world bank documentdocuments.worldbank.org/curated/en/... · national investment bank basic data...

Document of

The World Bank

FOR OFFICIAL USE ONLY

Report No. 1743a-GH

STAFF APPRAISAL REPORT

NATIONAL INVESTMENT BANK

GHANA

April 16, 1979

Western Africa Projects DepartmentIndustrial Development and Finerce Division

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

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

CURRENCY EQUIVALENTS 1/

(The official unit of currency is the Cedi ¢)

US$1 = V2.7521 = US$0e36

ABBREVIATIONS

ADB African Development BankADB (Ghana) = Agricultural Development Bank of GhanaBHC - Bank for Housing and ConstructionDEG Deutsche Entwick-lungs GesellschaftDSI - Development Services Institute of NIBEIB = European Investment BankGCB - Ghana Commercial BankKfW = Kreditanstalt fur WiederaufbauNIB = National Investment Bank

FISCAL YEAR

NIB: January 1 - December 31Government: July 1 - June 30

Between 1972 - July 1978 the exchange rate remained fixed at V115 = US$1.The major devaluation occurred in September 1978 which accounts for thecurrent exchange rate.

GHANA FOR OFFICIAL USE ONLY

NATIONAL INVESTMENT BANK (NIB)


TABLE OF CONTENTS

Page No.

BASIC DATA .... . . ..... . *a o a * a a *........* aaa i-iv

I *THE ENVIRONMENT . .......*...eosooe..aea.ooe......Qee 1

A. The Economy ....................* ee .....*..*......... 1B. The Manufacturing Sector ..................... .. ...* . 3

C. The Financial Sector *aa. .aa.ao..X... .. ao,....... ........ 4

D. Import Licensing *.... .. . . .......... . .... 0. 6

E. Government Strategy and Prospects ......*........... 7Export Program . . . .. O . . a . v v . a a . .e¢* a eae a a e o * * * a * *a * a a 8

II . THE INSTITUTION e..-....*....e... -- e s- *- o * e.e.r.*........**e.D.*.-.e 8

A .Ownership .......... 0 .. ...... 0....... ............... 9

Board of Directors a .. aaa.. . oa.a .... a.a. . .. a a a a 10

B. Organization, Management and Staff ..... D........ .. ...... 10

Organization .... ........................... e 0.§ 10

Development Service Institute (DSI) ..................... e 10

Management and Staff . a a.a...a.aaao .. . .e a*a*a a 11

Training ... .... o .. . ..a. a *o .o . ...... aa o ......... . .11

C. Policies and Procedures . . ...................... *e. 12

Financial Policies . * a a ... o a.a.a.a...a a a..a.aa 12

Current Interest Rate and Exchange Risk .................. 12

Project Promotion and Identification o....Qo..*.........a 13

Appraisal .*...... ................... ...a.a a ..a.a 14

s; pervision . . . . 0 .O......... .aa ...a ao a a a .* a a * a a a a 14

D. Operations and Financial Performance .....es.......e........ 14

Characteristics of Operations ....................o... 14

Equity o ae..ao a oo a ..a.a .. aaa aaa- o a ae aaaaa o a............ 16

Commercial Banking aaa...a.aaa....a.. aa.aa. a.a.a. .* * a a 16

Arrears and Provisions a a .. ... a.aaa. o oaaa. a-a a.a.a.ao. 16

Auditors a.... * ............... *......................aaaaao. a* 18

Financial Position a...a..a..a......a....aaaaaaa o.aaaa.... 18

Debt-Equity Ratio ..................... aa...aa.a.aoeaaaaaa 18

This report was prepared by Mr. Frank K. Vita and based on the findings of

a mission consisting of F.K. Vita and B. Insel which visited Ghana during

November 1978.

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

-2-

TABLE OF CONTENTS (Continued) Page No.

E. Prospects ............. s a a e . e e a a a e e a * a s o * a a e . a a e 19

NIB's Strategy. . a a e.. * ...... .a a .e.. ...... a a a a a a 6 a a a a. a a a. 19Pipeline . . a . a ..a a o. a a .a a .a a a o a a a a a a a a a A a a a e a a a . a . a a a a . a 1 9Resources ....a ...a a .a a a a a a o o .... a a *a * e .......a a a a a a 20

Financial Forecast ..aa .aa.. a r a a a* a .a ... a .a e a a a a a a a a e a a a a o a.. 20

Fe Investment Guidelines a a a a a * a a a a a a a a a a a a a a a a a a a a a a a a e a a a a.e 21

III a THE PROJECT a..aa.. aaa.. aa... aa..aaa..aa..aaa..aa...aa..aaa aa ao*.. .a. .. . ... a.a. aa.a.a. 22

A. Background and Objectives . ............... ......... a a a a a a 22

B. Project Design a . .a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a e . a a a a e 23

Term Lending a .a a a a a a a.. *a .O* e a a a a a a a a a a a a a a a a a a a a a a a a a a a 23Foreign Exchange Working Capital aaaaaaaa..... a.aaa .... a23

Revolving Import Fund for Working Capital e 24

Technical Assistance to NIB .. e....eaaaaeaaaaa aaaaaeea 25Technical Assistance to the Government aaa........ aaaa 26

C- Terms and Conditions . a...aa.a.a..aa.a.aa... a ...... ....... 26

General Terms a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a.a..a..a..a..a..a........ 26Amortization Schedule a.aa a.. .a * * a a.... a..a. 27

Foreign Exchange Risk a.. .a .ae a a a a a a a a a a a a a a a a a a a a a a a a a a a o a* 27EEC Financing of the Working Capital Component aaagaaaaa.a 28Debt-Equity Ratio a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a . 29Procurement and Disbursement ... *aa o ....aa ............. 29

D a Benefits and Risks ... a a .. .aa a aaaa .aaaa a aaaaa a a .a.a.a.a.a.a 29

IV e RECOMMENDATIONS a................. a a a eaaa ea a a a ae ...aaa aa aa aaa a aa a a a a a e 30

3 .

LIST OF ANNEXES

Annex l(a). NIB BylawsAnnex l(b). Organization

Annex l(c). Board of Directors

Annex 2. Summary of Operations 1971 - September 30, 1978

Annex 3. Cumulative Approvals by Sector and Size as of September 30, 1978

Annex 4. Summary of Audited Income Statements, i971-1977

Annex 5. Summarized Audited Balance Sheets, 1971-1977

Annex 6. Projects for Term Financing in the Pipeline as of September 30, 1978

Annex 7. Foreign Exchange Working Capital Requirements for 1979

Annex 8. Loan Portfolio and Arrears Position as of September 30, 1978

Annex 9. Actual and Projected Financial Ratios

Annex 10. Assumptions for Financial Projections

Annex 11. Projected Operations, 1978-1982

Annex 12. Pr.voje,ted Income Statements, 1978-1982

Annex 13. Projected Balance Sheets, 1978-1982

Annex 14. Schedule of Disbursements

Annex 15. Selected Documents and Data Available on Project Files


Basic Data

Exchange Rate: US$1: Cedis 2.75 Cedis 1: US$0.36

Date of Establishment: March 1963

Authorised Capital; (as of September 30, 1978) 0400005000

Ownership: (as of September 30, 1978) Amount Subscribed and Paid-up

0'000 %

Government of Ghana 25,000 86.20Bank of Ghana 2,500 8.68Ghana Commercial Bank 657 2.23African Manganese Company Limited 200 0.69Morgan Guarantee Int. Fin. Company 100 0.34Standard Bank Ghana Limited 100 0.34Barclays Bank of Ghana Limited 100 0.34U.A.C. of Ghana Limited 100 0.3472 Small Investors 243 0.84

29,000 100.00


Basic Data (continued)

Resource Position (as at September 30, 1978)

(0'00O)Local Foreign 1/ TotalCurrency Currency

ResourcesPaid-up share capital 29,000 - 29,000Reserves 6,248, - 6,248

Sub-total equity 35,248 - 35,248

Borrowings OutstandingBank of Ghana 35,252 - 35,252NIB Bonds: 6% 1980/84 10,000 - 10,000

8% 1979/80 10,000 - 10,000PL 480 U.S.A.I.D. 5-1/2% 1,496 - 1,496A.D.B. - 12,308 12,308K.f.We 23,728 23,9128World Bank - 17,160 17,160Investment Development Fund (KfW) 1,035 1,035

57,783 53,196 110,979

Total Resources 93,031 53,196 146,227

Investments and CommitmentsNet Fixed Assets 2,884 - 2,884Loans Outstanding 86,318 36,235 122,553Equity Investments 13,038 - 13,038Undisbursed Commitments 31,586 10,488 42,074Tnvestment Development Fund (KfW) 292 - 292

Total Commitments 134,118 46,723 180,841

1/ Cedi value of foreign exchange adjusted for the major devaluation ofSeptember 1978. In a three-month period the rate moved from ¢1.15=US$1to the current rate of 02.75-LUS$l.


Basic Data (continued)

(g Million)

Local Foreig4 f Total

Resource (Gap)/Surplus (as of 9/30/78) (41,087) 6,473 (34,614)

Other Resources

Balance undisbursed on IBRD loan - 8,800 8,800Fixed Deposits with Banks 21,501 - 21,501

(19,856) 15,273 (4,313)

Potential Resources: (1979)

Equity to be issued to D.E.G. - 3,000 3,000Equity available for issue 5,000 - 5,000E.E.C. Loan for small-scale projects - 1,120 1,120

Sub-Total (14,586) 19,393 4,807Second Credit Line from IDA/EEC(

Term Loan - 33,550 33,550Working Capital - 33,000 33,QQO

(14,586) 1/ 85,943 71,357

1/ To be met through net cash generation from term lending and increasedequity. In addition a new NIB bond issue (Government Guaranteed)authorised in 1978 is available for issue in 1979. Furthermore, NIBmaintains 30% of 1-ts demand and time leposits (amounting to ¢36 millionas of the most recent audit) in cash (para 2,19),

2/ Adjusted for the September 1978 devaluation, Current exchange rate¢2,75;LUS$l.

- iv - I


Basic Data (conti7-ued)

Operations

(0 Million)1973 1974 1975 1976 1977 30/9/78

As of September 30, 1978Year Ending December 31Loans and Equity

ApprovalsIndustry 8.2 17.5 19..6 19.2 18.7 5.7Agricultu e 2.7 3.5 3.7 5.6 3.9 1.0Finance D( 1.1 0.5 - 2.0 0.1 -

12.0 21.5 23.3 26.8 22.7 6.7

Comir.lrcial - - - - - -

DisbursementsIndustry 7.9 10.0 11.9 19.9 15.7 7.7Agriculture 3.2 2.9 5.0 4.7 3,,7 1.8Finance 0.2 1.4 - 1.7 0.5 -

11.3 14.3 16.9 26.3 19.9 9.5

Commercial - - 5.9 5.9 5.9

Guarantees 1.5 0.5 0 0 0 0

Earnings Record

Net Profits 1.6 1.5 1.4 1.3 1.7 3.3 -Prof its as a % average

net worth 4.5 3.6 6.o 6.5 9,4 18.5Financial Position

(0 Million)1973 1974 1975 1976 1977 30/6/78

Net Worth 14.3 15.7 19.4 22.4 23.6 35.2Total Assets 55.1 68.8 107.0 138.1 170.3 172.3Term Debt/Equity Ratio 2.1 3.1:1 2.7:1 3.0:1 3.1:1 3.2:1

1/ Equity.Investments in financial institutions.

2/ Earnings estimates for 1978.

V -


Basic Data (continued )

Interest Rates and Other Charges

Interest Rates; Industrial and Commercial Loans - 18.5% p.a., plus 1%service charge

Agricultural Loans - 17.5% p.a., plus 1% service charge

Commitment Charge; 1% on undrawn balance Cafter 90 days)

Guarantee fee: 2%

Basic Data on Previous Bank Loan (1180-GH)

Date of effectiveness: March 2, 1976Loan Amount: US$10 million (equivalent)Committed: US$9.5 million equivalent as of September, 1978.Undisbursed: US$2, 9 million -February 1979.

GHANA

NAkTIONAL INVESTMENT BANK (NIB)


I. THE ENVIRONMENT

A. The Economy 1/

1.01 The economic situation in Ghana has deteriorated over the pastfour years. In 1977 Ghana had a population of around 10 million with a GNPper capita income of US$380. The decline in real per capita income has been afunction of a stagnating economic growth rate which, since 1971, has averagedless than 1 percent per annum, while the population has increased at anaverage annual rate of 2.7 percent. The underlying pxoblems of the economyhave included poor productivity in nearly all sectors, its inability tosustain current levels of consumption, poor export performance and largeleakages due to unofficial exports.

1.02 Ghana's foreign exchange position has become the key variable indetermining development objectives and the most important factor in its eco-nomic prospects. Historically, investment in manufacturing had gone mainlyinto import substitution which relied heavily on imported raw materials andspare parts, and thus failed to save significant amounts of foreign exchange.This policy was pursued at the expense of maintaining investments in tradi-tional. exports. Indeed, improved export earnings between 1972 and 1975 inGhana's three main export commodities of cocoa, timber and gold (represent-ing over 90% of the value of exports), were solely the result of increasedprices, as the actual volume of production fell by 25 percent during thatperiod. Total shipments of cocoa, representing over 70% of exports during1977 were about 16.5% below those for the previous year. The 1978 cocoacrop is expected to be 260,000 tons compared to 277,000 tons in 1977, afurther 6% drop in output. In addition to drought, slack investment and lowproducer prices, unofficial border shipments in search of foreign exchange,periodic shortages of inputs and labor shortages have combined to weaken theexport capacity of cocoa. Timber exports were seriously undermined by theovervalued exchange rate and other disincentives. Gold production fell about8 percent in 1978.

1.03 The inflation rate increased from nearly 30% per annum in 1975 andaround 50% in 1976 to over 100% in 1977, continuing at that level through 1978.Failure to control the inflationary spiral may be traced to the effects of anover-valued exchange rate and to increased deficit spending by Government,

1/K Detailed information on Ghana's economy is contained in the report"Ghana: Economic Position and Prospects" (Report No. 1533-GH) ofJune 29, 1977.

-2-

financed mainly through the Central Bank, which represented 60% of totalbudgetary expenditures in FY78. 1/ During the thrqe years to 1976, moneysupply had grown an average of 34% per annum; this has been followed byfurther sharp increases in the money supply to 50% in 1977 and to 72.2% in1978. Poor harvests further fueled inflation by driving up domestic foodprices. In addition, such shortages forced the Government to expend scarceforeign exchange reserves on basic food imports during 1978. Inflationaryexpectations among all segments of the population has led to negative behavior(hoarding, anticipatory price rises, wage pressures), which has furtherstimulated price increases.

1.04 Despite domestic inflation far exceeding international levels, theGovernment had from early 1972 to July 1978 maintained the official exchangerate at V 1.15 = US$1. As overall confidence in the Cedi diminished, anactive unofficial market emerged in 1974. In the absence of Government actionto devalue, the rate rose to a peak of ¢ 12 = US$1 in April 1978. With in-creasing scarcities in the Ghanaian market and the limited effectiveness ofprice controls, the Cedi prices for imported goods have been increased toreflect the parallel market rate. Thus, any foreign exchange obtained at theofficial rate involved a large subsidy for the importer and any productionusing officially imported inputs became highly profitable. The effect was todepress official exports. Producers have found that the most profitable wayto export .,as been, through contraband for which they receive foreign currency.

1.05 Under extrdaordinary economic pressure, the Government on July 19,1978, announced its intention to introduce economic stabilization measures,commencing with a series of exchange rate realignments, suspension of un-numbered import licenses (para. 1.14) and a reexamination of Governmentpriorities in recurrent and capital expeniditures. At the end of July a newGovernment took power pledging to continue these policies. 2/ As of September1978, the official exchange rate was realigned from 0 1 =$0.86 to ; 1 = $0.36,a 58% devaluation against the dollar. 3/ The parallel market rate has nowfallen to around ¢ 6 = US$1. The 1979 Budget Statement reflects the Govern-ment's commitment to control inflation, increase incentives to cocoa producers,improve non-traditional exports, phase out price controls, eliminate mostnon-essential imports, strengthen fiscal procedures, and reduce recurrentand capital expenditures.

1.06 In late October 1978, the Government received an IMF mission tocomplete negotiations on a Standby Credit of SDR 53 million (two tranches)and an additional US$45 million from Trust Funds. Agreements between theGovernment and IMF involve the implementation of a stabilization program

1/ FY77 budget ¢ 2,228 billion, deficit 1,222 billion (54.8%)FY78 budget ¢ 3,539 billion, deficit ¢ 2,156 billion (60.1/%)

2/ The economic team which formulated the first set of measures remainedvirtually intact under the new regime.

3/ Using the former rate as a base, the move represents a 139% adjustment.

- 3-

which would support the objectives of the 1979 budget. Projected growth inthe money supply during FY79 is 30% and Government estimates that inflationwill be reduced to around 50% by the end of 1979, to 25% in 1980 and below20% after 1981. While these target figures may appear optimistic, increaseddomestic food production should stabilize prices at the marketplace andimproved producer prices should result in more local raw materials beingavailable for manufacturing.

