Docxumentof

The World Bank

FOR OFMFCIAL USE ONLY

Reprt No. P-4033-ZIM

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

TO

ZIMBAWE

FOR A

SMALL SCALE ENTERPRISE PROJECT

April 22, 1985

This docmpent has a restricted distibudon and may be used by eciplents only in the perfonmance ofthei offiei dutes, Its contents may not otherwise be disosed without World Bank authorizaion.

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CURRECY EQUIVALTS(November 1984)

US$1.00 = $Z 1.40SZ1.00 = US$ 0.71

A_ BREVIAIIONS/ACRONM

CIFOZ Construction Industry Federation of ZimbabweDCD Department of Cooperatives DevelopmentDFC Development Finance CompanyFEBCO Finance Trust for Emergent BusinessmenIDC Industri .L Development CorporationMCNH Ministry of Construction and National HousingMLMPSW Ministry of Labor, Manpower Planning and Social WelfareRBZ Reserve Bank of ZimbabweSEDCO Small Enterprises Development CorporationSSE(s) Small Scale Enterprise(s)USAID United Scates Agency for International DevelopmentZIAS Zimbabwe industrial Advisory Service

GOVERNMENT OF ZIMBABWE AND SEDCOFISCAL YEAR

July 1 - June 30

zmuu FOR OMCIL USE ONLY

SMALL SCALE ENTERPRISE PROJECT

lOAN AND PROJECr SQQlUK

Borrower: Zimbabwe1

Beneficiaries: Small Enterprises Development Corporation (SEDCO) and theMinistry of Labor, Manpower Planning and Social Welfare(MLMPSW).

Amount: US$10.0 million

Terms: Repayable in 17 years, including four years of grace withvariable interest rate.

RelendingTerms: The Government would onlend the credit component (US$8.5

million) to SEDCO at the interest rate that it charges onloans to its parastatals (currently 9.75X p.a.) andwith a fixed amortization schedule for 15 years including 4years of grace. The Government would bear the foreignexchange risk. SEDCO would relend at 18% p.a. forsub-loans in urban areas and 16% p.a. in rural areas withmaturities up to 7 years including a grace period of up to2 years. The technical assistance components totallingUS$1.5 million would be made available to KLMPSW(US$0.9 million) and as a grant to SEDCO (US$0.6 million).

Objectives andProjectDescription: This pilot SSE project would support the Government's

program of providing urgently needed financial assistance,training and management counselling to small-scaleentrepreneurs. The project would also strengthen the SmallEnterprises Development Corporation (SEDCO). Morespecifically, the project would:(i) provide a line of credit to SEDCO for on-lending to

an estimated 470 SSEs; and(ii) provide technical assistance to improve the

institutional efficiency of SEDCO and to helpfinance a management training program for smallcontractors and a study of the construction sector andits potential for small construction firms.

Benefits andRisks: The project would play a critical role in strengthening the

Government program to provide an effective integratedpackage of technical and financial support to small-scaleentrepreneurs. It would help enhance the entrepreneurialand technical capabilities of small-scale entrepreneurs,

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

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increase the supply of credit to them, and build up SEDCOinto a strong aud effective Institution. The projectwould create nearly 4000 jobs at an average cost per job ofonly about US$3,100. There is a risk that SEDCO mayexpand its operations for socio-economic reasons tomarginal enterprises in rural areas with limitedinfrastructure. The risk is mitigated, however, by SEDCOproviding training and management counselling to SSEs,strengthening its supervision capabilities, and by fundinghigh risk operations only through a special Governmentfinanced "Managed Fund".

Estimated Cost: Local Foreign TotalUS$million

1. Line of Credit to SEDCO 6.8 7.6 14.42. Technical Assistance 0.6 1.1 1.7

Total Cost 7.4 8.7 16.1

Financing Plan:

1. Bank Loan 1.3 8.7 10.02. Local contributions 6.1 - 6.1

Total 7.4 8.7 16.1

Esimated Disbursements: Bank FY1986 1987 1988 1989 1990 1991 1992 1993US$ million

Annual 1.2 1.8 2.2 2.1 1.3 0.8 0.5 0.1Cumulative 1.2 3.0 5.2 7.3 8.6 9.4 9.9 10.0

Rate of Return: NA

Appraisal Report: Report No. 5413-ZIM, dated April 16, 1985

Map: IBRD 17026

.

INT RN&TION&L BANK FOR RECONSTRUCTION AND DEVELDPHENT

REPORT AND RECOSUENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOAN TO ZIMBABWEFOR A SHALL SCALE ENTERPRISE PROJECT

1. I submit the following report and recommendation on a proposedloan to Zimbabwe for US$10.0 million payable in 17 years, including fouryears of grace with variable interest rate, to help finance a Small ScaleEnterprise Project.

PART I - THE ECONOHY

2. A report entitled 'Zimbabwe - Country Economic Memorandum' (No.3234-ZIM), was distributed to the Executive Directors in April 1981. Sincethen a second economic mission as well as sector missions visited thecountry. Their major findings are incorporated in the following para-graphs. Annex I provides basic country data.

3. Zimbabwe is a landlocked country of about 390,000 sq km, borderedby Mozambique on the east, Botswana on the southwest, Zambia on the north-west and the Republic of South Africa on the south. The population in 1983was estimated to be 7.5 million, 98% of whom are of African origin. Thenon-African population of the country consists of an estimated 100,000Europeans, 10,000 Asians and 23,000 people of mixed origin. The growthrate of the African population is estimated to be about 3.4% per year,while the number of white Zimbabweans has been declining due to emigration.

4. In 1982 GNP per capita was US$850 but declined to US$ 740 in1983. Distribution of income and assets, however, is extremely skewed.The Land Tenure Act of 1969 updated legislation of the 1930s and confirmeddivision of the country's total land area into roughly two equal parts forAfrican and European settlements. The Europeans possessed most of the bestland with Africans being restricted to communal areas with generallyinferior farming conditions. Given the difference in the size of thepopulations of the two groups, the division resulted in an allocation ofland at independence of approximately 2.5 ha per African and 65.2 ha pernon-African. Similar disparities exist in the distribution of otherproductive assets and income. In 1978 the average annual cash earnings forAfricans were roughly one tenth of the level of Europeans.

5. Prior to Independence, the economic development of the countrywas affected by two major events. Following the Unilateral Declaration ofIndependence (UDI) in 1965, external relations were subject to economicsanctions imposed by the international community. However, the sanctionswere only partially effective. Between 1965 and 1974, real GDP grew atabout 7% per year and per capita income at about 3.5%. The sanctions

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stimulated development of local import substitution capacity, so that by1979, consumer goods were only about lO of total imports, compared with222 in 1964. Sanctions also encouraged the diversification of commercialagriculture and the rapid growth of investment in, and exports from, themining sector.

6. The second major pre-Independence event with considerable socio-economic effects was the civil war between 1975 and 1979. This, togetherwith increases in the oil price and two droughts, caused an economic down-turn with real per capita income falling by 351 to its 1965 level. Thedramatic increase in the cost of imports, particularly oil, made itnecessary to restrict imports drastically. As a result, domestic output,real investment and employment declined significantly.

7. At Independence, the Government was faced with a number of diffi-cult issues including (i) the extremely unequal distribution of income,capital, landholding, and access to basic social services; (ii) rapidgrowth of population and labor force; (iii) a physical capital stock whichwas to some degree depleted and out-of-date as a result of sanctions andthe civil war; (iv) the loss of efficient and skilled manpower; and (v) un-settled internal and external socio-political problems with considerableeconomic repercussions including transport bottlenecks and high freightcosts.

8. Despite these constraints, the new Government inherited a well-diversified economy with good potential for growth and with a sophisticatedadministrative and physical infrastructure. The economy is well balancedwith large and diversified agriculture, manufacturing and mining sectorscontributing 11% (162 before recent droughts), 21% and 6%, respectively, ofGDP in 1983, and together providing 48 percent of formal employment.Agriculture and forestry account for more than 260,000 jobs or 26% of thetotal; manufacturing for 175,000 jobs and mining for 60,000. Most of theremaining formal employment is provided by service sectors such as domesticservices, public administration, and education. Mining and agricultureearn significant amounts of foreign exchange and supply most inputs formanufacturing, which in turn accounts for between 30 and 35% of Zimbabwe'smerchandise exports, mainly processed agricultural products and steel andferrochrome.

