Document of

The World Bank

FMO O CIAL USE ONLY

Reut No- P-3669-UNI

PORT AND RECOKE:NDATION

OF THE

PRESIDENT OF THE

INTERNAIONAL BAJNK FOR RECONSTRUCTION AND DEVEOPMT

TO THE

EXECUTIVE DIRECTO RS

ON A

PROPOS LOAN

If AN AMOUNT EQUIVALENT TO USS41 KILLION

TO THE

i'EDERAL REPUBLIC OF NIGERIA

FOR A

SMALL- AID MEDIUK-SCALE INDUSTRY PROJECT

December 2£, 1983

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CURECI QUIYALETS

Calendar 1982 July 1983

Currency Unit = Naira (C) Jaira (X)US$t No.67 0.7531 = USS$149 1.34

Used in this Report: N I = USS1.51

ABBREVI5ONS

CBN - Central Ban of NigeriaFRI - Federal Ninistry of IndustriesIDC - Industrial Development CentreNBC'I - Nigeriaz Bank for Commerce and IndustriesNIDB - Nigerian Industrial Development BankSiE - Small- and Nedium-scale EnterpriseSSIC - Small-Scale Industry Credit Scheme

FISCAL YA

January 1 - December 31

.

FOR OMICIAL USE ONLY

NIGERTk - SMALL- AND MEDIUM-SCALE INDUSTRIES PROJECT

LOAN AND PROJECT SUMMARY

Borrower: Federal Republic of Nigeria

Beneficiaries: Federal Republic of Nigeria; Nigerian Bank for Commerce andIndustry (NEI)

Amount: US$41 million, including capitalized front-end fee

* Terms: Interest on the loan would be at the standard variable rate.Amortization would be over 17 years including 4 years ofgrace.

RelendingTerms: The Federal Government would onlend USS36 million of the loan

to NECI at a rete of interest of 9 percent per annum. Thisportion of the loan -- USS35 million for credit and USS 1million for technical assistance - would be amortized over 17years including 4 years of grace. Subloans to the finalborrowers would be subject to interest of no less than 12percent per annum with maturities of up to 10 years and graceperiods up to 4 years. Final borrowers would also be chargeda one-time negotiation fee of 1.5 percent. The FederalGovernment would carry the foreign exchange risk on the fullamount of the loan.

ProjectDescription: The project would initiate a program to develop, in five

selected states of Nigeria, a structure capable of providingtechnical advice and credit to small- and medium-scale enter-prises (SHE). It would strengthen NBCI as a financial insti-tution, develop its capacity to lend to SDEs, and trainfederal and state extension workers in the promotion,appraisal, and supervision of SMEs. In addition to credit andtraining, the project would provide for some further studiesconcerning the SEE subsector, in particular the potential ofsmall contractors. Since this would be the first effort at anintegrated approach to SME development in Nigeria, the projectcould experience some delay in putting in place the properinstitutional structure. The project seeks to reduce thisrisk through the strengthening of NBCI.

Thi documet has a resictddistnrbution and may be used by ecipients only in the perfomanc ofthcoiiad duie Its conutcs may not oexrwi be dilsed without Wodd Bank authon onL

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Estimated Cost: Local Foreign Total- --- US$ Millions----

Credit 20.0 35.0 55.0Training 6.8 3.8 10.6Technical Assistance to NBCI 0.6 1.0 1.6Studies 0.5 0.6 1.1Front-end Fee - 0.1 0.1Total Cost (including taxesand duties of USS5.1 million) 27.9 40.5 68.4

Financing Plan:

IBERD 0.5 40.5 41.0Federal Government 6.8 - 6.8NBCI 9.6 - 9.6Sponsors 11.0 - 11.0

-otal 27.9 40.5 68.4

Estimated Disbursements:

Bank Fiscal Year 1984 1985 1986 1987 1988 1989 1990 1991~~~-Z S-M- --S 1lions -- --

Annual 0.2 5.0 8.7 8.9 7.2 5.3 3.5 2.2Cumulative 0.2 5.2 13.9 22.8 30.0 35.3 38.8 41.0

Staff Appraisal Report: 3597-UNI, dated November 15, 1983

INTERNATIONAL BAh'K FOR RECONSTRUCTION AND DEVELOPMENTREPORT AND RECOMMENDATION OF THE PRESIDENT

TO THE EXECUTIVE DIRECTORS ON APROPOSED LOAN TO NIGERIA

FOR A SMALL AND MEDIUM-SCALE INDUSTRY PROJECT

1. I submit the following report and recommendation on a -proposed loanto the Federal Republic of Nigeria for the equivalent of USS41 million to helpfinance a small and medium-scale industry project in Nigeria. Interest on theloan would be at the standard variable rate. The loan would be amortized over17 years including 4 years of grace. The Federal Government would relendUSS36 million of the loan to the Nigerian Bank for Commerce and Industry(NBCI); of this amount, US$35 million would be further onlent by NBCI tosmall- and medium-scale enterprises at not less than 12 percent per annum(excluding negotiation fee), vith terms of up to 10 years. The FederalGovernment would carry the foreign exchange risk on the full amount of theloan.

PART I - THE ECONOMY 1/

2. An economic mission visited Nigeria in May/June 1982, and a CountryEconomic Report (No. 4506-UNI) was distributed to the Executive Directors onAugust 15, 1983. Selected social and economic indicators are given inAnnex I.

Background

3. Nigeria, with a population of over 90 million in 1982, is the mostpop-ulous country in Africa. Among sub-Saharan Bank members, Nigeria accountedfor about 45 percent of gross output and more than 60 percent of regionalinvestment in 1980. Its GNP per capita is estimated at about US$820 in 1982,which is twice the average for sub-Saharan Africa. While Nigeria, as a majoroil exporter since the early seventies, enjoyed a substantially improvedresource base from increased oil revenues, it still remains at a very earlystage of development in terms of socio-economic Indicators, in which itcompares with other sub-Saharan countries.

4. Following a civil war and 13 years of military rule, a new federalconstitution was adopted, and an elected civilian government came into powerin 1979. The constitution vests considerable powers in the state and localgovernments, while it maintains a delicate balance between regional autonomyand preservation of national unity. The country seems to have adjusted wellto the new form of government and to civilian rule, and national elections inAugust 1983 went, overall, smoothly. President Shagari was reelected by awide margin, and his party obtained a majority in both houses of the NationalAssembly.

1/ This section is substantially unchanged from the President's Reportfor the Fertilizer Project approved by the Board on September 13, 1983.

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Macro-economic Developments

5. Nigeria has been undergoing a rapid socio-economic transformationsince the upsurge of oil prices in 1973-74, which dramatically altered thecountry's resource position. During the seventies, Nigeria's developmentstrategy was based on sustaining a high rate of growth and diversifying theeconomy through the resources generated by the oil sector. The principleobjective of the policies pursued by the Nigerian decision-makers was totranslate the large oil revenues accrued--about US$100 billion in currentprices during the 1973-81 period--into investments in economic, social, andphysical infrastructure. While there have been some 'non-economic" invest-ments and waste, significant development gains were made in both economic andsocial infrastructure. Transport infrastructure, particularly roads andports, expanded considerably. Power generating capacity tripled, and refiningcapacity more than quadrupled since 1973. Manufacturing grew at an averageannual rate of 12 percent during the 1973-81 period although there was ahighly distorted investment structure. There also has been a rapid spread ofeducation at all levels; in particular, the primary enrollmeat ratio which wasabout 35 percent in the early seventies has more than doubled.

6. Developments have not been as positive in some other areas. Inagriculture, overall output remained virtually stagnant during the 1973-81period, with production of grains increasing at the same rate as the popula-tion growth rate, but production of root and export crops declining substan-tially. Within a decade, Nigeria became a major food importer (US$2 billionof imports in 1981). This was caused partly by sudden and rapid growth ofpublic expenditures, which outpaced the growth of public revenue, and which,along with a dramatic expansion in domestic demand, resulted in high rates ofinflation. Inflation coupled with an appreciating domestic currency pushed updomestic costs of production, thus putting the commodity-producing sectors ata disadvantage vis-a-vis imports and non-traded goods. This encouraged diver-sion of resources from commodity production to services (including trade andconstruction). Both agriculture and industry became "high-cost" producers.Trade and exchange rate policies, which were formulated in response tofrequent swings in oil export earnings, were largely used to dampen infla-tionary pressures or ration imports rather than to provide appropriate incen-tives to domestic production. This was partly due to the fact that, as aresult of the fluctuations in the world oil markets and their impact on thebalance of payments and government revenues, Nigerian policymakers have beenpreoccupied with short-term crisis management. This has diverted attentionfrom formulating longer term policies to reduce the country's dependence onoil and to strengthen the domestic productive sector.

7. The Fourth Development Plan (1981-85) was prepared in 1980 when theworld oil markets again presented a favorable outlook and, accordingly,reflects an ambitious investment program. It did not envisage, however, thesudden downturn of the world oil markets in 1981. The sharp decline in oilproduction by about one-third, to 1.43 mbd, changed the short- and medium-termprospects for the Nigerian economy significantly. The Government, during mostof 1981, was reluctant to come to grips with the situation and continued to

count, along with most observers of the oil markets, on a quick recovery ofthe oil situation. As the oil market deteriorated further, imports continuedto rise as importers sought to teat the likely impending shortage of foreignexchange. Consequently, the current account balance in 1981 showed a deficitof about US$5.5 billion, which had to be financed by drawing down foreignexchange reserves and external borrowing. By the end of 1981, foreignexchange reserves had declined to US$3.9 billion, almost one-third of thelevel at the end of 1980, and equivalent to only two months of imports. Likethe balance of payments, public finances were also strained, since oilrevenues account for more than 80 percent of revenues of the Federal and stateGovernments. The Federal Government kept its expenditure level in 1981largely intact by deficit financing, amounting to about US$6 billion. Thestate governments, which had increased their spending rapidly, partly as aresult of a shift of responsibilities from the Federal to state governmentsfollowing a change in the revenue allocation formula in 1,981, found it moredifficult to cope with the sudden shortfall in revenues, since they hadlimited access to domestic credit. As a result, some state governmentsresorted to borrowing abroad on a substantial scale. By the end of 1981,outstanding external debt (including undisbursed) of the state governments wasabout US$4.5 billion - slightly more than one third of the country's totalexternal debt. Despite the increase in imports and the attempt to maintainthe level of government expenditures, growth in the non-oil sectors declinedconsiderably. Along with the substantial retrenchment in the oil sector, realGDP declined by 5.2 percent in 1981.

