Document of The World Bank FOR OFFICIAL USE ONLY Ls~J ii. (12/ Report No. 12513-EGT STAFF APPRAISAL REPORT ARAB REPUBLIC OF EGYPT AGRICULTuRAL MODERNIZATION PROJECT MARCH 3, 1994 MICROGRAPHICS Report No: 12513 EGT Type: SAR Agriculture Operations Division Country Department II Middle East and North Africa Region T'his document has a restricted distnrtion and may be used by redpients only in the peifonmance of their official duties. Its contents may not otherwise be declosed without Wodd Bank authoizsaon. CURRENCY EOUIVALENTS (As of June 1993) US$1.00 3.33 Egyptian Pound (LE) LE 1:00 - US$ 0.30 WEIGHTS AND MEASURES ERgptian and_or Metric Unit English/US Unit 1 feddan (fed) 0.420 hectares, 1.037 acres 1 hectare (ha) = 2.470 acres PRINCIPAL ABBREVIATIONS AND ACRONYMS USED ARRI 3 Agricultural Engineering Research 'nstitute ARC = Agricultural Research Center APCP = Aqricultural Production and Credit Project BDAC = Bank for Development and Agricultural Credit EAA = Egyj 4.an Environmental Affairs Agency EIDU = Exte..sion Information and Demonstration Unit ERSAP - Economic Reform and Structural Adjustment Program FNRI - Food and Nutrition Research Institute GARPAD = General Authority for Rehabilitation Projects and Agricultural Development GOB = Government of the Arab Republic of Egypt IBRD = International Bank for Reconstruction and Development Ice 3 International Competitive Bidding IDA - International Development Association MALR = Ministry of Agriculture and Land Reclamation MPWWR Ministry of Public Works and Water Resources NA"RP National Agricultural Research Project O&M o Operation and Maintenance PB = Participating Bank PBDAC = Principal Bank for Development and Agricultural Credit PMD - Project Management Department RRES = Regional Research and txtension Station SAL - Structural Adjustment Loan SDI - Subsidy Dependence Index SFPP = Small Farmer Production Project SMS Subject Matter Specialist TTS - Technology Transfer Specialist USAID = United States Agency for International Development VEW - Village Extension Worker WFP = World Food Programme WRC Water Research Center GOVERNMENT OF ARAB REPUBLIC OP EGYPT FISCAL YEAR t..l 1 I . IMA 30 FOR OMCIAL USE ONLY ARAB REPUBLIC OF EGYPT AGRICMLTURAL MODERNIZATION PROJECT STAFF APPRAISAL REPORT Table of Contents Chapter Page No. LOAN/CREDIT AND PROJECT SUUMARY ....................... i-iii r. THE AGRICULTURAL SECTOR A. Agriculture in the Economy ...................................... 1 B. Recent Reforms .... .... 2 C. Rural Poverty and Women Farmers ............................... . 3 D. Agricultural Institutions and Services .... 3 E. Bank Group Participation in Agriculture and Lessons Learned ..... 7 F. Future Direction of Agricultural Development . . .. 8 II. FINANCIAL SECTOR AND RURAL BANKING ................................. 9 A. Overview ....................................................... 9 B. Principal Bank for Development and Agricultural Credit ......... 13 C. Lending Operations ............................................. 16 III. THE PROJECT ........................................................ 22 A. Background ..... 22 B. Rationale for Bank Involvement ..... 22 C. Project Concept ..... 23 D. Project Objectives . ................................... . . . 24 E. Project Description ..... 24 F. Detailed Project Features ..... 25 G. Project Cost and Financing Plan ... .. 30 (a) Cost Estimates . .... . ......... . 30 (b) Financing Plan ............. .. 32 S. Procurement ............................................... . . . 33 I. Disbursement .................................................. . 35 This report is based on the findings of an appraisal mission in Jue 1993 consisting of K.S. Venkatraman, Sr. Operations Officer, Mission Leader, Rahut Raturi, Sr. Finacmiat Analyst, Ortando Sacay, Rural Credit Specialist, Mohamed Ulsman, Economist, Consultant, Joginder Bakshi, Agricutturalist, Consultant, K. Selvavinaysafm, Rurat Credit Specialist, Consultant, Barry Axtell, Food Technology and Agro-industry Specialist, Consultant, T.K. Salakrishnan, Financial Analyst, C,nsultant, and Ashley C. Morton, Envirormental st, Consultant. Peer reviewers for the report xcluded the following Staff: Messrs/Mme. Salop, Yaron, and Nyberg; the report was typed by Ns. conchita Castillo, while the Internal consistencry and conforamity of the report with the Bank's operational policy was checked by Mr. Sant Khorana. This report was prepared under the overall supervision of Mrs. Ngozi Okonjo-Iweala, Chief CMN2AG), and approved by Mr. Ram K. Chopra, Director (MN2) and Mr. Caio Koch-Weser, Vice President, Middle East and North Africa Region. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Chapter Page No. IV. PROJECT IMPLEMENTATION- . ... ....... ..... ... .#..... . 37 A. PBDAC as Project Implementing Institution . . 37 B. Project Implementation Arrangements . . 38 C. Loan Recovery .................................... ... ...... 41 D. Strengthening PBDAC's Organization* * .. ..... ..... 41 E. Accounts and Audits . . .. .. ............ . .... . 44 F. Environmental Impact.............. ....... .. ........ ,... 44 G. Project Launching, Monitoring, -Evaluation and Reporting ........ 45 H. Project Benefits and Risks .......... .. .. .. .... 46 V. AGREEMENTS REACHED AND RECOMCIATIONSS............................. 49 TABLES IN THE TEXT 2.1: Outstanding Loans, Arrears and Provi sion. ...........8 3.1: Project Cost Summary .. ............................32 3.2: Financing Planlan..... *.0 ...... O.. 32 3.3: Procurement Arrangements. ...e.m... ................. 33 3.4: Disbursement Plan ..................................... .... . . . 36 3.5: Estimated Disbursement Schedule of IBRD Loan and IDA Credit.. 36 1. Agricultural Sector Developments.................... 52 2. Rural Finance: Part A - The Rural Financial System 73 Part B - Business Plan of PBDAC and Financial Projections 85 Part C - Subsidy Dependence Index of P 8DAC 106 3. Environmental Aspects ................... 121 4. Training Components m p o n e n ts..... 126 5. Project Cost Summary ........................ .*. ....... .... 129 6. Estimated Schedule of Disbursements 133 7. Economic and Financial Benefits and Sensitivity Analysis .134 8. Bank Supervision Input into Key Activities... 151 9. Monitoring, Evaluation and Beneficiary Assessment....... 153 10. Selected Documents Available in the Project File .................. 159 CHARTS 1. Organization Chart - Rural Banking and Technical Services Under the Project ............................ 160 2. Project Implementation Schedule for Selected Components ........... 161 GRAPHS 1. PBDAC Subsidy Dependence Index (FY90-97) .......................... 20 & 108 2. Components of Subsidy (FY90-97) . ..................... ....... 108 MAPS IBRD Nos. 25280 and 25281: Arab Republic of Egypt Agricultural Modernization Project ARAB REPUBLIC OF EGYP AGRICULTURAL MODERNIZATION PROJECT STAFF APPRAISAL REPORT Loan/Credit and Project Summar' Borrower 5 For IBRD Loan: The Principal Bank for Development and Agricultural Credit (PBDAC); for IDA Credits The Arab Republic of Egypt Guarantor : The Arab Republic of Egypt Imolementins Agencv s Principal Bank for Development and Agricultural Credit (PBDAC) Beneficiaries : Farmers, agro-based enterprises, agro-processors, machinery dealers; PBDAC, other participating banks, and Ministry of Agriculture and Land Reclamation (MALR) L,an/Credit Amount s IBRD Loan: US$54.0 million equivalent IDA Credit: SDR 48.7 million (US$67.0 million equivalent). Terms : IBRD Loans 20 years including 5 years of grace, standard variable interest rate; IDA Credit: standard, for 35 years including 10 years of grace. on-lendini Terms s (i) The amount of US$100.0 million (US$54.0 million of IBRD loan and US$46.0 million equivalent out of the IDA credit) for on-lending would be made available to PBDAC as the "apex" institution on standard IBRD terms; a guarantee fee of 0.125 per cent would be payable to the Government of the Arab Republic of Egypt (GOE); while PBDAC would bear the foreign exchange risk, it would cover this risk under an existing facility with the Ministry of Finance against payment of a three per cent fee which will be reviewed at mid-term and adjusted periodically thereafter to reflect market conditions. (ii) The amount of US$21.0 million for institutional development would be provided on IDA terms to the PBDAC and on grant terms to MALR. (iii) PBrAC would on-lend funds to participating banks at cost (i.e., interest, plus foreign exchange risk premium, plus 0.5 per cent to cover its costs for apex banking functions). (iv) Sub-loans to borrowers would be at prevailing market rates of interest. Proiect Objectives The project's objectives are to (Li) increase agricultural productivity by promoting appropriate technological packages; (ii) increase rural income by financing investments in custom- service operations and in small- and medium-scale - ii - agro-based enterprises; (iiL) streamline PBDAC's orqanization and strengthen it3 staff capabilities to perform as an effective rural financial institution; (iv) facilitate participation of commercial banks in financing rural investments by providing access to long- term financing, staff training, and dissemination of relevant data on investment; and (v) improve capabilities and coordination of relevant agricultural services at the farm level. Prolect Description : Provide financing of: (i) On-farm technoloav oackaaes, including credit to support selective mechani zation to upgrade farming operations and resource use efficiency; (ii) acro-based enterprises, including credit for small- and medium-scale enterprises such as custom hire services for farming operations, warehousing, processing and marketing services; and (iii) institutional development: (a) in rural bankina: assisting PBDAC and participating banks to strengthen their rural banking operations in deposit mobilization, rural investment and upgrading of staff skills through training; and (b) in acricultural services: assisting relevant agencies of the MALR to disseminate improved production and processing technology, to provide market information to producers, and to facilitate better coordination between credit, research, -xtension, processing and marketing services. Benefits s The project would benefit: (i) about 240,000 farm households to increase incomes through adoption of improved technology; (ii) investors to establish small- and medium-scale agro-based enterprises in input/output storage and marketing, custom-hire services, and processing of primary crop and dairy products; (iii) PBDAC and other participating banks to strengthen their capabilities in rural banking services; and (iv) extension and technology transfer services to coordinate their activities with credit services and to design extension messages according to emerging needs of the farming community. Risks s The project faces three significant risks: (i) Slackening of macroeconomic reform would discourage investors; effective implementation of private sector development and public sector reform aspects of the Economic Reform and Structural Adjustment Program is critical to project's success. (ii) Delays may occur in PBDAC's implementation of its staff redeployment program. The project provides for retraining to enable displaced employees to be redeployed t.o other activities. (iii) The participation of - iii - commercial banks in rural credit operation may occur slowly. Provision of technical assistance and training under the project would help reduce this risk. Project Component and Estimated Costs Project Components Local Foreigmn Tota ---------(US$ million)-------- Farm Technology Improvement 48.7 53.4 102.1 Agro-based Enterprises 51.0 34.0 85.0 Institutional Development 43.7 12.6 56.3 Total Baseline Costs 143.4 100.0 243.4 Physical Contingencies 0.3 0.2 0.5 Price Contingencies 11.4 13.5 24.9 _______________________________ TOTAL 155.1 113.6 268.3 Financin2 Plan: Local Foreinm Total ---------(US$ million)-------- IBRD Loan - 54.0 54.0 IDA Credit 7.4 59.6 67.0 Government/PBDAC 89.0 - 89.0 Investors 58.8 - 58.8 TOTAL 155.2 113.6 268.8 Estimated Annual Disbursements: Bank Group Fiscal Year -----------------_-------------------------------- FY94 FY95 FY96 FY97 FY98 FY99 FY2000 FY2001 -------------------(US$Million)------------------ Bank/IDA 0.0 13.3 13.9 16.4 19.1 18.8 19.3 20.2 Cumulative 0.0 13.3 27.2 43.6 62.7 81.5 100.8 121.0 Economic Rate of Return: Estimated at 38 per cent. Environmental Ratin2: "B" Poverty Cateuory: NA MAB REPUBLIC OF EGYPT AGRICULTURAL ..OIRNIZATION PRO3EC ST&?F APPRAISAL REPORT r. THE AGRICULTURAL SECTOR1/ A. agriculture in the Economy 1.01 Agriculture has remained a dominant sector in the Egyptian economy. It employs about 35 per cent of the labor force and accounts for about 20 per cent of GDP and merchandise exports. The agricultural land base is 7.5 million feddans and the agricultural labor force is estimated at 4.4 million. With only three per cent of the land area being arable, holdings average less than 0.8 ha. Limitations of water and arable land are the two major resource constraints afftcting Egyptian agriculture. The completion of the High Aswan Dam resulted in ensuring regulated water supply for intensive agriculture. With irrigation ard abundant fertile soils, year round sunshine, and a skilled libor force, Egypt has achieved a cropping intensity approaching 200 per cent and impressive yield levels in cereal and horticultural crops. Yet, given its idea' agro-climatic conditions and the millennia of farming tradition, Egypt has the potential to attain significant growth in agricultural output and income by widespread adoption of technology and credit services suitable to small-farmers and introduction of post-harvest technology and marketing services in a liberalized economic environment. 1.02 The Egyptian farming system is extremely intensive. Land preparation is almost totally tractorized and irrigation is also largely mechanized. Demand for labor is not evenly sipread over the year and there are peak periods (i.e., May to July and September-October) wb.en there is acute labor shortage. This results in late planting, insufficient crop care (such as weeding), or neglect of me3.ntenance of infrastructure. Labor shortages are particularly acute in the recla.med lands, which ccnstitute abcut 20 per cent of agricultural land area. Settlers in the new lands have only limited family labor available and wages are almost 40 per cent higher than in the Delta. Attempts to increase mechanization support in the new lands have been retarded by the lack of private machinery hiring services and inade-quate extension, credit and marketing services. 1.03 Successive land reforms since 1952 have reshaped the organization of agriculture. The earlier system of feudal ownership was replaced by the establishment of cooperatives and State-organized distribution of inputs and outputs. At the technical. level, these new arrangements, together with provision of subsidized credit, promoted the use of modern inputs: mechanized land preparation replaced animal traction, a three-year crop rotation was adopted, and the cropping systems were consolidated to facilitate mechanization of operations. The Government invested heavily in expanding irrigation and drainage infrastructure and in the reclamation of desert lands. However, with rapidly increasing population, the dependence on food imports increased and growth in agricultural GDP remained at, or stayed slightly ahead of, the rate of population growth. 1/ For futler discussion of the subject, see Armex 1. - 2- 1.04 Inappropriate macroeconomic and trade policies in the past have been the major self-imposed constraints to agrtcultural growth. The weak performance of the sector is largely due to: (i) heavy Government intervention in production, pricing and marketing of major crops and inputs, and (ii) large concentration of public investments in new land reclamation, instead of intensifying production in already reclaimed lands. Furthermore, an overvalued and multiple exchange rate regime, state monopolies, restrictive trade practices, rigid central planning, and distorted incentives had an adverse effect on both factor and product markets and the investment climate. By the end of the 1980s, a determined effort to reverse this trend became an economic Imperative. B. Recent Reforms 1.05 At the macroeconomic level, a comprehensive Economic Refoxm and Structural Adjustment Program (ERSAP) was adopted in 1991 to, inter alia, (a) reduce the role of the State in the creation and operation of productive assets and thus strengthen the market-based economic oystem; jb) improve the regulatory environment for the private sector by increasing competition and by putting private and public companies on an eqt'al footing; and (c) correct extreme distortions in the price structure and incentive system through the liberalization of pricing, trade, and foreign exchange policies. Introduction of these reforms has resulted in: the unification of exchange rates and adoption of a competitive rate for the Egyptian pound; liberalization of interest rates; rationalization of import tariffs and adoption of a program for removal of import bans; adoption of a phased program of subsidy removal; and enactment of revenuie measures to reduce fiscal deficits. These liberalization measures have improved the climate for private investment and trade. 1.06 At the sectoral level, the Ministry of Agriculture and Land Reclamation (MALR) pioneered a bold reform program .n 1986. The main measures implemented since then ares (a) removal of crop area allotments and delivery quotas for all major crops, except cotton and sugarcane; (b) liberalization of agricultural producer prices for all products, except cotton and sugarcane [cotton price at farmgate has been increased to 66 per cent of international prices as required under the Structural Adjustment Loan (SAL) (Ln. 3353-EGT)3; (c) removal of feed subsidies and fertilizer subsidies, and substantial reduction in subsidies for pesticides; (d) removal of restrictions on movement and milling of rice by the private sector; (e) increase in interest rates to move them to commercial banking levels; (f) sale of reclaimed state-owned land to the private sector; (g) offer to sell 83 state-owned investments of which 18 have been sold; (h) promotion of private sector role in input trading, mainly fertilizers, which has resulted in some 3,000 traders handling over 90 per cent of fertilizer distribution; and (i) raising land rents three-fold during a five-year transitional period aft(-r which they would be liberalized and become market determined and owners wous.. be able to protect their ownership rights over land. Preliminary indications are that these reforms, combined with specific crop intensification programs, have had a favorable impact on improving the cropping pattern and yield levels. These achievements, when consolidated through institutional strengthening and use of improved technologies, would go far in raising agricultural growth and reducing rural poverty. 1.07 Growth in agriculture and post-harvest processing and marketing activities depends critically on two factors: (1) use of technology which would enhance productivity of existing agricultural resources, and (ii) use of medium- and long-term credit effectively in an economic climate which is supportive of investment in rural areas. Wh. J * Egypt is well-endowed with research institutions and highly-qualified scientists and researchers, weaknesses in coordination and overlapping responsibil.-es among different institutions leave critical gaps in the system. Th3 priva.;e sector, which has been reluctant to invest in the rural sector, can contribute signiflcantly to "value added" activities and help diversify the rural economy through direct investment to provide custom hire services and farm-related processing activities. Technology transfer and provision of credit are, therefore, vitally important to stimulate investments in rural Egypt. 1.08 Water availabillty is a major limiting factor for agricultural expansion in Egypt. Therefore, improved effLcLency in on-farm water usage is a major strategic objective. A system is in p'lice to recover capital costs of newly installed drainage facilities and to sha. operation and maintonance (OM) costs of irrigation and drainage in newly recluimzd lands. The Government has initiated studies to improve recovery of 0rM costs of irrigation in the Old Lands (i.e, established agricultural lands in the Nile Valley and Nile Delta) and the Bank is in dialogue with the relevant Ministrisi to develop an appropriate strategy and operational program for this purpose. C. Rural Poverty and Women Farmers 1.09 Poverty in -rural Egypt is linked closely to agriculture. The rural population constitutes about 54 per cent of Egyptls total population. Farmers and farm laborers account for a large proportion of the rural poor. Despite the overall increase in equality due to successive land reforms, the poorest 20 per cent of landowners hold only 5 per cent of agricultural land. Stagnation in the rural economy and lack of employment opportunities have accelerated migration, predominantly of adult male labor, to urban areas and overseas to other Gulf states. 1.10 Close to 47 per cent of the active female population is engaged in agricultural work. Among the poor, rural women and the landless are particularly disadvantaged. Women participate actively in various facets of agricultural activities, and particularly in livestock operations. Besides illiteracy, lack of access to services, such as credit and extension, are among the constraints faced by women farmers. The income levels of the rural poor, and particularly women, can be increased with the provision of improved technology support and training. Easier access to credit would enable them to undertake income- generating activities, such as small agro-based enterprises for processing, production of artisanal items, marketing, etc. Although MALR has established a position of an Adviser to the Minister on women's issues, institutional support to encourage these activities has to be further strengthened to achieve tangible results. D. AUrioultural Institutipas and Services 1.11 Institutions under the Ministry of Public Works and Water Resources (MPWWR) and the Ministry of Agriculture and Land Reclamation (MALR) are directly relevant to agricultural performance. Because Egyptian agriculture is almost entirely irrigated, close coordination between the two Ministries at various levels assumes significance. Under existing organizational arrangements, MPWWR is the custodian of the country's water resources and i3 responsible for construction, operation and maintenance of about 31,000 km of public irrigation canals, about 17,000 km of drainage canals, and the associated barrages, - 4 - structures, and pumping stations. Under its new mandate, the role of MALR in evolving into one of providing services, such as, research and extension, regulation of standards for farm inputs and outputs, and formulation of sectoral policy. MALR has jurisdiction over the apex agricultural credlt institution, viz. the Principal Bank for Development and Agricultural Credit (PBDAC), and agricultural cooperatives. Chapter rI provides an overview of the credit institutions in the agricultural sector and the dominant role played by PBDAC in rural banking. 