9. After Independence, the Government took several measures to en-courage growth with more equitable distribution of income. In the expecta-tion of greater availability of external resources, including aid, publicexpenditures were increased, foreign exchange allocations were raised andmonetary policy was relaxed. To improve income distribution, minimum wageswere increased and restrictions were placed on dismissal of employees.Public expenditures on social services, particularly education and healthwere expanded, and government outlays for rural development, includingresettlement and rehabilitation programs, were increased.

10. While the Government espouses a socialist philosophy with strongelements of nationalism, it has been pragmatic in its dealings with theprivate sector, as well as in the conduct of its economic policies.

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Foreign exchange allocations are tightly administered and there is a widerange of price controls, but these were inherited from the pre-Independencegovernment. The new government is honoring commitments on external debtmade by the previous government and retiring white government officials whoemigrate are given pensions in convertible currency subject to certainrestrictions. The Government has been attempting to attract overseasinvestors into the country and no fundamental changes in trade practiceshave been introduced in relations with South Africa.

11. In 1980 and 1981, the economy rebounded strongly under the im-petus of a bumper crop, growth of exports, high gold prices, improvement inthe terms of trade, inflow of external funds, and expansionary fiscal andmonetary policies. As a result, imports rose by 45% in 1980 and 23% in1981, facilitating increase in capacity utilization. Growth was extremelystrong in agriculture, which benefited from good weather in 1980 and 1981and incentives provided by the Government's price policy. Consequently,real growth of GDP was 11% in 1980, and 15% in 1981.

12. While the domestic economy was performing strongly, there wasevidence of strain on balance of payments, a result of rapidly rising fac-tor payments associated with retirement of civil servants and emigration,remittances of companies' profits and dividends together with burgeoningimports in 1980 and 1981. The current account deficit rose from $Z194 mil-lion in 1980 to 5Z580 million in 1982, or 12% of GDP. The Government hadto draw increasingly on private external loans with predominantlyshort-term maturities and other nonconcessional terms since foreign aidinflow was slower than anticipated.

13. In 1982, there was a dramatic turnaround in the economy as theworld recession caught up with Zimbabwe, exports faltered and gold pricesfell. In addition, the agricultural sector together with agro-industrieswere severely affected by the first of what proved to be three successiveyears of severe drought. Foreign exchange allocations had to be reduced in1982, 1983 and again in 1984, which restricted the supply of importedinputs. This, in turn, contributed to a decline of domestic activity. In1982, real GDP fell by almost 2% and, after four years of growth,employment stagnated. In 1983 the continuation of drought, world recessionand declining foreign exchange caused a further reduction of GDP by morethan 2% and a loss of employment. Preliminary estimates suggest that the

x economy continued to stagnate in 1984 with virtually no growth. However,prospects for 1985 appear more favorable since agricultural production isprojected to reach high pre-drought levels thanks to recent abundantrainfall and the overall level of economic activities is rising.

14. Facing a deteriorating balance of payments situation and risinginflation, the Government took measures in the course of 1982 and 1983 tocurb the growth of domestic demand and encourage exports. The Zimbabweandollar was devalued, import allocations, travel allowances and profitremittances were cut back, minimum wages were frozen, food and transportsubsidies and other government expenditures were reduced, tax rates wereincreased and growth of money supply and credit expansion were restrained.These were prudent measures taken in a responsible manner by the Government

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even though these policies contributed to a slow-down in the pace of socialreforms and an increase in the price level. The package of policy measureswas also supported by the IMF with which the Government agreed on astabilization program in April 1983.

15. The Government subsequently was unable to maintain fiscalstringency. In February 1984, the Government adopted a supplementarybudget, mainly to finance subsidies of agricultural marketing boards, toincrease wages in education and defense expenditures and to provideadditional assistance to drought-stricken areas. The supplementary budgetincluded some $Z300 million of additional expenditures and added about$Z100 million to the overall budget deficit. In addition, new foreignexchange measures were introduced in March 1984 in the anticipation ofimports of food which will be necessary as a result of a partial failure ofthe present maize harvest. These measures included temporary suspension ofpayments of dividend and profit remittances, reduction of emigrants'settling-in allowances, acquisition of externally-registered securities,release of blocked funds of companies and suspension of incomeremittances. The Government has indicated that these foreign exchangemeasures are designed to he temporary and that inflationary pressure willbe contained by appropriate monetary policies. The Government and the IMFare discussing implications of these actions on the stabilization programand are actively pursuing the preparation of a new standby arrangement.

16. Zimbabwe's future growth of income and employment will be cons-trained primarily by the balance of payments. The debt-service ratio ofabout 27Z of exports of goods and non-factor services in 1984 is consideredby the Government to be too high and the Government intends to refrain fromfurther borrowing, except on concessional terms and for developmentprojects. Hence, the financing of imports and debt service will beincreasingly dependent on the growth of exports.

17. The promotion of exports must, therefore, be a cont'nued highpriority of the Government. Another important priority for future growthis the need to increase the level of domestic savings. This is underlinedby the fact that foreign assistance is unlikely to be sufficient for thefinancing of necessary investment. Another problem is the high level ofspending by the Government, which is a net dissaver thus reducing resourcesnormally available for investment in the private sector. Also, public exp-enditures are biased towards recurrent expenditures while capital outlayshave been progressively cut.

18. Given these constraints, the prospects for a return to a rapidgrowth of income and employment in the medium term are not encouraging. Inthe short run, the primary objective of the Government is to continue withthe stabilization of the balance of payments situation, which will requirecontinued pursuit of prudent fiscal and monetary policies. Fiscal policywlUl have to concentrate on a reduction of the budget deficit. Themonetary authorities will have to restrict growth in the supply of creditand only allow moderate growth in the money supply in line with developmentof real GDP. Since these policies tend to restrain the growth of domesticdemand, it is important that producers be given appropriate incentives, inparticular by flexible exchange rate and price policies.

19. In the longer term, Zimbabwe's growth potential can only be fullyexploited if the Government pursues vigorously a comprehensive developmentstrategy which would include (i) the provision of incentives for bothdomestic and foreign investment, (ii) accelerated development of thetechnical and managerial skills of the African population, (iii) thepromotion of agricultural output and incomes, especially in communal areas,(iv) the restructuring of public expenditures with a view to encouraginginvestment, and (v) the provision of incentives to and institutionalsupport for traditional as well as new exports.

20. Zimbabwe emerged from 15 years of sanctions and the civil warwith relatively low external indebtedness. In December 1980, foreign debttotalled USS700 million and the country's gross foreign exchange reservesequaled about US$176 million, or an estimated two months of imports. Bythe end of 1984, public foreign debt outstanding amounted to about US$1.5billion and the debt service ratio increased from 4% in 1980 to some 27% in1984. This rapid rise in debt service reflects heavy external borrowingswith relatively hard terms. Debt service obligations are expected toremain relatively high throughout the remainder of this decade. However,the ratio should fall towards the end of the decade, if domestic demand andnon-essential imports are restrained. In the past, the Government hasacted responsibly and promptly to changing economic and financialconditions and Zimbabwe has been scrupulous about servicing its debt. Inlight of this and the country's potential for future growth anddevelopment, Zimbabwe is creditworthy for Bank lending. However, given thecountry's large external resource requirements, the expected high level ofinternational interest rates and relatively hard repayment terms ofnonconcessional borrowing, as well as domestic savings constraints,Zimbabwe needs part of its exterrnal assistance for local cost financing.Also the country would continue to need part of the foreign aid onconcessionary terms for priority development programs.

PART II - BANK GROUP OPERATIONS

21. Before 1965, the Bank made five loans totaling US$140.3 millionbenefiting Rhodesia -- two directly to the Government for agricultureUS$5.6 million) and power (US$28.0 million), two loans totaling US$87.7million to the Central African Power Corporation (CAPCO), and a US$9.5million loan to the Rhodesia Railways. As a guarantor of each of theloans, the United Kingdom serviced them after 1964. The loans foragriculture, power and railways have been repaid, and CAPCO resumedservicing its two loans after the lifting of sanctions on December 21,1979. The Bank's lending strategy over the past few years since Zimbabwebecame independent and joined the World Bank Group has focussed on longerterm development issues in directly productive sectors and selectedpriority needs in the country's infrastructure. Since FY81 Zimbabwe hasreceived seven Bank loans and four IDA credits totalling USS 444 million.Three operations addressed urgent needs in the agricultural sector,especially development of communal lands (US$51 million); two projectssupported critical reconstruction efforts and Government's emerging export

promotion programs in the manufacturing sector (USS 136 million), and twooperations helped finance energy development in the country (US$ 106million). Three operations in the transport sector (US$ 108 million)focussed on vital reconstruction and rehabilitation activities includingtraining and manpower development in the railway sub-sector. An urbandevelopment project (US$43 million), which was approved last year, willprimarily help increase the supply of affordable low-cost housing andrelated services in the country's key urban and economic centers.

