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Implementation Completion Report (ICR) Review - Enterprise Export Facility (beef)


  
1. Project Data:   
ES Date Posted:
09/15/2005   
PROJ ID:
P062936
Appraisal
Actual
Project Name:
Enterprise Export Facility (beef)
Project Costs(US $M)
 22  11.74
Country:
Bosnia-Herzegovina
Loan/Credit (US $M)
 12  11.7
Sector, Major Sect.:
Banking, Other industry,
Finance; Industry and trade
Cofinancing (US $M)
   
L/C Number:
C3257      
   
Board Approval (FY)
  99
Partners involved
 
Closing Date
12/31/2004 12/31/2004
         
Prepared by: Reviewed by: Group Manager: Group:  
Jorge Garcia-Garcia
Ismail Arslan Kyle Peters OEDCR

2. Project Objectives and Components:

a. Objectives
To support sustainable economic growth by facilitating and expanding viable export activity.

b. Components
Three original components were expanded to six in May 2002 when the project was restructured after the expected demand for funds did not materialize.

The original components were:
(a) Working capital facility. It supported the commercial banks in providing both finance and risk sharing for working capital loans associated with export activities.
(b) Performance bond facility. It supported the exporting enterprises by arranging guarantees, such as performance and advance of payment guarantees, from highly rated commercial banks, which were required for the enterprises to secure export contracts.
(c) Institutional- technical assistance. It supported the strengthening of the Investment Guarantee Agency’s (IGA) operations by assisting its staff in assessing credit to banks and enterprises and in operating a computerized accounting and management information system.
The additional components consisted of:
(d) Guarantees to commercial banks. It supported IGA in providing guarantees to BH or foreign banks for working capital loans not accompanied by a participation loan (guarantees-without-finance) from IGA's working capital facility.
(e) Direct working capital loans. It supported IGA in providing working capital loans directly to enterprises engaged in export activity.
(f) Credit Insurance. It supported the issuance of credit insurance (i.e., insurance against non-payment for goods or services sold on credit when the insured enterprise has not defaulted on the contract).

c. Comments on Project Cost, Financing and Dates
A fall in the cost of financing reduced the demand for the funds from the project, and led to its restructuring that permitted using the funds for working capital for the components d.-f. listed above. Financing for technical assistance (component c) was US$1 million, for performance bond facility (component b) $2 million, for working capital (components a, d-f) $9 million.


3. Achievement of Relevant Objectives:

The funds granted to IGA helped finance a growing volume of exports that, in turn, supported the growth of GDP

4. Significant Outcomes/Impacts:

The total value of exports financed with the funds from the loan reached about $275 million euros (about US$340 million). That value equals about four percent of the cumulative value of exports of goods and services during 2000-2004.
Bosnia-Herzegovina has established an export insurance guarantee agency staffed with qualified and experienced personnel.

5. Significant Shortcomings (include non-compliance with safeguard features):

The volume of exports financed (US$340 million) fell short of the value expected at appraisal ($648 million).
IGA did not issue guarantees-without-finance, as the credit restructuring sought.

6. Ratings:ICROED ReviewReason for Disagreement/Comments
Outcome:
SatisfactoryModerately SatisfactoryThe value of exports supported by the project is about half the value estimated at appraisal (US$648 million). As a result, any economic benefits attributable to the project must be lower than the potential benefit expected at appraisal (See also Section 9).
Institutional Dev.:
HighSubstantialThe regulatory agencies do not recognize IGA's financial products, especially its guarantees-with-finance, as adequate securities for the banks.
Sustainability:
Highly LikelyLikelyWhile Parliament has passed a law authorizing the funds to capitalize IGA, the procedures needed to make the transfer of funds effective have not been completed yet. Therefore, the effective demand for guarantees-without-finance is uncertain.
Bank Performance:
SatisfactorySatisfactory
Borrower Perf.:
SatisfactorySatisfactory
Quality of ICR:
Unsatisfactory

7. Lessons of Broad Applicablity:

Commitment to macroeconomic stability and structural reform can help reduce economic risks and improve the performance of the financial sector. As a result, the economic rationale for setting up specialized organizations to grant export credit or ensure risks should be thought out carefully and framed in a broader economic picture than that done in these line-of-credit type operations.

8. Audit Recommended?  Yes

          Why?  Any assessment of this loan would have to be done as part of a cluster of this type of loans in the Balkans, as the Bank has sponsored agencies that gave credit guarantee and working capital in the countries of the region. It may be useful to assess the benefits that such projects brought to the countries that borrowed to establish guarantee insurance.

9. Comments on Quality of ICR:

The ICR, like the PAD, does not define the problems in the export sector, their causes and their possible solutions. Lacking that context makes it difficult to: (a) conclude whether the project reviewed was relevant to deal with the constraints on exports; (b) figure out what benefits the project brought; and (c) whether the benefits for the country exceed the costs incurred in carrying out the project. Moreover, like the PAD, the ICR mistakenly equals the benefits of the project with the value of the additional exports the credit financed.
The ICR has very little information on export performance and its relation to overall macroeconomic, financial and trade policy developments during the period.

Although the ICR explains the changes in the credit after its restructuring in May 2002, it lacks data to judge properly the contribution of the credit to the development of exports and of new and stronger exporting enterprises. Something as basic as the annual value of exports and of the loans from IGA is missing.

The ICR also lacks information on the cost of borrowing from IGA compared with the cost of borrowing from commercial banks; some discussion of this issue would have helped to understand why the demand for IGA's funds fell short of the amounts estimated at appraisal.

Some indicators would have helped to put in perspective what the operation did relative to what other actions and policies did to improve export performance.

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