 405.3 91.9.

Totel (Z) 46.7 53.3 100.0 59.6 40.4 100.0 58.0 42.0 100.0 54.5 45.5 100.0 55.5 44.5 100.0

Sources Ministry of Plianniin

EHENA/IDFMarch 1985

-42 - ANI=EK 2

EXPOr IDUSr=ES PROCT

Rates of growth of exports 1976-1981(Ieast square estinates)

Mediterranean All Dev.World %,misia Algeria Morrocco Qreece Regior t Cbmtries

X z X Z 2 Z %

Finished products 14.86 35.70 -14.00 14.28 14.14 17.79 17.76

Textile & cloth 12.80 31.96 -36.33 15.84 15.97 17.43 12.58

Footwear 15.22 38.78 80.85** 19.17 10.82 15.71 15.56

Metallic products 14.63 53.78 -10.06 24.80 14.46 19.54 17.22

Nan-elec. machinery 14.24 47.05 -31.12 38.45 1.91 16.82 21.93

Electrical products 15.82 47.48 57.32** 9.43 15.23 15.56 21.09

Total Exports 14.80 28.85 32.57 15.84 13.87 16.77 8O.0

Source: Cbpiled fron the World Bank Trade System (in current US0)(detailed tables in the appendix)

Note: * Mediterranean Regiow Morocco, A1garia, Tunisia, Libya, Egpt, TurIey, Greece,Ybgoslavia, SpaiK, Fbrtugal

** Starting frau a negligible level.

March 1985

-43 - ANNEX 3table 1

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - List of Shareholders as of December 31, 1984

Amount Percentage No. of SharesI. Tunisian Shareholders

A. Public SectorTunisian Government 4,298,205 21.49 859,641Central Bank 2,805,650 14.03 561,130Government Commercial Banks

- Banque Nationale de Tunisie 570,370 2.85 114,074- S6ci6td Tunisienne de Banque 467,060 2.34 93,412

Government Enterprises 439,590 2.20 87,918Total Public Sector Shareholding 8,580,875 42.91 1,716,175

B. Private SectorPrivate Banks

- Union Bancaire pour le Commerceet l'Industrie 569,825 2.85 113,965

- Union Internationale de Banque 568,735 0.34 113,747- Banque de Tunisie 596,480 2.98 119,296- Banque Internationale Arabe de Tunisie 207,980 1.04 41,596- Banque du Sud 19,875 0.10 3,975- Credit Foncier et Commercial de Tunisie 11,700 0.06 2,340

Tunisian Individuals 1,823,115 9.12 364,623Total Private Sector Shareholders 3,297,710 16.49 659,542

Total Tunisian Shareholders 11,878,585 59.39 2,375,717

II. Foreign Shareholders

Sultanate of Oman 1,500,000 7.50 300,000Lybian Arab Foreign Bank 1,400,000 7.00 280,000International Finance Corporation (IFC) 1,250,000 6.25 250,000Caisse Centrale de Cooperation Economique 1,134,375 5.67 226,875Deutsche Entwicklungagesellschaft 1,000,000 5.00 200,000Kuwait Investment Company (SAK) 850,000 4.25 170,000Banque Arabe et Internationaled'Investissement (B.A.I.I.) 235,795 1.18 47,159

Caisse de Depots et Consignations 188,635 0.94 37,727Banque Nationale de Paris 188,975 0.95 37,795Frab Bank International 112,500 0.56 22,500Banca Commerciale Italiana Holding 75,000 0.38 15,000Bank Fur Gemeinwirtschaft 60,000 0.30 12,000Skandinaviska Enskilda Banken 56,590 0.28 11,318Worms & Company 14,600 0.07 2,920Private Foreign Shareholders 28,390 0.14 5,678

Total Foreign Shareholders 8,094,860 40.47 1,618,972

Bearer Shares 26,555 0.13 5,311

Grand Total 20,000,000 100.00 4,000,000

Source: BDETEMENA/ IDFMarch 1985

TUNISIA

EXPORT INDUSTRIES PROJECT

BDeT - Sumury of Operation. 1980-1984 1/(TDO '00)

1980 1981 1982 1983 1984No. Amount x No. Nount No. Amount I o No. ouot Z

Appl icat ions

Foreign Currency Loans 121 22,453.0 52.0 56 41,163.0 56.2 149 70,329.0 72.4 141 51,394.0 63.8 -- n.c.-Dinar Loans 67 17,339.0 40.0 69 25,656.0 35.0 65 20,631.0 21.2 59 24,288.0 30.1 ---- .Equity Participations 34 3,61.0 8.0 49 6.434.0 8.8 51 6,220.0 6.4 39 4.929.0 6.1 - -. m.--

TOTAL 183 43,407.0 100.0 220 73.253.0 100.0 216 97,180.0 100.0 208 80 611.0 100.0- : _. - = - -= - - _-

Approvals

Foreign Currency Loans 65 14,862.0 46.0 78 20,859.0 34.4 78 29,439.5 46.9 51 15,669.4 38.7 ) 96 28,346 59.0Diner Loans 62 14,338.0 45.0 82 33,078.0 54.6 74 27,074.8 43.1 65 20,327.4 50.2 ) 17,939 37.4Equity Participation 30 2889.0 9.0 44 6,690.0 11.0 52 6,249.6 10.0 34 4,473.5 11.1 22 1,732 3.6.

TOTAL 115 32,089.0 100.0 140 60.627.0 100.0 132 62,763.9 100.0 98 40.470.3 100.0 118 48.017 100.0Comituents

Foreign Currency 49 15,283.0 68.0 75 13,910.6 52.8 82 26,811.0 46.6 59 18,811.8 41.8 ) 90 ) 41,948 ) 93.0Dinar Loans 32 5,552.0 24.0 51 8,931.8 33.9 63 23,265.0 40.5 59 21,536.6 47.8 ) ) 7Equity Participations 27 1,778.0 8.0 38 3,511.2 13.3 62 7,410.0 12.9 37 4.701.4 10.4 30 3.140 7.0

TOTAL 91 22.613.0 100.0 164 16,353.6 100.0 207 57,486.0 100.0 155 45,049.8 100.0 120 45.0= 0 100.0

Disbursements

Foreign Currency Loans 10,256.0 43.0 16,400.5 61.8 10,117.0 46.9 18,055.6 37.4 noa. ) 41,850 7 91.2Diner Loans 12,683.0 52.0 7,452.5 28.1 17,718.0 41.3 25,159.0 52.0 n.a. ) )Equity Participations 1,154.0 5.0 2.678.0 10.1 5,095.0 11.8 5,125.7 10.6 n.c. 4.050 8.8

TOTAL 24,093.0 100.0 26.S31.0 100.0 42.930.0 100.0 48.340,3 100.0 45.900 100.0

1/ Projects that have benefitted from loans and equity participations are shown in all categories.