B. The Manufacturing Sector

1.07 The contribution of manufacturing to GDP remained between 12 and14% during the decade ending 1976. However, that figure fell to about 10%in 1977 due to insufficient foreign exchange for imported spare parts andraw materials. Scarcity of foreign currency also accounted for the slightdecline in the value of industrial output from ¢ 725 million in 1976 to¢ 705 million in 1977. The average annual growth of manufacturing between1971 and 1974 had been 4.5% in constant 1968 prices; however, from 1975 onwardthe growth rate became negative in constant terms compared to less than 1%for the economy as a whole. Severe shortages of foreign exchange have led toextensive underutilized capacity and the Government estimates that most firmsare currently operating at an average of about 30% of installed capacity.The major challenge for the Government will be to restore sectoral growth andto restructure Ghana's manufacturing sector, directing more toward export-oriented activities, with emphasis on linkages between domestic agriculturalproduction and local industrial development. Success in achieving theseobjectives will depend on Government's ability to adhere to industrialinvestment and credit guidelines in the allocation of foreign exchange andon cooperation from financial institutions, particularly the National Invest-ment Bank (NIB). (Ref. para. 1.16).

1.08 Government estimates that manufacturing provides full- and part-timeemployment to about 10% of the 5.5 million labor force. Past financial andlow cost credit policies have favored the importation of capital intensivetechnologies, resulting in reduced capacity in the manufacturing sector togenerate employment. The new Government has recognized these policy deficien-cies and attention is being focussed on the need to stimulate employment.Specifically, the import license authorities and financial institutions havebeen directed to allocate more foreign exchange and credit to labor intensiveactivities. The Five-year Development Plan (1976-80) indicates as a policyobjective the stimulation of small-scale enterprises to generate throughfiscal and credit incentives a wide range of job opportunities in manufactur-ing. The most recent Budget Statement (1979) supports this priority. Althoughthe most immediate Government sectoral strategy aims at revitalizing produc-tion and earning foreign exchange, employment issues continue gaining greaterprominance. In 1975 the Bank, with UNDP funding, conducted a preliminarysurvey of the small-scale manufacturing sector in Ghana as a first step informulating a project. Preparatory work is proceeding, with the Bank alsocoordinating closely with Government to develop appropriate sectoral policies.The recent devaluation and new credit policies will support efforts of institu-tions such as the NIB in emphasizing more employment creation and reducingaverage investment cost per job.

-4-

1.09 Private and Foreign Investment. The private sector continues to

play a vital role in the manufacturing sector of Ghana. The contribution

of public investment to increasing production capacity in the economy has

been, for the most part, limited to larger parastatal corporations (such as

GIHOC-Ghana Industrial Holding Company), otherwise it is usually indirect.

Despite the key role of the private sector, private capital formation is low

(particularly in productive capacity) due to foreign exchange constraints,

inappropriate investment policies and a general lack of business confidence.

To demonstrate Ghanaian interest in foreign investment, the Central Bank of

Ghana had introduced a five-year program for the repatriation of about ¢ 312

million in blocked dividends and profits, offering favored treatment to

foreign investors operating in economic priority activities and those re-

investing in agriculture. The program, introducpd in 1977, was never fully

launched because of foreign currency constraints and a change in Central Bank

management. Government intends to reactivate the scheme during 1979. However,

the recent devaluation has significantly reduced Ghana's obligations to

investors without exchange indexing agreements.

C. Financial Sector

1.10 Monetary policy in Ghana during 1978 has aimed at achieving two

objectives; (a) to contain overall expansion of the money supply; and (b) to

influence the direction of credit to priority sectors. However, the first

measure proved unsuccessful as new currency was being issued during the year

to finance the Government's V 2.2 billion budgetary deficit. The bankingsystem's credit to Government increased by 74% (¢ 1.4 billion) over 1977;

conversely, credit to the private sector was held to 37% (S 172 million).Under a recent set of Guidelines, Government has increased the average cash

reserve ratio of banks to 48% (from 20% in 1976 and 42.8% in 1977), a measure

which should prove more successful within the recent framework of a new

stabilization program. In further support of recent fiscal and exchange

rate policies interest rates were raised. Government has also now tightenedcredit allocation guidelines to banks, with agriculture, export trade and

industry being allowed the greatest degree of credit expansion. Bolsteredby an IMF supported program, it is expected that new Government measures in

restricting growth in the money supply and in directing resources to high

priority sectors will succeed where previous attempts have failed.

1.11 New interest rate and credit allocation policies were introduced in

September 1978. Deposit rates in Ghana now range from 12% on savings accounts

to 13% on time deposits of over 12 months. Former rates were 4-1/2 and

8 percent respectively. New Central Bank lending rates are 12 to 14-1/2%

while new lending rates of banks are 13% for seasonal credit to agriculture

and export credits, 15% on Government guaranteed loans and 18-1/2% on allother loans. Previous lending rates were 8 to 12-1/2%. Based on their level

of lending as of June 1978, banks have been authorized under new creditguidelines to increase lending to agriculture and exports by 100%, to manu-

facturing by 50% and to mining and quarries by 30%. Banks are required tolimit their lending in commerce, consumer credit and import trade to Ore-June

-5-

1978 levels. Utilities and construction were authorized small credit in-

creases. As of September 1978, aggregate credit from commercial banks amounted

to d 881 million, of which V 692 million went to the private sector, mainly in

the form of short-term advances. Contrary to the new guidelines, commerce had

received the largest portion, 28.4%, with manufacturing getting 19.2%, agri-

culture 11.1% and mining and quarrying 7.4%.

1.12 Financial Institutions. Currently 12 banks, including the Central,

are operating in Ghana. 1/ The following are the maiin banking institutions

in Ghana whose activities parallel those of the NIB.

(a) Development Finance Department of the Central Bank (DFD) was

established to implement the small-scale industries and agri-

cultural credit guarantee scheme for the purpose of encouragingcommercial bank lending in those priority areas. As of March

1977, loans in the amount of ¢ 38 million had been guaranteed.The DFD also guarantees mortgage loans for low and middle incomehousing and has a Technical Division which provides advice on

Government projects and offers services to business for a fee.

A new and important function of the DFD is its sponsorship of aLural banking system. Five banks have al-ready been establishedunder local management and control to mobilize rural savings for

local lending.

(b) Agricultural Development Bank (ADB). Established in 1965 as a fully

government-owned institution for smallholder and commercial farmers,the ADB had authorized and paid-in capital of V 45 million as ofDecember 1977. Resources are derived from public long-term loansand ADB's own deposits. It has also acted as intermediary for an

IDA credit to agriculture. Of its 0 44 million in loans outstanding,16% were long-term, 27% medium-term and 57% short term.

(c) Bank for Housing and Construction (BHC). BHC is a government-controlled bank which began operations in 1973 to promote and

finance housing, civil works and building materials industriesin the public and private sectors. Authorized share capital is

¢ 10 million while paid-in capital as of December 1977 was ¢ 9.6million. As of the same date, term portfolio outstanding was ¢ 42.8million and short-term financing was 0 23.7 million. The Bank's

Second Highway Project has provided $7.5 million for a line ofcredit through BHC for equipment subloans to domestic contractorsand quarry firms. Subloan commitments are now under way. Hire-purchase and medium-term industrial loans carry interest rates

between 13-1/2 to 15-1/2%, but will be adjusted upward to conform

with new Central Bank regulations.

1/ Development banks are: the NI5B, BHC and ADB. Specialized banks are:

the Merchant Bank (Ghana) Ltd., National Savings and Credit Bank, SocialSecurity Bank, Cooperative Bank and the Premier Merchant Bank; CommercialBanks are: the Ghana Commercial Bank, Standard Bank (Ghana) Ltd. and

Barclays Bank.

-6-

(d) The Ghana Commercial Bank (GCB), the largest commercial bank inGhana, is a government-owned institution with a paid-in capitalof 0 25 million, and authorized capital of 0 50 million. As ofJune 30, 1978 GCB held 0 1,876 million in total deposits, a 36%increase over the previous year. Loans and advances amountedto ¢ 802 million, 41% higher than 1977. Return on investment was31% in FY78. Over 80% of GCB's lending has been short term,with most of funds in support of agricultural production (equip-ment and inputs) GCB's agricultural lending prompted Governmentto provide relatively generous foreign exchange allocations toits clients. A Development Research Unit spearheads the drivefor agricultural lending and smaller-scale, usually serviceenterprises. GCB lends at the maximum allowable interest rates.

(e) Barclays Bank (Ghana) Ltd. and Standard Bank (Ghana) Ttd. areboth incorporated in Ghana. Government controls over 50% ofBarclays and 27-1/2% of Standard's shares. The two institutionshave been most affected by excess liquidity in the bankingsystem, and have virtually ceased accepting deposits. A com-bination of extreme caution and a decline in credit demand hasresulted in reduced lending levels during 1978. Whereas about10-20% of lending had previously been medium-term, almost allrecent business has been in short-term advances and overdraftsto preferred clients.

D. Import Licensing

1.I3 The import license system which began in 1961, had been operatingunder increasing pressure due to the overvalued exchange rate. Even withthe recent devaluation, a backlog of demand for foreign exchange from allsegments of the economy has built up over the years which cannot be fullysatisfied in the foreseeable future. Despite past attempts to allocate importlicenses according to economic priorities, many important industries andsubsectors have received insufficient foreign exchange to operate profitably,or even to achieve break-even levels. The shortage of foreign exchange tofinance imported inputs ior local industry has led to chronic underutilizationof installed industrial capacity, aggravated in some instances by inadequatetechnical management. During 1978, the Government prematurely liberalized itsimport program by issuing more licenses than there were funds available. 1/The move failed to increase the volume of essential imports. Instead, foreignsuppliers refused to ship goods without letters of credit from foreign banks,thus delaying many shipments and virtually eliminating the availability of

l/ Government import program earmarked $785 million equivalent in foreignexchange for imports in 1977, with about 51% being allocated to manu-facturing and mining. In 1978, foreign exchange available has beenaround $800 million equivalent, although import license authoritiesissued licenses equal to approximately $1.4 billion. The 1979 ImportProgram constitutes ¢ 2.433 million ($885 million) with 10.3% for theexport sector, 19.5% agriculture, 10.5% manufacturing, 20% transportationand the remainder allocated to social sectors and basic consumer goods.Licenses this year will conform to resources available.

-7-

short-term import credit to Ghanaian importers and businessmen. This experi-ence has highlighted the serious deficiencies in the import licensing system.The Government recognizes that improvement is a matter of urgency and hasformulated criteria aimed at the strict allocation of foreign exchange to highpriority activities (Ref. para. 1.16).

1.14 A significant measure thus far taken has been the Government'scancellation of so called unnumbered licenses which had allowed Ghanaiansholding foreign exchange in external bank accounts to import large quanti-ties of mainly non-essential consumer goods for local resale. As suchimportations occurred outside the official framework, goods were introducedin the economy at black market prices, thus reawakening demand and accelerat-ing domestic inflation, while underpinning the curb market rate. Suspensionof this privilege has weakened the black market considerably and allowedgreater control of the importation system by Government.

E. Government Strategy and Prospects

1.15 In 1977, the Government had formulated a policy framework formanufacturing which aimed at correcting misallocation of foreign exchangeresources. The import licenses authorities were directed to channel foreignexchange to agro-industries emphasizing food and local raw material processing,to export-oriented enterprises, to priority companies suffering from under-utilized capacity, and to labor-intensive activities. A set of incentives,including a 30% export bonus 1/ and an import bonus tax structure favoringfirms using domestic inputs was meant to support the program. A special ¢ 30million export credit facility was set aside for manufacturers with exportcontracts. Unfortunately; the magnitude of the overvalued exchange rate, thelack of improvement in foreign exchange availability and the continuing highlevel of inflation combined to neutralize most of the Government efforts overthe past year.

1.16 The macro-economic policy changes over the past few months haveimproved the sectoral outlook and the investment climate. The priorityobjectives in manufacturing, which have undergone significant changes overthe past years, now have'very good prospects of being achieved. The deva-luation combined with a reduced 10% export bonus has already begun toinfluence potential exporters. In addition, steps have already been takento phase out price controls on all but the most essential consumer items, aspart of a policy to progressively place greater reliance on market mechanisms.Wlhile continuing to stress the industrial priorities enumerated above forexisting enterprises, the Government will limit the creation of new indus-tries to the following categories:

(a) Agro-industrial and fishing enterprises, including plantations,processing and storage facilities;

(b) Enterprises, particularly small-scale using local materials;

(c) Export-oriented industries based on local inputs;

1/ In addition to the official price paid to exporters (at prevailingexchange rate) Government added 30%.

-8-

(d) Local building materials industries; and

(e) Foundry and engineering works producinig replacement parts.

1.17 However, conditions in Ghana will not improve immediately. Economicpressures in both the public and private sectors which have built up in recentyears will clash initially with the Government's stabilization programs, par-ticularly wage policies. Efforts to limit the 1979 budgetary deficit willrequire cutbacks in existing Government programs and significant reduction(33%) in real terms of expenditures on new programs. In terms of privateinvestment, devaluation and restricted credit flows should introduce muchneeded discipline into investment decisions. Ghana is perhaps at its mostimportant juncture since independence. Vigorous assistance from externallenders is needed to support Government policies. As for Government's medium-term targets set out in the Five-Year Development Plan (1976-81), there islittle hope that the goal of an annual growth rate in GDP of 5.5% can beachieved. Nor is it realistic to expect an average annual growth in manufac-turing of 7.5%, as projected. However, the final two years of the Plan periodcould possibly witness these respective growth levels if the Government'sprogram is successful. The assumptions and goals of the Plan will have to berevised on the basis of changed conditions and the new policies. The taskahead is a formidable one for the Government: however, the package of newmeasures constitute an impressive move in the right direction.

1.18 Export Program. The Bank's recent Economic Report (No. 1533a-GH) isdevoted to a discussion of expanding Ghana's processed exports. Measures pro-posed by the Bank sought to provide a viable framework within which progressmight be called despite the Government's refusal to devalue. With the recentexchange rate adjustments and the Government's intention to pursue a flexibleexchange rate policy, the potential for developing a dynamic non-traditionalexport sector has improved considerably. A major recommendation of the Bankwhich is still relevant was that exporters receive a portion (50%) of theirnet foreign exchange earnings for their future import needs. The Bank'sEconomic Report (No. 1533-GH) provides extensive background on the subject.The appraisal mission raised the possibility of assistance in an actual exportand marketing program, which was fully endorsed by top Government officials.The program would consist of a team of consultants to first advise Governmentpolicy makers on the range of export incentives. The next phase of theprogram would be to identify the best products for export expansion (woodenfurniture, textiles, palm kernel cake, rubber and botanical products andothers have been mentioned). These two stages would be short-term, drawingon the findings of past studies. Major focus will be on establishing aGovernment apparatus to move exports into the markets, and a promotion/marketing phase which would be undertaken, in large part, outside of Ghanain potential market areas. The program is further discussed in para. 3.10.

II. THE INSTITUTION

2.01 The National Investment Bank (NIB), a publiclv-owned developmentfinance company, was created in 1963 to promote and finance mainly private but

-9-

also public enterprises in all productive sectors. It is the main Ghanaianinstitution for providing medium- and long-term financing to the manufactur-ing sector which, as of September 30, 1978, had 2eceived over 85 percent ofNIB's investment approvals. NIB lends to a wide range of sub-borrowers of allsizes. In 1978, over 50% of its loans went to small enterprises includingfarms; however, these constituted less than 7% of aggregate loans by amount.NIB has not yet become iavolved in financing large numbers of artisans, norhas it been active in promoting industrial estates. Funds are extendedthrough term loans , subscription shares in enterprises, or both. Guaranteeshave not been available since 1974. NIB also provides short-term financingto term borrowers through the institutions's commercial banking facilities.In addition, NIB also performs preliminary project reviews and feasibilitystudies to identify and promote investment opportunities. Project advisoryservices are offered to both new and ongoing projects,

A. Ownership

2.02 The Government authorized in January 1978 an increase in NIB's sharecapital from ¢ 20 million to ¢ 40 million. Paid-in share capital is currentlyM; 29 million. The Deutsche Entwicklung Gesellschaft (DEG) of Germany hasagreed to subscribe DM2 million (to be converted at the rate prevailing onthe date of payment) 1/ and Government also intends a further subscription;combined these should increase NIB's paid-in capital to 0 35 million bymid-1979. NIB hopes that improved profitability resulting from arn increasedlending program and higher dividends will be sufficient to attract privateinvestors to take up the remaining 0 5 million in mid-1980. NIB's presentcapital structure is as follows:

Table 2.1: PAID-IN SHARE CAPITAL(as of September 30, 1978)

0'000 %

Government of Ghana 25,000 86.20Bank of Ghana 2,500 8.68Ghana Commercial Bank 657 2.23African Manganese Company Limited 200 0.69Morgan Guarantee Int. Fin. Co. 100 0.34Standard Bank Ghana Limited 100 0.34Barclays Bank of Ghana Limited 100 0.34U.A.C. of Ghana Limited 100 0.3472 Small Investors 243 0.84

Total 29,000 100.00

1/ As of December 29, 1978, ¢ 1 = DM .65DMl = ¢ 1.54

- 10 -

2.03 Board of Directors. NIB's Board consists of six members with theManaging Director acting as Chairman. Other members include the ManagingDirector of Ghana Commercial Bank, the Deputy Governor of the Central Bank,the Principal Secretaries of the Ministries of Finance and Industry and arepresentative from the private sector. Membership will be increased toeight to accommodate the DEG representative and the Deputy Director of NIB,when appointed. Four Board members, including the Managing Director, areappointed by the Supreme Military Council. The Board which meets once amonth, approves all loans and investments above ¢ 250,000. Applicationsbelow that amount are approved by the House Committee (para. 2.04). TheBoard has played a productive and supportive role in NIB's operations.