1.12 Acricultural research is the responsibility of MALR's Agricultural Research Center (ARC) which is mandated to generate and transfer, in collaboration with extensiLn services, technological improvements to farmers. The ARC operates th:ough multi-discipl$nary research teams to conduct on-farm research and re-orients adaptive research to fit the needs and constrai:xts of actual farms. It has 17 researc.h institutes, including the two recently established institutes for genetic research and computer-ba.ed expert systems. A majority of the institutes are crop-based. There are six central laboratories supervised by the ARC; and there are ten Regional Research and Extension Stations (RRES) operated by the ARC; of these, seven are now capable of adapting technologies to the agro-climatic conditions of their respective zones. The RRESs are designed to promote closer linkage between research and extension services. Coordinating boards responsible for release of new technology have been created. Within the ARC, the following four institutes will have direct linkage with the project: The Agricultural Engineering Research Institute (AERI) is responsible for development and adaptation of new mechanization technologies for farming and, to a limited extent, for on-farm irrigation improvement, and agrn-processing. The Food and Nutrition Research Institute (FNRI) of the ARC deals with applied research and development of products and processes. The Soil and Water Research Institute (SWRI) deals with study of physical and chemical properties of soils, plant nutrition, irrigati- - agronomy, and drainage. It has developed research results relevant to on-farm water management. The Agricultural Economics Research Institute produces data on supply, demand, prices and costs of production of various crops and strengthening the activities of the institute will assist the extension service and, in turn, farmers to have access to market intelligence. The total staff of the ARC is about 30,000, including about 1,800 high-level researchers. Research related to irrigation and drainage systems is the main responsibility of the MPWWR's Water Research Center (WRC) and its 11 affiliated institutes. The research institutions of both MPWWR and MALR have contributed significantly to yield improvement. The United States Agency for international Development (USAID) has provided substantial support to these institutions. 1.13 By targeting efforts on particular crops and solutions for specific problems, agricultural research and technology transfer programs have generated significant yield increases in wheat, rice, corn and bean production. However, it is necessary to critically examine the environmental, economic and financial viabilities of new technologies before they are recommended for propagation. Removal of input subsidies has impacted on production costs and there is increasing concern regarding the effect of chemical inputs on the envircnments this calls for the ARC to develop more precise recommendations for various soil conditions in different sub-regions, keeping in view target yields to be achieved as well as costs and returns. With improved coordination among the research institutions, universities, credit channels, and the private sector, and with close two-way communication between farmers and researchers through the extension system, the benefits of research could be further enhanced. 1.14 Research activities have not adequately addressed the development of suitable technologies for different categories of farmers in the newly reclaimed lands. Large land holders have been able to mobilize the needed technical support throu';n private sources. The Desert Research Center, which has been brought under the ARC umbrella recently, has begun to address the issue relating to small farmersl it is too soon to assess the impact of these efforts. 1.15 The extension service is under the direction of a First Undersecretary of MAL., with a counterpart in each of the Governorates. While the extension needs of the Old Lands are handled by this init, there is orly limited service provided for New Lands by the General Authority for Rehabilitation Projects and Agricultural Development (GARPAD) which is the public agency responsible for land reclamation. Until the mid-80s, the extension service was engaged in both regulatory and technology transfer functionst this was discarded when the sank-financed Second Agricultural Development Project (Ln. 2561-EGT) was launched. Since then, there have been several attempts made under various projects to reorganize the system and forge stronger links between research, extension and training, but the service still remains fragmented. While the real capacity to generate and transfer useful farm technology is being developed, disseminati3n of the new technology remains limited to pilot programs. 1.16 The Village Extension Worker (VEW) forms the direct link with the farmer. The Government's program calls for one extension worker per village, supported by one block assistant for every 200 feddans. Prima facie, this appears to be an ambitious target, given the fact that the number of well-trained extensionists and block assistants falls short of the requirement. A sustainable system of extension would be one with a smaller cadre of well-qualified technicians, alert to the farmers, needs and capable of responding to their problems. Experience gained under USAID-supported projects (viz. the Small Farmer Production Project (SFPP) and the Agricultural Production and Credit Project (APCP)3, which were executed by the PBDAC has demonstrated that a Farm Management Team composed of the VEW, the village bank manager, and the representatives of the local farming community is effective in disseminating new technology and raising productivity. 1.17 Until recently, small- and medium-scale rural activities in agro- Drocessina and marketina remained unattractive mainly on account of controls on movement of raw materials and trading margins, consumer subsidies, and the domination of State-owned processing and distribution operations. Public enterprises account for the bulk of agro-industries, dominating production as well as distribution. The Government has noted that centrally administered bureaucracies which operate these public enterprises are ill-suited to respond to varied and quickly-changing market requirements. Consequently, it has placed special emphasis on divestiture of these activities. Elimination of controls on trading and phasing out of subsidies have already led to vigorous growth of private tradlng in seeds, feed and fertilizers. However, privatization of public enterprises which are engaged in the production of farm inputs and pro(:essing of agricultural commodities has just begun. Greater momentum in the privatization of these enterprises would change the existing arrangements for both processing and marketing and new opportunities for private investment, particularly in the small- to medium-scale range, would emerge in the rural sector. The project would support growth of such private enterprises through the provision of term credit. 1.18 With respect to inut, most of the fertilizers (except potassium fertilizers, which are imported) are produced locally. Until recently, provision of subsidies resulted in over-use of fertilizers as the principal means of increasing production. Furthermore, application of fertilizers as flakes and inefficient methods of fertilizer broadcasting after seedbed preparation led to wasteful use of the input. With the liberalization of trading in fertilizer and removal of fertilizer subsidies, demand has shrunk somewhat, and export of fertilizer has increased. Also, there is a shift in the local market towards use of better formulated and compound fertilizers. Appropriate formulations and pricing of different types of fertilizers would encourage mechanized placement of fertilizers (which would save at least ten per cent of fertilizer) and use of fertigation where feasible. 1.19 Pesticides are used largely in cotton and, to a limited extent, in other crops. Pesticides for field crops have benefited from heavy subsidies in the past; these have been phased out since June 1993, and there are private distributors for nesticides. Pesticide imports, previously handled by the PBDAC, have been left to licensed public and private chemical companies. With the reduction in subsidies and rising cost of pesticides, their use has declined drastically. (Pesticide imports, which were over 30,000 tons per year in the early 1980s have dropped sharply to 9,500 tons per year.) In collaboration with the German technical assistance agency, the GTZ, effective Integrated Pest MIanagement (IPM) techniques have been developed by the Plant Protection Research Institute for cotton and some other crops. However, enforcement of quality control by the Central Pesticide Laboratory needs to be strengthened with additional equipment and trained staff. Also, training of dealers and farmers at the village level to promote safe handling and application of chemicals deserves greater attention from Subject Matter Specialists (SMSs). 1.20 With respect to seeds, there is a well organized program of production of breeder and foundation seed. The Central Administration for Seed (CAS) in MALR is responsible for multiplication, conditioning and distribution of seed, as well as for quality control. Several seed processing facilities have been modernized and are being offered for sale to private investors. As a policy objective, the Government has given encouragement to the private seed irdustry. There is greater availability of breeder seeds and private seed multiplication has increased significantly primarily for cross-fertilized crops; these activities need to be extended to self-pollinated crops. As in the case of fertilizers, use of precision planters and seed drills would result in reducing seed requirements by at least ten per cent, while improving yields. 1.21 Egyptian agriculture, which has effectively achieved total tractorization, has significantly reduced drudgery in farming, improved the quality of life on the farm and has succeeded in increasing yields. Primary farm mechanization is already well established for land preparation, threshing, water lifting and transport. The number of tractors was estimated at 40,000 in 1992. Selective secondary mechanization of activities to reduce the turnaround time between crops and more effective use of irrigation water, seed, fertilizer and pesticide are now being factored into the farm technology package. Custom hire services are provided mostly by private operators or contractors hiring out their equipment and services. There are some mechanized services offered by public sector companies, but their activities are being phased out as the useful life of their equipment fleet diminishes. These activities will eventually be taken over by private entrepreneurs or cooperatives. Given the strong demand for mechanized services in newly-reclaimed lands, investments in custom hire services are expected to receive priority attention in the reclaimed areas. 1.22 The cooperative movement in Egypt has become widespread, largely through government patronage. However, with the exception of a few, the performance of most agricultural cooperatives has been modest. With about three million members, there are almost 6,500 cooperatives in the sector, but the volume of their business has been declining. Cooperatives are in three main categories: (i) agrarian reform cooperatives covering lands broken up into small holdings since 1952; (ii) the New Lands cooperatives covering lands which have been reclaimed with irrigation and distributed to settlers; and (iLL) Old Lands cooperatives. In addition, there are specialized cooperatives dealing with specific products or activities, e.g., fruits and vegetables, potato, livestock, mechanized farming, etc. The major part of revenues of these cooperatives comes from marketing of crops, primarily cotton and rice. The overall financial position of the cooperatives is weak, because of the Government's past policy of administered prices. The new liberalized policy environment should help rejuvenate the cooperative movement, provided the weak units are restructured, consolidated, financed, and managed as business ventures. 1.23 Past practices, such as unrestrained use of water and chemical inputs, have led to a deterioration of the environment, affecting the resource base of the agricultural sector. Issues relating to environmental protection have engaged the Government's attention in recent years. A National Environmental Action Plan was published in 1992, and a unified law on environmental protection has been enacted. The law provides for environmental impact assessments and mechanisms for prescribing and enforcing the implementation of environmental mitigation plans. To this end, it envisages strengthening the central authority and establishing trained bodies at local levels. MALR is seized of the environmental Issues affecting the sector and has established an environmental unit. However, the agricultural engineers who staff this unit are in need of training in environmental assessment and audit. The project makes a modest provision for environmental training and it is anticipated that external donors would support a broader training program to achieve adequate capacity in environmental management. B. Bank ˘roup Participation in Aariaulture and Lessons Learned 1.24 The Bank Group's agricultural portfolio in Egypt accounts for about 22 per cent of current Bank Group lending. The seven projects under execution in the sector represent a total lending of US$362.5 million equivalent, net of cancellations. The portfolio includes four projects in irrigation and drainage and three in agricultural development, agricultural storage, and natural resource management. The Bank also serves as the executing agency for an ongoing agricultural project financed by IFAD. 1.25 Most of the Bank Group lending in the sector htas been directed at alleviating the physical constraints to production. Among these, projects relating to drainage, rehabilitation of irrigation pumping stations, and channel maintenance have contributed to improving the reliability of irrigation and relieving problems of high water table and soil salinity. The Project Performance Audit Reports (PPARs) for recently completed projects, such as the Irrigation Pumping Stations Rehabilitation Project (Ln. 2270-EGT) and the New Lands Development Project (Cr. 1083-EGT), have commented favorably on the results achieved. As already noted, the Second Agricultural Development Project (Ln. 2561-EGT), which is expected to close by March 1994, has facilitated introduction of custom-hire services in the agricultural sector. The Agricultural storage Project (Ln. 3071-EGT) has been downsized in view of the divestment of trading activities by the public sector. Other major donors in the sector have supported projects for improving irrigation, agricultural research, agricultural credit and improved farming practices. These projects have contributed significantly to enhance Egypt's ability to achieve and sustain high levels of farm production. 1.26 Implementation delays of three years are common in almost all projects in Egypt's agricultural sector. Some of these delays are attributable to unrealistic implementation schedules, while others are due to weak performance by project entities. The Bank Group's experience with projects in the sector indicates that: (i) the most effecti-ve projects should be simple and preferably involve only one implementing ministry; (ii) project implementation planning should take into account factors that usually cause delays, e.g., procurement procedures, staff shortages, inadequate budgetary allocations, etc.; (iii) the Government, besides the beneficiaries, should be fully committed to the project; and (Lv) the management capabilities of the agencies responsible for project implementation should be strengthened at early stages of project implementation. 1.27 Institutional strengthening is a critical factor in improving efficiency in project implementation in the sector. Among the agencies in the MALR, the PBDAC, which is the implementing agency for the project, is one of the better performers. Consequently, a substantial portion of donor assistance is channeled through that agency. Through its assistance programs, the USAID has been active in promoting and sustaining policy reforms in the agriculture sector; in that process, it has been providing technical assistance to PBDAC to train its staff, improve its management information system, and carry out necessary studies for divestment of its non-banking activities. P. Future Direction of AUrioultural DeveloDment 1.28 With the policy reforms already in place and proposed for implementation, Egypt is well-positioned to maximize the return from it. limited resource bass. Recently, the MALR, together with the Bank, the FAO, the WFP, the UNDP and the UNEP, has formulated an Agricultural Strategy for the 1990s (Report Nlo. 11083-EGT). In accordance with the agreed recommendations of the report, the Government is accelerating its privatization program in the sector. It would streamline key institutions, such as the PBDAC and research and extension organizations. The Government would pay particular attention, inter alia, to (i) conserve Egypt's limited water resources and improve on-farm water use efficiency, (ii) modernize the farming practices, and (iii) intensify agricultural production in the reclaimed lands by promoting adequate support services in these areas. Consequently, investment in modernization of irrigation, land levelling, careful choice of water-efficient cropping and proper planting practices assume particular significance for the future. The strategy indicates that an increase in rural income and employment cannot come from primary agricultural activities alone and that, therefore, appropriate expansion of agro-based enterprises should receive priority attention. The strategy notes that the drive for efficiency and diversification of the rural economy would help address rural poverty as well as the creation of employment opportunities for rural women. Implementation of such a strategy requires not merely the provision of finance, but equally importantly the coordination of rural services, both from governmental and private scurces. The project fits into this overall strategy. - 9- II. * I NCIAIL SECTOR AND RUA BANKING A. Overview Financial Sector 2.01 Egypt's financial sector is in the midst of a reform program targeted at developing a competitive, market-based system. Until the late 1980s, the development of the financial aector in Egypt was constrained by the imposition of interest rate and credit controls. The Government played a key role in the allocation of resources through a subsidized credit system under which low interest loans were provided to priority sectors. The financial system comprised mainly the banking sector, dominated by four Government-owned banks, which accounted for over 90 per cent of the total assets of commercial banks. Specialized banks for agriculture, industry, housing and export development provide medium- and long term financing to the respective sectors. About 50 per cent of the branches of the four public sector banks are located in the four largest cities - Cairo, Alexandria, Giza and Port Said. 2.02 With the initiation of treasury bills since 1991, a formal and rapidly expanding money market has come into operation. There are, however, no long-term treasury bonds and a secondary market in long-term debt instruments is virtually non-existent. The capital market remains underdeveloped. The securities market, which was the pre-eminent source of funds for business in the late 1950s, prior to the nationalization of the Egyptian economy, is an insignificant source of capital for business and government today. This market has accounted for less than five per cent, on average, of the new capital provided to the private and public sectors combined. 2.03 The Reform Proaram. In the late 1980s, the Government implemented the first in a series of reforms to improve the efficiency of the financial sector. Interest rates and exchange rates were liberalized. Additional financial reform measures undertaken included: (i) revision of outstanding ratios for reserve and liquidity requirements; (ii) implementation of capital adequacy standards; (iii) introduction of asset classification and provisioning in accordance with internationally accepted standards; (iv) implementation of foreign currency exposure ratios; (v) establishment of a deposit insurance scheme; and (vi) recapitalization of public sector banks. These measures were complemented by a program to strengthen the Central Bank of Egypt's (CBE) supervisory capabilities. The World Bank also completed a wide-ranging review of the financial sector of Egypt in 1991 and, in support of the Government's economic reform program, produced a report on "Financial Policy for Adjustment and Growth" (Report No. 10790-SGT). 2.04 These reforms have had a substantial impact on the financial system. The deregulation of interest rates has resulted in an increase in deposit and lending rates. The double liberalization of interest and exchange rates and the growth of confidence in the reformed macro-economic policies of the Government appear to have induced both a repatriation of capital and a conversion of US dollar deposits into Egyptian pound deposits by both the household and corporate sectors. In conjunction with the application of credit ceilings, the partial reversal of dollarization of the economy has increased the liquidity position of banks. The favorable impact of these reforms is expected to be felt as the efficiency of financial intermediation improves further and the distortions are removed. - 10 - 2.05 In early 1991, the Government made up the losses suffered by the commercial banks through the issue to them of bonds denominated in US dollars for a total amount of US$2,090 million (LE 6,900 million). Of this amount LE 3,015 million was used to cover foreign exchange losses, and the remaining LE 3,075 million was used as capital injection. In addition, the CBE has issued new regulations setting up new standards of capital adequacy, asset classification and provisioning, and limits on foreign currency exposure. 2.06 Future Priorities. The Government recognizes that the main source of new investment will come from the private sector. Its reform program is, therefore, designed to improve the incentive structure and to modernize economic regulations; reforms in the financial sector are geared to the same end. The Government's priority now is tot (a) strengthen the existing institutional infrastructure for the financial sector, such as, the legal framework, prudential control and supervision; (b) deepen the money markets to develop a reliable reference rate and promote the development of variable rate instruments; (c) {nsure that commercial banks and agricultural bank (PBDAC) develop into efficient and financially autonomous institutions; and (d) promote markets for long-term funds. Credit Availability for Agriculture 2.07 Formal Credit. The relative importance of formal credit is much lower in agriculture than for the overall economy; in 1992, while agriculture contributed 20 per cent of total GDP, it was the recipient of only 8.6 per cent of the total outstanding credit. This indicates a significant potential for increasing agricultural lending. As an indication of the relative scale of agricultural credit, loans to the agriculture sector by all banks in 1992 amounted to nearly LE 5 billion or about 40 per cent of agricultural GDP. PBDAC is the largest lender to agriculture, accounting for about 75 per cent of the total lending in 1992, with the balance coming mainly from commercial banks; for the latter, agriculture lending accounted for 3.2 per cent of their total portfolios. Despite their excess liquidity in recent years (for example, in 1992, total loans/advances of commercial banks was only 40 per cent of total deposits; another 20 per cent was investment in securities and investments), commercial banks have not gone into rural lending. There are no apparent legal barriers precluding their entry into rural banking. The prevailing market failure and reluctance to provide rural credit is largely because of the lack of knowledge of rural clients and staff expertise in dealing with rural borrowers, combined with the risks and greater costs of lending to small borrowers. This has limited the creation of a rural branch network by commercial banks and has curtailed commercial bank involvement in providing rural banking services. Consequently, the PBDAC, which operates through 17 Governorate level Banks for Development and Agricultural Credit (BDACs), 154 district branches, 804 village banks and some 4,000 village level agents, has remained the mainstay for rural banking. 