8. In 1982, the oil markets continued to be slack, and Nigeria's oiloutput declined further to an annual average level of 1.29 mbd. In the faceof rapidly rising imports in the first few months of 1982 and mounting foreignexchange shortages, the Government, in April 1982, took a series of measures,including: (i) increasing import duties and quantitative restrictions;(ii) restricting imports through introduction of an advance deposit scheme;(iii) tightening customs administration; (iv) cutting back capital expendi-tures about 40 percent including stopping of all new projects; (v) increasinggasoline prices about 33 percent; (vi) increasing interest rates 2 percent;(vii) placing a $350 million ceiling on each state government's external debt;and (viii) restricting capital transfers abroad. These measures wereprimarily intended to arrest the further deterioration in the domestic andexternal financial situation, although elements such as increases in interestrates and the price of gasoline also reflect the Government's intention toredress widespread price distortions in the economy. In addition to thesemeasures, the Government has pursued an exchange rate policy which resulted ina depreciation of the naira of 19 percent against the dollar and 5 percentagainst the SDR during the period 1980-82.

9. The various actions have not yet been sufficiently successful inreversing the trend in imports, in part on account of the high level of importapprovals during the first quarter of 1982, prior to the April measures. Thecurrent account deficit reached US$7 billion in 1982. Because of a furtherdrawdown of foreign exchange reserves of about US$2.3 billion, reservesdropped to about $1.6 billion at the end of 1982. In addition, arrears inpayments of short-term trade credits of about US$3-4 billion developed during1982. Although payments on longer-term borrowing remained current, this had a

sharply adverse effect on the availability and cost of external borrowing aswell as on the continuation of normal trade transactions. The Government hassince taken measures to establish priority categories for systematic paymentof these arrears, and has started the process of rescheduling importantcategories of these trade arrears (see paragraph 12).

10. The Federal Government has generally found it difficult to cope withthe deteriorating financial situation, although the 1982 budget was reducedafter the stabilization measures were announced in April 1982. Budgetary cutswere imposed on capital expenditures, inevitably at a substantial cost toongoing development programs. The financial crisis was particularly acute atthe state level. Some of the state governments were even unable to pay civilservice salaries and had to resort to tne Federal Government for loans.Consequently, most of their projects were grossly underfunded, and some had tobe stopped.

11. In its 1983 budget proposal, the Federal Government adopted a con-servative revenue outlook, based on an oil production level of one millionbarrels a day 1/ and substantial cutbacks in planned investment expendi-tures. Certain projects with large foreign exchange requirements, such as thestandard-gauge railroad project, were deferred indefinitely. In January 1983,the Government introduced further import restrictions in the form of licenserequirements and higher tariffs to reduce the level of imports from US$1.3billion to less than US$900 million a month.

Adjustment Policy Issues

12. At present, the Nigerian economy faces two critical issues: first,management of the short-run financial crisis and stabilization of the economy;and second, longer-term structural adjustment of the economy by stimulatingproductive sectors, lessening dependence on oil, and generating a wider re-source base. With regard to the short term, the additional measures that theGovernment to k in January 1983 to control imports have helped to arrest afurther deterioration of the external financial situation. However, there nowremains the need to eliminate the external arrears, particularly in view ofthe requirement for substantial external borrowing in the near future. Dis-cussions with major overseas creditor banks resulted in the rescheduling ofthe arrears owed to these institutions (for confirmation of letters of credit)of about $1.4 billion accumulated prior to Narch 31, 1983. Repayments are tobe made over a period of 31 months starting January 1984. As a result of thisagreement, the commercial banks will likely make available to Nigeria arevolving trade credit of about US$1.0 billion. A subsequent reschedulingarrangement amounting to about US$0.6 billion, on basically the same terms asthe earlier arrangement, is expected to become operational in mid-November.The remaining documented arrears (estimated at $3.3 billion as of end June1983) are largely private non-letter-of-credit arrears incurred under "open-account- inter-company import financing. These will also have to berescheduled, but the arrangements to do this are likely to be more complex and

1/ Oil production is now expected to average 1.2 million barrels a dayin 1983.

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time-consuming. To these documented arrears must be added a backlog offoreign exchange requests awaiting documentation. The IMF, which has beenasked to examine tie possibility of assisting Nigeria through an Extended FundFacility (EFF), is taking the need for such reachedulings into account inputting together a financing package to meet Nigeria's minimal externalfinancing requirements for the period 1984-86.

13. While a rebound in oil revenues would help Nigeria to overcome thecurrent crisis, it will not resolve the structural issues facing the economy.More vigorous and consistent policies, beyond the measures taken to restorefinancial stability, will be needed to bring about structural change. Thechief requirements comprise: (i) further incentives for efficient exportpromotion and import substitution, including appropriate exchange rate,tariff, and credit policies; (ii) complementary steps to strengthen thebalance of payments through judicious management of foreign borroving andexternal reserves; (iii) continued control of aggregate demand throughprudence in monetary, fiscal, and wage policies; (iv) restructuring thecomposition of public investment to increase its efficiency; and (v) takingsteps such as raising interest rates and improving tax collection, to increaseprivate and public savings and investment. The Government is currentlydiscussing all of these policy issues with both the IMF and the Bank.

Prospects and Financing of Dev'lopment

14. Although Nigeria's exportable crude oil surpluses are expected to besignificantly reduced well before the turn of the century, the bulk of itsforeign exchange resources will continue to come from the hydrocarbon sectorsduring the next twenty years. This will probably include liquified naturalgas (LNG) for which a major production facility is estimated to come on streamnear the end of the decade and some petrochemical as well as oil exports. Tomaintain a momentum of growth, major structural changes are needed foradapting the economy to lower levels of oil export earnings. In the short-run, the volume of Nigeria's oil exports is likely to be determined by theancertain conditions of the world oil markets rather than by the deliberateextraction policies of the Government. It is projected that oil productionwould rise to 1.5 mbd in 1986, from its level of 1.29 mbd in 1982.

15. Terms of trade are expected to deteriorate somewhat in the short run,and then to improve beyond 1985. However, gains from terms of trade will notsubstantially alter the longer-run resource picture or the need for structuraladjustment.

16. External borroving requirements in the short- and long-term will besubstantial in riew of slow improvements in oil export revenues, the need toclear payment arrears, and the requirements of major ongoing projects. In1983, the current account deficit of the balance of payments is expected toamount to about US$3 billion (5 percent of GDP) and result in a large overalldeficit of about US$4 billion. The deficit will, in all liklihood, be finan-ced mostly by additional accumulation of private trade arrears, apparentlyalready incurred. In subsequent years (1984-86), the overall deficit islikely to remain large. Thus, the balance of payments prospects for theseyears are particularly troublesome. Large claims on foreign exchange earnings

are due in 1983-86, essentially on account of trade arrears and repayment ̂fpublic guaranteed debt. Even under conservative assumptions with respect toimports--virtually no change in real imports--borrowing requirements for theperiod 1983-86 are estimated at about US$11 billion; even at this level theinvestment program would have to be highly constrained. Since the level ofreserves :s already quite low, further drawdown cannot be used to finance thedeficit as happened in 1981 and 1982. Thus, quick disbursing externalborrowings are needed to fill the gap. Estimates of future debt serviceratios have had to be revised upwards in the light of lower forecasts of oilproduction and prices and, more importantly, of the arrears. The debt serviceratio, which has been quite low until now (around 9.6 percent in 1982) isexpected to rise to 20 percent in 1983. If all trade arrears were liquidatedduring the 1984-86 period on terms similar to those being rescheduled, thedebt service ratio would jump to 35 percent in 1984 before declining to 33percent in 1985 and 27 percent in 1986. However, it is likely that the tradearrears would be rescheduled over a longer time perio; in which case thesedebt service ratios would be lower. Beyond 1986, the debt service ratios arelikely to be 20 percent (with d conservative assumption of oil production of1.5 mbd) or less. Thus, whilst recognizing that Nigeria has a short-term debtproblem, our judgement is that Nigeria is creditworthy for medium- and long-term borrowing provided sound economic policies are pursued by the Govern-ment. Indeed, increased lending that would disburse over the next few yearswhen the debt service ratio is sharply increased and thus import capacitysharply reduced, would be a vital component of the economic reform andrecovery program (para. 13).

PART II - BANK GROUP OPERATIONS IN NIGERIA 1/

17. Bank and IDA lending to Nigeria as of September 30, 1983 amounted toUS$2,362.8 million (net of cancellations). The amount of these loans andcredits disbursed as of September 30, 1983 was US$1,068.5 million, leaving anundisbursed balance of US$1,294.3 million. Agriculture accounts for about 48percent of total commitments; transport, power, and water supply together forabout 37 percent; and education, industry, urban, and the post-war rehabili-tation loan for the remaining 15 percent of total commitments. There havebeen only two IDA credits to Nigeria, for US$35.3 million; both are fullydisbursed. IFC has made five loans to borrowers totalling US$17.3 million,and six equity investments totalling US$4.9 million. Of these amounts, US$5.7million have been repaid, cancelled, or sold. Annex II contains a summarystatement of Bank loans, IDA credits, and IFC investments.

18. As a result of the abrupt decline in earnings from oil, publicrevenues have fallen sharply, causing many of the ongoing projects to run intoserious counterpart funding problems. This issue is particularly acute forsome of the state-level agricultural projects. The Bank, the Federal Govern-ment, and the relevant state governments have taken various measures to

1/ This section is substantially unchanged from the President's Reportfor the Fertilizer Project approved by the Board on September 13, 1983.

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alleviate the situation. The Bank has agreed to the reallocation of proceedsand revision of disbursement percentages to speed up disbursements, and theFederal Government has established a development loan stock scheme providingsupplementary loans for agricultural development projects in the states. As aresult, the prospects for state funding of Bank-assisted projects are nowbrighter.