B. Organization, Management and Staff

2.04 Organization. Annex l(b) shows the organization chart of NIB.NIB's basic structure has remained unchanged since establishment, with thenucleus of the organization consisting of the three Regional OperationsDepartments representing Greater Accra, the Southern and Northern regions,the Development Service Institute (DSI), the Financial Department and theLegal Department. This organizational structure continues to be effective fc-NIB. A Commercial Banking Department serving NIB's term clients operatesunder the Financial Department (para. 2.19). The Regional Departments sharethe tasks of project promotion and identification with DSI (para 2.06).Supervision and follow-up are carried out by the Regional staff and branchoffices. The Financial Department plays a major role in financial monitoringand data collection. The House Committee is the main internal organ of NIBand is chaired by the Managing Director. The Committee which meets two tothree times per month to screen and approve loan applications, review port-folio and handle financial and administrative matters, is comprised of theRegional Directors, the Director of DSI, the Chief Financial Officer, theChief Legal Adviser and Chief Administrative Officer.

2.05 Decentralization of operations has become an important objectiveof NIB. Six branch offices in the major centers outside Accra provide com-mercial banking services to NIB's clients, receive and screen loan applica-tions, supervise ongoing projects and do some project promotion. Branches areauthorized to process loan applications up to 0 50,000, otherwise the RegionalDepartments and DSI take full responsibility for processing after initialcreditworthiness screening by branches. About half of all loan applicationsreceived by NIB now pass through the branches. The current number of fieldstaff of around 20 will increase as more branch offices open. Managementintends to establish four more branches by 1980 including a small one, outsideheadquarters, in Accra.

2.06 The Development Service Institute (DSI). The DSI is responsiblefor NIB's project preparation capability and project appraisals which are ofrelatively high quality. It also conducts project reviews and feasibilitystudies on a fee basis for public and private clients who are not NIB'sborrowers. At any given time, NIB has an average of 250 loan applicationsunder consideration, of which about 25 are screened out by the branches beforereaching DSI. About half of DSI staff's time is devoted to projects which

eventually qualify for NIB financing. DSI operates through four units:Investment Development, mainly for NIB's participation in joint ventures;the Agriculture and Industry divisions, conducting project analysis of newor rescheduled projects; and the Statistics Division.

2.07 Management and Staff. NIB has a total staff of 374, of which 80

are at the professional level. NIB's management and senior staff are highlyqualified and capable of operating effectively under a variety of difficultsectoral conditions. E.R. Obeng Ansong succeeded J.S. Addo as ManagingDirector in January 1978. Mr. Obeng Ansong, the former Deputy, has worked in

NIB with a three-year interruption, since 1962 and intends to continue NIB'soperational and financial policies supported by the Bank. He is supported by

competent and experienced senior staff, including the Chief Financial Officer,Director of DSI and the three Regional Directors. NIB's senior posts have

usually been filled through internal appointments. It is expected that theposition of Deputy Director will also be filled from within. NIB's managementstaff serve on the Boards of various financial institutions (including theBank for Housing and Development) and public and private companies, and have

acquired the reputation for financially and technically sound judgements.

2.08 Overall quality of the professional staff remains quite good in

most areas of activity with the possible exception of internal auditing.This key function which monitors the substance of financial reports will needto be improved thro'igh the injection of more qualified personnel. Despitesome turnover at lower levels, NIB continues to recruit and train new staffboth through in-ho;ise programs and through courses offered abroad. FormerNIB staff hold top management positions throughout the banking and business

communities in Ghana. NIB has ol7ercome staff resistance to being posted inbranch offices by offering more rapid promotion to non-headquarters staff;this policy combined with greater responsibility offered in the branches is

inducing more NIB staff to seek such assignments. Staff salaries haveremained competitive with those in the banking system, but slightly belowthose offered by private businesss. NIB intends to maintain this parity.

2.09 Training. In addition to in-service training by DSI, NIB staffhave participated in foreign programs offered through the Bank's EconomicDevelopment Institute, West German bilateral assistance, USAID and the UN

Specialized Agencies. NIB maintains direct relations with a number offoreign banks and, through cooperation with the Central Bank, has sent staff

on courses abroad. In this way, NIB had long ago eliminated its dependenceon expatriate staff. While the organization of NIB has proved flexible andeffective over the years, some staff weaknesses have begun to emerge, particu-larly during the past year as active demand for high priority investments has

diminished. Specific areas have been identified for improvement. The empha-sis should be directed at training in more dynamic approaches to projectidentification and promotion and in strengthening the analytical capabilitiesof supervision personnel. Most staff already working in these areas onlyrequire occasional seminars to sharpen skills; however, the new officers(around six) who will either be reassigned or recruited to operate in these

functions should undergo an in-service training program of at least one year.

a v r:o t o,A . > . . ... . ... <Bw A .. . 0 Xer ms:.tq ...... #>Mo.:vosd.. o... i.--:9;t ......av.l ..KB..vP!8E.S............. erw;a: -ls?fms:.ra<oAlra Aa~al S ..... ,.es.4,~.Z .................. .....

12

Such staff would work in the area departments, branches and DSI, and wouldstrengthen NIB's capacity to rebuild its project pipeline with priorityoperations. In addition, with the introduction of stricter project selectioncriteria, NIB will have to strengthen its capability in project analysis (para2.35). Here the situation mainly requires on-the-job training of existing DSIstaff through seminars. The proposed technical assistance to NIB (para 3.09)is designed to cover NIB's 'training requirements.

C. Policies and Procedures

2.10 Financial Policies. NIB's lending, investment and borrowingpolicies are contained in its Bylaws with the exception of the debt-equityratio limit currently 3:1 which is in NIB's Act and the upper limit of inter-est rates, determined as a matter of overall policy by the Central Bank andMinistry of Finance. The Act was amended in February 1978 to allow for acapital increase and to provide the Board with discretionary powers to deter-mine the appropriate level of dividends. NIB currently lends for projects ofall sizes, with a lower limit of 0 5,000 and upper limits established inits Bylaws. NIB's financial exposure is usually limited to 75 percent ofthe total cost of a project, but may be raised to 90 percent when coveredby security (of not less than one and one-half times project cost) andguarantees. NIB may take controlling interest or primary management respon-sibility ini an enterprise only in exceptional circumstances related to theprotection of NIB's investments. Majority participation by NIB should berelinquished as soon as possible. All equity investments are made for pro-motional purposes and with a.view to reselling to Ghanaian investors. TheCommissioner of Finance must authorize resale of equity in public enterprises.Equity investment in any single enterprise is restricted to 10 percent ofNIB's own equity, and total equity investments are limited to NIB's paid-inshare capital plus reserves.

2.11 Current Interest Rate and Exchange Risk. Since September 1978,NIB charges 18-1/2% interest on local currency term loans and 17-1/2% onlocal currency agricultural loans; both carry a 1 percent commitment fee onundrawn balances; a one-time 1 percent service fee is also charged. Short-term borrowers pay 18-1/2% with no charges. These rates conform to CentralBank regulations. The maximum lending rate is calculated as a floating rate,maintained at 5% above the present Central Bank rate of 13-1/2%. Whiile an18-1/2% rate is still completely negative when measured against currentinflation, it represents an improvement over former rates (para. 1.11) and amove in the proper direction. Over the next four years the rate is expectedto become positive (para. 1.06). In addition, although NIB's average costof local money has increased from around 6 percent to 13%, the institutionenjoys a comfortable average 5-1/2% spread on its local resources. Underthe first Bank loan (1180-GH) subborrowers are paying 12-1/2% on foreigncurrency loans and are assuming the full foreign exchange risk. In view ofthe Government's policies of exchange realignments, these terms represent asignificant move toward the real cost of foreign exchange in Ghana. Depositrates offered by the Commercial Banking Department range from 12 to 13 percenton fixed-term deposits, in line with current interest rates of commercial

- 13

banks in Ghana. Bylaws require NIB to lend at fixed interest rates withregard to NIB's cost of capital, its operating expenses, maintenance of asound financial condition and NIB's competitive position among domesticfinancial institutions.

2.12 Project Promotion and Identification. NIB never had to aggressivelypursue new business, as clients always sought NIB's assistance. Equity invest-ment and joint ventures have represented the main promotional thrust of NIBdirected mainly to larger enterprises. As of December 1977, NIB had promoted42 projects, all involving equity participation by NIB. Total project costswere around ¢ 200 million, of which NIB financed about 24% through loans and10% through equity. Projects range in size from ¢ 28 million for a rice andgrain scheme to ¢ 440,000 for a light fixture company. Most ventures werejointly undertaken with Government or foreign private interests. Half arewholly privately-owned. Some 19 projects were in the manufacturing sectorand three involved establishing Linancial institutions. Agro-industries,commercial plantations and food processing account for another 19 projectsoOne printing and publishing firm represented the only service ,aterprise.Projects have tended to be larger than those normally financed and NIB wishesto promote a wider range of smaller and fully Ghanaian-owned projects,developing more linkages between agriculture and industry. Since NIB'spromotional role has been traditionally a passive one, a number of soundproject ideas which should have been actively promoted by NIB had goneunrealized, or in a few cases were financed by commercial banks. In addition,over the past year NIB's active pipeline of projects had run down due to thelack of foreign exchange and.a general mood of discouragement in the manufac-turing sector. Loan approvals as of September 31, 1978 were ¢ 6.7 millioncompared to V 26.6 million in 1976. A major issue for NIB is how to restoreits operational activities to pre-1978 levels through active project promotion;another issue is how to focus attention on only the highest priority schemes.With the introduction of stricter project selection criteria (para. 2.35),NIB must move vigorously to revitalize business interest and encourage projectideas through an aggressive promotional program. This will require greaterattention on improving promotional techniques. NIB itself must demonstratethrough public information its willingness to assist and finance priorityenterprises. To achieve this objective, NIB will need additional technicaland engineering skills to properly identify and promote new ventures. NIBshould be prepared to consider unconventional approaches, such as Hire-Purchasearrangements which would allow the institution to operate in new activitieswhile minimizing its exposure. Groups of small-scale manufacturers of spareparts might be mobilized and grouped under such an arrangement, thus takingadvantage of economies of scale in both production and in NIB's operationalcosts. The proposed consultants working directly with NIB staff would provideassistance in identifying priority activities in which the bank could directthe newly acquired promotional expertise (para. 3.09).

14 -

2.13 Appraisal. About half of the prospective projects come to NIBthrough the branch offices, and the other half through regional departmentsand DSI. After initial screening by branch offices and regional departmentstaff, DSI maintains full responsibility for appraising loan applicationsabove ¢ 50,000. DSI often provides technical assistance to prospectiveclients and undertakes most of the technical and analytical work requiredto prepare the project. The Bank has found the quality of appraisal work tobe thorough and dependable. The Loan Analysis Report of DSI forms the basisfor decisions on project lending by the House Committee and the Board. DSIstaff conduct project reviews in accordance with investment guidelines of theGovernment (paras. 1.16 and 2.35).

2.14 Supervision. NIB has concentrated with notable success considerableeffort on strengthening supervision procedures over the past year. AreaDirectors now visit the field twice a month, personally following up on majorproblem projects and loan collections, and overseeing the activities ofregional department and branch staff. As of September 1978, there were 358loans outstanding; every officer assigned to supervision takes primnaryresponsibility for about 12 projects, scheduling visits to each projectonce a quarter unless more frequent technical or managerial advice is needed.Supervision staff also determine which projects should be reviewed by DSIfor possible rescheduling or legal action. Project visits are now basicallydetermined by the level of problems to be resolved. Problem projects arevisited far more regularly on a special schedule formulated in cooperationwith DSI and the Financial Department which receives and monitors loan repay-ments. The House Committee reviews a list of problem projects at everysession and initiates appropriate action. The Financial Department preparesmonthly statements on loan collections in the three administrative regions(Greater Accra, Northern and Southern) and at the end of each quarter, submitsto management a summary of arrears. The use of accounting information toidentify possible problem projects has become a common practice. Supervisionofficers, with assistance from DSI, have begun collecting more quantitativeinformation including production costs, break-even analysis and financialprojections for their reporting. To a large extent, staffing and coordina-tion problems noted a year ago, have been overcome. The proposed technicalassistance (para. 3.09) will further support efforts already introduced toupgrade quantitative skills of supervision staff.

D. Operations and Financial Performance

2.15 Characteristics of Operations, The level of NIB's term lendingoperations, as shown below, has fluctuated between 1971 and 1978, reachingapprovals of ¢ 26.6 million in 1976. The level of approvals has depended toa great extent on the timing of large projects and, of course, on the avail-ability of foreign exchange, the key factor in the decline of the 1978 lendinglevels.

- 15

Table 2.2: LOAN APPROVALS

Term Loans 1971 1972 .1973 1974 1975 1976 1977 1978(as of 9/78)

Industry 11.7 21.2 8.2 17.5 17.6 17.9 17.3 5.7

Agriculture 0.5 1.0 2.7 3.5 3.7 6.6 4.0 1.0

Finance 0.2 - 1.1 0.5 - 2.1 0.5 -

Total 12.4 22.2 12.0 21.5 21.3 26.6 21.8 6.7

Cumulative approvals (Loans, Equiity and Guarantees) as of September 30, 1978

totalled about 0 177 million, representing 843 operations, of which 8o

percent by value amounting to ¢ 157 million were loans, 9 percent equity

investments, and 3 percent guarantees. About 87 percent of the value of loan

approvals were for industry, representing 462 loans totalling ¢ 136 million.

The remainder went to agriculture with 316 loans amounting to ¢ 20 million

and loans to financial institutions. The main industrial subsectors for which

loans were approved involved tiles and ceramics (16 percent), agro-industries

(12 percent), mining and quarries (12 percent). Metal industries, wood

working and food processing are also important subsectors. In line with

Government priorities, 57 loans have been extended to expand production of

industrial raw materials with an average loan size of V 150,000.

2.16 As of September 1978, NIB had extended loans of over ¢ 1 million

to 25 companies, representing a total of 0 84 million or 56% of total loan

approvals. The remaining loans numbering 754 tended to smaller operations

with an average loan size of 0 87,000. Of total industrial loan portfolio

outstanding as of the end of September 1978 (including projects under cons-

truction), 88 percent of loans by value went to the private sector. This

compares with 80 percent. at end 1976 and 63 percent in 1974. Loans to

agriculture which had increased regularly since 1971, began to decline in

1977 as a result of NIB's policy to scale down agricultural lending. NIB

will attempt to limit its role in agriculture to commercial scale ventures,

particularly those producing raw materials for domestic mai,ufacturing and

those in the private sector engaged in large small scale food production.

Agricultural lending as a percentage of portfolio outstanding was about

18% as of September 1978. Most agricultural loans were for rice and maize

operations in the Northern region and for cash crops in the Southern region.

2.17 Geographical distribution of NIB's loan portfolio has never posed a

major problem. Since inception NIB has attempted to diversify its operations.

As a result, about 31 percent of loan portfolio outstanding has been in the

Greater Accra Region, mostly in industry (Accra/Tema), 47 percent has gone

- 16 -

to manufacturing and agro-industries in the Southern Region, which includesthe developed coastal areas, while the remaining 22 percent has gone to theNorth where agriculture and agro-industries dominate. There is considerablescope for increasing NIB's manufacturing lending in this latter area.

2.18 Equity. NIB's approved equity investments amounted to ¢ 15.0million in 42 projects as of September 1978, of which ¢ 13.3 million had beensubscribed. Majority positions were taken in five companies, a food processingcompany which has now become profitable, a foundry (with foreign partnership)which is under construction, two rice plantations and milling enterprises anda large brick and tile plant; the latter three recently commenced operations.Thirteen of the enterprises in which NIB participates, representing 27% of

the capital paid in by NIB were profitable in 1977 and 5 firms, representing¢ 990,000 or 7.4% of NIB's subscribed capital, were operating at a loss. Theremainder of the projects were either under construction or were too new tojudge. Aggregate dividend income from nine companies amounted to ¢ 1.7 mil-lion in 1977, compared to 0 148,000 in 1976, and represents the largestdividend earnings of NIB since inception. Due to overall economic conditions,1978 dividends are expected to decline.