2.08 The limited access of the private sector to credit facilities has been a persistent criticism of the Egyptian banking system. However, PBDAC has been performing well in meeting the credit needs of the rural private sector. PBDAC has already started to shift its lending to medium- and long-term, as part of its strategy to diversify its loan portfolio and assist agro-processing enterprises. Opportunities to develop agro-processing industries in rural areas are plentiful. As a result, the demand for credit exceeded available resources of PBDAC, as evidenced by the increased borrowings from commercial banks. While it can be assumed that in the past the low subsidized interest rates increased - 11 - the demand for credit, this demand continued to remain strong even as lending rates increased in nominal terms, and as subsidies were progressively withdrawn (from an average 27 per cent of total loan disbursements by PBDAC in 1989/90 to 10 per cent of total loans disbursed in 1991/92). Though subsidized, the interest rates charged were positive in real terms, equivalent to about 1 percentage point above inflation. For the five-year period 1987/88 - 1991/92, during which interest rates were progressively increased, total lending by PBDAC increased by an average of 16.4 percent per annum. If FY92, which saw a general contraction in economic activity in the country, were to be excluded, the annual growth averaged nearly 24 percent in nominal terms, and over 4.5 percent in real terms. 2.09 Informal Credit. Much of the agricultural finance is raised by producers from their own resources (past savings) or from friends, relatives or suppliers. There are rotating savings groups as well as trusted individuals who hold savings particularly from foreign remittances. There is little information on this subject. With the divestiture of input trading by PBDAC, traders are likely to be an important source of credit to producers. No data is available at present to quantify the significance of this informal source. The project provides for a study of the rural financial sector which should contribute to a better understanding of the pattern of savings and utilization of credit in the rural economy. Key Banking Resulations and Level Plavinf Field 2.10 Based on information made available by the Government, it is clear that the non-participation of commercial banks in a significant manner in the rural f5.nancial sector is not related to a discriminatory regulatory environment. The CBE confirmed that the banking regulations are applied uniformly across all banks, and that the PBDAC is subject to the same prudential regulations as all other banks. In the past, however, PEDAC did have an advantage, in that it received subsidies towards its lending operations which were not available to commercial banks. Furthermore, through its trading operations, PBDAC was more closely linked to its rural borrowers. However, subsidies have been largely phased out, and PBDAC is rapidly divesting itself of its trading operations, with over 90 percent of fertilizer distribution now handled by the private sector. While subsidy dependence indicators are not available for the publicly-owned commercial banks, estimates of these for PBDAC highlight its declining dependence on subsidies (para. 2.08). Despite this process of levelling the playing field, commercial banks continue to show little interest in rural lending. As stated earlier, regulations covering capital adequacy, risk concentrations, loan classification and provisioning, and foreign currency exposure have been issued by the CBE. The capital adequacy ratio is based on the risk-based capital requirements agreed by the Basle Committee of bank regulators - at eight per cent of risk assets. The new regulation stipulates that banks with capital adequacy of less than seven per cent in December 1990 be given a period up to December 1993 to meet new capital adequacy standards and that banks with capital ratio between seven and eight per cent have to meet the new standards by December 1992. While the PBDAC group as a whole meets the condition for minimum paid-up capital of LE 50 million (as at June 30, 1992, the capital of PBDAC was 12.5 per cent of risk assets), some of the individual BDACs do not independently meet this condition. An ongoing study of PBDAC' s organization and structure would examine, inter alia, options such as consolidation of some BDACs which are under- capitalized, increase in the equity base and issue of new shares, etc. - 12 - 2.11 The new regulations on loan classification stipulate that assets and contingent liabilities of banks are classified into regular and irregular. Provisions are to be made in accordance with respective quality of assets, based on specific periods of delays in meeting obligations by borrowers. The PBDAC is working towards meeting these conditions with assistance from USAID; information on compliance by commercial banks is not available. 2.12 All Egyptian banks are registered with, and supervised by, the CBE. supervision is performed through off-site monitoring of bank performance and visits to the banks to review their financial condition. Off-site monitoring is centralized at the CBE, but responsibility for on-site inispection has been divided. The Central Audit Organization (CAO), in conjunction with external auditors, has inspected the public sector banks, and the CBE has been responsible for all other banks. 2.13 The banking regulations of CBE apply to PBDAC (as to all other banks) subject to certain exceptions or restrictions applied to PBDAC (as well as to the other specialized banks) by CBE. For instance, PBDAC is not subject to the minimum cash reserve ratio of 15 per cent of all deposits; however, this exception is set off against the fact that it is not permitted to hold current account deposit from individual account holders. In addition, PBDAC is also not eligible to hold foreign currency deposits or undertake transactions in foreign exchange. The CBE has confirmed that if PBDAC was to start holding current account deposits, it would become subject to the minimum cash reserve requirements. Vision for Rural Banking in the Medium Term 2.14 Significant changes have taken place in the Egyptian economy over the past few years, as part of the overall economic reform program adopted by the Government. While much still remains to be done within the financial sector, various measures designed to increase competition and improve the efficiency of the banking sector have been introduced over the past few years. Consequently, there are now no barriers in place which limit the ability of commercial banks to enter into rural banking, other than the requirement of central bank approval for opening new branches, a requirement which exists in many countries. Commercial banks clearly have the financial resources to expand into rural lending; at the end of FY92, loans and advances represented only about 40 percent of the nearly LE 100 billion which the commercial banks held as deposits. However, their orientation to commercial lending, and avoidance of higher costs and greater risks generally associated with rural lending, has so far precluded any significant involvement in rural lenCing. 2.15 Clearly, in the short-term future, the past experience with commercial banks indicates that their agricultural lending will continue for only big enterprises and large borrowers, leaving the "small man with small causes" to the PBDAC. While commercial banks have been induced to finance small-scale enterprises, this has been under special credit programs rather than under their voluntary regular lending activities. Consequently, PBDAC is likely to remain the major provider of agricultural credit in the near term. However, within the medium- to long-term context, discussions with commercial banks indicate that there are some banks which are interested in expanding their portfolio of rural lending as part of their long term strategy. 2.16 In the absence of any regulatory impediments to their increased role in the rural sector and the declining subsidy dependence indicated for PBDAC, the - 13 - key factors which need to be tackled to promote commercial banks in the rural areas is their lack of trained staff, and their limited knowledge of rural finance, rural markets and rural clientele. The project would provide support in overcoming these weaknesses bys improving the information base on rural areass building skills within commercial banks In dealing with rural clients; ard demonstrating the profitability and viability of rural banking through a streamlined PBDAC. Technical assistance and support for training to build up appraisal capability, develop database on rural financing and investment activities, create profiles of rural projects and rural clients, develop and disseminate market information, and train staff in rural banking would be made available to participating commercial banks under the project. Through the PBDAC, the project would study rural financial markets, prepare profiles of rural clients and disseminate the information to participating banks. The project would also promote medium- and long-term lending in rural areas, and Bank loan funds undar the project would be available for use by commercial banks. 2.17 In addition to the expectation of increasing competition in the rural banking sector, the new vision of an evolving liberalized economy with an active role for the private sector calls for redirection of PBDAC's activities away from trading to one which serves mainly the banking needs of the private sector in the rural economy. To be an effective rural financial intermediary, PBDAC would require the development of adequately diversified portfolio of risk assets through the avoidance of over-concentration, either geographically and/or by activity, on a satisfactory capital base, with sufficient liquidity to ensure the protection of depositors, an adequate supply of loans to borrowers and profits to shareholders. In addition, informal credit is expected to become a more important source mainly for short-term credit for inputs. As the private sector expands its involvement in input distribution and marketing of agricultural commodities, PBDAC's short-term lending would tend to decline, and medium- and long-term lending would expand to finance capital investment in agriculture. To finance its lending program, PBDAC would need to actively mobilize more resources through deposits. These considerations underlie the business plan which has been prepared by PBDAC to guide its activities for the coming five years. B. Prinebal Bank for Development and Agiiculatural Qredit Background 2.18 The Principal Bank for Development and Agricultural Credit (PBDAC) is the largest lender to agriculture both in terms of volume and coverage of the small farmer. It was created in 1931 as the Agricultural Credit Bank, to fulfil the institutional credit needs for agriculture. PBDAC in its present form was created by Law No. 117 of 1976, which widened its scope to include input supply and marketing functions. PBDAC is basically a holding company for the 17 Governorate level Banks for Development and Agricultural Credit (BDACs). It operates through three head office branches, with the main agricultural operations conducted through 154 district branches, 804 village banks and some 4,000 village level agents within the Governorates. Each village bank has, on average, five to seven mandoubias (village level retail outlets for farm inputs and collection of payments). These village banks together serve a clientele of some three million small farmers. Under the economic liberalization program, PSDAC is divesting its trading operation and is now in the process of transforming into a rural financial intermediary. - 14 - Management 2.19 PBOAC is governed by a board of directors of 25 persons, comprising a chairman, three vice-chairmen, nine representatives of various ministries and government agencies including the CBS, the chairman of the Central Agricultural Cooperative Union and 11 persons appointed by the Minister of Agriculture. Those appointed by the Minister consist of eight chosen from among the heads of 8DACs. The chairman is appointed by the President of the Republic. Unlike most public enterprises, PBDAC enjoys a fair measure of autonomy in its day-to-day operations. 2.20 The management of PBDAC's operations is divided between three vice- chairmen, one responsible for financial affairs, another responsible for credit, commercial affairs, production, storage and branches, and the third for organization and planning. Departments covering management information system (MIS), legal affairs, and control and inspection report directly to the chairman. The chairman has established committees with experts from outside (e.g. university deans and professors, as well as some banking experts) to provide him necessary advice and support. For the longer term, the chairman is planning to hire some experts as full-time personnel. In order to strengthen strategic planning for banking development and loan recovery, assurances were obtained at negotiations that two-exoperts. one each in development bankina and another in loan recoverv, would -be retainLed by PBDAC -for- a term of two years each and that the anvointment of the experts would be made by October 31. 1994 iparas. 4.25 and 5.03 lb . The project would complement these measures by providing training to key staff in various aspects of banking operations. 2.21 At the governorate level, each BDAC is an independent unit, and has a chairman and general manager to whom three line managers, viz. Administration and Accounting, Credit and Development, and Commercial Operations, report. Even though BDACs are independent legal bodies, each with its own bye-laws and supervised separately by the CBE, they follow PBDAC's directives and guidelines. The BDACs operate a network of 154 district level branches which act principally as administrative units for the 804 village banks and over 500 shounas.21 The organization of district branch and village bank follows the same pattern as a BDAC, with three departments (accounting, credit and commercial) reporting to the branch manager. 2.22 Most of the administrative and loan sanctioning powers are delegated to the governorate-district- and village-bank offices so as to make them functionally autonomous. The maximum loan amounts that can be approved at the different levels range from LE 20,000 for village bank manager to LE 500,000 for chairmen of BDACs. These amounts, which are periodically reviewed, have been sufficient to permit efficient processing of loan applications. 2.23 Recent Measures taken by PBDAC. Over the past few years, PBDAC has initiated a number of steps, aimed at addressing problems and issues which the institution faces, within the context of its development strategy for the future. In implementing the reform measures and strengthening its capabilities, PBDAC is being supported under the USAID-financed Agricultural Production and Credit Project (APCP). Shoura is an open space to provide storage facilities for agricultural commodities, usually enclosed by a sirple wire fence. - 15 - 2.24 overall financial management in expected to be improved with the completion of the computerized Management Information System, presently under implementation. Associated with this work, automated financial accounting manuals have been completed. The accounting system has been upgraded with effect from July 1, 1993, with the adoption of an accrual system on a monthly basis; initial training has been provided to BDAC accounting staff in this context. It is now proposed that accounts would be prepared on the basis of profit centers, with the village banks being the lowest level for which accounts would be prepared; together with the proposal tor monitoring the bank's performance through key ratios, this would provide for more effective financial management and cost controls. A study on cost accounting carried out by the Faculty of commerce in Cairo University has also been completed. Within the context of the economic reform program, a study for proposing management and ownership options for PBDAC's stores and warehouses is presently ongoing. PBDAC is already leasing out part of its storage space to private inputs dealers in the rural areas. A study has also been done to re-evaluate the assets of PBDAC, and to support the request for additional equity contribution from the Government. The work is to be enlarged to include steps for an overall loan classification of PBDAC's portfolio in line with CBE Directive 321 on loan classification and loan loss provisioning. Finally, in order to improve credit management and internal controls, manuals have been prepared on Credit Operations, as well as on Internal Auditing. Staffing 2.25 At the end of 1992, PBDAC's permanent staff numbered about 32,000: about 10 per cent of the staff was located at headquarters, 15 per cent at governorate banks, and 75 per cent in field at village banks and agencies and district branches. Typically, a district branch employs about 25-40 staff, a village bank 11-30, and a mandoubia 3-5 staff. Women employees are well represented in PBDAC (28 per cent), but in BDACs, the proportion falls to 8 per cent. 2.26 PBDAC's staff productivity is low; its staff costs, LE 249 million in 1992, were 88 per cent of total administrative costs. As divestiture of trading operations proceeds, staff expenses must first be significantly reduced, then stabilized at normal growth which permits adequate operating margins. in this context, PBDAC has been a pioneer in initiating implementation of a program for reducing staff costs, following the progressive implementation of the plan for divesting its trading operations. Guided by the recommendations of an internal PBDAC Committee, the bank's board has approved the implementation of a voluntary program for early staff retirement; this plan envisages the early voluntary retirement of about 6,850 staff over a three year period up to FY96. As of June 1993, an estimated 1,450 staff have been voluntarily retired; the estimated compensation of LE 29 million paid to these personnel was financed from PBDAC's profits for FY92. In addition, it is expected that about 2,350 staff would normally retire over the period FY93-97. Also, some 850 staff, who are presently on long leave undertaking other assignments outside of PBDAC, are being asked to either return or terminate their employment with PBDAC. Based on these estimates, and given the freeze presently in force on new recruitment, it is expected that the bank's staffing would be reduced by about 10,000 by FY97. Based on projections of the average cost per employee, it is estimated that about LE 100 million more are needed to finance the voluntary early retirement programs being implemented by PBDAC. An analysis of the projected financial accounts of PBDAC indicates that while the institution can meet these costs from internally- - 16 - generated resources, it will impact adversely on its overall financial viability, particularly in terms of increased recourse to commercial bank borrowings, lower profits and corresponding lower returns on its assets and total equity. In order to meet its target of voluntary early retirement, PBDAC is looking both internally and externally for financing the program. Finally, it is proposed to implement a training program for re-training about 2,800 staff, to enable them to take up banking-related positions in PBDAC (para. 3.26). Staff Training 2.27 Within the context of its changing role in the new economic environment, PBDAC is emphasizing the importance of upgrading staff skills In banking. Accordingly, PSDAC's training facilities have been expanded and strengthened in recent years. In addition to the residential training center at Mahalla, there are several non-residential centers, one each in 12 Governorates established with funds from USAID-supported APCP, and another center established with funds from the Small Farmer Production Project (SFPP), also USAID-supported. There are no full-time trainers but instructors are either assigned from the operating staff or hired from outside, such as from universities. Apart from funding, other constraints impeding effective training are lack of training equipment and transportation facilities. 2.28 While progress has been made in upgrading staff skills, there remains the need for providing training in relation to emerging loan demand and new means to mobilize deposits. Rey areas requiring attention include analysis of agro- processing projects, sector risks, project implementation monitoring, review and analysis of business operations, particularly deposit mobilization and financial management, as well as in the specific technical and environmental skills necessary to ensure the quality of portfolio, with particular reference to agro- processing operations. There is also need to provide the more senior staff with proper orientation and training in supervising the work of credit officers and follow-up loan amortization. C. Lending oberations Lendinf Policies and Procedures 2.29 Lendino Policies. PBDAC's lending operations have conformed generally to the principles derived from the loan policy incorporated in its Credit Manual. These principles seek to ensure that loans are made for financially and economically sound purposes to which the Government has assigned high priority and that funds lent are utilized as intended. Within the scope of the banking laws, these policies must necessarily be developed and adjusted in the light of experience and changing conditions. 2.30 Lending Procedures. Lending operations are presently governed by the Credit Manual. Credit officers and staff are trained in the use of the manual. The manual is fairly comprehensive and covers the various types of credit available for each activity, appraisal criteria, borrower's contribution, interest rates, maturities, collateral for loans and amount to be lent against each type of crop. Short-term loans are usually granted for periods of less than 12 months, medium-term loans for one to five years and long-term loans for periods exceeding five years. - 17 - 2.31 Interest Rates. The Central Bank of Egypt has freed all banks since January 3, 1991, to set their interest rate structure subject to interest on time deposit for three months and above at not less than 12 per cent per annum. The current structure of interest rates for PBDAC is given in Arnex 2, Part A, Table 9. Interest rates vary according to loan purposes and maturity period as follows: - 16-18% p.a. for short-term crop loans; - 19-20% p.a. for short-term investment loans; - 17-19% p.a. for medium and long-term investment loans; and - 21% p.a. for commercial loans. These rates, which were prevalent during project appraisal, are positive in real terms and are subject to quarterly changes. 2.32 Borrower's contribution is required at 30 per cent of production cost for short-term crop loans, 35 per cent of estimated cost for other short-term loans, 15-25 per cent of the total value of agricultural machinery and equipment (mechanization), 50 per cent of investment cost for horticulture, and 35 per cent and 50 per sent of capital cost respectively for acquiring machinery and purchasing fixed assets, in respect of medium-term loans. 