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FOR OMCIAL USE ONLY Public Disclosure Authorized Report No. P-1886-RW

REPORT AND RECOMMENDATION

OF THE

Public Disclosure Authorized PRESIDENT OF THE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORS

ON A

PROPOSED DEVELOPMENT CREDIT

TO THE

REPUBLIC OF RWANDA Public Disclosure Authorized FOR A

RWANDA DEVELOPMENT BANK PROJECT

June 24, 1976 Public Disclosure Authorized

This document has a restricted distributlon and may be used by recipients only In the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Currency Equivalents

Unit : Rwandese Franc (RwF)

US$1 : RwF 92.84

RwF 1 : US$ 0.01

RwF 1,000 : US$ 10.77

RwF 1,000,000 US$10,771.22

Fiscal Year

January 1 - December 31

Abbreviations

BRD = Rwanda Development Bank (Banque Rwandaise de Developpement)

CCCE Caisse Centrale de Developpement Economique (France)

DEG = Deutsche Entwicklungsgesellschaft

KfW = Kreditanstalt fur Wiederaufbau

UNIDO = United Nations Industrial Development Organization

UNDP = United Nations Development Programme FOR OFFICIAL USE ONLY

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF RWANDA FOR A RWANDA DEVELOPMENT BANK PROJECT

1. I submit the following report and recommendation on a proposed development credit to the Republic of Rwanda for the equivalent of US$4.0 mIllton on standard IDA terms to help finance the foreign exchange requirements of the Rwanda Development Bank (BRD) through June 1978. The proceeds of the credit would be relent to BRD for a period substantially in conformity with the aggregate of the amortization schedules of the sub-loans, but not exceeding a period of 20 years in the case of tourism projects and 15 years in the case of other loans or Investments, at an interest rate of 4 percent per annum.

PART I - THE ECONOMY

2. A report entitled "Recent Economic Development and Prospects of Rwanda" (No. 422a-RW) was distributed to the Executive Directors on July 24, 1974. An economic updating mission visited Rwanda in October 1975 and its report is being completed. A summary of the mission's findings is set out below. Country data sheets are attached as Annex I.

3. With an average per capita income of about US$80, Rwanda is one of the poorest countries in the world. It is included in the United Nations List of the "25 least developed countries", and has also been designated "most seriously affected" by recent economic developments. The country became independent in 1962. It is lacking in both administrative and physi- cal infrast rticture, and iiust overcome formiidable constraints to its devel-o p- ment. Overwhelmingly a subsistence economy with only an embryonic modern sector, it faces land shortages and a rapid growth in population. The development of export-based agriculture is limited *by the priority of food crop prodticuion and.Rwanda's inland posILion (1,700 km away from the near- cst port at Mombasa),-whlle the potential for expansion of the industrial sector is constrained by ;a lack of raw materials, mineral deposits and an appropriately 'trained -labor-force.

4. Despite these handicaps, the present Government, since Its ascent to power in July 1973, has made perceptible progress in developing a strategy to lift the economy from its present low level.- Some aspects of the country's characteristi,s are favorable and it is ar0iind these that the Governount has designed Its strategy. The population has a certain unity, deriving from similarities In customs, ways of life and standard-of living throughout the country. Income and wealth distribution are remarkably even. There are neither the remnants of a strong traditional hierarchy nor signs of significant emerging urban-rural polarization. Moreover, the small size of the country reduces the administrative difficulties and at the same time limits

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. serious regionalism. The country also has a natural asset in its relatively fertile soil which, provided that the problem of erosion in Rwanda's hilly terrain can be overcome, can give good yields for a variety of crops. To take advantage of and preserve these admittedly modest assets, the Government has recognized that its development policies must be built around a careftlly integrated and balanced strategy reaching the entire population. Althougih obliged to pursue export crop development to earn foreign exchange and domestic revenues, increases In food crop productivity are at the core of the Government's proposed strategy.

5. Pressure on land, combined with traditional cultivation methlods that degrade and erode the soil, make food crop intensification the natIon's first priority. The growth rate of the population is 2.8 percenL per year, and 60 percent of the population Is less than 20 years old. At the saime time, all good agricultural land is already occupied and only limited amounLs' of marginal land remain available. Over the last two years the Government has begun preparatory work on a rural development plan which would focus huture efforts on food crop production at the level of the commune - the smaiLest administrative unit comprising an average of 30,000 inhabitants. In doing so, the Government has recognized that its approach must be directed towards the farmers' needs, with careful integratlon at both the grass-roots and &cntral levels. The emphasis on food crops would be linked with soil conserva"tLon and livestock development, and supported by extension services and necessary in- frastructure such as markets, local roads, and storage facilities enab'ling the Government to implement an appropriate pricing policy. Infrastrufture improvements would rely on local initiative where possible; under the plan, local labor and other resources would also be used to back up economiL improvement with social betterment in the form of simple health facilities, schools and training centers, and village water supply. Much preparatrfy work on the plan still remains to be done, but with the Government's presenL strong commitment to a rural development policy, it is likely that ftf her progress can be made. An IDA agricultural sector mission recent]y vigited Rwanda and will provide further assistance to the Government regarding possible alternatives for the implementation of a rural development strategy.

6. Faced with the prospect of a doubling of the population by (he and of the century, the Government has ultimately little choice but to ad6pt a policy to limit population growth. EmigratLon is considered by some is a short run alternative, but the practlical possibilities are limited. iithough family planning is a sensitive issue, the Government has set up Lwo coimmis- sions which are gradually examining various aspects of this problem, atnd senior officials appear to have open minds on the subject. Most of the reservations concern implementation difficulties rather than outright objee- tion. This new attitude is an important. .lement and gives hoe) that &•ncrete action may ultimately be taken.

7. Rwanda's landlocked position has been particularly disadvantageous in the last two years when the costs of external transport for merchandise from Europe have appr6ximately doubled. Its need to rely on other cotntriLs' transport systems leaves little room for action by the Government. Over th1. last two years, some intLatives have, however, been taken within the lmittl1 sphere possible. New roads through Tanzania to the sea and no6rthward to -3-

Uganda are being built, while the road southward to Burundi is being improved. On the other hand, higher transport costs constitute a natural protection for some import substituting projects, such as cement, bricks, and peat, and Lheir domestic production now seems more economically justified. The manufacturing sector is presently very small but the Government plans an expan- sLon to take advantage of the quite limited available raw materials. While thle development of some industry is essential to support the rural development effort, it is clear that in the immediate future the manufacturing sector would occupy only a modest role in the economy.

8. The Government has been and will continue to be hampered in the preparation and implementation of a development program by shortages of trained manpower and organizational deficiencies. This weakness has led to extensive use of technical assistants at the higher level, while the middle and lower levels are understaffed both in terms of number and quality. As a result, many basic administrative needs are barely covered. To increase the supply of much needed skills, the Government is taking two lines of action. Firstly, large numbers of Rwandese nationals have been studying abroad over recent years, and there are at present 1,500 Rwandese students at university level. Secondly, the Government is preparing, despite some resistance, a reform of the primary education system which would modify curricula to better meet the needs of a rural economy. The effect of this development is already visible in the medium layers of the Government's adminLstration, which has a group of new civil servants who are well educa- ted and capable. The decision to base rural development on the commune can be expected Lo put an even greater strain on the Government, but the continued emphasis on appropriate training, to which the Government is committed, will ultimateLy enable this constraint to be eased.