22. IFC's first investment in Zimbabwe, approved by its Board inFebruary 1981, was in the Wankie Colliery Company Limited, to helpprimarily finance a project for producing coal for the nearby thermal powerstation. The original investment was in the form of a US$38 million loan(552-ZIM), including participation but was subsequently reduced to a totalof US$22.8 million, of which US$12.0 million was for IFC's own account andUS$10.8 million for commercial bank participation. IFC was alsoresponsible for arranging a further US$10.3 million of commercial bankfinancing related to a loan by the Export-Import Bank of the UnitedStates. In March 1984, the Board approved IFC's second investment inZimbabwe, in UDC Limited, a hire purchase/factoring institution. Theaggregate amount of US$2.2 million equivalent, of which US$2.0 millionwould be in the form of a loan and the balance in the form of equity willassist in the expansion of the Company's capital base and in thelocalization of ownership.

23. Bank-assisted projects in Zimbabwe in general have beenimplemented rather effectively during the past few years. Recentexperience showed, however, that appropriate staffing and adequatecounterpart funding have emerged as problem areas affecting ongoingoperations in varying degree. Exodus of experienced personnel, frequentstaffing changes in the public sector, and moves of qualified officials tothe more attractive private sector have contributed to a decline of thecountry's absorptive capacity including project management capacilities.Budgetary constraints as a result of deteriorating economic and financialconditions primarily due to prolonged severe drought and world widerecession caused difficulties in counterpart funding. The Governmentshowed willingness in reviewing and discussing emerging implementationproblems and generally took corrective measures in time. Since the Bank'sfirst operations in Zimbabwe were quick-disbursing reconstruction andexport promotion loans in the manufacturing and transport sectors,disbursement rates during FY82/83 were relatively high averaging close to60% but declined to about 24% in FY 1984 which compares favorably with theRegional average of 19% and a Bank-wide average of 21%. Since Bank lendingto Zimbabwe is very recent, the Bank Group exposure is still low. At theend of 1983, the Bank accounted for 6%, and the Bank and IDA combined forabout 7% of Zimbabwe's external public debt disbursed and outstanding.

24. Bank Group's future strategy in Zimbabwe will focus on growth andemployment creation through continued support of directly productivesectors, such as agriculture, industry, mining and energy. The Governmentplans to exploit more fully the country's export potential based on itscomparative advantage and to stimulate export promotion and diversification

in its development strategy. The agricultural sector, in particularfurther development of communal lands, will play a crucial role inZimbabwe's future growth and employment policies and in the Government'sefforts to redress the country's highly skewed distribution of income andassets and to alleviate poverty especially in rural areas. The Bankintends to support priority Government programs addressing pressingsocio-economic constraints in agriculture and through the promotion ofsmall scale enterprises. Future Bank activities will also focus on humanresource development including manpower development, education, populationgrowth and health. Finally, the Bank's strategy will continue to assistthe Government in its efforts to maintain and selectively expand andmodernize the country's existing infrastructure network which is vital tothis landlocked country. Bank Group lending to Zimbabwe has beencoordinated with that of other donors; in 6 of the 11 projects, jointparallel financing was arranged totalling US$275 million, and expandedco-financing is being actively sought for several projects underconsideration.

25. A key element of the Bank's strategy in the country is a moreextensive policy dialogue with the Government on its emerging macro andsector strategies and related institutional reforms. During the past fewyears the Bank carried out sector studies in agriculture, energy, mining,telecomminications, education, urban, population, health and nutrition.Further economic and sector work is being carried out or planned in keyareas including industry, transport, and export promotion to provide theanalytical under-pinning for policy discussions, longer-term investmentplanning, and project activities including policy-based lending.

PART III - THE SMALL SCALE ENTERPRISE/FINANCIAL SECTORS

The Small Scale Enterprise Sector

26. Zimbabwe's economy, one of Sub-Saharan Africa's most diversified,offers considerable potential for the emerging small-scale enterprise (SSE)sector. In 1984, there were about 5400 formal sector and 7000 informalsector SSEs which together contributed some 15% of GDP. Small scaleenterprises provide about 20% of non-farm employment and cor.sLitute over

e 80% of all non-farm establishments. Of the approximately 90,000 peopleemployed in SSEs, about 40% are in trade, 28% in services and 18% in themanufacturing sector.

27. The low labor absorption capacity of SSEs outside trade andservices is largely the result of restrictive pre-Independence policies.These policies contributed to the concentration of non-farm activities,including SSEs, in the urban centers of Harare in the Mashonaland Eastprovince and Bulawayo in the Matabeland North province where only 15% ofthe country's population lives. These two provinces are home to nearly 80%of small manufacturing firms, 65% of small traders and 77% of smallconstruction firms. The new Government abolished restrictivelegislation and the number of small-scale enterprises in the informal

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sector is rising. During the past few years black Zimbabweans haveestablished a number of small firms by purchasing on credit equipmentandstocks from emigrating small entrepreneurs. Most new entrepreneurs,however, have gone into trade and service sectors where lack of capital andtechnical expertise is less of a constraint to start a business. Themajority of SSEs are sole ownerships and partnerships. Since Independence,however, the number of cooperatives, supported by Government, has increasedsharply. In 1984, 159 industrial cooperatives, 194 retail tradecooperatives and 32 transport cooperatives existed with a total membershipof 12,000.

28. Small enterprises generally face several important obstacles.Lack of managerial experience including financial planning and proper costaccounting severely limit their growth. SSEs also tend to have inadequateequipment as a result of lack of technical know-how and access to creditand other financing facilities. Moreover, most small firms suffer fromworking capital shortages leading to frequent production slowdowns.Finally, small enterprises often cannot afford necessary in-house trainingprograms. All these factors contribute to low labor skills andproductivity as well as poor quality of goods and services offered.

29. Lack of an established track record and lack of collatoral, suchas land, limit the access of SSEs to adequate credit or bank overdraftfacilities. High cost of land makes it difficult for SSEs to own propertyin urban areas despite the removal of the restrictive policies of theprevious Government. Rural businesses also cannot offer title deeds ascollateral because in the communal areas land normally is not privatelyowned. The Government is trying to resolve this problem by granting titledeeds in selected growth centers in communal areas. Recently createdcooperatives suffer from a lack of mutual understanding among largelyinexperienced members about appropriate performance standards. Governmentagencies have not been able to provide more support to them mainly becauseof staff constraints and lack of coordination. Small construction firms inparticular suffer from lack of management training.

30. The proposed loan is designed to help overcome these constraintsby strengthening Zimbabwe's Small Enterprises Development Corporation(SEDCO), which was created to provide financial assistance, training, andadvisory services to SSEs. The project would also provide specificassistance to small firms of the domestic construction industry. Theproject would thus support important recent Government initiatives andpriority socio-economic programs. Government policy statements haverepeatedly stressed the need to support the development of the smallbusiness, particularly in rural areas, as well as the creation ofcooperatives. The Government views the development of SSEs in both urbanand rural areas as a way of achieving its objectives of developing abroader based business community and of providing additional employment tothe country's growing population.

31. In the past, the Government has adopted a pragmatic strategy forachieving its socio-economic objectives. It has basically followedmarket-oriented policies by supporting the formal, predominantly privately

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owned sector which is the country's main source of foreign exchange.Simultaneously, the institutional basis has been set in place to spur thedevelopment of small, labor intensive, resource based enterprises in bothrural and urban areas. The Government has started to implement itsstrategy by ti) creating SEDCO to provide financial acd technicalassistance to small enterprises; (ii) granting title deeds -- which can beused as collateral for bank loans -- to small businessmen in selected areasof the communal lands; (iii) assisting small coooperatives through theMinistry of Lands, Resettlement and Rural Development; and (iv) expandingvocational and technical training in recently estabAished or expandingexisting training facilities. To support emerging small contractors, theMinistry of Construction and National Housing initiated a specificpromotion program in 1981. Most of the selected contractors under thisprogram executed small public construction projects in a satisfactorymanner.