2.33 Collateral. The value of the collateral offered to secure a short- term loan is crop lien or on crops stored either with the bank or the borrower. Tangible assets like machinery or equipment financed by the loan are part of the collateral for medium-term loans. For long-term loans (land reclamation and improvement), the collateral is a mortgage on the land. 2.34 Loan Aooraioal. Loan appraisal is done in most cases, following standardized procedures. For big loans (exceeding LE 5(,000), feasibility studies are required. A loan request is processed and evaluated by every level from the village bank to PBDAC headquarters when loan the amount is beyond the powers of BDAC. With technical assistance from the USAID, PBDAC is being assisted to improve loan appraisal and supervision procedures. A credit manual has been prepared and is used in training credit officers and staff. Loan Portfolio 2.35 PBDAC's total lending almost doubled from LE 2.3 billion in FY 1988 to LE 4.4 billion million in FY 1991 but declined to LE 4.2 billion in FY 1992. An overwhelming majority of PBDAC's clients are some three million small farmers; in a portfolio of about LE 4.2 million, only an estimated 11,000 loans exceed LE 20,000. A notable feature of thet loan portfolio is the growing share of medium- term loans which accounted for 22 per cent of total loan disbursement by PBDAC in FY 1992, compared to 18 per cent in PY 1988. This diversification of loan portfolio is a promising sign and suggests the need for greater initiative by PBDAC in studying and identifying the viable sectors of the rural economy, and for the mobilization of resources for financing viable pro-rams on a stable an,! increasing rate. 2.36 At the on-going rate of increase of demand for farm-related business loans, about LE 790 million would be added annually to the list of projects. It is expected that this trend will continue in the future and that PBDAC will further diversify its loan portfolio. Financial projections indicate that disbursement of medium- and long-term loans would rise to 40 per cent of the - 18 - total loans granted by FY 1997. With the de-linking of input trading from PBDAC'S lending program, it is expected that crop loans would show only a modest nominal growth of 6.2 per cent per anntwm over the next five years. This would allow PBDAC to devote greater attention to development lending, a key function of the bank. Medium- and long-term loans are targeted to grow at an annual nominal rate of about 14 per cent or real rate of 6 per cent. Overall loan disbursement growth is conservatively targeted at 7.3 per cent per annum, which, in real terms, implies that disbursement will be maintained at present levels. Loan Recovery Performance 2.37 PBDACUs overall loan recovery rates have reached 92 per cent in the past, with short-term loan collections exceeding 90 per cent and medium- and long-term loan collections averaging 84-86 per cent during FYs 1988-91 and 81 per cent in FY 1992. While this impressive performance in the past is, to some extent, linked to PBDAC's input supply and marketing functions, it has, nevertheless, established a credit discipline within the rural community of Egypt. PBDAC's loan provisions of LE 345 million as at the end of June 1992 is 8.8 per cent of the total loans outstanding. Age-analysis of overdues is not presently available. Taking total arrears on an annual basis and matching them with cumulative provisions for possible loan losses gives the following picture: Table 2.1: OutstandinU Loans. Arrears and Provisions .......... . ...I:.. .........~~ . ....03iof 2. Total oans Outta90.7I Total* Loa Ar / - g lw /c~4 25(1 t\OArh 95 - ANNEX 2 Part B Page 11 of 14 ARAB REPUBLIC OF ECYPT AGRICULTURAL MODERNTZATION PROJECT OPERATIONAL ACTION PLAN Action Responsible Timetable Agency A. OPERATIONAL PSLICY AND PLANNING 1. Establish a portfolio management PBDAC By June 1994 policy including guidelines for provision for possible loan losses (in accordance with the Central Bank directives), loan appraisal, monitoring, and recovery. 2. Submit to the Bank a business plan P8DAC Annually, with first plan setting forth details on nature and to be submitted prior to composition of lending program, negotiations resource mobilization, organizational and manpower mix and requireraents and monitoring and evaluation. 3. Maintain an interest rate policy PBDAC Annually which ensures the financial viability of PBDAC. B. ORGANIZATIONAL IMPROVEMENTS 1. Divestiture of trading activities PBDAC Phase out by June 1996 2. Staffing PBDAC Finalize staff profile and size by June 1995 3. Review organization and managrment PBDAC Finalize study and of head office BDACs, district proposed action plan by branches and village banks. June 1994 4. Prepare schemes for staff reduction PBDAC By March 1994, for first and training for first two years of two years, by March 30. project implementaton and provide each year there after. the plan for the years after. 5. Implement training scbemes PBDAC Annually according to agreed schemes -96- ARqNEX 2 Part B Page 12 of 14 C. FINANCIAL MANAGEMENT AND CONTROLS 1. Maintain PBDAC-s capital (including GOE Continuously after June reserves) at a minimum of 10% of 1994 net loans (after loan provisioning) 2. Review internal audit system PBDAC By June 1997 3. Undertake external audit in PBDAC Annually addition to audit by CAO, and submit long-form audit report to the Bank 4. Submit to the Bank a fnancial plan PBDAC By June 1994 with annual targets leading to: (a) Achieving and maintaining a pre-tax return of at least 1% on total average assets by June 30, 1997; (b) Achieving and maintaining a ratio of pre-tax profits to networth of at least 8% by June 30, 1997; (c) Achieving and maintaining interest-bearing assets to total assets of at least 70% by June 30, 1997; and (d) Reducing and maintaining operating expenses that would not exceed 60% of PBDAC's net interest income by June 30, 1997 D. RESOURCE MOBELIZATION 1. Strategy for deposit mobilization PBDAC By June 1994 2. Improve deposit mobilization at a PBDAC Annually rate in excess of the tate of inflation - 97 - ANNEX 2 Part B E. OPERATIONAL PROCEDURES Page 13 of 14 1. Prepare credit and portfolio PBDAC By June 1994 management manual and obtain Board approval 2. Reconcile inter-branch. inter-bIank PBDAC By December 1994 accounts (outstanding for over 6 months) and other assets and liabilities accounts F INFORMATION AND REPORTING SYSTEM 1. Review accounting and computer PBDAC By June 1994 system 2. Review, update and implement PBDAC By June 1994 appropriate Management In.ormation System 3. Reporting of loan recovery and PBDAC By June 1995 ageing of arrears, in accordance with prescribed guidelines G. STUDIES 1. Unertake Rural Financial Market Study PBDAC By June 1995 2. Review and update Deposit Mobilization Study PBDAC By June 1995 - 98 - ANNEX 2 Part B Page 14 of 14 Sample Format of Age Analysis of Overdue Loans No. of Amount of Percent of ... Overdues ... Loans Loans Overdues Principal Interest Amount Amount 1. Loans Overdue by: - 0-90 days - 91-180 days - 181-365 days - t-2 years - Over 2 years Total Overdue Loans 2. Loans Outstanding but Excluding Overdue Loans 3. Total Loans Outstanding (I +2) STAFF APPRAISAL RBPORT ARAB REPUBLIC Of EGYPT AGRICULTURAL MODIRNIZATION PRaO7ECT THE PRINCIPAL BANK POR DEVELOPMENT AND AGRICULTURAL CREDIT FINANCIAL PROLECTIMCWs FY S3 - FY 97 (LB million) BALANCE SHEET ITEM ACM" PROJECTIOUS I CAGR OAt;R BASIS OF PROJBCTIOS3 ------ (----------------------- -ikninal) (Resl1 6/30/92 5 6/30/93 4/30/94 6/30/95 6/30/96 6/30/97 | FY 92-97 PF 92-97 cashsi I on hand 20.0 24 of CuOrent and Savings Accounta 22.0 24.0 25.s 26.9 26 3 7.2t -0.24 Due from bank. 164.0 Reduced to LB 0So il. and stabillsed SO.0 S0.0 so5o so.0 50.0 -21.1% -26.54 184.0 72.0 74.0 75.5 76.9 78.3 -15.7t -21.S 6 Financial tnveostments Shares and investments 10.0 Increased annually by LB 16 oil. for 3 years 26.0 42.0 58.0 56.0 58.0 42.1% 32.4% Government bonds 32.0 ScabiltSed 32.0 32.0 32.0 32.0 32.0 O.Ot .6.6% 42.0 50.0 o 74.0 90.0 90.0 90.0 16. 5t 8.5t loans Overall disbursements growth at rate of inflation. Short-term 1566.0 Disburseoent ratio (Short-term t Medium and long-terml reachea 2043.0 2126.7 2105.4 2131.1 2148.9 6.2t .1.0% Medium-term and Long-term 2319.0 60:40 in Fn 97. 2239.2 2604.1 3242.3 3852.1 440B.0 13 74 S S1 ... __ Recov ery ratea t Short-term an91 Medium-term and Long-term t 92%. ------------ --------------..___._---___ Total Loan 3907.0 4283.0 4730.7 5347.7 5953.2 556.5 38.9% 3.3% Proviaione for loan losses 345.0 Proportion of loans outstanding :10%. 10.5% 11%, Il.S% and 12% 426.3 4S6.7 500.2 608.1 3$6 0 17.9% 9.9% in the five years respectively ..... ---__ _ _ _ . NMt Loans 3S62.0 3804.7 42I4.0 4759.5 5295.1 5770.1 10.1% 2.6t Accounts Receivable Government accounts 409.0 Reduced annunlly by Li 100 il. for 3 yea. and br IB SO mil. ther after 389.0 299.0 189.0 139.0 *9.0 j -20.9t -33.71 Other Accounts Receivable 1016.0 Reduced annually by Lt 100 oil. for 3 years and by LB SO ml. thereafter 916.0 016.0 716.0 666.0 616.0 -9.% -15.7% 1505.0 1305.0 1OS.0 90S.0 605.0 705.0 -14.1% -19.9% Inventory 595.0 Auleal realization in the sae proportion as reduction of 4 416.5 297.5 176.5 59.5 0.0 NA BA non-banking activities i.e.. 301, 204, 20%4 20 and 10% of base year i Fixed asoets 85.0 AdditionS of 10% annually, depreciation of 5t annually 09.3 93.7 90.4 103. 1009.S 5.0% -2.2% TOTAl. ASSETS 5973.0 579S.4 5070.2 6106.9 6429.0 6751.8 2.5% -4.5S ........ ............ .. .--.- .........-. ----......... .d I- pe go 6*'0 to -t STAFF APPP.AT8A REPORT lAMA REPUBLC OF BGY*1T AGRtICUITURAL MDDURZIIZATtON PROMCT THE PRINCIPAL BANK FOM EVEWW4EW AND AGEICUIX.URAL, CREDIT FINANCIAL PROOECIrIONS, FY 93 - FY 97 (La million) BAL%NCE SHEET ITEM I CULPnoJEriows Icum cmn BASIS OP PRWECTIo*s .................. (NomIta1I (Real) 6(3/92 4/30/93 6/30/94 gt3O/9S $/I30/96 6/30/91 rYF 92-97 FT 92-97 -- - - - - -- - - - --- - - - - - -- - - - - -- - - - - -- - - - - - -- - - - - -- - - - - -- - - - - -- - - - - -- - - - - ---- - - - -- - - - - - …- - - - - LIABILITIES AND EQUITY Deposits Grow~th at rate of Inflation Cusrrent 39S.0 437.3 470.8 508.0 536.0 562.0 7.3Il 0.0%t Fixed time dleposits 640.0 700.5 77S.8 823.1 660.4 913.0 7.3% 0.0% CDs 247.0 162.7 178.2 189.1 199.S 209.4 I 7.3%k 0.0% Savings 597.0 660.9 723.? 767.8 010.0 050.5 7.3% 0.0% Others 07.0 96.3 105.5 111.9 110.0 123.9 7.30 0.0% 1866.0 2065.7 2261.9 2399.9 2531.9 2454.5 7.3% 0.0% Due to cosmercial banks 1628.0 Supplosmatal funding (Balancing figure) 1249.9 955.7 1043.2 1172.7 1263.2 -4.9% -11.4% o local loans 8.0 Stabilixed 8.0 8.0 0.0 8.0 0.0 0.0% -6.8%k Foreign loans (Current projects) 424.0 Incrseaed annually by LB S0 oil. 474.0 S24.0 574.0 624.0 674.0 9.7% 2.2% Agricultural Modernization loan increased by $0 mil. in FTY 95. $10 oil. In TY 96. $20 .i1. In PT 97 0.0 0.0 26.7 60.0 126.7 Rh NA 432.0 402.0 532.0 400.7 692.0 000.7 13.4% 5.6% Accounts payableI Govt. and other orgjanizations 217.0 Reduced annvl~ly by LB S0 isil. for 3 years 167.0 111.0 67.0 67.0 67.0 -20.9% -a6.3* Other accounts payable 1104.0 Reduced annually by LB 100 tail. for 3 years and by LB 50 mail. 1004.0 904.0 005.3 759.4 710.3 -8.2% - 14. 5% thereafters Increased bY Interest accrued on Agr. Mod, loan Net profit due HOF 11.0 oividlendS due are paid and balance is zero 0.0 0.0 0.0 0.0 0.0 -100.0% *140.0k 13 2.0 1171.0 1021.0 072.3 626.4 785.3 -10.0% -16.2% TOTAL LIABILITIES 528. 4960.S 4770.6 4924.0 5222.9 SS15.6 1.0% -5.9% Capital 62.0 increased by Lit 200 million In FY 94 62.0 262.0 262.0 262.0 262.0 1 33.4% 24.3% Reserves 209.0 rncreased by amounts transferrad to reserves from current income 220.9 2S1.7 216.9 300.9 330.2 9.6% 2.1% APP and SFPP capital grants 444.0 Increased by LU3 108 .1l. in FT 93. and by LU SO tail, in FY 94 and 544.0 594.0 644.0 644.0 644.0 7. 7% 0.4%k FT 95 TOTAL EQUITY 715.0 826.9 1107.7 1182.9 1206.9 1236.2 11.6% 3.9% TOTA LIABILI?IES AND EQUITY 5973.0 57545832606.9 6429.0 $671.9 2.5% -4.5% ....... .......I...... . .... 2 0 Sh Po 0 STAFFT APPRtAISAL REPORT ARA RUPgULIC OF IGYPr AGRICULTURAL HODRAIhIATOI PRW.YET THU PRINCtPAL BANK FPR DUVULOHRII AID AGRIMUTURAL CRW11T FINANIAL PRO.JErCIONs, PT 93 - FT 97 ILE million) incGIU STATEMen ITEM ACTUAL ~o Is ONS I CAG' .=R I BAB~~~~~~~~~~sis OF PROJECIONS ----------- (Nominal) (Real) 6/30192 16/30/93 6/30/94 6/30/96 6/30/96 6/30/97 I 1992-91 1992-07 Interest on .credit Short-term loans 151.9 Projected Interest rates applied to overage outst:andings I272.4 319.0 27. 0 247.8 237.50 9.49 1.99 Medium and lon-term lbane 456.6 I387.4 418.9 435.6 406.5 541.0 3L4 -3.79 interest Subsidy 63.9 Lit 46 oll, In FY 93 and LU 23 nsil. In FT 94 (Hio subsidies after Dec.93) 46.0 23.0 0.0 0.0 0.0 -100.09 -100.09 674.4 705.9 761.0 708.S 733.0 778.6 2.99 -4.19 Blanking services and fees 12.4 Encreased animally by 10% 13.6 IS. 0 16.5S 16.2 20. 10.09 2.596 Income from investments 3.6 Same as Interest on credit 2.0 2.6 3.3 3.6 3. 17.69 9.69 Other Income 7.6 Increased annully by 5t 8.0 8.4 8.8 9.2 9.S. 0% -2.29 TOTAL R5VENUR FROM BANKIN 969.0 729.5 767.0 737.1 764.C 1. 3.19t -399 lIon-banking activities 219.0 Reduced in the proportion of 109, 20%. 20%t, 209 and 109 of base year 153.3 109.5 65.7 21.9 0.0 phN PA 0 Prior year adjustment 26.6 TOTAL RUVUNRS 943. 6 662.S 996.5 802.8 786.7 01. 3.0%t -9.69 RXPRNBS .n.eres epne. Projected interest rates applied to average outstandings.e* Deposits j 194~~~~~I.9 226.1 233.7 104.1 165.2 1583 *.19 -06 Commercial banks 243.9 194.3 1S2.2 106.9 107.5 110. -14.5% -20.39 foreign Loana(current projects) 36.8 53.9 59.9 65.9 71.9 77.. . 16.8% 8.89t Agricultural M4dernizatLon loan o.o 0.0 1.3 4.1 IAq NA ph SMaros 1.4 1.1 1.1 1.1 1.1 11 -4.494 -10.9% 476.0 47S.A 446.9 361.3 349.8 357. 1 S..6% .12.09 Personnwl Costas Salaries 245.7 rncreseed annually by 59; Planned normal and early retirement considered . i 251.2 244.1 240.2 242.9 -0.59 .7 'J Rarly Retirement compenation 29.0 120 months basic aalsry(25% of total salary) to early retiring es,poyaeea '10 44.2 36.1 21.7 0.0 I-190.09 -10- ~% Lesx: Grant 1009 of early retirement compensation 0. 44. 361 21.7 0.0 NA NA j277.7 1_255_.1 2532.2 244.1 24'0.:2 242.9- -2.6% -9.39 Provision for Loan losses 60.0 Amount required to arrive at provisions as propoztion of loans 83.3 68.4 91.5 99.5 90.8 10.59 2.99 I outstanding ratio of 10%. 10.5%, 11, 11.S% end 129 I Other expenses 35.2 jReaeting to banking activities (25) increased annually by St 27.7 22.9 16.1 13.3 11.2 -20.49 -25.99 Relating to non-banking activities (759) reduced In same orogortion ise income tro mnn-banking activities TOTAL EXPRNSRS 840.9 ~~~~~~~~~~~~641.4 789.4 715.1 701.3 709.9 -3.59 -10.19 etg i-0 m STAPP APPAAISM. REPORT MARA MIUDLIC OF EGypT AGRXCVL11JRA NODSIZATION PROJBC7 EGYPT AGRICULTMRAL IWBMIZATIO16 PROJECT T163 PAINCI PAL, W POt DEVELOPN4II AND AGItICULTURAL CREDIT FUIAICIAL PRWRCTIONS, IY 93 - T 97 (LE million) INCOIN STATEMENT ITEMl ACTUAL IPR1OJECTIONIS ICAGR CAGA DASIS OP PROJSCTION4S ---------------------- (Raminol) (3ia1) 16/30/92 I 6/30/93 6/31/94 4/30/95 6/30/96 6/30/97 1992-97 1992-97 116c014 BEFOItS TAXES 94.7 41.3 107.1 67.7 03.S 102.0 I-St5 .S.4% ..... . ........... ........... Taxes 63842.St of income before taxes 17,6 45.6 37.3 3S.S 43.3 j -7.4% -13.3.% NET? flCTW4 AFTE TAXES 30.9 23.8 61.6 04 4. 58.6 13.7* S.9t Appropriation: 0 Transfer to Reserves 14.4 So% of net profit after taxes 11.9 30.8 2S.2 24.0 29.3 I 165.3% 1.4% I' Dividendo to MOP' 10.7 Salance proflt after transfer to reserves 11.19 30.0 2S.2 24.0 29.3 I 22.3% 14.0% Others 5.8I -100.0% -X00.0% 30.9 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 138 61.6 6. 4. 58.6 13.17% S. 9% -------- ................ ...................... ~ 40 STAFF APPRAISAL REPORT ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIIZATION PROJECT THE PRINCIPAL BANK FOR DEVELOPMENT AND AGRICULTURAL CREDIT FINANCIAL PROJECTIONS, FY 93 - FY 97 (LE milihon) FUNDS FLOW STATEMENT PROJECTIONS I 6/30/93 6/30/94 6/30/9S 6/30/96 6/30/97 SOURCES OF FUNDS | Net Profit 23.8 61.6 50.4 48.0 S8.6 Add: Depreciation 4.3 4.5 4.7 4.9 5.2 Less: Dividends | 11.9 3.8 25.2 24.0 29.3 Cash profits retained 16.1 35.2 29.9 28.9 34.5 Repayment of loans 3 short-term 3032.1 3481.8 3533.2 3536.9 3573.2 Medium-term and Long-term 1242.4 1162.8 1252.8 1527.8 1838.2 4274.5 4644.6 4785.9 5064.7 5411.4 Increase in Deposits Current 42.3 41.5 29.2 27.9 26.8 Fixed time deposits 68.5 67.3 47.3 45.3 43.4 CDg S 15.7 15.5 10.9 10.4 10.0 8avings 63.9 62.8 44.1 42.2 40.5 Others 9.3 9.1 6.4 6.2 5.9 199.7 196.2 138.0 -32.0 126.6 Increase / (Decrease) in Borrowings Foreign Loans (Current projects) 50.0 50.0 50.0 SO.0 50.0 Agricultural Modernization loan | 0.0 0.0 26.7 33.3 66.7 Commercial Banks | (378.1) (294.2) 87.5 129.5 90.5 I…--- - _._______-____ ___-_____-_ -____-____-_ I (328.1) (244.2) i64.2 212.8 207.2 Capital Grants : APCP and SFPP j 100.0 SO.0 50.0 0.0 0.0 Capital 0.0 200.0 0.0 0.0 0.0 Other Sources Increase in Provisions 83.3 68.4 91.5 99.8 98.8 Decrease in accounts receivable 200.0 200.0 200.0 100.0 100.0 Decrease in Inventory 178.5 119.0 119.0 119.0 59.5 00 461.8 387.4 410.5 318.8 258.3 OT E72.0 5269.3-57.-----------77-------------.2- 9 - O. TOTAL souces 4 47240 5269.3 SS5?8.5 5757.2 6037.9 aX O ........ 0.......... 0 .................................. to STAFF APPRAISAL REPORT ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT TBlE PRINCIPAL BANK FOR DEVELOPMEN,T AND AGRICULTURAL CREDIT PINANCIAL PROJECTIONS, FY 93 - PY 97 (LE million) FUNDS PLOW STATEMENT PROJECTIONS 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 APPLICATION OP FUNDS Loans disbursed Short-term 3487.9 3564.6 3511.9 3562.6 3591.1 Medium-term and Long-term 1162.6 1527.7 1891.0 2137.5 2394.0 J - - - - - - - - - -… - - - - - - - - - I 4650.5 5092.3 5402.9 5700.1 S985.1 Other applications I 0 Decrease in Accounts Payable 161.0 160.0 148.7 45.9 41.1 SS Increase /(decrease) in cash and due from banks (112.0) 2.1 1.S 1.4 1.3 1 Increase in financial investments | 16.0 16.0 16.0 Purchase of fixed assets 8.5 8.9 9.4 9.8 10.3 I…_---------------- ----------------- ----------------- 73.5 177.0 175.6 57.1 62.8 I…__ --- - ________ --- --- --- ---__ - --- ________ TOTAL APPLICATIONS 4724.0 5269.3 5578.5 5757.2 6037.9 eQ 00 o t-w M STAFF APPRAISAL REPORT ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT THE PRINCIPAL BANK FOR DEVELOPMENT AND AGRICULTURAL CREDIT FINANCIAL PROJECTIONS, PY 93 - FY 97 RATIO ANALYSIS PROJECTIONS 6/30/93 6/30/94 6/30/95 6/30/96 6/30/97 PROFITABILITY I --I Total Revenues / Average total assets | 15.00% 15.36% 13.40% 12.55% 12.32% Interest revenues / Average total assets | 12.00% 13.04t 11.82t 11.71% 11.81% Interest expenses / Average total assets 8.08% 7.66% 6.03* 5.58% 5.42t Net interest income / Average total ajsets | 3.92% s.38% 5.79% 6.13% 6.40* Non-interest income / Average total assets | 3.01% 2.32% 1.57& 0.84% 0.50t Total operating expenses / Average total assets | 4.81% 4.70% 4.38% 4.04t 3.86% Staff expenses / Average total assets | 4.33% 4.30% 4.07% 3.83% 3.68t RETURNS ROA:Pre-tax profit / Average total assets 0.70% 1.83% 1.46% 1.33% 1.55% ROE:Pre-tax profit / Average Equity 5.36% 11.07t 7.66t 6.99% 8.35% INTERMEDIATION MARGIN | Interest income from loans / Average total 17.24% 16.88% 14.06% 12.95% 12.42% loans outstanding Interest expense / Average interest payable liabilities 12.31% 11.84% 9.26t 8.28% 7.82% Net inter.iediation margin 4.93% 5.04% 4.80% 4.67% 4.59% STAFFING EFFICIENCY Pre-tax profit / Average Staff (LE) | 1113.6 3075.1 2722.7 2766.2 3507.7 Pre-tax profit / Staff costs 16.20% 42.62t 35.94* 34.77% 41.99t LIQUIDITY AND CAPITAL ADEQUACY | Capital / Risk-adjusted assets 14.16% 18.25% 18.29% 17.42% 16.73% Liquid assets / Total assets 2.24t 2.52t 2.71t 2.60t 2.49t Loans (Interest earning assets) / Total assets | 73.90% 80.48% 87.57t 93.05% 97.11% Loans / Deposits I 207.34% 209.1S% 222.83t 236.31% 246.64% ASSET QUALITY Provisions / Loans 10.00t 10.50% 11.00t 11.50t 12.00t Annual provision / Loans outstanding 1.94% 1.45t 1.71% 1.67% 1.51% Izt - 106 - ANNEX 2 Part C Page 1 of 7 ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT SUBSIDY DEPENDENCE INDEX OF PBDAC!L Methodology 1. The SDI coiputations for PBDAC are given in page 4. In the SDI computations, subsidies have been imputed tos (i) Concessional borrowings (ii) Equity invested in PBDAC (iii) Exemption from reserve requirement on deposits Direct interest subsidy received by PBDAC has also been considered. The profit earned by PBDAC is deducted from the total subsidy to arrive at the adjusted subsidy. The adjusted subsidy is compared with the interest income earned by PBDAC to determine the SDI. 2. The market rate of interest for PBDAC has been computed by adding a risk premium of 1% to the 6 month Treasury Bill rate. While the actual Treasury Bill rates have been used for FY91 and FY92, the projected Treasury Bill rates (provided by Country Operations Division) have been used for FY93 to FY97. For FY90, for which there is no Treasury Bill rate (since the rate was controlled), the rate of FY91 has been used. SDI AnalXsis 3. PBDAC's SDI shows a declining trend over time as can be seen from the table below. This is also graphically illustrated in Graph 1. The SDI declines from 54.1% in FY90 to 12.9% in FY97. The marginal increase in SDI from FY92 to FY93 is due to the decline in profits in FY93. SUBSIDY DEPENDENCE INDEX OF PBDAC I r Actual I Projected FY 90 FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 Subsidy 54.1% 52.7% 42.2% 43.2% 24.9% 20.5% 17.4% 12.9% Dependence Index 1/ For details on SDI see Yaron: Assessinc Develonment Finance Institutions : A Public Interest Analysis, World Bank Discussion Paper No. 174, 1992 - 107 - ANNEX 2 Part C Page 2 of 7 Components of SDI 4. The table below shows the movement of different components of the numerator of the SDI over time. This has also been graphically illustrated in Graph 2. COMPONENTS OF SUBSIDY DEPENDENCE INDEX (Amounts in LE million) Actual Projected FY 90 FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 Subsidy 28.9 34.0 45.9 28.5 14.5 1.0 -5.4 -9.2 on con. borrowing | Subsidy 93.5 108.4 137.7 141.4 144.1 138.7 131.3 127.5 on Equity l Direct 112.0 109.0 63.9 46.0 23.0 0.0 0.0 0.0 int. sub. Subsidy 129.5 152.7 103.2 103.1 95.5 86.3 83.4 84.0 on Res. exemption __ TOTAL 363.9 404.1 350.7 319.0 277.1 226.0 209.3 202.4 SUBSIDY Profit 150.6 143.5 92.8 34.3 93.2 80.7 81.9 102.0 bef. tax (Banking) 'ADJUSTED 213.3 260.6 1257.9 284.7 183.9 145.3 127.4 100.4 SUBSIDY~~~~~~~~afet S. The SDI for PBDAC is largely influenced by three factors: (i) The market rate of interest which affects the imputed subsidy on concessional borrowing, on equity, and on reserve exemption. (ii) Direct interest subsidy (iii) Profit earned 6. The declining SDI results from declining imputed subsidies, elimination of direct interest subsidy and increased profits. Total subsidy declines from LE 363.9 million in FY90 to LE 202.4 million in FY97. Profit before tax initially declines from LE 150.6 million in FY90 to LE 34.3 million in FY93, but increases gradually to LE 102.0 million in FY97. Declining imputed subsidies result from declining market rate of interest (thus resulting in lower imputed subsidy on concessional borrowings, on equity, and on reserve exemption). - 108 - ANNEX 2 Part C Page 3 of 7 SUBSIDY DEPENDENCE INDEX COMPONENTS OF SUBSIDY FY 90 - FY 97 FY 90 - FY 97 80 m sub. an _urmI C Sub. an S uty .Dr-ct at,L ab. 90 Sub an am S0 \ L8 SDlhn 500 20 100 410 -0t l'1j:g: 0 o} l I I100 . I I 1090 91 92 93 9 go 97 90 192 94 95 9 97 =--ACTUAL-- ------PROJECTED-------- Graph 1 Graph 2 -109- ANNEX 2 Part C Page 4 of 7 STAFF APPRAISAL REPORT ARAB REPUBLIC OF EGYPT AGRICULTURAL NODERMIZATION PROJECT SUBSIDY DEPENDENCE INDEX FOR PBDAC ...... .......... ._... .... ............................................................................................ ......ACTUAL . --- ----- PROJECTED. ITEM Unit FY 90 FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 FY 97 Market Rate of Interest 1/ 19.5X 19.1X 21.0X 18.3X 14.91 12.1X 11.01 10.4X Avg. Cost - Concess1Onal Funds 21 4.1t 7.6X 9.2X 12.01 12.01 11.91 11.81 11.71 Average Concessional Borrowings LE NIL 188.0 295.0 389.5 449.0 499.0 562.3 642.3 742.3 Subsidy on Borrowings LE WiL 28.9 34.0 45.9 28.5 14.5 1.1 -5. 