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Document of
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FOR OFFICIAL USE ONLY
Report No. P-2664-BD
REPORT AND RECOMMENDATION
OF THE
PRESIDENT OF THE
INTERNATIONAL DEVELOPMENT ASSOCIATION
TO THE
EXECUTIVE DIRECTORS
ON A PROPOSED
EIGHTH IMPORTS PROGRAM CREDIT
TO THE
PEOPLE'S REPUBLIC OF BANGLADESH
January 22, 1980
This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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CURRENCY EQUIVALENTS
In August 1979 the Bangladesh Taka was officially devaluedrelative to the Pound Sterling, to a rate of Tk 34.7 to the Pound. Sincethen the Taka exchange rate has been determined through a basket of majorcurrencies, with the Pound Sterling as intervention currency. Consequently,the Taka-US dollar rate has been subject to change. The rates below havebeen used throughout this report except when otherwise stated.
US$1 = Tk 15.5Tk 1 = US$0.065Tk 1 million US$64,516
ABBREVIATIONS AND ACRONYMS
BCIC - Bangladesh Chemical Industries CorporationBJMC - Bangladesh Jute Mills CorporationBMR - Balancing, Modernizing and RehabilitationBSB - Bangladesh Shilpa BankBSRS - Bangladesh Shilpa Rin SangsthaBTMC - Bangladesh Textile Mills CorporationCBS - Central Bureau of StatisticsCIDA - Canadian International Development AuthorityCFTC - Commonwealth Fund for Technical CooperationECL - Economic Consultants Ltd.EEC - European Economic CommunityEPB - Export Promotion Bureau
KfW - Kreditanstalt fur WiederaufbauGOB - Government of BangladeshITC - International Trade CenterNBR - National Board of RevenueODA - United Kingdom's Overseas Development AdministrationSIDA - Swedish International Development AuthorityUNDP - United Nations Development ProgramUNIDO - United Nations Industrial Development Organization
FISCAL YEAR (FY)
July 1 - June 30
FOR OFFICIAL USE ONLY
ANNEXES
I. Economic Development Data
II. Status of Bank Group Operations as of December 31, 1979
III. Supplementary Data Sheet
IV. Production Trends of Selected Industries
V. The Performance and Prospects of Proposed IDA Assisted Industries
VI. The Status of Past Action Programs.
VII. The Jute Industry
VIII. The Cotton Textile Industry
IX. The Export Development Program
X. Export Performance - FY77-FY80
XI. Utilization of Previous Imports Program Credits
This document has a restricted distribution and may be used by recipients only in the performanceof their olicial duties. Its contents may not otherwise be discbsed without World Bank authorization.
BANGLADESH
EIGHTH IMPORTS PROGRAM CREDIT
CREDIT AND PROGRAM SUMMARY
Borrower: People's Republic of Bangladesh
Amount: US$50 million equivalent
Terms: Standard
Purpose: To provide foreign exchange for the import of industrialcomponents, chemicals, raw materials and spare parts toenable selected high priority industries to reach theirfull production potential. This proposed credit willmonitor progress in implementing the measures agreed underprevious imports credits to improve the efficiency andfinancial viability of the jute, cotton textile and paperindustries, and expand the export development program,initiated under the Seventh Imports Program Credit.
EstimatedDisbursements: ----- US$ Millions ------
IDA FY FY80 FY81 FY82
First Quarter - 10 5
Second Quarter - 10 5
Third Quarter - 10 -
Fourth Quarter 5 5 _
Annual Total 5 35 10
Cumulative Total 5 40 50
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Recommended Average Estimated Maximum Amount of
Categories Annual Imports the Credit that
and Ceilings: Category FY80-FY81 Can be Withdrawn$ Million $ Million
Industry: Rawmaterials, spareparts, chemicals,components andpackaging mate-rials for:
1. Textile Industry 120 25.0
2. Paper and BoardIndustry 15 5.0
3. Fertilizer Industry(excluding finishedfertilizer) 15 10.0
4. Export-orientedIndustries(excluding jute) 10 10.0
5. Steel and FoundryIndustry 70 15.0
6. Chemicals andPharmaceuticalIndustry (excludingproprietary items) 80 10.0
7. Sugar Industry 5 3.0
Construction Activities
8. Cement and rawmaterials for cementmanufacture includingpackaging materials,spare parts and otherintermediate buildingmaterials 40 15.0
INTERNATIONAL DEVELOP-4ENT ASSOCIATION
REPORT AND RECOMNENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED EIGHTH
IMPORTS PROGRAM CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH
1. I submit the following report and recommendation on a proposedcredit to the People's Republic of Bangladesh for the equivalent of US$50million, on standard IDA terms, for an Eighth Imports Program. The purposeof the Credit will be to provide foreign exchange to help finance imports ofmaterials and spare parts required by high priority industries.
PART I - THE ECONOMY
2. An economic report entitled "Bangladesh: Current Trends and Devel-opment Issues" (Report No. 2245-BD), was distribul:ed to the Executive Directorson December 15, 1978. The most recent economic mission to Bangladesh was inOctober 1979; its report will be distributed early in 1980.
Background
3. When Bangladesh became independent in December 1971, the newly formedGovernment inherited a shattered economy: the country had lost a large numberof its academic and business elite, and much of the physical infrastructurehad been demolished. Agricultural and industrial production and trade hadcome to a standstill. Attempts to revive the economy were complicated bythe needs to fashion a national government out of a provincial administration,to establish development institutions serving agriculture, industry, trade,and banking, and to reorient agriculture and industry to the changed marketconditions.
4. The first years of independence were difficult. Bad harvests in1972-73 were followed by damaging floods in 1974. Bangladesh's terms of tradeworsened considerably while the production of jute, the predominant export,stagnated. Inflation, declining real wages, labor unrest and politicalinstability added to the troubles. Relief, rehabilitation and the consolida-tion of Government authority were unavoidably the paramount concerns of policymakers in the early and mid-1970's.
5. Economic improvements in recent years, together with greater poli-tical stability, signal a significant shift in Bangladesh's circumstancesand brighten somewhat its economic prospects. The present time can be charac-terized as a period of consolidation of the country's economic recovery fromthe shocks of the early 1970's. This period has afforded planners and policymakers an opportunity to focus anew on the longer-term needs of development.In recognition of the need for a fundamental reorientation of policies, theGovernment wisely chose to delay a new Five Year Plan by two years. Thecurrent Two-Year Plan (FY79-80) has given GOB officials time to consider thedevelopment strategy and policies to be incorporated in the next Five YearPlan beginning in July 1980.
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Recent Developments and Short-Term Prospects
6. From 1975 until March 1979, Bangladesh was governed under martiallaw and without a parliament. In elections held in February 1979, some 29political parties and groups contested 300 seats in the National Assembly.Roughly two thirds of the seats were won by the Bangladesh National Partyheaded by President Ziaur Rahman, who had previously been confirmed asPresident in an election held in June 1978. Martial law was lifted followingthe convening of the new Parliament in March 1979, and a new cabinet wasappointed at that time.
7. The year FY78 (July 1977-June 1978) was a relatively good one forthe Bangladesh economy. Mostly as the result of a record grain crop (13.1million tons) and a 10% increase in industrial output, GDP grew by nearly 8%in real terms, following a 2% rise in FY77. But the experience of the lasteighteen months -- and particularly of CY1979 -- has again demonstrated thevulnerability of the Bangladesh economy. During this period, the economicscene was to a large extent dominated by the consequences of unfavorableweather conditions, including droughts and floods. These conditions affectedadversely both the foodgrain crop (which comprises nearly 40% of GDP) and thesize and quality of the jute crop; they also had repercussions throughout therest of the economy. Inflation, which was aggravated by the shortfall in foodproduction and consequent rapid rises in rice prices, increased to a currentrate of about 17% while rates of growth in GDP and real incomes fell consider-ably. On the positive side, however, there has been: a continuing strongperformance of the construction sector; improved budgetary performance; asubstantial increase in development expenditure; the emergence of strongerbalance-of-payments and international reserves positions than had been expected;and a number of significant policy adjustments, most notably in the areas ofexchange rate management and public sector pricing. Yet with populationgrowing at 2.7% annually, there was probably very little, if any, growth inper capita income in FY79. The current outlook for FY80 is that GDP growthwill be well below the rate of 7.3% projected by GOB in its FY80 budget.
8. The succession of three relatively poor crops in a row (1978/79 aman;1979 boro and aus) has meant that foodgrain available from domestic productionduring CY1979 was considerably below the previous year's level. This situa-tion, combined with a serious slippage in the scheduled arrival of food aidduring the first half of CY1979, led to a fall in the per capita availabilityof food and to a level of rice prices unrecorded since the food crisis of1975. Meanwhile, a low level of domestic foodgrain procurement from the smallcrops combined with high offtakes under the ration system led to declining *
public food stocks. In contrast to the targeted level of one million tons,stocks fell to less than 200,000 tons at the end of June 1979. At this level,it is generally conceded, the distribution system is liable to break down,
with the dire consequences that this could entail.
9. In anticipation of this impending food crisis, Government authori-ties at the highest level took charge of the situation and directed an all-outeffort to mobilize, import, and distribute the massive volume of foodgrain
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needed to supplement the reduced domestic crops, so as to avert widespreadfood shortages in the July-October 1979 lean season. This effort appears tohave been remarkably successful. Almost 2 million tons of food, both aid-financed and commercially purchased, will have been imported between Julyand December 1979. This has put a heavy burden on the country's port handlingcapability, its transport facilities, and its public administration and dis-tribution system. Nevertheless, the authorities were able to unload anddistribute this unprecedented volume of foodgrains in a minimal amount oftime, enabling offtake to be stepped up and stocks to be restored to a morecomfortable level. By the beginning of September 1979, therefore, rice priceshad begun to ease and what might have become a serious food crisis was averted.
10. The underlying problem -- i.e., the slow growth of agricultural pro-duction -- has become the principal focal point of concern among Bangladesh'stop leadership and economic planners. As will be discussed below, it is ex-pected that first priority in the Second Five-Year Plan will go to agriculture,and especially to food production. Meanwhile, the short-term food supply out-look is still problematic. The end-1979 stock position will be adequate be-cause of the substantial imports between July 1979-December 1979. The forth-coming aman crop, however, is not likely to be much better than last year's,and the prospects for procurement from this crop--in spite of a recent pro-curement price increase--do not appear favorable. Consequently, in order toavert a repetition of the CY1979 situation, considerable amounts of additionalimports will be needed in CY1980. The extent of these requirements willdepend on the prospects for the boro, wheat and aus crops in CY1980, whichcannot yet be ascertained. In any event, efforts to ensure an adequate stockof foodgrain to meet 1980 requirements cannot yet be relaxed. A special meet-ing of the Bangladesh Aid Group will convene in late January 1980 to considerthe country's food situation. A Bank mission which visited the country inOctober 1979 has prepared a report entitled: "Bangladesh: Food PolicyIssues" for consideration at that meeting. This report was distributed tothe Executive Directors in late December 1979.
The Balance of Payments
11. Repercussions of the 1979 food shortage were reflected in the balanceof payments. For example, the need to finance commercial purchases of foodimports was evidently a factor underlying GOB's rather cautious implementationof its import program. Other factors included the Government's concern aboutthe impact of the OPEC price increases on the country's petroleum import billand GOB's desire to defer the importation of non-essential items during theperiod when the ports were expected to be congested as a result of the hugevolume of food imports anticipated to arrive during the last quarter of FY79.As a result, non-foodgrain imports in FY79 remained considerably below target.Because of this and other factors, foreign exchange reserves increased sub-stantially, which in turn added to the increase in money supply and aggravatedexisting inflationary tendencies. The reserve increase, however, was a tem-porary phenomenon. Even with a continuing relatively favorable export per-formance and a restrictive import policy, a substantial overall deficit isprojected for the FY80 balance of payments.
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12. Bangladesh's balance of payments as summarized in Table 1 below con-tinues to be characterized by a massive structural trade deficit and heavydependence on foreign aid. Export earnings in FY79 represented less than 7%of GDP and less than 40% of the import bill. Moreover, Bangladesh's exportstructure continues to be dominated by raw jute and jute goods, which togetheraccount for approximately 70% df total export earnings. Among the principalcategories of imports projected in FY80 are foodgrains (28%), capital goods(20%), petroleum products and crude petroleum (14%), and fertilizers (6%).
Table 1: Bangladesh: Balance of Payments, FY76-FY80 (Summary)(in millions of current US Dollars)
FY FYFY76 FY77 FY78 FY79 FY80 78/79 79/80---(Estimated Actuals)--- (Projected) % Change
Merchandise exports, f.o.b. 381 460 497 603 746 21 24Merchandise imports, c.i.f. -1,266 -865 -1,349 -1,603 -2,459 19 53
Trade Balance -885 -405 -852 -1,008 -1,713 17 71
Services (net) -24 -17 -17 -5 -16 -71 220Private transfers 62 81 83 140 155 69 11
Current Account Balance -847 -341 -786 -865 -1,574 10 82
Amortization of MLT debt -68 -30 -35 -55 -71 57 29IMF Transactions (net) 71 -2 14 27 59 93 118Other Capital (net) -23 -48 -15 - 86 /a -93 8,500
Disbursement of External Aid 814 502 797 1,016 1,378 28 36of which: Food aid 307 106 190 187 400 -2 114
Commodity aid /b 378 249 352 472 525 34 11Project aid 129 147 254 357 453 41 27
Changes in reserves(- = increase) 53 -81 25 -122 122 - -Reserve Level (end of year) 213 294 269 391 269 45 -31
/a Includes capital credits of US$77 million for the financing of commercialfood imports in FY80.
/b Including cash.
Source: GOB Planning Commission, IMF and IBRD estimates.
13. Both imports and exports increased by about 20% in FY79, with theresult that the trade deficit widened by roughly $150 million to $1 billion.Bangladesh's terms of trade appear to have improved slightly during the year.Raw jute exports totaled $143 million in FY79, a 47% increase over the previousyear's receipts; this reflected a 17% increase in volume and a 27% increase in
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27% increase in prices. Jute good exports in FY79 were $276 million, an 11%increase over the previous year's receipts; a 12% decline in volume was morethan offset by a 27% increase in unit prices. Tea exports valued at $41 mil-lion were down slightly in FY79, but relatively large gains were recorded inleather exports (up 65% to $76 million), fish and shrimp exports (up 65% to$33 million), and other non-traditional exports (up 29% to $51 million).
14. Among the notable developments on the import side in FY79 was the$40 million decline in food imports to a level of about $200 million. Thiswas some $50 million less than had been projected, owing mainly to the delaysin food aid arrivals noted above. Capital goods imports rose by 21% to alevel of $382 million. Fertilizer imports nearly doubled in value, and therewere significant increases also in imports of petroleum products and cement.Imports of various other intermediate goods rose by less than had been pro-jected, because of unexpected shortfalls in the issuing of import licenses(see paragraph 11 above).
15. The FY79 current account deficit was considerably lcss than thetrade deficit, owing mainly to the rapid growth of workers' remittances(shown in Table 1 under private transfers). These receipts are now the secondmost important source of foreign exchange, exceeded only by jute goods exports.
16. Table 1 also shows recent trends in Bangladesh's capital account.Debt service continued to rise, notwithstanding some debt relief measuresundertaken by various donors, bringing the debt service ratio to 15.8%. 1/Most notable, perhaps, was the $100 million increase in project aid disburse-ments in FY79, reflecting the country's growing absorptive capacity. Totalaid disbursements, which passed the $1 billion mark for the first time, wereequivalent to 63% of total merchandise imports. Per capita aid disbursementscame to nearly $12. Reserves at the end of FY79 were equivalent to nearlythree months' merchandise imports. The reserves level rose to nearly $450million in early October 1979, but has since fallen (as of end-November) toless than $400 million (or about two months' imports).
17. Between mid-1978 and mid-1979, GOB undertook a series of exchangerate adjustments whereby the Taka was devalued by some 24% against the PoundSterling. These adjustments served to strengthen somewhat the balance ofpayments and the allocation of resources within the economy. In July 1979,the IMF approved a Standby Arrangement for a period of one year in an amountequivalent to SDR 85 million, or 56% of Bangladesh's Fund quota of SDR 152million. Net of repayments, and including projected disbursements of IMFTrust Fund and (possible) new SDR allocations, the IMF is expected to coverabout $59 million of Bangladesh's financing requirements in FY80. Recentpolicy developments relating to Bangladesh's efforts to attract foreignprivate capital and to foster more rapid export growth are discussed inPart II below.
1/ Debt service as a percentage of merchandise exports.
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18. The near-term outlook for the balance of payments is mixed. T,hereare favorable prospects with respect to: (i) prices of jute manufactures,which are expected to be exceptionally high owing to the impact of recentdisruptions in the Indian jute industry; (ii) growth of certain non-traditional exports; (iii) continued rapid growth in workers' remittances;and (iv) a more rapid commodity and cash aid utilization. These auspiciousfactors are offset, however, by a number of other considerations. Risingimport prices, particularly of petroleum products (POL), are expected tooffset the gains in higher export prices. In FY80, Bangladesh's expenditureson POL alone are expected to be around $160 million more than in FY79 --primarily due to higher prices. Substantial purchases of food on commercialterms also constitute a new drain on foreign exchange resources. Consequently,despite the large increase in total imports projected for FY80, the currentimport program is restrictive in that it allows for very little increase inthe volume of the whole basket of raw materials and intermediate goods imports(excluding POL) required for stimulating and sustaining further growth of theeconomy.
19. Even with this restrictive import policy, according to the projec-tions shown in Table 1, Bangladesh would have to draw down its reserves bysome $122 million in FY80. Should the export projections prove conservative,or should additional cash, commodity and food aid become available, it wouldbe desirable to relax somewhat the present restrictions upon imports. Itwould certainly be undesirable to draw down reserves by more than the presentlyanticipated $122 million, however, since the projected end-year reserves of$269 million would cover the equivalent of only five weeks of merchandiseimports (or still less than two months' equivalent if exceptional food importsare netted out). These considerations all bear on the case for programassistance to be discussed below in paragraphs 94 to 99.
Public Finance
20. Public finances improved in FY79 and are expected to improve furtherin FY80. In both years, the contribution of the current surplus to financingthe development budget showed a rising trend, in absolute as well as relativeterms. Borrowing from the domestic banking system, which re-emerged as asource of budget finance in FY78, has since been avoided. Nevertheless, asnoted above, inflation has again become a serious problem.
21. Total foreign aid in recent years, as accounted in the budget, hasbeen equivalent to some 75-80% of total development expenditure. Aboutone-third of the development budget (called the Annual Development Programme,or ADP) has comprised foreign aid disbursements to specific projects. Yet theimplementation of many projects, both aided and non-aided, has been hamperedby insufficient or tardy allocation of domestic funds, which emphasizes theurgent need for continued improvement in the mobilization of domestic resourcesif the public investment ratio is to be raised above the roughly 10% of GDPthat it has constituted in recent years.
22. This task of raising additional domestic resources is wide-ranging,involving not only a strengthening of the tax effort, but in addition--and
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above all--improvement in the performance of the public sector business enter-prises and utilities and reduction of the three key subsidies (on jute, foodand agricultural inputs). The Government has shown growing awareness of theproblem. In October 1976 it established a Taxation Enquiry Commission andin mid-1978 created five Special Committees to review various aspects ofdomestic resource mobilization. The five committees focussed on, respectively:(i) gradual elimination of the food subsidy; (ii) rationalization of the ratestructure of public transport agencies; (iii) economic pricing by publicutilities; (iv) reduction in agricultural input subsidies, including the fer-tilizer subsidy; and (v) improvement in the financial performance of publicsector enterprises. The committees have recently concluded their work, whilethe final report of the Taxation Enquiry Commission was submitted to theGovernment in April 1979. Furthermore, a detailed survey of the jute industrywas recently completed for GOB by Economic Consultants Ltd. (ECL).
23. A start has been made to implement some of the recommendations ofthe various advisory groups. Some of the measures suggested by the TaxationCommission, especially those in regard to tax administration, have been imple-mented gradually from FY78. In mid-1978 the Government increased railway faresand in the course of CY1979 raised several other utility rates and commoditysales prices of public sector enterprises. Foodgrain ration prices were raisedby 20% in April 1979; the budgetary impact of this measure was offset, however,by an increase in domestic grain procurement prices. 1/ Fertilizer prices wereincreased by 28% in September 1979 and petroleum product prices were raised by20% in November 1979.
24. The net impact of these and other measures is reflected in theoverall improvement in public finances as shown in the following table:
1/ Domestic rice and wheat procurement prices were raised again inNovember 1979, as the Government is attempting to rationalize furtherits involvement in foodgrain production and distribution policies; acorresponding increase in ration prices is expected to be announcedin the near future.
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Table 2: Government Budgetary Operations FY78-FY80(in millions of Taka at current prices)
Nominal Increase (%)Revised Revised Revised Budget RevisedBudget 'Budget Budget FY79/Revised Budget FY79/FY78 FY79 1979/80 Budget FY78 Budget FY80
A. Total Revenue 12,447 15,027 18,128 20.7 20.6Tax Revenue (9,843) (11,556) (14,250) (17.4) (23.3)Non-tax Revenue (2,604) ( 3,471) ( 3,878) (33.3) (11.7)
B. CurrentExpenditure 10,360 11,290 11,940 9.0 5.8
C. CurrentSurplus (A-B) 2,087 3,737 6,188 79.1 65.6
D. DevelopmentExpenditure(ADP) /a 12,522 16,469 21,239 39.5 21.6
E. Overalldeficit (D-C) -10,435 -12,732 -15,051 _
/a Includes some non-capital expenditure, estimated at 15-20%.
25. The data indicate that development expenditures increased by almost40% and total revenues by about 21% in FY79; both are projected to increase byabout 21% in FY80. Increased development activity is also reflected in theincreased disbursement of project aid which rose by an estimated 35% in FY79and is projected to rise by another 24% in FY80 -- reflecting some improvementin absorptive capacity. Underlying the gains in resource mobilization --achieved both through restraint on current expenditure and increased revenue --are a number of measures taken by GOB to reduce the budgetary burden of subsi-dies and to rationalize the allocation of available resources. These mea-sures included increases in the prices of various goods and services producedand/or sold through public enterprises (fertilizer, food, power, water, etc.),as well as the exchange rate adjustments noted above. A number of these priceadjustments had been recommended by IDA and were agreed to by GOB in thecontext of negotiating IDA projects in the respective sectors. In some cases,however, the price increases were only just enough to make up for cumulativeinflation effects since these prices were last fixed.
26. The increased revenue collection realized in FY79 and projected inFY80, as indicated in Table 2, is the continuation of a trend which startedearlier. An important contributing factor over the last several years hasbeen improved tax administration, although substantial scope remains forfurther steps in this field. In addition, revenue has responded to the
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overall growth of the economy, and in particular to the expansion and liberal-ization of imports. Over 80% of tax revenue comes from indirect taxes(customs duties, excises and sales tax); these in turn are primarily dependenton imports. In FY79, customs duties increased by some 25%, which was consid-erably above the increase in imports and reflected partly the effects of de-valuation. In FY80, however, customs receipts may well rise by proportionatelyless than projected increase in imports, mainly because of the exceptionallylarge food imports in this year. Revenue from new measures beyond tax admin-istration in FY79 and FY80 is minor (in both cases only about 2% of totalcurrent revenue).
27. The rise in current expenditures (exclusive of those which are apart of the development budget) was limited to 9% in FY79 and is budgeted atless than 6% in FY80, in both cases representing a decline in real terms.These increases were much smaller than the 26% growth recorded in FY78, whena substantial upward adjustment was made in the very low salaries of publicsector personnel. The net contribution of GOB food transactions on the cur-rent budget (inclusive of funds generated through sales of food provided byforeign aid mainly in the form of grants) was particularly large in FY79 --equivalent to 36% of the FY79 current surplus. The jute subsidy is budgetedto drop from Tk 590 million in FY79 to about Tk 70 million in FY80 althoughon the basis of current operations no subsidy will actually be required.
28. The current budget surplus has risen from Tk 2.09 billion in FY78 toTk 3.74 billion in FY79 and is projected to grow to Tk 6.19 billion in FY80.This would permit a rise in the share of development expenditures financedfrom this source from 17% in FY78 to 23% in FY79 and to 29% in FY80. Despitethis improvement, the heavy dependence on foreign aid for financing of thedevelopment effort continues. Moreover, the development budget includessubstantial amounts of current expenditures, of which the fertilizer subsidyis the largest single item by far; this subsidy rose from Tk 0.66 billion inFY78 to Tk 1.18 billion in FY79 and is budgeted at Tk 1.10 billion for FY80,with the reductions in the unit subsidy, which are due to fertilizer salesprice increases averaging 28%, partially offset by increases in estimatedconsumption and sales of fertilizer.
29. The Government did not use domestic budgetary deficit financing inFY79 and plans to avoid doing so in FY80 as well. But inflationary pressureswhich re-emerged in FY78, (sparked primarily by too rapid a creation ofliquidity by the banking system) continued into FY79, especially in the latterparts of the year when rice prices rose rapidly. In FY79, the overall costof living rose by an estimated 16% to 17%. This rate should decline somewhatduring the current fiscal year as a result of efforts being made to slow downthe rise in liquidity. In addition, accelerated foodgrain imports and higherfoodgrain production should contribute to an abatement of inflationary pressure.
30. Continous review of resource mobilization measures is taking placeas part of the preparations for the Second Five Year Plan. Achievement of theinvestment program provisionally envisaged for the Second Plan period wouldrequire the mobilization of domestic resources on a greatly enlarged scale,implying a savings effort that would place considerable stress upon thesociety. Complicating the situation is the fact that, insofar as the Plan's
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agricultural production targets are achieved, this would lead to the diminutionof food aid which is presently such an important source of Taka generation.
Development Planning and Policy Issues
31. FY79 and FY80 comprise the period of the Two Year Plan, which wasmeant to provide an opportunity for stock-taking and policy re-appraisal. Itwas also meant to be a period during which the Second Five Year Plan as wellas a Perspective Plan would be prepared. In the process, the planners haveaddressed themselves to the factors underlying the slow development of theeconomy over the past decade. Among these are poor land use, lack of irriga-tion, inadequate public administration, low domestic resource mobilization,and social impediments to change. The planners have also analyzed thoseproblems posed by the basic structural conditions of the economy: masspoverty; a unique environment prone to national disasters; a high population-land ratio and growing landlessness of the predominantly rural population; thehigh rate of population growth; high illiteracy, poor health and short lifeexpectancy; high unemployment and underemployment; and a heavy dependence onforeign aid, not only for investment financing but also for food and otherrecurrent inputs.
32. In view of these conditions and of the disappointing past per-formance of the economy, the Government now feels that in order to make a dentin the country's problems a clear break should be made with the past and amore vigorous development policy should be pursued during the next Five-YearPlan period. Although the Second Five-Year Plan is still in preparation andwill not be available in draft form until January 1980, the Plan's "Guidelines"(published in June 1979) together with statements from the National EconomicCouncil indicate in broad terms the objectives and priorities that seem likelyto characterize the new Plan.
33. Because of the general and still tentative nature of this planstrategy, it is too early to analyse its implications in detail. It seemsclear, however, that first priority in the next Plan will go to agricultureand, within agriculture, to the production of food. The potential for in-creased agricultural output in Bangladesh is considerable, as yields areamong the lowest in Asia, cropping intensity is low, and fertilizer use stillvery modest. Furthermore, there are signs that the environment is ripe fora significant expansion in the use of High Yield Variety (HYV) technology.Except for last year, when it was adversely affected by the weather, fertilizerdemand has been expanding at a fairly rapid rate. Wheat production has caughton very fast, and there seems to be a large unsatisfied demand for irrigation.Precisely how rapidly food production could be boosted remains to be deter-mined. The Plan's targets remain to be announced but are expected to be veryambitious. Even to replace present imports and to feed the growing populationwill require a significant breakthrough in food production and place greatlyincreased demands upon public sector finances and upon the institutions whichwould have to support this output expansion.
34. The recent World Development Report (Table 17, page 158) indicatesthat the population of Bangladesh, now estimated at about 89 million, will
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reach 145 million by the year 2000 if fertility declines at a pace by whicha two-children family norm is reached only in 2035. Such a slow, althoughrealistic, decline in fertility rate would mean that the natural rate ofgrowth of population, currently estimated at about 2.7% per annum, wouldremain as high as 2% per annum until the end of the century. The implicationsof this projected high natural rate of population growth are staggering forthe development prospects of Bangladesh. For example, with the projectedgrowth of population, the arable land per person would decline from a meager0.3 acre at present to 0.16 acre by the year 2000. Adverse consequences ofthis over-crowding are obvious for a country where the mainstay of the economyis agriculture and where food shortages are already serious. Annual food-grain requirements, given the above assumption of population growth, wouldrise from 14 million tons at the current low level (15.5 ozs. per day percapita), to 23 million tons by the year 2000. An unprecedented increase inyields per acre would, therefore, be necessary even to maintain consumptionat a subsistence level. Not only the food situation will become worse with-out a drastic decline in rate of growth of population, but it would becomeincreasingly impossible to educate and provide employment for the rapidlyincreasing numbers.
35. Emphasis in the next five years is likely to be placed on the satis-faction of a number of basic needs, including the provision of adequate cloth-ing, universal primary education and rural electrification. It is recognizedthat it will take more than five years to fulfill all of the above targets,but strides will be made in the next plan period towards their achievement.
36. A plan aimed at departing in a significant way from past trends willput a severe strain on domestic finance and managerial skills. Even with theadoption of labor-intensive and low capital-cost techniques, a significantstep-up in development spending will be required. This in turn will requiresizable increases in both the mobilization of domestic resources and theinflow of foreign resources. These are not independent variables, eitherin technical or behavioral terms. The overall growth potential and hence thesavings capacity of the economy are themselves (partly) functions of theavailability of aid. Conversely, the availability of aid will to some extentdepend upon the donors' conviction that domestic savings efforts are beingmaximized. A critical factor will also be the extent to which implementationcapabilities are improved. Domestic resource availabilities will continue tobe an important determinant of those capabilities.
37. The execution of such an ambitious plan will call for much improve-ment in this implementation capability, which has been severely constrainedin the past on account of excessively bureaucratic controls and scarcitiesof both qualified administrators and domestic finance. Although immediateimprovements can be made in the ability of the administration to expediteproject implementation, it is unlikely that public agencies alone could be-come adequate to achieve the targeted breakthrough. The Government recognizesthat in certain key areas, such as irrigation and irrigation maintenance,greater reliance will have to be placed on the private sector. It also be-lieves that, to a certain extent, activities such as education and ruraldevelopment should be carried out in a decentralized fashion, with greater
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emphasis on local initiative and grass-roots participation. Yet it may proveall the more difficult to achieve the ambitious short-run output targetssimultaneously with the pursuit of policies and programs aimed at achievinga far-reaching social transformation in the rural sector. It remains to beseen what relative weights the Government will assign to these possibly con-flicting, although desirable, objectives.
38. Following the issuance of the draft Second Five-Year Plan in early1980, it is envisaged that the Government will undertake the preparation ofa detailed action program whereby the Plan's objectives will be translatedinto specific, time-phased operations. Such an action program should beavailable by late 1980. It would include a policy framework for plan imple-mentation and an improved monitoring system.
PART II - BANK GROUP OPERATIONS IN BANGLADESH
39. Bangladesh became a member of the Bank and IDA in August 1972.Initially, Bank Group operations in Bangladesh concentrated on the reactiva-tion of uncompleted projects, financed under credits made originally toPakistan, before 1971. Eleven such credits, amounting to US$148.6 million(including US$44.1 million for the repayment of amounts that had been dis-bursed under the corresponding previous credits to Pakistan, and net of can-cellations) were made to Bangladesh. In addition, as of December 31, 1979,37 new credits, excluding the consolidation credit of US$31.0 million referredto in paragraph 40, have been made, totalling US$1,039.7 million. Of theamount, US$525 million has been for eight program credits (including a fer-tilizer program credit). The project credits have emphasized agriculturaldevelopment, but also included amounts for population, telecommunications,transport, power, water supply and industry. On June 18, 1976 Bangladeshbecame the 105th member of the IFC, and IFC's first investment (High SpeedShipbuilding and Engineering Co., Ltd.) was approved on May 10, 1979.
40. Agreement has been reached between Bangladesh and most of thebilateral and multilateral donors, concerning the assumption by Bangladeshof portions of the debt contracted by Pakistan, before Bangladesh becameindependent. This will lead to some increase in debt service and, while thedebt service ratio is not expected to exceed 20% before the mid-1980s, itcould do so thereafter, unless careful debt management policies are pursuedand aid is provided on appropriately concessional terms. With respect to theBank Group, Bangladesh agreed to accept liability for portions of IDA creditsextended for projects visibly located in Bangladesh and completed beforeindependence. Based on this agreement, a consolidation loan of about US$54.9million, and a consolidation credit of about US$31.0 million were signed onFebruary 14, 1975. The Bank Group's share of Bangladesh's outstandingexternal debt is not expected to rise significantly above the present levelof about 27% over the next few years.
41. Annex II contains a summary statement of IDA credits and the Bankloan made to Bangladesh as of December 31, 1979, and notes on the execution
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of ongoing projects. While disbursement of the program credits has proceededsatisfactorily, project credit disbursements have lagged far behind expecta-tions, due inter alia to delays in the release of local funds, approval ofcontracts, employment of consultants, and appointment of staff. The Govern-ment has taken some steps to eliminate bottlenecks and the results are begin-ning to be reflected in improvements in project implementation and disburse-ment performance. However, serious implementation constraints remain becauseof a shortage of qualified staff, over-centralized bureaucratic proceduresand organizational deficiencies. Some progress is being made. For example,at the Government's request, IDA is providing assistance to strengthen thekey ministries and agencies dealing with agriculture and water resources, suchas, the Water Development Board (WDB) and the Bangladesh Agricultural Develop-ment Corporation (BADC) through detailed studies of their organizational andoperating procedures. These steps have produced noticeable improvements inthe rate of project implementation and further improvements are expected. IDAand GOB have also given increased emphasis to regular monitoring and supervi-sion in order to identify and resolve potential problems at an early stage,thereby reducing the risk of undue delays in project implementation. Further-more, the Government has taken a number of steps, including improved proce-dures for recruitment of civil servants and increased emphasis on training,which should gradually improve the quality of public administration. On theorganizational side, the Government is in the process of establishing planningcells in the main ministries and agencies and is strengthening the PlanningMinistry. In this connection, IDA is providing assistance both under specificprojects and under the ongoing Technical Assistance Credits (Credits 622-BDand 872-BD).
The Industrial Sector
42. Of the 37 new credits totalling US$986.() million, 11 credits total-ling US$560.0 million have been directed towards industry through DFC loans,small scale industry projects, a fertilizer production project and sevenimport program credits for the procurement of essential industrial materialsand spare parts. Additionally, IFC is currently in the process of identifyingfurther suitable investment opportunities following the approval of its firstproject referred to in paragraph 39 above. In addition to the measures dis-cussed in paragraph 41 above, GOB and IDA have given emphasis to the improve-ment of the institutional and operating infrastructure of key industries(e.g., jute, textiles, pulp and paper) through the use of action programs toidentify and resolve problems within the industries concerned and to monitorthe preparation of long term development programs. These measures have laidthe foundations for the long term development programs now being formulated,through rehabilitation projects currently under consideration, for the juteand textile industries. A fertilizer industry rehabilitation project has alsobeen prepared and is expected to be ready for Board presentation in the nearfuture.