Soures BDETS

ERZKA/IDFMarch 1985

t w

-45- AMU 3geble 3

EXPORT IUDU8T8S PROJECT

IM - Analvy t of ewd 01P retime 1980-1293

1980 1ost 1982 1983_o_ AUsn * n-a z oa. Amm z No. .. t

&sa t-o t

- nw Projects 82 20,217.0 63.0 96 46,821.0 77.2 92 48,253.8 76.9 65 28,007.0 69.2- Igtxtion Project. 33 11,873.0 37.0 44 13.806.o 22.B 40 14.510.1 23.1 33 12.463.3 30.8

TOTAL 115 32.090.0 LO.0 140 60.627.0 100.0 132 62,763.9 100.0 S8 40.470.3 IOU.U

Private ve.Public Sector

- Private Sector 111 27,330.0 85.2 136 52.427.0 86.5 126 53.193.9 84.8 97 40.110.3 99.1- Public Sector 4 4.760.0 14.8 4 1.200.0 13.5 6 9.570.0 15.2 1 3d.0 0.9

TOTAL 115 32,090.0 100.0 140 60.b27-0 100.0 132 62.63.9 100.0 9 40470.3 100.0

Sect-re of ActivityIOLdSTllT

MIbehnical & Electrical 20 6,259.0 19.5 20 9,747.2 16.1 22 17.575.4 27.9 20 8a188.3 20.3Coetr.ctioa Materials 14 2,425.0 7.6 20 4.065.5 6.7 is 7.106.5 11.3 11 3.584.3 8.9aieicsl 4 Rubber 7 868.0 2.7 9 2.240.0 3.7 6 7,742.0 11.9 5 5,584.4 13.89ood Processing 11 1,336.0 4.2 14 5.683.0 9.4 1S 5,685.9 9.1 11 5,433.1 13.4Textiles 1S 3,463.0 10.8 14 1,920.0 3.1 16 2,047.5 3.3 11 2,165.7 5.3VWod, Cork 5 595.0 1.8 4 987.0 1.6 5 780.0 1.3 5 283.5 0.7Plastics a 1,465.0 4.6 5 410.0 0.7 6 546.0 0.9 7 1.176.0 0.9Niscellaneous 15 2.121.0 6.6 21 3.147.8 5.2 19 5.576.3 8.9 12 2,069.0 -

Sub-cotal 95 18,532.0 57.8 107 25,191.5 46.5 1014 46,762.6 74.5 82 28.484.3 70.4

TOURISM 16 10,557.0 32.9 30 27,235.5 44.9 24 14,431.1 23.0 16 L1,986.0 29.6TUNSPO7T 1 3,000.0 9.3 1 600.0 1.0 4 1.588.Z 2.5 _ - -EMEROT - - - 2 4.600.0 7.6 _ _ - _ - -

TaTAL 115 32,090.0 100.0 140 60,621.0 100.0 132 62.763.9 100.0 Y8 40.470.3 IW.O= ~ ~ ~ ~ ~ ~ ~~ ~ -4= _7_ . _ _ _

Size of Ooeration.

TO 15 to 49,999 32 722.0 2.3 29 706.3 1.Z 26 579.8 0.9 20 426.5 1.0TO 50 to 199,999 47 5,416.0 16.9 51 5.595.7 2.2 43 5,038.2 8.0 37 4.604.1 11.4TO 200 to 499,999 15 4,112.0 12.8 30 8,618.0 14.5 29 8,787.0 14.0 19 6.310.9 15.6TO 500 to 999,999 11 7,555.0 23.5 12 8,946.0 14.8 18 13,026.4 20.8 9 6,066.5 15.0TO 1.000 and over tO 14,285.0 44.5 18 36,561.0 60.3 16 35,332.5 56.3 13 23,062.3 57.0

TOTAL 115 32,090.0 100.0 140 6.0627.0 100.0 132 62,763.9 100.0 98 40,470.3 100.0

Oqratim,to -lse then 7 year. 1 1,100.0 3.8 6 5,810.0 10.7 76 3,965.9 7.0 12 3,212.0 1.9

7 to loea then 10 years 83 11.866.0 40.6 75 13,728.0 25.4 83 21.874.4 38.7 52 12.220.3 34.0Tan years and above 20 16 235.0 55.6 32 34,399.0 63.9 27 30.674.0 54.3 21 20.564.5 57.1

TOTAL 104 29,200.0 100.0 113 53,937.0 100.0 117 56,514.3 100-0 85 35,996.8 100.0

LOCATIONWrojecte (inter-regional) 1 3,000.0 9.3 - - - 2 3.142.0 5.0 - - -

ToIIS 41 6,577.0 20.5 45 16.222.0 26.8 40 19.708.0 31.4 .9 8.427.3 20.817XRTE 4 2,683.0 8.4 11 5,420.0 8.9 a 6,105.0 9.7 ', 2.757.5 6.6

WSIA 1 14.0 0.1 - - - 8 1,790.0 2.9 5 2.026.5 5.0CAP 011 (NAl UL) 17 7.041.0 21.9 19 11.791.0 19.1 18 3,868.0 6.2 7 6,071.0 17.2JbDOUD - - - 3 3,715.0 6.1 2 195.0 0.3 3 870.0 2.1IE SET - - - - - - 1 150.0 0.2 - - -SIDI BOUZID - - - - - - - - - - -KAIRD431A 1 30.0 0.1 3 312.0 0.5 - - - 1 10.0 -

SOISE 9 4,587.0 14.3 10 4,390.0 7.3 12 13,273.0 21.2 5 655.0 1.6NONASTIR 11 2,555.0 8.0 11 9,274.0 15.3 13 4,457.0 7.1 10 3.112.0 7.7KAIDIA 2 316.0 0.9 2 777.0 1.3 3 648.0 1.0 1 310.0 0.8KASSSERI! 3 1.352.0 4.2 3 248.0 0.4 1 482.0 0.8 3 1,34L.5 3.8CAUS * 159.0 0.5 3 1,295.0 2.1 2 1,557.0 2.5 1 2.790.0 6.9SFAX 11 1,656.0 5.2 8 2,177.0 3.6 4 567.0 0.9 4 753.0 1.9CGAS 1 45.0 0.1 1 7.0 0.1 1 923.0 1.5 1 1,567.3 3.9IlD6uIlg 2 1,374.0 4.3 4 1,073.0 1.8 3 1,077.0 1.7 2 1,881.0 4.7ZAD10A 9 701.0 2.2 14 3,523.0 5.8 10 3,980.9 6.3 a 3,049.7 7.5SILIAIA - - - 1 10.0 - 1 10.0 - - - -

TATAOUZNE - - - 1 90.0 0.2 - - - - - -

TOSEOR - - - - - - 1 784.0 1.2ARIAS - - - - - - - - - 3 1,929.0 4.0MIHAOUS - - - - - - - - - 8 1,847.5 4.6KEBILI - - - - - - - - - 1 165.0 0.4Moroccan Project 1 250.0 10.4 2 47.0 0.1

TOTAL 115 32,090.0 100.0 140 60.627.0 100.0 132 62.763.9 100.0 98 40.470.3 100.0

Source: am2

E=AIDFMarch 1985

- 46 -ANNEX 3table 4

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Audited Balance Sheets(million TD)

1980 1981 1982 1983 1984 1ASSETS

Cash 2.71 4.58 4.09 5.21 5.42Short-term investments 0.26 0.26 0.64 1.13 1.13Receivables: - For/exchg. losses - 2.40 4.20 10.50 16.20

- Other 4.87 6.53 6.79 13.39 15.65Total Current Assets 7.84 13.77 15.72 30.23 38.40

Long-term loans 99.90 112.03 139.41 168.66 193.84(of which less than one year) (14.90) (18.51) (21.23) (25.82) (32.29)

Equity participations 11.81 13.80 18.02 23.32 26.46Total Portfolio (gross) 111.71 125.83 157.43 191.98 220.30Less: provisions (3.40) (4.10) (4.91) (5.69) (6.49)

Total Portfolio (net) 108.31 121.73 152.52 186.29 213.81

Net Fixed Assets 1.79 1.87 2.29 3.29 3.33

Total Assets 117.94 137.37 170.53 219.81 255.54

LIABILITIES

Payables 12.13 13.26 15.03 17.08 17.08Short-term borrowings - 15.50 33.70 24.30 50.60Other short-term liabilities 2.64 2.98 3.77 5.44 5.44

Total Current Liabilities 14.77 31.74 52.50 46.82 73.12

Overdraft facility at Central Bank 4.50 4.50 8.60 8.60 8.60

Long-term Borrowings 83.67 83.66 88.44 137.29 146.46(of which less than one year) (13.77) (8.48) (11.14) (12.32) (16.59)

Share capital 8.00 10.00 15.55 20.00 20.00Government contribution 0.50 0.50 0.50 0.50 0.50Reserves 6.50 6.97 4.94 6.60 6.86