1 -9.4 Average Equity 3/ LE Nil 480.5 567.0 656.0 770.9 967.3 1145.3 1194.9 1221.6 Subsidy on Equity LE Nil 93.5 108.5 137.6 141.4 144.1 138.6 131.4 127.S Direct Interest Subsidies LE Nil 112.0 109.0 63.9 46.0 23.0 0.0 0.0 0.0 Subsidy on Reserve ExemptIon 4/ LE NiL 129.5 152.9 103.1 103.1 95.5 86.2 83.5 84.0 Total Subsidy 5/ LE NiL 363.9 404.5 350.5 319.0 277.0 2Z5.9 209.8 202.2 Profit before Tax 6/ LE NIl 251.02.0 0 123.7 41.3 107.1 87.7 83.5 t02.0 Percent Share of Banking Operation 60.01 70.01 75.0X 83.0X 87.01 92.01 98.01 100.01 Profit Attributed to Banking LE Nil 150.6 143.5 92.8 34.3 93.2 80.7 81.8 102.0 Interest Income LE Hil 394.0 495.0 610.5 659.8 738.0 708.5 733.8 M.6 Subsidy Dependence Index 54.11 52.71 42.21 43.21 24.91 20.51 17.41 12.9X Average Total Loans LE Nil 3037.5 3682.5 3961.5 4095.0 4506.9 5039.2 5665.4 6270.0 Average Lending Rate 13.01 13.4X 15.4X 16.11 16.41 14.11 13.01 12.41 Increase in Lending Rate Reqd. 7/ 7.0X 7.11 6.51 7.01 4.11 2.91 2.3X 1.6X Lowest Sustainable Interest Rate 20.01 20.51 21.91 23.11 20.51 16.91 15.21 14.0X 1/ 6-month treasury bill rate is used as the base rate for short-term funds. An additional margin of 21 is added to derive the base rate for medium-term and long-term funds. An altowance of 1X towards risk premium has been added to the base rate to derive the market rate of interest. The market rate of interest is a weighted average of rates for short-term and medium and long-term funds, with weights being the proportion of short-term loans and medium and long-term loans at the begiming of the year. For FY90, when there was no issue of treasury bills, the rate for FY 91 is used. 2/ Consists only of foreign loans. 3/ Equity includes paid up share capital, reserves and capital grants. 4/ Reserve requirements were 251 upto December 1991, and 151 thereafter. 5/ Total subsidy is a sum of concessions which PMDAC receives from access to funds at below market interest rates, foregone inonme on equity imputed at market rate of return, direct interest subsidies and implicit subsidy resulting from exeption of PIDAC from reserve requirements. 6/ Profit before tax for FY 92 includes LE 29.0 million extraordinary expense (early retirement compensation) added back T/ Although dependence on subsidies can be reduced by other methods (eq. cutting costs such as administrative costs), increasing interest income is used for convenience. - 110 - AMNE 2 Part C Page 5 of 7 ARAB REPUBLIC OF EGYPT AGRICLTURAIL MODERNIZATION PROJECT ASSUMPTIONS FOR FINANCIAL PROJECTIONS : FY93 - FY97 Income Statement 1. Interest Income The following laterest rates were applied to average loans outstanding. Rates for FY93 were based on actual rates prevailing. FY93 FY94 to FY97 dShort-term loans 16% Treasury Bill + 3% Medium-term and long- 18% Treasury Bill + St term loans The interest rates mentioned above were reduced by 1% for FY93 and by 0.5% for FY94 to reflect the lower lending rate due to subsidized lending. 2. Direct Interest Subsidy. Direct interest subsidies are being discontinued from January 1, 1994. For FY93, the annualized amount of subsidy actually received upto March 31, 1993 was considered. Subsidy for FY94 was assumed at the same level as that for FY93, but for half of the year. 3. Interest Ex_enses. The following interest rates were applied to average balances of borrowings. Rates for FY93 were based on actual rates prevailing. FY 93 FY 94 to FY 97 Deposits (Average) 11.5% Treasury Bill - 2% Commercial Bank 13.5% Treasury Bill + 1% borrowings Foreign loans (Current 12.0% 12.0% projects) Agricultural 9.5% 9.5% Modernization loan Local loans 14. 0% 14.0% 4. Income from non-banking activities. Income from non-banking activities were assumed at 70%, 50%, 30%, 10% and 0% of FY92 (base year) figures in the five years respectively. 5. Personnel Expenses. Personnel expenses were increased by 5% annually to take into account annual increments. PBDAC' planned retrenchment program to - 111 - Part C Page 6 of 7 eliminate excess staff due to divestiture of non-banking operations (through normal retirement and early retirement) was considered. Normal retirement was based on number of employees acheduled to retire. 6854 employees are targeted for early retirement of which 1410 actually retired in FY93. The balance wert projected to retire in the proportion 45%, 35% and 20% in FY94, FY95 and FY96. 6. Early Retirement Comoensation. Early retirement compensation at 120 months basic salary (which is 25% of total salary) to employees retiring early was assumed. Grants equivalent to 100% of early retirement compensation was assumed. 7. Provision for loan losses. The charge to the income statement stoa an amount required to make the provisions balance equsal to 10%, 10.5%, 11%, 11.5% and 12% of loans outstanding in the five years respectively. Balance Sheet - Assets 8. Loans. Loans disbursed was projected to grow at the rate of inflation (i.e., zero real growth rate). The proportion of short-term loans was projected at 75%, 70%, 65%, 62.5% and 60% of total loans disbursed in the five years respectively. Loan recovery rate (Collections / Current dues + Past overdues) was assumed at 82% for medium-term and long-term loans and at 91% for short-term loans. Short-term loans were assumed to be repaid in the proportion of 50% in the year of disburs emnt and 50% in the next year. Medium-term and long-term loans are assumed to be repaid in the proportion of 10% in the year of disbursement, 30% in first year after disbursement, 30% in second year after disbursement, and 30% in third year after disbursement. 9. Inventory. Inventory was assumed to be realized in the sae proportion as reduction of non-banking income. Balance Sheet - Liabilities and Equity 10. Degosits. Deposits were assumed to grow at the rate of inflation (i.e., zero real growth rate). 11. Foreian loans. Additions to foreign loans on current projects was assumed at LB 50 million per year. Receipts of Agricultural Modernization lean was assumed at the equivalent of US$8 million, US$10 million, and US$20 million in FY95, FY96, and FY97 respectively. 12. Ca2ijal. Additional capital infusion of LB 200 million was assumed in FY94. 13. CaDital arants. Capital grants under the Agricultural Production and Credit Project (APCP) and Small Farmer Production Project (SFPP) were assumed to be LE 100 million in FY93, and LE 50 million in FY94 and FY95. - l12 - AN=F 2 Part C Page 7 of 7 3ftlga Sheet - 'Cnra' rtems 14. Accounts receivable - Government Accounts was assumed to be reduced annually by LE 100 million from FY93 to FY95 and by LE SO million in FY96 and 1Y97. Accounts receivable - Other Accounts was assumed to be reduced annually by LU 100 million from FY93 to FY95 and by LE 50 million in FY96 and FY97. Accounts Payable - Government and other organizations was assumed to be reduced annually by LB 50 million from FY93 to FY95. Accounts Payable - Others was a"umed to be reduced annually by LE 100 million from FY93 to FY95 and by LU 50 million in FY96 and FY97. Interest accrued on Agricultural Modernizatlon loans was added to Accounts Payable - Others. Inflation Rates and Treasury Bill Rates IS. Inflation rates and Treasury Bill interest rates (6 month average) were based on projections of Country Operations Division. These are given below. FY 93 FY 94 FY 95 FY 96 FY 97 Projected inflation rate 10.7% 9.5% 6.1% 5.5% 5.0% Projected 6 month 16.3% 12.8% 9.9% 8.7% 8.1% Treasury Bill rate -113 - 2 Appendix 1 Page 1 of 2 mAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT terms of Reference fo& Develoment Bankint/Planning Adviser Objectives 1. The overall objective is to: (a) strengthen the overall development banking capabilities, development lending and financial planning of the PBDAC5 and (b) assist in the implementation of the project. Oualifications 2. Academic: The specialist shall have a graduate education in agricultural economics or business administration. 3. Work experience: At least 10 years of development banking experience directly related to the managerial and financial operations of an agricultural bank. Experience in conducting training programs related to the above areas would be an added advantage. Familiarity with the World Bank's policies and procedures for financing sub-projects through financial intermediaries would also be beneficial. 4. jjneUMP*s: Candidates must be fluent in English and willing to acquire proficiency in Arabic within six months of assignment. Terms of Assinnment and Responsibilities 5. Terms of Assiunment: The appointment will be for a period of two years, which, by mutual agreement, may be extended for another year making a total term of three years. 6. Duties: The planning specialist will: (a) assist the Chairman of PBDAC in implementing the recommendations of the organization and management study particularly relating to the reorganization capitalization and operational plans; (b) assess PBDAC group's staff needs from the results of the organization and management study and review plans for retrenchment and/or new recruitment; (c) assist PBDAC in financial planning i.e. use of accounts for medium and long-term forecasting of operations, resources, income, expenses and assets and liabilities in the context of the proposed business plan; - 114 - ANNEX 2 Appendix 1 Page 2 of 2 (d) assist PBDAC staff in setting up monitoring procedures in their respective BDAC'c, district branches and village banks; (e) set up and monitor a system for determining the sub-projects' environmental impacts (f) plan and execute a preliminary project launch seminar to acquaint PBDAC staff with the World Bank sub-project financing requirements, sub-project review, disbursement and auditing and reporting proceduresJ (I) provide training for senior and middle management primarily on the job; and (h) carry out other duties as may be assigned by the chairman. 7. OrflaniZAtional set 3a: The specialist would be located in PBDAC and would report to the chairman. The bank would provide him with office space, support staff and equipment required to accomplish his duties. - 116 - Appendir 2 Page 1 of 2 "RAB REPUBLIC OF EgxPT AGRICULTURAL MODERNIZATION PROJECT Proposed Terms of Reference of Consultant on Credit Administration and Loan Recovery Obiectives 1. The overall objective is tot (a) strengthen the loan por'-folio and loan recovery of PBDAC system as a whole by improving/updating ixs lending policies and procedures; and (b) broaden the number of staff trained in credit analysis, loan supervision, loan recovery, loan classification, loan provisioning and other credit topics. 2. Set of loan policies and procedures, in the form of a manual to be used as a training text as well as a guide for all credit officers and managers with loan approval authority within the PBDAC system. 3. Functioning credit process, trained credit officers, sound loan supervision and an effective loan recovery program. Tasks 4. Establish a Loan Policy and Procedures Review Group in PBDAC to examine current policies and procedures to strengthen them through incorporation of management and reporting requirements related to: the recommended Loan classification and Provisions Policy and the loan recovery strategy. The consultant would assist this group in other functions too, which would include the following: (a) Defining areas of lending for which current credit policy is inadequate or for which there is no current policy and writing policy and procedures to adequately cover them. Suggested areas of review include: lending to private sector enterprises in agro-processing/agro-industries, new types of working capital finance such as permanent working capital and trade finance. Policy and procedures would delineate how to analyze proposals for such loans, an appropriate loan structure and repayment terms, required collateral and documentation. (b) Specifying criteria for specific types of lending related to the financial position, credit history and market prospects such as required borrower's contribution, clean credit report, working capital level and relevant business e:perience. (c) Assisting the PBDAC in the development of analytical tools and procedures for determining deposit interest rate schedules and lending rates by sector. - 116 - Appendix 2 Page 2 of 2 (4) Establishing a system of loan review and portfolio audit at branch/village bank level, incorporating a decision-making process relative to non-performing loans. (e) Improving the format of loan records for loan disbtureements, loan amounts falling due, loan repayments, and interest suspended; detailed instructions should be prepared to enable the staff to implement the improved format. (f) Defining loan collection procedures with clear delineation of responsibility and reporting systems on the status of the portfolios. (g) Designing loan ledger to account for principal and interest components of loan transactions separately in order to ensure that actual collections made against the principal amount of loans and accrued interest are readily available. (h) Introducing records both for individual branches/village banks and BDACs and PBDAC as a whole, to reflect correct repayment ratios. The records to be introduced as above woald also show separately the breakdown of overall repayment ratios into the collection ratio for current dues (loans which have fallen due for repayment during the relevant year), and the ratio for past dues (overdue loans due for repayment at the beginning of the year); and accounting of overdues or designing of appropriate records to ensure that age-wise classification of total overdues, both branch/village bank-wise and for 9DAC/PBDAC as a whole, is readily available. (i) Developing rules for portfolio management, including upper limits on the concentration of loans to any one sector/sub- sector or type of borrower, policy on classification on loans based on ageing and risk evaluation, establishment of loan loss provisions based on the resulting classification. (j) Developing training courses for credit analysis, loan supervision, loan classification, loan recovery programe and rehabilitation of problem accounts. (k) Assist PBDAC staff in implementation of the recommended policies and procedures. Int and StAtff Recuirement 12. A credit expert for 24 person-months to be based in PBDAC. The consultant should have relevant academic qualifications and considerable practical experience (minimum 10 years) in agricultural credit operations preferably in a developing country. - 117 - Faso 1 of I RAM REPUBLIC OF EgYPT AGRICULTURAL MODERNIZATION PROJECT Terms of Reference for Financial Consutants Opieet&ve 1. An important objective of the project in to strengthen PUDAC as a rural financial intermediary, within the context of the Government'e program of reforms for the financial sector of the country. Towards this end, the management of PBDAC is presently already implementing a program of restructuring the bank's operations, phasing out trading and input distribution activities ad discontinuing subsidies. Consideration is also being given to the possibillty of raising capital on the open market, by seeking equity contributions from the public. In implemnting such a program, the management of PIDAC recognises the importance of strengthening the financiel capabilitien of the bank, and of prparing annual financial accounts in a manner which are in accordance with international accounting standards and principles. At present, funding decLsions and performance measurement (for example, ratio analysis involvLng total assets and liabilities) are distorted by the large volume of illiquid accounts payable and receivables as well as other debit and credit balances on the balance sheet. in addition, internal control mechanisms need to be strengthened, bringing them in line with practice followed by financial intermedLaries. 2. in order to strengthen the bank's overall financLal mtnagemet, upgrade the accounting systems and standards to conform with international standards and to support the management of the bank in implementing its program of restructuring, the PBDAC will recruit a qualified firm of Chartered Accountants as financial consultants. Terms of Assionment and Resionsibilities 3. The appointment will be for period of three months annually, over the llfe of the project. 4. The selected firm, working together with the finance and internal audit staff of PBDAC, will be responsible for: - preparing the annual accounts of PBDAC which presents its financial position as of the end of the year and the results of the operations during the year in a manner which is consistent with international accounting standards and principles; all information necessary for carrying out this task will be made available to the selected firm by PBDACI the firm will prepare the folloving financial statements: * Balance Sheet as of the year end. * Income Statement. - 1X8 - Appendix 3 Page 2 of 2 * statement of Changes in Shareholders Equity. * Statement of Source and Application of Fundeq. * Notes to Financial Statements, in accordance with the accepted policies on disclosure. presenting a report to the management of P8DAC on: the overall performance of the bank during the year and on meeting the targets set within the Business Plan; comments, observations and recommendations emerging from their evaluation of the internal control structure existing in the bank; and comments and observations related to the economy and efficiency of the operations of the bank. - "updating the Business Plan prepared by PBDAC annually, including the financial targets for the following fiscal year, and accordingly preparing a projection of PBDAC's financial performance for the following five years. S. The reports prepared by the consultants would be made available to the World Bank annually, within nine months of the completion of the financial year. - The financial accounts prepared by the consultants would be audited annually by the Central Audit Organization. - 119 - Appendix 4 Page 1 of 2 ARAB REPUBLIC OF EGYPT AMRICULTURAL MODERNIZATION PROJECT Terms of Reference for Study of Rural Financial Markets Obiectives 1. The main objective of this study is to acquire factual data and information concerning rural credit demand and supply market, based on which appropriate policy decision would be taken to better serve the clients needs. Demand Side 2. A nationwide sample of rural households survey would be carried out to provide information on group and gender basis on: nature of credit demand, terms and conditions of loans, use of credit, repayment performance, factors affecting repayment, level of indebtedness, and presence of any and perceptions towards rural credit sources. 3a The borrowers transaction cost would be studied to examine the non- interest expenses segregated by actual cash outlay and the opportunity cost of time spent in applying for securing and repaying a loan from both formal and informal sources; to determine how borrower transaction costs affect borrower demand for and access to credit; to examine the factors that determine the level of transaction costs. 4. Rural household savings would be studied to provide information on the patterns and determinants of saving viz., level and forms of savings, the importance of financial form of savings, households' propensity to save, factors affecting householdsI decision to save, perceptions of rural households regarding saving, responsiveness of saving, in general, and financing saving, in particular to changes in interest rates. To provide broader information about the potential for mobilizing financing savings in the rural areas, the study would include both farm and non-farm households. Suppl Side 5. Various sources of credit in farm-financing should be identified and their role in financing farm households need tc be assessed. For the formal credit sources, an analysis of their efficiency wt.ld be made and such analysis would be supported by financial performance indicators such as subsidy dependence index and collection rate. In addition, the effect of group and gender lending on administration cost and collection rate would be highlighted. For the informal sources, the major structure of the rural financial markets, size, trends in size and policy and legal environment impinging on the informal credit markets would be described. The role of informal lenders in savings generation and provision of consumption credit, allocation efficiency and issues on equity - 120 - ANNMEE Appendix 4 Page 2 of 2 would be identified. The sources of funds of informal lenders, size of clientele, types of financial services given, form and nature of credit extended to borrowers would be determined. 6. Interlinkage of informal lenders' credit transactions with transactions in other markets (such as input supply, trading of products) in which the lenders participate would be examined. In addition, linkages and interaction of informal lenders with the formal financial institutions and implications for monetary policy would be determined. 7. The study would analyze interest rate formation in the informal credit markets and as well as trends. The competition and complementarity between formal and informal sectors would be examined. Data on informal lender transaction costs and recovery rates would also be obtained. The optimal legal and policy environment for the development of the informal financial sector would be determined. - 121 - ANNEX 3 Page 1 of 3 ARAB REPUBLIC OF EGYPT AGRICULTURAL NODERNIZATION PROJECT Environmental Aspects A. Backeround 1. In recognition of the fact that economic development and the health and welfare of its population are closely linked to the proper management of its natural resources and environment, the Government of Egypt (GOE) embarked upon the preparation of a national environmental action plan which was published in May 1992. The plan focuses on five topics: land and water resources, air pollution, solid waste management, protecting Egypt' s heritage, and strengthening environmental institutions. The specific actions that are most relevant to the proposed Agricultural Modernization Project are set out below. 2. Environmental priorities in Egypt are dominated by the critical need to manage scarce water and land resources more efficiently. There is also growing need for better disposal of sewage and solid wastes. The agriculture sector is the main user of water in Egypt and water availability is a key constraint to agricultural expansion. Although the overall quantitative efficiency of water use is quite high, this has been achieved only at the high cost of a significant deterioration in water quality. Much of the expected increase in demand for irrigation water will have to be met by reusing water from the agricultural, industrial and municipal drains. The feasibility of this option ultimately depends upon water quality. The canals are affected by unregulated discharges and uncontrolled mixing with water from polluted drains. Both land and water degradation are attributable to the activities of the agricultural sector, particularly due to excessive use of fertilizers and pesticides. At present, about 35 per cent of the agricultural land is affected by salinity. Environmental degradation in Egypt has arisen due to inadequate environmental assessment and monitoring and the failure to implement existing environmental legislation. 3. The Government has drafted a unified Law on Environmental Protection, which is currently before the People's Assembly. The new law introduces a requirement for environmental impact assessments and a mechanism for prescribing and enforcing the implementation of environmental mitigation plans. To effect this, the new law provides for considerable strengthening of the central authority, the Egyptian Environmental Affairs Agency (to be re-established as the Environmental Protection Agency). Over the medium term, trained bodies will also be established at the Governorate and municipality levels, to enforce environmental legislation and to implement national and Governorate-level Environmental Action Plans. 