9. Rwanda's economic history has been one of stagnation in recent years with little real growth of GDP. During the last two years, Rwanda has experienced poor weather and a deterioration in its terms of trade. Climatic conditions in 1974 were the worst in 35 years and food production fell, neces- sitating a small emergency food imports program organized by UNDP. In 1974 the terms of trade deteriorated by 20 percent, mainly as a result of higher internatlonal prices for imports, but also of a decline, towards the end of the year, in export prices for coffee, the principal export crop. Weather conditions in 1975 were more normal and permitted production to rise again. During the first half of 1975 coffee prices remained low, but since .July have been substantially higher, offsetting the effect of the deteriorating terms of trade earlier in the year. Against this background, national income fell in 1974 by 2 percent, and public savings - largely dependent oln coffee earnings - were negative. However, the investment level was maintained and consequently the resource gap widened from an average of US$12.5 million in 1972-1973 (at 1972 constant prices) to US$18 millP,n in 1974 and 1975. Investments in 1974 and 1975 were roughly equivalent to 10 percent of GDP. Financing of the resource gap did not present any major difficulty, as Rwanda receives considerable amotnts of external assistance.

10. Most external assistance to Rwanda has in the past been in the form of grants. Aid commitments reached over US$50 million in 1974, including technical assistance and budgetary support in the form of recurrent - 4 -

cost financing, and many countries and agencies Intend to offer increased assistance to Rwanda in the future. The principal external aid agencies operating in Rwanda are Belgium, Canada, France, Germany, Switzer'and, the European Development Fund, UNDP and IDA. In view of the Government's staff constraints and its correspondingly low ability to prepare and implement development projects, a considerable amount of aid to Rwanda has necessarily been in the form of technical assistance. However, appropriate counterparts were not always available and some of the training benefits were lost. Furthermore, technical assistance has tended to produce projects that were not always well suited to the country's needs by making insufficient use of local materials, local manpower and existing institutions. Besides this, the recurrent costs of projects were often high, and their position In the overall development strategy not always clear. To avoid these difficulties in the future, the Government has begun to be more rigorous in its choice of priority projects, and has decided to organize a meeting of aid lgencies in the fall of 1976 with a view to ensuring future projects that are more closely related to national priorities and improved coordination among the external agencies themselves.

11. Rwanda's external debt is low. External public debt, outstanding and disbursed, amounted at the end of 1974 to US$13.0 million, of which IDA credits represented US$8.2 million. Service payments on this debt amounted to US$0.5 million in 1974, or about 1.2 percent of export earnings, of which payments to IDA represented 6 percent. Nonetheless, because of Rwanda's poverty, assistance should continue to be on the most concessional terms and should cover a high proportion of total project cost, including local cost.

PART II - BANK GROUP OPERATIONS IN RWANDA

12. Bank Group assistance started in 1970 and has so far focused primarily on the improvement of the road network, on which the country is almost entirely dependent for the movement of its domestic and foreign trade. Rwanda has received six IDA credits totaling IJS$39.9 million, of which four were for roads, one for agriculture, and one for education. There have been no Bank loans. An IFC loan of US$535,000 for a tea factory was approved in 1975. Annex II contains a summary statement of IDA credits and IFC investments as of May 31, 1976 and notes on the execution of ongoing projects.

13. Problems have arisen in the course of execution of several projects, particularly with respect to the FirsL Highway Project (Credit 196-RW). Severe cost overruns occurred, which led in 1975 to a supplemental IDA credit of US$9.5 million, of which US$0.8 million would be used to help finance cost increases under the Highway Maintenance Project (Credit 299-RW) of 1972. The Saudi Fund for Development agreed to co-finance part of the cost overrun of the First Highway Project with a loan of US$5.0 million. The implementation of the Agricultural Development Project (Credit 439-RW) began in September 1974, about a year behind schedule because of delays in selecting a suitable consulting firm to assist in project execution. Plans for settlement of the project area could not be carried out as anticipated since farmers had already occupied part of the area before projecL inception. Following an in-depth review in November 1975, the project is now being revised, taking into account the development of an irrigation and drainage project in the same area financed by Canada.

14. In future, we intend to continue to pay close attention Lo the execution of ongoing projects. Because of the lack of skilled manpower and expertise in Rwanda, this will require substantial input of Bank Group staff and expatriate experLs. As technical assistance is being provided by various sources, we also intend to pursue our efforts to improve cooperation and coordination among the aid agencies active in Rwanda. With respect to new opsrations, we intend to place primary emphasis on agriculture while continuing our support to the highway and education sectors. This is in accordance with GovernmenL priorities.

15. Two operations are at an advanced stage of preparation. A Cin- chona Development Project was negotiated sLmultaneously with the proposed BRD project, and will be presented to the Executive Directors in Llte near future. A Mixed Farming/Rtural Development Project has been appraised, and is expected to be negotialed in Lhe next few monthls.

PART III - THE INDUSTRIAL AND FINANCIAL SECTORS IN RWANDA

tlanufacturLig

16. Rwanda's manufacturing sector is sLill at an infant stage and consists of abouL 75 enLerprises operating above the handicraft level. Of these only one can be described as large - a brewery located near Lake Kivu aL (isenyi. Other major activities are the processing of agricultural products for export, such as coftee, tea, pyreLhrum and( cinchona. Many oi the smialIcr enterpr ises are also based on crop processing, for example, production of oil, flour, jam and sugar for the domestic market. Manufacturing includtng handicrafLs employs about 16,00() persons or just over one percenL of the labor force, andl contributes about 4 percent to GDP.

17. Future industrial development faces severe constraints and must be guided by a real istLic assessment of the counitry' s potentLial. There is shortage of trained manpower in industrial skills and there is only a small entre- preneurial class withl experience in industrial management. Available primary materials are limited to agriculturil products, a methane gas d(eposit -6-

in the waters of Lake Kivu, lime for cement production, and peat for use as fuel. Both the domestic and export markets for Rwandese products encounter many problems: the domestic market is small, with low purchasing power, and transport costs within the country are high; the profitability of exporting many products is diminished by Rwanda's landlocked position.

18. Although the Government is giving first priority to an integrated nationwide rural development program, it also recognizes the need to develop some industrial base to promote a more balanced development. Crop processing and the manufacture of agricultural inputs and equipment offer good potential in this respect. To ensure that increasing rural incomes do not result in proportionately increased imports, the manufacture of consumer goods, such as shoes, clothing, cigarettes, sugar, soap, and others would be justified. In mosL cases the scale of operation would be modest, and the choice of tech- nology should reflect as closely as possible Rwanda's surplus of unskilled labor and shortage of managerial skills.

19. The Government's objectives for the industrial sector, as set out in its draft 5-year plan for 1976-81, include:

(1) An annual growth rate of 15 percent in the industrial sector;

(2) Creation of 11,000 new jobs in the industrial sector by 1981 (excluding the construction industry and tourism);

(3) Expansion of existing small- and medium- size enterprises to satisfy the needs of the domestic markeL and possibly to export to neighboring countries; particularly in food processing, agriculLural implements, and clothing; and

(4) fraining, and technical and financial assistance to local industrial enLrepreneurs, and training of technicians in order to localize the staffing of small- and medium-size enterprises.