Other Sectors
43. Agriculture has also been a major beneficiary of projects approvedto date, with 14 credits totalling US$241.5 million directed towards agricul-ture and rural development (excluding subprojects of the Technical Assistance
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credits allocated to this sector). In line with the strategy set forth inthe Bank Group's "Land and Water Resources Sector Study" (Report No. PS-13)IDA-supported projects have emphasized: (a) expansion of irrigation, drainageand flood control facilities through technically simple, low cost, shortgestation water control projects; (b) strengthening of agricultural support-ing services such as extension, applied research, credit, small farmer co-operatives and rural training; and (c) improvement of farm input suppliessuch as seeds and fertilizers. A low lift pump project is expected to beready for consideration shortly.
44. The fundamental need to improve agricultural productivity means thatprojects geared to the rural sector should remain the cornerstone of futureIDA lending to Bangladesh. However, in the short-term, the rate of lendingfor agriculture will be based upon progress in improving the currently limitedabsorptive capacity of the various implementing agencies. Several of theIDA-supported agricultural projects--among them the Chandpur II IrrigationProject (Credit 340-BD), the Northwest Tubewells Project (Credit 341-BD) andthe Foodgrain Storage Project (Credit 381-BD)--are complete or nearing com-pletion and the preliminary assessment of the likely benefits indicates thesoundness of these investments. Other projects also remain economicallyviable although in many cases the pace of implementation has been rather dis-appointing and their completion is likely to be delayed because of the rea-sons stated in paragraph 41 above. GOB and IDA have given increased emphasisto regular monitoring and supervision of projects in order to identify andresolve potential problems at an early stage. These measures have resultedin visible improvements in project implementation and disbursements over thepast two years. Further improvements are feasible and are being pursued.Given the complexities of development administration emphasis is being placedon technical assistance for project preparation, monitoring and supervisionas well as institutional development.
45. The enormity of Bangladesh's population problem makes this an ex-tremely high priority sector, limited only by its absorptive capacity. Thefirst population project (Credit 533-BD) is now making encouraging progress,and a second population project was approved on May 29, 1979. Improvededucation and availability of trained manpower is also crucial. Past lendingin this field has emphasized agricultural and technical training, and voca-tional education; a project to assist primary education and management train-ing is expected to be ready for board presentation this calendar year.
46. Given Bangladesh's immense needs, efforts must also be made toidentify projects and provide assistance for industrial development as well asfor infrastructure areas such as transportation, water supply, energy, power,and telecommunications. Particular emphasis will continue to be placed onprojects which provide infrastructure for the rural sector, process or provide
outlets for products from the rural areas, reduce the strain on Bangladesh'sforeign exchange resources and make a significant contribution towards thereduction of unemployment. As other external lenders, IDA is inhibited fromachieving the levels of resource transfers appropriate to Bangladesh's circum-stances by difficulties in the preparation and implementation of developmentprojects. In these circumstances, and in order to direct IDA lending to
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priority sectors - such as agricultural and rural development -- where thepercentage of foreign exchange costs is relatively low, the financing of localcurrency expenditures is well justified.
47. In addition to lending, economic and sector work provide the basisfor continuing dialogue between the Bank Group and the Government on develop-ment strategy, and for the coordination of external assistance within theframework of the Bangladesh Aid Group. Recent activities in this area haveconcentrated on industrial investment strategy, food policy, and increaseddomestic resource mobilization.
48. The scope and complexity of Bangladesh's development problems willcontinue to strain the physical, human and financial resources of an alreadyoverburdened development administration. Since substantial improvements willtake many years, external assistance agencies, including the Bank Group, willincreasingly have to tailor their requirements in terms of project design,preparation and implementation to administrative realities. They will alsohave to contemplate relatively high amounts of technical assistance and super-vision. Although progress is bound to be slow and will require painstakingefforts, there are enormous opportunities for making significant progress inimproving economic conditions for the people of Bangladesh.
PART III - THE MANUFACTURING SECTOR 1/
Role in the Economy
49. The manufacturing sector accounts for about 8% of GDP, 62% of totalexports and about 14% of the total workforce. Thus, it ranks third afteragriculture and the service sector in its economic importance. Moreover, itprovides an outlet for agricultural products and much needed employment. Asa result of the nationalization of many of the country's industries followingIndependence, most of the large and medium scale enterprises are in the publicsector which consists of approximately 275 units organized under the adminis-trative control of seven corporations namely jute, textiles, chemicals,steel and engineering, food, cement and forestry. The public sector nowaccounts for 65% of the value-added in industry, 85% of manufactured exportsand 25% of the industrial labour force. Although the listing of industrialactivities open to private investment has subsequently been expanded, thepublic sector corporations continue to dominate basic industries. To date,denationalization/disinvestment of industries in the public sector has beenon a minor scale.
50. The public industrial sector includes the country's largest exportoriented industry (jute) and import substitution industries (textiles, chem-icals, pulp and paper). The jute manufacturing and cotton textile industries
1/ For a detailed analysis of the Industrial Sector see Report No. 2191-BD,Bangladesh - Issues and Prospects for Industrial Development, datedDecember 5, 1978.
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constitute close to half of the industrial capacity in Bangladesh and haveessential links to the agricultural, rural and cottage industry sectors of theeconomy. In FY79 the jute industry contributed about 30% of the value addedin the organized manufacturing sector, 50% of manufactured exports and employed170,000 workers'. The cotton textile industry, the second largest industry inBangladesh,.has shown a steady improvement in performance since independence.The industry accounts for about 15% of value added in the manufacturingsector, employs 76,000 workers and produces about 60% of the country's totalyarn requirements.
Production and Capacity Utilization
51. Overall, the industrial sector has recorded a slow improvement inproduction (Table 3), particularly since FY74, due to the improved avail-ability of raw materials, intermediate goods and spare parts and to a higherdomestic demand for manufactured products.
Table 3: Production Index(FY70 = 100)
FY73 FY74 FY75 FY76 FY77 FY78 FY79
Jute 80.3 90.5 78.6 86.2 88.4 97.7 90.6Textiles 79.5 92.9 94.0 89.1 83.1 93.4 98.5Pulp and Paper 62.9 64.1 76.6 52.6 59.8 79.1 83.8Chemicals 139.8 82.5 81.7 208.6 217.4 173.4 217.5Steel 90.5 90.0 83.5 77.3 95.3 120.5 146.7Cement 58.8 98.4 239.0 296.2 580.5 642.4 599.9
General Index 80.9 94.7 86.0 93.9 99.7 106.5 108.3
Source: Annex IV.(Weighted on value added)
52. Despite the improvement in production, many enterprises suffer fromlow capacity utilization. While average capacity utilization was about 65%in FY79, capacity utilization was particularly low in chemicals (50%), engi-neering (50%), steel (49%) and foods (40%) (Annexes IV and V give a detailedreport on performance of IDA assisted industries). The reasons vary fromplant to plant. Nevertheless, a number of common factors are identifiableincluding: (i) irregular and insufficient raw materials supply; (ii) equip-ment breakdown and poor maintenance; (iii) insufficient labor training andmigration to the Middle East; (iv) administrative delays linked to excessivecentralization; (v) frequent power cuts; (vi) inadequate transportation;(vii) lack of spare parts and components linked to foreign exchange shortage;and (viii) lack of working capital which prevents procurement of sufficientspares and components and even, in some cases, raw materials to operate atcapacity. Thus, low capacity utilization is only a symptom of many seriousproblems affecting production efficiency. Under the Fourth to the SeventhImports Program Credits, specific action programs were developed with GOB tohelp rectify these problems, particularly in the jute, textile, and pulp andpaper industries (see Part IV, below).
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Investment
53. Since 1973, GOB's general policy on industrial investment has gra-dually shifted towards encouraging private sector activity. In FY78-FY79,limits on private sector investment were waived, the Investment Schedule wasrevised and private sector investment permitted in 10 sectors previously re-served to public firms. The net impact of these policy changes is reflectedin the tentative allocation of resources during the current Two-Year Plan andin the rising levels of term lending finance to tlhe private sector. In theTwo-Year Plan (FY79-FY80), Tk 8.2 billion was targetted for industrial invest-ment, with about Tk 2.5 billion (or 25% more than in FY78) allocated for pri-vate sector investment. In FY79, loans sanctioned by DFCs increased fromTk 1.1 billion in FY78 to Tk 1.3 billion (or by about 3% in real terms assum-ing an inflation rate of 15%). To remove administrative obstacles and tofacilitate implementation of projects, GOB recently established a "High-PoweredBoard" within the Ministry of Industries with a mandate and power to resolveadministrative difficulties. This is a promising measure that should be pur-sued aggressively. Similarly changes have been made liberalizing privatesector investment but the full impact of policy changes has been reduced byweaknesses in policy instruments. The new investment schedule does not definepriority investment areas and is thus an ineffective instrument in indicativeplanning. Further, the investment incentives supporting the Schedule need tobe enhanced or refined.
54. These and other factors contribute to the slow rate of growth inprivate sector investment and are being addressed as part of IDA's dialoguewith GOB on industrial investment policy. Specific action includes a reviewof investment approval procedures and priorities being carried out in accord-ance with agreements reached under Credit 632-BD. Although the number offoreign investments sanctioned since independence is at a low level (about38 projects, totalling about US$62 million by the end of FY79), GOB has soughtto encourage foreign investment in Bangladesh, both directly and in the formof joint ventures, by establishing a duty free Export Zone at Chittagong, andby the preparation of a Foreign Investment Act defining rules for repatriationof funds, etc. There is necessarily a lengthy transition from an economydominated by the public sector to a balanced mixed economy in which privatedomestic and foreign industrial enterprises are able to make a significantcontribution to growth. Nevertheless, GOB's efforts have met with somesuccess with the private sector gaining in size and strength.
Export Performance and Prospects
55. From FY77 to FY79, Bangladesh's manufactured exports have risenfrom US$219.7 million to US$365.1 million, or by 67%, (Table 4) with signi-ficant growth rates for timber products (363%), handicrafts (198%) and leather(197%). However, these growth rates have been offset to a great extent bythe stagnation, in real terms, of jute goods exports. Other factors thathave influenced the rate of growth have been the dominant orientation ofBangladesh's industrial development toward import substitution and the lowprofitability in some areas of export industry.
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Table 4: Manufactured Exports($ Million)
Commodities Average FY73-FY77 FY78 FY79
Jute Goods 186.1 240.9 267.7Leather 25.0 43.9 74.7Timber Products 3.2 7.3 14.8Special Jute Goods 0.5 1.0 1.5Handicrafts 0.4 1.7 2.5POL 3.7 11.3 9.0Others 0.8 9.1 5.1
219.7 315.2 365.1
56. GOB originally projected manufactured exports of US$330 million forFY79 which implied a growth of 5% over FY78. By active promotion of exportsthrough export performance licenses (XPL's), export incentives, duty drawback, etc actual growth was 17%. Export performance and prospects are dis-cussed more fully in paragraphs 103 to 111.
PART IV - THE INDUSTRIAL ACTION PROGRAMS
A. General
57. The primary rationale of the first three program credits was theneed to address a serious balance of payments situation, and to provide rapidlydisbursable foreign exchange to meet the rehabilitation needs of the countryafter independence. The program content of these credits focused upon the rawmaterial and spare part requirements of the industrial sector generally, andthe need for a better utilization of capacity originally installed, to servicea much larger market. In 1975, in an effort to strengthen the developmentalimpact of the program credits, GOB and IDA moved from a general balance ofpayments approach to program lending to consideration of the structural prob-lems facing the country's largest export-oriented and import substitutingindustries. Programs were developed which would, over a period of time, allowthose industries to operate more efficiently and contribute to the country'sdomestic resource mobilization efforts. Thus, under the Fourth Imports ProgramCredit attention was focussed upon the jute manufacturing industry through theBangladesh Jute Mills Corporation (BJMC) and upon the cotton textile industrythrough the Bangladesh Textile Mills Corporation (BTMC). Under the initialprogram and through subsequent expansions, specific measures were developedto (i) improve capacity utilization, through mill maintenance programs andspare parts procurement, (ii) reduce the costs of raw material, particularlyof raw jute, (iii) improve production efficiency and (iv) improve the finan-cial performance and viability of the respective industries through productcost control, product pricing policies, capital restructuring and assetreplacement programs.
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58. Given the problems facing the industries concerned, it was antici-pated that progress would be slow. This proved to be the case and it was notuntil FY78 that actions to resolve most of the important issues affecting thejute and textile industries had reached a stage where other issues facing theindustrial sector and the economic viability of the country could be tackled.The structural problems in the area of industrial policy were identifiedthrough the work of an Industrial Sector Mission and a general dialogueinitiated with GOB on remedial action.
59. In the light of these analyses, the Seventh Imports Program Creditaddressed the need to develop a comprehensive export policy and medium termexport strategy. Through the Export Promotion Bureau (EPB), a comprehensiveexport development program was initiated aimed at strengthening the country'sinfrastructural and institutional capabilities for export development and theprovision of the essential prerequisites for the development of a nationalexport policy and strategy.
60. When viewed against the situation that prevailed in 1975 when thefirst action program was introduced under the Fourth Imports Program Creditand taking into account that the objective of that and subsequent actionprograms was to create the basis for the long term development of the country'skey industrial areas, progress to date has been satisfactory. To be sure,not all of the problems of the jute, textile, pulp and paper, and fertilizerindustries have been solved, but sufficient progress has been made in strength-ening operations and financial profitability to justify a move to a projectspecific involvement for future operations in these subsectors. In the caseof export development, the program has laid the institutional foundationsnecessary to tackle problems of policy; review problems of incentives; andreduce bureaucratic controls and obstacles to exports. Paragraphs 61 to 92discuss the impact of the action programs on these key areas and Annexes VI,VII, VIII and IX assess the current performance and prospects of the jute,textile and export development programs respectively.
B. Jute
61. General. From the mid-fifties to the mid-sixties world consumptionof jute goods expanded at an average rate of 4.0% per annum. However, in thelatter half of the 1960's, this expansionary trend faltered due to (i) changesin consumer preference, (ii) high and unstable prices for jute goods, (iii)uncertain supply and quality, and most importantly (iv) the increasing use ofsynthetic substitutes which made major inroads into all the traditional enduse areas of jute goods. The shift to synthetics gained further momentum inthe early 1970's due to supply disruptions and high prices for jute goodsresulting from civil disturbances and a series of industrial disputes in bothBangladesh and India. By 1973, despite increasing demand from the centrallyplanned economies (China, Russia etc.) overall world consumption had fallenfrom 3.4 million tons (FY70) to about 3.0 million tons (FY73).
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62. With the advent of the energy crisis in 1974-75 and its impact uponthe cost of polypropylene, the jute industry major competition, the industryhad the opportunity to regain lost markets and to make inroads into marketareas dominated by synthetics. Because of strikes, poor crops and the physicaldilapidation of its industry, Bangladesh was not able to capitalize upon itsopportunities and its share of the world market fell from 44% in FY70 to 35%in FY75. However, since FY75, Bangladesh has increased its share of worlddemand for jute goods to a current level of 46%.
Table 5: Bangladesh Share of World Exports of Jute Goods('000 metric ton)
FY70 FY75 FY79 FY80 /a FY81 /a
World Export 1,147 1,041 993 1,075 1,085Bangladesh Export 498 369 458 460 506% Share 44 35 46 43 47
/a Estimated.
63. Given the serious demand and operational problems facing the juteindustry in 1975, a program of short, medium and long term assistance wasdesigned and implemented under the Fourth Imports Program Credit. Someresults were expected quickly, but overall, given the deep seated problemsof the industry, it was anticipated that progress would be gradual withpositive results identifiable only after some time. The Fourth and FifthImports Program Credit action programs focussed upon key areas where immediateaction was needed; for example, the need to link production and sales efforts,establishment of an adequate maintenance system, establishment of an adequatefinancial data base, and to implement financial improvements such as capitalrestructuring. By the time of the Sixth Imports Program Credit in 1978, suf-ficient progress had been made to broaden the scope of previous efforts andto focus directly on improvements of mill efficiency and profitability. Amill-by-mill survey was carried out by ECL, to assess the optimal futureoperating and investment strategy for the industry.
64. Impact of The Action Programs. Since FY75, the jute industry hasmade substantial progress in strengthening its operating and financial posi-tion. Annexes VI and VII show the present status of the industry and of theaction programs, focussing on the areas of marketing, maintenance, organiza-tion and financial management, operational and financial performance.
65. Marketing and production planning have improved substantially as aresult of several measures taken by BJMC. Prior to 1975, many mill managershad chosen to produce those items which raised fewest problems in manufactur-ing, rather than those which could be sold. The net result was an inventoryaccumulation of goods with limited sales potential and shortages of items inrelatively better demand. These shortcomings have since been eliminated.Following the preparation of a diagnosis report prepared by a marketing advisorfinanced by the United Kingdom Overseas Development Administration (ODA), BJMCestablished an appropriate organization and procedures for marketing. Otherrecommendations for a training program, establishment of marketing research
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and a market information system are now under implementation by a marketingconsultant (financed by ODA) who joined BJMC in January 1979 for two years.In addition, BJMC has strengthened its sales efforts by establishing threeoverseas sales offices. With the assistance of a UNIDO expert who startedwork in January 1977, BJMC improved its quality control which was reflectedin a substantial reduction of claims for substandard material. Under theaction program of the Fifth Imports Program Credit, the Ministry of Jute hasestablished an export inspection service. These measures have helped in arelative improvement of the market position of Bangladesh's jute goods, vis-a-vis her other major competitors and Bangladesh's jute goods now seem to beequal in quality to those of India. However, notwithstanding these improve-ments, substantial increases in research and development are necessary to findnew uses for traditional products as well as new end uses for jute in orderto achieve the longer term objective of recapturing at least part of the worldmarket previously lost to synthetic fabrics. UNDP is providing assistance toBangladesh on research and development for the jute industry, and efforts todevelop jutton (a blend of jute and cotton fibers) continue under IDA technicalassistance.
66. There is also a marked improvement in maintenance since 1975. Main-tenance Task Forces (MTFs), originally consisting of expatriate consultants,and subsequently of their local engineering counterparts, have drawn up andare implementing specific maintenance programs for each mill. Maintenancestandards have improved substantially. Purchasing procedures for spare partshave been streamlined and local production of spare parts under CIDA technicalassistance started in mid-1979.
67. organization and management issues were also tackled. In 1977, BJMCestablished unit boards, chaired mostly by its s:ix directors, for each of its77 mills. However, it was discovered that this span of control was excessiveand led to inadequate supervision of mill operations. In line with ECL's andIDA's recommendations, BJMC now proposes to reduce the burden upon the Directorsby grouping mills into nine zones each under a general manager who would con-trol not more than nine mills. Such groupings would reduce the span of con-trol of directors to nine officers and will permit better use of scarce man-agement skills and facilitate the tapping of economies of scale by graduallyintegrating the operations of adjacent mills. In particular, BJMC will estab-lish training units in selected mills within each group. BJMC has also estab-lished an incentive scheme, designed to reward both management and workerperformance. This system is presently under review and appropriate changes arelikely to be implemented by early 1980. Finally, in connection with the SixthImports Program Credit, Bangladesh consultants (EWP) financed by ODA/UK havedesigned a management information system. BJMC is currently preparing thesystem for implementation. The same consultant has devised a process account-ing system, which would give better control on wastage and better data fordecision-taking at mill level. The system is being tested and will be imple-mented in early 1980.
68. The measures implemented under the action programs have alreadyresulted in an improvement in the operational performance of BJMC's mills andhave helped to contain a deterioration of the financial performance. Weaving
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efficiencies improved from 43% of overall installed weaving capacity in FY75to 53% in FY79 and production increased by 15% over the same period risingfrom 432,000 tons to 494,000 tons despite a shift to lighter fabrics. How-ever, the full benefits of this improvement were offset by rising raw jutecosts and increased conversion costs. Poor weather conditions decreasedjute yields and raised raw jute prices by about 84%, while conversion costswere significantly affected by an average 30% wage rate increase in FY78.Higher losses were averted by an 82% increase in selling prices, by carefulmonitoring of the mix of production and by containing the rate of increasein conversion costs vis-a-vis the rate of inflation. Overall, BJMC's operat-ing losses were held to Tk 608 million in FY79, considerably below theTk 790 projected (Table 6).
69. The table below shows key indicators of BJMC's performance comparedto previous years and targets agreed for FY79 as part of the Seventh ImportProgram Credit (additional indicators and other details are given in theattachments to Annex VII). For monitoring purposes, targets and costs areexpressed in constant FY79 values:
Table 6: Performance Targets and Other Indicators
FY75 FY77 FY79 FY79 FY80--------Actuals------- -- Targets---
Production ('000 long tons) 432 481 494 569 525Export ('000 long tons) 369 464 453 525 460Spinning Efficiency (%) 60 65 65 65 66Weaving Efficiency(lbs/operating loom Hr)
Hessian 6.1 6.1 6.3 6.2 6.3Sacking 16.7 17.6 17.7 18.6 17.7Carpet backing 14.8 14.2 13.3 14.8 13.5
Raw Jute Consumption Ratio 1.09 1.20 1.22 1.15 1.10Wastage % 4.1 8.0 7.1 7.1 6.8Selling Price (Tk/ton) 5000 5928 9137 6176 12378Conversion Cost (Tk/ton) 2106 2328 3959 3173 4342Profit/(Loss) beforeInterest (Tk/ton) (176) (134) 200 (515) 2529
Profit/(Loss) Tk/ton Sold /a (588) (1053) (1260) (1390) 1698Profit/(Loss) Tk million /a (254) (515) (608) (790) 849
/a Profit/(Loss) per ton sold is computed on the basis of (i) valuationof unsold inventories at cost or market price whichever is the lowerand (ii) inclusion of interest and general financing charges.
70. On the basis of firm export orders and adequate stockholdings ofraw jute to meet these orders, BJMC projects operating profits of Tk 849million. As of December 1979 operating profits were about Tk 450 millionfor FY80, thus reversing the trend of losses from FY75 to FY79. For themedium term, i.e. until 1985, the return to profitability is expected to be
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maintained. However, the level of profitability would be significantlyinfluenced by changing patterns in product mix demand over which BJMC haslimited control and by the impact of mill rehabilitation and financial re-structuring. The effect of these and other variables would be monitored everysix months during the course of supervision of the ongoing Imports ProgramCredit. During these missions operating projections would be updated andcorrective action recommended to maintain current levels of profitability.
71. Capital Restructuring is one of the key requirements of improvedfinancial performance. Due to the continuous operating losses over the pastfew years, the Corporation as a whole has a negative equity base and itsoperations are now funded by budget appropriations and term loans from GOBand the banking system. To rectify this situation and to place the opera-tions of the BJMC on a sound commercial basis, GOB will implement an annuallyphased capital restructuring program for BJMC and its units to be completedby December 31; 1983 (Section 3.06 and Schedule 3 of the draft DevelopmentCredit Agreements). Under the program GOB would, by June 30 1980, convertinto equity about Tk 37 crore (US$24.0 million) of ADP loans and about Tk 50crore (US$32.0 million) of GOB interest free loans. During the period toDecember 31, 1983 GOB would also provide BJMC with cash infusions of aboutTk 270 crore (US$175 million). This would be used to cover repayment ofTk 170 crore (US$110 million) due to the Bangladesh Shilpa Bank, Tk 52 crore(US$33 million) due on mill debentures and Tk 48 crore (US$31 million) dueto the Commercial Banks. The total amount of cash infusions would be subjectto verification and the amount of each yearly cash payment subject to theavailability of budgetary resources. The total amount of cash infusionswould be adjusted also by any after tax profits or losses incurred by BJMCand its units during the period to December 31, 1983. However GOB has agreedthat it would provide a yearly minimum cash infusion equal to the amountrequired by BJMC and its units to service the debts due to BSB, BSRS and theCommercial Banking system in accordance with repayment schedules agreed withthe lending institutions. Conversion of the ADP loans, and GOB's cash in-fusions would reduce BJMC's debt/equity ratio to 60:40 and would reduceoverall interest charges by about Tk 350 per ton, thus making all productlines profitable.
72. Raw Jute Pricing. Under the Sixth Imports Program Credit a studyto (i) review GOB's pricing policies for raw jute purchases, (ii) determinethe optimal mix between raw jute and jute good exports and (iii) determineappropriate policies for jute-distribution and allocation was carried outby ODA. The study was completed in February 1979 and GOB's comments weresubmitted to IDA in June 1979. Changes in the industry's organization struc-ture have been agreed (e.g. the restructuring of the Jute Trading Corporationand the Jute Marketing Corporation). Actions to be taken to establish mech-anisms/procedures for development of an optimal pricing structure/exportstrategy have been discussed with GOB which has agreed to establish a cellwithin the Ministry of Jute to monitor movement in raw jute pricing as partof the development of an export strategy and optimal pricing structure.Satisfactory progress on these actions would be monitored under the pro-posed credit.
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73. Mill Rehabilitation. In FY78, ECL consultants carried out an ex-tensive survey of the physical condition of BJMC's mills and proposed a Tk 965million balancing, modernizing and rehabilitation (BMR) program for the in-dustry. Given the uncertainties of the long term world demand for jute goods,certain aspects of ECL's proposals were revised by a GOB study group whichproposed a switch in emphasis from an extensive modernization of facilitiesto a rehabilitation program coupled with the maximum utilization of existingfacilities through three shift operations of all hessian and sacking mills.This change in emphasis would reduce the total project costs from Tk 965million (US$65.0 million) to about Tk 250 million (US$16.0 million).
74. Impact of Rehabilitation. The rehabilitation of equipment wouldimprove machine efficiency and thus reduce unit costs of production. Pro-duction potential would increase to about 730,000 tons or by 80,000 tonsabove the economic optimal level of production (currently estimated at about650,000 tons). However, given the country's chronic power shortages, labourunrest and the industry's high levels of absenteeism, it is unlikely that theoptimal economic level of production would be exceeded. Building on theanticipated profitable operation for FY80 and on the basis of current projec-tions of world demand for jute goods in the medium term, the cost and produc-tion benefits of the rehabilitation should result in the BJMC units operatingeconomically and on a total cost recovery basis.
75. The Future. Compared to the situation in 1975, the jute industryhas made substantial progress in achieving long term viability. It is nowpossible to consider a move to a more project specific approach to eliminatingsome of the major technical constraints to improving production efficiency,reducing wastage and improving the quality of output. The proposed projectwould provide also a vehicle to monitor closely the continuing implementa-tion of requirements under the Imports Program Credits, particularly the(i) development of an export strategy for jute and jute goods; (ii) creationof an optimal pricing structure for jute; and (iii) reorganization of theindustry. This project specific approach would be implemented under a pro-posed jute rehabilitation project which has been appraised, and which wouldprovide for the industry's rehabilitation and for its ongoing maintenanceprograms. Thus under the Imports Program Credit, no provision has been madefor the supply of raw materials or spare parts for the jute industry.
C. Cotton Textiles
76. General. Following independence in 1972 and up till 1974, theindustry 1/ overcame problems of power shortages, labor unrest and an erraticsupply of raw materials and spare parts, reporting increasing profitability,with profits equal to a 32% after tax return on equity by FY74. The cash
1/ Following the nationalization of the country's large textile units,the industry was split into three subsectors (i) the handloom sector;(ii) the private powered loom sector; and (iii) the organized sector--BTMC. Reference to the cotton textile industry refers to the organizedsector.
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flows generated by the industry enabled it to clear a major part of outstand-ing repayments on long-term loans from the financial institutions. However,this was achieved partly at the expense of equipment replacement and main-tenance. By December 1974, 25% of installed spindle and loom capacity wasinoperable. The 60% devaluation of the taka in May 1975, which increased theforeign exchange cost of purchases of essential spare parts (with a resultingincrease in the level of inoperable equipment) and caused significant increasesin the cost of imported raw cotton and interest charges on foreign currencyterm loans, exacerbated the industry's poor equipment replacement performance.
77. The findings of a 1975 survey 11 were used in preparing the actionprogram for the Fourth Imports Program Credit which addressed: short runproblems in production; the need for greater managerial autonomy; and the lackof a long-term development strategy for the industry. Initially, progress wasslow due to delays in staffing expatriate teams engaged to carry out generalstudies and productivity programs. However, under the Fifth Imports ProgramCredit, these activities were expanded; by FY77 sufficient operational andinstitutional progress had been made to justify broadening the focus to coverpolicy issues (pricing, autonomy, etc.) which were affecting further improve-ment and constraining profitability.
78. Annex VI contains a detailed description and status report on thecotton textile industry action programs. Two of the four studies undertakento determine the future development and structure of the industry have beencompleted. 2/ Studies to determine the feasibility of producing polynosicfibers and the relative efficiency of handlooms vis-a-vis powered looms arescheduled for completion by March 1980. A UNDP/UNIDO project to improve millproductivity has commenced and will analyze and identify spare parts manufactur-ing requirements and estimate the extent to which the Bangladesh Machine ToolFactory (BMTF) can meet BTMC's spare parts requirements. Production has beenrationalized and spare parts availability and maintenance programs improved.BTMC has implemented a detailed training program using facilities at a newspinning mill and is improving management control systems. In general, GOB/BTMC have implemented or initiated action to implement all the requirementsof the action programs. In the critical area of capital restructuring, GOBhas agreed to the implementation, by December 31, 1984, of an annually phasedprogram of loan conversion and cash infusions necessary to give BTMC and itsunits a debt equity ratio of 60:40 (Section 3.06 and Schedule 3 of the draftDevelopment Credit Agreement). Under the program GOB would, by June 30 1980,convert into equity about Tk 33 crore (US21 mil'Lion) of ADP loans and byDecember 31, 1984 make annual cash payments to provide BTMC and its unitswith about Tk 86 crore (US$55 million) of additional equity. The total amountof cash infusions would be subject to verification and the amount of eachyearly cash payment subject to the availability of budgetary resources. Thetotal amount of cash infusions would be adjusted also to reflect any aftertax profits or losses earned by BTMC and its units during the period to
1/ Report No. 883-BD - Bangladesh - Survey of the Jute and TextileIndustries: September 25, 1975.
2/ The studies are (i) the census of the Handloom Sector; and (ii) initialFeasibility of producing Manmade Fibers.
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December 31, 1984. However, GOB has agreed that it would provide a yearlyminimum infusion equal to the amount required to service BTMC/units repaymentto BSB, BSRS and the Commercial Banks on term debts in accordance with agreedrepayment schedules. Additional to the capital restructuring, GOB will imple-ment by September 30, 1980, such actions as are necessary to provide thatBTMC's after tax return on shareholders equity is at least 10% per annum(Section 3.07 of the draft Development Credit Agreement).
79. Impact of the Action Programs. After the devaluation of the Takain 1975, the industry was less able to cope with its financial requirements.The flow of essential spare parts decreased and mill maintenance programs(already weak) deteriorated. Thus, from a profitable operation in FY75, theindustry commenced a decline. As shown in Table 7, operable spinning capacitywas reduced and capacity utilization fell from 81.9% in FY75 to 74% in FY77.Weaving capacity utilization also decreased, falling from 66.5% in FY75 to58% in FY77. Production efficiency fell, with cloth production decliningfrom 21.1 yards per loom shift in FY75 to 18.9 yards per loom shift in FY77.As a consequence, production of yarn and cloth fell from 100.6 million lbsand 85.9 million yards respectively in FY75, to 93.5 million lbs and 68.6million yards respectively in FY77. The devaluation resulted in increasedcosts of raw material and spare parts. After tax profits fell from Tk 44.0million in FY75 to a loss of Tk 169.0 million in FY77. Given BTMC's increasedreliance on the exchequer, BTMC/mill management suffered from a considerablelack of autonomy, particularly in the areas of pricing, procurement for rawcotton, and personnel. This further reduced BTMC's ability to halt thedecline in overall profitability and unit efficiency.
80. By early FY78, the impact of the action program became evident.The autonomy of BTMC/mill management had significantly improved with removalof major constraints on spare parts procurement, raw cotton purchasing, millpersonnel recruitment and general marketing. Under the Seventh ImportsProgram Credit, this autonomy was further strengthened by agreement with GOBon greater BTMC/mill autonomy in the areas of price control and raw cottonprocurement (up to $1.5 million). Spare parts shipments began arriving, andmills were able to institute regular maintenance programs. Notwithstandingcontinued power shortages and labor unrest, performance improved from thetrough of FY77. Spindle utilization increased from 74% in FY77 to 82% inFY79, while loom utilization rose from 58% in FY77 to 75% in FY79. With theseimprovements, there was a corresponding increase in production with yarn andcloth production passing the FY75 levels by 10%. Although yarn and clothprices were still controlled, BTMC reduced its after tax losses from Tk 169.0million in FY77 to Tk 35.0 million in FY79. The table below shows some keyindicators of BTMC's performance since FY75.
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Table 7: Performance Targets and Other IndicatorsActuals Targets
FY75 FY77 FY79 FY79 FY80
ProductionYarn (Million lbs) 100.6 93.5 110.3 110.0 137.5Cloth (Million yds) 85.9 68.6 88.3 100.0 117.5
Efficiency - SpinningCapacity Utilization (%) 81.9 74.0 82.0 83.0 86.0Oz per Spindle Shift 2.3 2.4 2.4 2.4 2.5
Efficiency - WeavingCapacity Utilization (%) 66.5 58.0 75.0 73.0 85.0Yds per Loom Shift 21.1 18.9 19.9 21.4 22.9
Wastage (%)Yarn 14.1 10.6 9.9 9.0 9.0Cloth 4.1 4.5 4.1 5.0 3.0
Profitability (Tk Million)Net Profit/(Loss) Before Tax 125.0 (138.0) 48.0 136.0 78.0Net Profit/(Loss) After Tax 44.0 (169.0) (35.0) 61.0 35.0
Conversion Costs (Tk)Yarn per lb 13.6 17.3 20.1 21.4 20.0Cloth per yd 4.4 5.8 7.1 6.9 7.0
81. Given the problems facing the industry, BTMC's unit managers haveshown a flexibility and capacity to adjust to changing conditions. The basicobjective of attaining reasonable operation of the mills has clearly beenachieved and the industry has been restored to the stability necessary totackle the problems of raising productivity (through BMR), increasing capa-city (through the construction of new mills), and of developing the long-termstrategy necessary to improve the overall efficiency and cost effectivenessof the industry. The efficiency levels achieved by the Corporation are stilllow by international standards but the targets established for FY80-FY81build upon the trend of improvement evident since FY77.
82. The Rehabilitation and Expansion of the Industry. The review ofthe rehabilitation needs of the industry required under the Sixth ImportsProgram Credit has been completed. This indicates that there is an imbalanceof spinning/weaving facilities in the composite mills and a considerabledeterioration/obsolescence of spindle facilities in mills constructed pre-1960, which would require extensive rehabilitation/modernizing. On the basisof criteria agreed with GOB/BTMC 1/ a project proposal for the rehabilitation
1/ The criteria were that BMR investment would only be carried out whereinvestment gives a positive internal financial and economic rate ofreturn, and a level of conversion costs after rehabilitation not greaterthan the CIF (Chittagong) price of similar products produced by theproduction facilities being rehabilitated.