19. In view of the efforts made by the Nigerian authorities and theserious foreign exchange constraints projected for the coming years, wepropose to continue to respond positively to the Federal Government's requestfor additional financial and technical assistance. However, such assistancewould not be fully effective without some changes in the country's macro-economic and sectoral policy framework. The Bank is therefore considering, asa priority, assistance of a fast-disbursing nature aimed at supportingspecific macro-economic and sectoral policy initiatives; this includes, in thefirst instance, the Fertilizer Loan approved by the Executive Directors onSeptember 13, 1983. The Bank is also considering a request from theGovernment for a Structural Adjustment Loan (SAL).

20. Provided appropriate policy changes are obtained, an expanded Banklending program would aim primarily at the urgent diversification of Nigeria'seconomy to reduce its excessive dependence upon petroleum as a source offoreign exchange and fiscal revenue. At the same time, the Bank would con-tinue to support efforts to raise the productivity of the lowest income groupsand thereby diminish the incidence of absolute poverty in Nigeria. As inrecent years, the Bank would continue to provide major support to agricultureand rural development, with particular emphasis on institution-building andtransfer of technology. These objectives are in line with the Federal Govern-ment's priorities under the Fourth Plan, which places considerable emphasis onagriculture, and emphasizes the need to use the proceeds of the country's oilrevenues to increase the productive capacity of the economy, and thereby raisethe standard of living of its population, particularly the rural poor. TheBank would similarly support efforts to stimulate a well-balanced andintegrated development of Nigeria's industrial sector. This approach wouldentail a combination of intensive sector work, policy dialogue with theGovernment, as well as Bank assistance for industrial projects in crucialsubsectors, including the currently proposed project.

21. Projects in agriculture and industry together should account for alarge share of Bank lending in the coming two or three years. Effectivesupport for the commodity producing sectors will also require strategicinvestment in production-related infrastructure, however. There are goodopportunities for the Bank to make a significant contribution in energy, watersupply, and highway maintenance. Similarly, there is a strong case for con-tinued lending for education. In this context, vocational, technical, andteacher training would be given special emphasis. Finally, the Bank wouldsupport the Federal and state governments' efforts to spread the benefits ofgrowth to the social sectors. It is envisaged that some of the pressingproblems of rapid urbanization will continue to be addressed through a numberof urban development projects focussed on the needs of the urban poor. TheBank is also considering a request from the Federal Government to assist inovercoming the country's health problems, and has started a dialogue with theGovernment on population issues.

22. Although annual disbursements have increased from US$52 million inFY1978 to nearly US$167 million in FY1983, Nigeria's disbursement performancehas lagged behind that of other countries in the Region. In the last threeyears, undisbursed balances have progressively increased and now stand at 55percent of the US$2.4 billion in loans and credits approved. One of thereasons for this development is the rapid expansion of the Bank's loan port-folio since 1979 as well as the fact that a number of large loans, withrelatively large, planned disbursements during the early years, were extendedduring this period, mainly for agricultural projects. In many cases, however,there have been long delays in loan effectiveness and institutional andmanagement problems that have slowed down disbursements. Recently, theinadequate counterpart funding of projects by Federal and state governmentsresulting from lower oil revenues, has been the principal cause for slowdisbursements. The disbursement record in agriculture has been mixed- Atleast until recently, disbursements have been generally faster in the case ofintegrated agricultural development projects, but substantial shortfallscompared to appraisal projections have been registered in the tree crop,forestry, and livestock subsectors. Similarly, education and power projectshave been particularly slow in disbursing. The Federal Government, with theassistance of the Bank's Resident Mission, is now carefully monitoring loandisbursements with a view to early identification of problems and the takingof corrective action. Also, the Bank has recently agreed to a series ofmeasures aimed at accelerating disbursements under both ongoing and newprojects (para. 18). These efforts are beginning to show results.

PART III - THE INDUSTRIAL SECTOR

23. Although the industrial sector has so far played a relatively smallrole in the country's economic development, its importance has increasedsteadily. Total manufacturing accounted for approximately 4.7 percent of GDPin 1974-75 and 6.1 percent in 1979/80, reflecting an awerage annual growthrate of about 14 percent. However, while the aggregate growth of manufac-turing output, largely fueled by the oil boom, was relatively high in the1970s, some industries remained either stagnant or declined. Overall, produc-tivity may well have fallen during the decade, and the structure of outputremained relatively undiversified. Intra-sectoral linkages have so farremained weak, and geographical dispersion has not been significant. As aresult of the Government's indigenization policy, equity has been las-elytransferred to Nigerians. However, management, particularly of larg vindustries, remains by and large in the hands of expatriates, due substan-tially to the shortage of sufficient qualified, indigenous managers.

24. Manufacturing is dominated by the traditional sector in terms ofemployment and by the modern sector in terms of output. Large scale and smalland medium scale modern enterprises (SMEs) each account for about 8 percent ofthe total manufacturing work force. The remaining 85 percent is comprised ofartisans outside formal establishments. The average size of production unitsappears to be growing, reflecting in part the increasing number of largegovernment-owned complexes such as those producing steel, chemicals, and tex-tiles. At the saae time, although the proportion of small firms does not

appear to have changed much, the number of medium-sized firms seems to bediminishling, at least in relative terms. This development is worrisome, sinceit is precisely ihese enterprises whi'!h reinforce sectoral linkages, disperseinvestment and employment, and provide experience for future managers.

Government Policy and Institutions

25. Although the general business environment in Nigeria has always beenstrongly private sector oriented, Government has greatly influenced industrialdevelopment, bot-h directly and Indirectly. Directly, as in many other oileconomies, Government has undertaken most of the country's investment in largeindustries of national importance for which local private capital was notavailable. Indirectly, private sector investment decisions have been affectedby a host of government decrees and regulations aimed at promoting andregulating industrial development. This, however, was achieved to a largeextent through Increasing recourse to tariff and quantitative protectionmeasures, resulting in large distortions in the domestic price structure andin the pattern of industrial investment. Mainly as a result of governmentpolicy, modern industrial developmeit has been blased to some extent towardslarge government and foreign-owned industries, many of which depend onimported inputs, and rely upon excessive protection and budgetary support.Efficiency is generally low.

26. The recently issued draft Industrial Policy and Strategy Statementand the Guidelines for the Fourth National Development Plan C1981-85) recon-firm the Government's commitment to industrial development as one of the maipillars of Nigeria's long-term development. The Government's aim is todevelop industries using local raw materials (especially agro-related),strengthen intrasectoral linkages, emphasize manpower and technologicaldevelopment, disperse investment regionally, promote export-oriented indus-tries, and stimulate small-scale industries. Priority is being given to foodprocessing, textiles, building materials, engineering, chemicals, electricalequipment. and household durables. Labor intensive industries are also beingencouraged. A more vital role would be assignad to the private sector, withthe role of Government focussed on infrastructure investment, establishment ofan appropriate legal and regulatory climate, and undertaking investment inheavy projects such as steel, fertilizer, LNG, petrochemicals, and cement. Onthe whole, these plans seem to be an important step in the right directionbut, to realize the plan objectives, will require a major and time-consumingeffort on the part of the Government, particularly in identifying and imple-menting the necessary policy changes and establishing the appropriateadministrative mechanism. The Government has asked the Bank to assist in thisregard (para. 41).

27. Industrial policy making and management is the primary responsibilityof the Federal Ministry of Industries (FPI), although there is some overlap ofresponsibilities between federal and state agencies. In practice, PHI has sofar concentrated most of its efforts on assisting large industries. The stateministries of industries have focussed on providing industrial extensionworkers to assist SKEs, in which field the states have a comparative advantagebecause of their intimate knowledge of the local environment. The NationalAdvisory Committee on Small-Scale Industry provides advice to federal and

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state agencies on SKE promotion. Outside government, the University of Ifehas established its own small industries consultancy service. and the ILO-supported Centre for Nanagement Development is actively eagaged in workingwith SlEs.

28. Desp-5te its bias in favor of large industries, FRI has become in-creasingly committed to assisting SKEs. Based on a USAID-financed studycarried out in 1962, the ministry has now established 13 Industrial Develop-ment Centers (IDCs), and is planning six new ones to cover all of the 19states by next year. The IDCs provide assistance and guidance to small in-dustries on process techniques, selection of machinery, training, and manage-ment through the establishment of workshops and provision of specializedmachines, service and teating equipment, libraries, training courses, andextension work. The centers have suffered from serious financial and staffingconstraints, however, and there has frequently been a lack of coordination andcooperation between the IDCs and the relevant state ministries. Despite theseproblems, the basic concept underlying the IDCs is sound. Given adequatefunding and staffing, detailed operating procedures, and a careful implementa-tion of expansion plans, these centers should be able to operate as centraltraining points for staff from state mizistries in the appraLsal, promotion,and supervision of SNEs. Moreover, they are well placed to act as referralcenters for difficult technical and managerial problems encountered by stateextension officers.

29. The Small-Scale Industrina Credit (SSIC) scheme was established bythe Federal Government in the mid-1960s, and now covers all of the 19 states.It relies on matching funds from the Federal Government and the states, but isbeing managed by state agencies, generally the state ministries of industries.The scheme aims to promote and appraise small projects, and to provide creditto them. It has had some success in establishing a core of industrial exten-sion officers and a pipeline of projects, although performance has variedconsiderably from state to state, and the credit component has generally notbeen successful, either in the selection of sound beneficiaries or in loanrecovery. In all of the states, however, the scheme has been affected by moreor less the same problems as those affecting IDCs: inadequate funding andstaffing and insufficient coordiaation and cooperation between the variousimplementing agencies. Despite these inadequacies, the concept of state-levelorganizations for SXE promotion and appraisal is justified. Given propertraining, the industrial officers in the state ministries are generally thebest placed persons to know the needs of and to ad ise small local entre-preneurs. However, the ministries are not well equipped for handling thefinancing aspects of the scheme which could best be provided for by a finan-cial institution. The Federal Government has, in fact, stopped making fundsavailable to the states through the scheme, and has instead. since 1981, beenrelying exclusively on the Nigerian Bank for Commerce and Industry (NECI;para. 35) to channel these funds.