20. In order to achieve Lhese ambitious objectLves, a number of insti- tutionaL steps are being taken. An Office for Industrial Promotion is being organLzed within the Ministry of Finance and Economy to act as a coordinat- ing agency aImong ministries concerned, to assist promoters in preparing and implementing new projects, and to attracL foreign private investments. This Office is likely to be supported by 5 or 6 experts from UNIDO, including industrial economists, engineers and financial analysts. An industrial park - 7 -

has recently been constructed in Kigali, with financing by the European Development Fund, and should be ready for use in the near future. Finally, as described in paragraph 47, technical assistance provided by the Rwanda Development Bank (BRD) to its clients is also being improved.

Mining

21. The mining sector is modest, and is based on the exploitation of small and scattered reserves of cassiterite (tin ore) and wolfram (tungsten ore). Both are exported without further processing. About 85-90 percent of mineral output is produced by foreign or mixed companies and the balance is extracted by small artisanal producers whose mode of operation is well adapted to Rwanda's dispersed reserves. Mining employs about 2,400 persons and it contributes about 2 percent to GDP. Exports of ore are a significant source of foreign exchange, providing between 15 and 30 percent of export earnings in recent years.

22. Mining offers some potential for further investment, but production of cassiterite and wolfram is sensitive to international prices, which have not been favorable since 1970. At present cassiterite is exported to Malaysia and Belgium for processing, but current plans to establish a small plant in Rwanda would increase local value added and might possibly stimulate ore production since mining companies and artisanal miners could be paid higher prices for ore.

Tourism

23. Rwanda possesses natural features favorable for tourism development which are still not fully exploited. In 1975, hotel accommodation capacity was just over 500 beds, of which 300 were of international standard. Tourist arrivals were about 8,000 and annual earnings from tour[sm are estimated at US$1 million, of which about 50 percent remained in the country. Hotel capacity for international tourism has doubled in the last 3 years, and both tourist arrivals and the number of hotel nights have increased signifi- cantly over the same period. However, hotel occupancy is still low (39 percent). At present most hotel capacity is concentrated in the capital of Kigali.

24. Best use can be made of Rwanda's natural assets by attracting "circuit tours" that also visit Kenya, Tanzania and Zaire. This is already being done on a small scale and brings tourists from North America and Europe to Rwanda on extended African tours. They visit Kagera National Park, which is somewhat similar to other East African parks but in an unusually attractive hilly setting, and the Volcanoes National Park, where the endangered moun- tain gorilla lives. The opening of modern accommodation on Lake Kivu, near the sandy beaches at Gisenyi, could also contribute to the development of tourism in Rwanda. - 8 -

25. Some of the constraints to tourism are the same as those that hamper industrial growth: lack of experience and shortage of trained personnel, high construction costs, geographical isolation, and insufficient internaL transport. To these can be added the greater difficulty of justifying a major growth of tourism, given the priority needs of other sectors.

Financial Sector

26. The financial system in Rwanda consists of the Central Bank, two commercial banks (the Commercial Bank of Rwanda and the Bank of Kigali), the Development Bank of Rwanda (BRD) described in PART IV of this Report, the Savings Association, the Peoples Bank, the Postal Checking System and the Social Security Fund. During the period 1971-1973, total domestic credit more than aoubled, mostly due to a rapid increase in borrowings by the Government. In 1974, total credit increased by another 33 percent, to a level of about US$55.0 million equivalent. In December 1974, the Central Bank accounted for 55 percent of total domestic credit, commercial banks for 37 percent, the Savings Association for 5 percent and BRD for 5 percent.

27. The Central Bank formulates credit and monetary policies, and manages the country's international reserves. In addition, alL loan appli- cations in the country, in excess of RwF 1 million, require its prior appro- val. The Central Bank also administers a system of import licenses which permits a selective allocation of foreign exchange earnings. It extends credit to the public sector, the commercial banks, BRD, and, in some instances, directly to the private sector.

28. The Commercial Bank of Rwanda, established in 1963, is largely owned (55 percent) by a consortium of European and North American banks and the Government of Rwanda. It has four branch offices in the main agglomerations of the country. Total outstanding loans as of September 30, 1975 amounted to about US$15 million, almost half of which were made to the public sector. The Bank of Kigali, established in 1966, is owned by European and North American financial institutions (65 percent), and by the Savings Association and the Social Security Fund. Its total outstanding loans as of September 30, 1975 amounted to US$20.0 million, about 75 percent of which was for financing the sale of coffee. Both commercial banks also engage in mortgage financing.

29. The Savings Association lends niostly for housing to individuals, and has deposits of almost US$4.0 milliont equivalent, representing about two thirds of the savings and time deposits with the banking system, the rest being accounted for by the commercial banks. Rwanda has also a Postal Check- ing System. - 9 -

30. The Peoples Bank started in late 1973 as a credit union project. It is supported by Swiss bilateral aid and the Rwandese Government. About 300 independent branches are planned to be opened over the next 10 years. The role of these small banks is to mobilize local savings and provide short- and medium-term financing to the rural sector. The first 12 branches were opened in August and September 1975, and in this two-month period they mobilized about RwF 7 million coming from about 1,200 depositors. It is estimated that the savings mobilization potential in the rural areas amounts to RwF 1 billion, representing 40 percent of total deposits presently with all financial institutions.

Interest Rate Structure

31. The Interest rate structure in Rwanda is characterized by: (a) a low levcl of interest rates in general; (b) relatively wide margins obtained by the commercial banks; (c) lack of differentiation between the remuneration of savings instruments with different maturities, and (d) the lower rates charged for medium- and long-term credits than for short-term loans.

32. The interest rate on deposits with the commercial banks, the Savings Association and the Peoples Bank is 3 percent per annum; for Government bonds subscribed by the financial institutions it is 4 percent, while medium- term bonds (4 years) issued by BRD earn 4.5 percent. Short-term loans by commercial banks carry an interest rate of 11 percent, except for loans for export crop processing and export credits which are at 8 percent and 4-6 percent, respectively. Medium- and long-term loans, which represent only 5-6 percent of total domestic credit, are mostly extended by BRD and the Savings Association. Interest rates charged on these loans vary between 6 and 9 percent, with an average of about 7.5 percent, including com- missions.

33. The arguments presented by the Government in support of the relatively low Interest rate structure are (i) that potential savers attach much less Importance to interest rates than to security and ready access to deposits, (ii) that Investment opportunities are limited, and the rate of returni on most investments is low (about 8-10 percent), and (iii) that higher rates of interest would discourage potential promotors. Nevertheless, we beLieve that an upward adjustment of interest rates would be justified, as higher rates would attract some additional deposits, which could be effectively used without unduly restricting the investors' prospective returns.