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of BTMC's 50 mills in three phases was submitted to IDA in March 1979 forappraisal and financing. The project aims at increasing the number of opera-tional spindles by 175,000, operational looms by 1,750 and improving spinningefficiencies from 2.4 oz per spindle shift to 2.83 oz. On completion of therehabilitation, production of yarn is expected to increase by 38 million lbsper annum. Total cost of the project (FY79 prices) is expected to be Tk 774.6million ($50.0 million) with a foreign exchange component of Tk 525.0 million($33.8 million). Appraisal of the project is scheduled for June 1980. Actualtiming is dependent upon completion of the study of the relative efficienciesof the handloom vs. powered loom sectors and implementation of GOB's pricingpolicy.
83. Prospects. The action programs to solve the policy, proceduraland operational problems of the industry and the measures to improve manage-ment and management control are being implemented. The problems that causedthe decline in production during FY75 to FY77 and the financial losses duringFY77, FY78 and FY79, namely cotton purchasing and prices, have also been sig-nificantly reduced with a resultant improvement in performance. The stabilityneeded to achieve the action program objectives now exists, and a continuingimprovement in the industry's performance is expected. Progress on the studiesstarted under the Fourth Imports Program Credit to tackle the long-term issuesfacing the sector has been slower than planned originally, although the finaltwo studies are due to be completed by March 1980. While progress in generalis satisfactory, there is still a need to monitor closely such problem areasas autonomy and pricing. On these and other matters, a continuous dialoguewill be maintained with GOB/BTMC.
D. Other Subsectors
Pulp and Paper
84. General. The mills of the sector were originally conceived toserve both the East and West Pakistan markets with consumption in Bangladeshaccounting for less than 35% of installed newsprint capacity and 50% ofprinting/writing paper capacity. With the loss of West Pakistan markets in1972 capacity utilization in the sector dropped to about 30%. This declinewas aggravated by a deterioration in the physical condition of the country'sfour mills. Thus from FY73 onwards, despite increases in domestic and exportdemand, capacity utilization grew slowly rising from 30% in FY73 to 66% inFY79. This improvement was aided by an extensive program of mill maintenanceand rehabilitation, and during FY79 total production was 83,800 metric tonsas compared to 55,000 metric tons in FY78.
85. Despite increased production, profitability has been affected bythe low level of controlled domestic price newsprint, which is well belowcurrent cost of production. As at June 30, 1979, the industry had recordedaccumulated operating losses of Tk 420 million (Tk 400.0 million, FY78) andfurther substantial losses were expected for FY80. Present price levels areinadequate to cover variable costs and the industry is unable to service its
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debts. While adverse market conditions, particularly for exports, are also amajor factor affecting production and profitability, it is doubtful, given thephysical condition of the mills, if production anywhere near rated capacitycould be achieved.
86. While supplies of fibrous raw materials do not currently createserious operating problems at the mills, improvement in mill operating per-formance through BMR, with consequent increases in material requirements,could create fiber supply problems at Khulna, Karnaphuli and North Bengal.The supply of hardwood (gewa) to Khulna and North Bengal is dependent uponcontinued availability of resources in the Sunderban Forests. However, noinventory of resources has been taken since 1959 and it is now uncertainwhether the long-term supply of gewa would be sufficient to meet increasedhardwood requirements for the next twenty years. Under the terms of referencefor a proposed coastal afforestation project, IDA is reviewing the potentialfor using alternative species of mangrove hardwood for pulping in the mills.The review would also consider processing changes/costs involved in the useof the alternative materials.
87. Rehabilitation of the Industry. Although the Bangladesh ChemicalIndustries Corporation (BCIC) has carried out a considerable amount of specialmaintenance/rehabilitation on the sector's four pulp and paper mills sinceFY75, the physical condition of the older mills (Khulna and Karnaphuli) hasdeteriorated to a point where major rehabilitation expenditure is now needed.Bilateral and international agencies are providing assistance at all fourmills. SIDA and IDA are involved at the Karnaphuli Mill and in March 1979,GOB approved a $10.0 million BMR proposal and has sought SIDA financing. Inthe case of the Khulna Mill, CIDA has provided technical assistance and ispresently considering a C$5.5 million proposal for mandatory rehabilitationof boiler facilities, etc. KfW has provided technical assistance to theSylhet Pulp and Paper Mill and a BMR proposal has been prepared. However,Kfw has been unable to reach agreement on expatriate management considerednecessary for the program to be successful and has withdrawn its offers ofassistance. GOB has requested Kfw to convert all previous loans for Sylhetinto grant aid. For the North Bengal Mill, IDA is currently considering aproposal for a $5.0 million BMR project.
88. The Action Program. Given the number of bilateral and multilateralagencies involved in the industry, coordination of the measures being taken toimprove performance, and to carry out long-term rehabilitation of the mills,is of major importance. This need was recognized by GOB/IDA and it was agreedthat a study should be carried out to determine the future infrastructuraland institutional framework of the industry. In 1978, GOB/BCIC retained theservices of a consultant to carry out the study, which was due to be completedin February 1979. However, the consultant is in dispute with BCIC and it isunlikely that any useable report will now be forthcoming. The need for thestudy and its resulting long term development program still exists - more sogiven the uncertainty of resource availability for the mills as they are pre-sently constructed. Terms of Reference (TOR) for a new study have beendiscussed with GOB, and GOB has indicated that the study should be completedby December 1980. If necessary GOB would seek technical assistance financingfrom IDA.
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89. All actions agreed with IDA in connection with previous ProgramCredits have been initiated and most of the objectives are expected to beachieved, although in some instances much later than originally planned.Delays in completing some of the actions have been due in part to difficultiesin obtaining suitable consultants for mill rehabilitation programs and the dis-pute between BCIC and the consultant carrying out the long term developmentstudy.
Fertilizer
90. Background. Chemical fertilizer was first introduced into Bangladeshin 1958 and its use spread rapidly, particularly after the establishment in1962 of the East Pakistan Agricultural Development Corporation, which laterbecame the Bangladesh Agricultural Development Corporation (BADC). To copewith this demand, the first of the country's four production units was estab-lished in 1961 at Fenchuganj. 1/ This unit had a design capacity of 106,000tons per year (tpy) of urea and 12,000 tpy of ammonium sulphate usingBangladesh's ample gas resources as base stock. The plant achieved closeto 90% capacity utilization during its first nine years but operated belowrated capacity after 1971. It was overhauled in 1975 and again in 1979.Following the 1979 overhaul, it has been operating at about 85% its ratedcapacity. A second urea plant with a design capacity of about 335,000 tonswas built at Ghorasal. This plant initially encountered mechanical problemsand by mid-1974 reached only 80% of its rated capacity. In late 1974, anexplosion put the plant out of commission for most of FY75. Since June 1975,it has been producing at well below its rated capacity. A Japanese engineer-ing company overhauled the plant during the summer of 1978. The plant operatedat 70% of capacity during FY79 and it is reported to be currently operatingat about 85%. In 1968 and 1970 two triple superphosphate (TSP) plants basedon imported raw materials and with a combined design capacity of 152,000 tpywere completed at Chittagong. However, due to mechanical problems and initialraw materials shortages, these plants did not begin trial runs until 1974 and1975 and the first plant was not brought into production until 1977, aftertechnical problems were corrected. The second plant has suffered from insuf-ficient maintenance, bottlenecks in the water supply system, and cut-offsof electricity. During FY79 the Chittagong facilities operated at only about42% of capacity due in part to shut-downs for about 80 days for lack of rawmaterials. Even with these shut-downs, production was 65% more than had beenpreviously achieved. A third urea plant is under construction at Ashuganj,to be operated by the Ashuganj Fertilizer and Chemical Company (AFCC). Thisplant, designed to produce 528,000 tpy of urea, is being financed under IDACredit 527-BD and by seven other lenders. The Ashuganj project has encounteredsubstantial delays and cost overruns due in part to unforeseen site preparationand construction activities to compensate for earthquake risk at the projectsite and is currently not expected to be completed until March 1981. (For
more details on the Ashuganj project, see Report No. P-2568-BD of May 18,
1979). With the shortfall in output, the domestic industry has not beenable to cope with the steady increase in the demand for fertilizer.
1/ These units are under the administrative control of the BangladeshChemicals Industries Corporation (BCIC).
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91. Since FY66, fertilizer consumption has increased at an averageannual rate of about 17%. Imports increased from about 350,000 tons in FY76to about 640,000 tons in FY79. The growth in consumption has been steadyexcept for FY72, following independence, and FY75 following the explosion atthe Ghorasal Urea factory. Between FY77 and FY78, there was a 40% increaseto 715,000 tons in the offtake of commercial fertilizers. Factors that ex-plain this growth include improvements in the foodgrain procurement, effortsto stabilize prices and increased Government efforts to promote fertilizerspecifically by distributing mini-kits, liberalized credit and simplifiedsales procedures. In FY79, however, fertilizer consumption grew at only 4%due to drought in the second half of the year, reducing offtake substantially.
92. The Action Program. Against the backgrolnd of short supply, theneed to improve the performance of the fertilizer industry and to providea more adequate supply of finished fertilizer to meet the country's require-ments was recognized by GOB/IDA. Under Credit 944-BD (the Fertilizer ImportsCredit) of June 8, 1979, a program of actions to attack the key constraintsaffecting the fertilizer sector was established. The program included measuresto (a) reduce GOB's fertilizer subsidy; (b) maintain incentive procurementprices for grain; (c) isolate the agricultural development budget from thefertilizer subsidies; (d) establish a high-level fertilizer coordination com-mittee; (e) take actions based upon the results of consultants' studies andprograms currently in progress to improve the performance of Bangladesh'sdomestic fertilizer transport carriers and take additional actions basedupon the results of ongoing consultants' studies to increase the efficiencyof existing plants through the utilization of its own foreign exchange ifnecessary, to ensure availability of sufficient fertilizer to meet an agreedFY80 consumption target. These actions are being implemented by GOB.
93. Rehabilitation of Industry. To assist in improving productivityof existing plants, IDA financed under the first Technical Assistance Credit(409-BD) a Fertilizer Factory Improvement Study designed to identify equip-ment needing replacement, develop uniform spare parts supply and proceduresfor inventory and routine maintenance and to provide training of BCIC staffin these procedures. Financing for continued assistance in implementingthe recommendations of this study is provided under the Second TechnicalAssistance Credit (622-BD). Based upon the results of the study, BCIC hasprepared a plan, including investments, to remove bottlenecks caused bydesign deficiencies at the plants, increased training aimed at offsettingthe loss of skilled workers to the Middle East, and other measures designedto improve production of Bangladesh's fertilizer manufacturing industry.These investments, which are under consideration for inclusion in a proposedIDA fertilizer industry rehabilitation project, would complement a recently-approved US$1.7 million UNDP project under which consultants would assistin managing the Ghorasal urea factory and the two TSP factories and wouldattempt to improve capacity utilization through removing bottlenecks, estab-lishing a preventive maintenance program (including the provision of adequatespares), advising on more efficient use of power supply, improving materialshandling at the TSP complex and training personnel.
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PART V - THE PROPOSED CREDIT
The Case for Program Assistance
94. While the action programs of the Fourth and subsequent ImportsProgram Credits addressed specific issues in key industries, these and earliercredits were intended also to meet the need to provide a rapid transfer ofresources by providing GOB with funds to ease its extremely limited foreignexchange position. The share of all IDA imports program credits (US$500.0million) of overall commodity assistance was about 26%. Thus, the IDA programlending was a significant component of resource transfer during this period. 1/The impact of the Imports Program Credits was generally significant. FromFY74 to FY79, total imports of eligible commodities by IDA assisted industrieswere about US$2.6 billion of which US$460 million (or 18%) were financed underthe Credits. Lack of the program credits would have had adverse repercussionson the whole economy, disrupting production in key industries, affectingexports, and causing widespread unemployment.
95. The fundamental case for program assistance lies in the gross inade-quacy of domestic savings and foreign exchange earnings to finance Bangladesh'sdevelopment program. A large inflow of external capital has been, and willcontinue to be, required merely to achieve a very modest growth of per capitaincome. In FY79 the budgetary surplus contributed less than 3% of GDP.External assistance is financing about 7% of investment which is quiteinadequate at about 10% of GDP. In the public sector, external capital,directly and indirectly in the form of counterpart funds generated by com-modity assistance, contributes 75% of the development budget.
96. The corollary of the disequilibrium between savings and investmentis the severe imbalance in the country's external payments position describedabove (PART I). Given the country's inability to borrow funds commercially,growing commitments of foreign aid have been needed - and will continue to beneeded - to permit simultaneously (i) the maintenance of a high level of foodimports, (ii) imports of capital goods for investment and rehabilitation, and(iii) imports of raw materials and other inputs for a fuller utilization ofexisting agriculture and industrial capacity.
97. These structural characteristics, both internal and external, com-bined with severe administrative weaknesses, make it impossible in the shortand medium term to transfer the amount of external assistance required byBangladesh to sustain a modest rate of growth by means of project financingalone. There are limits to the extent that components of any country's devel-opment or investment program can be formed into projects suitable for externalfinancing. In the case of Bangladesh which does not have an experienced and
1/ For a more detailed evaluation of the impact of the first three ProgramCredits (Credits 345-BD, 458-BD and 515-BD) refer to Program PerformanceAudit Reports SecM 78-137 and SecM 78-546 dated February 22, 1978 andJune 29, 1978 respectively.
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efficient development administration, external financing requirements areclearly well beyond this limit, not because they are extraordinarily largein per capita terms but because they are equivalent to such a large share ofinvestment spending.
98. Given the structural constraints in the country's foreign tradediscussed above, including the composition of imports, requirements for im-ports of general commodities cannot be met by net foreign exchange earnings.Without program assistance to finance imports of general commodities, thesupply of non-agricultural goods to the economy would be reduced greatly. Inparticular, industrial production and exports would have to be cut back sub-stantially. Utilization of existing industrial capacity has been improvingand is now at an average level of about 65%, compared with less than 50% inFY73 and about 70% in FY70 (Annex IV shows production trends for selectedindustries including those eligible for assistance under IDA Program Credits,which are also discussed in Annex V). Even with investment in additionalcapacity since FY70, industrial production has reached only now the FY70level. While this situation has many causes, including domestic demand re-strained by a slow growth of per capita income, shortages of foreign exchangeto finance essential raw materials and spare parts remains a significantconstraint affecting the level of industrial production.
99. Notwithstanding the current level of aid commitments and the short-term improvement in reserves, the Bangladesh economy still faces manydifficulties. As noted earlier, a major problem is the lack of free foreignexchange to finance imports of raw materials necessary to maintain productivecapacity, increase production (and thus substitute for other imports) andincrease exports, particularly of non-traditional exports. For FY80, theimport requirements necessary to maintain FY79 levels of production in the IDAassisted industries is estimated at US$415 million. Program aid committed orproposed for FY80 (exclusive of the proposed credit) is about US$265 million,leaving a gap of about US$150 million. Thus, for FY80-FY81 a considerableneed still exists for program assistance to these key sectors to maintainFY79 levels of production or to achieve increased capacity utilization. Theprovision of program assistance for importing raw materials, spare parts andother relevant inputs will help to relieve the pressures upon the Bangladesheconomy.
The Credit
100. The proposed Credit is based partly on the findings of an appraisalmission 1/ which visited Bangladesh from August 14, 1979 to September 14, 1979and partly on the findings of the recent Economic Mission which visitedBangladesh from September 17, 1979 to October 22, 1979. Negotiations were heldin Washington from January 9, 1978 to January 16, 1980. The GOB delegationwas led by Mr. Al-Husainy, Member of the Planning Commission.
1/ This mission coordinated with a mission reviewing export development andthe preappraisal mission for a proposed jute rehabilitation project.
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101. The Credit would bring the total of IDA's industrial imports program
lending to Bangladesh to $550 million. GOB has fully committed the funds
available under ongoing program credits by issuing applications for Qualified
Agreements to Reimburse on import licences. As of December 31, 1979 $66.8
million and $56.0 million had been disbursed from the Sixth and Seventh Imports
Program Credits (each of $75.0 million) respectively. Disbursement under both
credits is satisfactory. However, to take account of deliveries of industrial
imports postponed to facilitate food grain imports, the closing date for the
Sixth Imports Program Credit has been extended to March 31, 1980. For IDA
administered OPEC and EEC Program Credits, $7.0 million made available by OPEC
has been fully committed and $3.5 million disbursed. Of an EEC Special Action
Credit of $45.0 million, $19.0 million has been committed and $17.3 million
disbursed. The credit is expected to be fully committed by February 1980.
Program Content
102. Policy Focus. The policy focus of the proposed credit would be onthe development of a comprehensive export policy/strategy. The measures for
expanding the Export Development Program include: (i) the development of a
comprehensive export policy and strategy for the medium term; (ii) removal of
the problems of supply constraints in non-traditional exports; (iii) increas-
ing the effectiveness of current export incentives; and (iv) the improvementof data collection and analysis necessary to monitor export performance.
103. Background. Following the establishment of the jute industry in
1951, jute and jute goods rapidly became East Pakistan's main export item,
accounting for 90% of the country's foreign exchange earnings. However,
since 1973 there has been a gradual change, with exports of non jute goods
rising. By 1979, the latter accounted for 31% of total exports (Table 8).
While the amount of Bangladesh's exports has grown by about 5% per annum in
constant prices since FY77, overall export performance has been mixed.Earnings from exports have been boosted by significant price increases for
leather and jute goods. However, these gains have been offset by lower
volumes of exports, particularly of non jute goods.
Table 8: Export Performance(Tk million)
FY77 % FY78 % FY79 %
Raw Jute/Jute Goods 4,442 71 5,189 70 6,310 69
Leather 587 9 680 9 1,158 13Tea 558 9 679 9 620 7Frozen Food 262 4 291 4 532 6
Petroleum Products 221 3 175 3 140 2
Newsprint 22 - 88 1 89 1
Other 163 4 334 4 324 2
Total - Current Prices 6,255 100 7,436 100 9,173 100
Total - FY77 Prices 6,466 6,936
- 35 -
104. GOB has recognized the need to diversify its exports and to developthe institutional structure, the services and the promotion of export produc-tion. The Export Development Program initiated under the Seventh ImportsProgram Credit focussed upon three main objectives: (a) to strengthen anddevelop the institutions, particularly the Export Promotion Bureau (EPB),dealing with export development, (b) to initiate action to develop exportpolicies and upgrade procedures and (c) to initiate market studies to deter-mine potential items of exports.
105. Evaluation of Progress. Since 1978, with IDA's assistance the EPBhas developed from a poorly staffed organizational shell to a relativelyefficient export promotion institution. Recruitment and staffing has beenaccelerated and about 17 key vacancies have been filled during FY79. Trainingprograms have strengthened staff capabilities and imbued a sense of directionin trade promotion at Bangladesh's overseas missions. EPB's capability tomonitor and progress exports has improved. In the area of procedures andpolicy instruments, EPB has carried out reviews of the systems of custom dutydrawbacks and of export procedures and documentation. To facilitate furtherprogress, GOB has indicated that it would (i) prepare by June 30, 1980, arevised feasibility study and implementation program for the Export ProcessingZone, (ii) identify opportunities for expanding the type of service worksuccessfully used for marine products to other exports and programs and (iii)further strengthen the organization and staffing of EPB.
106. Annex IX details the status of the Export Development Program.Based on a number of studies financed by bilateral aid agencies, EPB hasdeveloped cohesive programs for complementary product groupings. From thesestudies e.g., for the leather industry, export (and investment) policy guide-lines have been developed. As of November 1979, studies of the tea, leatherand frozen food industries had been completed. Plans for improving quality,developing exports and obtaining higher export prices for these items havebeen prepared for implementation during CY1980. The studies are likely toprovide the basis for specific projects in each industry.
107. Prospects. GOB has prepared tentative targets for major areas ofexportable commodities for FY80 (Annex X). These targets, which provide abasis for monitoring the impact of the export development program, were dis-cussed and agreed with the GOB delegation during negotiations, subject torevisions to reflect additional investment within the various subsectors andchanges in world demand for Bangladesh products. GOB has projected FY80 ex-ports at Tk 10.0 billion, a growth of 11% in current prices over the levelof exports achieved in FY79. Achievement of this target depends upon main-taining the current levels of volume and value of exports of raw jute andmanufactured jute goods and on increasing exports of tea and frozen foodsespecially shrimp and fish. The projected increases are offset by possibledeclines in exports of leather and leather manufactures because of supplyconstraints. The favorable move away-from dependence upon jute goods isexpected to continue with non jute exports rising from 31% in FY79 to 36.5%in FY80.
- 36 -
108. The Problems of Supply Constraint. The development of non tradi-tional exports is constrained by problems of supply in areas such as leather,tea, marine products, handicrafts, etc. Under the Seventh Imports ProgramCredit a series of indepth market and product development studies have beencarried out with technical assistance from CFTC, EEC, ITC and UNIDO. GOB hasindicated that the work of identifying potential projects would proceedrapidly and that it would prepare a development plan towards the end of 1980for the leather industry, including estimates of technical assistance require-ments, and infrastructural needs to monitor the development of the industry.
109. Monitoring Export Progress. The data base for monitoring trendsin exports is weak and collection and dissemination of data is still unreli-able. The need for sound data is critical for export development and thisneed is recognized by GOB. A joint working group of senior officials from EPB,the Bureau of Statistics and the National Board of Revenue (NBR) is reviewingthe data base and, together with EPB's Information Adviser, has prepared adraft report providing for comprehensive changes in export data collection andanalysis. GOB will complete the review by July 31, 1980, and thereafter imple-ment a program to improve procedures (Section 3.08 of the draft DevelopmentCredit Agreement). Given effective implementation of the changes, the primaryinflow of export data to GOB should be much improved.
110. Export Incentives. GOB has introduced a number of export incen-tives, including Export Performance Licenses (XPLs) and duty drawbacks. TheXPL system provided for additional import licenses of up to 40% of the FOBvalue of specified exports. However, this encourages the use of importedinputs to the detriment of the efficient and intensive use of domesticresources. Further, it does not provide adequate incentive to diversifythe export range. GOB has announced that the scheme is to be reviewed andthe emphasis of the incentives placed upon value added. To this end GOB hasestablished an inter ministerial committee (chaired by the Deputy Governorof the Bangladesh Bank), consisting of members from the Ministry of Planning,Finance and Commerce, together with representatives from EPB, NBR and theprivate sector. The terms of reference of the committee and its work programhave been agreed with GOB and will be monitored by IDA. The second importantincentive, the duty drawback scheme, was designed to repay the exporterexcise and import duties. However, difficulties have been created by thecomplex procedures for agreeing on the rate of drawback and on securingpayment. The former is especially discouraging to those firms that have aconstantly changing input mix, while the latter is an unnecessary disincen-tive. GOB, by July 31, 1980, would review the procedures to award XPL's andprogressively implement changes to improve the operation of the procedures(Section 3.09 (a) of the draft Development Credit Agreement). GOB would alsocomplete the review of the duty draw back system by July 31, 1981 and imple-ment progressively a program of improvements (Section 3.09 (b) of the draftDevelopment Credit Agreement).
111. An Export Strategy. IDA's Industrial Sector Mission to Bangladeshin April 1978 identified the need for the development of an export strategyintegrating institutional frameworks, policies, incentives etc. and coordinat-ing the technical assistance being received by Bangladesh into a comprehensive
- 37 -
program. On the basis of studies carried out under the Export DevelopmentProgram of the Seventh Imports Program Credit, GOB/EPB have prepared a draftstrategy statement for FY81-FY86. As part of its Second Five Year Plan, GOBwould publish its statement of Export Strategy incorporating policies, plansand export targets by July 1, 1980 (Section 3.10 of the draft DevelopmentCredit Agreement).
Credit Administration
112. Eligible Industries. The Credit and Project Summary lists theindustries which have been recommended for assistance under the proposedcredit, their estimated total import requirements for FY81 and the maximumamounts to be allocated to each category (paragraph 1 of Schedule 1 to thedraft Development Credit Agreement). Eligibility has been determined on thebasis that the industries concerned have acceptable domestic resource costs(DRCs) and meet one or more of the following conditions: (i) direct andindirect impact upon exports, e.g. non traditional exports, such as leather,tea, shrimps, etc.; (ii) high direct and indirect multiplier effect onutilization of installed capacity; and (iii) a high direct/indirect impactupon employment generation. GOB will allocate at least half of the creditto categories where IDA has established action programs, i.e. textile, pulp/paper, and non jute export-oriented industries 1/ (paragraph 2(d) of Schedule1 of the draft Development Credit Agreement). Additionally, to facilitatea more rapid disbursement of the credit during the first few months of effec-tiveness, it is a condition for effectiveness that GOB would have issuedto potential end-users at least 50% of the import license for goods to befinanced out of the proceeds of the proposed credit (Section 4.01(a) of thedraft Development Credit Agreement).
113. Procurement will be handled by the enterprises to which funds havebeen allocated, with responsibility for public sector procurement resting withthe various Sector Corporations and private sector procurement being directedeither through the Trading Corporation of Bangladesh (TCB) or the Chief Con-troller of Imports and Exports (CCIE). In addition, the CCIE will be respon-sible for issuing all licenses for imports under the Credit, and for handlingthe allocation of funds to the private sector. The procurement procedures ofGOB and its sector corporations are satisfactory and in line with Bank GroupGuidelines. All imports of cement and steel will be procured through inter-national competitive bidding (ICB). Except for proprietary items, other goodscosting US$100,000 equivalent or more will be procured either through ICBor through limited international tendering (LIT), invited from Switzerland andmember countries of IDA. As was the case with the Seventh Imports ProgramCredit, IDA would review GOB's procurement decisions after such contracts havebeen signed and prior to the submission to IDA of the first withdrawal appli-cation in respect of such contracts. Contracts for non proprietary itemsbelow $100,000 would be procured on the basis of LIT with the invitation of
1/ On the basis of the proposed industry allocation, about 75% or $37.5million of the credit would be allocated directly to public sector units.However, of this amount about $30 million would flow into the privatesector as intermediate goods (e.g. yarn).
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bids from not less than three suppliers. Any contract requiring proprietaryitems of equipment or spare parts may be let on a negotiated basis. It isestimated that about 75%, by value, of the items will be procured under ICBand be subject to IDA's post award review.
114. Disbursement. Disbursements will be made against the foreign ex-change costs of qualifying imports/services on the basis of withdrawal appLi-cations prepared by the Bangladesh Bank and forwarded to IDA. To meet GOB'sneeds for foreign exchange to cover firm commitments during the periodJanuary 1, 1980 to March 31, 1980, it is recommended that US$5.0 millionof retroactive financing to cover expenditures made after January 1, 1980,be allowed (Schedule 1, paragraph 2(b) of the draft Development Credit Agree-ment). The proposed Credit is expected to be fully disbursed within 24months, i.e., by February 1982.
115. Taka Fund. As under previous imports program credits, GOB willdeposit taka funds, equivalent to the amounts withdrawn from the proposedCredit, in an account currently maintained with the Bangladesh Bank andwould utilize these funds for development expenditures under its developmentprograms. GOB would furnish to IDA quarterly reports on amounts actuallyreleased from this account to IDA-financed projects, (Section 3.04(d) of thedraft Development Credit Agreement).
PART VI - LEGAL INSTRUMENTS AND AUTHORITY
116. The draft Development Credit Agreement between the People's Republicof Bangladesh and the Association, and the Recommendation of the Committeeprovided for in Article V, Section l(d) of the Articles of Agreement arebeing distributed to the Executive Directors separately.
117. Features of the draft Development Credit Agreement of specialinterest are referred to in paragraphs 71, 78 and 109 to 113, of this report.The issue of import licenses covering foreign exchange allocations aggregatingnot less than US$25.0 million has been made a condition of effectiveness (seeSection 4.01(a) of the draft Development Credit Agreement). Special conditionsof disbursement require that at least half of the proceeds of the proposedCredit be disbursed for textile, paper/board, fertilizer and export-orientedindustries (excluding the jute industry) where IDA has ongoing action programs.
118. I am satisfied that the proposed credit is in conformity with theArticles of Agreement of the Association.
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PART VII - RECOMMENDATIONS
119. I recommend that the Executive Directors approve the proposedcredit.
Robert S. McNamaraPresident
January 22, 1980 byErnest Stern
ANNEX I-40 - Page 1
TBL"E 34UJNGLADESN - SOCl INDICATORS ATA SH?
WERESCZ CEOVPS (AUSTRO ACAE5LAND AREA (THOUSAND SO. DK.) - 105N RCEUT AGES
TOTAL 144.0 Sol Smm lElT EIGRIEGxIcCIIUORAL 99. 9 MMST RECIT GIGRPElC iNCOmE INCONZ
1960 /b 1970 A tsT5TE h RGIOB I GROUP Lg GDQUP Z
GNP PER CAPITA CUSS) 40.0 60.0 90.0 191.1 209.6 467.5
ENERrY CONSUMI'TION In CAPITA(XILOGRAMS OF COAL EzIVALUNT) .. .. 33.0 69.1 83.9 262.1
POPULATION AND VITAL STATISTICSPOPULATION, MID-YEAR CNlLIOBS) 51.4 68.3 61.2UDR41 POPULATION (PIT OF TOTAL) 5.2 7.6 9.3 13.2 16.2 24.6
POPULATION PROOJETIOSPOPULATION IN DEA 2000 OXILLIONS) 145.0STAfOlXAR POPULATION OP5LLIOUS) 334.0TEMR STATIOXARY POPULATIO IS 5ZAC= 2165.0
POPULATION DENSITYPER SQ. DC. 357.0 674.0 564.0 86.6 49.4 45.3PU SQ. IN. AGRCMTUAL UN 540.0 683.0 513.0 330.2 252.0 149.0
POPULATION AGE STRUCTUR: (PCET)0-14 nRS. 44.3 U6.4 46.0 46.3 63.1 45.2
15-64 TnS. 52.5 51.0 51.0 52.4 53.2 51.965 SRS. AND ABOVZ 3.2 2.6 3.0 3.1 3.0 2.8
POPULATION GRO1 RAE (PIRCENT)TOTAL 2.4 2.9 2.5 2.4 2.4 2.7MA .. 6.7 6.3 6.1 4.6 6.3
CRUDE BSU RATE (PZU TEOUSAND) 49.0 8.0 66.0 46.4 42.4 39.4CRUDE DATH RATE (PER TSOUSAND) 23.0 20.0 16.0 16.4 15.9 11.7GROSS REPRODUCTION RT 3.5 3.1 3.2 3.2 2.9 2.7
fAMILY PLAItJGACCZPTORS, ANNUAL (THOUSANDS) .. 35.6 1103.1USRS (PICEIr or ARRED WE) .. .. .9 7.9 12.2 13.2
FOOD AND NU ONDNDEX OF M0M PRODUCTION
PE CAPITA (1969-71-100) 107.3 101.0 98.0 99.6 98.2 99.6
PF CAPITA SUPPLY OFCA'LRIES (PECI OF
REQUIIKCTS) 89.1Of 89.0 93.0 93.0 93.3 96.7PaOTEINS (GRAMS PU DAY) 42.6f .. 5S.5 56.1 52.1 54.3
OF WHICH ANIMAL AMD PULS 9.2/f *- ao 10.4 13.6 17.4
CHILD (AGES 1-4) MORTALITY RAE 29.0 25.0 23.0 19.2 18.5 11.4
LIFE EXPECTANCY AT SMH (YES) 42.0 45.0 47.0 69.1 49.3 54.7INANT MORTALITY RAT! (PUThOUSAND) .. 153.0 140.0 .. 105.4 68.1
ACCESS TO SAF WAT (PECENT OFPOPULATlOI)
TOTAL .. 45.0 53.0 31.5 26.3 34.4URBAN . 13.0 15.0 63.9 58.5 57.9RRAL .. 7.0 55.0 20.1 15.8 21.2
ACCESS TO ZXCRLTA DISPOSAL (PERCENTOF POPULATION)
TOTAL .. 6.0 5.0 15.7 16.0 40.8URBAN .. .. 40.0 66.8 65.1 71.3RURAL .. .. .. 2.5 3.5 27.7
POPULATION PER PHYSICIA .. 7600.0jl 11350.0 7107.9 11396.4 6799.4POPULATION PER NUING PON .. 72030.0 53700.0 12064.0 5552.4 1522.1POPULATION PEE HOSPITAL BED
TOTAL 11000.O/h 8120.0. 4430.0 2738.4 1417.1 726.5URN .. .. .. .. 197.3 272.7RURAL .. .. .. .. 2445.9 1404.4
ADMISSIONS PER HOSPAL BED .. .. .. .. 24.8 27.5
HOUSINGAVEAGE SIZE OF aOUSEHOLD
TOTAL .. .. .. .. 5.3 5.4URBAN .. .. .. .. 4.9 5.1RURAL .. . . .. 5.4 5.5
AVERAGE NUMBER OF PESONS PER ROOMMOTAL .. .. . ..URBAN .. .. ..
RURAL .. .. ..
ACCESS M ELECTRICITY (PERCENTOF DWLLINGS)
TOTAL .. .. .. .. 22.5 28.1JRBAN .. .. 3.0t . 17.8 45.1RURAL .. .. .. .. .. 9.9
41- ANNEX IPage 2
TAMJ IARMSGLADRSE - SOCIA~ICAS D SAT
MmCE hZZRT ES 1T,h ) -
SAME Nm INMT VZA GBO6AMIC DICOIE DICOU
1980 X 1970 /b ZSTDIx /b U Jc /d cup Is
AWFS7D DaxLLJT =TOS7ftfle4: T L 47.0 61.0 83.0 S9.5 63.3 82.7
mu4 4.0 80.0 106.0 74.9 79.1 87.3U3 21S.0 42.0 60.0 43.7 48.4 73.8
Sx=3fl: TOTAL 8.0 19.0 23.0 19.5 16.7 21.4lilE 14.0 30.0 34.0 27.8 22.1 33.0RImm 1.0 *.0 II.O 10.0 10.2 15.3
?WCKAL SL. (OF szwmaSS ) 1.0 1.0 1.0 1.3 5.6 9.8
EPpl-TEAM& AMCP1`2124A2.. 49.0 55.0 42.2 41.0 34.1S ZCCRRA2? .. 26.0 24.0 .. 21.7 23.4
AWDULT LIRACT X= (mZT) 21.6/1 .. 22.0 25.5 31.2 54.0
cus nVtrSUD
POP2 2 . . 0.4 0.4/L 2.3 2.8 9.3UrDIO SScczv PE TOUSh
PO=Lx .. 6.0 .. 15.5 27.2 76.9TV RZCSOVU PU TOUIUPOPUA.. .. .. .. 2.4 13.5
EsPAr ( rUfT mix.U )29S' CsRCMAg M
isMWSAD POPMAULIO .. .. 5.0 6.2 5.3 18.3CtUI A.U L P CATU .. .. .. .. 1.1 2.5
LABOR, 91CRTOTAL LAmR 1010 (TODUSAS) 18516.0 23402.0 29900.0
7VIALE (PE1T) 15.2 16.5 17.0 21.4 24.8 29.2ADUOILT5 (PERCENT) 86.8 S5.9 78.0 66.3 69.4 S2.7DIuSTS (PUKIT) 3.3 3.5 7.0 9.6 10.0 11.9
PARTICZPATI)OV RA= (PURCT)TOTAL 36.0 34.6 34.4 35.8 36.9 37.1MALE 58.7 55.8 55.3 52.3 52.4 48.8FEAL 11.4 11.8 12.1 15.7 18.0 20.4
!tC14Tc DEPSlWUCY UAIo 1.3 1.4 1.3 1.3 1.2 1.4
PRCUT OF PUVATE DZWERZVD ST
Hr;aST S oRECEPTr 0m1 soSEDs 18.33/ 16.7k .. .. .. 15.212 MST 20 P 2CUT OF UMSESOLDS M.57 42.37 .. ., .. 4.2LoWEST 20 PRECT Of IIZOEWDLDS 6.9 7 7.97k .. .. .. 6.3LWST 40 PUCUT o0 86uSzLD8 17.9T 19.677 .. .. .. 16.3
POVERiY TAR&= OUS5ESTThATE ABSOLUTE POTEnT!INLEMVE (USS mP CAPTA)
013424 .. .. 110.0 86.5 99.2 241.3AL .. .. 91.0 74.2 78.9 136.6
EsTnIAD vRam POVEN DUTLVL CSS r COrITA)
11M .. .. .. .. 91.9 179.7MAUL .. .. .. 50.4 54.8 103.7
ESTIMATE POPLATON BELOW ABSOLTEZPOVRrY DICONE LEVEL (P2REZNT)
TRNAM .. .. 55.0 44.3 44.1 24.8RURAL .. .. 74.0 52.4 53.9 37.5
.,Mot availableNot applicable.