Total Net Worth 15.00 17.47 20.99 27.10 27.36

Total Liabilities 117.94 137.37 170.53 219.81 255.54

11 Provisional and nonaudited

Source: BDET - Audit Reports

ENENA/IDFMarch 1985

- 47- ANNEX 3

table 5

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Audited Income Statements, 1980-1984(TD million)

1980 1981 1982 1983 1984 /1

INCOME

Interest income 8.11 8.90 10.87 13.70 17.27Commissions and charges 0.36 0.42 0.71 0.69 0.80Profits on sales of investments 0.27 0.36 0.41 0.17 0.25Investment reserve 0.30 0.30 0.41 0.38 0.40Other income 0.20 0.18 0.23 0.33 0.23Dividend receipts 0.22 0.19 0.25 0.25 0.25

Total Income 9.46 10.35 12.88 15.52 19.20

EXPENDITUREES

Financial expenses 6.18 7.61 9.11 12.75 18.89 /3Salaries and wages 0.72 0.74 0.96 1.15 1.32Administrative expenses 0.46 0.33 0.58 0.48 0.55Indirect taxes 0.12 0.16 0.12 0.05 0.15Provisions: - Regular 0.40 0.40 0.40 0.40 0.40

- Investment reserve 0.30 0.30 0.41 0.38 0.40Depreciation 0.20 0.26 0.21 0.21 0.26

Total Expenses 8.38 9.80 11.79 15.42 21.97

Net income before subsidy 1.08 0.55 1.09 0.10 (2.77)Government subsidy /2 0.45 1.03 0.46 2.95 5.01 /3Net income before tax 1.53 1.58 1.55 3.05 2.24Income tax 0.14 0.14 0.11 0.66 0.38Net income after tax 1.39 1.44 1.44 2.39 1.86

Dividends 0.58 0.67 0.68 1.26 1.60Reserves 0.81 0.77 0.76 1.13 0.26

/1 Provisional (nonaudited). Composed of actuals for the first threequarters, plus estimates for the fourth one.

/2 Essentially covering foreign exchange losses on interest on foreignborrowings.

/3 To be consistent with previous years data, this figure includes TD 3.04million of foreign exchange losses on account of interest payments, whichthe Government has a statutory obligation to cover.

Source: BDET - Audit Reports

EMENA/IDFMarch 1985

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Spread Analysis(In percentages of average assets)

1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988

- -- Actuals …---------- -- - --- Projectioas-

Income from loans 6.77 7.02 7.15 6.97 7.06 7.02 7.27 7.80 8.41 8.86 8.93Financial expenses 4.98 5.49 5.45 5.96 5.92 6.53 6.67 6.78 6.75 6.82 6.86

Spread on loans 1.79 1.53 1.70 1.01 1.14 0.49 0.60 1.02 1.66 2.04 2.07Other income 1.08 1.23 0.93 0.90 1.04 0.73 0.81 0.78 0.85 0.91 0.95

Gross spread on operations 2.87 2.76 2.63 1.91 2.18 1.22 1.41 1.80 2.51 2.95 3.02Administrative charges 1/ 1.47 1.48 1.32 1.17 1.21 0.97 0.85 0.89 0.98 1.08 1.19

1ross spread before provisions 1.40 1.28 1.31 0.74 0.97 0.25 0.56 0.91 1.52 1.87 1.83Provisions 0.34 0.39 0.36 0.31 0.26 0.20 0.45 0.47 0.45 0.42 0.40

Net spread before subsidy 1.06 0.88 0.95 0.43 0.71 0.05 0.11 0.44 1.07 1.45 1.43Government subsidy 0.36 0.75 0.40 0.81 0.30 1.51 0.83 0.40 0.21 - -

Net spread before profit tax 1.42 1.63 1.35 1.24 1.01 1.56 0.94 0.84 1.28 1.45 1.43

Average assets (TD million) 88.28 101.73 113.39 127.66 153.95 195.17 237.68 259.45 268.83 281.70 293.32Average net vorth (TD million) 11.57 13.55 14.70 16.24 19.23 24.05 27.23 29.86 35.18 38.46 39.52Return on net worth: with subsidyC2) 10.89 12.33 10.41 9.73 8.06 12.68 8.23 7.27 9.78 10.60 10.60

v/o subsidy(Z) 8.12 6.66 7.35 3.39 5.67 0.21 0.90 4.36 8.16 10.60 10.60

Avg. outstanding portfolio (TD *ln) 71.21 82.71 94.26 103.97 125.72 154.03 180.25 202.30 218.91 233.15 242.88Avg. outstanding borroving (TD ln) 61.00 70.98 83.56 95.92 117.20 150.46 187.93 207.06 211.13 220.70 231.78

Average rate on lending (X) 8.40 8.63 8.60 8.40 8.65 8.89 9.53 10.00 10.33 10.70 10.60Average rate on borroving (2) 7.21 7.86 7.40 7.94 7.77 8.47 8.43 8.50 8.60 8.70 8.70Margin on borrowing 1.20 0.77 1.20 00s --.8 0.42 * 1.10 1.50 Tm3 1.00 2.10

Govt. subsidy es 2 of ev. outs. borrow.0.53 1.09 0.54 1.07 0.39 1.96 1.05 0.50 0.27 - -margin including Govt. subsidy 1.73 1.86 1.74 1.53 1.27 2.38 2.15 2.00 2.00 2.00 2.10

1/ personnel, administrative costs, taxes and depreciation

sources mission calculations

,EgNA/IDPMarch 1985

-49 - ANNEX 3table 7

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Loan & Equity Portfolio (December 31, 1983)(in mln TD)

Loans Equity TotalNumber Amount Number Amount Amount

Transport 5 6,802,538 3 35,200 6,837,738Industries:Food & Beverages 83 24,110,024 21 1,810,723 25,920,747Textiles 63 11,404,080 8 643,021 12,047,101Wcod, Cork & Leather 18 4,242,724 6 613,569 4,856,293Chemicals 33 16,446,835 13 1,952,804 18,399,639Glass, Tiles & Pottery 7 4,144,663 3 862,000 5,006,663Construction 89 22,285,663 17 1,606,127 23,891,,90Metal & Mechanical 43 15,778,103 16 2,588,440 18,366,543Electrical Products 7 2,601,716 4 712,350 3,314,066Transport Equipment 1 1,634,767 1 112,790 1,747,557Rubber Products 9 714,755 2 257,400 972,155Other 52 10,519,293 25 1,249,491 11,768,784

Sub-total Industries 405 113,882,623 116 12,408,715 126,291,338

Mines & Extractive Inds. 15 2,172,721 2 121,120 2,293,841Printing & Publishing 15 3,332,964 2 184,390 3,517,354Hotels & Tourism 77 35,645,390 59 7,849,060 43,533,450Banks & Insurance Cos. 1 2,114,000 8 2,720,965 4,834,965FOPRODI Loans 1/ 162 4, 75,394 - - 4,675,394

TOTAL 680 168,664,630 190 23,319,450 191,984,080

1/ FOPRODI: Industrial Promotion and Decentralization Funds (see First SmallScale Industries Development Project: Loan 1969-TUN).