The Financial Sector

32. Zimbabwe has a well-developed and, by sub-Saharan Africanstandards, a fairly sophisticated financial sector. The sector has anarray of diverse institutions, largely modelled on the British financialinstitutions, consisting of the central bank, five commercial banks, fouraccepting houses (merchant or investment banks), two discount houses, fivefinance houses, three building societies, seven development financinginstitutions, the Post Office Savings bank, over 50 insurance companies, 17insurance brokers, about 1,400 pension and retirement funds, an ExportCredit Insurance Corporation, the Stock Exchange and a number ofunregistered finance companies providing consumer credit. A specialfeature of Zimbabwe's financial structure is the integration andconcentration that has taken place in recent years. Most commercial banksalso have accepting and finance houses as subsidiaries and are shareholdersin a discount house. These financial groups provide a complete range ofbanking and other financial services.

33. The commercial banks with a network of over 100 branches providea full set of banking facilities. Three of them are wholly-ownedsubsidiaries of British banks and two are joint ventures with theGovernment. Commercial banks accept deposits of all types and typicallyprovide short-term (revolving) loans and overdrafts. The accepting housesor merchant banks specialize in the financing of foreign trade throughacceptance credits, letters of credit, and foreign bills. They accept bothdemand and time deposits and lend to corporate customers; they also provideother financial services such as flotation of bonds, mergers, acquisitionsand capital reconstruction.

34. Three of the five finance houses are subsidiaries of thecommercial banks ooerating in Zimbabwe. The finance houses special Le inproviding medium-term financing, mainly in the form of hire-purchase andleasing finance. They normally lend to established businessmen with a goodtrack record and credit rating who would be able to repay the loans within3-5 years. Finance houses obtain about 50% of their deposit by issuingcertificates of deposit which are predominantly purchased by

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instititutional investors. Among the larger development financeinstitutions, the Agricultural Finance Corporation (AFC) provides short andlong term agricultural credit and the Industrial Development Corporation(IDC) promotes and provides financial assistance to industrial enterprises,mainly through equity participations. It has gradually evolved into aGovernment bolding company for a number of subsidiaries. The DevelopmentFinance Company (DFC) was established in the late seventies to provideUinancial assistance to emerging small-scale entrepreneurs, but ic now involuntary liquidation. The Zimbabwe Development Bank, established in 1984to provide medium and long-term finance primarily to the industrial sector,started operations recently.

35. Monetary resources in the country are mobilized quite efficientlyby commercial banks through their branch network, accepting houses, financehouses, building societies and the Post Office Savings Bank (POSB).Commercial banks have the largest share of deposits, followed by buildingsocieties, POSB, accepting houses and finance houses. Total deposits ofthese institutions grew from $Z1.6 billion in 1979 to $Z2.7 billion in1983, at an average annual increase of 13.2%. As of December 31, 1983,fixed term deposits constituted 35Z of total deposits followed by savingsdeposits (32%) and demand deposits (20%).

36. Since Independence, Zimbabwe has followed pragmatic and flexiblei.aterest rate policies and adjusted its interest rate structure toprevailing economic and monetary conditions. For instance, interest ratesfor 12 month deposits went up from between 4%-5.25% in 1980 to between9.75%-12.25% in 1983. The Reserve Bank of Zimbabwe (RZB) exercises somecontrol over the interest rate structure in close collaboration with thefinancial community. It determines the minimum lending rate for commercialbanks, deposit and lending rates of building societies, and the depositrate~s of the Post Office Savings Bank. RBZ fixes the maximum deposit andlending rates of finance houses but places no restrictions on deposit ratesoffered by commercial banks. The maximum lending rates for commercialbanks are presently 18% and for the finance houses 20Z-23%. Past andprojected average inflation rates are estimated at about 14%.

37. Small-scale enterprises in the modern sector, which arepredominantly oiwned by white Zimbabweans or foreign investors, havetraditionally secured adequate financing through equity contributionsincluding retained earnings, medium-term loans from accepting and financehouses and short-term (revolving) loans from commercial banks. Lack offoreign exchange in recent years, however, has restricted theirmodernization and expansion programs. The emerging, predominantly blackentrepreneurs, on the other hand, have faced considerable difficulties inobtaining credit, even for short-term working capital requirements, mainlydue to inadequate collateral and credit rating. On an experimental basis,the Government, therefore, established the Development Finance Company(DFC) as a wholly-owned subsidiary of IDC in 1979 to provide loans toemerging, mostly black entrepreneurs, who did not qualify for loans fromthe existing financial institutions on conventional terms. DFC's initialfunding amounted to $Z3 million. Mainly due to improper decision makingand inadequate policies, DFC dissipated its resources in poorly prepared or

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politically motivated loans, many of which meanwhile had to be writtenoff. DFC is virtually defunct now and IDC has initiated steps to put itinto liquidation.

38. The Government took another initiative to promote SSEs andcreated the Finance Trust for Emergent Businessmen (FEBCO) in 1978. As anon-profit institution, it is owned by RBZ (60X) and commercial banks (40X)and operates a credit guarantee scheme. Under the scheme FEBCO andcommercial banks share credit risks on commercial banks' short-term loansto SSEs on a 50:50 basis, with the FEBCO share of potential losses borne byRBZ. Conservative policies by commercial banks and small entrepreneurs'lack of a track record and adequate collateral, however, have resulted onlyin a modest level of FEBCO operations. During the past few years, FEBCOassumed credit guarantees at an average annual level of about US$0.6million per year to 144 entrepreneurs. This level of operations wasclearly inadequate to meet the growing credit needs of the emerging SSEs.

PART IV - THE PROJECT

Background

39. The proposed project would be the first Bank-financed project inZimbabwe's expanding SSE sector. The Government has been attaching greatimportance to the sector in its evolving development strategy and has askedfor Bank assistance. The Bank's involvement is timely because theGovernment has recently set up a new institution, the Small EnterprisesDevelopment Corporation (SEDCO), to implement a revitalized action programto fully exploit the potential of SSE development within Zimbabwe's welldiversified economy. In identifying and preparing the project, theGovernment and Bank have established a dialogue on critical sector issuesand strategies as well as institutional and procedural arrangements. Theproposed proiect would, therefore, support priority Government objectivesand programs underway or planned in this Important sector. It would alsostrengthen institutions operating in the sector and would complementcontributions by other donors in this field.

40. The project was appraised in July 1984 and negotiations were heldin Washington from March 25-28, 19B5. The Zimbabwean delegation was led byMr. A.T.M. Charamba, Deputy Secretary, Ministry of Finance, Economic

a Planning and Development. The Staff Appraisal Report No.5413-ZIM is beingcirculated separately. A loan and project summary is given at thebeginning of this report and a supplementary project data sheet is providedas Annex III of this report.

Project Objectives and Description

41. The proposed pilot operation in the small scale enterprise sectoris designed to (i) assist SEDCO to improve its management and operationalcapabilities to provide technical and financial assistance more effectivelyto small scale enterprises; (ii) provide increased resources to the SSEsector and to exploit more fully its potential for development andemployment creation both in urban and rural areas; (iii) help develop

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entrepreneurial capabil ties on a larger scale; and (iv) improve theefficiency of the emerging small construction firms. It would thus supportkey Government programs of providing financial assistance, training andmanagement counselling to emerging SSEs in Zimbabwe Including smallcontractors.

42. The project to be implemented over a seven-year period wouldconsist of the following main components:

(i) a line of credit of US$8.5 million to SEDCO foronlending to 470 SSEs, for capital equipment and machinerypurchases and for mecting part of their working capitalrequirements;

(ii) technical assistance (US$0.6 million) to SEDCO to help financetwo expatriate advisors, overseas training of SEDCO staff, andthe purchase of urgently needed office equipment to improveSEDCO's management and accounting systems; and

(iii) technical assistance (US$0.9 million) to help finance trainingof small contractors in site and enterprise management and astudy of the construction industry and the potential for smallconstruction firms.