NOTES
/a Tbe adjusted group averas for each indicator are popualato-weighted Seoetric IYan*. excluding the extrevalues of tbe idicator and the moet populated country in ech troup. Coverage of contios ewng theindleaeors depends on availabillty of data and is not uniform.
/b Unless otherwise noted. data for 1960 refer to any yar between 1959 and 1961; for 1.970, betweon 1969and 1971; and for lost Recent Estimate. bete.n 1974 and 1977.
Ic South Aia; Id Low Income ($20 or lees per capita 1976); 1- Lower Middle Income (3231-550 per capita.1976); /f Av. 1961-65; /i Ragistered. not aLl practicing in zhe country; /h Govt. eatablisbhentsonly; ,'± 1972; /t 1963-64; /k 1966-67; /I 1962: /I 1973.
osvt Recent Estimate of GLP per capita is for 1978.
.AuguSt, 1979
-42-
ANNEX IPage 3
ACtual Ftataatd 1960. 195 1973- 6791945197/A 166912:2',73 1974/75 1976/77 197 7/78 196 1970 1978 16- 947 977
NATIZNAI AOCC0INTSIn Constant 1972.1973 Prices & Exchange RLates Avrae Annual Growti, Rates As Percent of 3D1
5ross Domestic Prodact *,010 5.,833 6 , 14 7,255 7,833 4. 3.3 6.1 98.5 101.8 101.1G 7ains from Termas cf 'Irde ) 89 - -117 -148 -88 1.5 -1.8 -1.1flrous rDomestic ncome 6.101 5 6-3 ei39 107 7r,7-45 5.6 2.5 5.8 100.0 100.0 100.0
Dmort (inci.. FSs) 879 747 703 506 791 20.6 6.8 0.7 14.4 11.0 10.2Extorts , imoort capacity)- 598 369 197 243 315 12.3 -14.6 -3.2 9.8 3.1 4.1Resource Gap =73i _T_ 2 4.6 7- -7
Consumption Fypenditures 5,668 5.817 6,404 6,764 7.521 5.7 3.6 5.2 92.9 100.1 97.1Investment (intl.. stocks) 714 394 499 660 700 13.3 8.8 12.2 12.9 7.8 9.0
Domestic Savings 433 16 -6 343 294 4.3 10.0 72.0 6.8 '0.1 2.9Nationa.l Savings 416 32 10 378 279 8.7 20.5 56.3 7.1 0.2 3.6
9MCHA1ISE TRADE Asnuaa Data at Current Prices Ai Percent of~ Total
I,MortsCapital goods ., 10 135 Z27 318 7. 2.9 .. 16.8 23.5Intermediate goods 6rL.uels 176 386 270 459 . 21.9 . 30.4 34.19'ue13 and related materials
a' which: Petroleum 23 1.55 141 166.. . 48.5 . 10.0 1.ConsF trion oods 42 1 406 . . 4Z.8 50.1'
Tota Narch. arts (cif) **~~7 727 1742 851349 12.2 100.0 100.0
ExportsPrimu277 prodscts, ~l. fuels) . 145 119 220 203 . , 7.0 . 40.9 40.6
F~iels and related materialsof' which: Petroleum
Manufactured goods 195 239 24 294 . . 8.5 .. L_ 5-Total Merah. ~~~~~~otts (fob) 7TO __W 9 7 7.9 100.0 100.0
Touxrisr and Bomer- Tr&ae
M4erchandise Trade Indices Average 1,9732-73 10Export Price zIndex I1l0a13 1 137 . . 6.5inoo;rt Price Index 52 100 215 189 I8SO . 12.5Tersms of Trade Index 118 100 62 62 76 . . -5.6Exports Volume Index 148 100 80 115 107 . . 1.5
VAWLE .DOED BY SECTOR Aonual Data at 1972-73 Prices end Exchanle Rates Average Annual lrewtb Rates At, Percent of Total
Agricu t,ure 3,542 3.403 3,712 4,020 4,318 . . 4.8 59 59 57Industry au,_ Miming 420 41.2 466 582 642 . . 9.2 7 7 8Ser-.iue 2.050 La84 2.146 2.442 .. . 7.4 34 34 35Total 6,012 5,663 6,324 7,044 7.605 6.1 100 100 100
PUBLI.C FflSAXE As Per. n(Central Gov_errment)
C-uc'-nt P-ceipt- 317 280 469 563 66 . . 34.2 5.3 7.2 s.5fitxpennitures 365 364, 419 464 553 . 16.8 6.1 6.4 7.1
try ;avlnge ~~~ ~~48 -84 50o 9 112 7-08 0.8 l.ot 7- :;blic Sector.. . ..... .. .D *".i . ctor investment 421 239 248 516 514. . 10.3 7.0 3.8 6'. 6
us5 $ mLi2..oc iUC'JRREBY SEX-1FnITUE DETILS Actual Rst3maed OSEII ON Ac uAv. 1977178 P sad ER
As Total current ExPend.) 1969/70 1972/73 1974/75 199777/1 8 PIThIC SECTOR I' of ToaEduation .. 5. '_T.3 12.4 13.0 nT7MET6MM PRCSGRAMT' M 1900"
Other .3ocial S-r',i-- . 4.5 3.6 4.2 4.9 Social Sectors 267 13.2 -Agriculture and Agriculture 600 27.6
other Econoic SeTvicss. 5.0 12.5 6.6 7.0 Industry end Mining 380 17.5Administration and Defense . 70.4 57.1 61.5 61.2 Power 314 14.4COther .. 4.6 12.3 15.3 13.9 Transport end csnmications 387 17.8Tota.l Current Expenditurea 100.0 100.0 100.0 100.0 O-ther 206 9.5
____________________________________________________________________________ T otalTot E xEx endittu ess2,1744 100.0
SElCTED _VSL:ATORS 1960- 1965.- 1973- FIRA.CINO(Calculated from 3-year averaged data) 1969 1970 1976 57 2.Average ICOR' .. 7 0T.89 Public S,.ctor Sains 37 3.import Elasticity . 1.29 1.11 Progren Lid COUnterPart 838 38.6?mrgin51 Dxwsstic sa7ings Rate . 0.22 0.05 Foreign Project Aid 605 27.8Marginal National savings Rate .. 0.35 0.05 other (hinc. dam. borroftqg) 174 8.0
Total fiaseCins 2,174 100.0
:,ABCp FORCE AIM Total Labor Force Value Added Per Work1,er(17. 73 Prices. c x.Rts
0U1JTI WORSER in Mill ions -, c' _Total 1961i -7?3 In U.S. Dollars Peon fAvert ge 1970e7319 60/ 61 7ZL7 19 60/61 1972/73 Growth Rate 19 69/70 19 72/73 19 69/70 19 72/73 Growth -Rate
Agriculture 16.1 20.5 83 78 2.0 . 166 .. 76Industry 1.0 1.8 5 7 5.0 .. 229 .. 105Service 1.8 3.9 10 15 6.7 . 484 .. 222Total 18 .9 26.2 10-0 1O00 . 248 21-7 100 100a -4.9
nout applicable - l11 or negligiblenot available -. lSs than balf the smallest unit shown
o.te, Figures are o. fiscal year basis (July 1-isei 90).Date prior to 1972/73 pertain to erstwhile East Pakistan.( Pian targets.
43 - ~~~~~ANNEX I_____O_SCIA___CAOR Page 4
Notes: Although the data, are drown from sources generally judged the mat aUthoritative and reliablt, it should also be oted that they say not he interna-tionolly' orpprsble bece-se of the lack of standardIsed definitions and concepts used by different countries In colleting the date. The data are, nonetheless,useful to dt-oolbe orders of magnsitode, indicate trends, and charanterise certain major differences between ozotria..
The ad'-tod scour averages for eac h indiostor art population-wighted geoymtric maeno, ecluding the ectree values of thte indicator sad the most populatedCountry io each group. flue to lack of data, group averages of all, indicators for Capital Surpluo Oil. Rap-rtera sod of indicatoro of Aoesa. to Water and E-oetstispecol, do-ing, inrone DiotrIbution and Poverty for other country groupo are pspulatico-weighted geomettric means wIthout extcluiisiM Of the entreat values nodthe moot popuated coutry. Since the coverage of ocutries eamng the indiososds.s naalblty ofdt adi ot unfsMA aut ion mat be exercised
in reacio avoastoof on indcato to nothr. These avernges are matLsueu npoitoeo 'expctd"vaue whM com arn the values of oneiniator at. s time OQwe te country sad reference groups.
(ACD AREA (thouand sq.m.,) Acoesos to Excrete Ddietsal (percoat of siato)d-4.total urban~ sad rural-Total - Total surface area. comprising land area and inland waters. Miushe of people (total, urban,an rural) servedb exrete disposL. soAgrtcultural -Wett recet estimate of agricultural area used temporarily' percentages of their respective poeslationr. Excrete disposal say include
or permanently fir orop., pastureo, market and kitchen gardens or to the collection and disposal, with or without treatment, of iusan ex-rte- -- ~~~~Itofollow and wate-water by water-born systems or the use of pit privces end sla
GNP PER CAPITA GNP)- ti per capita esodmacec at currest market prices, inta -a.Population divided by oumter of practicing physicianscail)-tcdibyoBase conversion method as World Bank Atlas (19,76-78 basis); iijliirea.i alchool*t un11ivesty level.1961, 197, nod .1978 dsta. Popu]ation pe Tri.c Perso - Pspulaticm divided by outber of practicing malc
ENERGY CONSIJMFION PER CAPITi - Annuai conosumption of Cowseruial enerY and female graduate nurses, prsoeidal nurses, and assistant nurses.(COal and l1ignte, ~Petroleu, natural gas sad bydro-, =leia, -- 0 ge.- lpOnuatio per Hoscivtsa Re - tonal,turbn ndral-Population (t00.1, urin,thermal elc-triolty) in kiiograms of -sI equivaleat per capita; 1960 and rural) divided by their respeciv m Ve ohspital beds available in1970, and 1976 data, public and private gene ral and epecili-ed hoanpital sad reshbilitation -eotero.
.Hospitals are establishmantot permanently otaf fed by at leant one idysician.PORUOATIZd AND VITAL STATTISTICS Esasblishaento providing princIpslly custodial c are wr nt isciuded. Rural
Total bypeltion. Mid-Year (illionn( - A. of Guly 1; 1960, 1970, and hospitals, however, include health and medical centers not permanently staffed,977 dt.by a "idwicia (but by a medical assistant, nurset, siddife, etc.) stick offer
Urb an tpulnio _peoet of total( - Ratio of urban to total population; in-patient ..ccoodnsltioo sd provide * limited range of -dioa1 facilitie..diff fert definitions of urban arean may affsect compahaility of data AdM.lmIsios-e Hospittal Re - Total number of admissions to or discharges fronamog coutries; 1960, 1970, and 1975 dsi.thopial divided byth omber of beds.
Pop,lation ProjectiontPopulation in Year 2000 - Current population projectiocs are based on BDStOING
1975 total population by age and ses and their mortality and fertility Avrg ico oshl pronprhousehold) - total. urban, and rural -Intoc. Projection parometero for mortality rates emprine of those A ouehl cnits fagopo oivdaswosasliigqatr nlov_l nonuog life expectany at birth incoreaning with countryn. their sain seaLo. A boarder or lodger may or may sot ho included in tiePer c_Pit. mooe level, and Peale lift sopectancy otabilining at hounebold for statlotical purposso.77.5 p00cc. The parameters for fertility rate also have three levesI Averge osusker Of pters.n. per roo - total, urban and nors - OeAg . e Ononicnannilogdetido in fertility according to income level and pant of persons- per-'oo in all urban, and rural occupied -ovotional doellingo,family pl innig performance. Each onatry is then assigned one of these repectively. Duollingo eclode non-permanent otcturen and uono-opied pa-to.,,ise c-binations of mortality and fertility trends for projection Access to Electricity (percenjt of .dweflingn( - total, uban and rusi - to-purce.- ventidol d-ellini wit electriity Icliig qurtr soperesnago of
itationo`v ocolatioc - na iticonry population there is so gro..th total, urban, and rural deellingo respectively.oinc tic iirti rat e ioz equal to the death rate, and also the ageotruotur reni.s contant. This ic achieve d Only after fertility eaten EfDWATION
decline to the r-placemes,t level of unit set reproduction rate, when -Adjusted Ebsrllmnt Ratioscar generetioc f cs,me repiacec itself exactly. The etattoosry pepu- PrimaY schol- toa,aead female -Gross total, alt and female -1ro1-mdcc. cie wan estimated cc the basic of the projected characteristics sent.ofalagstthprmy leve a percentages of reopecti-e pr-soryof ito popuistics is the year- 2000, and the rate of decline of fertility scolaepopulaticon; cormally includes children aged 6-1u y-r hutrate to repiacnn level adjusted for different lengths of primary eduoation; I.e countries outh
Pear ottiu 77ioey oulto Ic reacted - Thr pear behe stetlonary puplatlos univeral education enrollment amp exceed 100 perunet oioe soo pupilsn~_ice has teec rarmed. are blwor shov its official school age.
-cqaiotsity Seour chool - total, asic and female - fCputed noo - -;yooorPer op. ha M-ld-year populattos per square diloteto (110 hectares) of educatios requires at least four years of approvd pri.n, noontys
totl re provides general voational, or teacher training intsoti-ta. too pupilsPer cc. km gricultural land -Compuned an there for agricultural land usually of 12 to 17 yearn of age; corepondence osrc e gosoraly
only. socluded.Po~ atin Ae lcoctu~r(pecen) -Child-e (0-lb years), working-age Vocational ceolltspi (croetofr secon.dary.) - Vocational inotitotiono islulde
15-6iyar) an etie ( easad over ) as percetages of mid-year toohoical, inotial, or othe pora sick operate isdepocdestly Or s.popslntios ; 1960, 1970, and 1977 data. departasnto of secondary institutions.
PoPulstilo Growth Rate (p-ern) - tota -Anul eroth rates of total aid- Nepil-teenie ratio - icrimar,. and as...sdsry - Total students enrolled ityear populations for 1990t, 1960T-70 and 1970-77. primary and se`odsry lcvsl divided by numiers Of teachers ic tie cOrro-
PPIeosltion Gi-oth Rate tru-esti - urban - Annual growth rstee of urban spunding levels.population for 1950-6O, 1960-70, Band 1970-75. Adl.t literacy rate (peroent) - Literate adults (nile to read and writo as
Crude Bieth onto (Per thousand) - Annual live births per thouand of mid- apercntage of total adult population aged 15 years and over.pear pspuletion; 1950, 1970, and 1977 data.
Crde hth gate (per thouand) -Anuldeatho per th-uand of sid-pur CNSUPRrCICAupopultion;1*0,1970, and 1977 date. Pasenger Cus'Per th ous.an d copulation) - Pasoenager care coaprise motor .ornOrcu sepodutiosRac- Areragr outer of d-ugitors . .oa s ill hoar seating lesbha eight peronot; excludec anhlan-co, hearoeo and silltesy
ic her normal reproductive period if etc -perience pren...t ago- vehicles.specific ferIlity rates; -ously fiv-year averages ending in 1960, Radio Receiver (p-c thouoand poplation) - All types of recivers for radio1970, and i975. brosdcasto to general Psblic per thousand of populetion; ecoludes unliceso.ed
Panily Planing - Acooptor- Annua (thouands) - Annual number of receivers In coantrica and is yeses when registration of radio sets cOo in-eopioro of birth-costr-t devicec und-er upicec of ostios..l feamlty offot; dsts for recent yearo ma not be -peparailo siore -.t countriesplningprgamboliohed licensing.
Family lannin - jo ropercent Of amrr or(-Psrcntago Of maried TV Reo-iver (coo tsoad coslaItics) - receivers for heo..nsot to generol
omsOf child-bearing age (15-i4 yess who onbinkh-cotrol devices pulc e hosn ppntics enclue unlicensed TV retceivers ino..uotri-nto Ball maried woene in Bsoe, age group. and in years when regiotratins of fT seto wao in effect.
P101 ~~~~~~~~ Nenspaper~~~~~_' ' ' fioato (perthousan neylation - ihoc the arergo icltoFOOr, AND "RITICU .1~~~~~~~~~~~o dily general interes nespaper dtefined so . Periodical poiliostics
loden of FoodProduction pee Csplts t969-7 ij -lden of per c.pits devoted primaily to recording general1 neon. It is considered to he "daily'annual production of nB odos ute. Production es-ldec -ds and if it eppe- at leact fou times a. wend.feed and i n cc aledar year hoois. C-nditi.e corer pri..ry goods ieaAna tedneprIptor er-hsdo h udro ikt
(.. egaroae instead of sugar) which are edible and .. ht.i ustri..ts .oId during the yer,inlding eissions to dries-in Cisea- and nobiir(g.coffee and tea - eseoluded). Aggregate produotion of each conusty antis.
no .Boed os netlo... average produser price seighta.Per onpit. supply Of calories (pe-st of r-osirencotn) - Computed from LABORP F0RCEenera eoiv-lent of o-t food cPppji-o oasinct country p- er plist -Tctsl,ininr Porco;-~~s EcOsn-i-aly -cti-e Peroo, loclodiog or-nper day. Aveilbile supplies comprioc d-netic pe-duotion, imports less fo-rcesad oneaploYed tot coclding hono-i-c, students, ric. Oofjitit-,e.porto, and changes in ot-c. Oct -upplie-e-1lde animal feed, needs, in cartoo coont,ioc ar not c-np-rol-quntitties used in food prOc-inicg, and I' sto. -* dioteibutioc. Require- 7ggpeyrcent( Pmealo inir forte as percentage Of to~tal inbr foroc.neoto were estimated iy PAt issod on pbyoioiogi-a ocodo fP or nrl .~ - Labor force in f seesdg, forestry, tooting sodotilvity and health conidering envir-ne.tal tempnrat-r, body weighte, fishing as perocotage off total bier force.age andnon diodtributieoa of popuIieso, and allowing 1.0 percent for Industry (percent) - Labor force is mining, conot-otio-, -naoftoringndcate at househol d level. electricity, sat-r and gee e percentage of total lame foc.-
Per ospits ouPPly ofprtnic !romo pertda) - Protei content of Per ParticipainRt pret) total ale,and f'nae- Participation oreapitsnet suply offood pe day.Net npply of food is defined an activity rateseecmue nttl aeBadPcl ao oc spr
shove. Requiremnete for all countrito establIshed by 0000 prOvido for 5 etae f total, male and reals Population of nil agen resp-ctirely;sdoims ollnance of 60 grsm of total pe-tis per day and 20 gram of 1960, 1970, and 1975 date. These are IWo' participation rates reflectinganial and Pulse protein, of which 10 gram should he antial protein. age-sec structure of tie popuolation, and long tic tesod. A f-c estimatocThese standards are lower then those of 75 grams, of itotl protein and are frm nationl orcs
P5gasof Jantoo protein asa vrago for the meld, propose d by F'AO Rocsi DedenoY Ratio - Ratio Of populatios under 15 and 65 and over anin tic Tird torld Food Surey ielbrforce is age group of 15-6u years.
Per osits poteiscuspl, fro ailand noIse - Proceis supply of fooddrvd frs snimals and puiaes to gram per day. ICSDIRmtON
Chmild (ae -)Ootli ao(e huad nuldah e huad Percentage of Pricette incom thoi incas mod kind) - Received by richestinage grop 1-c years, to children is this age group; for oust deve1- 5percent, elciest 00 peon,pors20 peruent, and poornot hO percent
op-ng countries dais derived from life teblec. of households.
HEIALThJ POVERTY TAPRn GROUPSlie=op %tnyes itj s(eas Average. numher of pears of life Esiae bolt oet Iscoor icon (O ercato) uba sot rural-
remainng si irth; 950, 170, ad 1977. data. Absolute povrty income level in tha noelvlblwsioacnnlInfant Mrtot2ity Pete (per tbsuosd) - Annual deaths of infants under one nutritionally adtequate dint plus -soential non-food reqairceneto on not
yea of age per thousand 2itr births. aff-rdale.AccBeo to a ae pren fpsaais -. total urban, and rura - Estinated Relative Poverty nom leve (01$ coy ospita) - urban and rurlSeter Of P-oPle, (ttl ran, an orl it bsc le Beecs to Rural relati- poverty iccomo 1cool in oe-thilrd of -orrge per Ospi tssafe saner supply (inoludes treated suface water or untreated hot personal leo- of the country. UrbacIevel is derived from, the rural loveunconiaminatod mater suh as that fren Protected borehole, springs, with adjustment for higher coot of kiriAg in uria areno.and sanitary melI a percentagen of their respective populations, in EsiatdPouoto Rel1 Absolute Povety incom Levl)- ccc -uba nan man ares a public fountain or stsndpost located not meore thakn rura - P"rooat of population turban ad rural wh rc "bsolut poor200 meters from house nay be considered an heing sithin reasonableeccene of that houac. In rura areas reasonable access scod implytiat the housewife or mashebrs of the household do not have to spend a. tononic and dola Isi Dots oidIsproportionate par-t of the day in fetching the famdly,s eater seeds EctOsnl Anulyosi and Projections Department
August 1979
ANNEX I_ 44 - Page 5
RUA= OF AS =N AL MTA AP0 MM
Mo(ata in ,jl;mO of U.S. doDl" t cvrr,t priceJ
Actual lotlotd o1 cjd Av-ras AM ]1 l 0.th 0.O
V"/70 1972772 1974/75 1910117 197/7 1977 1974 - 1979
SMU81 SA11W OF PADY S
po0tV (ir.l. 9S) 315 369 358 529 -,2 648 13.7-639 -747 -1,402 -957 -1,927 -1,F79 9.6
7Xorw (icl 1sg 3j78 -1,044 -428 1 7.4
Interest (n.t) IDirmct 2n.toont Ioo.8 IWork...' Rdtt.mn I 45 7 66
Pritot Direct Tn0emtoOffPiolal Capital 60a.. 482 397 229 38e 400 13.6
fbl ic lnTt 1,l s.Pnblic MkLT.7.r 76 527 273 411 685 5.2
-ReD.Ymonte ~.. - -23 -14 -58 -54-Not nt _ibw 502 lbR 0t41 4.8
other MLT b7-Di.basr.t0t
-Rovrmnts _Not DisburaoWdt.CGpitol o ao.tioo. .. -205 334 344 16 -32Clunge jut 7uSoaxoa (-. inrr *) -20 -196 -80 24 25 Actaol La'/ Per7iod R1tio7tod
Gros0 R.00 (snd pariod) . 107 263 293 269 24B 7197T12 1974177 L975776 79767 1977/78lXER r AN 107 221E0Pnblic Debt Out. k DIsbursb d 228 1,366 1,812 2,065 2.556
0FF1.ct.3. GrAnts h& rant-li;te 514 368 338 452 Dterot on Public Debt - 10 21 25 27ReGpyoento Mn Public Debt - 25 78 17 51
Publi't HVLT Lean Total Public Debt Service - 35 99 42 78two - - - - Othor Debt Service (net)IDA 68 150 50 211 Total Debt Service (not)Other i1tilat ... I 11 87 84 74Govarruto . 24 678 200 376 Brden on E6port Sarndng (i)Soppliato 55 17 2 11Fi-ni.l Inotituticc- - - 5 13 Publi. Debt Service 9.8 22.4 7.9 13.7
d. " - - Total Debt ServicePybllc Lo" n" ri __-4- TDS-Di- t Dvewt. 7nc.
Total public DiL7' Luoo. 338 932 341L'a g. Tt oft. De.t- - I~~~~~~~verage Ten of Publi Debt
Actual Debt Ditelondirg on Joo0 30. 1978 Int. a % Prier Twr DDg . 2.0 1 5 1.4 1 3U UE9AL D r iiora i On7 Percont Al rt. as S Prioer You DOD 5.0 5.7 0.9 2 5
World Bank m TMDA 554 21 7 n!D Debt Oct. & Dbureed
Other Naltilateral 64 2.5 r % Public Debt 6 D 4.0 3.0 2.7 2.2Oover-sento 1.748 68 4 ' a. S Public Debt Service - - 1.6 7.5 4.4
-3i... 111 4 3Financial Intitut-ina 26 1.0 M06 Debt Ott. & DisbureedBonda - - as % Pblic Debt OhD 7.1 18.7 21.0 22.7 21.7Public Debt. n.e.i - ' 0. S Public Debt Service - 2.3 2.0 7.5 4.9Total Publc l hLT Debt 100. 0
Other MLT DebtsShort-te.r Debt (diab. on3J)
not applicable e ot retivrte.nt 0avil0bl . - nil or negligible.ot available saprstaly lm-- o then r.3f thebut included in total o,ellaot unit hoN,1
9cc-.r 1978
-- 45 -
ANNEX IIPage 1
THE STATUS OF BANK GROUP OPERATIONS - BANGLADESH
A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of December 31, 1979)
US$ Million /aAmount
Loan or (less cancellations)Credit Un-Number Year Borrower Purpose Bank IDA disbursed
One loan and 12 credits fully disbursed 54.9 428.28 -
339 1972 Bangladesh Cyclone Area Reconstruc-tion (replaces CreditNo. 228-PAK of 1971) 25.00 1.70
340 1972 Bangladesh Chandpur Irrigation II(replaces Credit No.184-PAK of 1970) 13.00 0.37
341 1972 Bangladesh Tubewells (replacesCredit No. 208-PAKof 1970) 14.00 1.90
343 1972 Bangladesh Telecommunications (re--places part of CreditNo. 145-PAK of 1969) 7.30 0.16
407 1973 Bangladesh Education (replacesCredit Nos. 49-PAKand 87-PAK of 1964 and1966) 21.00 3.63
408 1973 Bangladesh Highways (replaces CreditNo. 53-PAK of 1964) 25.00 5.28
410 1973 Bangladesh Cereal Seeds 7.50 4.33424 1973 Bangladesh Inland Water Transport
Rehabilitation 8.70 0.51487 1974 Bangladesh Second Telecommunications 20.00 11.16527 1975 Bangladesh Ashuganj Fertilizer 62.00 25.17533 1975 Bangladesh Population 15.00 9.94542 1975 Bangladesh Barisal Irrigation 27.00 19.24605 1976 Bangladesh Karnafuli Irrigation 22.00 13.35621 1976 Bangladesh Agricultural and Rural Training 12.00 7.61622 1976 Bangladesh Technical Assistance II 7.50 3.83631 1976 Bangladesh Rural Development 16.00 14.04632 1976 Bangladesh Bangladesh Shilpa Bank 25.00 9.97
- 46 -
ANNEX IIPage 2
A. Bank Loans and IDA Credits to Bangladesh (Cont'd)
US$ Million /aAmount
Loan or (less cancellations)Credit Un-Number Year Borrower Purpose Bank IDA disbursed
724 1977 Bangladesh Shallow Tubewells 16.00 15.37725 1977 Bangladesh Muhuri Irrigation 21.00 19.00729 1977 Bangladesh Extension and Research 10.00 8.96735 1977 Bangladesh Inland Water Transport II 5.00 4.00752 1977 Bangladesh Imports Program VI 75.00 8.17765 1978 Bangladesh Jute 21.00 18.55787 1978 Bangladesh Foodgrain Storage II 25.00 24.98825 1978 Bangladesh Small Scale Industry II 7.00 6.99828 1978 Bangladesh Agricultural Research 6.00 5.81864 1978 Bangladesh Drainage and Flood Control 19.00 18.05866 1978 Bangladesh Imports Program VII 75.00 19.08872 1978 Bangladesh Technical Assistance III 10.00 9.96890 1979 Bangladesh Oxbow Lakes Fisheries 6.00 6.00 /b912 1979 Bangladesh Vocational Training 25.00 25.00921 1979 Bangladesh Second Population &
Family Health 32.00 32.00 /b934 1979 Bangladesh Bangladesh Greater Khulna
District 28.00 28.00941 1979 Bangladesh Bangladesh 2nd Dacca Water
Supply & Sewerage 22.00 22.00944 1979 Bangladesh Bangladesh Fertilizer Imports 25.00 25.00955 1979 Bangladesh Small Scale Drainage and
Flood Control 25.00 25.00 /b964 1979 Bangladesh Second Highway Project 10.00 10.00 /bTotal, 54.9 1,219.28 464.12of which has been repaid 0 0.40 -
Total now held by Bank and IDA 54.9 1,218.88
Total undisbursed 0 464.12 464.12
/a Prior to exchange adjustments.
/b Not effective.
- 47 -ANNEX IIPage 3
C. PROJECTS IN EXECUTION I/
Multi-Sector ProjectCr. No. 339 Cyclone Area Reconstruction Project: US$25.0 Million Credit
of October 18, 1972; Effective Date: January 17, 1973;Closing Date: January 31, 1980
After a very difficult start, the project is expected to be com-pleted by early 1980, about four years behind schedule. Parts A, F, and G(Inland Water Transport, Coastal Fisheries, and Cyclone Warning System) havebeen completed for some time. IDA financed portions of Parts D and E (Primaryand Feeder Roads) have been substantially completed. Some feeder roadsoriginally scheduled to be financed under the Credit have been financed byWorld Food Program as part of an agreed program to meet cost escalation. TheGovernment has requested WFP finance for additional feeder roads. This requestis currently under consideration. Work on the completion of Part B and C(Telecommunications and Cyclone Shelters) appears to be proceeding generallysatisfactorily. Most equipment under the sub-project is now installed. Com-missioning and cutover of all VHF base stations and PCO sets at 68 locationshas taken place. Delivery for operation of microwave and UHF systems is sub-ject to corrective measures, and was due to be completed by end December 79.Government and TTB have stated that physical transfer of the assets under thesub-project from Cyclone Reconstruction Board (CRS) to TTB was made as fromJuly 1, 1979, when action to dissolve CRS was undertaken. Formal transferof these assets will take place through the issuance of an Executive Order,which has been furnished to IDA for review. TTB indicated that measures arebeing taken to complete all works and arrangements for full operation by theend of December 1979. A detailed report on the actual operational status ofthe assets transferred, together with details of TTB/GOB action required toensure their full operational use was due to be submitted by December 15, 1979.
Agricultural Projects
Cr. No. 340 Chandpur Irrigation II Project: US$13.0 Million Credit ofOctober 18, 1972; Effective Date: January 17, 1973;Closing Date: December 31, 1979
The project has now been completed three years behind schedule.Delays have been due to major flooding, labor problems, shortages of materials,equipment breakdowns and rebuilding the embankment as a result of rapid rivererosion during the construction phase. Major agricultural development startedin 1978 will continue for four years. A seven month extension of the ClosingDate is under consideration to allow time for the arrival of some remainingorders of maintenance equipment.
1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.
- 48 -ANNEX IIPage 4
Cr. No. 341 Tubewells Project; US$14.0 Million Credit ofNovember 6, 1972; Effective Date: January 17, 1973;Closing Date: December 31, 1982
All 3,000 deep tubewells have now been drilled and will be commis-sioned by early 1980. Approximately $1.2 million from the project and $0.7million from the Extension and Research Project (Credit 729-BD) will be con-solidated to fund the Command Area Development (CAD) of the deep tubewells inthe Northwest of Bangladesh.
Cr. No. 410 Cereal Seeds Project: US$7.5 Million Credit of June 29, 1973;Effective Date: January 30, 1974; Closing Date: December 31,1979
There has been little improvement in project implementation in thepast six months. Key constraints continue to be: Taka shortage, and civilwork construction difficulties. A revised work programme has been finalizedand an extension of the closing date to June 30, 1981 would be considered oncondition that adequate ADP Taka provision is made available by GOB. The mainpositive aspect of the project continues to be the success of the contractgrower scheme. Wheat seed sales remain good, but paddy seed sales are wellbelow appraisal targets. The main problem preventing increased paddy salesare poor marketing arrangements and lack of suitable improved seeds for multi-plication. Improvements in seed distribution and marketing are in hand andmarketing consultants have been engaged for this purpose. The Seed Certifica-tion Agency continues to be weak, however, and an intensive training programmeis currently under preparation. Future prospects have improved as a resultof GOB's recent strong committments to stimulate foodgrain production and sup-port intensive seed production efforts.
Cr. No. 542 Barisal Irrigation Project: US$27 Million Credit of April 29,1975; Effective Date: September 30, 1975; Closing Date:December 31, 1980
Project civil works continue to make good progress and are expectedto be coiipleted within six months of schedule. Poor quality work is beingremedied by contractors at no cost to the project. The 60 primary pump unitsare in various stages of arrival and about 30 are expected to be operationalby the year-end. 2,500 secondary pumps are in store and ready for issue, thetarget for the 79/80 boro season is 1,100 pumps in the field or 44,000 acresplanted.
Cr. No. 605 Karnafuli Irrigation Project: US$22 Million Credit ofJanuary 28, 1976, Effective Date: February 24, 1976;Closing Date: December 31, 1980
The project had been behind schedule due to initial delays inhiring project consultants. The consultants for the irrigation portion of theproject began work in September 1976, but their effectiveness was limited by
- 49 -
ANNEX IIPage 5
delays in procurement of vehicles and equipment and in the assignment of localconsultants to assist in the design work. This has been resolved. After aperiod of good progress, project civil works have again slowed down due toshortages of local Taka and a payment dispute with the contractors.
Cr. No. 631 Rural Development Project: US$16.0 million Credit ofJune 3 1976; Effective Date: August 3, 1976; Closing Date:December 31, 1981.