Source: BDET

EMENA/IDFMarch 1985

TUNISIAEXPORT INDUSTRIES PROJECTBDET - Organization Chad

(December 31,1983)

. _ _ . _ n Ut. Hobb 9wuIba Jr. PERSONNEL & PROCUREMENTNL

DEPARTMENM - DEPARTENTikt. imNamv Tooamf V ba

Pm_ 4S=-52 . kt. CheW Noukro¢ P -1 S= 1

. . l 1SOR~~~~~~~~AVM TO MANiEENT

_ I h~~~M. F. ftelkhlo P=3 S-2

PROJECT APPRAISAL ADMINISTRATION C _ .MTwINT & PRTICEPAIN JECT PROMOTIONMr. H. Ben Sood kt. Ben Moustq)ho ~~~Mr. Nsjlb Tnanl ATCPTO W oi e eb

_ P-i S=1 _ P=1 S=1 1_P=2 S=2 Mr.eammRioN _

DEPARTMENT 1|A DEP TM DEPARNT DEPARMMEW PROMO10r DEFt ,,MNTP= 14 8=5 J P=6 S=13 3=io s 1| P-4 S=3 P | S-1

SUPEIMSICN DW~~~~1MEM ~ACCOUNTING & PAR?TICIPATION 1SUPERVIS1N DEPARTMEWT | REPAYMENS VPARTMENT LEGAL DEPRTMENT M NDOCUMENTAoNP-i S- 1 S=9 1 P-A4 8=9 P=9 S=8 P=1 S=i

1983 1982 1961 1990 r -Monogement: 3 3 2 2 -m.

Source: MO ProesIonas (P) 76 78 80 73 WSuppo Sicff(S) `125 `123 '120 12D OD W

EMENANIDF Total 2$4 209 202 19Mxch 1985 Wiorld 8"k-26623

- 51 -ANNEX 3table 9

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Forecast of Operations, 1984-1988(TD million)

1983 1984 1985 1986 1987 1988Actual Provisional -- Forecast-- --

Approvals

Loans 36.00 46.29 45.50 50.00 52.50 55.00Equity 4.47 1.73 5.00 5.00 5.00 5.00

Total 40.47 48.02 50.50 55.00 57.50 60.00

Commitments

Loans 40.35 41.95 43.50 44.40 40.30 42.70Equity 4.70 3.14 3.00 3.90 4.00 4.00

Total 45.05 45.09 46.50 48.30 44.30 46.70

Disbursements

Loans 43.21 41.85 40.00 40.85 40.50 40.00Equity 5.13 4.05 3.15 3.25 3.70 3.90

Total 48.34 45.90 43.15 44.10 44.20 43.90

Source: BDET

EMENA/IDFMarch, 1985

- 52 - ANNEX 3

table 10TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Projected Income Statement, 1984-1988(TD million)

Forecast1983 1984 1985 1986 1987 '988

(Actual) (Provisional)

INCOME

Interest income 13.70 17.27 20.23 22.61 24.95 26.23Commissions and charges 0.69 0.80 0.85 0.90 1.00 1.05Profits on sales of invts. 0.17 0.25 0.30 0.40 0.50 0.60Investment reserve 0.38 0.40 0.33 0.33 0.30 0.26Other income 0.33 0.23 0.24 0.25 0.26 0.27Dividend receipts 0.25 0.25 0.30 0.40 0.50 0.60

Total Income 15.52 19.20 22.25 24.89 27.51 29.01

EXPENDITURES

Financial expenses 12.75 15.85 /1 17.60 18.15 19.20 20.16Salaries and wages 1.15- 1.32 1.52 1.75 2.01 2.31Administrative expenses 0.48 0.55 0.63 0.73 0.84 0.97Indirect taxes 0.05 0.15 0.16 0.17 0.18 0.19Provisions: - Regular 0.40 0.40 0.40 0.40 0.40 0.40

- Invst. reserve 0.38 0.40 0.33 0.33 0.30 0.26Depreciation 0.21 0.26 0.48 0.49 0.50 0.52

Total Expenses 15.42 18.93 21.12 22.02 23.43 24.81

Net income before subsidy 0.10 0.27 1.13 2.87 4.08 4.20Government subsidy 2.95 1.97 /1 1.04 0.57 - -

Net income before tax 3.05 2.24 2.17 3.44 4.08 4.20Income tax 0.66 0.38 0.34 0.58 0.68 0.66Net income after tax 2.39 1.86 1.83 2.86 3.40 3.54

Dividends 1.26 1.60 1.83 2.23 2.43 2.43Reserves 1.13 0.26 - 0.63 0.97 1.11

/1 As estimates for subsequent years cannot account for unpredictable foreignexchange losses on account of interest rates, this figure (to beconsistent with subsequent ones) does not account for TD 3.04 million ofsuch losses in 1984 (see footnote 3 to Table 5).

Source: BDET

EMENA/IDFMarch 1985

- 53 - ANNEX 3table 11

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Projected Balance Sheets, 1984-1988(TD million)

Forecast1983 1984 1985 1986 1987 1988

(Actual) (ProvisionalT -ASSETS

Cash 5.21 5.42 4.88 3.71 4.74 5.66Short-term investments 1.13 1.13 1.13 1.13 1.13 1.13Receivables: For/exchg. losses 10.50 16.20 5.70 - - -

Other 13.39 15.65 15.65 15.65 15.65 15.65Total Current Assets 30.23 38.40 27.36 20.49 21.52 22.44

Long-term loans 168.66 193.84 210.75 227.10 239.19 246.57(of which less than one year) (25.82) (32.29) (33.70) (37.61) (41.82) (45.73)

Equity participations 23.32 26.46 28.61 30.86 33.26 35.16Total portfolio (gross) 191.98 220.30 239.36 257.96 272.45 281.73Less: provisions (5.69) (6.49) (7.22) (7.95) (8.65) (9.31)

Total Portfolio (net) 186.29 213.81 232.14 250.01 263.80 272.42

Net Fixed Assets 3.29 3.33 3.85 3.81 3.76 3.69

Total Assets 219.81 255.54 263.35 274.31 289.08 298.55

LIABILITIES

Payables 17.08 17.08 17.08 17.08 17.08 17.08Short-term borrowings 24.30 50.60 - - - -Other short-term liabilities 5.44 5.44 5.44 5.44 5.44 5.44

Total Current Liabilities 46.82 73.12 22.52 22.52 22.52 22.52

Overdraft facility at CB 8.60 8.60 8.60 8.60 8.60 8.60

Long-term borrowings 137.29 146.46 199.87 205.20 219.00 227.36(of which less than 1 yr.) (12.32) (16.59) (12.67) (14.20) (16.64) (19.84)

Share capital 20.00 20.00 25.00 30.00 30.00 30.00Government contribution 0.50 0.50 0.50 0.50 0.50 0.50Reserves 6.60 6.86 6.86 7.49 8.46 9.57

Total Net Worth 27.10 27.36 32.36 37.99 38.96 40.07

Total Liabilities 219.81 255.54 263.35 274.31 289.08 298.55

/1 Provisional

Source; BDETEMENA/IDFMarch 1985

54- ANNEX 3table 12

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Projected Cashflow Statements, 1985-1988(TD million)

1985 1986 1987 1988

SOURCES

Cash from operations 1.21 1.85 2.17 2.29Long-term borrowings 70.00 18.00 28.00 25.00Loan repayments 23.09 24.50 28.41 32.62Sales of equity participations 1.00 1.00 1.30 2.00Increase in share capital 5.00 5.00 - -Decrease in receivables 10.50 5.70 - -

Total Sources 110.80 56.05 59.88 61.91

USES

Loan disbursements 40.00 40.85 40.50 40.00Equity participations 3.15 3.25 3.70 3.90Repayments:

Short-term borrowings 50.60 - - -Long-term borrowings 16.59 12.67 14.20 16.64

increase in fixed assets 1.00 0.45 0.45 0.45

Total Uses 111.34 57.22 58.85 60.99

Increase (Decrease) in cash (0.54) (1.17) 1.03 0.92

Source: BDET

EMENA/IDFMarch 1985

- 55 - ANNEX 4Table 1

TUNISIA

EXPORT INDUSTRIES PROJECT

BTKD - List of Shareholders (as of 12/31/84)

(TD'000)

A. Tunisian Shareholders Subscribed Paid Percentage

- State 31,875 23,906 31.875- Central Bank 17,500 13,125 17.500- Caisse Nationale de Retraite

et de Prevoyance Social 500 375 0.500- Office National de Tourisme

Tunisien 125 94 0.125

Sub Total 50,000 37,500 50.000

B. Kuweitien Shareholders

- State 36,750 27,562 36.75- Social Security Company 10,000 7,500 10.00- Kuweit Real Estate Inv. Co. 2,000 1,500 2.00- Industrial Bank of Kuweit 1,250 938 1.25