Support to SSEs/Small Enterprises Development Corporation (SEDCO)

43. Given the inadequacies of the past institutional framework andfinancial assistance to emerging SSEs, the Government set up SEDCO as apublicly-owned institution to provide financial assistance, managementcounselling and training to cooperatives and small commercial andindustrial enterprises. SEDCO started operating as a development bank forSSE financing in April 1984 and will provide extension services to SSEs inthe near future. In discussions with the Government and SEDCO, the Bankwas asked to support SEDCO as the principal institution providing bothfinancial intermediation and training and advisory assistance to SSEs. TheBank agreed to this approach, but suggested that a number of necessaryimprovements in SEDCO's capital structure, organization, policies andprocedures be carried out to ensure SEDCO's efficiency and financialviability. With these improvements SEDCO should progressively evolve intoan effective institution in support of SSEs.

44. Capital. SEDCO's statute does not require it to have a conventionalpaid-in capital base. Since it is important for a sound financialinstitution to have adequate equity and financial criteria to guide itsoperations, the Bank suggested to the Government that one of its firststeps in transforming SEDCO into an autonomous and financially viableinstitution should be to provide it with an appropriate equity base.Agreement was reached at negotiations that $Z5 million (US$3.6 millionequivalent) as equity would be provided to SEDCO before loan effectiveness(Sections 4.02(a) and 6.01(b) of the draft Loan Agreement). Such a capitalbasis is necessary for SEDCO to borrow funds for future operations and tomaintain its debt/equity ratio below 3:1 as required in its policy

- 13 -

statement. This prudent ratio is considered necessary at this stagebecause SEDCO, a newly established institution operating in a difficultsector, is yet to develop a portfolio of sound projects and a record ofgood financial performance.

45. Organization. SEDCO's Board currently consists of seven members, withthe Permanent Secretary of the Ministry of Trade and Commerce acting asChairman. The present composition of the Board is fairly evenlydistributed between civil servants and private sector members. In order tostrengthen the expertise of the Board, the two remaining vacancies on theBoard will be filled with persons having experience in finance, businessand/or law.

46. SEDCO would be carrying out both financial and technicalassistance activities. The technical assistance activities are extensionservice-type operations for the benefit of SSEs which are normally carriedout by the Government, as a public service in this and other sectors. Inconsultation with the Bank, SEDCO has, therefore, taken steps to set up twodistinct units to carry out these activities and to maintain separateaccounts. Therefore, the responsibilities of the two units have beencarefully delineated. The Technical Assistance Unit would be responsiblefor all development, promotional training and management counsellingactivities, and the Financial Assistance Unit for project appraisal,supervision, disbursements, debt collection and financial managementfunctions. In view of the extension-type public services provided bySEDCO, Government should fund SEDCO's development activities and share themajor financial burden for providing training and consultancy services toSSEs. However, in an effort to recover some of the training andconsultancy costs from SEDCO's clients, SEDCO proposes to charge trainees30% of the cost of training and consultancy services. In the case of thosereceiving sub-loans from SEDCO, the cost of such services would be includedin and amortized as part of the sub-loan. Agreement was reached atnegotiations that Government would provide the required funding for SEDCO'sdevelopment, training and advisory services of the Technical AssistanceUnit on a continuing basis (Section 4.02(b) of the draft Loan Agreement).For the next five years such Government contributions are estimated tototal about US$2.6 million.

47. Management and Staffing. SEDCO has its Head Office at Harare andfour regional offices in Bulawayo, Masvingo, Mutare and Gweru, Zimbabwe'smajor urban centers, to ensure broad geographical coverage throughout thecountry. As of October 1984, SEDCO had a professional staff of 33,including 12 at regional offices, and a support staff of 35. SEDCO'sprofessional staff is generally competent but lacks experience and,therefore, needs further training in project appraisal and the provision oftraining and management counselling to SSEs. SEDCO has already obtained agrant of US$0.7 million equivalent from Canada (CIDA) to finance technicalassistance for its training activities. However, to further improveSEDCO's institutional and operational capabilities, additional technicalassistance is needed. An operations adviser and a technical adviser areneeded urgently for about two years, the former to train SEDCO staff inproject appraisal, supervision, and financial management and the latter to

- 14 -

provide technical extension services to SSEs and to train SEDCO staff inthis area. Agreement was reached at negotiations that these adviserswould be appointed before loan effectiveness (Section 6.01(c) of the draftLoan Agreement and Section 2.05 of the draft Project Agreement).

48. Policies. In its operations SEDCO is required to follow soundeconomic and financial principles and have due regard to the Government'seconomic policy and the national interest of Zimbabwe. SEDCO's PolicyStatement defines a small-scale enterprise as one with fixed assets of lessthan US$143,000 equivalent or employing less than 51 workers, and sets theceiling for a single loan at the equivalent of US$71,000. Borrowers mustcontribute between 10% to 25% of project cost, depending on the size of theloan and the legal status of the borrower. SEDCO's debt to equity ratio islimited to 3:1. SEDCO is required to finance only those projects which aretechnically feasible, economically and financially sound and competentlymanaged. Agreement was reached at negotiations that SEDCO would calculatefinancial rates of return for all sub-loans exceeding US$36,000 equivalentand that the financial rate of return for such sub-loans should be at leastequal to the interest rate applicable for the sub-loan (Scnedule 1, Part A,3 of the draft Project Agreement). SEDCO's policy statement issatisfactory and would not be changed without with prior consent of theBank (Section 2.09 of the draft Project Agreement).

49. Lending Terms and Interest Rates. SEDCO is authorized to lend moneyfor capital goods from 2 to 10 years including a grace period of I to 2years and for working capital for up to 2 years including a grace period of3 months. SEDCO's policy statement requires that interest rates should bepositive in real terms in line with the market rates, and adequate to coveradministrative expenses including provision for possible losses, and yielda reasonable profit. In line with this policy, SEDCO has adopted aninterest rate structure for its loans as follows: 18% p.a. for loans inurban areas and 16% p.a. for loans in rural areas. With a one-timeadministrative fee ranging from 0.5% to 5% of the loan amount, actual costsof funds to borrowers amount to 16.4% to 19% p.a. SEDCO's interest ratesare satisfactory. They provide an adequate spread to cover expenses,provisions and a reasonable level of profits and compare favorably withCommercial Bank rates of 13% (prime rate) and 14% to 18% for other clientsincluding SSEs on a short-term revolving basis. SEDCO's variable ratestructure with regular adjustments, as appropriate, based on marketdevelopments, is also compatible with past and projected inflation rates ofapproximately 14%. Agreement was reached at negotiations that SEDCO wouldapply these interest rates for all its loans and review with the Bank itsinterest rate structure in light of prevailing economic and financialconditions every 6-12 months, taking into account the criteria set out inits policy statement (Section 2.10 of the draft Project Agreement). Bycharging adequate interest rates and endeavoring to keep administrativecosts down to a reasonable level, SEDCO is projected to show a profit inFY 1986. Until then, the Government will cover any losses incurred bySEDCO's Financial Assistance Unit; Government contribution is tentativelyestimated at about US$0.2 million equivalent during FY85. To ensure thatSEDCO will remain fully funded in the case that it might take longer toshow a profit, agreement was reached at negotiations that the Government

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would fund any shortfall in SEDCO's income, to cover the expenses of theFinancial Assistance Unit until FY 1988 (Section 4.02(d) of the draft LoanAgreement).

50. SEDCO's Strategy. SEDCO has prepared a strategy statement to serve asa guide during the next three years. It emphasizes strengthening ofSEDCO's institutional capabilities through (i) establishment andimplementation of appropriate operational procedures, and (ii) intensivestaff training in project appraisal, supervision, financial management, andconsultancy skills development. These strategies are satisfactory. TheGovernment has asked SEDCO to assist on a selective basis cooperatives andSSEs in rural growth points, where infrastructure is limited. Governmentand SEDCO are aware of the potential risks of such activities to SEDCO'sfinancial performance. For this reason, Government has agreed to establisha "Managed Fund", financed entirely by Government contributions, from whichSEDCO could finance projects it considers too risky to finance out of itsnormal resources but which the Government considers important forsocio-economic reasons. This would also provide Government with anindication of the cost of such lending on an annual basis. SEDCO wouldnot assume liability for any losses on these -Managed Fund operations, andwould only make such loans to the extent that Government funds wereavailable and Government reimburses SEDCO for related administrativeexpenses. Agreement was reached at negotiations regarding the proposedfunding, scope and administrative arrangements of the "Managed Fund"operations (Section 4.02(c) of the draft Loan Agreement).