Financial Policies and Institutions

30. Nigeria has a relatively well-developed and highly regulatedfinancial system. In. addition to a number of merchant banks, state andfederal development banks, savings banks, mortgage banks, and other financial

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institutions, there is an extensirz commercial banking network that isincreasingly spreading throughout the country. Commercial banks havefurnished about two-thirds of term lending for manufacturing, mainly to well-established firms, but hare consistently failed to reach the Central Bank ofNigeria's (CBN's) targets (para. 31) in respect to locally-owned small-scaleenterprises. As a result, apart from lirited funds available through the SSICscheme, Ye:y little organized form of credit exists for small-scaleenterprises in Nigeria.

31. CBN, in addition to its regulatory functions, has played an activerole in fostfring and directing the growth of the financial sector. It hasparticipated in the promotion of the domestic money and capital markets,sustained the establishment of such development bauks as the Nigerian Indus-trial Development Bank (1IDB), NBCI, and the Nigerian Agriculture and Cooper-ative BannL. It has required commercial banks to establish additional branchesin rural areas, and has set sectoral guidelines for commercial and merchantbank lending. Currently, commercial and merchant banks are required to allo-cate at least 36 perceent and 41 percent, respectively, of their total loansand advances to the manufacturing sector. Moreover, 40 percent of total loansand advances are required to have maturities of not less than three years, andbanks should maintain a mini-um credit allocation of 70 percent to indigenousborrowers of which 16 percent for small-scale enterprises. CEN also setsinterest rate guidelines, subject to periodic revision. Since November 1982,these guidelines provide for interest rates across sectors ranging from 6 to13 percent with a maximum lending rate to industry of 11.5 percent for loansmaturing within three years and of 13 percent for those with longer maturi-ties. The lending rate guidelines for KIDB and NBCI now range from 10.5 to 13percent. Although interest ratis in Nigeria are still below the rate ofinflation projected at 15 percent for the medium term, rates have moved upconsiderably over the past few years. In addition, the Government and the IMFare discussing the need to move to a more flexible interest rate policy whichwould take account of developments in domestic prices and interest ratesprevailing iL international financial markets.

32. In view of the partial overlapping of NIDB's and NBCI's activities, a1976 government study recommended that NIDB assume the rolp of apex bank forlarge-scale enterprise lending and NBCI similarly for SXE lending. Both bankswere also expected, as part of their apex lending roles, to furnish technicalassistance to client commercial banks and state development finance compa-nies. So far, however, NIDB and NBCI have limited their activities mainly todirect equity and loan financing of medium- and large-scale enterprises.Although a combination of apex banking with direct lending by NECI appears tobe the most appropriate mechanism for SHE assistance, the Federal Government,NBCI, and the Bank agreed during appraisal that the currently proposed projectshould only deal with direct lending by NBCI to keep this first effort at SHEdevelopment as simple as possible.

Constraints and Prospects

33_ in view of the urgent need to diversify the economy (para. 13),industrial development through the establishment of viable productive enter-prises will have to be accelerated. However, as mentioned earlier, this

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development has been less than satisfactory. Various important disincentivescontinue to affect all industrial actlivities. For example, no city or town inNigeria is i= a position to offer adequate industrial infrastructure, and theenterprise which does not have its own power and often water supply winl besubject to frequent production interruptions. In addition, all activities areaffected by faulty communications, difficult transportation, and elaboratepublic administration requirements. Other disincentives affecting SIMa areinsufficient human skills and financing. Concerning human skills, there doesnot appear to be a lack of entrepreneurial initiative, but rather a lack ofmanagement and technical skills. Insufficiency of capital is less a questionof absolute availability of financial resources than one of inadequate finan-cial intermediation, which has resulted in serious funding problems for SMEs.Finally, as mentioned earlier, but perhaps even most important, governmentsupport for industrial development in general and for the SEE subsectordevelopment in particular has been inadequate. As a result, output and em-ployment growth have been in the larger firms and in the small informalsector. On both counts there has been a relative decline in the importance ofmedium-scale industry, which is essential as a link between heavy capital-intensive operations and small firms. To reverse this trend, the Governmentwill have to (i) alter the current incentive system to encourage investmentsconsistent with overall government policy, (ii) streamline administrativeprocedures for processing domestic and foreign private sector investmentapplications, (iii) continue to improve industrial infrastructure, (iv) im-prove its project promotion and evaluation techniques, Cv) speed up the domes-tic capacity to promote and evaluate technological development, and (vi)provide training aimed at overcoming the most serious manpower shortages.

34. The alleviation of these constraints would significantly increase thepotential for the industrial sector and for SHEs in particular in view of thegroving level of general economic activity, rising consumer demand, and theincreasing recognition by Government of the potential role of SEEs in thecountry's economic development. For example, in the five target states sur-veyed for this project, about 300 firms with projects costing nearly N60million apppear feasible over the next three years. The longer term prospectsare also good as existing large enterprises establish linkages with SEEs, andthe economy is restructured to encourage productive activities on a broaderbase. In this context, NBCI will have an important role to play.

Nigerian Bank for Commerce and Industry

35. NBCI was established in April 1973 to promote and assist indigenousenterprises in the areas of commerce and industry through eqaity investments,loans, guarantees, underwritings, and merchant banking services. Its autho-rized and paid-in capital is N50 million. The Federal Government and CBN areits sole shareholders, subscribing to 60 and 40 percent of shares respective-ly. NBCI's board of Directors is largely made up of experienced businessmen.Its senior management is competent and well trained, but quite thinly spreadand hampered by lack of experienced support staff. NBCI currently employsabout 130 professionals, of whom about 80 are engaged in appraisal and super-vision activities. Although NBCI's draft policies and procedures need to befurther refined and complemented, they provide an adequate institutional -

- 13 -

framework for NBCI's activities. Their endorsement by NBCI's Board would be acondition of effectiveness of the Loan (Section 6.01 of tLe Loan Agreement). 1/

36. As of March 31, 1983, NBCI had approved a total of 306 projectsamounting to -1332 million, of which equity investments in 108 projectsaccounced for 8 percent, loans in 290 projects for 71 percent, and guaranteesin 30 projects for 21 percent. The average cost of approved projects was N2.0million, while the average size of NBCI's assistance was N0.8 million. NBCI'sactive portfolio, as of December 31, 1982, consisted of about 180 projectsamounting to N110 million, of which loans accounted for 196 million and equityinvestments fer N14 million. Partly as a result of unorganized and inadequateinvestment supervision and recovery efforts, the overall quality of NBCI'sporfolio is weak, with about 63 percent of the portfolio affected by arrears,of which about two-thirds has been due for more-than one year. For thisreason, NBCI's management recently undertook an action program to intensifyproject supervision, improve loan recovery, and reduce arrears. Initialresults are very encouraging, and the rate of progress on its organizationaland procedural components is satisfactory. The program includes reorga-nization and staffing of investment supervision activities, implementation ofa complete general accounting and control system designed by the bank's audi-tors, and establishment and staffing of a separate Investment Recovery Unitwithin the bank's Accounts Department.

37. 1'BCI's net profits over the five years preceding 1980 averaged about2 percent of net worth. Since then, however, growth in operating costs hasoutpaced earnings, and NBCI has recorded losses of N0.1 million in 1980 and12.4 million in 1981. Several factors have contributed to this decline inNBCI's profitability. First, additional borrowings from the Government athigher costs than previously have significantly raised the financial expenses.Second, establishment of several new branch offices with resulting increase instaffing has maintained the administrative costs at a high level. Third, lowinterest rates charged on SME loans, at the Government's request, have notallowed for a sufficient spread. Fourth, returns on equity investments havebeen relatuvely low. Finally, NBCI's arrears situation has necessitatedincreasing provisions against portfolio losses. Prospects for a rapidimprovement in NBCI's profitability are, however, reasonably good. TheGovernment has, in principle, agreed to convert N60 million of its N110million outstanding debt into equity, which would significantly reduce NBCI'sfinancial expenses and, as from the beginning of 1983, NBCI's interest rateson all loans have also been raised. These developments, coupled with morevigilant portfolio management, project supervision, and intensified collectingefforts, already underway, should result in restoring NBCI's profitability toa satisfactory level.

38. Though the existing arrearage and low profitability situation is areason for concern, NBCI remains creditworthy and financially viable becauseof its strong equity base and low level of borrowings. NBCI's long-term debtto equity ratio has consistently remained low, ranging from 0.4 in 1977/78 to

1, This condition has recently been met.

- 14 -

2.6 in 1982. The corresponding figures for total debt to equity were 0.6 and4.6, respectively. So far NBCI has borrowed mainly from Government at subsi-dized rates. Although the Government is expected to continue assisting NBCI,the Government's own budgetary constraints would not allow it to provide allof the long term funding required by NBCI over the medium to longer term.Because of NBCI's current weak portfolio and profitability situation, it wouldprobably also have difficulties in obtaining long-term loans from commercialsources in the near future, a situation which is expected to improve graduallywith the institutional strengthening to be provided from the technicalassistance component of the proposed project.

39. Despite its present institutional weaknesses, NBCT is endeavoring todevelop into an effective development finance institution specializing in theprovision of assistance to SHEs, thus complementing NIDB, which concentrateson larger projects. NBCI has already obtained a considerable knowledge of thesector because of its involvement in the SSIC scheme. The technical assis-tance program included under the project is expected to considerably enhanceNBCI's institutional capabilities, particularly its expertise in SME lending.

Bank Role

40. The Bank Group has been involved in Nigeria's industrial developmentsince 1964. At that time, IFC was instrumental in the recapitalization ofNIDB. IFC has since participated in six investments in Nigeria. The Bank hasapproved four lines of credit to NIDB of US$6 million, US$10 million, US$60million, and US$120 million in 1969, 1970, 1978, and 1983 respectively. Thelatter line of credit (Loan 2299-UNI) was approved by the Executive Directorson June 2, 1983. A Project Performance Audit on the first two lines of cred-it, dated October 10, 1977, conclud=d that the projects had been implementedsatisfactorily, but that the Bank's impact on the sector as a whole could havebeen mwre extensive. OED also suggested the use of banks such as NIDB andNBCI as apex lenders to state, local, and commercial banks to stimulate theflow of long-term lending, but it was agreed during appraisal that the cur-rently proposed project should first aim at strengthening NBCI's direct lend-ing operations.