The project was designed as a pilot application of the rural devel-opment approach pioneered at the Comilla Academy in the mid-sixties. Itaims at introducing accelerated agriculture and rural development in seventhanas in Bogra and Mymensingh Districts. It provides financing inter aliafor rural roads, minor irrigation, buildings, storage, rural credit andstrengthening of rural cooperatives. The project became effective onAugust 3, 1976. Initially, despite some teething problems, the project wasprogressing satisfactorily. But by June 1977, the following weaknessesbecame apparent: (i) lack of cooperation between the various ministries andagencies involved; (ii) lack of effective organizaLtion and ineffective super-vision of the project by the implementing agency, the Integrated Rural Devel-opment Program (IRDP); (iii) basic deficiencies in the cooperative system(complex regulations and procedures); (iv) inadequate training of projectpersonnel; and (v) conflicting government policies in the field of ruralcredit. In November/December 1977, IDA, in association with IRDP, undertooka comprehensive review of the project, and an Aide Memoire, setting out anaction program to overcome these problems, was presented to the Governmentin December 1977.
The Government has made a concerted effort to implement the recom-mendations of the Aide Memoire prepared in December 1977. A full-time ProjectManager has been appointed who is assisted by three assistants responsible forcredit, cooperatives and training, respectively. International recruitmentis being used to obtain for IRDP technical assistance in project management,supervision, and monitoring. At the field, two district managers, for Bograand Mymensingh, have been appointed to work full time on project activities.Budgetary and procedural changes have been introduced to enable participatinggovernment agencies to be fully responsible for the implementation of theproject's subcomponents. This, together with a revitalized coordinatingcommittee of Secretaries of the Ministries concerned has greatly improvedcooperation. Implementation of the physical aspects of the project such asrural works is proceeding satisfactorily but project beneficiaries are, sofar, yet to receive tangible benefits in the form of increased farm inputs orfarm equipment. A proposal has recently been approved to amend the CreditAgreement to finance incremental fertilizer needs for the project instead ofincremental credit for fertilizer.
- 50 -
ANNEX IIPage 6
Cr. No. 724 Shallow Tubewells Project: US$16 Million Credit of July 1,1977; Effective Date: December 9, 1977; Closing Date:December 31, 1981.
There has been satisfactory progress in procurement of engines andpumps, tools and equipment, office equipment and part of the transports.Sales of shallow tubewells will be to both individuals and groups. Theproject will procure in its first phase 2,050 pumpsets which will be distri-buted by January 1980. Procurement for the second order of about 5,000shallow tubewells will be based on farmers' preference system. The construc-tion of workshops is proceeding with only minor delays.
Cr. No. 725 Muhuri Irrigation Project: US$21.0 Million Credit of July 1,1977; Effective Date: January 6, 1978; Closing Date: June 30,1983
Delays occurred initially in obtaining Government approval of theproject budget, establishing the project fund, completing arrangements forhiring the engineering consultants, and signing a contract with the Contractorwho will construct the Feni Regulator. *The contractor, with the BangladeshWater Development Board (BWDB) approval, has signed in August 1978, a contractwith the Implementation Assistance Team to participate and assist in construc-tion work. Contractor's progress has been slowed by disputes within itsmanagement, but there appears to have been some recent improvement.
Cr. No. 729 Extension and Research Project: US$10 Million Credit ofJuly 1, 1977; Effective Date: January 6, 1978; Closing Date:April 30, 1981.
The project is operating reasonably well in the Bogra District,but not so well in the other districts where lack of transportation impededadequate supervision of extension efforts. The situation should improve withthe arrival of additional vehicles. Key problems are coordination betweenresearch and extension, selection of contact farmers and their attendanceduring extension agent visits, and inadequate local currency support. Inaddition extension agents need to be instructed to limit the number of pointsto be covered in each farmer training session. Project staff are workingtoward achieving improvements in these areas.
Cr. No. 765 Jute Project: US$21 Million Credit of February 8, 1978;Effective Date: April 14, 1978; Closing Date: June 30, 1983
Project progress is generally satisfactory. The project organiza-tion appears to be succeeding in generating enthusiasm among farmers and JuteFarmers Associations are becoming effective. The value of credit in cash andkind has increased substantially, and repayments are progressing satisfactorily.The project technological package is reported to be signficantly increasing peracre yields.
- 51 -
ANNEX IIPage 7
Cr. No. 787 Foodgrain Storage II Project: US$25 Million Credit of April 12,1978; Effective Date: September 29, 1978; Closing Date:December 31, 1982
Project actions are proceeding steadily: the first batch of con-struction contracts, out of a total of possibly 10 batches, have been awarded;equipment procurement is well underway and the project construction, implemen-tation and monitoring units have been established. Improvements in the systemfor domestic food procurement were identified for implementation in 1979 amanseason. A pilot project for paddy marketing by farmer cooperatives is doingwell in its early stages. However, delays in full staffing and in landacquisition, and inadequate financial allocations for the project in GOBAnnual Development Plans could slow down progress in the future.
Cr. No. 828 Agricultural Research Project: US$6 million Credit ofJune 16, 1978; Effective Date: November 15, 1978;Closing Date: December 31, 1984
The overall progress of the project is satisfactory and all par-ticipating institutions are cooperating fully. The revised plans forBangladesh Agricultural Research Council (BARC) headquarters building andthe Bangladesh Agricultural Research Institute (BARI) research stationshave been approved by IDA and prequalification of contractors has been com-pleted. The BARC Technical Working Groups are progressing satisfactorily.Progress has been made in selecting the candidates for the PhD trainingscheme. Action is needed to (i) fill positions of BARDC Executive ViceChairman and two other Board members; (ii) complete PhD overseas trainingarrangements and initiate M.Sc. training arrangements in Bangladesh;(iii) recruit consultants; and (iv) prepare National Research Plan.
Cr. No. 864 Drainage and Flood Control Project: US$19.0 million Creditof December 22, 1978; Effective Date: October 19, 1979;Closing Date: June 30, 1984
Effectiveness had been delayed primarily due to delays by theGovernment in approval of the project budget and staffing plan. In ChenchuriBeel (CCB) and Kolabashakhali (KBK) two regulators have been completed andin Brahmaputra Right Bank (BRE) a large program of contracts has been prepared,which are scheduled to start by end 1979.
Cr. No. 890 Oxbow Lakes Fishery Project: US$6 million Credit of April 3,1979; Closing Date: June 30, 1984
This credit is not yet effective due to delays in appointment ofconsultants. Negotiations with one consulting firm broke down. Negotiationswith a second consultant firm are in progress.
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ANNEX IIPage 8
Cr. No. 955 Small Scale Drainage & Flood Control Project, US$25.0Million Credit of October 30, 1979; Closing Date:December 31, 1984
This credit is not yet effective.
Industry and Imports Program Credits
Cr. No. 527 Ashuganj Fertilizer Project: US$62.0 Million Credit ofFebruary 11, 1975, as amended by Amending Agreement of June 18,1979; Original Credit Effective Date: December 19, 1975;Supplementary Credit Effective Date: August 1, 1979;Closing Date: June 30, 1985
The project is being cofinanced by the Asian Development Bank, KfW,EEC, IFAO, the OPEC Special Fund, and the Governments of Iran, Switzerland, UKand US, providing a total of about VS$197 million equivalent in addition tothe IDA credit. Site preparation work including the necessary dredging andfilling was completed on schedule. However, based on the soil analyses under-taken by two specialist consulting firms, further preparation of the sitewas undertaken to protect the plant against earthquake risks. Currently theproject is about 32 months behind schedule due primarily to the additionalsite preparation and initial slow progress in (a) placing orders for time-critical items and (b) planning for construction. Due to the need foradditional site work, the delays and currency fluctuations, supplementalfinancing was required. The required financing has now been obtained. Thesoil compaction and foundation work has been completed and plant construc-tion is now progressing satisfactory. Some additional delays are beingencountered due to delays in the manufacture and delivery of some materials,but these delays are still within the margin for contingencies providedin the schedule shown at the time of IDA supplementary financing.
Cr. No. 632 Bangladesh Shilpa Bank Project: US$25.0 Million Credit ofMay 20, 1976; Effective Date: November 8, 1976; Closing Date:June 30, 1981
As of December 31, 1979, Bangladesh Shilpa Bank (BSB) has committedabout US$24.4 million from the credit, for 122 subprojects. Disbursementswere about US$15.0 million and Qualified Agreements to Reimburse lettersof credit (QAR) had been approved for US$3.6 million.
Cr. No. 752 Sixth Imports Program: US$75 Million Credit of November 30,1977; Effective Date: December 13, 1977; Closing Date:March 31, 1980
As of December 31, 1979 disbursements were US$66.8 million and QARhad been approved for US$5.6 million.
- 53-
ANNEX IIPage 9
Cr. No. 825 Small Scale Industry II Project: US$7 million of June 16,1978; Effective Date: September 15, 1978; Closing Date:March 31, 1983
There has been good progress in training commercial bank staff, dis-tributing circulars to commercial bank branches describing project procedures,and advertising the availability of funds for small industry loans. TheProject appraisal and processing capabilities of the implementing Banks havedeveloped rapidly, and the Project is expected to be completed ahead ofschedule. Staff of the Small and Cottage Industries Corporation have begunpreparation of subsector and area studies for small industry promotion.
Cr. No. 866 Seventh Imports Program: US$75.0 million Credit ofDecember 22, 1978; Effective Date: January 8, 1979;Closing Date: December 31, 1980
As of December 31, 1979 disbursements were about $55.9 million andQAR had been approved for $16.6 million.
Cr. No. 944 Fertilizer Imports Project: US$25 million Credit of June 29,1979; Effective Date: August 29, 1979; Closing Date: June 30,1980
As agreed, fertilizer prices have been increased by an averageof about 28%. A staffing plan and administrative authorizations have beencompleted for the provision of staff for the secretariate of the fertilizercoordinating committee.
Education Projects
Cr. No. 407 Education Project: US$21.0 Million Credit of June 29, 1973;Effective Date: September 27, 1973; Closing Date:December 31, 1980
The project finances completion of the construction of the Bangla-desh Agricultural University (BAU), building of five new and equipping ofeight existing technical institutes (polytechnics). The BAU component isnow 80% complete and is expected to be completed by December 1980. However,construction has stopped since March 1979 due to lack of funds. The ExternalAffairs Division of the Ministry of Planning informed the mission that adecision on the allocation of the required funds is expected soon. If fundsare made available by mid-December 1979, the project could be completed by thecurrent closing date, December 31, 1980. The fellowship program is nearlycomplete. Civil works associated with the technical education component,although 30 months behind schedule are virtually complete and the polytechnicsare now operating. About 75% of all equipment (in dollar terms) are close toappraisal estimates due to currency devaluation. Most local cost overruns arecaused by taxes imposed on imported goods. Disbursement as of December 31,1979 is $18.9 million (90% of the Credit).
- 54 -
ANNEX IIPage 10
Cr. No. 621 Agricultural and Rural Training Project: US$12.0 MillionCredit of March 25, 1976; Effective Date: June 30, 1976;Closing Date: June 30, 1981
Implementation of civil works is about three months ahead of sched-ule but has slowed recently due to shortage of local funds. Completion isprogressing satisfactorily. Training of teachers for the AgriculturalTraining Institutes (ATI's) has been set back by a recent transfer ofinstructors to the extension staff to benefit from a recent upgrading ofpositions, which was not extended to the ATI staff. Little progress hasbeen made on the recruitment of technical assistance experts, the developmentof revised curriculum, or the in-service training of extension staff.
Cr. No. 912 Vocational Training Project: US$25.0 million Credit ofMay 31, 1979; Effective Date: November 2, 1979;Closing Date: June 30, 1985
This project has only recently been declared effective. The ProjectImplementation Unit (PIU) is presently understaffed and have only the projectarchitect and an acting project coordinator. The Project Manager (consultant)has already been selected. The furniture and equipment for the PIU officewould be purchased in the near future. The PIU was scheduled to be fullystaffed by December 1979.
Population Project
Cr. No. 533 Population Project: US$15 Million Credit of March 10,1975, Effective Date: September 25, 1975; Closing Date:December 31, 1980
The project is being cofinanced by six co-lenders providing a totalof US$25 million equivalent in addition to IDA credit. Program performance,which declined during the three months preceding the parliamentary electionsin February 1979, has improved again. The internal reorganization of thePopulation Control and Family Planning Division (PCFPD), as recommended bythe management study, is underway. This reorganization will not be effectivein improving program implementation unless the PCFPD is able to: (a) fillits large number of vacant technical, managerial and supervisory positions;and (b) simplify the administrative, financial and recruitment procedures.Actions have been assured by the Government on both counts. A program hasbeen started for the retraining of field workers which should improve theirperformance. While the pace and quality of construction of 80 Family WelfareCenters, built through community participation, has been encouraging, theprogress on other buildings in the project has been slower than expected bythe last mission. Due to the slow pace of construction, disbursement of thecredit has also shown less than expected improvements.
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ANNEX IIPage 11
Cr. No. 921 Second Population and Family health Project: US$32.0million; Credit of May 31, 1979; Closing Date:December 31, 1983
This Credit is not yet effective.
Transport Projects
Cr. No. 408 Highways Project: US$25.0 Million Credit of June 29, 1973;Effective Date: August 7, 1973; Closing Date: June 30, 1980
Feni bypass was opened to public traffic on July 1, 1979. Someshoulder damage occurred during the 1979 monsoon, particularly in areaswhere shoulder compaction was incomplete. Work has commenced on shoulderreinstatement and and was due to be completed by end-December 1979. Iso-lated pavement failures have occurred, and the reasons for these failuresare currently being investigated. Progress on the RHD headquarters buildingis satisfactory and now consists primarily of finishing works. The draftfinal report on the Surma River Crossing Study has been reviewed by RED andIDA, and the consultant is at present making the required amendments to theReport. Arbitration is proceeding on the contractor's claims on the Sitalakhyabridge contract. Due to delays in completion of this arbitration, IDA recentlyagreed to extend the closing date from December 31, 1979 to June 30, 1980.Aside from minor finishing works on the RHD buiulding, all project work isreported to be completed.
Cr. No. 424 Inland Water Transport Rehabilitation Project: US$8.7 MillionCredit of August 10, 1973, as amended by Amending Agreementof October 17, 1975; Original Credit Effective Date:September 27, 1973; Supplementary Credit Effective Date:March 19, 1976; Closing Date: December 31, 1979
Procurement of spare parts and equipment under the original credithas been completed. Under the Supplementary Credit, two used lighteragetankers and the new pontoon berth are being utilized for unloading of crudeoil at Chittagong for the Eastern Refinery.
The oil transfer operations have continued to show a marked improve-ment over previous operations, due to the sustained drive and initiative ofthe new BSC Technical Director, the tankers' crews efforts, the improved co-operation between the respective agencies and the effective utilization ofthe two mechanical engineers provided under technical assistance.
The total amount disbursed to date is US$7.7 million (88% of theCredit). Processing of bills and submission of withdrawal applications forthe remaining balance of the credit are currently underway.
- 56 -
ANNEX IIPage 12
Cr. No 735 Inland Water Transport II Project: US$5.0 Million Credit ofSeptember 30, 1977; Effective Date: March 13, 1978;Closing Date June 30, 1980
The Credit became effective on March 13, 1978 three and a halfmonths behind the original schedule. Lists of spare parts for BIWTA vessels,navigation aids and for hydrographic equipment, and for BIWTC cargo vesselshave already been prepared and most items agreed. The selection of con-sultants required for the execution of the project has proceeded very slowly.However, all consultants contracts have now been signed and work is underway.
Cr. No 964 Second Highay Project: US$10.0 Million Credit of December 21,1979; Closing Date June 30, 1984.
This Credit is not yet effective.
Telecommunications Projects
Cr. No. 343 First Telecommunications Project: US$7.3 Million Credit ofNovember 15, 1972; Effective Date: January 17, 1973; ClosingDate: June 30, 1980
Of the four microwave systems provided for under the project threeare completed and in operation. The fourth system required rebidding due toprice changes during the period when the project was interrupted by Bangladesh'sindependence war. Thereafter there were delays due to building constructionand tower erection difficulties; it was due to be commissioned by December1979, completing the project about four and a half years behind schedule. Theclosing date was extended until June 30, 1980 to allow for retention payments.
Cr. No. 487 Second Telecommunications Project: US$20.0 Million Credit ofJune 26, 1974; Effective Date: July 23, 1974; Closing Date:June 30, 1980
The project is behind schedule largely due to delays in procurement,civil works, and reduced output of the domestic switching equipment factory,combined with difficulties in ordering such equipment and in completing localconstruction/installation works due to budgetary difficulties. About two-thirds of the Credit was committed up to October 1979. The remaining corres-ponds to national trunk and international automatic switching equipment stillto be procured. TTB and Government have now decided on the technique to beadopted for such equipment (not manufactured locally) and corresponding commit-ment could be taken in 1980 for delivery only by mid-1982. The rate of physicalinstallations during FY1979 was about 13,000 lines, showing no improvement fromthe previous year. A new ordinance for the Telegraph and Telephone Board (TTB)was issued in February 1979 and the board was re-instated to function as a"Government Board" effective from April 1979. The regulations governing thefunctioning of the Board, its powers and responsibilities and relations withthe Government, have recently been drafted, and are being reviewed. Government
- 57 -
ANNEX IIPage 13
has stated that the decisions in this matter are being worked out actively andshould be taken and made effective in early 1980. In the absence of satis-factory accounts, it is difficult to assess the financial positions of thebeneficiary, but estimates indicate it may have to be improved, in particularin consideration of TTB's present and future development requirements.
Technical Assistance Credit
Cr. No. 622 Second Technical Assistance Project: US$7.5 Million Creditof April 8, 1976; Effective Date April 14, 1976; ClosingDate: June 30, 1980
Twenty subprojects have been approved for financing under thiscredit thus committing the total amount of the credit. However, due to theextremely slow rate of commitments during the early years of the credit, anextension of the Closing Date will have to be considered to complete theagreed subprojects. The subprojects financed are expected to have a signi-ficant beneficial impact on strengthening IDA's lending program to Bangladesh.
Cr. No. 872 Third Technical Assistance Project: US$10.0 million Creditof December 22, 1978; Effective Date: January 19, 1979;Closing Date: June 30, 1982
Implementation of this project has just begun, with 12 subprojectstotaling about $5.7 million having been approved. Seven further subprojectstotaling about $3 million have been approved in principle, and would beexpected to be committed before the end of this fiscal year. The project isprogressing well with no major problems.
Power Projects
Cr. No. 934 Greater Khulna Power Distribution Project: US$28.0 MillionCredit of June 18, 1979; Effective Date: November 20, 1979;Closing Date: June 30, 1984
This Credit has only recently been declared effective. Consultantshave been appointed as scheduled to begin design work.
Water Supply and Sewerage Projects
Cr. No. 941 Second Dacca Water Supply and Sewerage Project: US$22.0 MillionCredit of June 29, 1979; Effective Date: November 30, 1979;Closing Date: June 30, 1983
This Credit has only recently been declared effective. Consultantshave been engaged to begin design work as scheduled.
- 58 -ANNEX IIIPage 1
BANGLADESH
EIGHTH IMPORTS PROGRAM CREDIT
Supplementary Data Sheet
Section I: Timetable of Key Events
(a) Time taken to prepare project:
This Credit is the eighth in a series of ProgramCredit Operations in Bangladesh and, consequently,preparation for each Credit is a continuing process.
(b) Agency which prepared program:
Government of Bangladesh (GOB) and IDA.
(c) Program first presented to IDA:
During negotiations for Seventh Imports ProgramCredit in November 1978.
(d) First IDA mission to review program:
Identification mission during February 1979.
(e) Departure of appraisal mission:
August 1979.
(f) Completion of negotiations:
January 16, 1980.
(g) Planned date of effectiveness:
90 days after signature.
Section II: Special IDA Implementation Actions
None
- 59 -
ANNEX IIIPage 2
Section III: Special Conditions
GOB will:
(a) implement by September 30, 1980 of such actionsas are necessary to give BTMC an after tax rateof return of 10 percent upon shareholders equity(paragraph 78 of text);
(b) make revisions to the present export performanccelicense system to emphasize value added insteadof total amount or quantity of exports (paragraph110 of text);
(c) implement new procedures for duty drawback designedto repay promptly to exporters excise and importduties (paragraph 110 of text);
(d) publish its export strategy integrating exporttargets, policies and plans for FY81-FY86(paragraph 111 of text);
(e) as a condition of effectiveness issue at least 50%of the import licenses to be financed under thecredit (paragraph 112 of text).
(f) deposit taka funds equivalent to the amounts with-drawn from the proceeds of the proposed credit inan account currently being maintained with theBangladesh Bank, and utilize these counterpartfunds entirely to finance its development programs.GOB will inform the Association annually of thelocal currency provisions made in its Annual Devel-opment Budget for projects financed by IDA; andGOB will furnish quarterly reports to IDA on theamounts actually released to these projects (para-graph 115 of text).
- 60 -ANNEX IV
BANGLADESH
EIGHTH IMPORTS PROGRAM CREDIT
PRODUCTION TRENDS OF SELECTED INDUSTRIES a/
PRODUCTION
FY70 FY73 FY74 FY75 FY76 FY77 FY78 FY79Industries/Products Units
Jute Textiles thousand long tons 560.5 446.3 500.2 444.3 477.9 490.1 546.2 501.1
Hessian " 227.7 155.1 172.3 146.1 161.0 166.5 176.6 175.3
Sacking " 279.3 210.4 227.2 227.9 221.0 227.0 265.5. 231.6
Carpet Backing 33.0 54.0 66.0 40.0 71.3 70.4 76.3 75.9
Others " 20.6 26.8 34.7 30.3 24.3 26.2 27.8 18.3
Cotton TextilesCloth million[ yds 59.1 58.4 79.4 84.6 74.5 68.1 84.5 85.0
Yarn million lbs 105.7 80.9 91.3 91.3 88.1 82.4 89.7 96.6
Paper and BoardNewsprint thousand tons 36.0 27.5 26.5 28.8 20.0 14.6 27.6 33.6
Paper 31.0 23.1 23.0 29.5 19.8 26.5 31.6 31.4
Rayon Yarn 2.7 1.9 2.1 1.6 1.2 1.4 1.3
Hardboard million sq. ft. 15.0 6.0 16.0 15.0 14.0 17.1 30.0 19.0
Particle Board thousand tons 5.5 1.5 2.0 2.1 1.4 2.0 2.7 2.0
Cement 53.0 31.0 52.0 127.0 157.0 308.0 340.5 322.5
Steel Ingots " 54.0 67.0 72.0 75.0 89.0 106.0 115.0 124.4
Petroleum Products " 853.0 776.0 323.0 761.0 812.0 1,048.0 1,017.0 1,035.0
Engineering ProductsDiesel Engine thousand nos. 1.3 1.4 1.7 5.2 0.9 1.4 0.02 0.1
Pumps " - 0.9 2.1 7.5 - 2.8 2.1 1.3
Commercial and Heavy Vehicles " 0.46 1.23 2.27 1.30 0.89 0.98 1.4 1.5
C. I. B M. S. Pipes " 5.1 2.8 3.7 2.7 4.8 3.4 5.7 6.7
Radio 6.0 5.0 11.0 8.7 4.0 3.9 9.7 38.7
FertilizersUrea thousand tons 94.0 207.0 275.0 68.0 276.0 281.0 212.5 295.6
TSP - - - 32.0 48.0 47.0 41.3 62.3
Aemmonium Sulphate 4.7 5.0 10.1 4.9 5.7 9.1 9.3 5.3
Footwear thousand doz. 586.0 448.0 391.0 280.0 285.0 255.0 146.0
PharmaceuticalsTablets million nos. - 121.0 209.0 253.0 225.0 232.0 -
Liquid million bottles - 2.8 4.5 5.1 7.9 7.3 - -
Soap thousand tons 8.7 8.0 10.4 5.9 8.3 7.5 11.1 16.8
Glass Sheets million ft 7.2 7.2 5.7 5.7 5.6 5.8 7.6 8.6
Matches million gross boxes 13.0 5.9 6.2 6.Z 6.9 7.6 8.0 9.1
Sugar thousand tons 93.0 19.0 85.0 98.0 86.0 140.0 175.3 130.7
Molasses " 51.0 10.0 45.0 43.0 39.0 59.0 85.0 60.8
Tea million lbs. 67.0 53.0 61.0 71.0 65.0 74.0 77.4 75.3
Food and Allied ProductsEdible Oils and Vegetable Chee thousand tons 19.1 14.1 18.4 15.4 19.1 24.9 27.4 22.5
Fish Processing million lbs. 3.8 2.3 3.0 2.7 5.1 7.3 6.4 7.6
Soft Beverage thousand cases 264.0 330.0 258.0 271.0 235.0 223.0 -
Cigarettes billion sticks 17.79 11.20 11.90 10.44 11.91 11.63 11.48 13.4
Biscuits and Bread thousand tons 3.9 6.4 4.4 4.6 4.0 4.2 5.3 6.4
Lime stone thousand tons 134.5 44.6 81.8 26.0 61.3 61.3 61.0 59.6
Sulphuric acid 6.5 5.7 6.4 5.4 4.0 3.9 4.5 13.0
Caustic soda e 3.4 3.9 3.8 4.3 4.1 5.0 5.6 4.9
Hydrochloric acid " - 1.2 1.9 1.6 1.7 1.5 1.7 2.0
Chlorine " 2.9 2.7 2.3 3.1 3.5 2.9 3.7 4.0
Nlatural gas million cubic feet - _ 27,124.0 17,976.0 27,357.0 32,360.0 34,294.0 39,265.C
-lectrictty -i':ion kwh. 1.055.61467.4 1.22. 459.7 .114.2 1,'12.3
ai Public sector oniy except tea, cigarettes anid matches.Source: Bureau of Statistics, Sector Corporation.
- 61 - ANNEX V
Page 1
BANGLADESH
EIGHTH IMPORTS PROGRAM CREDIT
Performance and Prospects of Proposed IDAAssisted Industries
1. The eight industrial categories eligibLe for financing under theIDA Import Program Credits constitute the major portion of the country's
manufacturing sector 1/, most of which is under the control of the SectorCorporations created after the war of independence. Annexes VII, VIII and IXdiscuss the performance of the jute, textile and export-oriented industries.This annex touches upon the major issues facing the remaining industries andconsiders the trend of their performance in terms of capacity utilization,productivity, financial performance, etc.
Performance in FY79
2. Overall output increased by about 15% which was somewhat higherthan achieved by the industrial sector as a whole. Substantial rises in pro-duction were achieved by industries such as fertilizers (+ 75%), pulp andpaper (+ 65%) and steel billets and bars (+ 57%). Other industries showedincreases, although not as significant, reflecting in large part the effecton demand of a slowly growing economy. As a result of the increases in pro-duction, linked to a pricing structure establishing selling prices on a costplus basis, profitability in most industries improved with industries return-ing to profit after absorbing the substantial wage rate increases granted byGOB in June 1978. Apart from pulp and paper and fertilizer, most industriesshowed a positive rate of before tax profit (although in a number of casesthese were converted to losses by taxation charges).
Issues Affecting Performance
3. Capacity utilization, production, profitability and return oninvestment are often taken as inter-related indicators of management perforr-ance or efficiency. However, achievement of satisfactory levels of perform-ance (however defined) is often dependent on factors beyond the control of
1/ The structure of the manufacturing sector,, and more particularly thestructure of the public manufacturing sector, is described in detailin Report 2191-BD, Bangladesh - Issues and Prospects of IndustrialDevelopment; dated December 5, 1978.
- 62 - ANNEX V
Page 2
management in the public manufacturing sector and the Sector Corporations 1/.These firms are faced with a number of conflicting objectives and constrain-ing operating requirements, some relating to their inherited operations, somerelating to external non-governmental (although economy wide) factors and somearising from the relationship between the Corporations and the Government. Inthe inherited companies, antiquated equipment gives limited scope for improvingproduction efficiency, reducing the high costs of production and utilizinginstalled capacity created for a market greater than current demand within thecountry. The external factors, include: Bangladesh's limited foreign exchangeand lack of natural resources which often result in a shortage of raw materials;power shortages (a continuing and worsening factor), which have a considerableimpact upon production/profitability, leaving unit managers with the choice ofloss of production or depletion of scarce internal funds to provide alternativesources of power; and labour unrest (often politically-motivated) and absentee-ism (despite a vast pool of unemployed) further reduce management's ability tooptimize production.
4. These economy-wide constraints affect all units within the manufac-turing sector, although to varying degrees. However, the Sector Corporationsare faced with a number of special problems related to autonomy, flexibilityof management action and conflicting operating requirements. The publicenterprises are expected to operate as profitable commercial organizationsand to generate a contribution (through profits, depreciation, taxes, etc.)towards the replacement of assets and new investments. Achievement of thisobjective is constrained by GOB-established pricing structures, wage rates,staffing levels and control over procurement. Further, management is unableto rationalize production, seal production facilities or close inefficientproduction units. To a greater or lesser extent, these problems are facedby all public manufacturing units. However, where GOB/IDA have agreed uponaction programs for specific industries, the degree of autonomy given toCorporation managers has been greatly increased. But the performance of theSector Corporations during FY79 indicates that more work must be done. TheIndustrial Sector Report of December 1978, initiated action to resolve anumber of these issues and discussions are continuing with GOB.
Prospects for FY80
5. Although production has increased in most industries, the spectresof continued power shortages, labor unrest and shortage of foreign exchangeto procure essential raw materials and spare parts have created some pessimismthat there will be any significant improvements in performance during thenext fiscal year. Higher production/profitability targets have been set by
1/ Sector Corporations administer GOB's shareholdings with the varioussubsectors, but do not have the legal/accounting status of registeredholding corporations. Their major role is to ensure uniform applica-tion of GOB policies.
ANNEX V- 63 - Page 3
GOB for all industries, but already changes have been made in the level ofproposed imports with reductions from Tk 2.1 billion to Tk 1.9 billion andfurther reductions to Tk 1.8 billion and finally to Tk 1.6 billion. At thislatter level, there have been significant cutbacks on orders to give indus-tries continuity of supply, particularly for the textile, cement, fertilizerand engineering industries.
The Performance of the Public Manufacturing Sector
6. Cement. In the absence of any locally-available raw materials(e.g., limestone) and a shortage of storage facilities, particularly forclinker at Chittagong, the industry has recorded fluctuating levels of capa-city utilization 1/ with production ranging from 159,200 tons in FY76 to338,600 tons in FY78 and 319,700 tons in FY79, i.e. about 71% of availablecapacity. Apart from the lack of raw material, other problems of productionduring FY79 included lack of transportation required to move finished produc-tion, power shortages and breakdowns due to the age of equipment (particularlyChattak) and non availability of spare parts. However, steps have been takento overcome these problems and production for FY80 is forecast at 395,000 tons(i.e., 88% capacity utilization). This increase is not sufficient to meetdemand as consumption has risen steadily since FY76 and in FY80 is projectedto reach 965,000 tons (thus exceeding the 1967 level of 900,000 tons). GOBanticipates consumption to increase further, rising to 1.5 million tons byFY85.
7. Tax incentives for housing/building development have fuelled thealready high domestic demand for cement and the Bangladesh Mineral Explorationand Development Corporation (BMEDC) has had no difficulty in selling its totalproduction. Prices of cement are fixed by GOB at $84 per ton 2/ with theprice of imported cement handled by the Trading Corporation of Bangladesh setat $109 per ton. Under GOB's policy of controlled prices for essential com-modities, the selling price of local cement has been set to give the BMEDCa return of about 5% on sales. With increasing production, profits haveincreased from a loss of Tk 3.6 million (FY76) to a profit of Tk 29.0 million(FY79).
8. Chemicals and Pharmaceuticals. In the Chemical Sector (controlledby the Bangladesh Chemical Industry Corporation - BCIC), capacity utilizationhas shown a gradual but continuing improvement with capacity utilization in-creasing by about 20% since FY76 with many units now operating at 50% or aboveon a one/two shift basis. Many of the current operating difficulties have
1/ The cement industry consists of two plants, Chattak (with a capacityof 150,000 tons) built in 1942 and Chittagong (with a capacity of 300,000tons) built in 1974.
2/ The cost of production (excluding taxes) is below the CIF cost of im-ported cement with subsequent savings of foreign exchange. Local cementhas an effective DRC of Tk 8.9 which is very satisfactory.
ANNEX V
- 64 - Page 4
been caused by the age of equipment and by the lack of pre and post nation-alization maintenance. However, capacity utilization has improved in anumber of units due partly to improved availability of spare parts, partlyto improved cost control and partly to protection from imported products.Despite improvements in capacity utilization, the financial performance ofthe BCIC units has deteriorated with profits declining from Tk 16.4 millionin FY75, Tk 8.4 million in FY76, Tk 7.9 million in FY77 to a loss of Tk 48.7million in FY78 and a similar loss projected for FY79. Overall, the sectorhas accumulated operating losses of Tk 95.1 million.
9. Fertilizer. This sector has a history of poor capacity utilizationand production since independence has been erratic. Against an installedcapacity of 605,000 MT, production has varied from 101,000 in FY75 to330,000 tons (or 55% of installed capacity) in FY79. The poor capacity util-ization is due partly to faulty plant design (Ghorasal), old and obsoleteequipment (Fenchuganj) and delays in the supply of rock phosphate and sulfur(for triple super phosphate production at Chittagong). Other problems affect-ing production have been (i) significant power shortages; (ii) costly andinfrequent supply of spare parts, particularly from Japan; and (iii) consid-erable delays in raw material/international material procurement.
10. Production in BCIC's three fertilizer plants now appears to beimproving steadily, although there is still considerable scope for improvingcapacity utilization. The Fenchunganj plant was overhauled in February 1979and urea production from March 1 to June 30, 1979 was about 30,000 tons(i.e., at about 85% of the rated capacity). During FY79, production at theGhorasal plant improved from 151,000 tpy (FY78) to 236,000 tpy (or 70% ofrated capacity). This level is the highest annual production achieved atGhorasal, although higher production could have been achieved (about 14,000tons) if gas supplies had not been cut for 16 days to increase power pro-duction during the drought period. Ghorasal is presently operating at about85% of rated capacity (i.e. at about 940 tpd). The plant is well maintainedand there has been a significant reduction in stoppages caused by maintenanceand mechanical problems. Plant management has implemented a training schemefor operators and technicians, which has offset some of the losses of per-sonnel to the Middle East. The TSP units at Chittagong improved their pro-duction from 38,200 tons in FY78 to 63,200 tons in FY79. Although only 42%of rated capacity, this is a substantial improvement on previous performance.During FY79, both plants were idle for 2-3 months due to lack of raw materials.If timely and adequate raw material supplies had been arranged, production inFY79 could have reached about 85,000 tons. Given adequate supplies of rawmaterial, plant management is confident of achieving at least 100,000 tpyof TSP production during FY80.
11. Currently, the findings of two studies aimed at removing infra-structural and plant bottlenecks, are under consideration. On the basis ofone study (carried out by Bressler Associates) a project proposal for BMR ofthe Ghorasal plant has been prepared and submitted to GOB for IDA financing.Additionally, Toyo Engineering Company (TEC), the constructors of Ghorasal,
ANNEX V- 65 - Page 5
have submitted a report on the performance of the plant and propose a detailedmechanical inspection of the plant during its next overhaul in February 1980.The TSP units at Chittagong are scheduled for overhaul during October/November1979. This will be carried out by BCIC assisted by the original equipmentsuppliers. During the overhaul, the rehabilitation requirement of the plantswill be assessed and final recbmmendations for rehabilitation are expected byDecember 1979. Additional to these studies, UNDP has agreed to a US$1.8 millionproject to provide specialized advisors to assist BCIC to manage the urea andthe TSP units and to improve capacity utilization through a preventive main-tenance program and the removal of production bottlenecks.