Sub Total 50 000 37,500 50.00

Total 100,000 75,000 100.00

Source: BTKD

EMENA/IDFMarch 1985

TUNISIAEXPORT INDUSTRIES PROJECTBTKD - Organizacion Chad

(December 31, 1984)

MANAG4NG DIRECTORMrW M Mohomed B&i

S=2

Ll

RX)MOTION APPALWFOLLOW-LPEWJIY PARTICIATION CONTOU.ERTREsuRY DIwTODOEPAR1MENT |FPARTMENT | Al 5PRESEWATION DEPARMEWNI DEPARTMENTDEPARTMENT DEPARTMENT ~~~~DEPARTMENT

Mr. All Hamdi Nt. Satoh Saukl W. Mdwned MoudjoMr. tooLf GhIlb (presnity open)Mr.AJi Hami L MrSolohS3 l M.Mdicl P= 6 S=3 ll P=7 S' 21 lP=3 S=3 P= 7 8=3 P-3 S=2P6 =P7 S21

Source: BTKD PrdbsdonIs (P) 26

EPINIDP Support Stoff (S) 34March 1985 Total 65 Mfl BorI-266

- 57 - ANNEX 4table 3

TUNISIA

EXPORT INDUSTRIES PROJECT

BTKD - Approvals. Commitments and Disbursements(TD million))

1981/1982 1983 1984 Total(22 months) (Provisional)

Approvals

Equity 22.04 12.72 42.11 42.43Loans 101.76 56.66 7.67 200.53

Total 123.80 69.38 49.78 242.96

Commitments

Equity 7.76 14.44 7.65 29.85Loans 38.93 41.48 41.27 121.68

Total 46.69 55.92 48.92 151.53

Disbursements

Equity 3.39 10.25 7.18 20.82Loans 12.50 25.20 49.13 86.83

Total 15.89 35.45 56.31 107.65

Source: BTKD

EMENA/IDFMarch 1985

- 58 - ANNEX 4

TUNISIA Table 4

EXPORT INDUSTRIES PROJECT

BTKD - Analysis of Approved Operations (1981-1983)(TD 000)

1981/1982 1983 Total(22 months)

No. Amount X No. Amount Z No. Amount Z

Nev Projects 100 86,378 70.0 71 57,545 82.9 171 143,923 74.5Extension Projects 17 37,425 30.0 9 11,838 17.1 26 49,263 25.5

Total 117 123,803 100.0 80 69,383 100.0 197 193,186 100.0

Private 94 70,673 57.1 71 50,883 73.3 165 121,556 62.9Public 23 53,130 42.9 9 18,500 26.7 32 71,630 37.1

Total 117 123,803 100.0 80 69A383 100.0 197 193,186 100.0

IndustryMeebanical-Elec. 22 27,578 22.3 14 11,851 17.1 36 39,429 20.4Construction Material 6 6,120 4.9 4 11,307 16.3 10 17,427 9.0Chemicals & Rubber 11 18,120 14.6 6 6,806 9.8 17 24,926 12.9Food Processing 2 935 0.8 3 1,060 1.5 5 1,995 1.0Textiles 4 2,673 2.2 2 3,660 5.3 6,333 3.3Wood, Cork - - - - - - -

PLastics - - - - - - - -

Miscellaneous 12 14,449 11.6 5 3,546 5.1 17 17,995 9.3

Sub-total 57 69,875 56.4 34 38,230 55.1 91 108,105 55.9

Tourism 36 16,531 13.4 31 17,403 25.1 67 33,934 17.6Agriculture 6- 3,431 2.8 6 8,335 12.u 12 11,766 6.1Transport 4 9,450 7.6 - - - 4 9,450 4.9Hines & Energy 4 19,360 15.6 2 2,000 2.9 6 29,360 11.1Other 10 5,156 4.2 7 3,415 4.9 17 8,571 4.4

Total 117 123,803 100.0 80 69,383 100.0 197 193,186 100.0

Size of OperationsTD 0 - TD 500,000 57 11,138 9.0 39 7,322 10.5 96 18,460 9.6TD 500,000 - TD lmln 26 19,152 15.5 16 10,171 14.7 42 29,323 15.2TD 1 mln - TD 3 ulns 25 43,163 34.9 20 30,890 44.5 45 74,053 38.3TD 3 mlns - TD 5 mlns 3 10,300 8.3 4 14,000 20.2 7 24,300 12.6TD 5 mlns & over 6 40,500 32.3 1 7,000 10.1 7 47,050 24.3

Total 117 123,803 100.0 80 69,383 100.0 197 193,186 100.0

Duration (Loans only)5 - 7 years 1 4,000 3.9 6 4,195 7.4 7 8,195 5.27 - 10 years 3 9,750 9.6 14 15,498 27.4 17 25,248 15.910 and over 53 88,011 86.5 22 36,965 65.2 77 124,976 78.9

Total 57 101,761 100.0 42 56,658 100.0 101 158,419 100.0

Source: BTKDEMEKA/IDFMarch 1985

- 59 - ANNEX 4Table 5

TUNISIA

EXPORT INDUSTRIES PROJECT

BTKD - Income Statements(million TD)

Income 1982 1983 1984(22 months) (Provisional)

Interest on loans 1.38 4.02 7.18Other income 4.25 2.11 1.48

Total Income 5.63 6.13 8.66

Expenditures

Financial charges - - 0.12Personnel cost 0.49 0.36 0.43Administrative costs 0.46 0.34 0.34Taxes 0.28 0.54 0.05Provisions 0.25 0.50 0.92Deprecidtion 0.09 0.11 0.13

Total Expenditure 1.57 1.85 1.99

Net income before tax 4.06 4.28 6.67

Source: BTKD - Audit Report

ENENA/IDFMarch 1985

-60- ANNEX 4

Table 6

TUNI SIA

EXPORT INDUSTRIES PROJECT

BTKD - Balance Sheets(in million TD)

ASSETS 1982 1983 1984(Provisional)

Cash and Bank 29.05 20.29 3.90Receivables 0.22 0.27 -1.53Other Short-term Assets 0.84 1.46 0.40

Total Short term Assets 30.11 22.02 5.83

Long-term Loans 12.50 37.65 83.41Equity Participations 3.45 13.71 20.82

Total Portfolio (gross) 15.95 51.36 104.23Provisions (0.25) (0.75) (1.67)

Portfolio (net) 15.70 50.61 102.56

Fixed Assets (net) 0.25 0.31 0.24

Total Assets 46.06 72.94 108.63

LIABILITIES

Payables 0.31 0.85 2.27Short-term Deposits 1.66 8.60 3.21Other Short-term Liabilities 0.03 0.14 13.50

Total Short-term Liabilities 2.00 9.59 18.98

Social Fund - 0.30 0.30Capital 40.00 55.00 75.00Reserves &

Undistributed Earnings 4.06 8.05 14.35Total Net Worth 44.06 63.35 89.65

Total Liabilities 46.06 72.94 108.63

Source: BTKD - Audit Report

EMENA/IDFMarch 1985

- 61 - ANNEX 4

table 7

TUNISIA

EXPORT INDUSTRIES PROJECT

BTKD - Forecast of Operations(in million TD)

1983 1984 1985 1986 1987 1988(Actual) (Provisional)

Approvals

Loans 56.66 42.11 40.00 48.00 56.00 64.00Equity Participations 12.72 7.67 10.00 12.00 14.00 16.00

Total 69.38 49.78 50.00 60.00 70.00 80.00

Commitments

Loans 41.48 41.27 60.42 44.83 50.00 58.00Equity Participations 14.44 7.56 9.74 11.55 12.50 14.50

Total 55.92 48.92 70.16 56.38 62.50 72.50

Disbursements

Loans 25.20 49.13 49.90 45.79 43.93 47.60Equity Participations 10.25 7.18 12.63 11.66 11.94 12.92

Total 35.45 56.31 62.53 57.45 55.87 60.53

Source; BTKD

EMENA/1DFMarch 1985

- 62 -ANNEX 4table 8

TUNISIA

EXPORT INDUSTRIES PRWECT

BTKD - Projected Income Statements, 1983-1988(TD million)

1983 1984 1985 1986 1987 1988Actual (Prov.)