2.19 Commercial Banking. The Commercial Banking Department whichopened on April 1, 1975 had received demand and time deposits of 0 36.4million as of December 1977, compared to 0 23.6 million a year earlier.According to recent Central Bank regulations, which are slightly less con-fining for development banks than for commercial banks, NIB is iLequired tokeep 30 percent of deposits in cash or with the Central Bank and must in-vest between 20 percent to a maximum of 40 percent in treasury bills andGovernment securities at NIB's discrietion leaving between 50 to 30 percentfor short-term investments. Short-term approvals were 0 5.9 million in 1976,0 6.4 million in 1977 and 0 8.4 million as of September 1978. It should be

noted that during the first three quarters of 1978 commercial banking loanshad exceeded term lending. During that period of economic recession, ma-nu-facturers have required more than usual short term advances for bridgingoperations and working capital. Commercial banking has not only proved to

be a useful and profitable adjunct to NIB's operations, but NIB has displayeda high degree of competence in its management. As of the most recent audit,December 3, 1977 earnings from commercial banking constituted 36 percent of

gross profit, but 65 percent of NIB's profit after appropriations for reserves

and provisions.

2.20 Arrears and Provisions. Since the Bank's initial contacts with NIB,

arrears have presented a major problem. An important contributing factor hasbeen the shortage of foreign exchange for spare parts, raw materials andequipment. Other reasons for arrears have been marketing and technical

: B i : l N ev> t > -S. : i LE l ... . ............ =XW> .. > StZ... Lt ai->b .N.eNtS U.L. Z b Je k7:Ff-E-W: ......................................... .,/E.3.g ...... 1=':8L .... *.-''St XrtM'-i@>2We.g 2Z..n...... ................. ... ..

- 17 -

problems, weak company management and the impact of bad weather on agricul-tural loans. Recently, NIB has demonstrated a strong capacity to controlarrears through improved supervision and collection procedures (para 2.14) anda program for rescheduling projects confronted with difficulties beyond theircontrol. As a consequence of these efforts, the percentage of portfolioaffected by arrears of more than three months excluding projects under con-struction, (exposure rate) was reduced from 77% by the end of 1975 to 31.2%as of December 1977. The most recent exposure rate as of September 1978was 22.3%, an impressive accomplishment given the economic environment(Annex 8).

2.21 During 1977 and 1978, 83 loans had been rescheduled amounting to0 19.1 million. Of these, 55 were agricultural loans, representing 20% byvalue of portfolio affected, whose repayments were affected by poor weatherconditions. Manufacturing loans constituted 53% of portfolio rescheduled(16 loans), the majority of whose problems were caused mainly by the short-age of foreign exchange. The remaining 12 projects operating in serviceindustries, faced managerial and technical problemm as well as foreign ex-change scarcities. Of the loans rescheduled, 5 projects had fallen behindin repayments as of September 1978; one industrial project had clearly overcomeproblems and it was too early to judge the performance of the remaining 77.NIB has agreed to notify the Bank immediately of any rescheduling of loansduring any quarter, exceeding 5 percent of NIB's total outstanding loans inarrears of more than three months and to furnish a quarterly Statement ofRescheduling describing each project, amounts rescheduled and reasons for theactions.

2.22 Of 338 loans outstanding, excluding projects under construction,as of September 1978, there were 139 loans amounting to 0 15.6 millionaffected by arrears of more than 3 months, representing 22.3% of total port-folio outstanding*. all of them in the private sector. The absolute amountsin arrears was ¢ 6.0 million or 8.5% of portfolio outstanding. Of these 139loans, legal action has been contemplated against 56 clients representingloans totalling approximately 0 2.5 million. As for the remaining 83 clients,NIB is reviewing the situation every month to determine appropriate action ifno progress is made on repayment.

2.23 To cover these arrears, and equity investments exposed in projectsoperating at a loss (para 2.18), provisions had been increased to ¢ 7.2million as of the most recent audit (December 31, 1977), representing 6.3% ofoutstanding term loan and equity portfolio. Provisions more than adequatelycover absolute amounts in arrears, and are considered sufficient by NIB'smanagement and the Bank to cover possible defaults on existing loans. Anotherimportant factor in NIB's coverage against arrears has been the large increasein the Cedi value of NIB's loan security and fixed assets, the result ofinflation and the recent devaluation.

- 18 -

2.24 The Bank encourages NIB's management to continue pressing forrecovery of arrears. The Government and NIB agreed at negotiations thatappropriate measures, satisfactory to IDA, would be undertaken by NIB tomaintain portfolio affected by arrears of more than 3 months at below30%. Arrears recovery procedures to be employed by NIB were also discussedand agreed at negotiations. Given the Ghanaian envirornment, NIB deservesconsiderable credit for its significantly improved supervision andcollection procedures and for actively pursuing defaulters into court,when necessary, despite at times having been under political pressures.

2.25 Auditors. Pannel, Fitzpatrick and Company Ltd. have audited NIB'saccounts annually for the past eight years and have performed their tasksatisfactorily.

2.26 Financial Position. As of September 1978, NIB's financial conditionremains basically sound with equity and reserves totalling ¢ 35.2 millionand term borrowing of V Ill million (adjusted for the latest devaluation)against a total term loan and equity portfolio of V 135.6 million (adjusted).NIB's audited financial statements for the period 1971-77 are summarized inAnnexes 4 and 5. Gross income as a percentage of total assets rose from 7.3%in 1974 to 10.6% in 1977, and is estimated to be 10.7% in 1978, largely as aresult of a marked increase in return on loan portfolio. NIB's annual netprofits have increased substantially and consistently throughout the period.,but not as rapidly as total assets. As a result, net profit as a percentageof average total assets was 1.7% as of December 1977, compared to 1.3% in1976, due to the high level of provisions. However, in 1978 profitabilitybegins to improve (3.3%) as a result of increased interest rates. Annualappropriations for provisions increased from V 232,000 in 1973 to 0 3.2million in 1977. However, net profit as a percentage of average net worth(return on equity) rose from 6.5% in 1976 to 9.4% in 1977 and 18.5% in1978. Administrative expenses as a percentage of average total assets re-mained steady at about 2.6% through 1977 (Annex 9). Substantial increasesin provisions required and financial charges have not allowed for majorincreases in net profitability of the portfolio.

2.27 Debt-Equity Ratio. NIB has operated with a debt-equity ratio of3:1 since inception. The recent authorized increase in NIB's share capitalwas meant to allow NIB to remain within its statutory limits for the for-seeable future. However, the recent devaluations have considerably increasedthe value in Cedis of its foreign exchange borrowings and of that proportionof NIB's loan portfolio outstanding denominated in foreign exchange, repre-senting about 15% of loans outstanding prior to devaluation and about 30% ofportfolio under the current exchange rate. Prior to the recent appraisalmission, NIB management had not considered the implications of the exchangerealignment on NIB's financial position. Rough calculations indicate thatthe devaluation has moved the ratio from 2.3:1 to 3.2:1. Full subscriptionof all remaining authorized capital would reduce the ratio sufficiently toallow a margin for the proposed line of uredit (resulting in a 3:1 ratio),but would be insufficient to cover the effects of further possible exchange

- 19 -

adjustments or any additional external and domestic borrowings which areexpected by 1980. NIB has been operating commendably for 15 years at a 3:1ratio. The institution's sound leadership and firm commitment to good finan-cial management has been amply demonstrated under difficult economic andsectoral conditions and in particular, through its arrears recovery program.NIB and the Government have agreed to increase the official debt-equity ratio.The issue is further discussed in para 3.18.

E. Prospects

2.28 NIB's Strategy. NIB's impact on the economy and future volume ofactivities will depend essentially on its ability to find adequate additionalexternal resources. On the quantitative side, given foreign exchange avail-ability, NIB has been able to finance economically sound projects despite theeconomic environment. Most of its funds will continue to be allocated tomanufacturing and agro-industrial projects. While the largest proportion offunds will be for medium and larger enterprises, NIB will continue its activesupport of smaller-scale enterprises. Promotiaioal efforts should allow

greater innovation in types of projects to be financed. NIB limits its rolein agriculture so as to avoid duplication with the Agricultural DevelopmentBank, but would continue to finance support services, such as land clearing,land preparation and harvesting equipment essential for concentrations offarmers producing similar crops. In this way its control and supervisionresponsiblities could be reduced to more standardized arrangements, withsupervision emphasis continuing to be focussed on manufacturing.

2.29 Pipeline. Management, having used the period of reduced lendingduring 1978 to consolidate and review operations and supervision procedures,is now concentrating its efforts on revitalizing a pipeline depleted throughinactivity. In addition to identifying new term lending, NIB staff havesurveyed existing manufacturing and agro-industrial firms whose operationseither have been disrupted or are threatened by foreign exchange shortagesfor working capital.

2.30 As of December 1977, NIB had identified some 45 manufacturing,agro-industrial and related service projects requiring term-financing which

warranted examination by DSI. However, due to the absence of further Bankor other external assistance, NIB had been unable to follow-up on most ofthese and when appraisal mission reviewed NIB's most recent pipeline as of

September 1978, it contained 25 projects. All except four of the projectsare in the private sector; 16 project applications are to assist existingenterprises with acquiring machinery and equipment to either resume or expandoperations. These projects amount to ¢ 89.3 million, of which ¢ 57.2 million($20.8 million) is foreign exchange (Annex 6).

2.31 In its review of existing companies encountering production andoperational problems due to foreign exchange working capital shortages, NIBhas identified 62 fIrms, most of which are currently or have been previouslyassociated with NIB. Of these, NIB estimates that 52 companies requiring¢ 28 million ($10.2 million) in emergency foreign exchange for working capital

- 20 -

would immediately qualify for assistance under Government's and NIB's guide-lines (para. 2.38). About 20 of these companies represent export projects,representing 36% of the amounts required. As NIB staff continues exploringthe demand for such short-term financing, it is estimated that additionaleligible companies requiring at least a further $10 million will be identifiedwithin the coming months (Annex 7).

2.32 Resources. Based on its pipeline, NIB expects to approve about¢ 72 million in term financing during 1979 and 1980, representing about $16million in foreign exchange (¢ 44 million). The term lending component ofthe IDA credit would provide $12.2 million which would cover-NIB's require-ments through late 1980. With the resumption of Bank Group lending we expectadditional foreign exchange term resources to become available to NIB by 1980.OPEC has already expressed interest in extending $1.3,million equivalent toNIB. To meet the estimated foreign exchange working capital requirements ofexisting manufacturing and agro-industrial firms thus far identified, NIB wouldon-lend $12 million (O 33 million at the current rate) under the proposedIDA/EEC line of credit which after the first round of sub-loans, would berelent through a Revolving Import Fund four additional times before beingrepaid to Government (paras 3.06 and 3.07). NIB has the appraisal capacityto handle the upsurge in business resulting from the proposed term lendingand working capital components of the IDA/EEC supported line of credit.

2.33 NIB's resource position as of September 1978 is presented in theBasic Data Sheet at the beginning of this report. NIB's local resources arecomposed primarily of equity., borrowings from the Central Bank of Ghana andUSAID, and its own bond issues. Foreign exchange borrowings outstandinginclude the African Development Bank (ADB), KfW and the first Bank loan,totalling about ¢ 53 million (as of the most recent devaluation). Both ADBand KfW loans have been committed. About $500,000 remained uncommitted onthe Bank loan, DM2 million expected from DEG's equity investment and about$900,000 equivalent to be on-lent by Government from the European DevelopmentFund Indicative Aid Programme, constitute the only foreign exchange availableto NIB. The proposed Bank Group line of credit would represent the onlyexpected major source of foreign exchange during 1979. Public sources ofexternal financing have been awaiting a resumption of Bank lending to Ghana,specifically to NIB, before venturing forward with new assistance. NIB'smanagement intends to take the initiative in reestablishing contacts withother possible lenders to fill the foreign exchange resource gap whichwould begin emerging during 1980.

2.34 Financial Forecast. Over the period to 1982, NIB's financialperformance is expected to be satisfactory despite the prevailing difficulteconomic environment. Net profit as a percentage of average total assets isprojected to rise to 3% by the end of 1979, while net profit as a percentageof average net worth is estimated to increase to 15%. Growth in profitabilitywill be due to increased earnings on an expanded loan portfolio and also tocommercial banking profits. Higher lending rates (para 2.11) will more than

- 21 -

offset the effects of increased costs of NIB's borrowed resources. Liquidity

is adequate; debt service coverage remains at a minimum of 1.5 throughout the

period. NIB will continue its policy of maintaining adequate provisions and

plans to increase general reserves. Annex 10 provides the underlying assump-

tions of the forcasts and Annex 9 provides financial ratios analyzing NIB's

performance.

F. Investment Guidelines

2.35 NIB has considerably strengthened and tightened its project invest-

ment guidelines to conform with new credit regulations and the.Government's

investment priorities in allocating foreign exchange. The guidelines con-

stitute an important device by which NIB can ensure that it is financing

projects of the highest priority. All projects receiying loans or equity of

over $200,000 equivalent undergo an.economic rate of ret&rn.analyis-.Financial analysis is conducted on all projects involving loans above $50,000.

For both term and working capital financing under the proposed IDA credit,projects would be screened and reviewed in accordance with criteria favoringenterprises which would efficiently earn or save foreign exchange and, as

such, would support the following:

(a) Export-oriented projects in which incremental foreignexchange earnings are proven to be significantly inexcess of foreign exchange used in production.

(b) Utilization of indigenous raw materials: preferencewill be given to projects utilizing at least 40% localraw materials in production.

(c) Maximization of installed industrial capacity willbe favored in credit allocation, so long as othereconomic and financial efficiency standards aremet.

(d) Import substitution schemes would be screened toensure net foreign exchange savings in subsectorsnot experiencing excess capacity.

In general, NIB will give priority to enterprises whose production output con-

tains 40% domestic value added. In certain firms which offer other economic

advantages, such as high export earnings, ernployment creation or linkages

within the economy, NIB will accept 30% local value added.

2.36 These priorities focus on dealing with the economy's severe foreign

exchange shortage. In addition, projects should show evidence of creating

employment at a reasonable investment cost per job. In the Bank's first line

of credit the average cost of job creation was about V 66,000 (US$24,000) per

job, or ¢ 38,000 (US$14,000) foreign exchange cost per job; for the kind ofmedium-sized projects financed these are reasonable figures when viewed in

- 22 -

the West African context. These levels compared favorably to NIB's overallinvestment cost per job in 1978 industrial approvals which was about $25,000and $18,000 foreign exchange cost per job. The average cost per job createdon NIB's future projects is not expected to exceed these figures. NIB hasinitiated a review of how its activities might maximize employment generationand reduce the cost of job creation without fundamental changes in the typesof clients it serves, i.e. excluding artisans and industrial estates. Pro-vided Government continues its policy of realigning the Cedi vis-a-vis majorcurrencies, the capital costs should move more in line with real values andfacilitiate the greater use of labor in manufacturing and agro-industries.

III. THE PROJECT

A. Background and Objectives

3.01 Background. The Bank's contacts with NIB began in November 1973.A loan of US$10 million equivalent, approved in December 1975, aimed at in-stitutional improvements and provided much needed foreign exchange for NIB'sindustrial term borrowers. The loan, made effective in March 1976, hasprogressed satisfactorily with about US$100,000 remaining uncommitted andapproximately US$7.1 million thus far disbursed. 1/ Some 30 sub-projects havebeen financed under the loan representing total investments in the order ofUS$29 million. Eight projects were in manufacturing, half of which dependedmainly on local inputs and ten projects were in agro-industries. Eightsub-loans supported services and the remaining four financed quarries. Theinstitutional and procedural improvements introduced during the first loanhave withstood strenuous tests over the past two years and NIB's operationalperformance has been noteworthy, given the continued economic decline in thecountry.

3.02 A second line of credit was originally appraised in April 1977 justprior to a serious economic downturn in Ghana. Overtaken by economic deter-ioration and in the absence of concrete Government measures to deal withthe economic situation, the Bank decided to postpone further lending. However,given the country's improved outlook due to the decisive policies of the newGovernment, a NIB Project, can now contribute more effectively to Ghana'slong-range economic development.

3.03 Project Objectives. A second line of credit to NIB -would supportthe institutional development begun under the first loan and restore NIB'soperational activities, mainly in manufacturing and agro-industries, whichhave been sharply curtailed due to the suspension of Bank lending over thepast year. It would also provide emergency assistance to maintain produc-tion in the manufacturing sector. Bank Group assistance would be used to

1/ As of 3/1/79.

- 23 -

strengthen NIB's project promotional efforts. Specifically, the line ofcredit would provide foreign exchange for (a) term lending for expansion andrehabilitation of qualified existing firms and for new high priority projects,and (b) short-term credit to finance the importation of spare parts and rawmaterials for existing enterprises in priority activities which have eithercurrency shortages. An additional aspect would be direct assistance toGovernment in the formulation and implementation of an export and marketingprogram, considered vital as a first step in developing non-traditionalexports.