41. The project would be an essential and integral part of the Bank'sefforts to stimulate a well-balanced and integrated development of Nigeria'sindustrial sector. On the whole, the Government's broad sectoral objectivespoint in the right direction, but their realization will require a major andtime-consuming effort on the part of the Government, particularly in formu-lating and implementing the specific policy changes that are needed forestablishing the appropriate administrative mechanisms. The Government hasasked the Bank to assist in this regard. Accordingly, the Bank is undertakinga major program of economic and sector work with the objective of providing abasis for a continuing policy dialogue with the Government on issues affectingthe industrial sector. More specifically, this program aims at providinginputs for current government efforts at translating the Government's broadindustrial development strategy into concrete policy changes designed toimprove industrial efficiency and encourage greater private initiative. AnIndustrial Incentives Report has been completed; this proposes a medium-termprogram of measures (including adjustment of exchange rates and reform of the

- 15 -

incentives and protective system) to restructure the incentive system, toimprove its administration, and to streamline the regulatory framework. Thisreport was discussed with the Government at an interministerial committeemeeting in April 1983, the outcome of which was generally positive. TheGovernment has already indicated its intention to implement certain of thereport's recommendations (e.g. phasing out of duty concessions on importedinputs), and has asked the Rank to provide an industrial incentives technicalassistance loan to support these efforts. It is also expected that necessarypolicy changes in relation to trade protection incentives will be addressedunder the proposed EFF program (para. 12) as well as the possible SAL (para.19). A preliminary study of Financial Intermediation has been completed, withfollow-up work to be undertaken to, among other things, (a) identify or devel-op further mechanisms for financial intermediation; and (b) help formulatemechanisms for the Government to productively invest its oil revenues. Oursector work program also includes studies (at various stages of preparation)on several key subsectors, such as construction materials, agro-industries,basic metals and engineerings, petrochemical industries, and industrial in-frastructure. These subsector studies also aim at identifying promisinginvestment opportunities for Nigeria and developing suitable projects for BankGroup financing. An in-depth review of the public investment program inmanufacturing has recently been prepared, and is currently being discussedwith the Government. The recently approved fourth line of credit to NIDB willreinforce ongoing and future sector policy dialogue between the Government andthe Bank while supporting the main objectives of Nigeria's industrial strategyby focussing on priority subsectors (e.g. agro-industries and intermediategoods). The currently proposed loan will complement this approach by encour-aging employment creation, efficient regional dispersal, and strengthening anddeepening of the financial institutions and SME extension service systems.

PART IV - THE PROJECT

42. The Rank first appraised an integrated small-scale industry projectjointly with UNIDO in 1973. During negotiations, the Government and tne Bankwere unable to agree on some organizational and procedural issues, and furtherconsideration of the project was deferred. Subsequently, during the appraisalof the Third NIDB project (para. 40) in 1978, both parties agreed that aneffective approach to industrial development would require an integratedeffort to reach both large and small firms. In practical terms, this meanssupplementing Bank lending to NIDB, which concentrates on relatively largeindustrial projects, with some other lending scheme that would focus on SMEs.Since then, work has been carried out to survey the potential of and con-straints to SKEs. The concept and design of the proposed project reflect thiswork as well as extensive discussions with federal and state officials. Theproject was appraised by the Bank in March 1981, and the Staff AppraisalReport (3597-UNI) is being circulated separately to the Executive Directors.Negotiations were held with federal and NBCI representatives at the Bank inDecember 1981. Although the draft documents were approved by the President-in-Council and NBCI's Board of Directors soon thereafter, the submission ofthe documents to the Executive Directors was held up pending the resolution bythe Nigerian authorities of various issues, including the onlending rates and

- 16 -

institutional arrangements by NBCI for the recovery of outstanding loans.These issues have now been settled. Supplementary data on the project is tobe found in Annex III.

Project Objectives

43. Two important considerations underlie the project design and objec-tives. First, the topographical diversity of Nigeria, combined with ethnicand language differences, necessitates a decentralization of an SME credit andtechnical assistance program to the local level to reach entrepreneurs intheir places of work. Second, the size of Nigeria, the diversity of SMEproblems, and existing staff constraints impede inplementation of a nationalindustrial credit and extension program in one project at this time. Any suchprogram must initially be limited in its geographical scope, and phased over anumber of years. The proposed project represents the first phase of a longer-term program. To begin with, five target states-Cross River, Imo, Niger,Ondo, and Plateaurhave been selected in consultation with the Government;these states are extraordinarily diverse, and the proposed project shouldconsequently provide relevant experience for an effective expansion of theprogram to most other states of the Federation.

44. The basic objective of this pilot project is to develop a core oftrained manpower and an efficient institutional structure capable of providingcredit and technical advice to viable SMEs. To this end, the project wouldstrengthen NBCI as a financial intermediary, develop its capacity to lend toSMEs, and support the Government's growing efforts at assisting SMEs by train-ing federal and state extension workers in promoting, appraising, and super-vising SMEs.

Project Description and Implementation

45. The project would provide:

(i) a line of credit to NBCI for onlending to SMEs (US$35 million);

(ii) a comprehensive program of technical assistance for NBCI tostrengthen its effectiveness in financial intermediation and lend-ing to SMEs (US$1 million);

(iii) support to FMI to establish an effective training program forfederal and state extension workers and IDC staff, thereby develop-ing a local capability for technical assistance to small and mediumentrepreneurs (US$4.3 million); and

(iv) funds for studies on the small-scale industrial sector, includingthe need for incentives, the potential for small-scale contractors,and the production by SMEs of local building materials (US$0.6million).

46. The line of credit to NBCI would provide term resources for financingof fixed assets and permanent working capital in viable SME projects. Eligi-ble borrowers would be 100 percent Nigerian-owned enterprises whose total

- 17 -

assets (including existing and those proposed to be financed under the line)would not exceed Nl million. Other general eligibility criteria include (a)residency within one of the five pilot states; (b) proper business registra-tion; and (c) equity contribution of at least 20 percent to the total projectcost. Eligible subprojects would need to have a local value added of not lessthan 35 percent and a minimum economic rate of return of 10 percent. Further-more, to ensure that a minimum share of credit would reacn small-scale enter-prises and/or labor intensive projects, at least 30 percent of the line ofcredit would be earmarked for enterprises with total assets not exceedingN300,000 or for projects with a cost per job of less than N7,500 in 1983constant prices (Schedule 1, para. 1 of the Loan Agreement). All subprojectapplications from NBCI would incorporate a capital intensity analysis. NBCI'ssubloans under the line of credit are expected to average US$0.5 million,which is considerably smaller than the average size of NIDB's subloans.

47. The line of credit would finance up to 100 percent of the amount ofNBCI's subloans subject to a ceiling of 70 percent of the total subprojectcost, the latter coefficient estimated to represent the direct and indirectforeign exchange content of SME investments in Nigeria. Loans to subborrowerswould carry maturities ranging from 4-10 years, inclusive of a grace periodfrom 2-4 years; the average maturity is expected to be 8 years, inclusive of a3 year grace period. All loans to subborrowers would be denominated inNairas. The Federal Government would assume the foreign exchange risk in viewof the lack of sophistication of SMEs and in line with the Government's objec-tive of facilitating their access to credit at a reasonable cost. The finallending rate to SME borrowers would be at least 12 percent, in addition to aone-time front-end fee of 1.5 percent. Subborrowers would also be charged acommitment fee of 0.75 percent on the undrawn balance. These charges would beadjusted in light of any increases in or additions to the rates and feescharged by NBCI on its overall lending operations (Part A of the Schedule tothe Project Agreement). All in all, the minimum effective cost of credit tothe final borrowers would be about 13 percent. The adequacy of NBCI's inter-est rate structure would be reviewed annually by the Government, NBCI, and theBank, taking into account the CBN guidelines, NBCI's average cost of re-sources, and its overall competitiveness (Sections 4.03 of the Loan Agreementand 2.06(b) of the Prcject Agreement).

48. To assist NBCI in improving its institutional capabilities and par-ticularly its development banking activities in the SME sector, the projectwould include a comprehensive technical assistance program. This assistance,to be provided by a suitable overseas banking institution with experience insimilar activies and/or by experienced individual advisors, would focus onNBCI's SME development activities. It would concentrate on project lendingand supervision techniques, while also covering such areas as branch opera-tions, accounting, internal control, financial management, portfolio admini-stration, loan recovery, and legal procedures. The program would aim atmanagerial and staff training through on-the-job coaching and training visitsto similar banking institutions overseas. This program is expected to beimplemented over three years and to require up to five man-years of long-termand three man-years of short-term advisory services as well as about 45 man-months of overseas training for NBCI staff.

- 18 -

49. The training of extension workers would consist of about 96 man-yearsof training (about 27 outside Nigeria), covering some 815 participants in 63different training sessions and courses. Although the program would focus onthe training of state-level extension workers in the five pilot states, itwould also include personnel of FRI, IDCs, and NBCI branches. The trainingprogram would be administered in several phases broken down by course contentand target group. Where possible, extensive use would be made of local con--sultants and training facilities.

50. Implementation of the training program would be the responsibility ofa project monitoring unit within the Small Scale Industries Division of FMI.This unit, staffed by three full-time officials supported by up to four man-years of short-term advisory services of three expatriate training experts,would design course curricula, lead courses, locate local and external train-ing resource persons, arrange for training facilities, and monitor courseparticipation and attendance. A three-year program outlining the courses bysubject, duration, and location has been formulated. The courses would coversmall loan management, investment appraisal, project implementation, andsupervision. Courses would be geared to the needs of specific groups andwould be largely carried out in the respective places of work. Staff andfacilities of the IDCs and other suitable local training institutions would beused to the maximum extent feasible. Adjustments to the proposed trainingwork program would be made, as necessary, by the project monitoring unit.