34. The Association has therefore discussed with the Government the possibility that its efforts to improve financial intermediation throughout the country be supplemented by an increase in interest rates on bank deposits, an increase in medium-and long-term debit Interest rates, as well as some differentiation of credit interest rates according to maturities of deposits. The dialogue on this matter will be continued in the context of further Bank Group operations, with a view to seek further rationalization of Rwanda's interest rate structure. - 10 -

PART IV - THE PROJECT

35. A report entitled "Appraisal of the Banque Rwandaise de Develop- pement" (Report No. 1008a-RW, dated June 24, 1976) is being circulated separately. A credit and project summary is attached as Annex Ill. Follow- ing discussions during the 1974 Annual Meeting and an exploratory mission in May 1975, the project was appraised in November 1975. Negotiations were held in Washington, D.C. from May 24 to May 28, 1976. The Rwandese delegation con- sisted of the Minister of Finance and Economy, Mr. Denis Ntirugirimbabazi, and BRD's Director General, Mr. Jean-Damascene Munyarukiko.

Historv

36. BRD was established in 1967 as a limited liability company with a share capital of RwF 50 million, which has since been increased twice and now stands at RwF 208 million, or about US$2.2 million equivalent. Thie main shareholders are the Government and other Rwandese public institutions (56 percent), the Deutsche Entwicklungsgesellschaft (9 percent), Caisse Centrale of France (9 percent), Bank of Tokyo (3 percent), Commercial Bank of Rwanda and the Bank of Kigali (each 8 percent), and other private shareholders (7 percent). BRD is to provide financing for the creation and development of enterprises in Rwanda. It engages in equity investments and extends term loans or guarantees in all sectors of the economy, particularly in industry, transport and tourism. BRD is authorized to receive deposits from enterprises, administer funds, issue notes and borrow at home or abroad.

Management and Organization

37. BRD's Board of Directors consists of eleven members, of which six represent the public sector, while five seats are held by, respectively, the Deutsche Entwicklungsgesellschaft, the Caisse Centrale of France, the two local commercial banks, and the Brewery and Soft Drinks Company of Rwanda, which is the major enterprise in the country. All Board members are experienced executives. They meet once a month and all loans are subject to their appro- val. The Chairman of the Board is appointed by the President of Rwanda from among the members; the President also appoints the Director General upon a proposal from the Board. Mr. Munyarukiko, a graduate from Leningrad University, has been Director General since 1973. His two immediate assistants include Mr. Mbonabuca, who has worked in the Central Bank of Burundi, and Mr. Thamm, an economist and engineer, seconded since April 1975 by Germany. This three- man team is competent, dynamic and efficient, and the members complement each other well. - 11 -

38. BRD's organizational structure includes an Investment Depart[nent in charge of project promotion, appraisal, implementation and follow-ul), and a Department of Finance, Administration and Personnel. The existing organization is adequate for the present level of operations, but if acLivity develops as projected, BRD's staff will need strengthening and Llte organization will have to be more elaborate. Future staff requirements wilI be met through technical assistance from Germany and Belgium and local recruiLmenL.

Policy Statement

39. BRD's Policy Statement for term-lending and equity investmenits was recently revised to include clauses on maximum commitment per single enterprise, maximum normal proportion of project financing, and geographical and sectoral distribution of operations. Adoption of an addiLional clause providing that BRD will not carry the foreign exchange risk under any of its foreign operations is a condition of disbursement (Section 2.03(f), draft Development Credit Agreement). The Policy Statement conforms generally to those normally followed by development finance companies for which the Bank Group has provided funds. Any substantial amendment would be made in muLual agreement between the AssociatLion and BRD (Section 2.10, draft Project Agreement).

Operations and Financial Results

40. From 1971 to 1975, BRD approved 124 medium- and long-term loans, totaling about US$5.4 million equivalent, and seven equity investments, totaling US$0.6 million equivalent. Industrial loans accounted for 43 percent of total loans approved, whlile transporL and tourism projects received 36 and 9 percent, respectively. Almost 90 percent of the industrial loans approved were made in the food and beverage sub-sector and for processing of agricultural products. The largest two loans were for the expansion of the brewery and for a tea-processing plant. Other industrial loans, ranging from US$10,000 to US$150,000 equivalent, were maide in the construction and mechan- ical industries, printing and mining.

41. The quality of BRD's loan and equity portfolio is satisfactory, and its financial situation is sound. Arrears amount to less than one percent of outstanding loans. BRD's administrative costs have remained low at about 2 percent of average assets. Net profits, which have been modesL in Lhe past, represented 8.5 percent of average equity in 1973, but decreased to 2 percent in 1974, due to a change in accounting method from an accrual to a cash basis, without which it would have been 7 percent. It reached 4.3 percent in 1975 and should further increase over the years to reach 7 percent by 1980. - 12 -

42. BRD's project appraisals are satisfactory, but do not contain a thorough economic assessment of the projects. BRD has agreed that, as a first step, for all import-substitution projects above the free-limit, the economic rate of return will be calculated in accordance with guidelines satisfactory to the Association (Section 2.02 (b), draft Project Agreement). Based on the experience gained, BRD may in due time extend such calculations to other projects as well.

Pipeline and Resource Requirements

43. BRD's project pipeline includes a variety of proposed operations, such as soap, cigarettes and brick manufacturing, peat, tin and cinchona processing, carpentry, transportation and perhaps a hotel. Present fore- casts indicate that from early 1976 to mid-1978, BRD's loan approvals would amount to about US$8.5 million equivalent, of which US$7.5 million for term loans and about US$1.0 million for equity investments. Given BRD's pipeline and the Government's intention to stimulate the industrial sector, these projections appear reasonable.

44. The foreign exchange component of the projected approvals through mid-1978 is estimated at about US$6.8 million, and the local component at US$1.7 million equivalent. The Government has agreed to provide BRD with adequate financing for the local cost component and the aggregate amount would be not less than RwF75 million (Section 3.03, draft Development Credit Agreement). Possibilities of obtaining foreign resources from foreign lenders is being actively explored by the Government and BRD. As a result of these efforts, it is expected that BRD will be able to ob- tain about US$2.8 million equivalent in the next two years, mostly from Kreditanstalt fur Wiederaufbau and the Caisse Centrale of France, a share- holder. It is therefore recommended that IDA funds of US$4.0 million equivalent, representing 57 percent of BRD's forecast foreign exchange requirements, be made available to complete the financing plan for foreign exchange.

Onlending Terms

45. Interest rates charged by BRD on loans to industry and tourism vary between 5.5 and 7 percent for medium-term loans (up to five years) and between 6 and 7 percent for long-term loans, to which is added a commission of one percent per annum for loans to industry and tourism, and 2 percent for loans to commerce. Loans to agriculture, which comprise about 6 percent of total loans, carry an interest rate of 5 percent per annum. On the average, BRD's long-term loans to industry have an effective cost of 7.5 percent to the sub-borrowers. - 13 -

46. For loans financed out of the proceeds of the credit, BRD's interest rates, including commission, will not be less than 9 percent for medium- and large-scale enterprises, which is considered adequate at this time given the considerations discussed in paragraphs 33 and 34 above. Small-scale enterprises, as defined in Section 1.02 (b) of the draft Development Credit Agree- ment, will be charged an interest rate of not less than 7 percent (Section 2.03 (a), draft Project Agreement). Loans to small-scale industries are expected to represent only a small fraction of the total credit. Amortization would be over a period not exceeding 20 years in the case of tourism projects, and 15 years in the case of all other loans and investments. (Section 2.02 (d), draft Project Agreement). The free limit for individual sub-loans is US$100,000 equivalent, and US$1 million in the aggregate (Section 2.03 (d), draft Development Credit Agreement). This limit will enable us to review about two thirds of the sub-loans and investments. The agreed maximum debt/ equity ratio is 3:1 (Section 3.04, draft Project Agreement).