B. Project Design

3.04 A line of credit of $25 million is proposed. This would incorporatean IDA Credit of $19 million and $6 million equivalent from the EEC SpecialAction Fund which would be fully administered by IDA. Of this line of credit,$12.2 million would be for term financing, $12 million would cover foreignexchange working capital and $800,000 would finance technical assistance forNIB ($300,000) and the Government ($500,000). The following paragraphsdescribe the operations to be supported.

3.05 Term Lending. Financed completely by the IDA Credit, up to $12.2million would be lent to NIB by the Government to finance the full directand estimated indirect foreign exchange capital costs of manufacturing,agroindustrial and related service enterprises of all sizes, whose operationsare consistent with agreed economic criteria (paras. 2.35). Foreign exchangecosts would represent approximately 65 percent of the total investment costsof subprojects. As under the previous operation, the foreign exchange re-quirements would be determined on a case by case basis. Firms selected wouldbe both existing companies requiring equipment and machinery for expansionand rehabilitation, as well as new projects eligible under recent Governmentguidelines (para. 1.16). Special emphasis would be given to export orientedschemes. A maximum maturity of 15 years, including three years of grace wouldbe authorized, however, the average life of a sub-loan would be seven years.It is estimated the proposed amount would be fully committed by early 1981.

3.06 Foreign Exchange Working Capital. The lack of foreign exchange forworking capital for essential spare parts and raw materials has adverselyaffected the operations of increasing numbers of otherwise sound high priorityenterprises in Ghana. The majority of firms are receiving only a small pro-portion of their working capital needs through the Government's allocativesystem. It is thus proposed that $12 million of the line of credit, combin-ing $6 million IDA and $6 million from the EEC Facility, would be on-lent bythe Government to NIB to help finance an emergency short-term credit programinvolving the importation of spare parts and raw materials for NIB's clientsand other priority enterprises. The component would cover eighty percent ofeach subborrower's foreign exchange requirements and the Government would pro-vide the twenty percent balance. In effect, NIB would provide each subborrowerwith a sub-loan for 80% of the foreign exchange needs and the client wouldcontribute 20% in cash (Cedis) which would be immediately converted intoforeign exchange by the Government. Sub-loan requests submitted under this

- 24 -

component would be reviewed on a case by case basis in the same manner as termsubloans and enterprises would have to satisfy NIB's in7vestment guidelines.The actual foreign exchange requirements would be confirmed by NIB duringthe sub-project analysis. The average life of each sub-loan under thiscomponent would be 18 months, up to a maximum maturity of two years, with noprepayment privileges.

3.07 Revolving Import Fund for Working Capital. In order to achievemaximum impact of the foreign exchange working capital component, the Govern-ment would be required to establish an Import Fund from the proceeds of thefirst round of working capital loans (repaid under the short-term workingcapital component) which would revolve four additional times. In effect, theFund would become operational through the repayments of the first round ofworking capital loans. All such loan repayments would be deposited in theFund to be on-lent by NIB in coordination with the Central Bank. New appli-cations for foreign exchange under each of the four lending cycles willcontinue being 80% covered by NIB's credit (through the Fund) with the20% balance constituting the clients' cash contributions, and the entireamounts converted by the Government into foreign exchange. The Governmenthas given assurances that all the local currency amounts received in theFund would be converted in this manner. Over the approximate eight-year lifeof the Fund the initial allocation of US$12 million should generate aboutUS$75 million in foreign exchange allocations for high prority manufactur-ing and agro-industries. 1/ The Government's foreign exchange contributionwould be made possible due to the additional foreign exchange earned or savedby the high priority enterprises supported under the program. The Governmentintends to integrate the Fund (and its replenishments) into its regular systemof import license allocations in order to ensure the full foreign currencyamounts required during each of the four loan cycles. NIB would thus beresponsible for managing a portion of the foreign exchange earmarked under theGovernment's own program for manufacturing and agro-industries. During thefourth revolution of the Fund, NIB would open an account on behalf of theGovernment into which all subloan repayments would be deposited. Subloancollections under this final lending cycle would thus constitute automaticrepayments to Government by NIB under this component. NIB would assume thecommercial risk on its sub-loans with Government ensuring that NIB does nottake the foreign exchange risk. The Government has agreed to establish amechanism by which sub-loan collections will be immediately converted intoforeign exchange by the Central Bank so as to prevent NIB from bearing anyexchange loss on funds held on account between repayments and on-lendingduring each sub-loan cycle.

1/ Breakdown:US$12 m. IDA/EEC line of credit

3 m. client contributions converted by Government into foreign currencyUS$15 m. Workinig Capital component

$48 m. Revolving Import Fund contributed by Government in foreignexchnaige (four loan cycles)

--l12 m. client contributions converted by Government into foreign currency$60 m. Revolving Fund

- 25 -

3.08 In order to justify the Government's releasing $15 million in foreignexchange for each revolution of the Fund, NIB, at the Government's request,has agreed to introduce a system which will attempt to quantify the foreignexchange earned or saved from the enterprises assisted under the WorkingCapital component. Exporting companies, estimated to use about 36%o of thecomponent during the first lending cycle, pose no problem as their earningsare a matter of record. However, in the case of enterprises producing fordomestic consumption, demonstrating foreign exchange saved, i.e. dislplacingimports, will present a more arduous task. NIB's staff are devising a systembased on average annual imports by sub-sector to calculate the impact ofincreasing productive capacity for selec'Zed firms in their respective sub-sectors. A lag in import data collection by the Ministry of Trade willpreclude the formulation of a foolproof system, however, the Bank agreesthat the exercise will be a useful one in developing better information oncapacity utilization.

3.09 Technical Assistance to NIB. Although, NIB has operated effectivelyunder difficult circumstances in recent years, its management has requestedtechnical assistance to help achieve further insitutional improvements. Aprimary objective will be to reorganize and strengthen NIB's project identi-fication and promotion efforts to permit it to reactivate and improve itsproject pipeline which has rundown over the past year. A second aim is tobolster NIB's appraisal capacity with respect to application of methodologyconsistent with new investment priorities, and to introduce more engineeringand technical expertise into the project appraisal process. NIB wishes toimprove the collection and use of data accummulated at each stage of theproject cycle as a basis for organizational and operational planning. Manage-ment wishes to engage ouitside assistance in reviewing improvements in super-vision already introduced and to work with NIB staff on future procedures.Finally, NIB would like to set up a program of training which would allowfor the continuance of overseas courses as well as more short-term inhouseseminars on various operational aspects. To meet these objectives, it isestimated that the foreign exchange requirements of the component financedby IDA, will be $300,000 representing between 36-40 man-months of expert andshort-term consultant services, plus support equipment. The NIB would financelocal costs of the advisers and experts. Such costs include housing and couldreach 0 300,000. The following tentative breakdown has been agreed vith NIBS

(a) Industrial Economist, with operational, particularlypromotional and appraisal background (24 man-months)working with the Managing Director and DSI.

(b) Short-te'rm Consultants, engineers and technicians(8 man-months) in selected active sub-sectors to assistthe promotional program.

(c) Short-term consultants (about 8 man-months) for training,organizational development, and information processing.

- 26 -

On the basis of NIB recruiting the industrial economist directly and approach-ing consulting firms for the short-term experts, average cost per man-year isestimated at $80,000. Three vehicles and office equipment will be purchasedfor the purpose of facilitating promotional and supervision work. It wasconfirmed at negotiations that Government will pass on the funds for thiscomponent to NIB on a grant basis.

3.10 Technical Assistance to the Government. As discussed earlier, theoverall capacity of Ghana to export non-traditional goods has been seriouslyeroded by years of an over-valued exchange rate, the lack of incentives, theinability to establish markets and weak Government administrative support toexporters. In response to a request by the Government, US$500,000 of theIDA Credit will be retained by the Government to provide approximately sixtyman-months of technical assistance for the formulation and implementation ofan export promotion program, with emphasis on non-traditional exports. A firm(or firms) of consultants will be appointed to carry out, with Governmentcounterparts, the following program which will operate from the office of theCommissioner for Economic Planning:

(a) Review of existing export policies, programs andinstitutions in the light of recent Bank reports;

(b) Propose immediate export policy and program changes;

(c) Assist in establishment of an actual export program,stressing the mechanism to facilitate exports andtimely delivery of essential imported inputs;

(d) Establishment, through joint consultant-Ghanaian teamnsworking abroad, of actual markets, exploring long-termcontractual agreements.

In the process, the operations of the existing agencies (Ghana Export Companyand the Ghana Export Promotion Council) will be reviewed; and recommendationswould be forthcoming for strengthening and/or merging the institutions, oreven their elimination in favor of a new one to execute policies and pro-grams. Draft terms of reference were agreed at negotiations and Governmenthas already begun making contacts with consultants.

C. Terms and Conditions

3.11 General Terms. The proposed line of credit of $25 million, willbe lent by Government to NIB with the exception of US$500,000 retained byGovernment for an export program and US$300,000 granted to NIB for technicalassistance. The conventional term loan component will carry a rate of13-1/2% (prevailing Central Bank rate) and will be on-lent by NIB to sub-borrowers at 18.5% interest with a maximum maturity of 15 years, including3 years of grace; the average life of a subloan being seven years. A freelimit of US$200,000 and an aggregate free limit of US$5 million are recom-mended on the term capital financing component. This will permit the Bankto review about 60% of the subprojects by amount and approximately one third

- 27 -

by number. Short-term working capital will also be lent by Government to NIBat 13-1/2% for relending at 18-1/2%. For this component, a free limit ofUS$50,000 per enterprise and an aggregate free limit of US$3 million areproposed. A 5 - 5-1/2% margin earned by NIB on both on-lending componentsis considered reasonable and.appropriate.

3.12 Amortization Schedules. The Government has agreed that repayments

from NIB under the term lending component be made on an adjustable compositeamortization schedule, based on the aggregate of the sub-loan repaymentschedules. NIB's repayments under the working capital component will be

directly channelled to the Government through an account into which all

sub-loan collections will be placed during the final revolution of the ImportFund (para 3.07).

3.13 Foreign Exchange Risk on Term Loans. It is proposed that NIB give

the option to its term sub-borrowers of either assuming the foreign exchangerisk between the US dollar and the Cedi and paying the maximum allowableinterest rate of 18-1/2% plus fees; or of not taking the risk and paying, inaddition to the standard interest rate of 18-1/2%, an annual foreign exchange

risk premium of 10% on term loans outstanding. This 10%, collected by NIB,would be passed on directly to the Government as compensation for carrying thefull foreign exchange risk and would raise the effective financial charges

paid by the term sub-borrowers to 28-1/2% plus fees. The introduction of the

premium is justified when considered in the context of the Government's policy

of continuing with a flexible exchange rate and the potential inpact of suchrealignments on term sub-loan principals denominated in US dolLars. Whileit is not possible to predict the frequency and magnitude of the devaluationsover the life of sub-loans, further adjustments could result in severe finan-cial losses for clients. The Bank Group feels that the clients, in consulta-

tion with NIB, are best able to assess their respective financial positions

in the light of exchange rate uncertainties, and the option would permit clients

the right to make such risk judgments on t:heir own.

3.14 The premium fee serves a number of important objectives in that itmoves the effective interest rate in the dlirection of real positive rates

and renders the cost of foreign exchange more consistent with realistic cost-

price relationships in Ghana. Furthermore, it is appropriate that enter-

preneurs benefiting from Government coverage against risk should pay for

such "insurance". For those clients assumling the foreign exchange risk,the 18-1/2% rate in US dollars also appropriately reflects the scarcityvalue of foreign exchange in the country. Either option uses the financial

charge as a screening and rationing device to supplement NIB and Governmentinvestment criteria.

3.15 As discussed earlier in this report the promotion of exports is amajor policy objective of the Government. The Government views this second

line of credit as an important step in the revitalization of the non-

traditional manufacturing and agro-industrial export sector. There has been

apprehension on the part of Government that the introduction of the effective28-1/2% interest rate resulting from the application of the foreign exchangepremium would favor production for the local market while discouraging exports

28 -

through higher, uncompetitive prices. In order to provide special incentives

to enterprises with export potential the Government, NIB and Bank Group haveagreed that sub-borrowers opting to pay the foreign exchange premium shall beeligible to receive a rebate on the premium equal to 5% of their export sales(derived from production of their respective enterprises), but not exceeding

the aggregate actual premium having been paid over the entire period of thesub-loan. The 5% coefficient is based on a working assumption that totalinvestment costs usually represent one-third of an average enterprise'sturnover (annual sales) at production and that an NIB loan would finance65-75% of total investment. Such enterprises exporting 50% of their produc-tion (total sales) could recuperate the entire annual premiums paid duringthat year. Since it will take time to reorient domestic manufacturing tothe export sector as well as to find new markets abroad, subborrowers willbe eligible to collect refunds over the entire life of the loan for up to theactual aggregate amounts of the premiums paid over this period. This providesincentives for NIB clients to move into the export market at any time anddepending on the volume of their exports, to recover amounts previously paidin premiums to Government. In cases of enterprises with smaller investmentcost/production ratios or with less than 50% of sales in exports, recoupingthe premiums will be spread over a longer period. Larger percentage turn-overs and exports will, of course, yield refunds more quickly. The NIB willbe responsible for reviewing export receipts and verifying other shippingdocumentation, prior to authorization of refunds. As premium payments willbe held by the Central Bank, NIB's role will be that of collection agent andadministrator. The premium Cand the interest rate on sub-loans) will be

reviewed periodically, to determine its appropriateness and whether a downwardadjustment in its level would be warranted. Changes would be introduced onlyafter prior consultation with and agreement between NIB, the Government andthe Bank Group. Some clients may attempt to refinance their sub-loans throughcommercial banks in order to avoid the premium fees. To prevent this andto allow NIB to recover its loan processing costs, appropriate prepayment

penalties will be introduced by NIB during the first 3-5 years of each termsubloan.

3.16 Foreign Exchange Risk on Working Capital Loans. Sub-borrowers underthe short-term working capital component (average maturity 18 months) willbear the foreign exchange risk and pay the full 18-1/2% interest rate, withno prepayment privileges. It -is appropriate for borrowers under the WorkingCapital component to assume the foreign exchange risk in view of a) the

limited period exposed (average loan life of 18 months during which the sub-borrowers would be at risk); b) the immediate impact on the production andprofitability of the enterprises resulting from the resumed inflow of rawmaterials and spare parts; and c) the foreign exchange risk would be limitedto 80% of the foreign exchange provided, corresponding to the proportioncovered by sub-loans.

3.17 EEC Financing of the Working Capital Component. Under the proceduresfor utilizing EEC Action Funds the EEC credits would be lent to Government ina mix of European currencies based on the European Unit of Account and therepayment obligations would be in the same mix of currencies. In order to

- 29 -

avoid creating administrative complications for NIB relating to repayment inseveral currencies and also to simplify matters with respect to sub-borrowersbearing the foreign exchange risk under thie Working Capital component, theGovernment would on-lend the EEC funds to the NIB denominated in US dollars.The NIB, receiving funds from Government at 13-1/2% would similarly re-lendthe funds at an 18-1/2% interest rate in sub-loans denominated in US dollarsas previously discussed. Unider this arrangement Government will take theforeign exchange risk related to exchanige rate adjustments between the USdollar and EEC currencies while the NIB Working Capital sub-borrowers wouldbear the risk in relation to exchange rate adjustments as between the USdollar and the Cedi.

3.18 Debt-Equity Ratio (para 2.27). The proposed term and workingcapital components of the line of credit ($24,2 million) would result in NIB'sexceeding its debt equity limit of 3:1. Even if share capital were fullypaid-in and reserves increased to ¢ 7.3 million, as projected, NIB's debt-equity ratio incorporating IDA borrowings would still be pressing the 3:1limit, thus allowing insufficient margin for further borrowings or for theaffects of further possible devaluations. As already indicated, NIB will befacing both prospects in 1979. The options for NIB include increasing thedebt-equity ratio, authorization of a further capital increase, or conversionof Government loans into quasi-equity. During a period of budgetary austeritythe two latter options would be unacceptable to the Government, particularlysince a capital increase for NIB was only recently approved (January 1978).The most appropriate alternative and one which is justified on the basis ofNIB's operational performance and sound management would be to increase NIB'.sdebt-equity ratio to 5:1, a move which would be expected to relieve pressurethrough 1979, after which a further capital increase could be considered.Furthermore, since NIB has operated under the same statutory limits sinceinception, an increase is believed to be warranted and a move to 5:1 wouldbe the minimum needed to allow normal operations until 1980. Government andNIB have agreed to take the necessary actions to adjust this limit by July 31,1979.