51. Since the proposed project is only a first effort at SNE developmenti-a Nigeria, some studies will be necessary to identify potential areas forfurther small-scale entrepreneurial development. Consequently, the projectwould assist FMI in carrying out a study of the small-scale industrial sub-sector, incluiing the need for incentives and the present extent of and poten-tial for SME sub-contracting with particular reference to the building mate-rials industry. The findings and recommendations of this study would provideinputs in defining the proper course for further SME development in Nigeria.

Project Cost and Financing

52. Total costs are estimated at about US$68 million (including taxes andduties of about US$5 million) of which the foreign exchange component wouldamount to US$40.5 million or about 60 percent. A breakdown of cost by majorcategories is given in the Loan and Project Summary.

53. The proposed loan of US$41 million to the Federal Government wouldfinance 65 percent of total project cost, net of taxes and duties, and wouldcover the foreign exchange costs of the project and US$0.5 million of localcosts of the training component. Of the remaining project costs, the Govern-ment would contribute about US$6 million, NEBCI US$10 million, and sponsors ofsubprojects US$11 million. The Bank loan would be amortized over a period of17 years including 4 years of grace. The Government would carry the foreignexchange risk (para. 47).

- 19 -

Onlending Arrangements

54. The Government would onl.nd US$36 million of the loan to NBCI at arate of interest of 9 percent per annum but otherwise on the same terms as theBank loan. The 9 percent interest rate would allow NBCI a spread of 3-4percentage points (para. 47), the minimum required by NBCI for covering itsloan processing costs. The difference between the rate charged to NBCI andthe Bank rate would be borne by the Government. The signing of a subsidiaryagreement between the Government and NBCI would be a condition of loan effec-tiveness (Section 6.01 of the Loan Agreement).

Procurement and Disbursements

55. Procurement of equipment and goods under the credit component is notsuitable for international competitive bidding given the relatively small sizeof investments to be financed under the line of credit. NBCI's procurementguidelines are adequate, but, since they have not always been enforced, theBank would closely monitor the procurement procedures. Procurement ofconsultancy services (US$2.4 million) would be on terms and conditionssatisfactory to the Bank. The project would require about five manyears oflong-term assistance and seven manyears of short-term assistance at an averagecost of US$16,500 per man-month. I/

56. The proposed loan would be committed during the period 1984-88, anddisbursements would be completed by 1991. The first three subprojects fromeach of NBCI's branches in the five pilot states would require the Bank'sreview prior to commitment, irrespective of their amount. Thereafter, a freelimit of US$150,000 per subloan with an aggregate limit of US$10 million wouldapply. After one year of operation, these limits would be reviewed andadjusted as appropriate. The Bank would follow normal disbursement proceduresfor the credit component, reimbursing 100 percent of approved NBCI subloans upto 70 percent of subproject cost. Disbursements for technical assistance toNBCI and studies would be against 100 percent of foreign expenditures, and foroverseas training and technical assistance to FMI against 100 percent of totalexpenditures. An advance of US$286,500 has been approved under the ProjectPreparation Facility to allow for the early recruitment of key expertsrequired by both NBCI and FMI.

Benefits and Risks

57. The promotion of the SME subsector is essential to the establishmentof a viable and balanced industrial sector in Nigeria. Yet, despite goodpotential for growth, development of this subsector has been constrained bythe unavailability of adequate financing and the relative weakness of thesupporting financial and technical assistance agencies. A major benefitexpected from the project is that, by strengthening NBCI's institutional andfinancial capabilities and upgrading the skills of the federal and state-level

1/ Including basic salary, allowances, gratuity, medical and educationbenefits, settlement costs, international travel, and company overheads.

- 20 -

extension workers, the project would make an important contribution towardsalleviating these constraints. The improvement in the provision of extensionservices and in NBCI's financial intermediation would in turn stimulate in-vestments in the subsector and enhance the quality of SME development inNigeria. An added benefit would be that, by requiring all investments underthe project to locate in one of the five pilot states and to meet the Bank'susual criteria of economic, financial, ad technical viability, the projectwould contribute to the promotion and realization of more efficient enter-prises away from the traditional centers of industrial development, such asLagos. Finally, as mentioned in para. 46, investments to be financed by NBCIuader the project are expected to be considerably smaller than those supportedby NIDB, the other financial intermediary receiving DFC-type lines of creditfrom the Bank, thus enabling the Bank, under this project, to reach enter-prises at the lower end of the industrial spectrum.

58. Project implementation faces some risks. The project would be afirst effort by the Bank to provide integrated assistance to SMEs, and couldthus be subject to possible delays in improving or putting in place the deli-very structure. The technical assistance and training component is designedto reduce this risk. There is also some risk that subprojects under theproject would not meet the technical, financial, and employment objectives setby NBCI and agreed by the Bank. However, this risk would be largely mitigatedby the Bank's process of subproject review and approval, and subsequent moni-toring of subproject performance.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

59. The draft Loan Agreement between the Federal Republic of Nigeria andthe Bank, the draft Project Agreement between the Bank and the Nigerian Bankfor Commerce and Industry, and the report of the Committee provided for inArticle III, Section 4 (iii) of the Articles of Agreement are being dis-tributed to the Executive Directors separately.

60. Special conditions of the project are listed in Section III of AnnexIII including the following conditions of effectiveness of the loan and dis-bursement of the credit component (Section 6.01 of the Loan Agreement):

(a) signing of Subsidiary Loan Agreement between the Borrower and theNigerian Bank for Commerce and Industry (NBCI); and

(b) approval by NBCI's Board of Executive Directors of its policy state-ment.

61. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Bank.

- 21 -

PART VI - RECOMMENDATION

62. I recommend that the Executive Directors approve the proposed loan.

A. V. ClausenPresident

Attachments

December 28, 1983Washington, D.C.

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OF iUXCN ANiMAL AMD PULSSE24