47. The Government would onlend the proceeds of the credit to BRD for a period substantially in conformity with the aggregate of the amortization schedules of the sub-loans and schedules of repayments for investments, with interest at 4 percent per annum, and would also carry the foreign exchange risk. This would leave BRD a 5 percent spread to cover its administrative expenses, make a normal profit and provide needed technical assistance to enterprises, as referred to in the following paragraph.

Technical Assistance

48. The Government is of the opinion that there is great need in Rwanda for management assistance and technical advisory services to industrial enterprises, and BRD has agreed to expand its assistance through a technical assistance unit (Section 2.11, draft Project Agreement). It has been decided that one percentage point of BRD's spread shall be used exclusively for the financing of technical assistance activities and BRD has confirmed its intention to use these funds for that purpose. This will involve a total amount of US$100,000 over the period 1977-81.

Auditors

49. BRD's accounts are presently reviewed and approved by two statutory accountants, who do not meet, however, Bank Group requirements for auditors. There are no auditors in Rwanda that would qualify, and the alternative of finding French speaking.auditors in neighboring Kinshasa or Nairobi is being explored. A Bank Group mission will examine BRD's 1975 accounts in detail, before withdrawals under the credit can be made (Section 2.03 (f)(i), draft Development Credit Agreement). Thereafter, an audit of BRD's accounts would be undertaken annually by an auditing firm acceptable to the Association. The cost of the first three audits would be ftnanced out of the proceeds of the proposed credit (Section 2.03(a)(ii), draft Development Credit Agreement). The absence of qualified independent auditors in Rwanda poses a serious problem that goes well beyond the auditing of BRD. A dialogue has been started with the Government on how best to improve the accounting capability in Rwanda. These discussions will be pursued in the course of supervision of the project. - 14 -

Procurement and Disbursement

50. Procurement will be handled through normal commercial channels. Disbursements will be made against 100 percent of foreign expenditures of imported items; 80 percent of expenditures in Rwandese Francs for goods supplied from the territory of the Borrower but previously imported through normal trade channels; 80 percent of expenditures in Rwandese Francs for civil works contracts, and 100 percent of the foreign cost of BRD's audits for the years 1976, 1977 and 1978 (Section 2.03(a) ii and (b), draft Devel- opment Credit Agreement). The period for commitment of the funds is two and one half years, and the credit is expected to be fully disbursed in about 5 years.

Economic Benefits and Justification

51. The economic rate of return on sub-projects is expected to be somewhat higher than the corresponding financial rates of return (estimated to average about 10 percent), reflecting the economic benefits from employment creation and increased foreign exchange earnings. However, there are otlher contributions of the project to the Rwandese economy which are difficult to quantify at this early stage of BRD's relationship with the Bank Group. BRD is the only institution for the promotion and financing of industrial investments in Rwanda, and the IDA funds constitute an important part of the foreign exchange needed for industrial investment. Therefore, the credit makes a major contribution to the implementation of the Government's policy of expansion and diversification of the economy. The Association can, in addition, help BRD strengthen its project appraisal capabilities and internal accounting methods, and support its technical assistance to enterprises.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

52. The draft Development Credit Agreement between the Republic of Rwanda and the Association, the draft Project Agreement between the Associa- tion and the Rwanda Development Bank, the Report of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association and the text of a draft resolution approving the proposed credit are being distributed to the Executive Directors separately.

53. Features of the draft Development Credit and Project Agreements of special interest are referred to in paragraphs 33, 34, 42, 44, 46, 47, 48 and 49 of this Report. The securing of satisfactory additional informa- tion on the accounts of BRD and the amendment of BRD's Statement of Policy to provide that BRD shall not carry the foreign exchange risk on any of its operations in foreign exchange, are special conditions of disbursements (Section 2.03 (f), draft Development Credit Agreement). Signing of the Subsidiary Loan Agreement is a condition of effectiveness of the Develop- ment Credit Agreement (Section 6.02 (b), draft Development Credit Agree- ment). -15 -

54. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.

PART VI - RECOMMENDATION

55. I recommend that the Executive Directors approve the proposed credit.

Robert S. McNamara President by J. Burke Knapp

Attachments

June 24, 1976

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bleOSS Otburma. noted, deta for I36 refer to W Year bsUfen 1959 M 1361, for 1970 between 1968 end 197, end for Posft Recent Ketiteat between VW1n 1973. - £qa beeas "alooted as an obajeetlv esoftat7 booam It ines Afrmowcounmtry with Os agr-tcultur.-beeed .oonW w,hich has aucceoded in reaeching a lesel of .- .ami dem1oPmt subsatntially kdos tbm that ot boed. glum 1960 L 1957; /b Botlo of popualtion uender ISan 65 05oer to total labor forcei Le 1962. I__O 15-59 and 60 years end over raspeotive4ly & hUtm Of pogasltlan under 15 and 60 end over to toted law,o fr-ce;

NS is= mrxIMS, /a Inloeldi aldeise. ftLwj IM ~a 1966; /b Potio of populatiom under 1S end 65 end over to totel labor force; Le Coverags of date unknown; /d 196J.-66, Le 19671 Lf Urb,s only. hA&A& 1970 /a Ibialend Tensenia; & 19671 /c 1965; /d Urben only. 1970 / Registered only; /b I96-691 /c ottio of population under IS end 65 end over ino labor force ego 15-59 yesar; Ld labor force ego 15-59 Yees; /a tAbes; If Rsgistered, not all practiclng in the coo,ntry.