4. There is, at present, very limited capacity for environmental expertise in both the public and private sectors. It is estimated that current environmental monitoring efforts meet less than half the present requirement. The EEAA is currently preparing a Monitoring Directory and donor support is being negotiated with CIDA and ODA for assistance to develop an environmental - 122 - ANNEX 3 Page 2 of 3 monitoring information system. It has also sought technical assistance from the ODA for in-country training and international consultancy inputs in environmental assessment. Although a special Environmental Unit was established within the Ministry of Agriculture and Land Reclamation in late 1992, the staff comprises mostly agricultural engineers with no specific training or experience in environmental audit or assessment. B. Project Aspects 5. The rationale, objectives and anticipated activities of the project are in line with the Government's agricultural sector strategy for sustained increases in productivity through the generation and dissemination of modern technology. 6. The project would finance improved agricultural practices which would have environmental benefits in terms of reduced consumption of water, fertilizers and pesticides. Sub-projects involving horizontal expansion in the New Lands and pesticides inputs would have significant adverse environmental impacts and such proposals would have to be accompanied by a formal environmental assessment. In those instances which might have significant adverse environmental impacts, inexpensive mitigation plans could be readily prepared. The development of a stronger rural economy raises the prospect that many small-scale rural enterprises could become a source of adverse environmental impact. This necessitates environmental assessment of agro-processing investments. The project would also incorporate an environmental management plan, to ensure that mechanisms are put in place to prevent the loan being used to finance sub- projects that might have adverse environmental impacts. 7. Both PBDAC and the Ministry of Agriculture and Land Reclamation are developing organizational arrangements to deal with environmental issues and providing staff training plans on environmental matters. The project will accelerate these developments, through the provision of training and technical assistance and by introducing measures aimed at ensuring that environmental considerations are properly integrated into all the relevant credit and technology transfer activities. An Office of Environmental Adviser would be established and would be attached to the Office of the Vice Chairman of PBDAC. The Environmental Advisor and a Technical Officer will be recruited locally to staff the new Office. Additionally, a consultant would be recruited internationally for 24 months to assist the Environmental Advisor. The draft terms of reference for the consultant are contained in Appendix A. The Environmental Advisor, with necessary technical assistance, would draw up appropriate environmental guidelines for use by PBDAC. One of the main tasks of the internationally-recruited consultant would be to provide on-the-job training for PBDAC's staff in implementation of the necessary screening, appraisal and monitoring activities. As the in-house skills and experience develop during the course of the project, the need for external technical assistance would decline. 8. The Environmental Guideline should indicate a set of measures to reducing adverse environmental impacts to acceptable levels. Besides, it should also provide guidance on these measures: Establishing a system whereby sub- projects are screened, assessed, subjected to sub-project environmental - 123 - AM- Page 3 of 3 mitigation plans, and monitored by project staff; and introducing measures to encourage the promotion and adoption of environmentally sound practices. 9. Prior to Board presentation, the Environmental Advisor would be appointed to the Project Steering Committee and the Implementation Advisory Committei. Technical assistance would be provided to PBDAC Environmental Unit for in-count:y training., whereby the necessary screening guidelines, scoping guidelines and reviews of Statements of Capability for compiling a national register of environmental consultants would be prepared. In addition to implementing the sub-project screening and scoping guidelines, as soon as the project begins the PBDAC staff would be called upon to review the environmental assesomento presented in the feasibility studies and to monitor the implementation of sub- project mitigation plans. 10. In respect of the technology transfer components, the Subject Matter Specialists (SMSs) in each participating NALR Regional Research and Extension Station would be responsible for the promotion of environmentally sound practices and the implementation of any mitigation plans associated with the proposed technology. Necessary training would also be provided to the Subject Matter Specialists, the extension system and the proposed Extension Information and Demonstration Units. Each SMS would be given training in the environmental aspects and a refresher training would be given to trainees annually. This training would be through an in-country training program designed and presented by suitably experienced trainers. Representatives of both the EEAA and the Ministry of Health would assist in reviewing the training program. 11. The total inputs for the environmental management plan activities to be undertaken during project implementation would consist ofs 24 months of international and 44 months of local consultants; four training seminars to be conducted by PBDAC and two seminars to be conducted by Extension Services yearly; a week of training annually for 12 SMSs serving under the project; and provision for travel, equipment, operating costs and contingencies to carry these tasks. The environmental seminars which would be conducted by PBDAC would cater mostly to rural banking staff, while the seminars organized by the Extension service would be open to a wider audience, including VEWs, investors and farmers. Cost of direct support to the environmental component of the project would amount to about US$761,700. In all, a total of 1412 persons would be trained directly in environmental matters through the various training programs under the project. 12. For purposes of the project's mid-term review, the Project Management Department would prepare a detailed report on the experience of project implementation to date, including specific sections dealing with environmental issues and the support given to women and disadvantaged groups. The project completion report would similarly include a detailed account of the environmental impact of the project. - 124 - ANNEX I Appendix 1 Page 1 of 2 ARAB REPUBLIC OF EGYPT AGR}CULTURAL MODERNIZATION PROJECT Draft Terms of Reference for Environmental Specialist Backgro-und 1. The main objectives of the Agricultural Modernization Project are to increase rural income and to achieve sustained increase in agricultural productivity through promoting appropriate technological packages and small- and medium-scale agro-related enterprises. The project would finance a rance of subprojects in on-farm technological packages, which would seek to enhance environmental benefit through reduced consumption of water, fertilizer and pesticides, and in agro-related enterprises. 2. The project is national in scope and will mostly comprise sector investment subloans made through financial intermediaries. The Principal Bank for Development and Agricultural Credit (PBDAC) is acting as an apex lending institution for other financial intermediaries which would participate under this project. The Ministry of Agriculture and Land Reclamation would provide technical advisory services for disseminating improved technological packages to potential investor and farmers. The screening of individual subprojects for environmental review and additional environmental study will therefor be the responsibility of the project implementing institutions, PBDAC and the participating banks. 3. In order to ensure that subprojects with unacceptable environmental impacts will not be financed through the project, a basic framework for developing effective environmental assessment systems in PBDAC, apex lending institution, would be established. Toward this objective, an office of Environmental adviser would be created in the PBDAC. The Environmental Specialist will assist the Environmental Advisor in carrying out its responsibilities and would closely collaborate in implementing the environmental training program envisaged under the Project. Scone of Duties 4. The Environmental Specialist will provide training and technical assistance to PBDAC and MALR to help establish satisfactory environmental review systems within those agencies. The duties will include, but will not be restricted to, the following. * Determine and take into account the environmental assessment and monitoring responsibilities of the Government environmental and sectoral institutions, and the extent to which they are able to discharge these duties, in order to avoid duplication of effort. * Review the capabilities of PBDAC to meet the Bank's environmental assessment requirements as set out in Operative Directive 4.01 and in the Environmental Assessment Sourcebook. - 125 - ANNEX 3 Appendix I Page 2 of 2 * Design, prepare and implement a program of practical in-service training for PBDAC and MALR environmental staff and produce as outputs of that program (i) subloan screening guidelines, (ii) subloan environmental analysis scoping guidelines, and (iii) a register of suitably qualified and experienced local environmental consultants. * Assist the Pilot Research and Extension Regional Stations in designing and in the implementing environmental training program which is considered for Subject Matter Specialist, Technology Transfer Specialist and Extension Staff. * Prepare and implement a program of practical in-service training for PBDAC staff covering (i) efficient implementation of the screening and scoping guidelines; (ii) specification and review of environmental assessments to be included in subloan feasibility studies, (iii) specification and monitoring of subproject environmental mitigation plans; and (iv) specification and monitoring of environmental information specifically relating to loan security and investment risks. X Regularly review the operations of the PBDAC with responsibility for environmental analysis and design, prepare and implement additional training programs to address any substantive weaknesses or omissions. Duration and Timeframe of Inputs S. The contract will be for a total of 24 staff-months; the precise timing and duration of each input to be determined by the Project Directorate but with the first input to be implemented before any subloans are approved or disbursed. The Environmental Specialist should be in place by July 1994 and the training programmers should be developed by September 1994. Oualifications and Experience 6. Post-graduate degree in environmental analysis, ecology or developmental agriculture, specific knowledge and experience of integrated pest management (IPM) or small-scale agro-processing would be advantageous. * Minimum five years post-graduate international experience in agricultural sector environmental impact assessment (EIA) or environmental analysis (EA), preferably with emphasis on environmental screening, scoping and evaluation of ZIA and EA reports. * Specific knowledge of World Bank environmental requirements in respect of projects implemented thoroughly financial intermediaries. * Experience or knowledge of the recent international development of environmental assessment units within the commercial financial sectors. ARAB REPULIC OF EGYPT AGRICULTIRAL MoDERNIZATION PROJECT Prolects's Training Conmnoent Foreism Trainina for Institutional Strenatheninf of Rural Banking2' Anticipated Duration Number of Trainees Total Training Trainees Location Week No. 1994 1995 1996 ¶ 1997 1 I art I l l . . . . . . _~~~~~~~~~~~~~~~~~~~~ . , _a. t l 1. Project Appraisal Credit Officers and Managers, and India, Sri Lanka 8 to 12 - 10 10 10 30 Branch Managers 2. Marketing Studies Marketing Managers and officers, 2 a8 8 8 32 Branch Managers, and Loan and Deposit Officers 3. Deposit Mobilization Branch Manager, Deposit Officers and 8 to 12 15 15 15 15 60 Managers 4. Women in Development Women Promoter and Supervisors ThaiLand 8 to 12 - 8 8 8 8 32 (Credit Training for Women) 5. Private Sector Loan and Commercial Officers, and Turkey 2 to 3 10 10 10 10 40 | Dealers1 Support Managers. 6. Internal Audit Auditors, Inspectors, and Fotlow-Up UK, USA 8 to 12 15 15 - 30 officers 7. Small Enterprises Branch and Credit Managers, and Thailand, 4 to 8 10 10 10 10 40 Project Marketing Officers. Indonesia S. New Credit Lines Credit Managers and Officers. Indonesia,India, 8 to 12 - 8 8 8 8 32 Norocco 9. Loan Collection Credit and Recovery Officers, and India, Turkey 8 to 12 - 10 10 10 30 Credit and Branch Managers. 10. Rural Enterprises Branch and Village Banks managers, India, Morocco 4 10 10 10 10 40 and Irwestment Officers. 11. Banking Services Managers and Senior Officers at Indonesia, Sri 2 to 3 15 10 - 25 t D PBDAC and BODACs. Lanka l Z Total 119 114 89 69 391 X T1 JThe training programs on rural enterprise, smait enterprises, and market studies wilt inctude environmental aspects atso. ARAB REPUBLIC Of EGYPT AGRICWLTURAL NMDERNIZATION PROJECT Local Traininr for Institutional Strensthening of Rural Banking" Training/Job title Training Curricutum Location Frequency i Number Of I I ~~~~~~~~~~~Participants 1. Rural Banking Customer service skills, core banking P_OAC, BDACs, Cairo 480 sessions, length of each 2,000 principles, credit analysis, current University, CMD session varies from 6 to 10 account and saving procedures, and days. modern management skill. 2. Women in Banking marketing skills, customer CMD, PBDAC, BODACs 200 sessIons, length of each 1,000 Development service skill, deposit promotion session varies form 6 to 10 skills, credit manual procedures, days modern management, and agro-business. 3. Accounting Bsank Accounting I, current account and TRB Institute, 320 session, length of each 2,000 Classes saving procedures, balance sheet, PBOAC, BODACs session varies from 6 to 12 banking financial analysis ard days performance. 3. Credit Officer Basic credit anslysis, new lending PBDAC, BOACs 400 sessions, length of each 2,000 package, advanced credit analysis, session varies from 6 to 10 credit risk investigation, and Agro- days business. 4. Credit Analyst Basic and advance credit analysis, PBDAC, BDACS, TRG 160 sessions, length of each 1,000 loan management prirciples, and Institute session varies from 6 to 15 proJect financial analysis. days 5. P.C. Users Introduction to DOS (Arabic DOS), PBDAC, BDACs 240 sessions, length each 1,000 Lotus, Wordstar 200, Advanced DOS, session varies from 5 to 10 Advanced Lotus, and Database. days. 6. Envfronmental Environmental assessment, screening, PBOAC, BDACs 28 sessions, 6 days for each 700 Training mitigation and monitoring. session. Total 9,700 /I The training programs under items 1 to 5 are concerned with redeployment and it is anticipated to be completed during the first four years of the '5 project imptementation; Environmental training wilt be carried out at a rate of 4 seminars per year and wfil commence during the second year of the project's implementation. ARAB REPUBLIC OF EGYPT AGRICULTURAL NODERIZATIOU PROJECT Local Training for the Pf lot Research and Extension Canent of the Project' Training and Trainees Duration in Number of Participants Total Trsinees Weeks _.onths of 1994 1995 1996 1997 1998 1999 2000 2001 Training 1. Induction TTS/Extensionists 6 - 65 50 50 - 247.5 Training 2. Refresher TTS/Extensionists 4 - - 32.5 57.5 82.5 82.5 82.5 82.5 420 Training 3. asic Custom Hire 4 20 20 20 20 20 20 20 140 training Operator and Farrers 4. Adance TTS Irrigetfon 4 - 11 ii ii -3 Training OD 5. Advanco VEU 4 * 10 10 10 10 10 10 60 Tralnfng 6. Enwiromenntal VEW, Investors, Training and Farmers I 100 100 100 100 100 100 100 12.S seminars (two sesions per year) T. Refresher SKS Training in 3 12 12 12 12 12 12 12 84 Agriculture wnd Etwirowment TOTAL 197 235.5 260.5 235.5 224.5 224.5 224.5 997 2/ In addition to local training, short-term foreign training of 30 months for research staff and 20 months for extension staff is included in the project. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Sumwary Account by Project Component La 000 Physical Price Transfer Contingencies Contingencies ON-FARM AGRO-BASED Rural of Agr. - INV. D INV. Blanking Tech. Total t Amount % Amount I. INVESTMENT COSTS A. SELECTED INCR. EQUIPMENT 232050.4 0.0 0.0 0.0 232050.4 0.0 0.0 39.3 91086.2 B. OTSER EQUIP.& SPARE PARTS 108220.0 0.0 0.0 0.0 108220.0 0.0 0.0 34.1 36951.5 C. AGRO-BASED INV. 0.0 283000.0 0.0 0.0 283000.0 0.0 0.0 37.2 105266.8 D. VEHICLE 0.0 0.0 1330.0 11S65.0 12895.0 0.0 0.0 20.4 2624.5 E. OFFICE EQUIPMENT 0.0 0.0 1866.0 3608.0 5474.0 0.0 0.0 21.7 1186.8 F. LABORATORY EQUIPMENT 0.0 0.0 0.0 1000.0 1000.0 0.0 0.0 18.0 179.7 0. CIVIL WORKS 0.0 0.0 6000.0 9560.0 15560.0 10.0 1556.0 26.6 4140.0 H. PROTOTYPE EQUIPMBNT 0.0 0.0 0.0 385.0 385.0 0.0 0.0 36.5 140.6 I. TRAINING 0.0 0.0 27164.0 4064.2 31228.2 0.0 0.0 24.2 7543.8 J. DEMONSTRATION 0.0 0.0 0.0 6286.4 628O.4 0.0 0.0 34.5 2169.0 K. SPECIALIZED SERVICES 0.0 0.0 4982.0 564.0 5546.0 0.0 0.0 25.6 1420.3 L. STUDIES 0.0 0.0 1995.0 0.0 1995.0 0.0 0.0 24.8 494.9 M. INCENTIVE PAYMENT 0.0 0.0 2208.0 4933.8 7141.8 0.0 0.0 31.5 2248.6 N N. INSTITUTION RESTRUCTURING 0.0 0.0 97000.0 0.0 97000.0 0.0 0.0 0.0 0.0 Total INVESTMENT COSTS 340270.4 283000.0 142545.0 41S66.4 807781.8 0.2 1556.0 31.6 255452.7 II. RECURRENT COSTS A. OPERATION AND MAINTENANCE 0.0 0.0 1567.5 11042.2 12609.7 0.0 0.0 32.7 4124.6 Total BASELINE COSTS 340270.4 283000.0 144112.5 53008.6 820391.5 0.2 1556.0 31.6 25S577.2 Physical Contingencies 0.0 0.0 600.0 956.0 1556.0 Price Contingencies 128037.7 105266.8 11945.6 14327.1 259577.2 0.1 376.4 Total PROJECT COSTS 468308.1 388266.8 1S6658.1 68291.8 1081524.8 0.2 1932.4 24.0 259577.2 ........... ....................- -.. --....-.-.-.......... ^,....-_ ...................... Taxes 81499.6 58240.0 664.8 4566.6 144971.0 0.0 0.0 Foreign Exchange 248939.2 158969.6 32750.4 20080.8 460740.1 0.1 690.2 Values Scaled by 1000.0 2/17/1994 15:26 I r z tD- tC ARAM REPUBLIC OF EGYPT AGRICULTURAL M3D0NZRA?TON PROJECT LB 000 Suary Accounts by Year Base Costs. Foreign Exchange 1994 199S 1996 1997 1998 1999 2000 2001 Total % AmDunt ..............4......................... .................... ..... .............. I. INVESTHENT COSTS A. SELECTED INCR. EQUIPMBNT 0.0 14609.4 14459.4 29068.8 43328.2 43528.2 43528.2 43528.2 232050.4 53.4 123875.8 8. OTHER SQUIP.& SPARE PARTS 0.0 15460.0 15460.0 15460.0 15460.0 15460.0 15460.0 15460.0 108220.0 50.0 54110.0 C. AGRO-BASED INY. 0.0 20000.0 28000.0 36000.0 44060.0 51000.0 52000.0 52000.0 283000.0 40.0 113200.0 D. VEBICLS 0.0 6995.0 2950.0 2950.0 0.0 0.0 0.0 0.0 1289S.0 71.6 9236.7 E. OFFICE EQUIPHENT 2.0 2118.0 1794.0 1132.0 212.0 212.0 2.0 2.0 5474.0 60.2 3295.3 F. LABORATORY BQUIPKENT 0.0 600.0 400.0 0.0 0.0 0.0 0.0 0.0 1000.0 90.0 900.0 a. CIVIL WORKS 0.0 2760.0 5550.0 4250.0 1500.0 1500.0 0.0 0.0 15S60.0 35.0 5446.0 H. PROTOTYPE EQUIPMENT 0.0 55.0 55.0 S5.0 55.0 Ss.0 55.0 55.0 385.0 90.0 346.5 I. TRAINING 0.0 8783.3 8846.7 6440.2 6017.7 380.0 380.0 380.0 31228.2 57.8 18040.0 J. DEMONSSRATION 0.0 195.2 615.2 1095.2 1095.2 1095.2 1095.2 1095.2 628.4 0.0 0.0 X. SPECIALIZED SgRVICBS 67.0 1697.0 1897.0 697.0 297.0 297.0 297.0 297.0 5546.0 86.5 4800.0 L. STUDISS 170.0 670.0 220.0 135.0 350.0 0.0 50.0 400.0 1995.0 0.0 0.0 M. INCENTIVY PAYMENT 40.8 804.6 1049.4 1049.4 1049.4 1049.4 1049.4 1049.4 7141.8 0.0 0.0 N. INSTITUTION RESTRUCTURING 35000.0 31000.0 32000.0 0.0 0.0 0.0 0.0 0.0 97000.0 0.0 0.0 Total INVESTMENT COSTS 35279.8 105747.5 112296.7 98332.6 113364.5 114576.8 113916.8 114266.8 807781.8 41.3 333250.3 It. RECURRENT -S O 0. OPERATION amD MAINSANC 3.0 1097.7 'I45.2 1992.7 1992.7 1992.7 1992.7 19.'-.7 12609.7 0.0 0.0 Total ASBELINE COSTS 35282.8 106845.2 113842.0 100325.4 115357.3 116S69.6 115909.6 116259 4 820391.5 40.6 333250.3 Physical Contingencies 0.0 276.0 *55.0 425.0 150.0 150.0 0.0 0.0 1556.0 35.0 544.6 Price Contingencies 13.4 10945.8 17551.7 28200.1 3996s.s 47592.9 54200.8 61106.9 259577.2 48.9 126945.1 Total PROJECT COSTS 35296.2 118067.1 131948.7 128950.5 155472.8 164312.5 170110.4 177366.5 1081524.8 42.6 460740.1 ............................... ..........................................................-.-.- ........ -.----.............,---..... e--... t"..* Taxes 0.0 11387.8 12071.7 17986.1 23040.1 25627.7 26894.6 27963.0 144971.0 0.0 0.0 Foreign Exchange 1.6 44353.9 48282.0 60493.0 72701.5 75279.2 78214.5 81414.3 460740.1 100.0 460740.1 Values Scaled by 1000.0 2/17/1994 15s26 Ir4 ARMB RIPDBLXC OP BGYPT AGRICULTURAL MODERNIZAION PROJECT Projects Components by Year Totals Including Contingencies usM 000 1994 199S 1996 1997 l99B 1999 2000 2001 Total ........ ..... .a... ...a ..S0 Sn *....* f.........Ufl A. Clt-FARM nw. 0.0 9162.4 9363.2 14358.4 19S37.8 20195.7 20828.9 21505.7 114952.1 A. 0RO-DA8IX INV. 0.0 6073.0 8730.2 11S44.6 14520.7 17319.3 18193.8 10776.0 95158.5 C. IUSrml7I0AL DBV. 1. Rural lanking 10050.2 12152.6 12084.2 2757.7 2774.3 896.0 291.3 423.5 41429.8 2. Transfer of Agr. Tech. 20.0 4045.4 3873.7 3730.8 1404.S 1354.9 1392.0 1434.6 172S5.8 Sub-Total 10070.3 16198.0 15957.9 6480.5 4178.8 2250.8 1683.3 1858.1 58686.6 Total PROOUCT8 COSTS 10070.3 31434.3 34051.3 32391.5 38237.3 39765.8 40706.0 42139.8 268796.3 * .....f........... mff.....uan........---a....s wss...uam...flW AIW3 RIPULIC OF UWPT MGRICULTOA IIDORNZATION PROJEICT Projects Coamonents by Year Totals Including Contingencies LB 000 1994 1995 1996 1997 1998 1999 2000 2001 Total ".......s...... f.......... a.- ..........-f-f. -ff--..ff...... A. ON-FARM INV. 0.0 34414.1 36282.5 57160.8 79440.6 83448.6 87044.0 90517.S' 468308.1 B. AMRO-BASBD INV. 0.0 22813.3 33829.4 45958.9 59041.3 71563.4 76032.1 79028.4 388266.8 C. ZSTZTIONiAL DBV. 1. Rural Banking 35226.1 45645.0 46826.2 10978.4 11280.4 3702.2 1217.4 1782.4 156658.1 2. Transfer of Agr. Tech. 70.2 15194.6 15010.6 14852.4 5710.5 5598.2 5817.0 6036.2 68291.8 ,Sub-Total 35296.2 60839.6 61836.7 2S830.8 16990.9 9300.5 7034.4 7820.6 224949.9 Total PROBCTS COSTS 3s296.2 118067.1 131948.7 128950.S 155472.8 164312.5 170110.4 177366.5 1081524.8 ----- ---- ---- ---. --_.---- ----- ----- ---- -,-- ---- - -- -.,.,--- -,,.-----. --- ----- ---- -_-- -- -- -...--. - --- -- Values Scaled by 1000.0 2/17/1994 15I26 ii ARMB REPUBLIC OF EnYPr AatZCtLTURAL MDRWZZATXOU PROJECr Suwary Accounts by Year Totals Including Contingencies US$ 000 1994 1995 1996 1997 1998 1999 2000 2001 Total 1. NVBNSIXIT COSTS A. SELECTED INCR. EQOXPMENT 0.0 4456.9 4531.0 9384.3 14415.3 14921.2 15391.4 1S892.7 78992.8 B. 07EBR BOMIP.& SPARE PARTS 0.0 4705.S 4832.3 4974.1 5122.5 S274.5 5437.5 S613.0 35959.4 C. AGRO-BASBD IN. 0.0 6073.8 8730.2 11544.6 14520.7 17319.3 18193.8 18776.0 95158.5 D. VZHXCLA 0.0 2149.6 932.2 962.9 0.0 0.0 0.0 0.0 4044.7 S. 0PFICg BEIQPMENT 0.6 646.7 562.0 365.9 70.6 73.0 0.7 0.7 1720.4 P. LABORATORY BQDIPMENT 0.0 184.0 126.1 0.0 0.0 0.0 0.0 0.0 310.1 G. CIVIL WORXS 0 0 919.5 1897.7 1493.1 541.8 557.1 0.0 0.0 5409.2 H. PROTOTYPB BEQtfPMST 0.0 16.9 17.4 18.0 18.5 19.1 19.8 20.5 130.2 X. SRAINID9 0.0 2675.5 2767.4 2073.9 1996.5 124.2 129.6 133.6 9902.7 J. DEMWSRASTIRS 0.0 58.6 189.5 345.6 354.5 363.6 373.5 385.0 2070.3 X. SPECIABIZED SERVICES 20.0 520.9 598.7 226.5 98.8 101.8 105.0 108.5 1780.2 L. STUDIZS 50.8 201.3 67.8 42.6 113.3 0.0 17.1 140.6 433.4 M. ISCBNTXVE PAYMENT 12.2 241.7 323.3 331.2 339.6 348.4 357.9 368.9 2323.1 N. Il8STI2ON R38TRDcTURMlN 9985.7 8253.5 8000.0 0.0 0.0 0.0 0.0 0.0 26239.2 …_............