3.19 Procurement and Disbursement. NIB's subborrowers generally employlocal procurement procedures standard in Bank DFC projects to ensure thatgoods and services are suitable and reasonably priced. These procedures areacceptable for both the term lending and working capital components. Thelatter activity will be monitored closely by NIB. On the Working CapitalComponent it is proposed that foreign exchange disbursements from the EEC/M11Žline of credit would. in the case of each sub-loan, represent eighty percent of thesub-loan amount with the Government providing twenty percent in foreign exchange;EEC funds would be disbursed by the Bank Group as Administrator againstpurchase of EEC goods only and IDA funds would be disbursed in accordance withstandard Bank Group procurement procedures for DFC operations. Provision ofsatisfactory documentation would be required as to the country of origin ofthe goods. All requests for disbursement must be fully supported by invoicesand other evidence satisfactory to NIB and the Association.

D. Benefits and Risks

3.20 The benefits of this project, elaborated throughout the report, aresummarized as follows:

- 30

(a) Continuing World Bank Group support will permit a resumptionand expansion of operations of one of the most capable andcompetent institutions in Ghana. In helping NIB to be main-tained as a viable institution, the Bank Group ensures thatit will be able to play a significant role in the economicrecovery of the country.

(b) The proposed Credit represents an important infusion offoreign exchange into vital manufacturing, agro-industrialand related service enterprises. It supports new Governmentand NIB resource allocation criteria, and would constitutethe reactivation of high priority manufacturing in Ghana.

(c) The contribution of manufacturing and agro-industries toeconomic growth and the development of non-traditional ex-ports is directly dependent on the availability of foreignexchange channelled selectively through the proper financialintermediary. The project draws together both the institu-tional and financial elements,

(d) The preparation of an export program combined with new economiccriteria could help Ghana to embark on a new course involvingthe eventual transformation of the manufacturing sector to onewith greater links to the domestic inputs and external markets.

3.21 Risks. The greatest risk is economic and sectoral, relating to theGovernment's capacity to implement its stabilization program. The measuresto be undertaken are difficult ones. If budget expenditures cannot be con-strained, growth in the money supply held to targeted levels, and productioncannot be stimulated, the economic situation could continue deteriorating.The effects would be higher inflation, a loss in external assistance, adrop in exports (and thus import capacity), resulting in continued economicdepression. Given relative success on the economic front, the potentialproblems relate to the unavailability of foreign exchange to support theBank Group working capital program and, secondly, the impact of devaluationson NIB's clients assuming the foreign exchange risk, which in turn couldaffect the level of NIB's arrears. NIB management and the Bank Group are wellaware of these issues and arrangements for periodic consultations will beagreed upon. Initially, at least, the project would require more than normalsupervision.

IV. RECOMMENDATIONS

4.01 This report recommends a line of credit of US$25 million to theGovernment (incorporating an IDA credit of $19 million and $6 million equiva-lent from the EEC Special Action Fund), of which $24.2 million would beon-lent to NIB. US$800,000 would finance technical assistance, with theGovernment retaining $500,000 and granting US$300,000 to NIB. Term fundsrepresenting $12.2 million and working capital funds constituting $12 million

- 31 -

would be lent to NIB at 13-1/2%. A Revolving Import Fund would be establishedto revolve working capital resources over four loan cycles. Term sub-borrowerswill be given the choice of either bearing the foreign exchange risk andpaying an 18-1/2% interest rate or of paying a 10% premium fee, in additionto the interest rate, as compensation to the Government for carrying the fullrisk. The foreign exchange risk will be passed on to the sub-borrowers ofshort-term working capital who will pay 18-1/2% interest, with no prepaymentprivileges. NIB would retain an approximate 5% margin on both components.Government should cover the foreign exchange risk on (a) any exchange losseson the Revolvinig Fund and (b) losses related to changes in the dollar - EECcurrency parity.

4.02 During negotiations assurances and agreements were obtained on thefollowing points:

(a) The Government would lend $24.2 million to NIB at theproposed rates and terms (paras 3.13, 3.14, 3.15 and 3.16)and grant $300,000 to NIB for technical assistance(para 3.09).

(b) The Government will assume the foreign exchange risk for thoseterm sub-borrowers who opt to pay a 10% premium fee in additionto the interest rate of 18-1/2% (paras 3.13, 3.14 and 3.15).

(c) The Government would refund the premium to NIB clients inamounts equal to 5% of their export sales, based on theagreed formula (para. 3.15).

(d) The foreign exchange risk will be borne by the Governmenton any local currency held in the Import Fund and on the riskrelated to exchange rate adjustments between the US dollarand EEC currencies under the EEC Special Action Fund.

(e) The Working Capital Component will be financed on an 80%/20%basis (para 3.06), as would the Revolving Import Fund (para3.07), when established. The foreign exchange to be provided asmatching funds during the initial subloans and replenishments ofthe four subsequent lending cycles under the Import Fund will bemade available promptly, as required.

(f) Government and NIB will amend NIB's Act before July 31, 1979,permitting an increase in NIB's debt-equity ratio to 5:1(paras 2.27 and 3.18).

(g) Government will accept repayment from NIB of term loans throughan adjustable composite amortization schedule (para 3.12). Therepayment arrangement under the Working Capital Component hasbeen confirmed (para 3.07).

- 32 -

(h) NIB will on-lend IDA resources to qualified sub-borrowerson terms and conditions proposed by the Bank Group andcollect all sub-loan repayments, including the premiumwhich would be channelled directly to the appropriateGovernment account.

(i) An exposure rate of below 30% will be maintained on loanportfolio outstanding (para 2.24) and an arrears recoveryprogram has been agreed (paras. 2.21 and 2.24).

4.03 With these conditions fulfilled, the project is suitable for a lineof credit of US$25 million (incorporating an IDA Credit of $19 million and anEEC Special. Action Credit of $6 million equivalent).

4.04 During negotiations on the line of credit, it was agreed that aSubsidiary Loan agreement, acceptable to the Association, will have been dulyexecuted by the Government and NIB as a condition to the effectiveness of theIDA Credit and the EEC Special Action Credit.

- 33 -

ANNEX 1 (a)Page 1

NATIONAL'INVESTMENT BANK ACT, 1963

BYLAWS

(Made by the Board of Directors and Approved bythe Commissioner under Section 29 of the Act)

In exercise of the powers conferred upon the Board of Directorsby Section 29 of the National Investment Bank Act,'1963 the Board, withthe Approval of the Commissioner, hereby makes the following bJ.Žuls

1. These bylaws may' be cited as the National Investmenti BankBylaws, 1975,

2. In these bylaws, unless th-e context.othterwise iequ'ire.;,

(a) expressions defined in the Act shall have the meaningsassigned to them in the Act.

(b) "Commissioner" means the Commissioner responsible for Finance.

3. The Bank shall perform perform all its functions and conduct allits affairs in accordance with sound business. financial and investmentstandards and practice.

4. (1) The Bank shall not seek, in any enterprise f-Inanced by it,a controlling interest or any other such interest as would give it primaryresponsibility for the management of such enterprise, but shall reserveto itself the right to do so in exceDtional circumstances where thataction is necessary to protect the Bank's interest in such enterprise.

(2) Where in any exceptional circumstances, the Bank acquiresa controlling interest in an enterprise financed by it, it shall relinquishsuch controlling interest as soon as it is satisfied that such enterprisehas attained a proper and efficient level of operations.

5. The Bank shall employ the funds at its disposal with due regardto the diversification of their employment, and shall not-

(a) invest more than 10 percent of its equity in either ordinaryor preference shares of any one enterprise financed by it;

(b) make a total aggregate investment in the shares (ordinary orpreferred) of enterprises financed by it in excess of itsequity;

- 34

ANNEX 1 (a)Page 2

(c) invest any part of its borrowed funds in ordinaryor preference shares of enterprises financed by it;

(d) ordinarily grant loans to guarantee and invest in theshares of any one project to a total aggregate sum inexcess of 20 percent of its equity,

6. (a) The Bank shall be responsible for carrying out pre-financeproject examination, post-finance project technical andprofessional service and general research for the purposeof revealing productive sectors of the national economyand of promoting interest of domestic and foreign investorstherein by adequate dissemination of relevant information;

(b) The Bank shall actively participate in an contribute to thedevelopment of professiornal education and training ofGhanaians;

Cc) Any person who is not a cuistomer of the Bank may, upon thethe payment of a prescribed fee, avail himself of the servicesof the Bank on a consultancy basis for project examinationand project technical and professional service;

(d) Any person who intends to apply for a loan from the Bank mayreceive preliminary advice from the Bank free of charge.

7. In financing projects the Bank shall be guided by its yearly.investment program specifying economic priorities as approved by the Boardand by the financial, technical, market and economic feasibility of theprojects and managerial competence of borrowers as investigated and reportedon by the Bank. In specifying economic priorities the Board shall have dueregard for the needs of Ghana and the broad economic development plan andpolicy of Government.

8. (1) The Bank shall not finance any project

(a) unless the financial, economic, technical and marketfeasibility of the project has been examined and confirmedby the Bank and the management competency, organizationand accounting system of the project has been establishedto the satisfaction of the Bank;

(b) if it involves re-alocation of the enterprise and there-location will cause a substantial increase of unemploymentin the area from which the enterprise is being moved, or willresult in the avoidance by the enterprise of obligationsincurred in the location from which the move is to be made;

- 35 -

ANNEX -1 (a)Page 3

(c) if the enterprise is being re-located from another area,unless, there is demonstrated to the Bank the need,

(i) to-relocate closer to the source of basic rawmaterials or to major consumers, or

(ii) to consolidate operations in one location, or

(iii) to re-locate the enterprise is justified by otherreasons satisfactory to the Bank.

(d) if the finance is to accomplish an expansion or conversionwhich is unwarranted in the light of the past experienceand management ability of the enterprise;

(e) if it will subsidize inferior management;

(f) if it will provide funds for speculation; or

(g) if the effect of the Bank's finance will be to encouragemonopoly.

(2) The Eank may in its absolute discretion decline any form offinance sought for the repayment of debt.

9. The Bank shall finance enterprises in such manner as to ensurea reasonable capital structure of the enterprises financed.

10. (a) Except in the case of operations in the public sector asdefined in section 3 of the Act the Bank shall not by anymethod provide term financing of more than seventy-fivepercent (75%) of the total cost of any project where thevalue of the security offered is less than the total costof the project.

(b) Where the value of the security offered is not less thanone and a half times the total cost of the project theBank may provide term financing of up to ninety percent(90%) of the total cost of the project.

11. (a) Investments made by the Bank in equity (ordinary or preferred)of enterprises financed by it shall be made with a view tore-selling them to Ghanaian investors, but always with dueregard for the interests of the principal investors insuch enterprises.

(b) In the case of State-owned enterprises any re-sale of equityinvestments held by the Bank may be made only with the consentof the Commissioner.

36

ANNEX 1 (a)Page 4

12. The Bank shall fix interest rates charged on its loans aftergiving due and careful consideration to;

(a) the rate of interest paid by the Bank on borrowed funds;

(b) the Bank's operating expenses and the need to maintainitself at all times in sound financial condition;

(c) the structure of prevailing interest rates in respect ofcommercial loans granted by other financial institutionsin Ghana; and

(d) the financial prospects of the project to be financed.

13. A commitment fee not exceeding two percent (2%) per annum may becharged, subject to such terms as the Board may direct, on any undrawnbalance of a loan and when drawings are scheduled over a stated period ofyears or months the fee shall be charged on the amount undrawn at the expirydate of the stated period in each year or month.

14. Proper accounts books chall be kept at the Head Office and branchesof the Bank including a share register at the Head Office and such ledgers,registers and books as may from time to time be laid down by the Board orthe Managing Director for use at the Head Office and branches.

15. At each meeting of the Board the minutes of the previous meetingshall be submitted and approved.

16. (a) The fees to the Chairman and members of the Board shall bedetermined by the Board subject to the approval of theCommissioner.

(b) A director resident outside the city limits of Accrashall be paid in respect of each meeting of the Boardhe attends a mileage allowance at the Bank's officialrate per mile or alternatively first class return airor rail fare.

17. Written statements, petitions and applications may be signedand verified, affidavits may be sworn or affirmed, bonds may be signed,sealed and delivered, and generally all other documents czonnected withlegal proceedings whether contentious or non non- contentious may bemade and completed on behalf of the Bank by any officer empowered byor under regulation 38 of the National Investment Bank Regulations,1963 (LI 305) to sign documents for and on behalf of the Bank.

37

ANNEX 1 (a)Page 5

18. (a) A Provident Fund to be known as the "National InvestmentBank Employees' Provident Fund"' shall be maintained forthe employees of the Bank.

(b) Rules for the constitution and management of the Fundshall be drawn up by the Bank.

(c) Membership of the Fund shall be compulsory for allemployees of the Bank except those serv'ing under specialagreements.

19. Pursuant to regulation 36 (1) of the National Investment BankRegulations, 1963 jLI 305) the salary of officials and other employeesof the Bank whom the Managing Director may appoint shall not for the timebeing exceed 03,224.00. Provided, however, that the Managing Directorshall with the Board's authorization make appointments at salaries exceeding03,224.00.

IDFiWestern AfricaDecember 1978

- 38 -

NATIONAIL INVESTMENT BANK ACT, 1963

CAMENDMENT) DECREE 1978

BE IT ENACTED by the Supreme Military Council as follows:-

1. The National Investment Bank Act, 1963 (Act 163) as amended ishereby further amended by the substitution for subsection (1) of section 5thereof of the following subsection -

"(1) The Bank shall have a share capital of forty million Cedisdivided into twenty million shares of no par value of which seventy-five per centum shall be taken up by the Government and, subject tothe provisions of this section the remaining twenty-five per centumshall be issued to the public at such times, in such amounts arLd insuch manner as the Board may determine."

2. Section 6 of the National Investment Act, 1963 (Act 163) as amended,is hereby further amended by the substitution for subsection (2) thereofof the following subsection -

"(2) Subject to subsection (4) of section 5 of this Act the Boardof directors may recommend such dividend at it considers appropriateand the shareholders may, at a general meeting declare the dividendrecommended by the Board or such lesser dividend as they considerproper."

3. The National Investment Bank Act, 1963 (Act 163) as amended ishereby further amended by the substitution for subsection (2) of section 8thereof of the following subsection -

"1(2) At the end of each financial year, after allowing for theexpenses of operation, and after provisior. has been made for badand doubtful debts, depreciation in assets, contributions to staffand superannuation funds and other contingencies, and for any otherpurpose to which the profits of the Bank may properly be applied,there shall be transferred ito the general reserve fund:

"(a) such part of the general profits as the Boardconsiders appropriate, if the amount of moneysin the general reserve fund is less than theauthorized share capital of the Bank; or

(b) one quarter of the net profits, if the amount ofmoneys in the general reserve fund is not less thanthe amount of the authorized share capital of theBank and any moneys thereafter remaining after thethe payment dividends declared by the Bank shall bepaid into the Consolidated Fund."

39 -

4. Section 11 of the National Investment Bank Act, 1963 (Act 163)as amended is hereby further amended -

(a) by the deletion of subsection C5) thereof; and

(b) by the renumbering of subsection (6) thereof as subsection (5).

Made this 16th day of February, 1978.

40

NATIONAL INVESTMENT BANK ACT, 1963 (AMENDMENT)

NO. 2 DECREE, 1978

Board of Directors

BE IT ENACTED by the Supreme Military Council as follows -

The National Investment Bank Act, 1963 (Act 163)1' as amendedis hereby further amended by the substitution of section 11 thereof ofthe following new section -

(1) The Governing body of the Bank shall be a Board od Directors.

(2) The Board shall consist of -

(a) the Managing Director who shall be the Chairman;

(b) the Deputy Managing Director appointed under section 16of this Act;

(c) two executive directors appointed by the Commissionerresponsible for Finance on the recommendation of theBoard;

(d) the official head of the Ministry responsible for Financeor his representative being a public officer not below therank of Principal Assistant Secretary;

(e) the official head of the Ministry responsible for Industriesor his representative being a public officer not below therank of Principal Assistant Secretary;

(f) four dire,ctors appointed by the Supreme Military Councilof whom at least three shall be representatives of share-holders of the Bank.

(3) The directors to be appointed under paragraph (f) of subsection (2)of this section shall be persons of experience in financial affairs,not being persons employed by the Government.

(4) The appointment of directors required by paragraph (f) ofsubsection (2) of this section to be representatives of share-holders of the Bank shall be made in consultation with, and fromamong the shareholders (other than the Government) who holdshares of nominal value of not less than ¢100,000.00 in thecapital of the Bank.

1/ Section 11 of Act 163 replaced.

41

(5) Any person who is not resident in Ghana shall not qualifyto be appointed a director of the Bank but the Commissionerfor Finance may in writing to the Board waive this provisionwhere he considers it in the interest of the Bank so to do.

(6) A majority of all the directors of the Bank shall be personswho are citizens of Ghana."

NfB O HIANIZATIUNAL C AN Ai X ()(As at Ist( Oclober, 1978)

Board of Direct.r.