R2, May i, 1976

'ntrMMDS OF SDCIALIDWICATORS 1=4 ~Area ~ith.. ~~ ~ ~ ~ ~ ~ ~ ~ ~ ~~,Vation,e nusng rson - Populat.on divided by number of practicing ja : T.iiT All erasmc c rising Iad area end inland twetrs en soel gr Ae flurses, 'traied' or '-certified" nureso, end - spt rsCGht estisate ct eW'ulraural eAse useed tesWrarily or per- auxiliary prersonnel with training or experience.. inently for crepe, Pestearse ewket &kitchens gardens, or to lie teilow. Rh. egit4albod Population di,ided by number of hoepitol beds a Ifh El 9fflfen privae general and spwnialleed hospital end - (tSUP Per capite estimtats at rerket prices, ealcu- rsbabilitation enotera; exlaim nursing homes and estabi isheuctB for TaebsecOnlsreien sethod as World Bonk Atlas (1972-74. basis), custodial and preventive are. Parcaptasuplyf aloies(6of eqireots) - C.op.tod from enr-gy ,1_1 ~statiati- ~ ~ ~ ~ ~ eqialn o otfodsppis sijbein country per cepit. per day; d ! i) - An of July first; if not ea-ilable, average available supplies wonra.us domesstic production, iqurts l-es eaporte, or two and-7mr tatimtes. ~~~~~~~~andchanges in stock; net supplies exclude animal feed, seeds, quanti- ties1 used in food processing mid losses in distributionj requironete Population mst -_pey murbe . idY-yer populatice par square kilo- .sre .. tinatcd by PAObase d on phyaelclgicaI nsd. for normal activity .. ter (10hecteras of e ara.ac health considering msvirocmontal tsqermp.tur., bu4, enights, age and Psoulatle deet orC r heOfe lic. lend - Computed as above for, seX distributious of population, and allowing 10% fur west.eat houethold egrlcolasrall nd eel.Mgy Per capita aoupn of.FoEiNK(reen Per day) - Protein content of per tal statietice ~~~~~~~~~~~capitanet supply~fo prdy not supply of food is defined as ;R14Gan st thousan - Annual lIve birth. per thousand of mid- above; requirements for all countries established tly USDARoonomdo year popuaUtion; iiuslI fiv-7er averages ending in 1960, 1970 end Rseearh Services p-oide for a dninm- alosan- of 60 gras of total 1975 far developing countries, protein per day, and 20 grmam of animal end pul.. protein, of whi.ih 10 Cru dedMeath rete per thouaend - Annual deathe per thousand of mid-year grams should be aninal protein; these standards are-.1o,er then those uf pouain usually five-year averages ending in 1960, 1970 and 1975 75 grao of total W.o-sn end 23 gran of antoa pr.t.in as am vaerage for dvselopic ounrt for thle world, proposed by FAOin the Third World Pond Survey. Infntertlti rae Ctou) - Annual deaths of Infants under one year Perc it rtein suply frosamisal and pulse - Protein supply of fond ,,,:DIpe Housa riebrh, deraTivedfi animAls and pulses in1 grams per day. Lf tnyat birth7 s(~ - Average camber of years of life reamin- Deathra:teiU ou Raa 1-~ - Annual deaths per thousand in age group 1-4 Sif?tt ith S"llyflV!~ysa, averages ending in 19,60, 1970 end yeas, tochi r" InF thjs age group; suggested as an cndicotor of eel- 195for developing cutries, nutrition. gjftgrj~ tjcnrate - Average n=ber of live daughters a wosan mill ne-i1o1di rPprodtvti-n period if seb experi~ene present age. Rducation specific fertili ty rates; ususlly fiv-ysa -aveage sidIn in 1960, A&mstdenr0l1m tratIo - Winseryschool - fciags grlnnas 1970 and 1975 for developing countries, percentage of prieary-shool~--e-op-opulaion; includes c1hildren aged Population rethrate ( -tota - Compound annual growth rates of mid- 6-U years but adjusted for different lengths of primary education; year pultion, fo_r _19-60, 1960-70, and 1960 to mset recent year. fwr countries with universal education, enollment may exceed 100% Pftion ra.te 4 - urban - Computed like grovth rate of total since some pupils arc helos or above the official school age. on; rvnt dfntone of urban areas may affect compara- Adlustedenolmetratio t-Seondarshool - Gosputd as above; second- biltly of date anong countries. dcto eursa ary es oryas uf approve.d primar inotruc- Urbapupptimn(% of total) - Ratio of.urban to tutal population; dir- tion; Provides general. ocaticua1 ur teaher training instru.tious for fiji0 of)55i-ban areas may effect cooper-ability of data pupils of 12 to 17 years of age; correspondence coursen are generally "WVg counries, excluded. Age tju r ca9,nt) - Children (0-li years), sorbing-geg (15-64 Years), Years ofecoli&Z-rovded(first anldsecond evl) Total Year sf ant retired 61 years and over) aso percntages of mid-year population. SChoolnga seondr leel, vocational ltre tlI., iYLpartially Ag.- -scyrtio- Ratio of population under 15 and 65 end ...orin r osepletely excluded. thsrages 1 roz.ugh 64. Voainlerlmn16o eodr)-Vo~na institutions include k2n~g.~4euyr.tio - Ratio of population under 15 and 65 end ovrtcoc0 nhtii sohrpoiaoilchOeaeidpnetyo 3R-=g group of 15-6i years. as departments of sensodary instltuions. SCaIy olmsii.g-accetors(cusolative. thou) - Cuslativo crashe ofA:t.1!! t'gteral(%) - Literate adults (able to red nd -rite) as per- acceptors of birth-contro devices under suspicee of national family cot.eo o al dult PoPulatIon aged 15 years and over. planning progra sinc inception. Pamblyplanning -users(of married womne) - Psrcentages of married Poi wonen of child-bearing ag I5-.44 years ) who use birth-control do- P.MnAverage- nunbar of person. per roon in oocupid -ices to all married vesn in Same age group. covent1§onal IIaitjmi urban areas; dwellings exlude non-persunnnt st-utures and unoccupied porte. amimimt ~~~~~~~~~~~~~~~~~Occupieddeellince withoutOPAed ~aster_(L) - Occpied convetional dwell- Toa !r farce (thousand) - gconomically active persons, including ings i uran ae;d rura'lars thtL,eoouidppdetr are orce and unsepoyed but excluding housewives, students, sin.; facili ties as percentage of all occupied dwellinge. defiitions in vario-s countries ars not compaable. Access toelectricit- 6o l d elns ConventioMal dwellings with ulue Agricultural labor forc (in farming,1 elctricity, in lITving quarters as percent of total dvrelli.ngs in urban orWs , 'MMt ng en. flh-) as percentage of total labor force, and rural areas. (o0 ao gg hvoe we usualy defined as per- Rural -wllngetdtcn to electrIcity (%) - Computed as above for rural, day, rsain d out of a Jet, and seeking work for a specified hdninmm period not excedinig one wseek;may net be comparable between coon- Co mtion trise due to differet definitions of unesMloyed end source of data, R C'PP )- A-1 types of recivers for radio broad- s.g., employment office statistics, smple eurvsas, ome1pulsory unum- ca per thousand o1- population; excudes WUlicened ployment ins%u,race. raeniv-rs in countries and in year chop registration of radio sets was in affet; data for reet yeas say nout be cormparable Stone msat coon. Incomsedistribution - percencage of private imo.e (both in cash end tries abolished licens ing. kindreeive byrichest 5%, richest 20%, poorest 20%, end poorest Passenorw cars per_jL21o ) - Paegr caro coepris ntotr oars seating kiO ofbseolo 4097 boamehol l~~~~~~~~~~~~assthn} lgh persons; opexcludes Pseg anbulances, hearses and military vehicles. Percena-ges of lend onend by wsalthivet Ha.1j I herb ) - Annua concsumption of industrial, -emer- ~Iftt';:~:A hwornehi- 0 l Wmbddu~~~iitI~?~~)~ossvers. cia1, publi~~c WIdPrivate electric ity in kilowatt hours per capIta; gen- and W ..aed~~~~~~~~~~~~~~~~rll on production data, without allowance for losses in grids but allosing for imports and expusto of electricity. t clan - ~Population divided by cnumber of practicing 1 (- Per cap ita ann,ual onrsumption in kilogrwwe elicnquelita onr a medical school at university level,somv p_roduction plus rt imports of newsprint. Attachment I

Page 3 of 4 pages ECONOMIC INDICATORS

GNP PER CAPITA in 197 US $ 80

GROSS NATIONAL PRODUCT IN 197 4 ANNUAL RATe OF GROWTrH a. 1972 - prices)

US $ Mn.n. 1960-65 i970714 1974

GNP at Market Prices 301Q3 1000 * 1.2 0.1 Gross Domestic Investment 32.3w 10.7 53 4.4 Gross National Saving 12.9!' 4.3 * * 13.1 16.2 Current Account Balance - 19.4 - 6.4 Exports of Goods, NFS 37.6 12.5 2,4 13.4 Imports of Goods, NFS 65.9 21.9 -1.533.4

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1974

Value Added Labor Force2 V. A. Per Worker US$SMln, x Thoma . a. us$ x.