12. Profitability of the sector has fluctuated over the past three years,due to the impact of production changes and controlled prices. The fertilizerunits incurred an operating loss of Tk 82.6 million in FY76, a profit ofTk 82.0 million in FY77, a loss of Tk 15.4 million in FY78 and an estimatedloss of Tk 30.0 million in FY79. As of June 30, 1978, the sector had accumu-lated loss of Tk 273.0 million. Operating costs are affected by the heavyinterest charges resulting from the erosion of the sector's equity base andthe use of long-term funds to finance unit development.
13. Pulp and Paper. Capacity utilization within the four units operatedby BCIC (i.e. Kharnaphuli Paper Mill - KPM, Khulna Newsprint Mill - KNM, NorthBengal Paper Mill - NBPM and Sylhet Pulp Mill - SPM,) improved during FY79,rising from 32% in FY77, 43% in FY78 to 66% in FY79. Against an installedcapacity of 126,000 tpa, production was 83,800 tons (FY78, 55,000 tons).While this is a significant improvement, capacity utilization is still low,particularly at NBPM and SPM, due to technical deficiencies, such as boilerdeterioration, poor woodroom equipment, inoperative bleaching plants, faultypulp screening, etc. However, during FY79, there were improvements in someof the areas identified previously where action was needed to improve produc-tion efficiency. For example, from August 1976 to December 1978, Tk 5.0 mil-lion was spent on improving KPM plant facilities and a recent Swedish grantof about Tk 150.0 million is enabling BCIC to implement a five-year moderniza-tion program to help improve paper quality, reduce production costs, anddiversify product ranges. At KNM, production increased from 23,000 tons inFY78 to about 37,200 tons in FY79 due to improved spare parts supplies andthe installation of new equipment. Implementation of a CIDA financed BMRprogram currently proposed should enable the mill to produce about 40,000tons per annum. Production at NBPM is still affected critically by powerfailures and the lack of raw materials. A Swedish (SIDA) financed projectstudy has been submitted to IDA for financing. IDA has reviewed the study andindicated that it would be prepared to consider financing of the proposals.
14. As domestic demnand represents only 35%-50% of installed capacityfor newsprint and general paper, exports are the main avenue to increasedcapacity utilization. Export prospects for the immediate future are stilluncertain although with the exception of India and the Philippines, Bangladeshis the only significant producer of newsprint in South and South East Asia.If it can improve the quality of its products, it should be able to capture
ANNEX V
- 66 - Page 6
a larger share of regional demand, particularly for low-medium quality news-print. Since FY73, export sales have averaged 10,500 MT per annum, althoughsince FY77 the rate of export sales have increased due to GOB's export pricingpolicy, which allows sales at $430 per MT as against a cost of production ofTk 7,400 per MT (i.e. $475 per MT).
15. Although the industry has increased its productivity and containedthe rate of cost increases, GOB imposed selling prices for newsprint and print-ing paper has had a significant impact upon the profitability of the industry.In many instances, these controlled prices are below actual cost (or attain-able costs based upon industry efficiency norms) and the industry has incurredcontinuing operating losses. As at June 30, 1979, the industry had recordedaccumulated operating losses of about Tk 420.0 million and further operatinglosses are projected for FY80. Present price levels are inadequate to covervariable costs and the industry is unable to service its debts. The currentBMR program should help alleviate this situation, but these need to be sup-ported by a program of restructuring and replenishing the industry's erodedequity and working capital.
16. Steel. The iron and steel products group of the Bangladesh Steeland Engineering Corporation (BSEC) is the Corporation's major operating groupand contains all the major steel production and large rerolling units in thecountry. The main units of the group are the Chittagong Steel Mill - CSM(capacity 250,000 tons 1/), 12 rolling mills, several foundries and twoaluminium product producing units. During FY79, capacity utilization of steelmilling facilities increased from 44% (FY78) to 49% (FY79), while use ofbillets production/facilities increased from 78% to 100%. Production ofingots increased from 111,000 tons (FY78) to 121,000 tons (FY79). Productionof steel billets and bars increased from 138,000 tons (FY78) to 217,000 tons(FY79). This increase in production resulted from improved production con-trol, production routing and availability of raw material, particularly scrapsteel.
17. Prior to FY77, the Steel group unit recorded increasing operatingprofits, with profits rising from Tk 48.0 million in FY74 to Tk 76 millionin FY77. Adjustment of FY77 profits to reflect GOB's retrospective wage rateincreases approved in June 1978, turned FY77 profit to a loss of Tk 1.8 mil-
lion. The loss of FY78 was Tk 31.3 milion. Price increases in July 1978resulted in operating profits of Tk 20.0 million for FY79, and profits ofTk 25.0 million are projected for FY80. Although the steel units are operating
profitably (which is not surprising as selling prices are set on a cost plusmargin basis), the economic performance of the sector is poor. For FY78, theDomestic Resource Cost (DRC) of steel production was 74.6, with an economicDRC of 53.6 and an incremental DRC of 36.2, all indicative of an inefficientindustry. For FY79, lower raw material costs (through bulk purchases of
1/ Operated at full capacity, the mill should theoretically produce175,000 tons of steel billets, bars, angles, sheets and plates.
-67 - ANNEX V
Page 7
scrap/pig iron) and effective cost control have resulted in an improvementof the DRCs with the financial DRC falling to 33.4. An efficiency studyfinanced by UNDP is being carried out to identify ways of improving produc-tion efficiency/quality control. IDA is participating in this study througha monitoring committee. Given some improvements in production efficiencyand an increase in output, the economic vaiability of producing steel locallyshould further improve.
ANNEX VI-68 -p,,g,. 1
BANCLiADESH TMPORTS PIh)ORAM CREDITAct{ 1'r. lin
Jutc Induestry
Required Action (Fourth and FifLh Credlt) Agreed Completion Date Status
i) Marketing Consultants to be hired April 30, 1977 Phase I.of assignmant completed nnd recommendationsto study requirements of marketing implemented. Phase II report containing recommenda-directorate, organize training tions on training, market research and marketprograms, market studies and information systems under consideration by MOJ/BJMC.promotion programs overseas. Consultants from PA (financed by ODA) cerpenced
24-man month assignnment in January 1979 to implementrecommendations.
ii) Consultants to advise on spare parts June 30, 1977 Consultants (3) financed by CIDA commenced assignmentproduction of Galfra Habib to be December 1976. Spare parts manufacturing programrecruited. implemented with capacity utilisation as of
September 1979 estimated at 70%.
iii) BJgC to prepare reconstructed June 30, 1977 BJMC has completed asset revaluation and incorporatedbalance sheet for each mill and results into capital restructurfng proposals submittedrecommendation of adjustments to COB in November 1978. GOB assurances given torequired to achieve appropriate restructure capital to give BJ1MC debt/equity ratio ofdebt/equity ratio. 60:40.
iv) GOB to establish an adequately March 31, 1977 As of September 1979, four of seven proposed inspectionstaffed export inspection service offices operational. Balance to be operational byin the Jute Ministry. December 31, 1979.
Required Action (Sixth Credit)
A. Rehabilitation/Profitability Improvement
i) BJMC to carry out a survey of each February 28, 1978 Survey completed by ECI/PA in December 1978. Proposalsmill to identify the need for not accepted by GOB. In June 1979 GOB submittedrehabilitation and to determine proposals for rehabilitation prepared by a Jute Sector(a) the necessary investment required; Study Group. Project now under appraisal.(b) anticipated operational improvements;(c) incremental benefits resulting
from the iraprovements; and(d) financial and economic rates of
return.
ii) On the basis of the mill-by-mill survey, March 31,. 1978 Proposals submitted by GOB (A(i) above) in June 1979and taking into account projected levels and accepted as basis for proposed jute rehabilitationof demand, COB will submit to IDA with project.comments, BJMC's recommendations onmills selected for investment andactions to be taken with respect touneconomic units.
iii) BJMC shall continue to (a) carry out i) Completion of Report - Maintenance programs still under implementation withits program aimed at appraising the March 31, 1978. maintenance task forces staffed at full strength.preventive maintenanice systems of itsmills, make recommendations for their ii) ALppointment (ifimprovement and implementing such necessary) of Consul-recommendations; (b) furnish to GOB and tants, July 1, 1978.IDA its report on the program and, ifnecessary, employ consultants toimprove the implementation of itsprogram.
iv) GOB/BJMC to carry out a study of raw December 31, 1978 COB corments on ECL report submitted June 1979.Jute supply, including the review of Agreement reached on most major issues. Actions to bethe present pricing policies of raw taken to establish mechanism/procedures for develop-jute and the optimal mix between ment of optimal pricing structure/export strategy wereraw jute and jute goods exports. discussed with GOB by Jute Rehabilitation mission,
and subsequently during course pf negotiations forEighth Imports Program Credit.
B. Operational TargetsBJMC to prepare operational targets October 1, 1978 BJMC has submitted consolidated projections forfor each mill and consolidated FY80-FY81 incorporating rehabilitation improvements."Corporation" target for items such Individual mill targets to be submitted by October 15,as production, spinning and weaving 1979.efficiency, conversion costs perton, raw jute purchasing efficiency,wastage and profits.
1/ Under the action program of the IV Program Credit, BJ1C was required t,, (i) carry out a world market study on juite products; (i)complete an inventory of production capacity and to create a Production Planining Directorate; (iii) employ consultants to developand implement a program of planned maintenance; and (iv) prepare financed projections for FY76 and for the period FY76-FYS8. Allthese actions have been satisfactorily comrpleted. Under the Action Fro; rwn of the V Program Credit, BJaC u;aG required to update(i) the study on world demand for jute products; (ii) its production prcgram and inlitiete a revision of its cost accountingsystem. These requirements have been completed.
ANNEX VI
-69- Page 2
Recquired Action (Sixth Credit) Agreed Completion Date Status
C. Management and Systems Improvements
i) GOB to assist in reduction of raw Understanding with GOB Individual mills allowed autonomy to purchase rawjute purchasing costs through better BJMC already reached jute within general guidelines set by MOJ/BJMC. Credittiming of credit availability availability negotiated with Commercial Banks hascoupled with more autonomy for BJMC allowed better timing of raw jute purchase.and the mills in raw jute purchasing.
ii) GOB to give BJMC and the mills more Rules of Business Reviewed and accepted September 1979.autonomy in areas such as personnel reviewed by IDA.policies, raw jute purchasing, etc.The degree of autonomy is to beclarified in the Rules of Business.
iii) bJMC to decentralise its organisa- July 1, 1978 Proposals submitted June 1979 for creation of ninetion and delegate more authority to zones. Revised operational, functional and administra-zonal offices and mills. The tive responsibilities also proposed. Implementationdecentralisation would be combined program to be agreed December 1979.with the design and implementationof a revised management controlsystem.
iv) GOB to establish a policy that the Understanding already GOB's policy of limited transfer reconfirmed. LimitedChief Executive should remain at reached with GOB/BJMC. transfer of personnel that has taken place relates tohis post for at least three years and implementation of revised personnel policies.BJMC will reduce inter-mill transferof managers.
v) BJMC to present to GOB recommenda- March 31, 1978 General incentive systems now operational. BJMC totions for an incentive system for consider revisions to emphasis profitability/efficiency.BJMC and mill personnel. Proposals due January 1980.
vi) BJMC to prepare and implement a Preparation by Training scheme operational and progress in line withtraining program for BJMC and mill December 1, 1977 of implementation schedule.personnel. training program to be
completed by June 30,1980.
vii) BJMC to implement improved spare March 31, 1978 Revised procurement procedures and expenditure limitsparts purchasing procedure including introduced during FY78-FY79 working satisfactor.ily.greater autonomy for mills in thepurchase of local apares.
viii) BJMC to expedite completion of i) Annual audit for FY76 - Audits completed for 74 of 77 operational millsFY77 audit and thereafter have its EY77 to be completed FY77 - Audits completed for 70 of 77 operational millsexternal audits completed within by October 31, 1978. FY78 - Audits completed for 36 of 77 operational mills6 months of the fiscal year endstarting with the accounts of FY79. ii) Annual audit for
FY78 to be completedby March 31, 1979.
iii) Thereafter audits tobe completed within6 months of each yearend.
, ANN~~~~~~~~~~~~Sl't. VI
- 70- Pago 3
BANGLADIII SB I'IP1S I'ROCRAM CREDITActo t 1.l 'r . r.,nu.
TeXtils Industry
Resuired Action (Fiftth Credit) Agreed Completion Date Status
I) COB to include a prefeasibility March 31, 1977 Initial study by UNDP/UNIDO completed. Subsequentstudy of the potential for man- ADB financed follo-up study byUNICO (Japan) underway.made fibre. Preliminary repoTt submitted July 1979.
ii) GOB to undertake sample survey of December 31, 1976 BTHC did not follow up survey and by December 1977the handloom sector and census of it was found that the delayed sample survey carried"small" powerlooms. cut did not serve its purpose. Revised sample
survey completed December 1978. Report submitted toIDA in March 1979. COB/NOT coamments on findings ofsurvey should be made available to IDA in January1980.
iii) GOB/BIDS to carry out a study of December 31, 1977 Initial study found to be inadequate. Revised studythe relative efficiencies of the underway, but delayed. Expected completion datehandlooa/"small" powerloom sector December 1979 with final report available March 31,vs. composite mills. 1980.
iv) BTMC to undertake a program to improve December 31, 1976 1. GOB/BTMC have made application for IDA financingspare parts availability and mill for spare parts project. Consideration held pendizgproductivity. completion of UNDP study.
2. Mill productivity. One of four USDP advisors onsite. Others still to be selected.
Regtired Action (Sixth Credit)
A. Rehabilitation/Profitability Improvement
i) BTMC to prepare a long-term April 30, 1978 Report/program submitted to IDA, September 1978.rehabilitation program for the Program accepted in principle as basia for BYRCorporation to obtain a least cost project.solution to meet expected demands foryarn and cloth.
iI) On basis of (i) above BTMC to submit to Mary 31, 1978 Financing proposal submitted to IDtA June 1979.IDA, recommendation concerning BMR Project preappraisal planned end FY80.investment.
iII) GOB to inform IDA of its pricing December 1, 1977 and Revised paper submitted August 1979. Revisionpolicy and the pricing structure ongoing. acceptable as basis for dialogue with GOB onnecessary to testoer sod maintain pricing review.the profitability of the cottontextile industry in Bangladesh.
iv) GOB to give BTMC autonomy in the Ongoing Autonomy given in July 1977. FY80 progran submittedpurchase of raw cotton. to IDA for review.
B. Operational Target
i) BTMC to prepare operational targets April 30, Rot prepared fer FY80.for each mill.
ii) BIMC to prepare a consolidated April 30, Submitted to IDA, August 13, 1979.operational target based upon theindividual mill target.
C. Management and System Improvement
1) BTtC to prepare and implement Rules Ongoing Implementation July 1977 and still operational.of Business which include specificdefinition of degrees of autonsmyfor unit.
ii) GOB to establish a policy of continuity Understanding reached No cbange since FY78. However, GOB has gazetted afor senior management with reduced with GOB/BSYNC change in the Finance Directorate replecing theinter mill transfers. present acting director.
iii) BTltC to undertake improvement of its December Expected completion date December 31, 1979. Systemmanagement informatios and control operational in 58 out of 62 units.system, together with increasing andupgrading accounting staff.
iv) BTMC to present proposal for incentive March 31, 1979 Bonus system proposal not acceptable as it puts prezimsystem for BTMC and mill staff. on production rather than upon quality and profit.
Discussed at negotiations and modifications suggeswd.
v) BTMC to prepare and implement a March 31, 1979 Training mill established FY78. 1200 employees traine:comprehensive training program. Ongoing FY78, FY79 to date. Training Institute not yet established.
vi) BTMC to upgrade internal audit Decepiber 31, 1977 Nine teams (4 officers) established and internal audi:systems and procedures. carried nut on a cycle basis. FY78 audit 50%
completed.
vii) Audit of STt'C account Eor FY77 to December 31, 1977 FY77 audit still incomplete. Scheduled for completic-be completed. Thersafter annual Decceber. 31, 1979. Issue to be raised with COB.audit to be c-opleted within six (6)months of FY end.
viii) BTMC to revalue its assets in a-cord- June 30, 1978 Cmpleted Dccenbor 31, 1979.since *ith 5ct-cd accounting prflncples.
- 71 -
ANNEX VIIPage 1
BANGLADESH
EIGHTH IMPORTS PROGRAM CREDIT
THE JUTE INDUSTRY
General
1. In 1975, IDA conducted a study of the jute industry in Bangladesh(Report No. 883-BD of September 25, 1975), on the basis of which the juteindustry action program for the Fourth Imports Program Credit was developed.Subsequent appraisal missions expanded this program through the Fifth andSixth Imports Program Credits. The President's Report for the Seventh ImportsProgram Credit reviewed the progress made under these credits and consoli-dated the actions outstanding. This annex concentrates on the developmentsin Bangladesh's jute industry since 1978 when the Seventh Imports ProgramCredit was made.
Principal Trends in Output, Exports and Prices
2. The jute industry is the most important industry in Bangladesh. Itaccounts for approximately 50% of export earnings (and raw jute for another30%) and about 25%-30% of value added in the manufacturing sector. About 10%(170,000 workers) out of Bangladesh's industrial workforce of 2 million workin the jute industry. Prior to independence in 1971, Bangladesh's annualproduction and exports averaged about 500,000 long tons and 450,000 long tonsrespectively. During FY72, production dropped to 315,000 tons and ranged from400,000 to 500,000 tons thereafter, except in FY78 when production of 530,000tons surpassed preindependence levels. Similarly, exports of FY72 were low at221,000 tons, and ranged from 412,000 tons to 462,000 tons up to FY77. TheFY78 exports of 522,000 tons surpassed the preindependence level of 498,000in FY70. Bangladesh's share of the world market, which dropped from 44% inFY70 to 35% in FY75, reached its highest level since independence in FY77(48%) and has maintained a share of 46% for FY78 and FY79.
3. During FY78, a sharp increase in the jute goods price of 21% overFY77 was coupled with a 18% increase in the world wide volume of exports.During FY79, the average sales prices increased by 27% over FY79; however,export volumes fell by 12% from 1,136,000 tons in FY78 to 993,000 tons mainlydue to production constraints in India and Bangladesh.
4. The FY79 reversal of the FY78 upward trend in exports of Bangladesh'sjute goods was mainly due to a partial loss of the sacking market. Moreover,BJMC could not take full advantage of a buoyant hessian and carpetbackingmarket due to production constraints, such as power shortages and labor unrest.However, export earnings from jute goods increased from US$250 million in
- 72 -ANNEX VIIPage 2
FY78 to US$277 million in FY79 due to a 28% average price increase 1/ whichoutweighed the 13% decrease in export tonnage. As compared to FY78, theproduct composition in FY79 showed a decline in sacking from 47% to 43% and"other products" from 3% to 2% (particularly cotton bagging) with an increaseof hessian from 35% to 38% and maintenance of the share of carpetbacking (at16%). This represents a change compared to previous years which showed ashift from hessian to carpetbacking, with sacking maintaining its share.Also, since 1969, Bangladesh has been producing lighter fabrics to meet ashift in demand. However, during FY78 and FY79, the product mix betweenheavy and light cloth remained about the same as in FY77.
5. During FY79, jute and jute goods improved their competitive priceposition in Western Europe. Prices of polypropylene polymer almost doubledfrom about US$500/ton to about US$900/ton, mainly due to supply shortagesand crude oil price increases of more than 40%. International jute prices,however, remained relatively stable at around h200 per long ton sight, orabout 40% below those of polypropylene.
6. In sharp contrast to the situation in Western Europe, prices ofpolypropylene polymer in the United States remained relatively steady atabout US$620 per ton. During 1978, jute primary carpetbacking seemed to havestabilized its market share at 15% to 16%, and jute secondary carpetbackingat 98%, since losses of jute to foam rubber and other cushions appearedto have been checked. However, the position of jute in carpetbacking andhessian deteriorated sharply in early 1979 due to (i) rising jute goodsprices which enhanced the price advantage of polypropylene and (ii) supplyinterruptions as a result of protracted strikes in Bangladesh and India.
Export Prospects
7. Export prospects for the immediate future remain uncertain, as itis not clear what the pricing strategy for synthetics will be (para 9). How-ever, an increase in volume over FY79 is likely. The demand for hessian isexpected to increase gradually. A trend towards falling market shares, onprimary carpetbacking, is expected to be compensated by an increase in second-ary carpetbacking, with a limited overall increase. The demand for sacking,decreased in FY79 and is expected to fall further in FY80, although the fallis likely to be counterbalanced by increased demand from developing countriesin subsequent years.
1/ Calculated in Taka, which includes an 11% appreciation of the b againstthe Taka from FY78 to FY79. Export prices are quoted in UK B.
- 73 - ANNEX VII
Page 3
8. The major problem in the medium-term demand outlook for jute productsis competition from synthetic products. The major competing synthetic,polypropylene, is largely substitutable for jute goods. Although polypropylenehas certain technical disadvantages against jute (e.g., low melting tempera-tures, difficulty in dyeing and printing, slipperiness, which affects handling,stacking, and its utility for secondary carpetbacking, and less appeal totaste in decorative applications in secondary carpetbacking), polypropylenealso has certain advantages (tougher, water resistance, lightness, and greaterease of contouring). Since technological developments are likely to overcomethese technical disadvantages, price competitiveness and reliability of supplywill be the key factors in future demand for jute goods.
9. An FAO study of October 1979 indicates that the price of polypropy-lene is likely to rise, but only insignificantly, although the crude oil priceincreased from an average of US$12.7/barrel during the first three quarters of1978 to US$14/barrel during the first quarter of 1979, and to US$30/barrel inDecember 1979. Prices of propylene, the basic feedstock used in the manufac-ture of polypropylene, rose even more rapidly -- from US$220/ ton to US$300and to US$390/ton as a result of an imbalance in the supply situation forrefinery products. Consequently, the cost of production of polypropylene isestimated to have risen by some 40-45%, from an average of US$536/ton in 1978to US$765/ton in July 1979. In many cases, polypropylene is produced in anintegrated operation which includes the production of both feed stock andpolymers. As a result, the producers have flexibility in allocating costs.However, some producers have cost recovery problems despite the low marginbetween cash costs of production (i.e., excluding depreciation) and sellingprices in 1978 and early 1979. Producers are unlikely to increase prices ofpolypropylene in 1980 since capacity utilization is well below the desiredlevel of 85%. As there is considerable capacity currently under construction,an improvement in the overall operating rate is not likely to occur beforemid-1980. On balance, prices of polypropylene are likely to increase moreslowly than increases and costs of production might indicate. As a result,jute goods prices cannot be expected to increase substantially in the mediumterm if jute goods are to remain price competitive.
10. As discussed above, the share of Bangladesh in the world's exportsof jute goods increased from 35% in FY75 to about 46% in FY79. Compared toIndia, the other major jute goods exporter, the Bangladesh industry is likelyto increase exports, given the high quality of its raw jute, its relativelycheap labor, its improved quality over the past year, and its competitiveproduction costs. With improved quality and reliability of output, Bangladeshmay also be able to capture markets from some European manufacturers. How-ever, to expand the current limited world market for jute goods, new fields ofapplication for jute goods should be developed and substantial research anddevelopment efforts are necessary. UNDP/UNIDO are providing technical assist-ance to BJMC in quality control and UNDP is also financing an advisor forresearch and development. Strengthening of marketing and promotion efforts
ANNEX VII
Page 4
is also underway with technical assistanca from ODA 1/ and BJMC has takensteps to increase the number and the staff of its overseas sales offices.
Raw Material Supplies and Prices
11. In FY78, the average raw jute p::ice had increased by 32% over theprevious year and the expectation for FY79 (operational targets) was a 29%drop. The average raw jute price actually increased a further 6%, which,however, was more than counterbalanced by increases in jute goods prices(para 3). From FY78 to FY79, the jute acreage increased from 1.85 millionacres to 2.05 million acres and production from 5.4 million bales to 6.6million bales. However, the relatively high raw jute price at the beginningof FY79 (July 1978: Tk 165/maund white botton X) dropped appreciably onlytowards the end of the fiscal year (April 1979: Tk 130/maund) when it becameclear that BJMC would consume about 15% less raw jute than anticipated mainlydue to production constraints.
12. FY80 projections, based on sowing reports, indicate a jute growingarea of 1.8 million acres (including 300,000 acres affected by drought) witha projected crop of about 5.5 million bales which would be 20% less than lastyear's crop. In spite of the low product:on, the raw jute price remainedsluggish in August/September 1979, mainly on account of a large carryover of2.0 million bales in July 1979, of which BJMC held 0.8 million bales, andthe public and private traders the rest. As a result of the drought andinsufficient retting water, a large part of the crop was of low quality jutewhich sent the price to Tk 55/maund in October 1979, less than half thestatutory minimum price of Tk 115/maund.
13. In the past, BJMC had three major problems in raw jute procurement.First, in FY77, BJMC was unable to buy sufficient raw jute directly at theagencies due to shortage of working capital. Upon GOB instructions, thecommercial banks are now providing timely credit to the mills so they canbuild up their stocks to a level equal to six months' production which isadequate. Second, prior to 1977, BJMC's raw jute purchases were completelydecentralized with the mills, so that some mills would compete with eachother and in some cases were not able to buy sufficient raw jute, particu-larly given also competition with private traders. Therefore, in 1977, BJMCappointed a director of Raw Jute Purchase, who has created 200 purchasingagencies in jute growing areas. BJMC is centrally monitoring the jute pur-chasing by the mills, and is now competing effectively with private traders.Third, during FY78, GOB interferred in BJMKC's purchasing policy by askingit to adhere to a maximum purchasing price which private traders ignored.As a result, BJMC could not buy sufficent amounts of raw jute, but had tobuy it later from private traders at substantially higher prices. DuringFY79, no such interference hampered BJMC.
1/ Overseas Development Administration, UK.
- 75 - ANNEX VIIPage 5
14. In an attempt to develop an acceptable pricing structure for rawjute and to arrive at a realistic allocation of raw jute between the millsand exports, ECL carried out a study of raw jute marketing and pricingmechanisms for GOB. ECL's recommendations submitted to GOB in February 1979included proposals for reorganization of raw jute marketing, establishmentof statutory minimum prices and the development of an export strategy andoptimal pricing structure for raw jute. Many of the proposals have beendiscussed and agreed with GOB. However, more work is necessary to establishthe mechanism needed to develop an export strategy and optimal pricing struc-ture. This includes creation of a cell within the Ministry of Jute tomonitor world demand and prices for raw jute and jute goods. This aspectwas discussed with GOB during the appraisal of the proposed jute rehabilita-tion project. During negotiations for the propose Eighth Imports ProgramCredit GOB gave assurances that the cell would be established.
Factors Affecting Productive Efficiency
15. A major objective of the action programs agreed with IDA was thegreat need to improve the productive efficiency of the industry. Among theprincipal factors affecting efficiency were (i) the poor mechanical conditionof equipment caused principally by inadequate supply of essential spare parts,which resulted in a complete lack of normal scheduled preventive maintenanceprograms over a period of years; (ii) the lack of effective production plan-ning to adjust to changes in fabric mix due to the change in demand forlighter fabrics, and to maximize use of loom reed space; (iii) shortages ofskilled labor and management; (iv) a lack of coordinated and effective train-ing programs; (v) large-scale absenteeism; and (vi) power shortages. Addi-tionally, process losses were excessive due principally to inefficient juteutilization, lack of control for optimum emulsion application in batching,and inefficient processing methods.
16. FY79 weaving efficiencies of about 49% for hessian, 60% for sackingand 64% for CBC showed only little improvement over FY78 and thus fell mar-ginally short of the FY79 projected targets for sacking by 2%, but exceededthe target for hessian by 1%. To compensate for the lost production dueto power cuts, BJMC utilized standby looms to increase the number of operatinglooms by about 5% to 24,238, i.e., hessian 15,317:, sacking 6,773; and CBC2,148. While no accurate figures of spinning efficiencies have been madeavailable, there is indication that spinning performances have improvedas there is no shortage of yarn. However, there is still no general systemfor weighing spinning production (with the exception of two mills wherespinning production is weighted on a trial basis) and calculating correctefficiencies. BJMC intends to purchase weighing equipment for this purpose.
17. The major obstacle to increased production and more efficient weav-ing has been the inability of spinning departments, usually in narrow loommills, to produce sufficient yarn in adequate quality to enable looms tooperate efficiently. Three major factors were identified in the past. Themost important was the accelerated deterioration of equipment due to the lack
- 76 -ANNEX VIIPage 6
of essential maintenance and availability of spare parts. Since the formationof the first Maintenance Task Force (MTF) under the action programs for theFourth Imports Program Credit and the allocation of funds from subsequentCredits for the purchase of imported spares, there has been a gradual butsteady improvement. With a more plentiful supply of spare parts and theissuing of a maintenance manual compiled by the expatriate leader of theoriginal MTF to each mill, considerable progress has been made in implementinga preventive maintenance schedule, and establishing a program for renovationand rehabilitation. It appears that more and more mill managers are becomingconvinced that improvement in the mechanical condition of their machinesis the first step towards improving efficiency. Further improvement of effi-ciencies is expected in the coming years with the implementation of a fullscale rehabilitation program, expansion of training programs (which shouldresult in better management, supervision, and operator skills), and bettersupervision and administration by BJMC after the proposed reorganization(para 26). The improved maintenance has not yet been reflected in substan-tially increased production efficiencies, but it is expected to make a sig-nificant impact in the next few years.
18. The second factor affecting production was that two of the threemakes of spinning frames (which are no longer marketed), installed in Bangla-desh have never reached their expected levels of production and with age, wearand tear have given an ever decreasing output. Certain modifications to thesemachines, which BJMC carried out in early 1978, did not improve their effi-ciency to the extent which justified the expenditure involved. However,during 1979 certain improvements in design and manufacture of the modifica-tions have led to better results. When introduction of millside three-shiftworking in all narrow loom mills is carried out under the proposal made by theStudy Group set up by GOB in May 1979 (paragraph 24), the major portion of themachinery rendered surplus will be of this type which has given problems,thereby lessening the need for modifications.
19. In previous years, there was a shift towards lighter fabrics butduring FY79, the fabric mix become stabilized in hessian and CBC. However,with the contraction of market demand for sacking, BJMC is now manufacturinglight fabrics which were very seldom produced previously.
20. BJMC has also made progress in reducing the wastage percentagefrom 7.51% in FY78 to 7.09 in FY79 against the target 7.3%. This reflectssatisfactory progress in the control of process loss. However, furtherreduction of waste may be difficult in the future if BJMC executes itsplans to reduce the proportion of sacking looms to hessian looms from 32:68to 25:75 by FY85, since the proportion of sacking production may be too lowto absorb all waste.
21. The above measures will have only a gradual effect on increasedefficiency in the industry. There is still the shortage of skilled managerialand operational personnel, which contributed to the development of many of thepresent problems. To remedy this, BJMC started a limited series of training
- 77 -ANNEX VIIPage 7
programs in 1973 under which 1,519 people were trained up till 1977. At thattime, BJMC drew up a new comprehensive four year training program, coveringmanagerial and operational personnel. Between June 1977 and August 1979, afurther 2,846 people have been trained, a substantial increase over theearlier scheme. Incentive schemes, drawn up by BJMC in early 1978, have nowbeen operating for over a year. BJMC is reviewing these schemes to assesstheir effectiveness and implementing progressively any required modifications.
22. Two additional aspects affecting the efficiency of the industry,i.e., quality control and productivity, have been tackled with UNIDO/UNDPassistance. In the area of quality control, BJMC's systems and procedureshave been thoroughly reviewed by a quality control advisor who terminated hisassignment on July 31, 1979 having completed 21 months in the field. Duringthat time, UNIDO/UNDP fully equipped four pilot mills with quality controllaboratories, and trained one quality control officer for each mill. Inaddition, UNIDO/UNDP trained a further 12 officers from selected mills inquality control. However, testing equipment has not yet been purchased forthe laboratories that are to be set up in these 12 mills. Altogether, 50quality control officers and testers have been trained, of which six were sentabroad for training after working in close association with the quality con-trol advisor. From 1977 up to 1979, the number of quality claims has droppedby about 80%, partly as a result of these efforts. In the area of productionefficiency, a team of productivity consultants (now only two in number asagainst the three planned) are continuing their work in 16 selected mills.This includes training, lectures, seminars, on-the-job training in monitoringjute utilization, preventive maintenance and rehabilitation. A two-man UNDPevaluation mission visited Dacca in September 1979 and recommended continua-tion of the technical assistance program.
Organization, Finances, and Economics of Production
23. Organization. BJMC is still managed by a Board of Directors con-sisting of a Chairman, who is the Chief Executive, and six Directors, each ofwhom is responsible for one of BJMC's departments. Up to October 1978, alldepartments were headed by the Director appointed at the time of creating thepresent structure. The Chairman was replaced after three years of service,and the Finance Director, who left BJMC in November 1978, was replaced inDecember 1979.
24. All jute mills are wholly owned by GOB and are unlikely to be dena-tionalized in the near future. GOB appoints BJMC's Board and auditors andapproves BJMC's budget. In June 1979, plans to reorganize the BJMC andregroup the mills were prepared by a Study Group on jute goods manufacture,which was formed by GOB in early 1979 to explore alternative approaches to therationalization of production in the jute mills of BJMC as proposed by ECL/PAconsultants. The Study Group proposes to (i) regroup the mills; (ii) restruc-ture responsibilities and authorities at the zonal and mill levels; and
- 78 - ANNEX VII
Page 8
(iii) adjust the organization of BJMC-Headquarters (para 28). The proposalscurrently being discussed within GOB are expected to be approved by an inter-ministerial committee by March 31,1980.
25. Up to mid-1977, the mills were supervised by four zonal offices,each responsible for 18-20 mills under a zonal general manager. Due to thelarge span of control and insufficient staffing, supervision and control ofthe mills were unsatisfactory. In late 1977, BJMC stripped the zonal officesof all supervisory power leaving them with an advisory role. At the sametime, BJMC created mill boards for close supervision of the mill manager.However, the mill boards have not served this purpose, mainly because intervalsbetween board meetings were too long (from July 1977 to March 1978, the 77mill boards met on average less than three times during that nine-monthperiod). This was because many of the boards are chaired by BJMC directorswho, given their other functional responsibilities and their limited numbers,could not devote sufficient time to the mills and board attendance.
26. Under the new proposal, the mills will be regrouped into 9 zoneswith an average of 7-8 mills in each zone, thereby reducing the span ofcontrol for the Zonal General Managers. The Zonal Managers will be fullyresponsible for the performance and supervision of the mills with direct lineauthority over mill managers. They are obliged to visit, inspect and revieweach mill at least once every two weeks. Given the importance of the ZonalGeneral Manager, appointments must be carefully made. IDA has proposed topromote the best mill managers to become Zonal General Managers. The zonalheadquarters are located as close to the geographical center of each zone aspossible in order to minimize travelling time. Each zone will have sixexperienced deputy general managers responsible for all operational aspectsexcept for exports which are centrally controlled by the marketing divisionof BJMC. This staff is to support the Zonal General Manager but will not haveauthority over mill management. The basic line responsibility of the ZonalGeneral Manager would be to the chairman of BJMC, but BJMC's directors wouldcontinue to exercise supervisory control of their functional responsibilities.In substance, GOB's scheme fully corresponds to the one proposed and supportedby ECL/PA and IDA.