350 2.CHILJ) (AM 1-4) DENTR

I~~~~~ATL

s519

1,06.2

AN ORSSw S RArE (PER 200 5) 30.7 63.7

19.1 117.6

I D.*IFAS

153.E 153.0

133.01w

~~~~ ~~~~~~~~~~~25.6

049

lo so, ,ATER (%lop)

70.5.

ACCESS

12.3

37.

ACCES '0 KICRETA D,ISPOSAL(2 loIPOLAflO63

TOTAL.

630.070RURAL

569~~~~73500. 0.07?64.

pouRSnowMpIIN17.

4

Poll: SI MPI5 o o 0 0OA

2 2 370YI0

I.3926.7

6.

RIUM

AVERAGE SIZE OFIDMURRMI67

AVERAGE V0- or 193os/3041

3.0 2.21Aesw

4~~~~~~626

.

6.2

AcCEsS T0 ELECT. (y of iwsi.wIVGS)

4:A1.

URBR

--347

a IwrrY ARAVILABIE-23-AlIEg I

Page 2 of 5

ILGEA - SOIL IM5CA1UR DAI -L1 /a

nes 010ST' OIOsE - IUA ) lbffCL'.",Xg IDOLE DNOMMMM

1W9 I.97d E AFRIC S.ir FSAA 5t AERICA _ MM M-!ID E

ra==u sa&HL.M sALJPRL4MY: TOAL 36.0 37.0' 98U Y7.Z 9.6

ALE 46.0 47.0 *- 103.1 104.,PEBALE 27T O 27.0 . 88.5 7Z.4

SEDAY: -O.AL 4.0 4.0 Lb_0 17.2 41-7!IAE 6.0 6.0 23.5 52.6FEBALS 1.0 3.0 . 14.2 31.2

waCrINSAL ( OF SEO3MA-E) 4. 8.5 3-11t 5.2 10.3

VUPIL-ITEAim AIOPRI.ILWT 30.0 34.0 . 42.9 31.9SECO DATa 19.0 21.0 -Z 23O7 23.3

ADULT LITERACE RAZE (;) t5.4/e . 34.0 37.1 '3.3

?ASSEICER CARS/TAOGSAM POP 0.6 0.9 1

4a. 18.8 18.0RADIO *ECEIVMSITHDUS POP Z.6 t9.3 66.1 97.8 138.1T1 1iEAVES/TIWSAsm OPt 0.0 1.1 5.3 16 45.6AD.SAP£A (OAILX II EMAL

Lvmacsr}) CI=LUXrLsPER TiDLa SO LOP;UATIO 5.5 4._ 6..91f 1d8Z 3.0O

CL-rA AQr= AXEVDAICAPLT .. -. 0.4C U.6 1.7

tLA

tOmi. LABO RISCE C(}WS) 217885.0 2599Z.0 31635.0FLSALZ 5ERCE~t) 4L.3 40.6 39.8 36.L 10.7a SiLTUIE (FERCEr) -t.O 6Z.0 54.0 56.8 42.5

.IUUSIWL C(EPCZSh) LO0 14.0 19..) L7.5 27.5

PARTICIPATI'hL R" CPERCT)IUTAL 4.2 39.3 36.1 37.0 25.6:-ALE 50.3 47.3 44.0 47.1 45.4FESALF 34.4 315 28S4 27.o 5.6

EIC OEFESE3CI i841 1.1 IZ L.4 1.3 1.-

- DPCEr OF PEzV-E 1hERECEIVED Er

IGOESr e F OFgzY 2OF 5 .OUSEOLDS -

LDUS ZZ OF OISEOLDS . ..1WESr 4= OF MOUSEaDLIS . ..

Pa D T CmsESTiXSAD ABSOIUTE POVES! ISOLEVEE (USS M CAPItA)

URAS . 696.01k 534.2 276.1MURAL .341.01k 255.9 177.1

ESTIBAIED RELATIVE POVEEM IlCtlFElEVEL (US3$ FEl CAPITA)

tlilfAS 62I_01k 491.5 400.0RURAL . 207.07i 18.1 283.3

E-TI1AIED POFP 8ELLh ARSOLUZEPOVEAY 18M8E LEVEL CZ)

03545 .. ..A.. .' 22.0MU=AL *- *- *- 30.8

.. T AVtAILABLE3I07 APPLICABLE

la The group averages for esAh Indicator am population-weLghted aritimtic mans. Cove_age of coutrIes g theIndicators depends on availabilLty of data and Ls not unifors.

lb Unless otherulse noted. -Data for LbO- refer to may yr betweet 1959 and 1961; -Vata for t970- betmen 1969 and1971; and data for -lost Recen Est1mts- batwas 1979 and 1981.

fe 1974; Jd 1977; le 1962; if 1976; & 197Z; /b IncludLng em-North Cameroon uer BrItish admInItratlon; I Certainfields of study prevIosly clamsfied under other second level education of vocational or technical nature are nowreported under genral edecatLon: 11 197S; hk 1982.

May 1953

saaaaAaaj ;a~~~aaaaA pa. aasfln aaaa~~ aid A.-aai -ss zq.. LR n-a). v-nnsasM--..cn -tin - n-nf -i--f n- isad . -Mainnn-t pa -aai-Satta L

it.Cp asaad .mnanidd aaad- in p aflaa-.aad,I - laa

__'_a -P.1~ .ta S bds) Ai4p- n-.- aan a-a t.? IS'-.I .7d It. a-Idi

-nfl -(aaaa au-sia-1 .ia.m -i-ainsI iltaam ladPa-iad aas .a_ita-. n-ai u-i-tt- J -Pn iaai -iM a;n -* -f-- a---a-a alatisat mca a; am-sn(- is azn'is-a--diai -3.-a man .. pt*- a- tat-aitnq

l- .a-an A-d; psi-pa ani t Laiza a an-- naaA-ai-naadd aada a- *auas. sm ia

daida mMasai it.a-. - -- i.z asiian.- Zupt -nan-n !' a~aa a-a4 m- a na -1pisai

- i*i-a p. a-an - (flitiid Sn) Pai II~ at-id ldnIS raannaan Y T i- "a t i-i-a-an . ain-ad -api-i All -I.

s-t.ti tzat.ai i-f-at.. i-a..- t~ 5a, addeap iaa-isri - iflt. tAN t-% -2 paa -w aaaaan.di- M.ana)aa 5a - a-arMtelna atimp-Ia i~i aa-iiit la-anam an. aaa ac n - lana ama fatIm ca1 !.-.Ma a- F-n vit. A

- ua -aknt -(tut id 1))a-i tci.gaaaas -am pi=a. -. .s-M .aana: 5n as-P ia- 1a -. (iataM ia) aa Laianada cad

-olaiLnac i- - a-na-aL. - -. aatanai! laat. -a:: in d.-anaL an& Ast.a - .-ai- mama. ana-aaaa.

A. n."T.3-M 3 ~ ~ ~ ~ -arcma- na -i -Ts as-niJ atdd- -an -'a- padad ny .a-ti.

is sa-s. a -zi-d a a-aza : ania- aaaaad& a--a-m )naia Jataaa antnj!ea I -iaa t-ariasa a sin. .i C-as. -a5 :-SiE a-a -aa-la --- a-zz ~ d l.-iaif-m a.a-aaa)p---i sa.aa--ti -an-na an-.;aa qann PI.W-da, a

p- 2.3-N 'ftl-a n -j A~~~~~~~~U? in ca-a nt- P n-a V- OV-A A p.-av a-a- .-ia ptiaJ.- 2- --_ddn- an a- as- -n*t'a ana.-1 =a- P- `II-a- -ia alza a-n - -sa-a a

- aa pa ~ s-IiAd- isatntda--nn nta -n."aS ia-ass) at p dId` a pa-dI a-i %n.la- !ia- d%~ raSa-sadd, -d- a-as-_; ads -a-in. "san 5- s--AddL anda-nv u- a -z- -na- ca4-isa I-ia-A-

U a-t aau-a -n~tispt'dea c aaa-a-na-as -aana a-adn a4 n sa- ani da-a n-a_T s , c -ma -una iA. nan na-i

0%i iafln5 ASin~ w15 - ~ flcp ia-i p-n a-si ma inaa- aa..Aa- aar - -n cmaVaa ha aizaa iihiAasia id- -z-'Ar s-ii- nsa nIiciIaitpdn-.

da 2- P" AL Wi itc nt-dsa?dlsanaa'.,i naa- -idai.aaaa- a-m ~'iaPa. -s-a a tq ti.aaa - AL.s-ta, -3 acsa-an)najinr mn a-a p-sdq asaaasa acaa-d isia.- - na--nsa

a dadd"ada a- "Aa TV M V-~ -1--m "P.M lldS .ns- sIt . n.... t- u-au .aa-a atinc1 al5 -p-a

wapiad-- dIdtaap -?-d a- vn- ci-a a.it i- a-aaIm acct a- cnaa- -mm .au-at.. S) a--S -iaa.n.as.i pa-d,'A; ai*a.aai aa-c.sa di~ at. aO--n ' cad -daiiaW i

-anaa) n-f-i f A. d.-anaa .n. nn- a; pan tnii- ac ~-. t.d t.aila ca-.adisaa mn n--s a-.amna-r a idar.dnaiaam a paa.saaaa -p- I-ia .Sn'da -a--s a sid s-adal p-a. isnsa -( an." aaSti. flaAa-

- sn-s-., ts aaa-i a - caasniaa- Pi-nagsaaj ~Al-na a -a-abs_d I - A .3

-as- an.-aa-anaat.i a ti J_ s- aiin 1 =-a~ p.aiaaafl -tCl

ni-i qnaaai -atin sa%- adcnn 11 nsa aa aaa-amn p-- l;a-a..at aaa-a a-saat. n- -a p-az- -aaipsi- n

is sa-Si t

n-qn- n--li- 2-a.z; a -a cAl-a ba-e--n -nap, :a ataa- aln-

n-4 P-ft -mrsw v-r-n Air- !--z do-t-m- A-wd-pi..s s-a-;l d -nai;s aIi" Pan-na- aa -vn as pi-11s~ we_ us.- - -i -Tu- Ai1 St- a-ca an- Siii -d--Pa -in-n3-a - aw1 -in-fldai -;P dant- (atn -s-i -Maa )apt anaa , aaaa. - .-i -. aa ia-is Aa-ni st -i ii.a an-- t.Sii" -M t-ana nat.l-ai -a-ld

na anis- a-au.a-a- - ap-a~a is-asni - -ia-a a'uaa)-aaC-.s-napmea 'lgs '-i LIcna

n- da a-lant -._ sas-a a- -andf-sisl siaa innnlA an It-a i *

T a- aa1Saan s- a- -s-d" ~a -_d ii a- LiiaP nia.- _ %-na11-a s-a%I-n aik ain tn-.

Lspa-a aana - wS - atas n aa- aaaa- I-an apad- ina5- -% ai - fun _ -it- ia-itdaid

a-ia-Su-a pa.- M ana-l~a~ -A un- 2a- las.q-t II jI AII-.ia -au--a .ana-ls ta WiiLian

at-I P~b nnua,a as-t-i 1 pi- lina t.nn Laad .as-.apanz si-n .naid n -p-anti-a -za nlla

A.T-dadd p- I",dII p- T-Id." aunatn-- -i aaannCc dna--ta -- 4

Ta-ada a-azsn- u -ILaaaaa ia tin nta-aI nn aii detnns aLasa n-a -ainanUhl Manta..

Aq I.;.-s p5Cti.n-ta-a? -al Sia-a- ani d llfls i- I.itd aa

ann San an.na -c -s- t a-a - a-1 tI~ I- plq- iar adaa- --i a-uCt -a 5In5It mu tniaiaedlIcd nan- d- :-a'z :na T,ai 1- laa-S i- aiia nAitsa a-a n -Si taad --

ni P1-n-Sa-n-a-ni-ata i.apnna-ae-- aap-fe -p- na-a..d-didCi- -- ian- t.I P-SIai.

p- dW 2- IdIa. a- --. dIt. n M- AT ndalaadt anta a a-it. iStad - Is. -Trnat-izm -dc a-n-i

~~SiaaW -i5 n5 laa d sSit v-a -- P-naain a -daas at.)annacanlta l d- in -I a-p-a-a-a. m- -ns scI-Te ;.Inaal l- ama an Insais- va-l4wad nilawa. -t-la

I-az an 'anadan aa-.s)idii - Pz 'pta---i .- v ; zdId-d PU.dd ni-at---n maan-na- ns sn a

andi d- - Aa-nasaInn ft_., d- 4- . .- --- An pas- itataatIa naiaa nfs-tcaa an~ naan ta In-a-- va-caad -a.a ad

pip-snI La; i.asa -ivan-z .a-ninnana-n--alaila inct - Sq -a- a-I a nicaIm gcn.ima-n in -.ns t.lnaa i tnud -as..ai d anllf"ililrasa -ama-SiI-it j cd - P a- p-la ataa--i`zet o P-nt-in

anlsinn nitaaA a n asan an InlaId -i a:mplaaa- '-uaz sanat A-ti-I a a-t-ai, mad An- - aiS) flC i

-p-ma mniaan P ~1-al a-aEn-i a_dac in v--ar It-aa 'a-natW-5 tPil niiptn5t da-a noi~ -ttsn.a -n - nat

71 tz~~~~--anlt-Sticaq. -a5-aa nn-n-tSaa naqa-taan i -