Agriculture 182.7 63.7 1636 93.2 111.7 68,4 Industry 28.5 10.0 1.5 1 7 Services 75.5 26.3 6 31 9 Unallocated . . 69 3.y Total/Average r0co 100.0 13.3 100.0

e GOVERNMENT FINANCE General Government Central CoVernwentY ( Mln.) .%of GDP. ( RwF Mln.) % of GDP 197 197 196 -7 197A I

Current Receipts 35 12.3 134. Current Expenditurer Current Surplus -279 -1.0 -1.1 Capital Expenditureo 2745 0.9 2.1 External Assistance (net) *- 0- .-

iI The Per Capita GNP estimate is at 1972-74 market prices, as calculated in the 1975 World Bank Atlas. All other conversions to dollars in this talle are at the average exchange rate prevailing during the period covered. 2 'nal1ocatedhfU/ consists of unemployed people without occupkation fcr health reasons, old age, 'tc. Statistics available refer to ocoupational distribution of populatimn above 15 years, i.e. not exactly to labor fiurce.

3/ Excluding external assistanse .. not available St Excluding external aasistance not applicable 47 Mission estimnate Attachment I Page 4 of 4 pages

MONEY, (REDI)T and PRICES 1969 1970 1971 1972 1973 1974 (Million RwF outstanding end period)

Money and Quasi Money 2121 2542 2919 2644 3956 5506 Bank Credit to Public Sector 1402 1194 1503 2044 2322 2913 Bank Credit to Private Sector 1. 437 658 886 373 833 1904

(Percentages or Index Numbers)

Money and Quasi Money as % of GDP 11.2 11.6 13.1 11.6 16.2 19.2 General Price Index (1970 - 100) 2/ 100.0 103.0 106.0 114.0 150.0 Annual percentage changes in: General Price Index *, of 3.0 2.9 7.5 31.6 Bank credit to Public Sector 30.1 -14.8 25.9 36.0 13.6 25.5 Bank credit to Private Sector 42.8 50.6 34.7 -57.9 123.3 128.6

BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1972-74)

1972 1973 1974 US S Mln % (Millions US $) Coffee 17.0 56.3 Tea 2.2 7.3 Exports of Goods, NFS 20.4 30.7 37.6 Pyrethrum 1.3 4.3 Imports of Goods, NFS 40.0 35.6 65.9 Cassiterite 4.9 16.2 Resourcc Gap (deficit -) _ :-4 9 -28.3 Wolfram 1.6 5.3

Interest Payments (net) 0.1 0.1 0.4 All other commodities 3.2 10.6 Workers' Remittances -o.6 0.5 - Total 30.2 10Q00 Other Factor Payments (net) - - - Net Transfers 4.5 6.8 8.5 EXTERNAL DEBT. DECEMBER 31. 1974 Balance on Current Account -15.6 1.5 -9-4 US $ Mln Direct Foreign Investment 0.9 2.7 3.2 Net MLT Borrowing Public Debt, incl. guaranteed 13.0 Disbursements 0.9 2.8 4.5 Non-Guaranteed Private Debt Amortization 0.4 0.1 0.6 Total outstanding & Disbursed Subtotal0. 27 3. Capital Grants 5.8 5.8 11.6 DEBT SERVICE RATIO for 1974" Other Capital (net) 0.5 -1.3 -0.8 % Other items n.e.i 2-0 0.9 - Errors and Omissions 1.8 -3.8 7.8 Public Debt, incl. guaranteed 1.2 Increase in Reserves (-) 4.1 -8.5 -6.3 Non-Guaranteed Private Debt Gross Reserves (end year) 6.6 16.4 14.3 Total outstanding & Disbursed Net Reserves (end year) 3.3 12.0 8.9

RATE OF EXCHANGE IBRD/IDA LENDING. May 31/1976 (Million US $):

Throtgh - 197 IBED IDA US $ 1.00 = RwF 92.1 1.00 = US $0.0109 Outstanding & Disbursed - 17.6 Undisbursed Sin_. lan. 1974 Outstanding incl. Undisbursed 22-2 3 US $ .00, RwF 92.8 39.9 1.00 = US $0.0108 May 31, 1976 1/ Bank credit to private sector includes claims on official entities. 2/ Consumer price index for Kigali. 3/ Ratio of Debt Service to Exports of Goods and Non-Factor Services.

not available

not applicable

May 31, 1976 EACPII ANNEX II Page 1

THE STATUS OF BANK GROUP OPERATIONS IN RWANDA

A. STATEMENT OF IDA CREDITS

(as at May 31, 1976)

Amount (less cancellations) US$ million

Credit Fiscal 2/ Number Year Borrower Purpose IDA Undisbursed

196-RW 1970 Rwanda Kigali-Gatuna Road Construction 18.8 1/ 6.7

299-RW 1972 Rwanda Road Maintenance 3.0 0.6

439-RW 1974 Rwanda Agropastoral Development 3.8 2.9

475-RW 1974 Rwanda Ruhengeri-Gisenyi Road Construction 6.3 4.1

567-RW 1975 Rwanda Education 8.0 8.0

Total 39.9 22.3

of which has been repaid:

Total now held by IDA 2/ 39.9

Total undisbursed 22.3

B. STATEMENT OF IFC INVESTMENTS

In 1975, IFC approved a loan of US$535,000 for a tea factory, which has not yet been signed; no other loans have been made so far.

1/ Including a supplementary credit of US$9.5 million made in November 1975.

2/ Prior to exchange adjustments. ANNEX II Page 2

C. PROJECTS IN EXECUTION 1/

Credit No. 196-RW Kigali-Gatuna Project; US$9.3 million credit of June 17, 1970; Date of Effectiveness: September 15, 1970; Closing Date: December 31, 1977; US$9.5 million supplementary credit of December 19, 1975; Date of Effectiveness: February 18, 1976; Closing Date: December 31, 1977

Construction works were interrupted in April 1975 because of a cost overrun amounting to about US$16.0 milion, including a foreign exchange component of US$13.7 million. In addition to the subsequent US$9.5 million supplementary IDA credit, of which US$8.7 million is earmarked for the completion of the Kigali-Gatuna Road, the Saudi Fund for Development has agreed to co-finance the cost overrun with a loan of US$5.0 million. The supplemental IDA credit became effective on February 8, 1976 and the Saudi loan was signed in February 1976. Construction works were resumed in January 1976, with completion expected by mid-1977.

Credit No. 299-RW Highway Maintenance Project; US$3.0 million credit of April 19, 1972; Date of Effectiveness: January 15, 1973; Closing Date: December 31, 1976

Delays in project implementation have resulted in cost increases for equipment, spare parts and materials. The supplementary IDA credit mentioned above included US$0.8 million to help finance these costs increases. The cost of technical assistance, for which UNDP contributed a US$1.1 million grant, has also increased. As a result, the UNDP grant will be exhausted about 9 months before the consultants' contractual period terminates on December 31, 1976, and an additional US$260,000 will be needed to keep the consultants in the country for the period originally envisaged. As UNDP will be unable to provide additional funds this year, the Government and the Bank Group have agreed to use part of the proceeds of the supplemental IDA credit to finance the technical assistance.