51. Collaboration with Finance Houses. SEDCO has been making efforts toenlist the support of existing financial institutions to providecomprehensive financial assistance to a broad spectrum of SSEs. Althoughcommercial banks remain reluctant to significantly expand thei- role in theSSE sector, their finance house subsidiaries have expressed interest incollaborating with SEDCO in providing term financing to SSEs. Underarrangements to be firmed up, finance houses would identify and appraiseprospective clients for SEDCO approval. SEDCO would be responsible fordisbursements and supervision and would have the option of seeking financehouse assistance for debt collection as well. SEDCO would charge 16X-18%for such loans, but would pay a fee of up to 2% to the finance houses fortheir participation. SEDCO would continue to seek collaboration with otherprivate financial institutions as appropriate.

52. Lending. As of November 1984, SEDCO had approved 41 loanstotalling US$0.36 million equivalent. Moreover, it had appraised someadditional 60 sub-loan and project applications. SEDCO's approvals areexpected to increase from 150 projects in 1985 to 300 from 1987 onward.SEDCO's resource requirements over the four year period FY85-88 areexpected to total US$16.1 million equivalent and the proposed World Bankline of credit of US$8.5 million would represent about 53% of SEDCO's totalresource needs.

53. Support to Small Local Construction Firms. In response to theGovernment's request to assist small indigenous construction firms, theconstruction industry component of the proposed project seeks to help

- 16 -

develop the managerial capability of emerging small contractors, buildingco-operatives and brigade supervisors. Moreover, the component includes astudy on the potential and constraints of the construction industry.Consultants financed under the proposed project would provide urgentlyneeded training to local instructors, small contractors, and SEDCO staffand prepare a sector study which would include recommendations for furtherdevelopment. The Ministry of Labor, Manpower Planning and Social Welfare(MLMPSW) would be the executing agency for the training program with theassistance of the Ministry of Construction and National Housing as well asprivate business organizations, Construction Industry Federation ofZimbabwe (CIFOZ), Zimbabwe Building and Allied Trades Association (ZIMBATA)and the Federation of Civil Engineering Contractors (FCEC).

54. Construction site management training would be provided tomanagers of the small domestic construction firms, building cooperativesand brigade supervisors. Training in enterprise management would beoffered for domestic contractors with individual contracts not exceedingUS$143,000 equivalent who lack human and other resources to executeconstruction work efficiently. Two experts would provide expertise andguidance to the training program. In addition, 10 local instructors wouldbe trained to carry on the program after the initial two years and toexpand the geographical scope beyond Harare. They would assist in adaptingtraining materials to local conditions.

Financial Arrangements

55. The proposed loan of US$10 million would be made to theGovernment of Zimbabwe with a fixed amortization schedule for 17 yearsincluding 4 years grace. The Government would on-lend US$8.5 millionto SEDCO, at the rate of interest fixed by the Goverment for loans to itsparastatals, at present 9.75% p.a., for 15 years iucluding 4 years of graceunder a subsidiary Loan Agreement between the Government and SEDCOsatisfactory to the Bank (Section 6.01(a) of the draft Loan Agreement).The foreign exchange risk would be assumed by the Government. TheGovernment would also assume the variable interest rate risk of the line ofcredit to SEDCO. The Government would pass on US$1.5 million to (a) theMinistry of Labor, Manpower Planning and Social Welfare (US$0.9 million) tofinance training and advisory services to the construction industry and astudy of the construction sector and (b) SEDCO (US$0.6 million) as a grantto finance two advisers and overseas training of SEDCO professionals(Section 3.01(e) of the draft Loan Agreement).

56. SEDCO would pass on funds from the line of credit to itsborrowers at its normal interest rates of 18% or 16% p.a., with maturitiesnot exceeding 7 years depending on the nature and the debt servicingcapacity of the sub-project. The sub-loans would finance capitalequipment and machinery and workirg capital requirements of sub-projects.Since most SSE equipment would be locally manufactured with substantiallyimported inputs, accounting for about 70% of the equipment cost, the Bankfunds would finance up to 70% of sub-project costs. Financing for workingcapital would not exceed 50% of the sub-loan. In case of imported goods,the Bank funds would finance 100% of the foreign exchange cost. SEDCOwould be allowed a free limit of up to US$50,000 after the Bank hasreviewed and approved the first ten sub-projects and is satisfied that the

- 17 -

quality of SEDCO's appraisals is satisfactory to the Bank. (Section2.02(c) of the draft Project Agreement).

Reports and Auditing

57. SEDCO would submit quarterly reports and audited annual accountsin accordance with Bank guidelines for audit of DFCs by qualified auditors,acceptable to the Bank, within six months after the close of the year.MLMPSW, would submit quarterly progress reports of implementation of thetraining courses and the construction sector study as well as auditedaccounts. SEDCO would have its audited accounts prepared and presentedalong the lines indicated in the "Illustrative Form of Audit Reports forDevelopment Finance Companies' and submitted to the Bank within six monthsof the close of the financial year.

Procurement

58. Procurement of goods and services under the line of credit toSEDCO would be in line with procedures followed by Bank-assisted DFCs,i.e., on the basis of competitive quotations from at least three sources ofsupply. Services for technical assistance and training would be procuredin accordance with Bank guidelines.

Disbursements

59. The loan proceeds would be disbursed within 8 years to cover thefollowing expenditures: (i) 100% of total expenditures approved orauthorized by the Bank for sub-projects representing up to 70Z of the costof sub-projects financed by SEDCO; (ii) 70% of local expenditures forservices of consultants domiciled in Zimbabwe and 100l of foreignexpenditures for services of other consultants; (iii) 100% of foreignexpenditures and 70% of local expenditures for equipment and vehicles.Withdrawals for sub-loans would be submitted under statements ofexpenditure; all other withdrawals would be fully documented. To expeditedisbursements, a Special Account (revolving fund) with an initial depositof US$400,000 would be opened in the Reserve Bank of Zimbabwe (CentralBank) to finance the Bank's share of SEDCO expenditures and would bereplenished in accordance with an agreed procedure (Section 2.02 (b) andSchedule 4 of the draft Loan Agreement).

Benefits and Justification

60. The project is expected to play a critical role in strengtheningthe Government program to provide an effective integrated package oftechnical and financial support to small-scale entrepreneurs who do notpresently have adequate access to institutional credit or technicalassistance. Further institution building assistance to SEDCO in itsformative years would considerably improve its operational and financialpolicies and strengthen its capabilities to provide management counsellingand training to SSEs. The project would also help enhance the technicalskills and develop entrepreneurial capabilities, and thus help redress thehighly dualistic socio-economic structure of the country. It would

- 18 -

increase the access to credit to the emerging SSEs combined with adequatecounselling and training. It is estimated that about 470 SSEs wouldbenefit directly from the line of credit. The project would help createemployment for about 3,900 workers at an estimated average cost per job ofonly about US$3,100. The proposed pilot operation is also expected to playa major catalytic role in attracting and mobilizing additional assistancefrom foreign donors and co-financers.

Risks

61. There is a risk is that SEDCO may come under pressure to expandits operations for socio-economic reasons to entrepreneurs in primarilyrural areas with limited infrastructure which could adversely affectSEDCO's institutional efficiency and financial viability particularlyduring its formative years. This risk is mitigated, however, by SEDCOproviding training and management counselling to SSEs, and strengtheningits supervision capabilities. Moreover, credit demand for high riskprojects would be met only out of funds provided by the Government througha special "Managed Fund-, for which SEDCO would not assume any credit risk.

PART V - LEGAL ISTRUMENTS AND AUTHORM

62. The draft Loan Agreement between Zimbabwe and the Bank, the draftProject Agreement between the Bank and SEDCO and the report of theCommittee provided for in Article III, Section 4(iii), of the Articles ofAgreement are being distributed to the Executive Directors separately.Special conditions of effectiveness would be that (i) Government wouldprovide $Z5 million (US$3.6 million equivalent) as equity to SEDCO (para44); (ii) two advisors to SEDCO would be appointed (para 47); and(iii) a subsidiary Loan Agreement satisfactory to the Bank, betweenGovernment and SEDCO would be executed (para 55).