----------------------------------------.-------_------------------ _________________ Total INVESThMNT COSTS 10069.4 31104.5 33575.2 31762.6 37592.3 39104.3 40026.4 41439.4 264674.1 .. _._ ............. _. .._ . ..,....... .......... ,_ ......... ._ XI. RECURRENT COSTS A. OPBRAEIoN AhD MAIXTE3WIeB 0.9 329.B 476.0 628.9 644.9 661.6 679.6 700.4 4122.2 T'-al PROJECT COSTS 10070.3 31434.3 34051.3 32391.5 38237.3 39765.8 40706.0 42139.8 268796.3 …----------------------------------------------------------------------------------------------...........… _ .- ------------------ - . Totals including Cortingencies LB 000 1994 1995 1996 1997 1998 1999 2000 2001 Total ... ........... ._ m........ .. _.. . .. ..... mm .. . .... .............. X. INVESIT COSTS A. SELECTED INCR. BWIPMHNT 0.0 16740.1 17SS7.5 37358.9 58612.5 61654.4 64320.8 66892.3 323136.6 B. OTER EOQUIP.& SPARS PARTS 0.0 17674.0 18725.0 19801.9 20828.0 21794.2 22723.2 23625.1 145171.5 C. AGRO-BAS3D INV. 0.0 22813.3 33829.4 45958.9 59041.3 71563.4 76032.1 ?9028.4 368266.8 D. v3XI^.E 0.0 8073.9 3612.1 3833.5 0.0 0.0 0.0 0.0 15519.5 S. OFFICB EQIPMEIIT 2.1 2428.S 2177.6 1456.6 287.9 301.6 3.0 3.2 4660.8 P. LBRATORY EQ0IFMBNT 0.0 691.1 488.6 0.0 0.0 0.0 0.0 0.0 1179.7 0. CIVIL WORKS 0.0 3453.5 7353.4 5944.0 2203.1 2302.0 0.0 0.0 21256.0 H. PROTOTPE EP9WX 0.0 63.S 67.3 71.5 7S.4 79.1 82.7 86.1 S25.6 1. TRAINID 0.0 10049.3 10723.6 8256.3 8117.6 521.3 541.7 562.3 38772.0 3. DEMONSTRMTION 0.0 220.3 734.4 1375.9 1441.2 1502.4 1560.9 1620.3 h455.4 K. SPECIALIZED SERVICES 70.2 1956.6 2319.8 901.6 401.8 420.8 439.0 456.5 6966.3 $4 L. STUDIES 178.1 756.0 262.6 169.6 460.6 0.0 71.3 591.8 2489.9 to M. INCENTIVE PAYMNIIT 42.7 907.9 1292.7 1318.4 1380.9 1439.6 1495.7 S552.5 9390.4 t N. iN9SXTTION RESTRCTORING 35000.0 31000.0 31000.0 0.0 C.0 0.0 0.0 0.0 97000.0 D R Total DSVBSlEN COSTS 3S293.1 116828.4 130104.1 126447.0 1528SO.5 161578.8 167270.2 174418.4 1064790.S -.p . . . . .. . .. ...S.. . .... ...... ft. RECURRENT COSS ......... .... A. OPERATION AN0 ID BTE NC 3.1 1238.7 1844.6 2503.6 2622.3 2733.6 2840.2 2948.1 16734.3 ~~~~~~~~~~~~~~~~~~~~........ ............. ^*_. Total PROJECS COSTS 3S296.2 118067.1 131948.7 128950.S 155472.8 164312.5 170110.4 177366.5 1081524.3 .......... ..... ............ ...._....... ....,, ....... _ ....----- _ _-_-.-_---- _-_ . - .-..-.--------.-..--..---_-_-_ .. --. .. . _-_-. _ _-_ ^--..--.-- ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Estimated Schedule ot Disbursement of IBRD Loan/IDA Credit IBRD Loan IDA Credit Loan/Credit Egypt Agriculture IBRD Fiscal Year Semester Cumulative Semester Cumulative Cumulative Project Sector And Semester US$ US$ US$ US$ US$ Profile Profile Ending Million Million^ Million Million Million _ .__ 1994 June 30,1994 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1995 December 31,1994 1.9 1.9 4.6 4.6 6.5 5 3 June 30,1995 2.0 3.9 4.8 9.4 13.3 11 6 1998 December 31,1995 2.2 6.1 4.7 14.1 20.2 17 14 June 30,1996 2.3 8.4 4.7 18.8 27.2 22 18 1997 December 31, 1996 3.3 11.7 4.9 23.7 35.4 29 26 June 30,1997 3.3 15.0 4.9 28.6 43.6 36 34 1998 December 31,1997 4.4 19.4 5.1 33.7 53.1 44 42 June 30,1998 4.4 23.8 5.2 38.9 62.7 52 50 1999 December 31, 1998 4.8 28.6 4.5 43.4 72.0 60 62 June 30,1999 4.9 33.5 4.6 48.0 81.5 67 70 2000 December 31,1999 5.0 38.5 4.6 52.6 91.1 75 74 June 30, 2000 5.1 43.6 4.6 57.2 100.8 83 82 2001 > December 31, 2000 5.2 48.8 4.9 62.1 110.9 92 86 June 30, 2001 5.2 54.0 4.9 67.0 121.0 100 86 Closing Date: 0613012001 - 134 - ANNEX: 7 Page 1 of 4 ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Economlc and financial Benefits. and Sensitivity Analysis A. Project Benefit 1. The project would primarily benefit farm households, increasing their incomes by utilizing improved production technology and by promoting investments in farm related enterprises. In addition, it would assist the participating institutions, both public and private, to improve their operational efficiency: the PBDAC would be supported in divesting itself of non-banking activities and strengthening its role as a rural financial institution; research and extension services would be made more effective by strengthening their collaboration in promoting adoption of appropriate technical packages; private sector would be given opportunities to participate in technology generation and dissemination, as well as in assisting investors; and private investors, traders, and rural entrepreneurs would be assisted through provision of credit facilities and training programs to improve and expand their services. The utilization of several channels, such as universities, input suppliers and rural enterprises, would provide alternative channels to Government provided services and help enhance competition and efficiency. 2. The project benefits would accrue from increasing crop yields, reducing crop input usage needs, lessening post harvest-losses and enhancing product value through processing and marketing services. These direct benefits would result in an economic rate of return of about 38% for the project. Although the agro-related enterprises and on-farm technology package components of the project would generally complement each other in improving rural income and in enhancing crop production, the components are analyzed separately to bring into better perspective their distinct cost and benefit structures. B. Economic AnalysIs On-Farm Teclboloay Package Component of The Proiect 3. This component focuses on enhancing crop yield and resource efficiency through adopting row crop production systems, mechanizing and modernizing secondary farm operations, and improving irrigation and drainage efficiency. In Egypt, machinery services are provided both through specialized custom service operators, and through neighboring farmer groups. These arrangements have proven to be appropriate for Egypt's numerous smallholders. Economic analysis of this component was made on the basis of a 10,000 fed model as represented in Annex 1 to capture the benefit of recommended equipment and modernization program. Although adoption of these improved technologies benefits all crops, the project only claimed benefit for those crops which lent themselves to row planting systems such as wheat, barley, beans, sugar beet, flax, lentils, maize, rice, sorghum, soybeans, peanuts, sesame, etc. It was assumed conservatively that their (i) yield would increase by 15%; (ii)input application - 135 - Page 2 of 4 (seed,fertilizer and labor) would be reduced by 10%1 and (iii) adoption rate would gradually increase from 30,000 fed during the first year of the project (about 0.5% of the planted area) to 480,000 fed by the seven year of the project (about 6% of the planted area). 4. World Bank price projections were used to estimate farm-gate economic prices in constant 1993 terms for traded inputs and outputs (see Tables 4 and 5), and for non-traded goods financial prices are assumed to represent economic prices (Table 6). The component cost and benefit are derived on the basis of the farm model. The model's operation costs and benefits are presented in Table 7. The economic investment cost of equipments is based on the retail market prices prevailing in June 1993, adjusted by 10% sale tax and an additional 5% import duties for imported equipment. A useful life of eight years was considered for the equipment and no scrap-value was claimed after their assumed service life of eight years. All economic values were converted to local currency at the official exchange rate of LE 3.332 to one US dollar. The shadow wage rate was assumed to be the same as the financial wage rate. A Standard Conversion Factor (SCF) of 0.907 was applied toward the project's not-tradable cost and benefits to adjust for remaining economic distortions. The ERR takes into account all investment costs as presented in the model for farm equipment and irrigation upgrading. It was further assumed that investments in farm equipment and irrigation improvement schemes would induce crop production increase after a six month lag period. 5. Based on these assumptions, the component economic rate of return (ERR) was calculated to be 38.6% and its financial rate of return (FRR) to be 27.0% (Table 8). The reason for the lower FRR compared to that of ERR was mainly due to (i) inclusion of about 15% taxes and import duties in financial investment cost; and (ii) financial price for wheat being about 30% lower than its economic price at farmgate. Wheat dominates row crops area and constitutes about 30% of the planted area in Egypt. The net present value of the component, discounted at 13.5%, amounted to about LE 81.4 million. This component at its full development stage would result in an incremental crop production benefit of about LE 82 million (in constant 1993 prices) per annum. In addition the project would save about LE 2 million worth of seeds and about LE 14 million worth of fertilizer yearly. While the project reduces the yearly demand for unskilled labor by about 7,500 persons, this reduction should not be translated as displacement of labor as it enables part of the labor shortage in critical periods to be met. In addition, the component would increase the yearly demand for skilled labor by about 5,100 persons at the farm, and it would create additional job opportunities in machinery repair, production handling, transport, processing, and marketing services. The component at its seventh year would provide benefits to about 240,000 farm families. 6. Sensitivity Analysis. Switching values indicate that the investment would remain viable under a wide range of alternatives (at a discounted rate of 13.5%). - 136 - ANA7 Page 3 of 4 Table 1. Switching Values of Critical Variables Variables Switching Values Benefit From Crop Production -32% Benefit from Input Usage -97% Investment Cost +76% Operating Cost +54% Total Benefits -24% Total Costs +32% Although ERR is moderately sensitive to changes in total benefits and total cost, the economic rate of return would be 13.5% if total benefit drops by 24% or if total cost goes up more than 31%. However, the component benefit is unlikely to come down: Farm surveys show yield gains of more than 20 percent from usage of secondary mechanization and improved farm management practices. Crop yield increases which constitute more than 70% of the component total benefits is conservatively assumed to be only 15%. Also, prices of farm equipment and machineries is expected to remain stable as manufactures and exporters world wide are gaining access to Egyptian markets and competition for private custom service operations is expanding at a fast pace in Egypt. In addition, the project would be instrumental in facilitating appropriate technology and in giving farmers and small and medium scale custom service operators a chance to select and purchase the technology of their choice which offers the best chance of success. Agro-related Ente:rrises 7. A conducive atmosphere has been emerging for expanding rural enterprises as a result of the country's liberalized economic policy and the government's desire to improve rural income and employment. Recent experience under the ongoing Second Agricultural Development Project (Ln. 2561-EGT) indicated that there is considerable scope for expanding rural private investmnents, provided the needed technical, financial and market intelligence services could be brought within the reach of such entrepreneurs. It is not feasiblfe to predict the pattern of investment demand for the numerous types of rural enterprises. For purposes of this project analysis, four prototypes of agro-related enterprises (i.e., small-scale custom service operation, medium- scale custom service operation, small-scale rice and wheat milling, and medium- scale horticultural sorting and packing station) have been selected. 8. Economic cost of the prototype investments includes operating costs, investment costs, and additional working capital needed by the enterprise. The average economic life of each enterprise is estimated between 8 and 10 years, and direct transfer payments including taxes, duties and subsidies were deducted from financial prices to reflect the economic value of a particular enterprise. A SCF of 0.907 was applied toward the non-tradable costs and benefits of individual enterprises. The economic and financial rates of return which were calculated for these industries are presented below, and their detailed income and cash-flow statements are presented in Tables 9 through 16. - 137 - ANNEX 7 Page 4 of 4 Table 2. Financial and Economic Rates of Return for a Selected Number of Prototype Models Prototyie Models I. A Small Scale Custom Service Operation 24% 29% II. A Medium Scale Custom Service operation 27% 38% III. A Small Scale Rice and Wheat Mill 29% 41% IV. A Medium Scale Sorting and Packing Industry 39% 48% 9. Sensitivity Analysis. Switching value analysis indicates that benefits would have to fall by the ranges of 19% to 47% or costs increase by 23% to 88% for the ERR to fall to the level of the opportunity cost of capital of 13.5%. These figures indicate a fairly robust ERR. Table 3. Switching Values of Critical Variables Variables Switching Values Total Cost Increase Total Benefit decrease t t A small-scale custom +23 -19 operation A medium-scale custom +32 -24 operator A small-scale rice and +88 -47 wheat mill A medium-scale sorting and +79 -44 packing station ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Computation of Economic Farmoate Prices 1/ Wheat Maize 21 Rice 21 Projected FOB Price (1993)11 US$1ton 162 104 280 Ocean Freight and Insurance US$Iton 32 32 32 CIFIFOB Port Alexandria US$1ton 194 136 248 CIF/FOB Port Alexandria LE/ton 646 453 826 Quality Adjustment 21 LE/ton 91 Port Charges and Handling LEJton 30 40 30 ImporterlExporter Charges LE/ton 30 30 55 Transp. Port-Wholesale LE/ton 45 65 45 Price at Retail Market LE/ton 751 497 696 Processing Costs 30 Farm to Retail Market Trans LE/ton 25 25 25 X Conversion Ratio LE/ton 1 1 0.64 Economic Farmgate Price 3/ LEtton 726 472 442 1/ Source: "Quarterly Review of Commodity Markets--March 1993' Intemational Trade Division, Intemational Economics Department, The World Bank, May 19,1993. 21 A 20% discount factor on the price of yellow U.S. No. 2 maize is used to reflect lower price of domestically produced white maize price in Egyptian retail market. 3/ The farm gate prices of wheat and maize are derived on the basis of import parity and the price of rice (paddy) Is derived on the basis of export parity. AGRICULTURAL MODERNIZATION PROJECT Comoutation of Economic Farmoate Prices Potasium Urea TSP Salphate ProJected FOB Prices (1993) 11 US$Iton 118 115 208 Ocean Freight and Insurance US$/ton 25 25 25 CIF Port Alexandria US$1ton 143 140 233 CIF Port Alexandria LE/ton 478 466 776 Port Charges and Handling LElton 22 40 22 Trans. Port to Wholesale LElton 25 25 25 Trans. Wholesale to Farm LE/ton 20 20 20 Economic Farmgate Price 2/ 543 551 843 1/ Source: "Quarterly Review of Commodity Markets-March 1993", Intemationai (rade Division, Intemational Economics Department, The World Bank, May 19, 1993. 2/ The farmgate prices were derived on the basis of import parity; and since TSP is traded in bulk, an additional LE 30/ton was added on port charges and handling cost to cover its bagging costs. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Financial and Economic Prices (in 1993 Constant Term) (in LE) Unit Financial* Economic Outputs Wheat ton 526 726 Maize ton 435 472 Rice (paddy) ton 455 442 Barley ton 362 362 Sorghum ton 451 451 Faba Beans ton 1058 1058 Lentils ton 1500 1500 Flax ton 680 680 Sesame ton l800 1800 Soybeans ton 800 800 Sunflower ton 765 765 Peanuts ton 1300 1300 Sugar-beets ton 60 60 Inputs Urea kg 0.52 0.54 TSP kg 0.47 0.55 Potasium Sulphate kg 0.84 84 Labor Person/day 6 6 1/ Finanial prices were based on retail market quoations, and data provided by PBDAC and MALR. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Incremental Economic Benefit and Cost for 10,000 fd Model 1/ Area 2/ Price Inc Produc. Savings From Reduced Input Usage Equip.lnc. Total in LE/ yield Rev Seed Fertlizer Labor Oper. Cost Oper. Ben. fd ton 3 kg/fd LE Kglf LE kglfd LE Jfd LE 4/ LE S LE Winter Crops Wbeat 3250 726 285 672458 6.0 14157 S0 87750 4.0 70746 296796 548315 Barley 250 362 165 14933 6.0 543 50 6750 4.0 5442 22830 4837 Faba Beans 630 1058 165 109979 6.0 3999 25 8505 5.0 17142 57533 82093 Sugarbeet 90 60 2700 14580 0.3 2 100 4860 5.5 2694 8219 13916 Flax 90 680 420 25704 0.6 37 50 2430 5.0 2449 8219 22401 Lentils 90 1500 120 16200 6.0 810 25 1215 5.0 2449 8219 12455 Summer Crops Maize 2880 472 345 468979 1.5 2039 S0 77760 4.0 62692 263007 348463 I Rice 1960 442 405 350860 6.0 5198 S0 52920 4.0 42665 178991 272652 Sorghum 640 451 270 77933 1.2 346 S0 17280 4.0 13932 58446 51045 Soybeans 220 800 165 29040 4.0 704 S0 5940 4.0 4789 20091 20382 Peanuts 60 1300 135 10530 5.0 390 S0 1620 5.0 1633 5479 8693 Sesame 60 1800 75 8100 0.4 43 50 1620 5.0 1633 5479 5916 Sunflower 240 765 225 41310 0.6 110 50 6480 5.5 7183 21917 33166 Nili Crops Maize 880 472 240 99686 2.0 831 S0 23760 4.0 19156 80363 63070 Sorghum 20 451 210 1894 2.0 18 50 540 4.0 435 1826 1061 Total 11360 1942185 29227 299430 255039 1037415 1488467 l/ For the models investmet cost see Annx 1 2/ The individual crop area in the model was derived on the basis of the estimated share of each crop in 1990 plantiig seasons. 3/ For the detailed derivation of crop prices see tables 4 and 6. c 41 A SCF of 0.907 was applied on labor costs. 0 5/ The incremental operating costs were calculated on the basis of additional cost incurred as a rewlt of ienta mahNy needs - ad land Ievelling requirents; and a SCF of 0.907 was applied on non-tradable portion of tdis cost. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Fe" Inwstment . ..... ...... ..... ........ _... ...._.__............... .. .......... I............. . .... ______.... ___...... ........... . .._...... ...... ...........-__-............. __.... ...... 1 2 3 4 5 6 7 8 9 10 11 12 13 14 . .,..............................._. .. ............... ............................... ............................ ...................................................................... ............ .. ___ __.__._ Costs. Equipment Invest. Costs 11948 11946 23J97 35046 3546 35846 35846 - - - - Field Increm. Oper. Costs 3112 6224 12449 21786 31122 40458 49796 49796 46684 43571 37347 28010 16673 9336 Total Costs 15060 16172 36346 57632 66960 76304 05642 49796 46684 43571 37347 28010 18673 9336 B. Benefits Increaental Production 2913 8740 17480 32046 49526 67005 84485 93224 07398 81572 69919 52438 349s9 17480 Reduced Input Usge 1751 3s02 7004 12257 17510 22764 28017 26017 26226 24515 21013 15760 10500 5532 Total Benefits 4664 12242 24484 44303 67036 69769 112502 121241 113624 106087 90932 68198 45459 23012 C. Net Benefits ............... I Net Benefits -10396 -5930 -11862 -13329 68 13465 26860 11445 64940 62S16 O3585 40108 26786 13676 w 10/31/1993 16:12 …------ ---…R- ER 38 . 6% ___________________ ____F w27. %--------- - -------- FR- 20 - - - -- --- --- 0 13 ARAB REPUBLIC OF EGYPT AGRCULTURAL MODERNIZATION PROJECT A Srnall Scale Custom Service Ooerator Income Statement 11 ('000 LE) Year 1 2 3 4 5 6 7 8 9 10 Revenue 21 No. Combina 2 55.0 110.0 110.0 110.0 110.0 110.0 110.0 110.0 110.0 110.0 Ridger 2 17.6 35.2 35.2 35.2 35.2 35.2 35.2 35.2 35.2 35.2 Row planter 2 26.4 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 52.8 Tota 99.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0 Otwratina g:xDenditur Drver 3t 4 3.6 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.2 7.2 Laborer 31 5 3.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0 Other O&M cost 41 39.4 78.8 78.8 78.8 78.8 78.8 78.8 78.8 78.8 78.8 Total 46.0 92.0 92.0 92.0 92.0 92.0 92.0 92.0 92.0 92.0 Gross Operating Income 63.0 106.0 106.0 106.0 106.0 106.0 106.0 106.0 106.0 106.0 Non Operaina Expenditures Depreciation 5/ 20.9 44.7 44.7 44.7 44.7 44.7 44.7 44.7 44.7 44.7 Interest paid 0.0 41.0 33.0 24.0 16.0 8.0 0.0 0.0 0.0 0.0 Net Operating Income Before Tax 32.1 20.3 28.3 37.3 45.3 53.3 61.3 61.3 61.3 61.3 Taxes 6/ 8.0 5.1 7.1 9.3 11.3 13.3 15.3 16.3 15.3 15.3 Net Income 24.1 15.2 21.2 28.0 34.0 40.0 46.0 46.0 46.0 46.0 1/ The revenue and expense data were extracted from dffferent reports provided by PBDAC and AERI, and were based on prevailing costs and charges in 1993; It was assumed conservatively that machineries operate 10 hours/day and 110 days/year. 2/ Based on the field experience, the coverage time for a combine is assumed to be 120 minutestfed, and for a row planter and a ridger each assumed to be 30 minutes/fed; charges per fed were calculated on the basis of LE 1001fed for rice combine, LE 12/tfed for row planter and LE 8/fed for ridger. 3/ A driver was paid LEI 50/month and a laborer received LEI 00/month. 4/ Other O&M costs assumed 20% of total invesment cost. 5t Depreciation was calculated on the basis of 10 years service Hfe for the machinery, and 20 years for the building. 6J Assumed to be 25% of net income before tax. ARAB REPUBUC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT A Smal Scale Custom Sevice Financial Cash Flow Analysis ('000 LE) Year 1 2 3 4 5 6 7 8 9 10 Investment No. rombines 2 80.0 Row planter 2 16.0 Ridger 2 3.0 Tractor 2 180.0 Vehicle 1 55.0 Building and Land 11 60.0 Total 394.0 Operation Expenditures 46.0 92.0 92.0 92.0 92.0 92.0 92.0 92.0 92.0 92.0 Taxes 8.0 5.1 7.1 9.3 11.3 13.3 15.3 15.3 15.3 15.3 Revenue 99.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0 198.0 243.0 Net Cash-Flow Before Financing (349.0) 100.9 98.9 96.7 94.7 92.7 90.7 90.7 90.7 135.7 Financina 21 Equity 137.9 Loan 256.1 Debt service 0.0 92.2 88.2 80.0 71.8 63.6 Net Cash-flow After Financing 45.0 8.7 10.7 16.7 22.9 29.1 90.7 90.7 90.7 135.7 FRR 24.00% w z ERR 29.30% _ 11 While the land value (LE 30,000) was treated as an Investment cost in the project's first year, it was reclaimed as a a revenue in fe project's final year. Pi Financing was assumed to be shared by 36% owner's equity and 65% by a bank loan (an Interest of 16% was assumed on the bank loan). AHAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT A Medium Scale Custom Service Ooerator Income Statement 11 ('000 LE) oar 1 2 3 4 5 6 7 evenue 2/ No aser Leveller 2 360.0 720.0 720.0 720.0 720.0 720.0 720.0 720.0 aIgger with Loader 1 75.0 150.0 150.0 150.0 150.0 150.0 150.0 150.0 eed drill 6 43.2 86.4 86.4 86.4 86.4 86.4 86.4 86.4 lulidozer 2 150.0 300.0 300.0 300.0 300.0 300.0 300.0 300.0 tal 628.2 1,256.4 1,256.4 1,256.4 1,256.4 1,258.4 1,256.4 1,256.4 gerating gxeenditures Wriver 3J 30 27.0 54.0 54.0 54.0 54.0 54.0 54.0 54.0 aborer 31 10 6.0 12.0 12.0 12.0 12.0 12.0 12.0 12.0 ther O&M cost 4/ 255.0 510.0 510.0 510.0 510.0 510.0 510.0 510.0 )tal 288.0 576.0 576.0 576.0 576.0 576.0 576.0 576.0 ross Operating Income 340.2 680.4 680.4 680.4 680.4 680.4 680.4 680.4 Dn-Ooeratino Ex2enses 5/ lepreciation 127.6 273.2 273.2 273.2 273.2 273.2 273.2 273.2 iterest paid 0.0 222.0 178.0 133.0 89.0 44.0 at Operating Income Before Tax 212.6 185.2 229.2 274.2 318.2 363.2 407.2 407.2 ixes 61 53.2 46.3 57.3 68.6 79.6 90.8 101.8 101.8 3t Income 159.5 138.9 171.9 205.7 238.7 272.4 305.4 305.4 The revenue and expense data are based on actual Information provided by a medium scale custom operator In Dakhallya; prices of mnachineries were updated to reflect their market prices in 1993; and due to intensive usage, machineries are assumed to have a service life of 8 years. Laser leveller worked 240 days/year for 10 hr/day for LE 150/fed with an operation time of one hour/fed; digger with loader and bulldozer, 300 days, Ohr/day, for LE 50/hr; and seed drill, 60 daystyear, 10 hrlday, for LE 12/fed with an operation time of 30 minutes/fd. The drivers were paid LE 150/month and the laborers received LE 1 00/month. Other O&M cost amounted to about 25% of total Investment cost. Depreciation was calculated on the basis of 8 years service life for the machinery, and 20 years for the building. Assumed to be 25% of net operating income. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT A Medium Custom Service Financial Cash Flow Analysis ('000 LE) 'ear 1 2 3 4 5 6 7 8 ivestment No Aer Leveller Unit 2 150.0 rractor 85 HP 8 720.0 igger with loader 1 500.0 ;eed drill 6 60.0 3ulidozer 2 500.0 fehicIe 2 110.0 kuldlng and Land 1/ 100.0 Dtal 2,140.0 peration Expenditures 288.0 $76.0 576.0 576.0 576.0 576.0 576.0 576.0 axes 53.2 46.3 57.3 68.6 79.6 90.8 101.8 101.8 evenue 628.2 1,256.4 1,256.4 1,256.4 1,256.4 1,25B.4 1,258.4 1,331.4 et Cash-Flow Before Financing (1853.0) 634.1 623.1 611.8 600.8 589.6 578.6 653.6 Inancina 2/ *quity 749.0 .oan 1,391.0 )ebt Service 448.3 403.5 363.1 322.8 282.5 et cash-flow after financing 270.8 185.8 219.6 248.7 278.0 307.1 578.6 653.6 RiR 27036 RR 3&509 While the land value (LE 50,000) was treated as an Investment cost In the project's first year , It was reclaimed as a revenue in the the project's final year. I Financina was assumed to be shared by 3596 owners wulty and 6596 bank loan tan Interest of 1696 was assumed on he bank loan). ARAB REPUBUC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Income Statement for a Small Scale Rice and Whea MiIIl (in'000 LE) Year 1 2 3 4 6 6 7 8 9 10 Revenue 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 QDeaMina Exoeniditur-e Wage and Salaries 31 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 3.6 Energy 4/ 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 4.8 Maintenanee Cost 4t 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 Other Operating Exp. 41 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 Total 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 Gross Operating Income 51.8 51.8 51.8 51.8 51.8 51.8 51.8 51.8 51.8 DepreciatIon 5t 9.6 9.6 9.6 9.6 9.6 9.6 9.6 9.6 9.6 InterestPaid6/ 15.5 13.3 11.1 89 6.6 4.4 2.1 Income Before Tax 26.7 28.9 31.1 33.3 35.6 37.8 40.1 42.2 42.2 Tax 6.7 7.2 7.8 8.3 8.9 9.5 10.0 10.5 10.5 Net Income 20.0 21.7 23.3 25.0 26.7 28.3 30.1 31.7 31.7 1/ Based on field data, the wheat mill output amounted to about .3 tons/hour and for rice mill about .5 tons/hour; these mills were assumed to operate 250 days per year (16 hours for 150 days during the peak demand and 8 hours per day for the remaining 100 days). 2/ Revenue is calculated on the basis of LE 40 and LE 15 per ton for wheat and rice milling services, respectively. 31 Salaries were calculated on the basis of three workers, with monthly payment of LE 100 each. 4/ Based on data assembled by the mission from the field. 51 Based on 10% depreciation allowance for machinery and 596 for the building; land was assumed to maintain its original value cr and therefore no depreciation was considered for land. 61 Calculated on the basis of 26% corporate Income tax. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT 9 Small Scale Wheat and Rice Mill Income Statement Analysis (in million LE) Year 1 2 3 4 6 6 7 8 9 10 Investment Land 30.0 Building 25.0 Equipment 84.0 Total 139.0 Working Capit 1/ 1.8 Operating Expenditures 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 10.6 Tax 6.7 7.2 7.8 8.3 8.9 9.5 10.0 10.5 10.5 Revenue 62.4 62.4 62.4 62.4 62.4 62.4 62.4 62.4 104.9 c Net Cash-Flow Before Flnancina (140.8) 45.1 44.6 44.0 43.5 42.9 42.3 41.8 41.3 83.8 Financing 21 Equity 49.3 Loan 91.5 Debt Services 26.7 24.5 22.4 20.3 18.1 13.9 Net Cash-Flow After Financing 1.8 18.4 20.1 21.6 23.2 24.8 28.4 41.8 41.3 83.8 FRR 28.80% ERR 41.30% 1 Working capital estimated at two months of operating expenditures. 2/ Calculated on the basis of 35% owner's and 66% bank financing, with interest at 18% for loan. ARAB REPUBUC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Income Statement ftor a Medium Scale Fruit and Vegetable Sortina and Packina Indutr 1/ -(n'000 LE) 3ar 1 2 3 4 5 6 7 8 9 10 itevnue 2 795 1,569 1,589 1,589 1,589 1,589 1,589 1,589 1,589 Woerating Expenditures Nages and Salaries 65 6S 65 65 65 65 65 65 65 Energy 51 102 102 102 102 102 102 102 102 Uaintenance Cost 3/ 257 257 257 257 257 257 257 257 257 3therOperating Expenses 15 30 30 30 30 30 30 30 30 otal 388 454 454 454 454 454 454 454 454 ;rossOperatingincome 407 1,135 1,135 1,135 1,13S 1,135 1,135 1,135 1,135 spreclation 4/ 154 154 154 154 154 154 154 154 154 - terest Paid 5/ 208 179 149 119 89 60 Icome Before Tax 45 802 832 862 892 921 981 981 981 ax61 11 201 208 216 223 230 245 245 245 let Income 34 602 624 647 669 691 736 736 736 f The data extracted from a feasibility study carried out In 1991; the plant with an estimated capacity of 2 tons/hour provides sorting, grading, packing, and cooling services both for export and domestic markets. f It has been assumed that it would take one year for the construction to be completed and during the second year the plant would operate with a 60% capacity; and it would charge LE .3/kg for packing and sorting for export market and LE .05/kg for domestic market, packing materials would be provided by the customers. f Assumed to be 20% of equipment and 5% of building costs. f Depreciation is calculated on the basis of 5% for civil works and 10% for vehicles and equipment. r Calculated on the basis of 18% per annum. , . I Assumed to be 25% of net operating Income. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Cash-Flow Analysis for a Medium Scale Fruit and Vegetable Sorting and Packing Industry (in'000 LE) 0Ar 1.0 2 3 4 5 6 7 8 9 10 wvestment and 1I 214.0 3uilding 245.0 Equipment 1,200.0 atw 1,659.0 Vortdng Capital 2/ 227.0 :perating Expendctures 388 454 454 464 454 454 454 454 454 -ax 8 198 206 214 222 230 246 245 248 levenue 0.0 794 1,589 1,589 1,589 1,589 1,589 1,589 1,589 1,928 ° lt CaFlow Before Financing (1.888.0) 398 937 929 921 913 905 890 890 1,227 inancing Equity 6M00 Loan 1,226.0 Debt Service 383 354 324 294 264 235 Iet Cash-flow after Financing 130.0 18 583 605 627 649 670 890 890 1,108 'RR 38.90% .RR 47.60% 1/ Includes land acquisition costs and civil works costs. I Working capital is calculated on the basis of 50% of yearly operating cost. I While the value of land was treated as an investment cost in the project's first year, it was reclaimed as a revenue In the project's final year. - 151 - ANNEX Page 1 of 2 ARAB REPUBLIC OF EGYPT AGRICULTMRAL NODERNIZIAN PRJE&CT Bank S-upervision Input Into Key Activities Approximate Expected Skill Staff Input Date: Activity Requirements (Staff weeks) (Month/Year) 6/94-7/94 Supervision Mission Financial 12 Analyst, Agri. Project Launch Workshop. Economist, Familiarize the project's Institutional executing staff and specialist, interested commercial Agro-business banks with the detailed Specialist. project objectives and implementation arrangements; Review project's implementation timetable, progress report's format, and staffing (both local and international experts). 10/94 Review progress on: the Financial 6 bench mark survey, Analyst, implementation of the Agri.Economist, PBDAC business plan, Training training program, Specialist. redeployment program, institutional coordination between PBDAC and MALR. 3/95 Review Pilot RRES Financial 7 progress and PBDAC's Analyst, staff redeployment Agronomist, program, business plan Economist and monitoring system, and commercial Bank participation. 7/95 Review project Agro-business 6 implementation progress Specialist, especially those related Agri. to agro-related Economist, activities, training Training program, environmental Specialist program and transfer of technology. ANNEX 8 - 152 - Page 2 of 2 Approximate Expected Skill Staff Input Dates Activity Requirements (Staff weeks) (Month/Year) 6/96 Reviews PBDAC business Financial 7 plan, project's training analyst, program, result of impact Irrigation studies, commercial bank Agronomist, lending operation, Agri. project's lending for up- Economist. grading irrigation system, and progress in technology transfer activities. 9/96' Review progress in PBDAC Financial 12 business plan, effect of Analyst, organization and Environmental management study on PBDAC Specialist, operation, extend of Agri.Economist, commercial bank Institutional participation in the Specialist project, effectiveness of the technology transfer arrangements in the three pilot areas, and effectiveness of training given to PBDAC and MALR staff in environmental screening of sub-projects 12/96* Follow-up on the Agricultural 6 recommendation of the Economist/agron mid-term review and omist, decide on the action to Institutional be followed for Specialist. implementing mid-term review recommendation 1997 to 2001 Two supervision/year and (to be last mission should determined discuss with borrower following Mid- preparation of Completion term Review) Report K. Mid-term Review. - 153 - ANNEX 9 Page 1 of 3 ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Nonitoring. Evaluation and Beneficiary Assessment 1. Setting up a proper monitoring and evaluation framework for this project is of paramount importance for its proper execution, as the project will be implemented during a period of economic transition. PBDAC, the project's main beneficiary and executing agency is committed to establishing itself as a viable rural banking institution and has already been undergoing a fundamental restructuring of its responsibilities and institutional changes. The agricultural research and extension services also desire to restructure and develop themselves as technical advisory service entities, functioning on the basis of client demand. Under these circumstances, timely monitoring and establishment of appropriate feedback mechanisms to project management is essential to address emerging implementation problems. Evaluation and impact studies are needed to gauge the effectiveness of the project in achieving its stated objectives: to increase agricultural productivity and rural employment, and to strengthen institutional capacity of rural banking and, on a pilot basis, technical transfer services of extension and research at the field. 2. The Project Management Department (PMD) will have overall responsibility for implementing this subcomponent. The following arrangements and reporting for this purpose are envisioneds (a) PMD with the assistance of Evaluation and Follow up Unit (EFU) of the PBDAC's Planning Sector, and the project's extension and research entities will be responsible for the physical and financial monitoring of the project. PND will summarize its findings in a monthly monitoring report and present it to PBDAC management and the project's Steering Committee. EFU, with the assistance of Management Information Service (MIS), has automated its data collection and analysis work recently. EFU is responsible, as a central unit, to address the monitoring needs of PBDAC and has already initiated a systematic work program in this connection. EFU will provide key indicators concerning financial performance of PBDAC as a whole, and it will also assemble financial monitoring data specific to the project. Under the project, EFU will be provided with appropriate computer facilities to enable it to conduct additional work concerning this project. Each project unit will monitor own physical progress for its line manager and provide a monthly progress report to this effect to PMD; (b) PMD with the assistance of the concerned components will launch, as deemed appropriate, beneficiary assessment and impact studies so that proper decision could be taken to improve project performance; (c) PMD will prepare and submit to the Bank a progress report every six months portraying a separate account on each component, general financial indicators to show PBDAC performance in rural banking operations, and results of impact studies; (d) under the project provision is made to have employ consultants to conduct an initial household , a mid-term, and a terminal survey (in project - 154 - ANNEX 9 Page 2 of 3 years 1, 3 and 7)1 and (e) a joint mid-term project evaluation by the Bank and the Government which would be carried out at the end of the third year to advise on any requisite readjustment in the project components, design, organization and institution. 3. An important objective of the project is to strengthen PBDAC, and during the period of economic transition, to support it to develop itself as a viable financial intermediary. Under the project, therefore, PBDAC's key financial indicators, in particular disbursement, collection, deposit mobilization, loan recovery and aging of arrears will be closely reviewed and its performance ratios closely monitored. These ratios include interest earning assets to total assets, interest margin, pre-tax net profit to average total assets, pre-tax profit to equity, and operating expenses to net interest income. In addition, the project's monthly monitoring report will review the progress on civil works, staff recruitment and retirement, training programs, demonstration of technology, procurement of equipment and vehicles, and problems encountered during the month. 4. An initial survey will be conducted to establish bench marks for mid- term and final evaluation. The survey should be organized in modules appropriate to evaluating the project's development impact and institutional streamlining on beneficiaries. The questions should be formulated to be relevant to the project objectives and include information on the level of rural income, farm size and ownership, employment situation (segregated by gender) on farm and off farm; production by type of crops, intensity, yield and level of inputs usage per feddan; type of farm machines use in the farm and their sources of supplier - farmers, custom service operators or government mechanization stations; use of secondary mechanization in planting, weeding, and harvesting; inventory and status of agri-business and post harvest technology; the status of on farm water management practices and method of irrigation system; the number of village banks and technology transfer specialist and extension workers in the sample districts, and the frequency of interaction between rural bank and extension staff; and importance of rural bank in provision of rural credit and deposit. The initial survey should commence as soon as the project becomes effective and hence enable evaluation and analysis to be completed by the end of the first year of the project implementation. This survey should be followed by a mid-term and a terminal survey to assess the project impact. 5. Toward the end of third year, a mid-term evaluation review will be conducted. For this purpose, a preliminary mid-term report would be prepared by PMD with the assistance of consultants. The main focus of this report should be to gauge the effectiveness of the project in strengthening the rural banking institution and to evaluate the appropriateness of the pilot technical research/extension delivery system. Also, the report will provide an indepth review of the project's physical and financial performance, staff recruitment, early retirement and turnover against the appraisal targets; and it will analyze - 155 - ANNE 9 Page 3 of 3 factors that gave rise to the implementation success or failure. In addition, this report will use the result of the mid term survey and review the project impact on investors (farmers, traders, custom service operators, and small and medium scale investors) and seek ways to ensure sustainability of technology transfer mechanism, especially that of extension information centers. Although it is recognized that it may be too early to gauge the project's full impact on its beneficiaries, it will be useful to examine the success of project against the ERE and FRR calculated during the project appraisal, and against the established bench mark indicators derived in the project's first year of implementation. Upon completion of this report, a joint Bank and government mid-term evaluation review mission will be engaged to review the project's performance with a view to readjust, if necessary, the project's design, components, and institutional sit-up. 6. Within six months of the completion of the Loan/Credit disbursements, PND would prepare for submission to the Bank Group, its part of a Project completion Report (PCR). The terminal survey should be launched in lead time so that some of its results could be incorporated into the PCR. The PCR would assess: the project's impact on the PBDAC institution development, on small scale and medium scale investors and small farmers; financial and economic rates of return on representative investments compared to appraisal estimates; effects on upgrading production technology; performance of individual project components; sustainablity of technology transfer operations; problems experienced in subproject implementation; and lessons learned. - 156 - ANNEX 9 Table 1 Page 1 of 3 ARAB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Key Performance Indicators Tarcet for the Year Act. Achievement Value in Value in I. PBDAC OVERALL PERFORMANCE No (LEOOO0 N ILEO000 A. Loan disbursement a. Short-term b. Medium term c. long-term B. Recovery Rate a. Short-term b. Medium-term c. Long-term C. Sources of Funds a. Deposit b. Commercial Bank c. Investment Loan (local) d. Foreign Loan e. Others D. Financial Ratios a. Interest Earning Assets Percent to Total Assets b. Interest Margin Percent c. Pre-tax Net Profit Percent to Total Avr. Assets d. Pre-tax profits to Percent Equity e. Operating Expenses to Percent net Interest Income E. Personnel a. Early Retirement Number b. Normal Retirement Number - 157 - ANNEX 9 Table 1 Page 2 of 3 II. SPECIFIC TO IBRD LOAN Target for the Year Act.Achievement value in Value in No0 (LE'OO0 N (LE'0001 A. Disbursement Through PBDAC a. Primary Machinery b. Secondary Machinery c. Agr. Input Trading d. Dealership and Services e. Water Man. Investment f. Other Rural Enterprises g. Importers B. Disbursement by Participating Commer. Bank a. Primary Machinery b. Secondary Machinery c. Agr. input trading d. Dealership and Services e. Water Management Investment f. other Rural Enterprises Appraisal Actual III. SPECIFIC TO IDA CREDIT Tarcet Achievement A. Staff Anpointment a. Subject Mater Specialist Number 12 b. Technology Transfer Specialist Number 165 c. Staffing Agro-Enter. Dep (PBDAC) Number S d. Staffing On-Farm Dep (PBDAC) Number 4 e. Staffing Environ. Unit (PBDAC) Number 3 B. Training a. Foreign for PBDAC Staff Staff Month 770 b. Foreign for ARC Staff Staff Month 30 c. Foreign for Extension Staff Month 20 d. Local for PBDAC/Annum Staff Year 6 e. Local for SMS Staff Month 63 f. Local for TTS/Annum Staff Month 922 g. Local for VEW/Annum Staff Month 60 h. Demonstrations Number 2875 i. Meetings Number 804 - I58 - Table 1 Page 3 of 3 C. Consultant a. Foreign for PBDAC Staff Month b. Local for PBDAC Staff Month c. Local for REC Staff Month d. Local for Extension Staff Month D. Civil Works a. Village Banks Number 20 b. Extension Information Center Number 39 c. Staff Quarters (Nubariya REC) Number 20 d. Expansion of Admin in REC8 Number 2 e. Staff quarters for extension Number 3 f. Progress Rehab. of Nubariya REC Percent S. Procurement a. Minibus Number b. 4-WD double Cabin Pick-up Number c. Motorcycles Number d. Computer Number e. Photocopier Number d. A&V Equipment (LE'000) F. Studies - 1S9 - AMN1 10 A"AB REPUBLIC OF EGYPT AGRICULTURAL MODERNIZATION PROJECT Selected Documents Available in the Project File PreDaration 1. "Agricultural Modernization Project," Preparation Mission, FAO/World Bank Cooperation Program, December 19, 1991. 2. Working Paper: "Agricultural Technology Transfer and Demonstrations," April 1992. 3. Working Papers "Generation of On-Farm Crop Production Technologies and Farming Systems," April 1992. 4. Working Paper: "Marketing and Small-Scale Processing," May 1992. 5. Working Paper: "On-Farm Mechanization," April 1992. 6. Working Paper: "On-Farm Production Technology," April 1991. 7. Working Paper: "Promotion of On-Farm Mechanization Technologies," April 1992. Ap2raisal 1. "Egypt: Agricultural and Rural Credit Markets, Modernization and Growth, by Essam Montasser, December 1992. 2. Working Paper: "Agro-Processing Component," September 1993. 3. Working Paper: "Environmental Appraisal," July 1993. 4. Working Papers "Research and Extension Component," September 1993. 5. Working Paper: "Some Aspects of PBDAC operation," September 1993. 6. Project Cost Tables. ARAB REPUBLICO F EGYPT AGRICULTURAL MODERNIZATION PROJls',"I' ORGANIZATION CHART INTERFACE BETWEEN RURAL BANKING AND TECHNICAL SERVICES tJNI)ER T'IE PROJECT'I' RURAI, BANKING TECHINDCAI, SERVICES CENTRAL - - ~~~PBI)AC (cnC. CENTRAI, )A( k R'____ LEVEL AE.RI, SWMI, f x I nsj |V_ha _a FNRI, 1 ! Ag tmterprises ()n- fartmi Other Institlets _ Ikpartment Inv./Piomn. Department REG;IONAIl RRBS LEVEL SMS InI Agro-enterprises On-farm Agro-enterpris.e. D )irLctor ol Unit Inv./Prom. Water maniagemilentt, I'xtensuion L ____t unit Agr. ineciani,ation x z_ __ F~~~~~~~~~~~~~~~co)no_lics aIlid itiarkeitig ---- DISTRICT I)istrict Branch I xteflsi i LEVEL 1_ -- - innatiomi, [)emo. inu r …- *- - - - - - -TSI,7ITISM 'I'T.SF:.TTlSMI VILLAGE Ij 'UTS Village LEVEL Village Bank - _ __vestorsl - _ _-.xtension jer Wsrker NOTE: ARC = Agriculture Research Center TTSI = Technology Transter Specialist In on-tarint waler managerment AERI = Agriculture Engineering Research Institute TTSM = Technology Transfer Specialist In mechanizatiotn SWMI = Soil and Water Management Institute TTSF = Technology Transfer Specialist in food and nutrition / rwal enterprnses FNRI = Food and Nutrition Research Institute TTSMI - Technology Transfer Specialist in market intformiation RRES = Regional Research and Extension Service SMS = Subject Matter Specialist Solid line shows direct responsibility. Broken line shows joint responsibility. An Environment Unit will be set up in the Vice ChairTitan's office. ARAB REPUBLIC OF EGYPT AGRICULTURAL MODfE:RIZATION PROJECT Project Implementation Schedule for Selected Components 95 | 99b 1997 1998 1999 2000 200 Ou tr 1|Z|3|4j1 2 | 4 | 1 3 3 4 j1 |2|3 |4 j1 |2 |3 |4j1 |2 3 4 ~~~~Qater 12 11 1 _ __ _ _ _ _ CIVIL WORKS t Exterison tnfor. Qemon. Units _ A __..."NOW,......._ regionai Researth and Extension Stat or__ VEHICLES AND EWIP_NT vehicles - -- -a -- -----_ z Of1'ice Fquipnt aaew s t MM= ____ 111tERKATMIAL EXPERIS Fo'n, Recovrery Expert eopmtnirnkin Exgert Fnvvirornentat Expert _ uw NEW= M=w _w _-. -M-- -_ SITA)IES and TRAINING Stud.i(basciir Anrid Smpnct) | _ I__ = "Cat trz. Rural Banking (oral t,r.: Extenninn & R*_;rarch | _ t,ro,q, 7r:, Rural ennking t tg .e7r1r: Ext. &w texearc'tl= _==__c_ _I.__=.1 =- IBRD 2528( S. Ion- 4 ARAB REPUBUC OF EGYPT / tor nole datel -S el,ft-Wtl. Ah .I.h AGRICULTURAL MODERNIZATION PROJECT ^1S IOtd I * PRINCIPAL AND GOVERNORATE BANKS FOR ISRAEL DEVELOPMENT AND AGRICULTURAL M A R S A M A T R U H 2 S t I CREDIT 2... (J~~ $ \ / > \ J 0 R D A N PRINCIPAL AND GOVERNORATE BANKS FOR I .oo. ltttqWdwo @ &1e \ |DEVELOPMENT AND AGRICULTURAL CREDIT: QATTAPA 1 DC DEPRESSION .'.... S I N A I \ /BDACs 5,OA_ O4SS 3 , _ l2 o; SUEZ SINAI PENINSULA O | &WE on - ; F cYOU Garot bonla lor deetlo 5 . a& o and ogncubural credi :I SUEF 5 =: --- BS A U D I 1 Doniet E L MI N Y ARBA 2Kcrat .Sheikh a)~ ~ ~ ~ ~ ELM A R A B I A 3 =to l WESTERN A saheir El Mlyo n 6SDorL.iy 7Mormfiya 9 Qobiyo DESERT DcESu 10 Gizo AssI T EL BAHP 12 Beni SIElF E L W A D I E L G E D I D AbostinOO , E L AHMAR 13 AAiMu S AG 15 Sohog 80h;04, ~~~~~~~~~~~~~~~~~~~~~~~~~16 Oeno 15 R 17 Aosn 2E O 50 1?0 1X 200 1 f - Ti6 ' rJSEA L lo 0 E N A rn _- rO Cobivaed Anm Muot LofC 0 K hE ,A = > Wadis { X , .,:,, . / .. '0 PcolFnone Ab0 a 2 Emin 4(00 * Nalional Capitl AlonSA_rIS TflS "PAFS EL fHEIKII I A2 sWAbrN * Gmemoro Copidis 0 * ~~~~~~~~~. -. 0EOOI~~~~~~~~~~~~~~~~~,J/K Ob.0Tosn and Villges O, OId nSrI :m O K - G BirlS A' Om M Occupied Titories 0 ~~~~6 | \ c > ,KoSr ~50S ZHin{/SHORIVA noO 2 _ Ij YoN8lFIYO S 017 tS / BEH~~~~~~~~~IIArEoU*FlvA 7 C /d f d . t, OWr :ft. ord \a_do ro Ims ..f~E.1 b. rd S.k G-p, ony IZdCO SfZ S U D A N n bndo M 26 30N SO' ' NiR1so1 See Inset for moma detaiL Memo Matruh RoIetta o < Dametta | ; Ale vandria- i1Ia§3} 9