INCOME

Interest Income and commissions 4.02 7.18 13.61 18.98 23.43 27.38Interest on depositsand other income /1 2.11 1.48 0.10 1.34 1.62 1.92

Total Income 6.13 8.66 13.71 20.32 25.05 29.30

EXPENDITURES

Financial expenses - 0.12 2.60 5.63 8.89 11.68Salaries and wages 0.36 0.43 0.57 /2 0.65 0.75 0.85Administrative expenses 0.34 0.34 0.53 /2 0.64 0.71 0.75Taxes 0.54 0.05 0.07 0.10 0.11 0.13Provision 0.50 0.92 1.50 1.50 1.50 1.50Depreciation 0.11 0.13 0.16 0.17 0.18 0.18

Total Expenses 1.85 1.99 5.43 8.69 12.14 15.09

Net income before tax 4.28 6.67 8.28 11.63 12.91 14.21Income tax - - - 1.16 1.29 1.42

Net income after tax 4.28 6.67 8.28 10.47 11.62 12.79

Reserves 4.28 6.67 8.28 10.47 11.62 12.79

/1 Including a 2Z return on average equity portfolio starting in 1986.72 BTKD is planning a personnel increase in 1985.

Source: BTKD

EMENA/IDFMarch 1985

- 63 -ANNEX 4table 9

TUNISIA

EXPORT INDUSTRIES PROJECT

BTKD - Projected Balance Sheets, 1983-1988(TD million)

1983 1984 1985 1986 1987 1988(Actual) (Prov.)

ASSETS

Cash and Bank 20.29 3.90 4.35 3.53 3.64 3.20Receivables 0.27 1.53 1.53 1.53 1.53 1.53Other short-term investments 1.46 0.40 0.40 0.40 0.40 0.40

Total Current Assets 22.02 5.83 6.28 5.46 5.57 5.13

Loans outstanding 37.65 83.41 129.27 166.07 195.82 223.81Equity participations 13.71 20.82 33.45 45.11 57.05 69.97Total Portfolio (gross) 51.36 104.23 162.72 211.18 252.87 293.78Less: provisions (0.75) (1.67) (3.17) (4.67) (6.17) (7.67)

Total Portfolio (net) 50.61 102.56 159.55 206.51 246.70 286.11

Net Fixed Assets 0.31 0.24 0.58 0.91 1.23 1.55

Total Assets 72.94 108.63 166.41 212.88 253.50 292.79

LIABILITIES

Payables 0.85 2.27 2.27 2.27 2.27 2.27Short-term deposits 8.60 3.21 3.21 3.21 3.21 3.21Short-term borrowings 0.14 13.50 - -

Total Cur. Liabilities 9.59 18.98 5.48 5.48 5.48 5.48

Long-term Borrowings - - 38.00 74.00 103.00 129.50

Share capital 55.00 75.00 100.00 100.00 100.00 100.00Reserves 8.35 14.65 22.93 33.40 45.02 57.81

Total Net Worth 63.35 89.65 122.93 133.40 145.02 157.81

Total Liabilities 72.94 108.63 166.41 212.88 253.50 292.79

Source: BTKD

EMHENA/IDFMarch 1985

- 64 -ANNEX 4table 10

TUNISIA

EXPORT INDUSTRIES PROJECT

BTKD - Projected Cash-Flow Statements(million TD)

1985 1986 1987 1988

SOURCES

Cash from operations 9.94 12.14 13.30 14.47Increase in share capital 25.00 - - -Drawdown on loans 38.00 36.00 29.00 32.50Loan repayments 4.04 8.99 14.18 19.62

Total Sources 76.98 57.13 56.48 66.59

USES

Loan disbursements 49.90 45.79 43.93 47.61Equity participations 12.63 11.64 11.94 12.92Repayment on borrowings 13.50 - - 6.00Increase in fixed assets 0.50 0.50 0.50 0.50

Total Uses 76.53 57.95 56.37 67.03

Increase (Decrease) in cash 0.45 (0.82) 0.11 (0.44)

Source: BTKD

EMENA/IDFMarch 1985

- 65 -ANNEX 4table 11

TUNISIA

EXPORT INDUSTRIES PROJECT

lDXD - Oztstanding Loan and Equity Portfolio(in mln TD)

Loans Eauity Parti. TotalIndustry No. Amount No. hAount No. Amount

Agro-industsy - - 2 0.06 2 0.06Textile & Ieather 1 0.44 2 0.22 2 0.66Wood & Furniture - - - - - -Chemicals 5 7.60 4 3.87 6 11.47Construction Materials 3 1.83 3 0.64 6 2.47Electro-Mechanical 9 7.35 12 3.36 13 10.71Plastics - - - - - -Miscellaneous 5 4.95 5 0.67 5 5.62

Total Industry 23 22.17 28 8.82 34 30.99

Tourism 10 2.73 28 3.36 29 6.09Agriculture - - 5 0.52 5 0.52Transport 3 3.53 1 0.45 3 3.98Mines & Energy 1 4.00 1 0.04 2 4.04Other 3 5.28 4 0.46 7 5.74

Total 40 37.71 67 13.65 80 51.36

Source: BTKD

EMENA/IDFMarch 1985

- 66 -ANNEX 5table 1

TUNISIA

EXPORT INDUSTRIES PROJECT

STUSID - List of Shareholders as of 12/31/84(TD '000)

SubscribedCapital Paid-in Capital Percentage

A. Tunisian Shareholders;State 31,750 22,225 31.750Central Bank of Tunisia 17,500 12,250 17.500Caisse Nationale de Retraite

et de Prevoyance Social 375 262.5 0.375Office Nationale de Tourismie Tunisien 125 87.5 0.125Entreprise Tunisienne

d'Activites Petroliers 125 87.5 0.125Tunis Air 125 87.5 0.125

Sub-Total (Tunisian Shareholders) 50,000 35,000.0 50.000

B. Saudi-Arabian Kingdom 50,000 35,000 50

TOTAL 100,000 70,000 100

Source: STUJSID

ENENA/IDFMarch 1985

TUNISIAEXPORT INDUSTRIES PROJECTSTUSID - Organization Chart

(September 30, 1984)

ADVSM PRESOM MANAC-M PRE DEN TOINE L

~~I~D~

PUNNING 8 Mr.aPt K Sodm m Df im1 1

DEPAMMNt DEPAIMENT DEPAMNT DEPARMEIMS A1z4NUt PROJECTS DEPATME

Mr. R. M@ddeb W#. A. Sacho M r. M. Ocoudo s s Wl. C. Maorml Mr. & RoboaN. M- RezL .Chtcu

P=4 S=1 P =7 $=`1 P=6 S=2 P=6 5=23 P=3, S=2 F=3 S=11 P=2 S=1

Source: STUSID X

EMENtAIDF Sjxt Saff (S) 3 @March 1985 Total 80

TUNISIA

EXPORT INDUSTRIES PRWJECT

STUSID - Sumuar of Operations (1981-1984)(TD Million)

1981 1982 1983 1984No. Amount Z No. Amount Z No. Amount Z No. Amount Z Total

Approvals

Loans 5 17.22 79 18 32.46 63 21 36.43 66 16 21.27 73 107.39Eq. Participations 5 4.46 21 18 19.28 37 23 18.86 34 17 7.87 27 50.47