63. Special conditions of the project are listed in Section III ofAnnex III.

64. I am satisfied that the proposed loan would comply with theArticles of Agreement of the Bank.

PART VI - REOMAENDTION

65. I recommend that the Executive Directors approve the proposedloan.

A.W. ClausenPresident

AttachmentsWashington, D.CApril 22, 1985

19 AlE

Page I of 5T A I L r -34

ZIMUAME - SWInAL INDICATORS DATA SNtRHmtR RFRENAC GOPS (wEICD AVERES) a

MOST (NOTS RECENT ERIHAT) fRECENT WIDDLI 1NCOME NIDLE 13NC1K

ano&l 1970T EShTINAThIh ORICA S. OF 5A4RAtA N. AFRICA L HID EAST

Anff (name uq. in)TOTAL 390.6 390.6 390.6ACRICULTURAL 67.1 72.4 75.3

GNP PC CATU (UB$) 210.0 320.0 650.0 1112.9 1149.6

PIER? CO_SUlE PER CAPITA(KIWLORAS OF OIL EQUUALENT) .. 748.0 576.0 529.0 622.1

POULTIOI AD VITAL STATISTICDPOPILATION,KID-TEAR (THOU5AfS) 3605.0 5261.0 74".4URBUN POPULATION CR OF TOTAL) 12.6 16.9 24.3 29.7 48.2

POPUILATION PROJECTIONSPOPULATION 1 YEAR 2000 (KILL) 16.3STATIONARY POPULATION (HILL) 62.3POPULATION nMunLVUI 2. 1

POPULATION DENSITYPER SQ. 31. 9.2 13.4 18.4 55.6 36.3PER SQ. D1. ACRI. LAND 53.7 72.4 95.4 111.5 461.7

POPULATION ACE STRUCTURE (2)0-14 YRS 45.4 46.5 47.3 45.4 43.6

IS-64 YIRS 51.8 50.5 49.9 51.7 53.165 ANO AIVE L7 2.7 2.6 2.9 3.3

POPULATION GROWTH RATE (Z)TOTAL 4.0 3.7 3.0 2.8 2.6URBAN 5.7 6.7 6.0 5.2 4.5

CRUDE 31LRT RATE (PER 1300) 55.4 55.3 54.4 47.0 40.4CRUDE DEATH RATE (PM THOIIS) 16.5 14.0 12.3 15.2 11.5CROSS REPRODUCTON RATE 3.9 3.9 3.3 3.2 2.6

FAMILY PLANNINACCEPTORS, ANNUAL (TOM) . 18.6 /c 507.0 /dUSRS (: OP Hal WE ) 15 .0 22.2

INDEX OF FOOD PROD. PER CAPlTAC1969-71-100) 76.0 93.0 87.0 91.6 97.3

PER CAPITA SUPPLY OFCAIJRIES (2 OF REQUIRDNITS) 111.0 97.0 90.0 98.2 110.6PROTiINS (CRAMS PIR DAY) 78.0 69.0 55.0 56.7 70.1

OF 1511CR AND"L. AND PULSE 21.0 21.0 22.0 /. 17.0 17.8

CHILD (ACES 1-) DFATR RATE 19.0 16.0 14.0 18.7 14.6

LIFE EXPECT. AT BIRTH (YER) 49.2 53.2 55.5 51.7 57.5INFANT NO?r. RATE (PER TS0) 100.0 90.0 83.0 102.7 , 101.5

ACCESS TO SAFE WATER (IPOP)TOTAL 35.6 59.7URBAN . 54.1 84.5RURAL . 27.3 36.4

ACCESS TO EICRTEA DISPOSAL(R OF POPUIATION)

TOTAL .. ..t' UBAPon .. .. . ..

RURAL .. .

POPULATION PER PFtSICII 4790.0 6290.0 5840.0 11948.3 4365.1POP. PE NURSIGC PERSON 1000.0 /f 1080.0 1190.0 ,& 2248.9 1831.1POP. PER HOSPITAL NrJ

TOTAL 250.0 290.0 350.0 /h 966.9 632.9URBAN - 70.0 368.7 545.5RURAL . 1010.0 ,, 4012 1 2513.5

AIMISSIONS PR HOSPITAL NED .. 30.5 24.5 /h 26.2

-SIAVERAGE SIZE OP 3005130WL

TOTAL .. ..URA .. .. ..RMtAL

AVERACE NO. OF PERSOISI/ROITOTAL . ..URBAN 0.6 0.7RURAL

ACCESS To ELECT. (2 oF IMELLINS)OAL . . 46.2

URBAN .. .. .. .. 77.7R1URAL .. . . .. .16.1

20ANNEl IPage 2 of 5

T ~~~~Al(HSTNEUTIIINTEim lxoci" lmt%%s PC awn) (t AArI)I

RECENT NIUEICOME MM DDLITr ~~IIIIIDLS IZD A M196oLb. MON11 E3TffTZb AfRcA s. or SAHAA M. AFCA 6 MID BUT

AIJUSTSD E NT SATIOSPRINARIs TOTAL 96.0 74.0 126.0 91.0 U.3

IM 107.0 61.0 230.0 90.5 102.FEIALE 86.0 66.0 121.0 73.6 73.6

SECONM AYs TOTAL 6.0 7.0 15.0 17.4 43.0MALE 7.0 9.0 16.0 23.7 52.3FMALE 4.0 6.0 13.0 14.8 33.0

VOCATIONAL (l OF SECONDY 17.0 1.5 0.4 5.3 10.3

PUPIL-TBACHER RATIDPRIKAY 38.0 36.0 38.6 30.3BECO3AY 21.0 22.0 24.0 24.3 23.1

ACULT LITERACY RATE (2) 39.4 f .. 6S.6 35.6 43.5

COEUTOUPASSENGER CARS/THOUSAND PDP 22.2 23.9 .. 20.7 17.8RADIO RECEIVERS/THOUSAND POP .. 27.7 45.7 100.8 13S.8TV RECRIVERS/TUOUSAND POP 1.7 9.5 11.0 18.5 46.1NEWSPAPER (DAILT CENERAL

IlNTEUEST) CIRCULATIONPER THOUSAND POPULATION 24.7 15.8 16.6 17.2 31.2

CINU ANNUAL ATTENDANCEICAITA .. . . 0.3 1.7

TOTAL LABOR FORCE (THOUS) 1364.0 I545.0 2437.0rIEALE (PERCENT) 30.4 30.1 29.2 33. 10.6

AGRICULTURE (PERCENT) 69.0 64.0 60.0 57.1 42.4INDUSTRY (PERCENT) 11.0 13.0 15.0 17.4 27.9

PARTICIPATION RATE (PERCENT)TOTAL 37.6 35.2 32.5 36.3 26.2MALE 53.3 49.7 46.0 47.6 46.4FEKALE 22.7 21.0 19.0 25.1 5.8

ECONOmIC DEPENDENCY RATIO 1.3 1.4 1.5 1.4 1.8

INCOME DISTRIDUTIOPERCENT OF PRIVATE INCOMERECEIVED DY

HICHEST 5S OF HOUSROILDS .HIGHEST 20Z OF HOUSEHOLDS .LOWEST 202 OF NOUSEHOLDS ,LOWEST 402 OF HOUSEHOLDS

PonERT WST mOSESTIMTED ABSOLUTE POVERTr INCOMELEVEL (USS PER CAPITA)

URBAN 525.3 274.8RURAL . 249.0 177.2

ESTIMATED REIATIVE POVERTY INCOMELEVEL (USS PER CAPITA)

URBAN 477.4 402.6RURAL 186.0 284.9

ESTXIMATED POP. BLOW ASOLUTEPOVERTn INCOME LEVEL CZ)

URBANRURAL ..

NOr V;aILABLEMOT APPLICABLE

NO T E S

/a The group averages for each indicator are popultion-veighted arithmtic emam. Coverae of countrie. myg theindicator. dependa on availability of daca and Is not umiform.

/b Unleae otherwise noted, -Dat for 1960- refer to any year between 1959 and 1961; 'Data for 1970 betwee 1969 and1971; and data for -Moat Recent Estiu&te- betwee 1980 and 1982.

/c 1972; /d 1978; /e 1977; /f 1962; /L 1979; l 1976.