27. The mill boards, having been ineffective, will be disbanded andreplaced by an Executive Committee which will be chaired by the Zonal GeneralManager and will include the mill manager (who also acts as secretary of thecommittee), the zonal chief of the Accounts Department, the mill productionmanager, and the mill technical manager. Conceptually, the mill manager isto be the chief executive of the mill with all the necessary power and author-ity. The reorganization proposals specify the allocation of powers andauthorities among mill managers, executive committee and zonal generalmanagers.
28. Concerning BJMC itself, the Study Group proposed to disband thedirectorate of research and quality control. Research would be incorporated
- 79 -ANNEX VIIPage 9
in the Directorate of Planning and Development, and quality control in theDirectorate of Production and Quality Control. Internal audit, a routinefunction, would be transferred from the chairman of BJMC to the Directorateof Finance. Also, the corporation secretary would be relieved of generaladministrative matters, for which a new Directorate of Administration is tobe created. It would deal with personnel management, training and labormanagement, leaving the corporation secretary to look after public relations,legal affairs, security and board affairs. Consequently, BJMC would haveseven directorates in the future as compared with the present six. Therecommendations of the Study Group are basically sound and BJMC should takesteps to implement the reorganization speedily.
29. Systems and Procedures. BJMC is currently testing a process account-ing system which was initiated in the action program of the Fifth ImportsProgram Credit, and executed by EWP consultants of Dacca paid for under anODA grant. At the moment, there are two test mills (Bangladesh Jute Millsand Jessore Jute Mills). After a period of further testing (i.e. to aboutMarch 31, 1980) implementation should take place in all mills. EWP consultantshave also developed a Management Information System (MIS) and submitted theirreport to BJMC on August 31, 1979. The MIS aims at reducing and standardizingthe information flow from the mills to BJMC. Although at this time, it is notyet fully operational, the proposal is sound and, after review and modifica-tions, is expected to be implemented by June 1980. However, the proposal doesnot provide for (i) aggregation and analysis of the mills' production informa-tion; (ii) consolidation of the production information with raw materialpurchase, financial and sales information; and (iii) standardization ofinformation flow within BJMC, including monthly reporting to BJMC's Board ofDirectors. BJMC has agreed to extend the MIS to cover the above areas.
30. BJMC's staff totals 24,000 (about 1,000 at headquarters and zonaloffices and 23,000 in the mills). The mills employ about 204,000 workers(144,000 permanent, 59,000 badlis, and 1,000 temporaries), of whom on average147,000 were in attendance during FY79. The major problem remains the qualityof staff rather than the quantity. Compared with the private sector and em-ployment opportunities abroad, BJMC's salaries are low, making it difficultto attract and retain qualified personnel. Civil Service salaries are beingstudied by a GOB pay commission, but final recommendations, directly affect-ing BJMC's staff, have not yet been made. (GOB, however, increased wagesfor workers by about 30% in November 1978 retroactively from July 1, 1977.)The training program, initiated under the action program for the Sixth ImportProgram Credit, is in progress as are the incentive schemes for BJMC and millpersonnel. BJMC will review the impact of the incentive schemes at the endof 1979. The training programs and incentive system should help to improvequality and performance of BJMC's staff. Previous missions had identifiedthe problem of much too frequent intermill transfer of managers. BetweenSeptember 1978 and August 1979, 26 mill managers were transferred. Thisrate of transfer, while still considered too high (the mill manager stays
- 80 -ANNEX VIIPage 10
an average of 2.6 years in one mill), is lower than in previous years, andBJMC has reconfirmed its intent to limit further the transfer of mill managers.
31. *Audit. The audit of individual mills is still behind schedule,although they are slowly being brought up to date. As of September 1978,the audit of FY76 had been completed and final reports received for all 74mills. The audit of FY77 had been completed and final reports received for70 mills. For FY78, the audit had been completed for 50 mills, and finalreports had been received for 11 mills. Completion of FY78 audits is expectedby March 31, 1980, and of FY79 audits by September 30, 1980.
32. Finances. In FY79, BJMC suffered losses of Tk 608 million as com-pared with Tk 515 million in FY77. The record losses were a result of sharplyincreased raw jute prices (up 32% over FY78) and wage increases of about 30%which GOB announced in November 1978, retroactive as of July 1, 1977. Thesecost increases were only partly absorbed by higher sales prices (up 21% 1/over FY78) for jute goods. Losses in FY79 were decreased because raw juteprices rose only 3.5% and sales prices 28% over FY78. 1/ On the other hand,power failures and labor unrest caused production losses of about 40,000 tonsand 20,000 tons respectively in FY79; thus, total production was reduced to494,000 tons (530,000 tons in FY78) and per unit costs increased by 15%.
33. All three major products continued to make losses in FY79, but dueto higher sales prices than in FY78 their per ton losses were reduced byabout 52% for hessian, 49% for sacking and 13% for carpetbacking. Hessianaccounted for about 39% of total losses, sacking for 19%, and carpetbackingfor 37% as compared with 47%, 25%, and 23% respectively in FY78. Hessianexperienced the largest price increases (30%), followed by sacking (24%), andcarpetbacking (20%). On hessian and sacking, the industry is covering its rawmaterial and conversion cost, which justifies continued production. Continuedproduction of carpetbacking is also justified, as the FY79 sales pricescovered the raw material cost and most of the conversion cost. The shortfallconstitutes 6% of the factory wages so that 94% of the wages are still covered.Assuming shadow rates of 50% for wages and 80% for foreign exchange, produc-tion of all these products was economically viable in all jute mills, (includ-ing the financially weakest ones), during FY79. 2/
34. Raw material costs, factory wages, interest charges, and salesprices remain the major factors affecting operating performance. Aftersteep increases since 1974, raw jute costs have levelled off in FY79 and are
1/ Partly due to a devaluation of about 11% of the Taka against the b,in which the sales prices of jute goods are quoted.
2/ Economic profit per ton in the weakest mill of each product was Tk 2,792for hessian (Meghna Jute Mills), Tk 1,741 for sacking (Anowara Jute Mills),and Tk 2,790 for carpetbacking (Ashraf Jute Mills).
- 81 - A~NNEX VII
Page 11
expected to drop by 8% in FY80 because BJMC has (i) large carryover stocksfrom FY79 partly due to power shortages; and (ii) established an effectiveraw jute purchasing system, making it less dependent on private traders.In the medium run, prices are expected to rise 3% in FY81 and remain constantthereafter. Factory wages, which were increased by 30% by GOB in November1978, are likely to remain constant. The negative impact of wage increasescould be partly offset through higher production efficiencies resulting frombetter maintenance, quality control and equipment rehabilitation. Interestcharges of Tk 402 million in FY79 (representing about 67% of BJMC's losses)had a major impact on BJMC's profitability, which could be improved throughadequate capital restructuring. Sales prices for jute goods, which haverisen by an average of 25% per annum over FY77, FY78 and FY79, are expectedto rise by about 35% in FY80. These increases reflect (i) higher prices ofcompeting polypropylene, due to higher oil prices; (ii) lower supplies inFY79 because of power shortages in Bangladesh; and (iii) disruption of exportsfrom India, caused by strikes of the barge-men in November/December 1978 andthe mill workers in January/February 1979. An 11% drop of sales prices overthe medium term is forecast. However, BJMC is expected to achieve operatingprofits of Tk 849 million and Tk 313 million respectively during FY80 andFY81. With the impact of capital restructuring (paragraph 35) and rehabili-tation, the industry should continue to be profitable in the medium term.
35. Under the Seventh Imports Program Credit, GOB agreed to establishBJMC's debt/equity ratio at 60:40 within a maximum period of five yearsfrom credit effectiveness by (i) reimbursement of cash operating losses forFY78 and thereafter in full on a periodical basis; (ii) making allocationsin the annual Government budget for losses incurred prior to FY78; and(iii) making allocation in the annual Government budget to contribute equityto the jute industry. Until now, GOB has assured BJMC's continued liquidityby (i) paying loss subsidies (Tk 100 million in FY78 and Tk 257 million inFY79); (ii) making equity infusions (Tk 100 million in FY78 and Tk 200 millionin July 1979); and (iii) export subsidies (Tk 490 million in FY78 and Tk 330million in FY79). The export subsidy, however, will be discontinued in FY80,due to the expected profits. In total, the subsidies from GOB accounted for76% of the operating losses in FY78 and FY79. Wilth these payments, GOB keptBJMC liquid. To place the operations of the BJMC on a sound commercial basisGOB has agreed to an annually phased capital restructuring program for BJMCand its units to be fully implemented by December 31, 1983 (Section 3.06 andSchedule 3 of the draft Development Credit Agreements). Under the program GOBwould, by June 30, 1980, convert into equity about Tk 37 crore (US$24.0 mil-lion) of ADP loans and about Tk 50 crore (US$32.0 million) of GOB interest freeloans. GOB would also by December 31, 1983 provide BJMC with infusions of cashtotalling about Tk 270 crore (US$175 million) to cover the repayment of theTk 170 crore (US$110 million) of long term debts to the Bangladesh Shilpa Bank(BSB) and the Bangladesh Shilpa Rin Sangstha (BSRS) and about Tk 100 crore(US$64 million) due to the Bangladesh Bank and the Commercial Banks on milldebentures. The total amount of cash infusions would be subject to verifica-tion and the amount of each yearly cash payment subject to the availability ofbudgetary resources. The total amount of cash infusions would be adjustedalso by any after tax profits or losses incurred by BJMC and its units duringthe period to December 31, 1983. However GOB has agreed that it would
ANNEX VII- 82 - Page 12
provide a yearly minimum cash infusion equal to the amount required by BJMCand its units to service the debts due to BSB, BSRS and the CommercialBanking system in accordance with repayment schedules agreed with the lendinginstitutions. Conversion of the ADP loans, and GOB's cash infusions wouldreduce BJMC's debt/equity ratio to 60:40 and would reduce overall interestcharges by about Tk 350 per ton, thus making product lines profitable.
Prospects
36. General. As discussed above, market growth is expected to belimited, averaging about 2% per annum over the next two to three years. Evenwith this slow growth, BJMC would need to make substantial efforts in market-ing and quality control to maintain and increase its market share and toincrease its research and development efforts to determine alternative usesfor jute and improve existing production. BJMC would also need to improvefurther its management, which would result in increased production efficien-cies and reduction of unit conversion costs. This would make the industryeconomically more efficient and keep any financial subsidies to a minimum.
37. In addition to improvements in management, rehabilitation and backprocessing machinery is also needed -- particularly because of the poor con-dition of the equipment and because of the use of lighter fabrics, whichrequire more spinning time. ECL executed a mill-by-mill survey (Jute SectorStudy) to assess the balancing, modernization and rehabilitation requirementsof the jute industry. On the basis of the study, a jute industry rehabilita-tion project providing for rehabilitation of machinery, improvements inorganization and provision of training facilities has been developed. Thisproject, now being appraised, would aim to achieve long term economic andfinancial viability for the industry through programs to eliminate technicalconstraints, monitor product mixes and to develop adequate incentive systemsfor men and management.
38. Impact of the Rehabilitation Project. Improvement in productionefficiencies and management as a result of rehabilitation would increaseproduction capacity which may be beyond the economically optimal level ofproduction. However, given power shortages, labor unrest and large scaleabsenteeism, it would be unrealistic to expect close to 100% capacity util-ization. Moreover, the economically optimal level of production which ismainly a function of the raw jute price, the conversion costs, and the salesprices for jute goods, is very sensitive towards these widely fluctuatingparameters. Benefits from the rehabilitation would occur in the form ofadditional production due to increased spinning and weaving efficiencies.Between FY79 and FY81 weaving efficiencies are expected to increase from 49%to 51% for hessian, 62% to 65% for sacking and 62% to 66% for carpet backing.On these assumptions, the economic rate of return on the proposed investmentof approximately US$15.0 million would be about 59%. The improvements inproduction efficiencies, coupled with reduced interest charges from capitalrestructuring should result in these product lines being produced profitably.Given the projected profitability of BJMC's operations and in the absenceof a clear trend towards unfavorable market/production conditions, millclosures do not seem to be justified at present.
83 3 Arga l VI3Atr; d=ent 1
5ANCLAD£5H J4_ MY7LLS ORFQA_CIC
Pvrfortnve 1,o-.d .t-rs and GOer.ti.o-l T..etS
'riginal
FY74 FY75 Fy75 _FyA. .AR7'ET FROJEC.1ON
figure. tn CCC sons)
1. Wo..d E.norts of
R z ... ~363 611 380 379 478 3t6 3j 3 401 100S.okins 270 363 300 325 383 '52 325 325 325Ctrpb.clkSr4 228 143 aao 082 ZL6 720 200 21i 220Oth-rn 153 *24 82 77 6b ,- ! 99 002 120
Tota0 l iL6 0.4 972 963, 1.136 t3 L 1.075 L, as
2. booty, Sv 6350C
H8asian 153 136 162 156 085 1721 175 1s8 197S-enkOo 208 !74 210 114 244 197 245 182 213Carpetb.akir4 62 '42 64 72 76 75 80 85 893t.her 23 17 22 Z2 17 0 1 9
CargO 4.46 369 468 444 522 523 325 60 506
3. ?ndatitha836a.. tan 168 444 160 163 73 Z 672 I80 484 205Saceking 222 035 Zia 224 260 3Z30 285 233 244Cazs.beackin 65 a3 i8 69 74 75 80 88 88
3t4.re ~~~~~30 08 34i 25 2.3 -17 20 23
To"al 435 432 470 aOL 535 S94 25i 525 550
3. _FFTCIEYCY TARGETS
4. 43j5fl453PtSOfarlCS(P>vd,.c:on 04.3
,piodl. hr .
8e..n .I0l9? Z... -. 66 75 .651 78 .666 S0Zesg 1 6010 WEFT A-erag AVe.- . A.ver.Se .653 64. .673 66 .694 68SaHi.g t- 439 3T ' H 657 653 65?. -. 685 65 .707 66 .728 68Sacki= g 'AEFT 1.90 64 1.96 66 2.02 6dC. a. 348R .636 80 .659 83 .675 85C. 3. AF1 .293 30 .616 83 .630 85
5. !x0Ir0fC{5iHducia:in Ohs !
bvdg.tad lono hr )
esaten 6.14 6.05 484k 6.17 49 6.31 49 6.22 46 6.33 49 6.56 50s.nn5ia N 17.63 760- 17.57 6004 I.05 i9 17.69 60 18.;7 62 17.67 60 19.41 65Z.rv.tb ... L2 16.37 61 14.21 601' L3.32 57IbI3.29 6, 14.92 62it13.54 66 13.57 e6
,. 24eet.ea Satnennae 5r NA 7.95 7.51 7.09 7.30 6.80 6.50
7. Cotv-r-to. Co.- I,_38 Z,145 2.320 2,573 3,853 3,173 4.106 4,059:eoenf
S. ao jut Cens,fntionF tto
latio of Av3. 3JMC Jo:.Co.t to _verage ra.iet
Prtce 1.23 1.09 :.:9 '.20 1.01 0.22 1.15 1.l0 L.10
^. CAPACICY REO,UIRED
9. 4 4
aber. of L.or-ReqWired
H eklag . u .A 02,165 12,702 12,74- 12,734 13,2S7 14,072 L4,3485,539 5,980 6,:802" 6.023. 7.049 It 5,974, 5,779
Carpsohaaking t10.6 1520 _7675_ .750 1 1.652 1, Mg 2.029
19,910 20,103 21,351 20,5051 23,985 Z2.035 22.147
10. Nu,ob-rs of L-oeaAv-ilbl. forJ
3 dg-ted)
SHtag .YA .4,5;6 4 13,496' 14,;61 15,327 14,046a 15,903 16,23C.rpetb..kinC "2,44 7502',7 7.622 6,773 I 7.742i 7,062 6,762Car5atbavkong 3~~~~~~~, 140 2,040 -L8 2.1446 3104 2.315
24 010 Z3,129 23,'68 24,238 23,8941 25,230 25Z9
;1. 5 snoanraeoo fSio_O rt rs -.q
Sessia N YAt 9S 47 A t. I 4 1 12 12
.arpotb..kiiv1 29 20 ,9 _ 2 15 3
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-, rZpFITAL 0 rgcC4'75- ' 39 144' 134 433 !25
L6.DlEquicyC Ratio 2C.2:; EG iEC 'E2rD/EqSc.o0 Ratio 10.3:! 'TEG 'iEG NEC *LE1G yT0Z0C NA .AC
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BANGLADESH JUTE MILLS CORPORATION
Financial Performance and Projections (Taka/ton)
CONSOLIDATED Original T A R G E TA C T U A L TAr&et (Constant 1979 Taka)
FY74 FY75 FY76 FY77 FY78 FY79 FY79 FY80 FY81
Sales 3,487 5,000 5,914 5,928 7,162 9,137 6,176 12,378 10,925Raw Materials 1,867 2,723 3,156 3,600 4,758 5,031 3,675 4,686 4,644Conversion Cost 1,838 2,145 2,255 2,320 3,195 3,959 3,249 4,342 4,368Depreciation 227 267 291 306 290 352 272 352 370Inventory Adj. (234) (317) (27) (180) (270) (133) 116 84 (31)Cost of Goods Sold 3,698 4,818 5,675 6,046 7,973 9,209 7,312 9,464 9,351Gross Profit (Loss) (211) 182 239 (118) (811) (72) (518) 2,984 1,574Interest 299 497 558 613 643 828 603 821 613Other Expenses-/ 230 293 279 322 272 360 269 395 391Financial Net Profit(Loss) (740) (588) (598) (1,053) (1,726)-/ 1026G2/ (1,390) 1,698 570
Profit (Loss) inCrores Taka (35.9) (25.4) (28.1) (51.5) (94.0) (60.8) (79.0) 84.9 31.3
4/ Administrative and selling expenses. 00
/ Not including other income of 34 taka/ton.
t/ Not including other income of 24 taka/ton.
November 7, 1979
P PPd >
na-~ 9 -4U,
BANGLADESH JUTE MILLS CORPORATION
Financial Performance and Projections
(Taka/ton)
HESSIAN Original T A R G E T
A C T U A L Target (Constant 1979 Taka)
FY74 FY75 FY76 FY77 FY78 FY79 FY79 FY80 FY81
Sales 4,223 6,252 6,543 6,951 8,077 10,451 8,000 14,841 13,000
Raw Materials 2,108 3,120 3,399 3,837 5,079 5,211 4,013 4,917 4,769
Conversion Cost 2,464 2,966 3,029 3,108 4,398 5,139 4,359 5,524 5,584
Depreciation 297 338 358 366 361 410 332 391 374
Inventory Adj. (218) (54) 4 (132) (477) (334) 84 27 (14)
Cost of Goods Sold 4,651 6,370 6,790 7,179 9,361 10,426 8,788 10,859 10,713
Gross Profit (Loss) (428) (118) (247) (228) (1,219) 25 (788) 3,982 2,287
Interest I 414 672 718 810 818 996 750 980 679
Other Expenses- 278 314 318 412 343 452 325 472 467
Financial Net Profit c/
(Loss) (1,120) (1,104) (1,283) (1,450) (2,445 )L/(1,423) (1,863) 2,530 1,141
co
41 Administrative and selling expenses.
b/r Nmc/ Not including other income of 65 taka/ton. o ItC
c/ Not including other income of 28 taka/ton. 1 m
November 7, 1979 '
BANGIADESH JUTE MILLS CORPORATION
Financial Performance and Projections
(Taka/ton)
Sacking
Original T A R G E T
A C T U A L Target (Constant 1979 Taka)
FY74 FY15 FY76 FY// FY78 iFY79 FY79 FY80 FY81
Sales 2,745 4,071 4,993 4,768 6,127 7,617 5,500 9,903 8,000
Raw Materinls 1,530 2,358 2,618 3,072 4,252 4,536 3,188 4,079 4,022
Conversion Cost 1,381 1,532 1,589 1,643 2,032 2,861 2,230 3,072 3,152
Depreciation 149 150 164 167 160 199 146 190 186
Itiventory Adj. (233) (575) (77) (97) (230) (113) 123 165 14
Cost of Goods Sold 2,827 3,465 4,448 4,785 6,214 7,483 5,687 7,506 7,374
Gross Profit (Loss) (82) 606 545 (27) (87) 134 (187) 2,397 626
Interest 187 258 301 312 589 478 332 453 328
Otthor Expenses a/ 19( 230 216 228 213 281 206 313 313
Financial Net (459) 118 28 (557) (889) b/ 625 c/ (725) 1,631 (15)
Profit (Loss)
0'
a/ Administrative and selling expenses. >
b/ Not including other income of 12 taka/ton. nQ fl i
c/ Not including other income of 17 takalton. aq t
November 7, 1979 0 C
t-J
BANGLADESH JUTE MILLS CORPORATION
financiaI Performance and Proiections
(Taka/ton)
Carpet Backing Cloth Original TARGET
A C T U A L Target (Constant 1979 Taka)
FY74 FY75 FY76 FY77 FY78 FY79 FY79 FY80 FY81
Sales 4,697 6,117 8,089 7,899 8,892 10,714 9,000 14,018 14,000
Raw Materials 2,485 3,588 4,294 4,668 5,802 6,111 4,637 5,884 6,046
Conversion Cost 2,158 3,049 2,813 2,913 3,985 4,867 3,902 5,300 5,058
Depreciation 364 699 576 628 619 723 492 754 665
Inventory Adj. (60) (428) 13 (116) (187) (184) 137 (4) (6)
Cost of Goods Sold 4,947 6,908 7,696 8,093 10,219 11,517 9,168 11,934 11,763
(Gross Profit (Loss) (250) (791) 393 (194) (1,327) 803 (168) 2,014 2,237
Interest 474 1,101 1,152 1,217 1,258 1,556 1,000 1,527 993
Other Expenses a/ 271 399 401 424 338 415 304 472 452
Financial Net
Profit (Loss) (995) (2,291) (1,160) (1,835) (2,923)-' (2,774)--CL,472) 85 792
a/ Administrative and Selling Expenses p
9/ Not including other income of 37 taka/ton. -,
cf Not including other income of 34 taka/ton.
November 7, 1979 . H
BlANGLADESH JUTE MILLS CORPORATION
Financial Performance and Projections (Taka/ton)
Other
Original T A R G E TA C T U A L Target (Constant 1979 Taka)
FY74 FY75 FY76 FY77 FY78 FY79 FY79 FY80 FY81
Sales - - - 5,070 6,150 12,711 12,015 12,000
Raw matertals - - - 3,865 4,709 7,014 5,224 4,739
Conversion Cost - - - 1,615 2,138 3,135 3,719 3,045
Depreciation - - - 260 193 236 239 1,977
Inventory Adj. - - (471) 102 280 1,562 (1,562)
Cost of Goods Sold - - - 5,269 7,142 10,665 10,744 8,199
Gross Profit (Loss) - - - (199) (992) 2,047 1,271 3,801
Interest - - - 541 549 851 938 2,383
Other Expenses a/ - - - 359 209 253 197 198
Financial Net L943C 136 1,220Profit (Lmsa) - - ~ (1,099) (1,750)>!-
a/ Administrative and selling expenses. v Ob/ Not including other income of 29 taka/ton. g0c Not including other income of 37 taka/ton. OD 1<
November 7, 1979 '
- 89 -ANNEX VIIIPage 1
BANGLADESH
EIGHTH IMPORTS PROGRAM CREDIT
THE COTTON TEXTILE INDUSTRY 1/
The Relative Importance of the Industry
1. Bangladesh's cotton textile industry, represented by the BangladeshTextile Mills Corporation (BTMC), accounts for about 15% of the value addedin the manufacturing sector and employs 76,000 workers, approximately 4% ofthe country's industrial workforce. The BTMC produces about 60% of the yarnand about 11% of the cloth needed by the country. The private organizedsector produces no yarn and a limited amount of cloth (production is limitedto specialty cloths, such as silk, synthetic mixes, etc.). The handloomsector, with 437,000 looms (of which 260,000 or 59% are operational) employs850,000 people on a full and part-time basis adding considerably to the incomeof people in the rural and semi-urban areas. At current levels of operation,the sector produces about 60% of the country's cloth. The balance of yarnand cloth requirements are imported.
IDA and the Action Programs
2. In 1975, IDA conducted a study of the cotton textile industry inBangladesh 1/. This identified the need for a number of medium-long termactions to resolve operational difficulties and to provide the infrastructuralbasis for the long-term development of the industry. On the basis of thesurvey, an action program was developed and introduced under the FourthImports Program Credit and was subsequently expanded under the Fifth and SixthImports Program Credits. This annex reviews the performance and prospects ofthe public organized sector (BTMC), which is a major beneficiary of IDAprogram credit financing.
II. THE PERFORMANCE AND PROBLEMS OF THE SECTOR
_bhjectives of Operation
3. In reviewing the performance of the public organized textile sector(i.e. BTMC), for FY79 it is necessary to consider the objectives set for its
1/ The structure of the industry is described in detail in Report 883-BD,Bangladesh - Survey of the Jute and Textile Industries - September 25,1978.
- 90 -
ANNEX VIIIPage 2
operation and to determine the impact that availability of resources, autonomy,etc. have had upon BTMC's ability to achieve them. At the time of nationaliza-tion in FY72, GOB indicated that the public sector textile units were to beoperated, within the framework of economic policy, as autonomous commercialenterprises achieving a reasonable rate of return on equity. The profitobjective was linked to the social objective of providing cloth at a reason-able price to the common man 1/. Accordingly, prices were to be establishedon the basis of attainable costs based upon industry efficiency norms (i.e.standard costs). GOB indicated also that BTMC and unit management would begiven sufficient autonomy to carry out the management and operating actionsnecessary to achieve the objectives.
4. While BTMC was given the task of running the industry on a soundcommercial basis (although not of maximising profits), GOB intervened inseveral areas in ways which constrained achievement of the primary objective.GOB arranged raw cotton procurement, sometimes to the disadvantages of BTMC(paragraph 7). Wage rate increases were awarded by GOB without any linkageto productivity improvements (paragraph 11). Further, management was pre-vented from sealing facilities and reducing workforces necessary to optimizeproduction efficiency (paragraph 12). Finally, GOB also reduced or controlledselling prices despite general cost inflation (paragraph 16).
5. The autonomy of BTMC has clearly been limited and the Corporationis burdened with requirements which make it difficult to achieve the profit-ability targets set by GOB (and IDA). However, under the action programs,some impact has been made on increasing BTMC's autonomy. Major constraintson spare parts procurement, raw cotton procurement (below $1.5 million), unitpersonnel recruitment and marketing have been removed and changes have beenagreed in the areas of price control and cotton procurement, which shouldgive BTMC even more autonomy. It is against the background of conflictingobjectives and slowly achieved autonomy that the performance of BTMC forFY79 should be reviewed.
Production Efficiency and Capacity Utilization
6. During FY79, performance in the industry was mixed, with a marginalincrease in the level of spinning efficiency and a fall in weaving efficiency.In spinning, the average production per spindle shift rose from 2.38 oz (FY78)to 2.40 oz in FY79. For weaving, average output per loom shift fell from20.3 yds (FY78) to 19.9 yds (FY79). Efficiency for both spinning and weavingis still considerably below international standards, including those in othercountries in the South Asia Region. Allowing for a reduction in the numberof installed spindles, capacity utilization remained static at 82%. For weav-ing, capacity utilization improved, rising from 67% in FY78 to 75% in FY79.With the marginal increase in spinning efficiency, production of yarn 2/
1/ GOB's pricing policies were formalized in a statement submitted toIDA in September 1979.
2/ For comparative purposes, actual yarn and cloth production for FY74-FY79has been converted to production of 32 count yarn and 54 pic cloth.
- 91 - ANNEX VIII
Page 3
increased from 106.9 million lbs in FY78 to 110.3 million lbs in FY79. Pro-duction of cloth increased also from 84.5 million yds in FY78 to 88.3 millionyds in FY79. These results are in line with the agreed targets for yarn pro-duction, but are 12% (i.e. 12.0 million yds) below the target set for clothproduction. Loom utilization increased from 67% in FY78 to 75% in FY79,although the number of installed looms fell by 500 (6%). Wastage on yarnproduction increased from 9.5% to 9.9% while wastage on cloth production re-
mained static at 4.1%. Overall, these results are below the targets agreedwith GOB during negotiations for the Seventh Imports Program Credit.
7. Factors Affecting Production Efficiency/lltilization. The majorobstacles to improved efficiency and increased capacity utilization - poorquality raw cotton, power shortages, labour unrest and inadequate maintenance -
noted during the appraisal of the Seventh Imports Program Credit continuedduring FY79. Scope for improving production efficiency in many mills islimited also by the nature of plants nationalized (some constructed in 1898and the early 1920s). The inadequacy of primary quality control on rawcotton purchases has resulted in the passing of incorrectly graded/hightrash content cotton to the mills, disrupting production of specific yarncounts and dislocating the relationship between spinning and weaving equip-ment geared to specific production qualities. The use of USDA specificationsfor cotton shipment has been introduced during FY79 to overcome this prob-lem and this action is to be strengthened by the introduction in FY80 ofpreshipment inspection of all deliveries for purchases made directly by BTMC.Government to Government purchases of low grade cotton of short staplelength 1/ has also resulted in significant disruptions to production, poormachine efficiency and high levels of wastage. This form of cotton procure-ment, whilst made at an initially low cost, results in batch level wastagesof 12%-14% of input as compared to an average wastage level of 8%-9% whenusing higher grade USDA specification cotton. The impact of another factoroutside the control of management, power shortages, increased significantlyover the levels experienced during FY78, with many mills reduced to workingfour-hour shifts or abandoning shifts altogether 2/. Resulting losses ofyarn rose from 3% in FY78 to 10% in FY79, a loss of about 11.0 million lbs.Loss of cloth production increased also, rising from 1% in FY78 to 7% inFY79, a loss of 6.2 million yds of cloth. Labour disputes and wildcat strikescontinued to disrupt production in FY79, notwithstanding a substantial in-crease in fringe benefits and a wage rate increase of 60% awarded to allpublic sector employees in June 1978. Losses in production from industrialunrest, normally about 5% of possible yarn and cloth production, increased
1/ Staple lengths of 1.0" and above are required to give satisfactoryproduction. Staple lengths below 1.0" (particularly Pakistan/Russiancotton) result in excessive breakages and knotting.
2/ Load shedding and blackouts occurred throughout the year. However,between March and June, BPDC introduced mandatory four-hour cuts ofindustrial usage during peak periods.
- 92 -
ANNEX VIIIPage 4
to 7%. Absenteeism during FY79 of 30% was held static as a result of theintroduction of attendance bonuses, increase in output incentives and anincrease in the pool of trained badlies.
Personnel Administration
8. General. During FY79, BTMC introduced a number of changes to itsorganization structure, and reassigned several major functional responsibili-ties. The changes included the grouping of mills for administrative controlpurposes, the splitting of the purchasing and marketing functions, and thecreation of a maintenance department within the Technical/OperationsDirectorate. The changes have strengthened BTMC's organization, which hascontinued to function satisfactorily.
9. Staff. The lack of a pool of competent mill managers/supervisorscontinued to hamper BTMC's attempts to improve the performance of mills wheremanagement weaknesses have been identified as the cause of the inefficiency.Transfers of managers between mills, although at a greatly reduced level,continued to be used by BTMC as a solution to this problem. During FY79,60 managers/supervisors were transferred (in FY78, 110 managers/supervisorswere transferred).
10. Training. During FY79, BTMC continued implementing the comprehen-sive training program agreed with IDA under the Sixth Imports Program Credit.In March 1978, a new spinning mill (Kohinoor) with 25,000 spindles was com-missioned as a training mill. Initially, it was expected that 600 new andexisting employees would pass through the mill's training program every threemonths (i.e. 3,000 by August 1979). However, teething problems and a longerlearning cycle for new employees have reduced the actual throughput. As ofAugust 31, 1979, about 2,000 employees had been trained and been relocatedto other mills. After the initial establishment of a training institute fortechnical, management and general administrative training, there has beenlittle progress in the development of the institute and much more managementeffort is needed to make the concept effective. IDA is monitoring the pro-gress on implementing the training institute.
11. Wage and Incentive Systems. Under the Sixth Imports Program Credit,GOB/BTMC agreed to the review of BTMC's salary structure and the introductionof incentive systems. During FY77 and FY78, a production-oriented incentivesystem was introduced, followed by GOB's restructuring of the wage system inJune 1978. Notwithstanding these actions, the setting of wage rates and in-centives continued to be a major problem, both in terms of labour relationsand operating autonomy. The unions within BTMC have pressed for improvedbenefits and incentives, resorting to strike action to achieve these objec-tives. However, BTMC is unable to adjust its incentive/wage structure with-out approval of GOB, which requires a uniform wage/incentive system for allpublic sector organizations. As it is currently operated, BTMC's incentivesystem is not related to profitability but continues to focus upon productionirrespective of the levels of wastage/rejection. On the basis of discussionswith IDA, BTMC is further revising its system, inter alia, to deal with theproblem of providing rewards for a percentage achievement of target ratherthan attainment of target or better than target performance.
- 93 -ANNEX VIII
Page 5
Marketing and Sales
12. Against the background of a liberalized Government policy allowingsubstantial imports of low cost synthetic and trade reject 1/ cloth, BTMCsales of yarn and cloth increased by 29% and 2.5% respectively. Yarn stockswere considerably reduced and year-end stockholdings represent less than onemonth's sales. The higher level of cloth production (Table 1) in FY79 andthe slow growth in cloth sales affected closing stocks which, as of June 30,1979, represented 10.7 weeks of sales (FY78, 8 weeks sales). The bulk ofthis stockholding is 36" grey markin cloth 2/, which is not acceptable toconsumers who have access to fully-finished, low cost 54" polyester/cottonimports. Stockholdings of grey markin have continued to increase duringFY80 reaching 12 week sales in September 1979. Because of GOB pressures tomaintain production and employment levels, BTMC has not been able to seallooms nor reduce production of the cloth.
Stock and Sales of Yarn and Cloth - (BTMC)
FY75 FY76 FY77 FY78 FY79 FY80 /a
Yarn (Million lbs)Sales /b 60.2 84.1 70.4 61.7 79.9 129.7Production 100.6 91.1 93.5 106.9 110.3 137.5Stock 23.3 7.7 2.1 10.1 5.9 -
Cloth (Million yds)Sales 77.3 75.0 84.7 81.4 83.8 134.9Production 85.9 75.9 68.6 84.5 88.3 117.5Stock 24.8 25.7 9.6 12.7 17.2 -
/a Estimated.
/b Does not include yarn used within BTMC.
13. During FY79, BTMC made a number of changes in the marketing anddistribution of yarn and cloth. In the case of yarn, an allocation of 54,000bales, was made to the Handloom Board for direct sale to weaver cooperatives/weavers at a 1% markup on ex mill selling price. The balance of yarn pro-duction is now allocated on a 50%-50% basis to dealers and to Handloom/Weaver Cooperatives. In the case of cloth, BTMC has expanded its sales anddisplay centres and is pursuing a program of appointing Thana-based clothdealers.