.anagingR DirectoriR.PE. OMeng Aesong

DepucyM anaging Director

Director Director Directorof of o

-- i-f Operaios Opertin Operft Diector Chief of Chief Ac.untant 1Legal Advisor (Greater Accra) (S. Reg-) (N. 9ed-) DSI Adainistration andP.F.Q. Antesau J.A. NHssah J.G.A-uuh E.k.OIori K. Aguei-Gyefi C.A. Doku Financial Offiser

G.A1._Amp.arsahDeputy C.hief Deputy DDt he Deputy ef Dp Deputy Deputy lot. Auditor Deputy Depoty ChierLeg1 Adisor Diretor BakIrng recto Manager e Director Director S ou-t Cief ct I K. o e

Deputy¢labcie|F - S W LtD.i;n L Chpe A c un tS 3 0Nc tnt | :Rvcn) (aat . Eljis-ake Vcat £H ey y IInduvstryen Agriculture Adaini.tration (aant)

(Jointly Super- K.O. t.|ani A. K. Wontumi (Vacant)Vised with ertr

:-~p an ot ' oh 1|-Y na

S MS Mana r S r S cor enio S genir C f S. | Se-aior

Decembnrpector

tish (Vacant Bak riculture

An shietey K. Otchere E..Ablakoa J.K. AyakwaA. AhietyE.Dua-Ow-urLirty Econ/Stata

Ntoh i. Y AnnanOhrIOhr Other Ohr [ Cte te Jhr OhrOher Other Other Ohr II Ohr Ot

44r OiOffri~l Ofcr Officers Off'icers Officers fZffieera fire Ofcers Officers Ofies Officer] Ofiers ). cr*ti

1 78 L i83 1 23 jJ L b

IDb'kfestern Afri-caDecember ]S978

- 43 -

ANNEX 1 (c)


Board of Directors

The Board of Directors consists of:

(a) The Managing Director of the Bank who is the Chairman;

(b) The Deputy Managing Director of the Bank;

(c) Representative of the Miniistry of 7inance;

(d) Representative of the Ministry of Industries;

(e) Four directors appointed by the Supreme Military Councilof whom at least two are representatives of shareholdersof the Bank.

The present members of the Board are as follows:

Messrs. R. E. Obeng Ansong: Chairman/Managing Director,National Investment Bank, Accra.

T. E. Anin : Managing Director, Ghana Commercial Bank,Accra

S. K. Botchway : Deputy Governor, Bank of Ghana, Accra

R. S. Aggrey : Principal Secretary, Ministry of Finance,(Control Division), Accra.

B. Dapaah Principal Secretary, Ministry of Industries,Accra.

Z. A. Bentum * Manager, B. P. Ghana Ltd., Accra

Vacant : Deputy Managing Director

Vacant : Representative of DEG

IDF/Western AfricaDecember, 1978

ANNEX 2-44-

NATIONAL INVMSTMFWNT BANKSummary of Operat".ons, 1971 - September 30, 1978

(in million Cedis)

lst Jan-30thAPPROVALS 1971 1972 1973 1974 1975 1976 1977 Sept. 1978

Long TermIndustry 11.7 21.2 8.2 17.5 17.6 17.9 17.3 5.?Agriculture 0.5 1.0 2:7 3.5 3.7 6.6 4.0 1.0Finance 0.2 - 1.1 0.5 - 2.1 0.5 -

Total 12.4 22.2 12.0 21.5 21.3 26.6 21.8 637

Short TermCommercial - 5.9 6.4 8.4

DISBURSEMENTS

Long TermIndustry 3.1 6.2 7.9 10.0 12.0 13.0 13.8 7.7Agriculture 0.5 1.1 3.2 2.9 4.9 - 3.3 1.8Finance 0.2 - 0.2 1.4 - - -

Total 3.8 7.3 11.3 14.3 16.9 13.0 17.1 9.5*

Short TermCommercial - 5.9 6.4 8.4

Guarantees 0.2 0.9 1.5 0.5

Interest Rates and Other ChargesInterest rate on industrial loans: 18.5%+1% Service ChargeInterest rate on agriculture loans: 17.5%+1% Service ChargeCommitment Charge: 1% on undrawn balanceGuarantee fee: 2%

* Cumulative amount recorded for Short Term Commercial Operations.

IDF/Western AfricaDecember 1978

- 45 -

ANNEX 3


Cumulative Approvals by Sector as of .30th September, 1978

Loans Equity Guarantees T o t a 1A. INDUSTRY No. Amount No. Amount No. Amount Amount %

(¢'000) (¢'000) (0O00O) (0,000)

I.Industrial Raw 57 16,085 2 213 - - 16,298 9.23Materials

2.Wood Processing 15 8,787 4 2,338 - - 11,125 6.303.Mining & Quarrying 9 15,675 2 163 - - 15,838 8.974.Cement & Ceramics 12 19,821 6 1,031 - - 20,852 11.805.Food Processing 28 5,174 6 2,353 - - 7,527 4.266.Textiles & Apparel 27 4,666 - - 1 100 4,766 2.707.Metal Industries 11 7,088 4 1,476 - - 8,564 4.858.Transportation 103 9,348 - - 3 387 9,735 5.519.Commercial Service 72 9,867 2 683 - - 10,550 5.97l0.Agro-Business 41 14,941 4 14192 1 3,6021 19,734 11.17ll.Miscellaneous 87 24,628 14 3,001 3 142 26,771 15.15

TOTAL 462 136,080 44 12,450 8 4,230 151,760 85.91

B. AGRICULTURE* 316 19,938 6 807 1 453 21,198 12.00

C. FINANCE (1) 1 1,000 5 2P696 - - 3,696 2.09

GRAND TOTAL 779 157,018 55 14,953 9 4,683 176,654 100.00

* Industrial Raw materials excluded(1) Equity participation and Term Loans to Financial Institutions

D. Breakdown of Approvals by Sizeas of September 30, 1978 (in thousand cedis)

No. _ Amount %

Up to 050,000 483 57.30 11,3U6 6.40050,001 - 0500,000 269 34.28 44,386 25.120500,001 - 01 million 35 4.15 26,141 14.80Over 01 million 36 4.27 94,821 53.68

Total 843 100.00 176,654 100.00

IDF/Western AfricaDecember, 1978

-46

ANNE 4

IATIONAL INVEST!92NT BANK

Income Statements 1971 - 1977(CEDI's '000)

1971 1972 1973 1974 1975 1976 1977

REVENUE

Income from long-term investments 1,096 1,547 2,216 .2,988 4,411 6,275 8,633Commitment charges, Commissions, etc. 176 124 130 601 441 887 1,529

Sub-Total 1,272 1,671 2,346 3,589 4,852 7,162 13,162Income from short-term investments 173 175 142 306 683 1,410 2,221Dividend Income 24 35 241 129 583 148 1,690

Total Income 1,469 1,881 2,279 4,024 6,118 8,720 14,073EXPENSES

Interest on fixed term deposits - - 199 680 1,203Provisions - - 232 634 1,200 1,954 3,230

Interest and commitment chargeson borrowings 330 420 815 1,280 1,920 2,521 3,653

Administrative Expenses 675 799 955 1,356 1,623 2,066 3,476Depreciation 48 96 108 218 259 286 337

Total Expenses 1,053 1,315 2,110 3,488 5,201 7,507 11,899

Profit (tax free) 416 566 619 536 917 1,213 2,174

Distribution of Profits

Dividend n.a. 118 150 150 150 150 150Increase (decrease) in reserves n.a. 448 469 386 767 813 2,024Office building fund - - - - - 250 -


47

ANNEX 5Page 1 of 2


Balaice SF-Lets 1971 ' 1977(CEDIS's '000)

1971 1972 1973 1974 1975 1976 1977

ASSETS

Cash at banks 1,402 872 686 569 2,674 3,588 6,272Short-term investments 2,553 2,750 1,400 3,609 8,177 10,299 13,869Other current assets 2,666 3,992 5,692 8,303 15,476 10,378 16,883

Total current assets 1/ 6,621 7,614 7,778 12,661 26,327 24,265 37,024Loans outstanding: short-term (net of provisions - - - - - 6,633 10,822

: long-term (net of provisions) - 15,210 21,406 32,830 43,489 56,602 76,368 84,904Equity invescments 2,076 2,835 5,324 6,691 6,951 9,850 13,092Customers' liability on endorsements and letters

of credit 6,348 6,352 8,147 4,750 16,165 19.451 22,181Net fixed assets 507 725 1,012 1,120 1,196 1,501 2,297

Total assets 30,762 38,932 55,091 68,531 107,041 138,068 170,320

LIABILITIES AND EQUITY

Current liabilities 1,483 1,348 1,552 1,764 3,884 7,898 13,651Demand and time deposits 2/ - - - - 15,312 20,400 36,359Liabilities on endorsements and letters of credit- 6,348 6,352 8,147 4,570 16,165 19,451 22,101Medium and long-term loans 10,587 17,440 31,131 46,551 52,281 67,954 74,490

Sub-Total 18,418 25,140 40,830 52,885 87,642 115,703 146,681

New Office Building Fund - - - - - 250 250Paid-in share capital 11,060 12,060 12,060 13,060 17,100 19,000 19,000General Reserve 1,284 1,732 2,201 2,586

2,29

9 3,115 4,389

Sub-Total Equity 12,344 13,792 14,261 15,646 19,399 22,365 23,639

Total Liability and Equity 30,762 38,932 55,091 68,531 107,041 138,068 170,320

L/ Provision for loan lossee%as of December 31, 1977, 07.2 million)

2/ Debts written off

TDF/Western AfricaDecember 1978.

- 48 -

ANNEX 5Page 2 of 2


Details of the General Reserve and Provisidns Accounts

1973 - 1977

A. Genaral Reserve

Balance at 31/12/73 ¢2,200,459.10Transfer from Profit and Loss Account 386'101.80

Balance at 31/13/74 2,586,560.90Transfer to Provision for Loan Losses (1,068,853.00)Transfer from Profit and Loss Account 766,501.14Interest on Loans called in 15,000.00

Balance at 31/12/75 2,299,209.04Transfer from Profit and Loss Account 815,881.23

Balance at 31/12/76 3,115,090.27Transfer from Profit and Loss Account 1,273,541.00

Balance at 31/12/77 4,388,631.27

B. Provision for Loan Losses

Balance at 31/12/73 866,214.00Transfer from Profit and Loss Account 633,786.00

Balance as 31/12/74 1,500,000.00Transfer from General Reserve 1,068,853.00Transfer from Profit and Loss Account 1,200,996.00Interest on Loans called in 42,140.08

3,811,989.08Loans written off (507 ,159.18)

Balance at 31/12/75 3,304,829.90Transfer from Profit and Loss Account 1,804,069.90Interest on Loans called in 3,098.61

5,111,998.41Loans written off (1,144,541.54)

Balance at 31/12/76 3,967.456.87Transfer from Profit and Loss Account 3,230,943.00

Balance at 31/12/77 7,198,399.87

IDF/Western AfricaDecember 1978.

- 49 -ANNEX 6

NATIONAL INVESTMENT BANKProjects in the Pipeline for

Term Financing* Projects with Export Potential

A. Agro-based Industries LTocal Currency Foreign Currency(0'000) (0'000) (US$'000)

1. Cotton Seed Oil Refinery 806 1,811 6592. Tobacco Processing Plant 1,117 1,781 648

*3. Mushroom Cultivation & Processing 772 2,547 929*4. Pineapple Cannery)) 500 1,000 364

5. Citrus processing)

B. Wood Processing

1. Sawdust Briquette Project 258 384 140*2. Furniture & Joinery 1,247 2,981 1,084*3. Fibreboard Project 5,070 10,980 3,993*4. Particleboard Project )*5. Knock-down furniture ) 3,000 5,000 1,818*6. Sawmilling, plywood )

C. Structural Clay Products

1. Brick & Tile Projects (2) 892 1,883 6852. Asbestos Roofing Sheets 6,369 5,127 1,8643. Paint Manufacturing 1,000 2,500 9094. Clay & lime-based products)5. Ceramics Production ) 59000 5,000 1,8186. Pottery, lime products )

D. Textiles

1. Canvas Fabric Manufacture(weaving & sewing) 480 2,070 753

E. Chemical & Chemical Products

1. Palm Oil Processing and Soap Project 2,709 5,033 1,8302. Toothpaste Manufacture 219 271 99

F. Metal Prodiicts

1. Foundry Project - 1,650 600

G. Agricultural Services

1. Agricultural Mechanization Services 640 5,163 1,877

H. Miscellaneous (spare parts foundry,electrical repair, leather products) 2OO 2,000 727

Total 32,079 57,181 20,793


50 -

ANNEX 7Page 1 of 5

NATIONAL INVESTMENT BANKForeign Exchange Working Capital Requirements for 1979

(Projects with export potential marked*)

Value Value Estimate of Presentof Licence of Licence Minimum Canpcity Estimate of

Item Applied for Received Requirement Utilization Value Added(0 '000 ) (T o 000 (¢ '000) % %

1. Prampram Brick & Tile Co. Ltd. Spare parts 500 500 840 80 90

*2. Alyeampong Ceramics Limited Spare parts - -Raw material - - 30 60 90

*3. National Tobacco Rehandling Co. Spare parts 215 200 240Raw materials 2,048 800 1,200 50 80

4. Tuyee Manufacturing Limited Raw material 267 25 160 15 70

*5. Ghana Rubber Estate Limited Spare parts 10 10 24Raw material 800 100 310 90 80

6. Yartel Boat Building Company Spare parts 200 - 240 40 80

*7. Takoradi Veneer Lumber Company Spare parts 5,850 630 960Raw material 650 70 240 40 75

*8. Primewood Products Limited Spare parts 2,500 450 960Raw material 500 200 240 40 75

*9. Cape Coast Citrus Limited Spare parts 10 - 24Raw material 200 - 72 55 80

*10. Bawuah Timbers Limited Spare parts 250 50 960 50 80

*11. Ridge Timbers Limite.d Spare parts 500 120 600 40 80

12. Commazzi Brothers Limited Spare parts 2,400 - 480 '60 75

- 51 -

ANNEX 7Page 2 of 5

Value Value Estimate of Presentof Licence of Licence Minimum Capacity Estimate of

Item Aplied for Received Requirement Utilization Value Added

(e e°°) (e'000) (t'000) %

13. T. M. Azzu & Co. Ltd Spare parts - - 480 30 90

*14. Abura Okotopan Industries Spare parts - - 24 - -

Raw material - - 50 60 80

*15. Mosalc Parquet Prod. Limited Spare parts - - 50

Raw material - - 36 - 80

*16. Pan Timbers Limited Spare parts 500 120 800 50 80

17. Karkkari Mensah KnittingsIndliatries Limited Raw material 2,600 260 960 50 60

*18. Tesano Textiles Limited Spare parts 30 29 144

Raw material 260 210 600 75 60

19. Knitex Fabrics Spare parts 50 5 40

Raw materials 500 60 340 25 60

*20. H4im Timbers Limited Spare parts 500 120 960 50 80

*21. Kawu Jewellery Limited Raw material 167 10 240 50 70

22. Asukokyeaa Industry Spare parts 5 - 12Raw material 100 30 120 40 60

23. Tetteh Otutey Garment Factory Raw Material 130 40 192 60 60

24. Gyawu Brothers Raw Material 200 5 240 60 60

25. Universal Industries Limited Spares 20 6 24 60 60

Raw Material 313 120 401 25 60

26. Sweaters & Socks Limited Raw Material 500 200 720 60 60

52

ANNEX 7Page 3 of 5


Item Applied for Received Requirement Utilization Value Added* '(c 000) (4'000) (0 000) % %

27. P. Y. Atta & Sons Limited Spares 20 3 24Raw Material 130 23 240 80 60

28. Gyamfi Garments Limited Raw Material 31 31 120 100 60

29. Dei & Sons Limited Spares 10 1 12Raw Material 150 8 100 60 60

30. Kekyehatco Limited Spares 5 1 5Raw Material 55 (5 72 25 50

31. Bibiani Metal Complex Limited Spares 280 280 48Raw Material 300 300 720 30 50

32. Appiah-Menkah Complex Limited Raw Material 7000 5000 6000 25 50

33. Intravenous Infusions Limited Spares 80 40 96Raw Material 520 360 720 50 40

34. Korimplex Limited Raw Material 78 78 132 33 40

35. Flick Light Industries Limited Raw Material 68 20 58 10 40

*36. Ambassador Shoe Factory Limited Raw Material 500 90 672 - 40

37. Leather Products Limited Raw Material 150 65 168 - 40

38. Amoako Leather Works Raw Material 300 110 180 35 40

39. Industrial Complex Limited 'Spares - - 100 40 80

*40. Akuley Shoe Factory Limited Spares 75 25 120Raw Material 800 360 1200 - 40

- 53

ANNEX 7Page 4 of 5


Item Applied for Received Requirement Utilization Value Added(0'000) (4'00Q) (0'000) % %

41. J. K. Badu & Sons Raw Material 40 5 96 40 40

42. Katernit Limited Raw Material 400 112 600 15 60

43. Ghana Mats & Carpets Limited Spares 115 55 48Raw Material 550 148 480 35 50

44. Ghana Candle & Brush Company Raw Material 750 280 451 - 40

45. Oti Rice Limited Spares - 48 30 80

46. Multi Services Limited Spares 42 - 48Raw Material 88 36 120 40 50

47. Burama Enterprises Limited Spares 100 100 100Raw Material - - 25 40 65

*48. Bibiani Wood Complex Limited Spares - - 100 60 80

49. Agricare Limited Raw Material 3500 1000 500 40 50

50; K. Dom Limited Spares 25 8 36 40 50Raw Material 120 82 151 35 30

51. Universal Printers & Publishers Spares - - 60Limited Raw Material 400 230 672 20 25

52. Modern Optical Works Raw Material 50 10 36 - 10

53. Kwaasi Button Works Limited Spares , 50 4 12Raw Material 200 36 150 - 20

54. Super Blades & Metal Mfg. Ltd. Spares SO 4 12Raw Material 200 36 150 - 20

-5 ANNEX 7

Page 5 of 5

Value 0f Value of Estiate of PresentL:tcence Licence Xinur Capacity Estimate of

Item Applied for Received Requireent Utilization Value Added

*o (000) cotoool %¢00

55. Alfa Manufacturing Co. Ltd Spares 25 23 48

Raw Material 842 177 1200 - 20

56. Dannado Paper Products Ltd Spares 15 - 24

Raw Material 120 40 139 40 25

57. Yumawu Metals Limited Spares 15 - 36

Raw Material 500 80 480 10 20

58. C.D.C. Limited Raw Material 160 50 80 50 10

59. South Akim Manufacturing Ltd. Spares 50 50 120

Raw Material 1700 1300 960 90 20

60. Multi Press Limited Spares 42 - 48

Raw Material 88 36 120 60 25

*61. Nkulenu Industries Ltd. Raw Material - - 200 50 75

62. Buapim Knitting Industries Ltd. Raw Material - - 720 50 60

TOTAL Spare Parts 14,539 3,114 8,119

Raw Material 29,130 11,759 24,691

GRAND TOTAL 43,669 14,873 32,810

FOREIGN CURRENCY EQUIVALENT (US$) Spare Parts 5,287 1,132 2,952

Raw Materials 10,593 4,276 8,978

Total 15,880 5,480 11,930 1/ 2/

NOTE: Estimated Minimum Requirement are post devaluation figures.