ann-i-a~ n-i -aa iln '-u-sn--it oai -sn- RaVm-a a-diana-aap-nn nicu-; ia- ~np

BEST COP-Y AVAILABLE- 25- ~~~~Page 4 of 5

ECOIOMIC INDICATORS

G10SS NATIONAL PRODUCT IN 1982 ANUM.L NATE OF GROWTICS, Constant PrIces)

US$ NIn. /if S 1975-80 1981 /21 1982 /1/

GNP aet arkct Prices 7t1,402 100.0 3.5 -5.1 -4.BGross Domestic Investment 18,330 25.7 1.2 6.9 -1.4Gross NatIonal Saving 10,419 14.6 1.2 -46.5 -52.1Current Account Balance -7,341 -10.3Exports of Goods,NFS 13,65T 19.1 5.5 -39.8 -14.3Imports of Goods ,IFS 18,743 26.2 6.3 11.4 10.0

OUTPUT, LlBOR FORCE AIDPRODUCTIVrTY Il 1992

Value Added /lI Labor Force 131 V.A. PER Volrker

05U$ Il. S HiQ. S Us A S

Agriculture 16,038 22.4 19.6 59.t 878 40.2Ibdustry & Mining 27,627 38.5 6.2 18.9 4,320 197.5Services 2S,086 39.1 7.0 21.3 4,012 183.4

Total/Average 71,T51 100.0 32.8 100.0 2,188 100.0

GOVERNENMT FINANCE

General Government Central Goverment

Cs Iln.) S of GDP Cs Qin.) S of GDP

1952 1.1 1982 1.1 19T9-81 141 1982 /if 1982 /li 1979-81 14/

Cmrrent Receipts 13,352 27.2 37.2 7.341 16.0 21.5Ctrrent Expenditure 9,265 18.9 17.9 4,86 9.9 10.2

Current Surplus 4,087 8.3 19.3 2,4T5 6.1 11.3Capital Expenditure 8,785 IT.9 19.1 T,173 14.6 15.5External AssistanCefnet) - - - 264 0.5 0.4

MONEY, CREDIT AND PRICES 1976 1977 1978 1979 1980 1981 1982

(Mlllon ff Outstanding End Period)Money and Quasi Money 5.T32 7,439 T7873 8,409 12,133 14,14T 15,409Bank Credit to Public SectorCnet) 551 2,309 3,779 2,675 1,943 6,112 10,061Bank Credit to Private SCctor ' 2,423 3,465 4,605 4,673 6,508 8,569 10.086

w ' CPercentages or Index lumbers)loney & Quasi Money as S of GDP 20.T 22.9 23.1 20.8 25.7 29.8 31.4

General Price Indez(19T5=100) 123.9 143.0 166.7 186.3 204.9 247.5 266.5Annual Percentage Changes in:

General Price Index 21.7 15.4 16.6 11.8 10.0 20.8 7.7Bank Credit to Public Sector _ 319.1 63.T -29.2 -27.4 214.6 64.6Bank Credit to Private Sector 34.8 43.0 32.9 1.5 39.3 31.T 1T.7

Note: All conversions to dollars in this table are at the average exchange rate prevailing during periodcovered.

/1I Staff estimates. 121 Offlcial estimates. I4/ Provisional./3/ The data i3 derived from planning documents and refers to the nueber of 'gainfully employed'.Sa !ot AvaWlabliSpl nber , 193

- 25 -

lag S of 5

TRADE PATNENIS AMD CAPITAL FLOMS

BALANCE OF PAYMENTS - NERCIIDISE EXPORTS (AVERAGE 1980-1982) /4/

1980 Xtf. 1981 /2/ 1982 /3 USS KlnU. S

CRllions US 8)Export3 of Goods,NFS 27,006 18.511 13,657 Crude 011 18,288 96.93:por,.s or Goods.FS 17,64T 21,839 185T43 Cocor Products 262 1.4

- -Palm ?roducts 23 0.1Resrurce Cap(Defncit = -) 9,359 -3.328 -5.086 Tin 1E 0.1

Other Ca_ Lties 280 1.5Interest Payments (net) -1213 -653 _426 -Oth.tr Factor Payments (net) -3,259 .1,494 -1.056 Total 16.5T1 100.0Net Transfers _576 D563 -373

-- ~~~~~~~EXTERJIAL DEST, DIDEBE 311, 19oZ I5SBalance on Cur-ent Account 4,311 -6.042 -T7341

Direct Foreign Investment -739 165 358 aSS Qm.

Net Ofricial HLT Borrowing 651 811 758 Public Debt, lmc. Undisbursed 14,697Disbursement 1,138 1.416 1,246 Eom-Guaranteed Private DebtAmortization -48T -604 -490

Total Outstanding & Dlsbursed 6.085atber Capital Cnetl 134 409 496

Errors and Omission 189 -1543 -570

Change in Reserves DEBT SEMVCCE RlTI For 1982 /61increase C.) 4,545 -6.200 -.2,248

__ __ __ ____ ____ S

Payment Arrears - - 4051Public Debt, Incl. Guaranteed 9_TNon-Guaranteed Private Debt

Fuel and Related MaterialsImports Total Outstanding 4 Dtlbursed

or uhLch: Petroleum 402 480 450Exports

of which: Petroleum 24,942 17.172 12,751 I=DDA LENDNG CJUNE 30, IMXR1llioms 8)

RATE OF EXCHANGE- - D~~~~~~~~~~~~~~~~~~~~~~~13 IDA (3

1977: 11.00 = USS1.5519T8: 31.00 = USS1357 Outstanding & Disbursed 756.5 3.91979: 31.00 - USS1.66 Undisbursed 4$_9B.1IV, -1980: 1100 = U5S11831981: *1100 = USS1.63 ObtstndiS lenl Undisbursed 1,S4-6 31.91982: 11.00 = US$1.49

III Provisional. /2/ Otrficlal estimates. /31 Staff *tUmates.14/ Official estimates for 1980 and 1981.I5V Excluding short-term loanS./6/ Ratio or 5LT .7ebt service to exports of goods and non-factor services.171 Inctudinc a toan signed but not yet effective.IS1 Prior to escbange rate adiustment.

Not AvaiLabte

September 8, 1933

BEST COPY AVAILABLE- 27 - a- t

VWs &TAMU OF EaN mo opATus

6 srrNE ov r SAMi mIr IF TOS i CKA 11tj et Sptebetr 30, 1953)

or (toSS comeiat-beAU __.t Clea eauceeura)

by? _n naeed men eteje wl diitend 6 1J3.7 33.

10*5c See mslq 20.0 0.lot 17 iaI Uwn,wck 21.0 1.01103 1915 Kigetie Rtc~ DewIenm.ut 17.5 2.01133 1975 NIgeria W.V. Sce OIL Wer 13.0 0.21191 196 migeri S.c. Scaa Ol Palo 19.0 11.214 7 e. NV. mis27.0 1.01&SS 1977 Nigeria Agrie. 1ec. Aynngbn 35.0 0.3

1 19 figeia D.c. S_c. s0aouer oil 30.0 641397 1976 NM tiL Daiunant 60.0 V.31667 1979 nigerIa Ap. DM. 3" , 2.0 7.01*666 13.79 Sg1f In Lc. NV. Tori 2U.0 18.0167) 1979 Wigar"n Forestry 31.0 11.21711? 1" ei er S2.0 7.01719 197 Nigeri egic.. 4 Nanta bee. lant. 9.0 7.01t7 20 an a100.0 201S7 1960 NibeIa Dna Nwe nt - _aed 17.8 1.716 1930 igea 4grLc. Dew. - Oje-Voi 2.0 11355 3930 Nigeria ~ric. Mew. - lia-Abck. 32.5 23.313 190 _ Ia 10.0 6I.3161 16 NEIU ldc. . - ".3193US1Z31 NigerIa Ai. . a 142.0 11.0

1961ss NignCla Dc.M1ac-xc 47.0 39.0rm it tuft Uch. Amatem n.oIC2035 1932 igerIa e Spply - mbua P.o 62.423 112 UA line - CDLtribution 100.0 "9216S 12 Uigeri Aertc. De. - SOkot. 147.0 162.7229 1 3 I b X irtel D-4e1geet t 20.0 120.02345 3565 NgerIa lzrtiLim Ingot 250.0 23.

D.eul 2,337.5 35.3 1.2CC w_in nn b rm 255.0 3.6

Awunt wowL 16.5

Ofr uStk boa bees r4apei 15 .

!a?al em be" ' T a Ia A21 03. 31.7

al i ta 1294.3

(eA Of Septgnhe 30. 193)

165. 1967. 6g etIa s eel Wg. 1.0 0.5 1.S190

1965 NigerIa ladunulaa by. nI_. Co. 1.5 1.4Nwve1ownt Nsen Ltd.

173 7 In cottonmeed Tog. an 1.6bunking Ltd.

ign i _ 1.00. X~~~~~~~~~~arno 28. , caan

1V7 1121g.sa ge 0.1 0.1

1960 -3 6J .S1" js Xczl 1~~~~~~~~TSd_ .S 1. 6.9

1962 Dn.ja Nate! Maria. ~~~~ ~~~7.5 1.6- 9-3

ot 0C C*" ttCed . 17.3 4.9 22.2

Ane CNCOellaClOe 1.5 0.1 16lae mold -d tpad 2.6 1.5 41

Total ~t_tuc snoaw ld by lJC 13.2 3.3 15.3

*ibra . 1.6 3.4

ett jotfctiwTM geSten of tirm proectn ote"I to n PtA An detad Is a m t ort e al U*ID

etueed projects In emi-tiu , uhleb 1 1q4erdate6 rel yearly e cl_culated to tim UscutIvallctder em 'eepr 30 n-d Octrat 31.3, ftlor to kae rwte - djmtmute.

BEST COPY fAti511LtANNEX IIr

- 28 - Page 1 of 1

SUPPLEMENTARY PROJECT DATA SHEET

Small- and Medium-Scale Industry Project

Section I: Timetable of Key Events

(a) Time taken by the country to prepare the project: 3 years(b) The agency which has prepared the project: Federal Ministry of

Industries and Nigerian Rank for Commerce and Industry, assisted byBank staff

(c) Date of first presentation to the Bank: January 1978(d) Date of first Bank mission to consider the project: July 1978(e) Date of departure of the appraisal mission: February 20, 1981(f) Date of completion of negotiations: October 20, 1983(g) Planned date of effectiveness: April 15, 1984

Section II: Special Bank Implementation Actions

Approval of advance of US$286,500 under PPF for early recruitment ofexperts required by both NBCI and !NI.

Section III: Special Conditions

(a) Signing of Subsidiary Loan Agreement between the Borrower and NBCI(Condition of Effectiveness; para. 54);

(b) Approval by NBCI's Board of the policy statement (Condition ofEffectiveness; para. 35);

(c) Earmarking of at least 30 percent of line of credit for SEEs withtotal assets not exceeding 1300,000 or with costs per job of lessthan 17,500 (para. 46); and

(d) Setting of final lending rate to SEE borrowers of at least 12 percentin addition to a one-time front-end fee of 1.5 percent on the totalamount of the loan, and annual review of these charges by NBCI,Government, and BRnk (para. 47).

1~~ E R ,<A

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