1/ Defined under GOB's import policy as secondhand cloth/clothing, theitem is made up mainly of producers' old stocks sold at marginalcost to dispose of inventories.
2/ The majority of the looms in BTMC's weaving units are 36" units, whichproduce about 50% of BTMC's total production. Where BMR has been carriedout, loom widths have been increased to 48" or 54".
- 94 -ANNEX VIIIPage 6
Financial Management and Control
14. Profitability. During negotiations for the Seventh Imports ProgramCredit, a before tax profit of Tk 136.0 million was set as the target forBTMC's FY79 operations. However, in retrospect, it was unreasonable to ex-pect BTMC to achieve such a profit, given that it did not have the autonomyof operations, particularly in the setting of prices, wage rates, staffinglevels and product rationalization 1/ necessary to achieve it. As a resultof a GOB enforced price reduction of 10%, which became effective on July 1,1978, and the payment of the second tranche of GOB's retroactive wage rateincrease 2/, BTMC's before tax profit was held to Tk 48 million (FY78 lossTk 77.0 million). After providing for income tax, this profit was convertedto a loss of Tk 35.0 million 3/ (FY78, loss Tk 113.0 million).
15. Financial Structure. As a result of the conflict of objectives(i.e. the commercial operation of BTMC units vs. their continued socio-economicoperation) and the impact of controlled selling prices (para 16), 25 of BTMC's58 operational units have negative equities and are reliant upon large work-ing capital loans from the banking system to remain operational 4/. Under theSixth Imports Program Credit, BTMC was required to revalue its assets. Thisrequirement has been completed and the details available for incorporationinto the required capital restructuring. During negotiations for the SeventhImports Program Credit GOB agreed, in principle, to the need for restructuringand to a target debt/equity ratio of 60:40 for each mill. GOB has agreed tothe implementation, by December 31, 1984, of an annually phased program ofloan conversion and cash infusions necessary to give BTMC and its units a debtequity ratio of 60:40 (Section 3.06 and Schedule 3 of the draft DevelopmentCredit Agreement). Under the program GOB would, by June 30 1980, convert intoequity about Tk 33 crore (US$21 million) of ADP loans and by December 31, 1984make five yearly cash payments to provide BTMC and its units with about Tk 86crore (US$55 million) of additional equity. The total amount of cash infusionswould be subject to verification and the amount of each yearly cash paymentsubject to the availability of budgetary resources. The total amount of cashinfusions would be adjusted also to reflect any after tax profits or losses
1/ If BTMC had been able to operate as an autonomous commercial enter-prise, it would have stopped production of unsaleable 36" grey markincloth, sealed looms and laid off workers.
2/ In July 1978, GOB announced a restructuring of the public service payscales and a 30% increase in the basic rates paid to industrial workers.The award, which increased fringe benefits and wages, was made retro-active to January 1977. The retrospective element of the award wasTk 130.0 million.
3/ On the basis of implementation of GOB's pricing policy for BTMC,after tax profit should have been Tk 65.0 million.
4/ In FY77, FY78 and FY79 BTMC units have had negative current ratios(current assets: current liabilities) of 1.5, 1.1 and 1.1 respectivelycompared to positive ratios of 1.0-1.5 accepted as an industry norm
- 95 -ANNEX VIIIPage 7
earned by BTMC and its units during the period to December 31, 1984. HoweverGOB has agreed that it would provide a yearly minimum infusion equal to theamount required to service BTMC/units repayment to BSB, BSRS and the CommercialBanks on term debts in accordance with agreed repayment schedules. Additionalto the capital restructuring, GOB has agreed to implement by September 30,1980, such actions as are necessary to provide that BTMC's after tax return onshareholders equity is at least 10% per annum (Section 3.07 of the draftDevelopment Credit Agreement).
16. Pricing. Although rising production costs, particularly for wagesand raw cotton, have had a considerable impact upon BTMC's profitability,the setting of ex mill prices of yarn and cloth by GOB is still the majorfactor influencing profitability. GOB's stated policy is to set price levelson a cost plus basis (currently a target of a 10% after tax return on equity).However, over the past four years, GOB has operated a politically-motivatedpolicy of ad hoc changes with consequent heavy after tax losses for BTMC. InOctober 1977, as a requirement for presentation of the Sixth Imports ProgramCredit, GOB increased BTMC's sales of yarn and cloth, both of which continuedto be sold by retailers at substantial premia in the open market. In June1978, notwithstanding the substantial wage rate increases announced in thesame month, GOB announced a 10% price reduction on BTMC's basic products 1/(this despite the fact that the standard costs established on the basis ofindustry efficiency norms indicated the need for a price increase). As aresult of this price reduction, sales of 30 count yarn were made at belowcost, (Tk 20.4 per lb), notwithstanding that the CIF cost of competitiveimported 32-count yarn from Pakistan, Hong Kong and India averaged Tk 22.6per lb, Tk 26.1 per lb, Tk 28.4 per lb, respectively. To rectify the situa-tion GOB has agreed to take appropriate action to adjust BTMC's pricingstruture.
17. Obsolete Units. The profitability of BTMC continued to be signifi-cantly affected by the operations of units requiring extensive rehabilitationand modernizing. These units incurred FY79 operating losses of Tk 118.0 mil-lion (FY78, Tk 98.7 million). However, these units are scheduled for priorityrehabilitation under the proposed textile balancing, modernizing and rehabili-tation (BMR) project currently being considered for IDA financing. It isanticipated that the units will become profitable once the rehabilitationprograms and capital restructuring (paragraph 15) are completed.
18. Management Control. During FY79, BTMC continued implementing thesystem and procedural changes initiated during FY78 with consequent reductionsin the delays in data presentation (monthly operating results are now avail-able within six working days after the month end). Monthly operating reportshave been revised to focus upon key control data (e.g. sales, cost of sales,gross and net profit, stock holdings, production losses, etc.) but have yetto be revised to show comparatives against budgets. BTMC's program to upgradeits management reporting systems through improved staffing has continued. Asof August 31, 1979, 150 accounting officers had been recruited and had comrpleted a three-month training program based upon BTMC's management information
1/ Mainly 30 and 40 counts of yarn which account for about 40% of BTMC'stotal sales of yarn.
- 96 -ANNEX VIIIPage 8
system requirements. With the introduction of the basic management information/reporting system into all the operating units of BTMC, BTMC will, as previouslyagreed with IDA (i) introduce flexible budgets and predetermined/standardcosting; (ii) establish updating of financing records on a daily rather thanmonth-end/quarterly basis; and (iii) redefine management's control datarequirements with greater emphasis upon management by exception.
19. Audit. During FY78 and FY79, BTMC took a number of actions to up-grade its internal audit function and remove the weaknesses that existed inthe level of audit staffing. The number of audit teams has been increasedfrom six to ten and a detailed mill audit program implemented during FY79.The role of the internal audit function has been expanded to include a reviewof management practices and BTMC has established a technical audit team toreview production procedures and efficiencies. Internal audit is now underthe direct control of the Chairman. The external audit program is still be-hind the schedule agreed under the Sixth Imports Program Credit, which calledfor the completion of the FY78 and preceding external audits by December 1978.As of September 30, 1979, 10-unit audits remained incomplete for FY77 and47-unit audits remained incomplete for FY78. In all cases, however, theaccounts of the units concerned have been prepared and are ready for auditby the external auditors. This delay in completing the external audit isnot peculiar to BTMC, but is common to most public sector corporations andresults from the acute shortage of qualified public accountants in Bangladesh.
III. The Rehabilitation and Expansion of the Industry
Ongoing Investments
20. Since FY72 (the year of nationalization), GOB has pursued a three-pronged program of investment in the industry in order to provide yarn forthe handloom sector and cloth direct to the consumer. Investment in new spin-ning mills, the BMR of "sick" mills and the provision of essential spare partsfor rehabilitation of other units has totalled about Tk 800.0 million. Thebulk of this investment goes into new units and the BMR of the "sick" units.Currently, BTMC are constructing six new spinning mills and expanding thespinning capacity of four other mills. However, while BTMC in increasingits facilities, its top priority is the extensive maintenance of existingunits, followed by rehabilitation of old equipment.
Maintenance
21. Prior to FY78, maintenance programs were limited due to the lackof foreign exchange to purchase essential spare parts. In FY78 and FY79, GOBmade available sufficient cash foreign exchange for spare parts purchases andthis, coupled with the autonomy given to mill managers in FY78 to purchasespares on the local market up to certain financial limits, has consider-ably improved spare parts availability. The six maintenance task forcesestablished in FY78 to assist mill managers implement major maintenance pro-grams and to establish daily maintenance programs have achieved some successin their operations, but the lack of trained mechanics at mill level has
- 97 -ANNEX VIIIPage 9
reduced the effectiveness of the general mill maintenance program 1/. Millmaintenance practices and the requirements necessary to strengthen existingfacilities for producing spare parts and replacement equipment are currentlybeing reviewed under a UNDP/UNIDO technical assistance program to improvemill productivity and maintenance.
Rehabilitation
22. The review of the BMR needs of the industry required under theSixth Imports Program Credit has been completed and a proposal for the reha-bilitation of 50 mills in three phases was submitted to IDA in March 1979 forappraisal and financing. The program aims at increasing the number of opera-tional spindles by 175,000, operational looms by 1,750 and operational effi-ciency from 1.4 oz per spindle shift to 2.83 oz. It is expected that on com-pletion of the rehabilitation, production of yarn will increase by 38 millionlbs. Total cost of the project is expected to be Tk 774.6 million (US$50.0million) with a foreign exchange component of Tk 5,25.0 million (US$33.8 mil-lion). The proposals are currently being reviewed by IDA 2/ in order to linkthe requirements with the results of the ongoing studies (i.e. potential forman-made fibres, relative efficiency of handlooms vs. composite mills and thesurvey of the handloom sector) aimed at identifying the long-term developmentneeds of the industry. The work of these various studies is on schedule andshould be available between January 1980 and March 1980.
Proposed Investment
23. Preliminary drafts of the Textile Section of the next five-yearplan (FY81-FY85) indicate that GOB/MOT are proposing a total industry invest-ment of Tk 4.2 billion (US$271 million) with a foreign exchange requirementof Tk 2.3 billion (US$148.0 million). The break up of the investment is:
Tk. MillionForeign
Total Exchange
BMR (50 Mills) 774.6 525.6Ongoing Projects (6 Mills) 315.0 210.0New Spinning Mills (20) 2,800.0 1,400.0Training/Management
Improvement 77.1 33.5Laboratory/Quality Control 110.2 55.1Ginning Plants 60.0 27.0Polyester/Cotton Plant 75.0 45.0
4,211.9 2,296.2
1/ Under the Sixth Imports Program Credit, BTMC agreed to implement anindustry-wide training program. Facilities have been established forthe training of spinners, but no action has yet been taken to estab-lish facilities to train technical staff, etc.
2/ The project is listed for preappraisal in FY81.
- 98 -
ANNEX VIIIPage 10
The foreign exchange component has been calculated on the basis that allmachinery will be imported. However, the manufacture of much of the requiredequipment by the Bangladesh Machine Tool Factory (BMTF) would reduce theforeign exchange requirement.
24. Implementation of this investment program is expected to result inthe production by BTMC of 330.0 million lbs of yarn and the production, byBTMC and the Handloom Sector, of about 1.2 billion yds of cloth 1/. The con-straints to the achievement of the program will be the availability of resourcesand the implementing capability of the BTMC. Given that the BTMC is able tofinance 15% (which is largely dependent upon implementation of GOB's pricingpolicy) of the investment program from internally-generated funds, Tk 3.6billion (US$230.0 million) will have to be provided by financial institutions,budgetary allocations and the direct inflow of foreign resources. Projectpreparation and implementation will also pose obstacles as the management ofBTMC is already strained monitoring the operations of existing units.
IV. PROSPECTS
25. General. As the results for FY79 show, the performance of thetextile sector is significantly influenced by GOB's actions, particularly inthe areas of price control and wage rate levels. However, given total imple-mentation of GOB's recently-formulated pricing policy for the BTMC, it shouldbe possible for the Corporation to return to profitability in FY80 and tomaintain and improve its performance. The return to profitability should beaided by the planned increases in productivity and tighter management control.Aside from the impact of possible GOB intervention, the future profitabilityof the BTMC is heavily dependent upon the availability of foreign exchangeto purchase its raw material requirements. (Apart from a minimal amount oflocally-grown cotton, all BTMC's raw material is imported). Steps are beingtaken to reduce Bangladesh's dependence upon imports and steady progress isbeing made in the construction of a pilot jutton (jute/cotton blend) fibreplant. Additionally, an ADB-financed study is examining the feasibility ofproducing man-made fibres using local and imported naptha.
26. Local Production of Raw Cotton. On the basis of projected produc-tion of yarn and cloth for FY81-FY85, the total requirement of raw materialsby FY85 is estimated at 328.0 million lbs of raw cotton and viscose/syntheticsin the ratio of 80:20. At current purchase prices, this will require aboutUS$200.0 million per annum by FY85, a considerable burden upon Bangladesh'salready limited foreign exchange resources. To reduce this burden, GOB/BTMCand the Cotton Development Board (CDB) are exploring ways of expanding thecurrent limited production of locally-grown cotton (2.2 million lbs in FY79).The CDB's development plans for FY80-FY85 call for an increase in acreage
1/ This target has been set on the basis of 12 yds per capita requirementgiven a population of 100 million.
_ 99 _
ANNEX VIIIPage 11
under cultivation from 7,000 acres to 100,000 acres by FY85, although GOB'splans call for the cultivation of 600,000 acres (producing 300.0 million lbsof cotton) by FY85, an overly-ambitious target, given the lack of planningand preparation to date. With the future prospects of the textile industrydependent upon the availability of raw material, a major issue to be resolvedis whether large-scale growing of cotton is technically, financially andeconomically viable. To date, this issue has not been addressed by any ofthe parties concerned with the future of the cotton textile industry. Iflarge scale cultivation of cotton is feasible, this could lead to a numberof projects in agriculture, irrigation and seed processing, all aimed atestablishing a coordinated cotton textile industry.
At I Ichlsent 1
- 100 -
PAY.IlAYI.Yi Silt IlYll .F 'IK'i_ A/l V S
Ii ' , 1 Y'.l
Ac.toe Tsry.et1747 FY75 FY
76 EY77 FY78 FY79 FY79 FY80 F_I
M-kret Projrcticn
Yarn lbs. (liilion) 127.1 141.7 155.8 169.6 184.1 193.8 191.1 203.8 224.5Cloth yds.(hillion) 508.6 567.1 623.1 678.7 736.4 775.1 764.5 815.2 856.2
Product ion
Yarn lbs. (Million) 95.5 100.6 91.1 93.5 106.9 110.3 110.0 137.5 168.0Cloth yds. (Million) 2/ 78.6 85.9 75.9 68.6 84.5 88.3 100.0 117.5 135.4
Efficiency Targ.ts: Spinning
Installed capacity ('000) 858.1 889.6 905.5 925.8 976.8 972.2 988.5 1,072.1 1,154.7Capacity otilisetion (%) 77.0 78.0 73.0 74.0 82.0 82.0 83.0 86.0 90.0Average per spindle shift (oz) 2.31 Z.31 2.36 2.42 2.38 2.40 2.40 2.51 2.72
Efficiency Targets: zeavin-
Installed capacity (No.) 7,375 7,563 7,636 7,863 7,986 7,494 7,982 7,488 7,758Capacity utilisation (%) 59.0 63.0 63.0 58.0 67.0 75.0 73.0 85.0 90.0Average yds. per loon shift 21.4 21.1 18.3 18.9 20.3 19.9 21.4 22.9 24.0
Wastage Percentage-
Yarn (raw materials) (7) 15.7 14.1 12.6 10.6 9.5 9.9 9.0 9.0 9.2Cloth (yarn) 4.8 4.1 4.7 4.5 4.1 4.1 5.0 3.0 3.0
Material-J
Require-ent of raw materials:(Cotton/Staple Fibre forMillion lbs.) 103.7 105.5 101.9 105.5 108.5 108.7 120.9 137.0 167.0
Cotton Proc-rement Efficiency-5(Cost to BI7VC/LCA) 0.7 0.9 1.1 1.0 1.2 1.1 1.1 1.1 1.1
Labr Utilisation
Employees per spinning unit(running spindles per worker) 16.4 17.2 18.0 21.0 21.5 21.5 21.5 22;3 23.3
Employees per loom 2.6 2.6 2.5 2.3 2.4 2.2 2.2 2.0 2.0
Finencial Ratios-/
Total Debt/Equity 2.4 4.2 6.1 10.7 16.1 10.1 3.1 8.1 3.1Long Term Debt/Equity 0.4 0.7 1.2 2.3 4.0 3.1 1.2 1.0 1.0Debt Service Coverage (After Tax) 2.5 2.8 1.3 (1.9) (1.8) 1.1 1.2 1.7 1.7
Profitability (at current pricesin Tk million)
Sate. 1,295.0 1,516.0 1,820.0 1,813.0 2,072.0 2,482.0 2,827.0 3,176.0 4,004.0Cost of Sales:Raw Material 706.0 977.0 1,003.0 1,157.0 1,464.0 1,460.0 1,633.0 1,932.0 2,514.0C onversion Costs 336.0 451.0 485.0 494.0 711.0 733.0 773.0 841.0 915.0Depreciation 29.0 31.0 35.0 36.0 42.0 60.0 81.0 86.0 103.0Inventory Adjustment (23.0) (162.0) 176.0 135.0 233.0 20.0 - -
10 1.297.0 1,699.0 1 8 2.273.0 2,859.0 .859.
Gross Profit/Loss 247.0 219.0 121.0 9.0 88.0 209.0 340.0 317.0 472.0
Operating Expense 93.0 78.0 83.0 84.0 86.0 92.0 75.0 98.0 111.0
Operating Profit/Loss 154.0 141.0 38.0 (93.0) 2.0 117.0 265.0 219.0 361.0
Enterest - 25.0 35.0 58.0 139.0 125.0 155.0 171.0 205.0
34W 116.0 3.0 (151.0 ) 137.0 8.0 110.0 - 156.0Other Income 9.0 9.0 14.0 13.0 60.0 56.0 26.0 30.0 35.0
Net Profit/Loss (Before Tax)-Z 163.0 125.0 17.0 (138.0) 77 4.0 T - * 136.0 78.0 191.0
Taxation 118.0 81.0 67.0 31.0 36.0 83.0 75.0 43.0 105.0Net Profit after Tax 45.0 4.O0 (50.0) (169.0) (113.1) (3 5.0) 61.0 35.0 86.0
EarningS Ration
Cress Profit to Sales (7.) 19.1 14.5 6.7 _ 4.2 8.4 12.0 10.0 12.0Operating Profits to lales(. ) 11.8 9.3 2.1 (5.1) - 4.7 , 9.4 6.7 9.0Net Profit (BT) to Sales (7) 12.6 8.3 0.9 (7.6) (3.7) 2.0, 4.8 2.5 4.8
Usit Cost (in Tb)
Y-rn per lb. (average) 10.9 13.6 16.0 17.3 20.4 20.1 21.4 20.0 20.0Cloth per yd. (Grey Cloth) 3.6 4.4 5.4 5.8 7.1 7.1 6.9 7.0 7.0Processed fabrics per yd. 4.5 5.4 6.9 7.3 8.6 9.1 8.4 9.0 9.0
I/ Market projection is based cn(i) Croweth of population from FY74 at 3% frith sliding ratc of .05% each year up to FY79, 0.1% in FY80 and FY81, 0.2% frm FY82-FY84.
(ii) Consumption of cloth per head has been satimated #t 9.0 yds. In FY79 And asmued to increase at 0.5 yds. per head per Ann=a in mucceseive years,reaching 12.3 yards per capita in FY84.
2] 50,750 spindles were put into production during FY78. Tot-l e.pansien in spindlage including these projecte assumed to be 275,000 by FY82. Averagecapacity utilisation should gradually increase due to increased Availability of spsres, inplementatisn of BMB And installati.n of n.e pindles.
i/ Wastage should gradually decrease due to a higher ratio miS of rew cotton And staple fibre.
I On the basis of the FY78-FY79 cost per lb. the C & F cost of cotton and staple fibre h;a been asaned at 65 cent, and 60 cent, respectively.
2/ Internatfo-sI price is based on Liverpool market. The ratio of BTMC's purchase price to Liverpool price tAs 1:1.1 in FY76 atid 1:1.2 in FY78 and isexpected to continue in future.
§/ For 11 see prroJects long tern in-s, financing has been avs.untd at 49% of the totel project cot, with interest computed at 11.5%. For all newprojects equity has been proposed at 51% of the tLtal prniect cost.
72/ Net ptrfit haa been c Amputnd at 4.86. mtrk op no cost for the years FY7J-FY84.
- 101 -
ANNEX IXPage 1
BANGLADESH
IMPORTS PROGRAM CREDIT
THE EXPORT DEVELOPMENT PROGRAM
.
Background
1. Since 1977 GOB has made considerable progress in developing thesupport structure for its export development program. The Export PromotionBureau (EPB) was established in 1963 as a branch of the Pakistan Export Pro-motion Bureau. The EPB has a head office in Dacca and several branch offices.In 1977 the Bureau became a semi-autonomous body (under the Export PromotionOrdinance No. XLVII) and its structure was changed and expanded. Followingthe work of the Industrial Sector Mission in 1978, an Export DevelopmentProgram was included as part of the focus of the Seventh Import Program Creditagreement. The EPB not only prepared the Program but has been successful inestablishing the Program as a central framework for the process of developingexports from Bangladesh. From what was essentially an organizational shell in1977, the EPB has matured considerably with the assistance provided by IDA'ssupervision of the Program. Consideration of an Eighth Imports Credit hasalso provided the opportunity to ensure that GOB is encouraged to build onthe progress so far achieved, and to seek solutions to the problems that arenow more apparent.
Status of the Export Development Program
2. The Development Program covers three basic areas in the export devel-opment field (institution building, policy and procedures, and product studies).The current status of each of these areas is noted below.
Institution Building (EPB)
3. Recruitment and staffing has accelerated and about 17 key vacancieshave been filled during calendar 1979. Two senior (Director-General) positionsremain to be filled. Apart from these, however, recruitment is now on schedule.
4. EPB's capability in monitoring and progress control has improved.Since late 1978 a three-tier system has been operating. This was created byadding to the Export Coordination Unit a Central Task Force (CTF), and a seriesof nine Sectoral Task Forces for product groups, for which the EPB serves assecretariat. The early experience has been promising and minutes of the CTFshow that this group (Joint Secretaries of Industries, Commerce, Agriculture,Fisheries, Shipping and Jute, plus the Director General Industries, Chairman,Bangladesh Shipping Corporation, and senior representatives of Bangladesh
- 102 - ANNEX IX
Page 2
Biman, NBR, and Bangladesh Bank), which is chaired by the vice-chairman of EPBis attacking specific problems of exporters at a detailed level. Problems inreporting still existing in leather, handicrafts, marine products and agricul-tural and forestry products. Precision and regularity in reporting is beingupgraded in these weaker areas. A system of progress charting and follow-upis to be prepared by EPB.
5. EPB is conducting training at several levels. The National ExportTraining Program for FY80 is more comprehensive than the first program (FY79).The program includes seminars, workshops and courses on international market-ing techniques, export products, techniques for training in exports, a programof cooperation with national training institutes and in-house training forEPB staff. The program also includes an approach to improving skills in tradepromotion by exposure to foreign markets. No major obstacles were noted incarrying out the program.
6. Service activities of the EPB are progressing, although some delayshave been encountered. The Trade Information Centre will not be fully opera-tional until the second half of 1979 due to delays in providing the facilities(office space and other services). However, the system of distributing tradeinformation has been developed further. An exporter directory for Europe isunder preparation and material is on hand for preparing export guides. Amicrofiche reader printer is being installed and ITC statistical systems areavailable for when the system is commissioned. Foreign advertising and salesmaterials are being compiled as are company and product files of Bangladeshexporters. Import information (for exporters needing imported inputs) isbeing prepared to establish source registers showing reliability, pricingand standards for suppliers.
Policies and Procedures
7. A major role for the EPB, and one which it is not yet fully perform-ing, is to provide a strong lead in reforming and streamlining GOB policiesand procedures on exports. The Development Program includes several items inthis area. In general, EPB is committed to review continuously the policies,incentives and regulations of GOB and to make suggestions for reform. Itsability to review and its ability to persuade GOB on changes have increased;but there is scope for a more aggressive approach, especially given theattitude of the new Commerce Minister.
8. Export Performance Licenses (XPL) provide additional import licensesto exporters on the basis of a four-tiered percentage awarded on the f.o.b.value of exports. While the scheme is moderately effective, EPB has examinedit and finds weaknesses in its tendency to reward poor performance. In addi-tion, the scheme does not allow adequately for differential market penetrationcosts. EPB proposes to use the output of the Bank-financed DRC study (BostonUniversity) to rationalize the scheme and revamp the rates so that entitlementwill be a uniform rate applicable to net value added (and net foreign exchangeearned) but giving weight to such factors as labor intensity, new products,
-103-ANNEX IX
Page 3
and resource-based products. GOB/EPB have agreed to implement improvementsto the XPL system progressively from July 31, 1980.
9. The system of Customs Duty Drawback for duties paid on imported in-puts for export products has long been critized. Exporters see the system astoo bureaucratic, too slow, and prone to uneven interpretation. EPB has ini-tiated a Committee. (Member NBR Chairman, representative of Customs,Bangladesh Bank, Chambers of Commerce, exporters, with EPB providing an ex-officio secretary.) The Committee's brief is to examine forms, verificationmethods, recording bank guarantee possibilities and all ways and means ofexpediting and simplifying the process. GOB has indicated that the Commit-tee's review would be completed by July 31 1981.
10. EPB is also working on a review and rationalization of export pro-cedures and documentation. An adviser on trade statistics arrived in June andis working on a system of export statistics (in cooperation with CBS), and atrade facilitation adviser is being sought (from ITC and UNCTAD). A NationalTrade Facilitation Committee is being formed to provide a focus for implement-ing the reforms proposed by the new advisers.
11. An approach to improving export financing and export credit insurance,based on the progress already made by the Bangladesh Bank (see Sector Report)is planned. EPB is urging a still more liberal approach by the banks to pro-mote more widespread use of the Export Credit Guarantee Scheme (Sadharan BimaCorporation); to allow more decision-making at the working level; and to pro-vide more education to exporters on the use of the facilities. Pioneer statusfor certain export industries is also under consideration.
12. To enable Bangladesh trade officials abroad to function more effec-tively and to ensure consistency of approach, a manual has been prepared byEPB. The manual is based on the results of two regional workshops (Genevaand Bangkok). Reporting and follow-up systems are incorporated for monitoringthe trade promotion effectiveness of trade attaches.
Product Studies
13. The subsector work of the EPB has been concentrated in marine pro-ducts, leather, handicrafts, tea and jute carpets. Progress has been solidin general. A marine products adviser has established a price monitoringsystem and, through his work EPB is now issuing weekly Marine ProductsNewsletters. The Newsletter supplies weekly, monthly and quarterly dataon the four major products (FWS, SWS, P&D, SPL) covering spot prices, importsto major buyers, and trends in deliveries and prices for various qualities.Performance and quality in marine product exports should improve markedly,since exporters formerly had no information of this kind.
- 104 -ANNEX IXPage 4
14. A committee on the leather industry is currently preparing newpolicy guidelines for the industry. These should be announced towards the endof 1980. The findings are likely to provide the basis for a project aimed atupgrading the leather industry into more production of crust and finishedleather.
15. In order to improve supply and organization of marketing in hand-crafts, EPB took the initiative in forming a Bangladesh Handicrafts Manufac-turers and Exporters Association ("Banglacraft"). Thus, for the first timethe handicraft sector has taken on the aspect of an industry and has a repre-sentative association for promotion and development. EPB, while sponsoringthe formulation of Banglacraft, has ensured that it is independent from EPBitself and self-supporting in all respects. Banglacraft presents projectpossibilities, although it is still too new an organization to suggest anydetailed prospects. Clearly, the new association represents a means ofestablishing a flow of working capital from the commercial banks, throughBanglacraft, to the individual exporters.
16. A study of the tea industry has been completed by ITC advisers toEPB. An overall plan for developing tea exports and obtaining better qualityand prices is being prepared for implementation in the coming year.
17. A study of the jute carpets market was commissioned from EEC. How-ever, EPB has now cancelled their request and agreed that UNDP will financean ITC study which started in June 1979 with the report to be presented inMarch 1980.
An Export Strategy
18. The preparation of an export strategy has provided some problemsfor the EPB. The work was to be completed in three phases. Consultants(PA Management Associates) were retained for the first phase. EPB has nowreformulated the project into two phases. The work will be completed by EPBassisted by the Institute of Business Administration (University of Dacca).To date a draft Five-Year Master Plan for exports including five-year targetshas been prepare and will be published as part of GOB's Second Five-Year Plan.
Export Processing Zone
19. Progress on the preparation and establishment of the Export Process-ing Zone is slow. The work is currently under the supervision of the Depart-ment of Industries and is not controlled by the EPB. To facilitate thedevelopment of the zone, GOB will prepare by June 30, 1980, a revised feas-ibility study and detailed implementation program.
- 105 -
ANNEX IXPage 5
Exports: Achievement FY79
20. While export earnings in FY79 reached Tk 9.2 billion, exceeding theFY79 target of Tk 9.0 billion, the volume of exports, particularly of non jutegoods, was considerably below target. Analysis shows that supply constraint,(jute goods, leather, frozen foods) was a major impediment in export expansion.A second constraint is the lack of aggressive marketing methods; and, finally,shipping difficulties, port congestion, and lack of storage space at portstogether with inadequate inland transport facilities have impeded growth.
21. In general, however, performance was improved and targets appearedto have been realistic -- if not met precisely, they were met overall. Moreimportant, the EPB is now much better equipped and able to analyze the issuesand to focus attention on the key activities for rectifying problems. Inlarge part, this is due to the adoption, by EPB, of the Development Programas a central operational document. Use of the Development Program hasprovided the basis for establishing EPB as a relatively dynamic institutioninstead of a bureaucratic ornament. The progress achieved so far should bebuilt upon in a similar manner. Transformation of the bureaucratic approachin this way may be a key approach in Bangladesh, since abrupt liberalizationand de-control is unlikely to be acceptable (or feasible) given the recenthistory of the country.
- 106- ANNEX X
BANGLADESH
EIY-1i T"',TCTTS PR0G2:,A> CREDIT
1 77 Y 8')(Tk lNillions)
Actual TargetFY77 FY78 FY79 FY79 FY80
A. Primary Products
Raw Jute 1,765.4 1,454.0 2,160.1 2,280.0 2,450.0
Non Jute Goods a
Tea 558.7 679.1 620.5 655.0 700.0Frozen Food 262.2 291.7 532.0 600.0 800.0Spi.ces 19.6 20.6 17.9 30.0 30.0Fruit and Vegetables 3.4 12.4 5.7 30.0 30.0Betel Leaves 3.0 5.8 18.0 10.0 10.0Raw Cotton 6.1 18.4 19.0 20.0 20.0Animal Feed (Oilcake) 25.0 19.9 34.8 25.0 25.0Other Products 35.1 49.0 105.7 230.0 265.0
913.1 1,_96.9 1,353.6 1,600.0 1,880.0
Total Primary Products 2,678.5 2,550.9 3,513.7 3,880.0 4,330.0
B. Manufactureid Commodities
Jute Goods 2,677.5 3,735.0 4,'50.0 36 00.0 3,900.0
Non Jute Goods
Leather - Tainned 587.2 680.7 1,158. 700.0 750.0Naph/'Furnacc Oil 221.0 274.9 140.5 190.0 200.0Newsprint 22.4 88.2 89.6 85.0 100.0Paper 12.0 21.9 10.3 75,0 90.0Handicrafts 14.0 26.4 38.9 40.0 70.0Readymade Garments - 1.0 1.6 10.0 50.0Cables 7.0 2.4 29.6 30.0 30.0Sugar and Molasss-s 2.1 95.7 - 109.0 130.0Other Commodities 33.2 59.0 42.5 281.0 350.0
898.9 1,150.2 1,509.4 1,520.0 1,770.0
Total NTonufacturedCommodities 3,576.4 4-,885.2 5,659.4 5,120.0 5,670.0
Total Exports (A & B) 6,254.9 7,436.1 9,173.1 9,000.0 10,000.0
jut2 -on Jute ExportsEx,prts(Tk Million)
FY Total Jute Others Jute Others
73 2,710.9 2,435.9 274.8 90.0 10.074 2,974.1 2,603.1 371.0 87.5 12.575 3,Ubl.4 2,5z1.5 539.9 82.4 17.676 5,5]6.8 4,654.8 1,062.0 80.8 19.277 6,234.9 4,451.6 1,0'03.3 71.2 2M.878 7,436.1 5,189.0 2,21,7.1 70.1 29.979 9,173.1 0,310.0 2,863.0 68.8 31.280 10,C00.0 6,3,,O.O 3,650.0 63.5 36.5
ANNEX XI-107 -
BANGLADESHSEVENTH IMPORTS PROGRAM CREDIT
UTILIZATION BY SECTOR OF THE SEVEN PREVIOUS IMPORTS CREDITS(in US$ Million as at 11.28.79)
Category Credit Credit Credit Credit Credit Credit Credit Total345-BD 458-BD 515-BD 591-BD 676-BD 752-BD 866-BD
Agricultural Equipment 8.4 N.E. Nil N.E. S.E. N.E. N.E. 8.4
Fertilizers & Raw Materials tfor Fertilizer Manufacture 5.5 2.2 9.0 4.1 10.0 4.4 3.S 39.6
Components, Chemicals, Raw MaterialsSpare parts, Equipment and PackingMaterials for:
Jute Industry 1.6 3.8 4.9 5.7 7.5 4.9 - 28.4
Textile Industry 9.8 11.4 18.6 50.0 28.5 21.9 21.2 161.4
Paper & Board Industry 0.9 2.9 6.5 0.6 1.2 5.0 2.5 19.6
Food & Allied Products Industry 3.1 2.8 N.E. N.E. N.E. N.E. N.E. 5.9
Chemical & Pharmaceutical 7.3 9.6 7.3 15.3 5.0 3.9 5.3 53.6Industry
Sugar Industry 0.3 1.0 0.9 0.8 NE NE NE 3.0
Steel & Foundry Industry 0.5 7.3 9.6 8.7 3.0 . 15.3 16.9 61.3
Selected Export-Oriented N.E. N.E. 0.7 0.9 2.0 0.6 0.2 4.4Industries
Commercial Vehicle Industry 6.3 3.4 2.7 2.7 NE NE NE 15.1
Small Scale Industry 1.5 0.4 0.5 N.E. NE NE NE 2.4
Construction Industry 1.3 4.3 14.3 11.2 17.8 10.8 6.4 66.1
Ship-building Industry 3.3 0.9 N.E. N.E. NE NE NE 4.2
Telecommunications Industry 0.2 N.E. N.E. N.E. NE NE NE 0.2
50.0 50.0 75.0 075.0 66.8 56.0
N.E. - Not Eligible
Source: IBRD, Disbursements Division.