1/ Exporting enterprises require ¢11,100 or $4,022, representing 36% of the foreign exchange requested.

2/ Of the 62 enterprises listed initially, 52 would qualify for assistance under new Government and NIB Guidelines.

These represent $10,148 or 85% of the foreign exchange working capital requirements thus far identified by NIB.

IMFfWestern AfricaDecember 1978

- 55 .

AnNEX 8

NATIONAL INVESTHENT BANK

Breakdown of Outstanding Loan Portfolio and Arrears as of September 1, 1978

Absolute Amounts Portfolio Affected bpyPortfolio Outstanding in Arrears Arrears of morithan.3 months -Sectors Private Public Total No. of No. Absolute x No. Amounts Exposure Rate

(%'0oo} (0'OO) (%'OOO) Projects Amounts

Industry 35,714 8,716 44,430 78 24 2,836 6.4 24 10,311 23.2%

Agriculture 18,251 18,251 181 82 2,171 11.8 82 3,814 20.9%

Services ' 6,305 120 6,425 67 30 503 7.8 30 1,054 16.,4%

Ghana Business Promotion Projects 1,137 - 1,137 12 3 519 45.6 3 452 39.7Z

Sub-Total 61,407 8,836 70,243 338 139 6,029 8.5 139 15,631 22,3%

Projects Under Construction 27,854 3,374 31,228 20 9 475 1.5 9 3,979 -/ 12.7%

Grand Total 89,261 12,210 101,471 358 148 6,504 6.4 148 19,610 19.3%

-/ All in the Private Sector

2/ Absolute amounts in arrears as a Z of Portfolio in the private sector 9.8%

3/ Percentage of portfolio affected by arrears in the private sector 25.4%

IDF/Western A fricaDecember 1978.

- 56

ANNEX 9


ACTUAL AND PROJECTED FINANCIAL RATIOS

A c t u a Fo r e c a s t1973 1.974 1975 1976 1977 1978 1979 1980 1981 1982

1) Income StatementlItems as% of Avrerage Total Assets-

Gross Income 6.9 7.3 7.9 8.3 10.6 10.7 11.1 11.9 13.5 14.5

Financial Expenses 2.6 3.4 4.1 4.7 6.1 4.0 5.3 5.9 5.6 5.4

Administrative Expenses 2.7 2.8 2.4 2.3 2.8 2.5 2.4 2.4 2.6 2.8

Net Profit 1.6 1.5 1.4 1.3 1.7 3.3 3.0 3.0 4.5 5.7

2) Net Profit as % of averagenet worth 4.5 3.6 6.0 6.5 9.4 18.5 15.0 12.8 17.1 19.6

3) Loan Income as % of averageloan portfolio 2/ 8.4 9.1 9.3 10.0 11.0 14.5 17.6 19.3 20.5 20.9

4) Cost of debt as % of averageterm debt 3.4 3.4 3.8 4.0 5.0 6.8 9.8 11.1 9.8 8.8

5) Medium- and long-term debt/ /3equity ratio 2.2 3.1 2.7 3.0 3.1 3.3 3,3 3.Q 3.5- 3.5

6) Provision as % of outstand-ing term loan and equityportfolio NA 3.0 4.7 4.4 6.6 5.7 5.7 5.7 5.7 5.6

7) Interest coverage 1.9 1.8 1.6 1.7 2.2 2.1 1.8 1.7 2.1 2.'-

8) Debt Service Coverage - - - - 1.45 1.81 1.58 1.51 1.81 2.06

1/ Excluding Guarantees and Contingent Liabilities.

2/ Net of provisions.

/3 Assuming minimum new borrowings

IDF/Western AfricaFebruary 1979

- 57 -

ANNEX 10Page 1 of 3

NATIONAL INVESTMENT BANKAccra - Ghana

Underlying Assumptions of Financial Projections

Approvals and Disbursements

(a) Loans

(i) Foreign currency loan approvals for 1979are 53% above the 1977level, with 20% yearly increases thereafter, Loan approvals inboth sectors are based on NIB's projected pipeline. The actualapprovals for 1978 are the result of NIB's reduced financingprogram, net of cancellations.

(ii) Domestic currency loan approvals in 1979 show an increase of 40%over 1978 approvals and a yearly increase of 20% thereafter.

(iii) Approvals are regarded as commitments.

(iv) Disbursements follow a pattern of 30% in the year of approval,50% in the following year and 20% in the third year of approval.Undisbursed loans as of September 30, 1978 amounted to 0 42 million(foreign exchange 0 10.4 million, local currency 0 31.5 million).These loans are assumed disbursed in two vears, or cancelled.

(b) Equity

(i) Equity approvals in 1979 represent 50% increase in approvalsover 1978 with 20% yearly increasesin subsequent years.

(ii) Equity approvals are in localcurrency.

(iii) Disbursement pattern is 50% in year of approval and 50% in thefollowing year.

(c) Guarantees: no further guarantees are included.

(d) Commercial Banking

(i) 18.5% interest is charged on all advances.

(ii) 13% is paid on call and fixed deposits; 0% on current accounts.

(iii) Government stocks/bonds yield 13.5%.

(e) Foreign Exchange Working Capital

(i) Working capital approvals of US$12,Q. million are. disbursed within24 months.

(ii) Revolving over three successive lending cycles, totaling seven years.NIB's earnings are approximately 5.5% per annum.

58 -

ANNEX 10Page 2 of 3

2. Income

(a) Interest of Term loans

(i) Rates of interest

Industry - old loans C9/30/78) 13% p.a.- new disbursements 18% p.a.

Agriculture- old loans 10% p.a.- new disbursements 13% p.a.

Cterm) 17'1/2% p,a,(ii) Recovery on industrial loans is assumed to be 79% of current

sectoral portfolio outstanding by 1982. New disbursementshave an average repayment period of 10 years including3 years of grace,

Recovery on agricultural loans is assumed to be 52% of currentsectoral portfolio outstanding by 1982.

(b) Commitment and Service Fees

Assumed 1.6% on total portfolio outstanding at year end

(c) Interest on Short-Term Advances

Short-term advances show a steady increase of 20% yearly from1978, at interest rates of 18-1/2% p.a. in 1979, 1980 and 16% p.a.in the following years.

(d) Dividend Income

(i) Dividend income on outstanding equity portfolio assumed at11% in 1979, 0% in 1980 and 14% thereafter.

(ii) Dividend income on new equity approvals or commitmentsassumei at 0% in first three years of disbursement and5% thereafter.

- 59 -

ANNEX 10Page 3 of 3

3. Expenses

(a) Fixed deposits assumed at 10% yearly increase on 1978 level, and at

interest rates of 13% per annum in 1979, 1980 and at 11% per annum

in following years.

(b) Interest and other charges on:

Domestic Currency Borrowings assumed 5% per annum of year-end balances.

Existing Foreign Currency Borrowings assumed 8% per annum of year-

end balances.New Foreign Currency Borrowings assumed 12-1/2% of year-end

balances.

(c) Salaries and Personnel Expenses assumed 20% increase in 1979 and 15%

thereafter.

(d) Administrative Expenses increase by 10% annually through the years

(e) Provision for Loan Losses to be maintained at 6% of total portfolioat year-end.

(f) Depreciation assumed to increase at 15% yearly.

4. Appropciation of Profits

Dividends payable to shareholders other than Government of Ghana assumedat 10% - 1978, 12-1/2% - 1979, 12-1/2% - 1980, 15% - 1981, 15% - 1982.

5. Balance Sheet

Fi.ud assets increase by 15% per annum.


- 60 -ANNEX 11


PROJECTED OPERATIONS - 1978-1982(( '000)

Year Ending December 31 Actual

Approvals (commitments) 1977 1978 19791' 1980 1981 1982

Industry: Domestic Currency 6,300 9,174 10,820 12,742 15,025 17,682

Foreign Currency 11,206 3,486 17,176 20,815 25,136 30,367

17,506 12,660 27,996 33,557 40,161 48,049

Agriculture: Domestic Currency 2,440 1,285 2,023 2,670 3,470 4,512

Foreign Currency 1,400 - 2,500 2,800 3,200 3,637

3,840 1,285 4,523 5,470 6,670 8,149

Equity: Domestic Currency 1,403 1,422 2,134 2,562 3,074 3,688

TOTAL APPROVALS 22,749 15,367 34,653 41,589 49,905 59,886

Disbursements

Industry: Domestic Currency 7,981 3,884 8,943 11,067 13,042 15,365

Foreign Currency 5,807 5,101 14,268 16,500 21,382 25,841

13,788 8,985 23,211 27,567 34,424 41,206

Agriculture: Domestic Currency 3,332 1,116 1,877 2,069 2,780 3,673

Foreign Currency - 1,548 1,857 2,090 2,860 3,251

3,332 2,664 3,734 4,159 5,640 6,924

Equity: Domestic Currency 2,829 601 1,778 2,348 2,818 3,381

TOTAL DISBURSEMENTS 19,949 12,250 28,723 34,074 42,882 51,511


1/ Major exchange adjustment September 1978: 0 2.75 = US$1 used to convertforeign exchlange.

- 61 -

ANNEX 12


PROJECTED INCOME STATEMENT*- 1978-82

ActualFor year ending December 31, 1977 1978 1979 1980 1981 1982

INCOME

Interest on Term Loans 8,633 12,317 17,428 20,743 25,652 29,479

Commitment and Other Income 1,529 1,999 2,Q70 2,300 2,684 2,969

Interest on Short-Term Advances 2,221 2,983 3,393 4,072 4,344 5,213

Dividend Income 1,690. 1,537 .1,586 1,718 1,850 1,939

Total Income 14,073 18,836 24,477 28,833 34,530 39,600

EXPENSES

Interest on fixed Deposits 1,204 2,198 3,128 3,440 3,202 3,523

Interest and Charges on Borrowings 3,653 4,964 8,502 10,850 11,067 11,155

Salaries and Personnel Expenses 2,412 3,224 3,869 4,449 5,116 5,883

Administrative Expenses 1,061 1,184 1,302 1,432 1,575 1,733

Provision for Loan Losses 3,231 1,064 445 846 1,441 1,069

Depreciation 338 400 460 529 608 699

Total Expenses 11,899 13,034. 17,706 21,564 23,009 24,062

Net Profit (Tax Free) 2,174 5,802 6,771 7,269 11,521 15,538

APPROPRIATION OF PROFITS

Dividends 150 400 625 1,250 1,500 1,500

Office Building Fund - 2,500 2,500 2,000 3,000 4,000

Increase/(decrease) inGeneral Reserves 2,024 2,902 3,646 4,019 7,021 10,038


* Reflects rise in interest rates irt last quarter of the accounting year 1978,and effect of devaluiation on foreign currency subloans.

- 62 -

ANNEX 13

NATIONAL INVESTENT BANK

PROJECTED BALANCE SHEET* 1978-1982(0'000)

As of December 31 Actual1977 1978 1979 1980 1981 1982

ASSETS

Current Assets (Comm. Banking) 24,690 51,691 7 8 38 9 73,248 641435 68 p092

Current Assets (Dev. Banking) 12,334 21,680 17,793 19,564 15,323 14,454

Medium/Long Term Loans (Net) 95,726 115,044* 121,581 135,016 157,680 174,434

Equity Investments 13,092 13,216 14,994 17,342 20,160 23,541

Net Fixed Assets 2,297 2,795 3,214 3,696 4,250 4,888f1.

Total Assets 148,139/l 204,426 235,971 2489956 261,848 285,409

LIALILITIES AND EQUITY

Current Liabilities (Com.Bkg) 24,690 34,891 31,358 33,385 35,678 46,211

Current Liabilities (Dev.Bkg) 24,389 13,085 11,237 10,693 12,177 13,268

Medium and Long Term Borrowing 75,421 120,200* 148,189 152,672 15L,766 149,667

Sub Total 124,500 168,176 190,784 196,750 199,621 209,146

Paid-Up Share Capital 19,000 29,000 35,000 40,000 40,000 40,000

Reserves 4,639 7,250 10,187 12,206 22 227 36,263

Total Equity 23,639 36,250 45,187 52,206 62,227 76,263

Total Liabilities and Equity 1 4 8 , 1 3 9/A 204,426 235,971 -248,956 261,848 285,409

Excludes: ¢ 22,181 representing customers liabilities on endorsements and lettersof credit which would have been shown under Current Assets (CommercialBanking). This category occurs only in 1977.

* Reflects devaluation effect on foreign currency subloans and borrowingsoutstanding as of September, 1978.


- 63 -

ANNEX 14


Estimated Disbursement Schedule

NuB Fiscal Year Amount ($'000) Oiarterly Term Working

Cdimuilative Lending Capital

1979

Third Quarter 500 100 400

Fourth Quarter 1,400 (1,900) 200 1,200

1980

First Quarter 2,800 400 2,400

Second Quarter 4,000 800 3,200

Third Quarter 3,400 800 2,600

Fourth Quarter 3,300 (15,400) 1,000 2,200

1981

First Quarter 1,200 1,200

Second Quarter 1,800 1,800

Third Quarter 1,400 1, 400

Fourth Quarter 1,000 (20,900) 1,000

1982

First Quarter 1,000 1,000

Second Quarter 900 900

Third Quarter 700 700

Fourth Quarter 400 (23,700) 400

1983

First Quarter 300 300

Second Quarter 200 (24 , 200) 200

24,200 12,200 12,000


- 64 -

ANNEX 15

GHMAA

Selected Documents and Data Available on Project File

A. General Economic and Manufacturing Sector

- Five Year Development Plan, Vol. I and II, Ministry ofEconomic Planning, January 1977.

- Survey on the Problem of Industrial Capacity Underutilizationin Ghana, Ministry of Industries, Nov. 20, 1978.

- Incentives and Comparative Advantage in Ghanaian Industry andAgriculture, S. R. Pearson, G. Nelson, J. D. Stryker,May 24, 1976.

- Budget Statement for Fiscal Year 1979, Ministry of Finance,September 12, 1978.

- Central Bank of Ghana, Annual Reports, 1976 and 1977.

- Central Bank of Ghana, Circular No. BG/FD/78/17.

Exchange Rate System

- Central Bank of Ghana, Circular No. BG/RD/78/18.

Monetary Policy for 1979

- Central Bank of Ghana, Quarterly Economic Bulletins, 1977

- Ghana Commercial Bank, Quarterly Economic Review, Vol. 1,

No. 3, September 1978

- Miscellaneous reports of commercial and specialized banks.

B. Reports and Studies Related to the Project

- NIB Annual Reports, 1976 and 1977

- NIB Act of 1963 and NIB Decree of 1978

- NIB, Replies to Questionaire of the IDA mission

- NIB Data in 23 Annexes providing detailed operational andfinancial information (including NIB's large investments,Equity investments, projects promoted, project approvals 1976-78.Details of arrears, reschedulings and audited accounts).