JUNE. 1984

21.ANNEX IPa~ge3 7of 5

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22

AN1 IgTe 4 of 5

ZDM

N PR CAPTA sI 1983 1E$740

GFDSS NATIL EGXXN 31 1984 a AIO AMAIE RAZ OF GPOM(,ostant 1969 prices)

US$ in. X 1970-75 1975-79 1979-83

GN at Maxlmt PdI 4,974 100.0 5.3 -0.3 6.0Gros Dometic Investwent 1,072 21.6 11.2 -154 17.8Gross National. Savirg 649 13.0 3.6 -13.5 2.7Current Acoant Balance -423 -8.5Exports of Gods, NFS 1,109 22.3Iinorts of Qaods, NE5 1,243 25.0

wUnrW, IAB FP AND EIDXiVflY IN 1984 a

Vaue Added Labor Force V.A. Per Worker$ Mln. Z% '000 Z W$ Zof Avera

Agriculture 680 15.8 26.7 25.5 2,550 61.9Iidustry 1,484 34.4 292.9 28.0 5,066 122.9Serviesm 2,148 49.8 486.4 46.5 4,416 107.1

Total/AvraW 4,312 100.0 1,046 100.0 4,122 100.0

ceral Gav b Central Q rent C(Z$ ln) ZaEf GDP (Z$ Mn) % of P1982/83 19883 1980/81 1983/84 1983/84 1980181-883

Cwrent Reaeipts 1,940.2 28.2 27.0Crrent Eqenditure 2,232.7 32.4 29.2Qurent Surplus -292.5 -4.2 -2.3Capital Expetures 2D7.9 3.0 3.0External Asistane (t) 101.0 1.5 2.0

a Prelimnary estinae.b Figure to dD not itEr sific ly fram "entral Qoven.et".C Fisml year - July 1 to June 30. GIP data (in nmRket prices) refer tD caleniar yeas.

.. nt ailable,not pplic*e

Aprl

23

L'ue 5 of 5

MIE!, 1(MT aid PRIM 1979 1980 1981 1982 19s3 1984 a-(?FcuiZ$ endZ;aM i d)

rqey ad Qui Mrw 993 1,214 1,399 1.693 1,663 2,004auk Credt to Eblic Sector 199 371 333 524 594 484

BIrk Credt to Prvste Sector 724 827 1,188 1,340 1,543 1,743

h (PercnrtSe or Index Munbers)

Hony ard Q Imobneya Z of CDP 38 35 32 34 29 29Gnerl Price Index (1964-100) 2* 0 211 238 264 325

Ahul parwAte dmrea in:eneral PrICe TIdaK 12.6 7.3 13.9 14..o 19.6 18.2aRek Cit to abJlc Sector -6.1 86.4 -10.2 78.4 -11.8 -21.0

Brk Credit to PEiute Sector 1.8 14.2 43.6 12.8 15.1 13.0

BAIA CCF EA'S (MAS Millii) NOMA= EMSlS (average 1980 -t

1982 1983 1986 a(i%iWJ) 3$ll (2)

Exports of QXXIB, NeS 1,495 1,221 1,274 Iture 434 36luports of Gb, NFS 1,891 1,387 1,193 Og c 150 13RPaue Gap (defidc i -) -394 -166 -216 8 Mf g 496 42

Other 112 9-reat Paymits (net) -113 -14B -138 Total 1,192 ICU

lxdkets' ulittms -3 -2OtbIr Factr Papents (net) -116 -9 .Met Tl.fets -140 -110 -68 IEiAL Esr, F 4DE 31, 1984Balann on Oixent Accout -766 -516 -423 tMS Mn.

DIrect Forein 1nv -nm 0 -2aet mu 1rm Rlic bt, 1ml. guaraie 1,497.2

DLnlarse,nt 478 426 .. momanteed Priwte 1De.Amortizgtian 102 132 .. TIal Outstadig & DMsbear .S9bttal. 376 29 .

Capital ans 77 35 90 Imu SEW13: R=T RR 1984 dOtlbr Capital (net) f 146 -175 57 ZOther Itea n.e.i. 67 178 103!_K1e8~e in Rres (-) 100 186 -22 MUlc Debt, un. gwxanbeed 27.0

_N-Quarantead rvate Deb

rss Fseies (end year) 272 168 .. Total. otstandirg & disbzrsad 27.0Net Reseres (end year) -10 -380

Fuel & Related MaterialsTnP,: 311 201of Rirh: Petrolm 248 198

Eqxpts 16Of utich: Pecrolen - -

E MlMl. LOINC, Mardh 1985 (uSS Hiifm)

R _ES OF E_ _ DIRID mI

198D 1981 1982 1983 1984US$L.00 .Z$ .6426 .6913 .7573 1.0106 1.2422 0utstaliUg & IsbTsed 165.7 31.2$1W.0 15$ 1.5561 1.4465 1.3205 .9895 .8037 Ikdislrs 226.0 22.7

0=tstanlirg indl. Umiszrssd 391.7 53.9

A preltdlmzy Estiemeb Defld as edible food ard fats pbs nor-edible agricultural OA= icsh as tobwl , cotton, forestty

promcts-. etc.C Defizd as crude ustdA ard mirerals, gold ani poctssed ,irdx etials - mauinly mifabricated tals.

Ptch of thds mLght, by aStber elasS ficatnb lx Cisded ifactri ii wcput.d Ratio f debt serce to exports of godB ard servies (preiminlry esthete).

Amere of Ht*er ad Imaer I mgrpf sot-tem capitai.5 Inlude Get nou-factor werirs (US$251 mWSO otldo').

.. nt avallbleArnot l i9 a

April 1985

24

ANNEX IIPage 1 of 2

ZIMBABWE

STATUS OF BANK GROUP OPERATIONS

A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of end of March 31, 1985)

Amount in TJS$ Million

Loan CreditNo. No. Year Borrower Purpose Bank IDA Undisbursed

Three loans and one credit fully disburseud 137.70 15.00

1994 1981 Zimbabwe Transport Reha-bilitation Imports 42.00 17.27

2212 1983 Zimbabwe Electricity SuppplyPower Commission 105.00 82.17

2239 1983 Zimbabwe Manufacturing ExportPromotion 70.60 13.60

2282 1983 Zimbabwe Highway 26.40 18.89

2335 1983 Zimbabwe National Agricul-tural Extension 13.10 11.96

2342 1983 ZiAbabwe Railway Development 40.00 39.17

2445a/ 1984 Zimbabwe Urban Development 43.00 43.00

1291 1982 Zimbabwe Small Farm Credit 30.40 16.52

1296 1982 Zimbabwe Petroleum Fuels SupplyTechnical Assistance 1.20 0.24

1368 1983 Zimbabwe Rural Afforestation 7.30 5.95

Total 477.80 53.90 248.77of which has been repaid 85.07 - -

392.73

Amounts sold 41.99of which has been repaid 40.99 1.00

Total now held by Bank and IDA 391.73 53.90TOTAL undisbursed 226.06 22.71

a/ Signed but not yet effective.

25

ANNEX IIPage 2 of 2

ZIMBABWE

B. STATEMENT OF IFC INVESTMENTS(As of March 31, 1985)

Investment Type of US$ Million EquivalentNumber Year Business Loan Equity

552-Z1M 1981 Wankie CollieryCompany Limited Coal Mining 22.8 -

1984 UDC Limited Finance 2.0 0.2(Hire/purchase)

Total gross commitments 24.8 0.2

Less cancellations, terminations,repayment and sales 2.7 -

Total now held by IFC 22.1 0.2

Total now undisbursed (including 2.0 0.0US$2.7million for participants)

26

ANME1 IIIPage 1 of 2

SMALL SCALE ENEE RM'RS PE)JEC

Supplementary Project Data Sheet

I. Timetable of Key Events

a) Time from project identification toappraisal 8 months

b) Preparation by Government & Bank

c) First Bank mission to consider theproject October 1983

d) Appraisal mission departure June 1984

e) Negotiations :March 1985

f) Planned date of effectiveness September 1985

II. Special Bank Implementation Action

None.

III.. Special Conditions

A. The Government would:

(i) fund SEDCO's TA activities on a continuing basis(para 46); and )

(ii) provide SEDCO with financing of a separate 'ManagedFund' (para 50).

B. SEDCO would:

Charge interest rates for Bank-financed sub-loans at itsnormal interest rates of currently 16Z-18%p.a. and review itsinterest rate structure every 6-12 months (para 49);

27

ANNEX IIIPage 2 of 2

C. Special Conditions of Effectiveness would be that:

(i) Government would provide $Z5 million (US$3.6 millionequivalent) as equity to SEDCO (para 44);

(Ui) two advisors to SEDCO would be appointed (para 47);and

(iii) a subsidiary Loan Agreement satisfactory to the Bank,between Government and SEDCO would be executed (para55).

C

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