Total 10 21.68 100 36 51.74 100 44 55.29 100 31 29.14 100 157.86

Commitments

Loans - - - 7 19.95 72 14 17.91 53 12 19.29 70 57.15 o

Eq. Participations 2 2.86 100 7 7.68 29 25 16.16 47 15 8.32 30 35.02 X

Total 2 2.86 100 . 14 27.63 100 39 34.07 100 27 27.61 100 92.17

Disbursements

Loans - - - 4 6.01 55 21 13.61 55 25 16.97 68 36.59Eq. Participations 2 1.01 100 8 4.85 45 15 11.02 45 34 8.03 32 24.91

Total 2 1.01 100 12 10.86 100 36 24..63 100 59 25.00 100 61.50

Source; STUSID

EMHNAIIDFMarch 1985 w

- 69 -ANNEX 5

TUNISIA table 4

EXPORT INDUSTRIES PROJECT

STUSID - Analysis of Approvals (1981-1983)(TD'OOO)

1981 1982 1983No. Amount Z No. Amount Z No. Amount X

Nev Projects 7 16,684 77 21 43,201 83 27 41,100 74Extension Projects 1 5,000 23 3 8,544 17 7 14,200 26

Total 8 21,684 100 24 51,745 100 34 55,300 100

Industry

Mechanical/Elec. - - - 6 18,183 35 8 11,316 20Construction Material 1 388 2 3 9,908 19 5 6,914 13Chemicals & Rubber 1 8,000 37 2 7,026 14 4 3,414 6Food Processing - - - - - - - -Textiles - - - 1 5,291 -10 3 8,420 15Wood, Cork - - - - - - - -Plastics - - - - - - 1 784 1Miscellaneous - - _ 1 337 1 1 550 1

Sub-total 2 8,388 39 13 40,745 79 22 31,398 57

Tourism - - - 1 4,320 8 1 5,000 9Agriculture 2 1,380 6 3 2,932 6 2 2,177 4Tranport - - - - - - - -Mines & Energy 2 9,000 42 1 2,270 5 1 5,000 9Other 2 2,916 13 6 1,028 2 8 11,720 21

Total 8 21,684 100 24 51,745 100 34 55,295 100

Size of Operations

TD O -TD 500,000 2 568 3 9 1,539 3 7 945 1TD 500,000 -TD 1 mln 1 986 5 4 3,127 6 8 5,987 ;1TD 1 aln - TD 3 mlns 2 3,100 14 4 7,511 21 13 16,888 31TD 3 mlns -TD 5 mlns 1 4,000 18 3 12,276 17 1 3,000 5TD 5 lnas & over 2 13,000 60 4 27,291 53 5 28,475 52

Total 8 21,684 100 24 51,745 100 34 55,295 100

Duration (Loans only)5 - 7 years 1 4,000 23 5 3,717 i2 2 615 27 - 10 years - - - 4 1,692 5 7 13,124 3610 and over 4 13,225 77 11 27,049 83 12 22,415 62

Total 5 17222.5 100 20 32,458 100 21 36,154 100

Source; STUSID

EMENA/IDFMarch 1985

-70 - ANNEX 5table 5

TUNISIA

EXPORT INDUSTRIES PROJECT

STUSID - Forecast of Operations(million TD)

1983 1984 1985 1986 1987 1988(Actual) (Provisional)

Approvals

Loans 36.4 21.3 29.0 31.3 34.0 38.0Equity 18.9 7.9 14.5 15.7 17.0 19.0

Total 55.3 29.2 43.5 47.0 51.0 57.0

Commitments

Loans 17.9 19.3 20.0 28.0 28.7 29.3Equity 16.2 8.3 10.0 14.0 14.3 14.7

Total 34.1 27.6 30.0 42.0 43.0 44.0

Disbursements

Loans 13.6 17.0 25.0 25.0 25.0 26.0Equity 11.0 8.0 12.5 12.5 13.0 13.0

Total 24.6 25.0 37.5 37.5 38.0 39.0

Source: STUSID

EMENA/IDFMarch 1985

- 71- ANNEX 5table 6

TUNISIA

EXPORT INDUSTRIES PROJECT

STUSID - Actual and Forecast Income Statements(in million TD)

1982 1983 1984 1985 1986 1987 1988(20 months)----- Actual-- ------- … Projected--------

Income

Interest on Loans 0.40 1.35 3.43 5.99 9.14 12.35 15.22Interest on Deposits 3.75 2.75 2.08 1.75 0.20 - -Income fr.Participation - - 0.66 0.66 0.87 1.18 2.18Other Income 0.30 0.54 0.53 0.66 0.64 0.68 0.76

Total Income 4.45 4.64 6.3 9.06 10.85 14.21 lB.16

Expenditures

Personnel Charges 0.63 0.57 0.44 0.70 0.80 0.90 1.00Administrative Cost 0.90 0.77 0.85 1.00 1.15 1.30 1.50Financial Expenses - - - 1.0 0.35 1.56 2.46Amortization 0.06 0.13 0.03 0.05 0.05 0.15 0.15Provisions 0.05 0.12 0.13 0.65 1.00 1.28 1.56

Total Expenditures 1.64 1.57 1.45 2.40 3.35 5.19 6.67

Net Profit 2.81 3.05 4.85 6.66 7.50 9.02 11.49

Source: STUSID

EMENA/IDFMarch 1985

- 72 - ANNEX 5table 7

TUNISIA

EXPORT INDUSTRIES PROJECT

STUSID - Actual and Proiected Balance Sheets(million TD)

1981/82 1983 1984 1985 1986 1981 1988(18 nths)---- Actual--- (Provisional) ---- Projected----

Assets

Cash and Bank 34.15 22.29 5.38 5.98 3.38 2.69 1.91Receivables 5.96 0.87 1.04 1.04 1.50 1.50 1.50Other Short-term Assets 0.53 0.27 20.00 4.42 - - -

Total Current Assets 40.64 23.43 26.42 11.44 4.88 4.19 3.41

Long-term loans 6.01 19.33 35.50 58.22 79.67 99.90 117.53Equity Participations - 16.86 24.79 37.29! 49.79 62.79 75.79Total Portfolio (gross) 6.01 36.19 60.29 95.51 129.46 162.69 193.32Less: Provisions (0.06) (0.28) (0.38) (1.03) (2.03) (3.31) (4.87)Total Portfolio (net) 5.95 35.91 59.91 94.48 127.43 159.38 188.45

Fixed Assets (net) 0.21 0.30 0.75 2.20 3.65 4.00 4.05

Total Assets 46.81 59.64 87.08 108.12 135.96 167.57 195.91

Liabilities

Payables& Short-term Deposits 3.92 5.85 5.62 5.00 3.00 2.50 2.50

Other short-tern liabilities 0.08 0.43 0.66 0.66 1.00 1.00 1.004.00 6.28 6.28 5.66 4.00 3.50 3.50

Long-term Borrowing - - - - 7.00 31.00 49.00Capital 40.00 47.50 70.00 85.00 100.00 100.00 100.00Reserves 2.81 5.86 10.80 17.46 24.96 33.07 43.41Total Net Wo-th 42.81 53.36 80.80 102.46 124.96 133.07 143.41

Total Liabilities 46.81 59.64 87.08 102.12 135.96 167.57 195.91

Source: STUSID-

EMENA/IDFMarch 1985

- 73 - ANNEX 5table 8

TUNISIA

EXPORT INDUSTRIES PROJECT

STUSID - Projected Cash-Flow Statements(million TD)

1985 1986 1987 1988SOURCES

Cash from operations 7.13 8.15 8.32 9.26Increase in share capital 15.00 15.00Long-term borrowings - 9.00 26.00 24.00Loan repayments 2.28 3.55 4.77 8.37Sales of short-term investments 16.50 6.00 - -