Credit No. 434-RW Agricultural Development Project; US$3.8 million credit of November 29, 1973; Date of Effectiveness: September 5, 1974; Closing Date: December 31, 1979

Project implementation began about a year behind schedule because of delays in selecting a suitable consulting firm to assist in project execution.

1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the solutions taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weak- nesses in project execution. ANNEX II Page 3

Various difficulties have since been encountered, particularly in recruiting staff and in defining the project area. In a large area spontaneous settlement has ocetrred before project implementation was underway, thus restrain- ing the possibilities for organized settlement as envisaged in the project. On the other hand, plots prepared for organized settlement have not yet been allocated as potential settlers are unwilling to sign settlement contracts which require settlers to pay fees after an initial period of four years. In addition, project cost has increased from US$4.3 million to US$7.0 million, mainly as a result of worldwide price increases. In view of these problems, the project was reviewed in depth in November 1975 and disCussioOns were held with the Government on the future course of action. The project Ls now being revised, which is likely to entail a reduction in scope of some of its components in order to remain within the amount of the funds available in the credit. This revision will also take into account the implementation of the irrigation project in the same area financed by Canada. Coordinat[on with regard to the implementation of both projects will be continued in tlle future by all parties concerned.

Credit No. 475-RW Ruheneri-Giseniyi Road Construction (Third Highway) Projectj US$6.3 million credit of March 27, 1974; Date oi Effectiveness: June 5, 1974; Closing Date: June 30, 1977

The start of construction was postponed for about 4 months to prmLLt supervising consultants to complete detailed engineering. Slow contractor's mobilization added to the delays. Completion of the project is now expectt-d hy August 1976, about 15 months behind schedule. Costs are expected Lo re- maLn within the originial estimates.

Credit No. 567-RW Education Project; US$8.0 million credit of June 30, 1975; Date of Effectiveness: December 1, 1975; Closing Date: June 30, 1982

ProjecL execution has sLarted satisfactorily. Construct oui,f the school and financing unit and the printshop is being prepared, and staffing of the unit is well underway. Locations for the workshops to be constructed under the project are being determined. Other financing sources have agreed to finance various items Lncluded in the project. The Federal Republic of Germany has agreed to provide all printing eqtuipmnllt for the printshop, while UNDP will finance the technical assistants Lo bh re- cruited through UNESCO. The credit funds thus released will be reallocated to construction of additional workshops or other related project ite1as. ANNEX III Page 1

RWANDA - RWANDA DEVELOPMENT BANK

CREDIT AND PROJECT SUMMARY

Borrower: Republic of Rwanda

Beneficiary: Rwanda Development Bank (BRD)

Amount: US$4.0 million equivalent

Terms: Standard

Onlending Terms: 1. The Government would onlend'the proceeds of the IDA credit to BRD for a period substantially in conformity with the aggregate of the amortization schedules of the subloans, but not exceeding 20 years in the case of tourism projects, and 15 years in the case of all other loans or investments, with interest at 4 percent per annum.

2. BRD would relend the proceeds at an effective cost to the sub-borrower of not less than 7 percent to small-scale enterprises, and not less than 9 percent to medium- and large-scale enterprise. Amor- tization would be over a period of up to 20 years, including appropriate grace periods, depending on the nature of the sub-projects.

3. The foreign exchange risk would be borne by the Government.

Project Description: The project would assist in financing:

(i) BRD's foreign exchange requirements for its development finance operations through mid-1978; and

(ii) Audits of BRD's accounts for 1976, 1977 and 1978.

Final Date for Sub-Project Submission: December 31, 1978 ANNEX III Page 2

Free Limit: US$100,000 for individual sub-loans with an aggregate limit of US$1 million.

Debt Covenant: Maximum debt/equity ratio of 3:1.

Procurement: Through normal commercial channels.

Estimated CumulatLve Disbursements: Fiscal Year US$ Million US$ Million

1977 0.4 0.4 1978 1.2 1.6 1979 1.4 3.0 1980 1.0 4.0

Technical Assistance: BRD woul-d provide technical assistance to all its clients. Technical assistance financed under the project would amount'to about one percenitage point of BRD's spread.

Financing Plan:

Local Foreign Resources Resources Total

(RwF million) Sources

Resources available for commitments as of January 1, 1976 15 7 22 Resources to be obtained: KflJ (expected) - 110 110 CCCE (expected) - 100 100 IDA (US$4.0 million) - 368 368 Othier foreign loans - 40 40 Government 75 - 75 Oash flow from operations (January 1976 - June 1978) 65 _ 65

'I'otal resources available for commitments from January 1976 through mid-1973 155 625 780

Uses

Projected commitments through mid-1978: Loans 65 625 690 Equity Investments 90 - 90 ToLal Uses 155 625 780 ANNEX III Page 3

Projected Operations 1975 1976 1977 1978 1979 1980 (in RwF million)

Loans CommiLments 148 245 286 321 363 420 Disbursements 107 185 252 296 335 409 EquiLy Participations Commitments and Disbursements 37 35 35 39 40 40

Projected Financial Statements:

CurrenL Assets 92 40 68 94 93 112 Net Loan PortfolLo 433 598 831 1,084 1,338 1,615 Other AsseLs 3 2 1 1 1 1

Total Assets 528 640 900 1,179 1,432 1,728

Current Liab L Ities 20 20 20 20 20 20 Long-term Borrowings 279 382 629 785 1,013 1,280 Provisions for Rent 4 4 4 4 4 4 Equity 225 234 247 370 395 423

Total Liabilities and Net Worth 528 640 900 1,179 1,432 1,728

Debt/Equity RaLto: 1.2 1.6 2.5 2.1 2.6 3.0

Projected Net Earnings 9.3 8.8 13.5 18.6 25.2 29.3

As Percentage of Average Net Worth: 4.3 3.8 5.6 6.0 6.6 7.2

Appraisal Report: Report No. 1008a-RW, dated June 24, 1976; Development Finance Companies Department. nap: No. IBRD 3596R 2 30I Mborwru a K-npaIl RWANDA j

POPULATION DENSITY, 1974 u G A N D A K/k /-bo

2 Inhabitants per KM : R.tsh- Over-300 200- 299 .0 TANZANIA 3Lrss.r ri. .. 99 AEPUBlNANiA 4 .-Z732 Rivers and lakes . 1 ' ' - Main roads . .. ~ '~. ---- Prefecture Cboundaries A _-.-Internationaf boundaries.

704f, B A --

_ U

i / zVG | ~~~-S-,E N Y1-)<8xg \

AFR< C//A KEK %IK/VUI(t> K )G A L I |

aRWANDA0 / ' * r \ 1 f 2 , >&Ro (\ K I B U N G O \ 2--

r ) _ J XJ' A X ' 7itararna ^a1 <_ - ZMvvesertorGrno

y - ,_ / -' AJ ,J G I T\A ~~~~~~~R A M A K(/ibungote8°

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