Total Sources 40.91 41.70 39.09 41.63

USES

Loan disbursements 25.00 25.67 26.66 27.33Equity participations 12.50 12.83 13.34 13.67Increase in fixed assets 1.50 1.50 0.50 0.20Decrease in payables 0.67 - - -Increase in receivables - 0.14 - -

Total Uses 39.67 40.14 40.50 41.20

Increase (Decrease) in cash 1.24 1.56 (1.41) 0.43

Source: STUSID

EMENA/IDFMarch 1985

- 74 - ANNEX 5table 9

TUNISIA

EXPORT INDUSTRIES PROJECT

STUSID - Loan and Equity Portfolio (December 31, 1983)(TD 000)

Loans Equity TotalNo. Amount No. Amount No. Amount

INDUSTRY

Food Processing - - - -

Textiles 1 1,300 3 4,071 4 5,371Wood, Cork - - - - - -Chemicals 4 4,841 5 3,573 9 8,414Construction Material 2 2,239 4 2,20, 6 4,448Mechanical-Electrical 1 189 10 3,008 11 3,197Plastics - - - - -

Miscellaneous 2 425 2 234 4 659

Total Industry tO 8,994 24 13,095 34 22,089

Tourism - - 1 630 1 630Agriculture 3 826 4 1,198 7 2,024Transport - - - - - -Mines & Energy 2 7,853 - - 2 7,853other 1 1,698 15 1,878 16 3,576

Total 16 19,371 44 16,801 60 36,172

Source: STUSID

EHENA/IDFMarch 1985

-75 - ANNEX 6table 1

TUNISIA

EXPORT INDUSTRIES PROJECT

BDET - Forecast of Approvals forExport Industry Projects

(TD '000)

Law 1972-38 Projects Average Annual Projected 1984-1986Approvals (1972-82) (Annual)

Resident Companies 2,600 3,000Non-Resident Companies 2,200 2.500

Total 4,800 5,500

Other Projects (non-Law 1972)Projected BDET

Under Study Financial Assistance

Radiators 1,250Mosaic Tiles 600Aluminium Foundry 600Agro-industry (fruits & Vegs.) 2,000Mechanical Complex 2,500Metal Fonming 500Injection Presses 1,500Electrical Equipment 150Trucks (extension) 240Salt (extension) 100Pumps (extension) 120Couscous (extension) 400Cork (extension) 180

Total 10,140 3,000

Unidentified Projects 4,000

12, 500

Source: BDET

EMENA/IDFMarch 1985

- 76 -ANNEX 6table 2

TUNISTA

EXPORT INDUSTRIES PROJECT

BTKD - Forecast of Approvals forExport Industry Projects

(TD'000)

Export Projects in thePipeline

Projected BTKDFinancial Assistance

Aluminiws Profiles 1,000Fruits & Vegetables 300Petroleum Product Storage 1,480Ceramic Tiles 1,500Building Bricks 1,500Glass Wool 1,500Printing 300Cosmetics 300Off-road Vehicles 800Tools 1,000Forged Products unknown

Total 9,680

Past performance;

1981-198326 projects requiring finance of TD 53.6 million of Which 14 projectsexporting 1OOZ of their production requiring TD 31.0 million.

Source: BTKD

EHENA/IDFMarch 1985

- 77

ANNEX 6table 3

TUNISIA

EXPORT INDUSTRIES PRCJECT

STUSID - Forecast of Approvals forExport Industry Projects

(TD '000)

Export Projects in thePipeline

Projected BTKDFinancial Assistance

Phosphoric Acid 6,000Aluminium Profiles 500Naval Shipbuilding/Repair 2,000Car Axals 1,000Potassium 2,000Drapery 2,000Confectionary 600Sanitary Ceramics 500Small Electrical Appliances unknownPacking Material unknownLamb Meat Production 1,500Dates 600Raisins unknownFishery unknown

Total TD 16,700 plus unknown

Past performance:13 projects requiring finance of TD 15.1 million

Source: STUSID

EKZNA/IDFMarch 1985

-78- ANNEX 7

Page 1

TUNISIAEXPORT INDUSTRIES PROJECT

Export-Credit Insurance Company

DRAFT EXPORT-CREDIT INSURANCE LAW

CHAPTER I: GENERAL

Artic'.e 1. As provided for by this Law and the insurance co.tract,

export-credit insurance guarantees export transactions against commercial,

political and catascrophe risks.

Article 2. The general terms of the export-credit insurance contract shall be

subject to approval in accordance with regulations in force.

Article 3. Export-credit insurance Way be taken out by Tunisian or resident

alien individuals or bodies corporate conducting export transactions

originating in Tunisia.

Article 4. The export-credit insurance system shall be managed by a mixed

company.

CHAPTER II: DEFINITION OF RISKS

Article 5. Political risk is understood to arise when:

(1) The purchaser has not paid the amounts due, not because of

non-perforimance of the clauses and conditions of the cortract, but for one of

the following reasons: civil or international war, revolution, riots or other

similar events in the country where the purchaser resides, or a moratorium

proclaimed by the government authorities in that country;

(2) The purchaser has not paid the amounts due, not because of

non-performance of the clauses and conditions of the cor.tract, and said

- 79 - ANNEX 7Page 2

purchaser is a government or a company providing a public service or,

alternatively, the export transaction gives rise to an obligation on the part

of a government or company providing a public service;

(3) The purchaser has not paid the amounts due, not because of

non-performance of the clauses and conditions of the contract, but as the

result of political events, economic difficulties or legislation in the

country where the debtor resides which prevents or delays the transfer of

funds by the latter.

Article 6. Catastrophe risk is understood to arise when the debtor is

prevented from meeting his obligations by disasters such as storms, floods,

tidal waves, earthquake or volcanic eruption in the country where the debtor

resides.

Article 7. Commercial risk is understood to arise when the purchaser, an

individual or body corpo7ate other than those listed in Article 5 (2), has not

paid the amounts due, not because of non-performance of the clauses and

conditions of the contract, but as the result of default or insolvency.

CHAPTER III: INSURANCE SCHEME

Article 8. Export-credit insurance shall be optional.

However, in order to be eligible for export credit at the

prete.-ential rate, any export transaction based on credit must be insured.

Article 9. The insurance contract may cover political and catastrophe risks

for an export trausaction only if commercial risks are covered as well.

Article 10. Notwithstanding Article 9 above, the insurance contract may cover

only political and catastrophe risks when the purchaser is a body corporate

mentioned in Article 5 (2).

- 80 - ANNEX 7Page 3

CHAPTER IV: INSURANCE PREMIUM

Article 11. The guarantees covered above shall be issued against the payment

of premiums.

The rates for the guarantees shall be approved jointly by the

Minister of Finance and the Minister of the Economy.

CHAPTER V: REINSURANCE

Article 12. An Export-Credit Risk Guarantee Fund is hereby established to

promote the development of export-credit insurance, particularly by reinsuring

the risks referred to in Articles 5 and 6 hereof.

The Export-Credit Risk Guarantee Fund shall be funded by

reinsurance premiums, the proceeds of recoveries from claims and any other

resources allocated to it by legislation or regulations.

The conditions and operating and management procedures of said

Fund shall be set by decree.

Source: Ministry of Planning

EMENA/IDFMarchl 1985

- 81 -

ANNEX 8

TUNISIA

EXPORT INDUSTRIES PROJECT

Estimated Disbursement Schedule($'000)

Semester Ending Semi-annually Cumulative

1986June 30 2,550 2,550December 31 3,875 6,425

1987June 30 7,200 13,625December 31 8,500 22,125

1988June 30 8,500 30,625December 31 6,450 37,075

1989June 30 4,800 41,875December 31 2,950 44,825

1990June 30 2,575 47,400December 31 1,800 49,200

1991June 30 800 50,000

Notes: Based on the disbursement profiles for the ENENA/DFC sector.

Source: Mission estimate

EMEN&/IDFMarch 1985