Report No. 4686-BEN Public Disclosure Authorized Country ...documents.worldbank.org/curated/en/175091468208735243/pdf/multi... · Country Economic Memorandum (In Four Volumes)

Report No. 4686-BEN

BeninCountry Economic Memorandum(In Four Volumes) Volume IIl: The Public Enterprises Sector

March 15, 1984

Western Africa Region

FOR OFFICIAL USE ONLY

Document of the World Bank

This document has a restricted distributon and may be used by recipientsonly in the performance of their official duties. Its contents may not otherwisebe disclosed without World Bank authorization.

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CURRENCY EQUTVALENTS

Currency Unit = CFAFUS$1.00 = CFAF 355-=CFAF 1,000 = US$2.81

WEIGHTS AND MEASURES

1 meter (m) - 3.28 feet (ft)1 kilometer (km) 2 - 0.62 mile (mi)1 square kilometer (km ) = 0.386 square mile (sq. mi.)1 metric ton (m ton) = 2,204 pounds (lb)1 hectare (ha) 3 2.47 acres1 cubic meter (m ) = 1.308 cubic yards

FISCAL YEAR

January 1 - December 31

1/ The CFA Franc (CFAF) is tied to the French Franc (FF) in theratio of FF 1 to CFAF 50. The French Franc is currently floating.Throughout the text the CFAF/dollar equivalents are establishedusing the rate of CFAF 355/$.

FOR OFFICIAL USE ONLY

ABBREVIATIONS AND ACRONYMS

AfDB African Development BankAGB Socifte d'Alimentation Generale du BeninBCEAO Banque Centrale des Etats de l'Afrique de l'OuestBBD Banque Beninoise de DeveloppementBCB Banque Commerciale du BeninBOAD Banque Ouest Africaine de DeveloppementCAA Caisse Autonome d'AmortissementCARDER Centre d'Action Regionale pour le D6veloppement RuralCATS Cooperative Agricole du Type SocialistCCCE Caisse Centrale de Coop6ration Economique (France)CEB Compagnie Electrique du Benin/Communaute Electrique du BeninCNCA Caisse Nationale de Credit AgricoleCPU College Polytechnique UniversitaireDEP Direction des Etudes et de la PlanificationDPE Direction de la Planification d'EtatEC European CommunitiesECOWAS Economic Community of West African StatesEDF European Development FundENiJ Ecole Normale SuperieureFAC Fonds d'Aide et de Cooperation (France)FAS Fonds Autonome de Stabilisation et de Soutien des Prix de

Produits AgricolesFED Fonds European de DeveloppementFLASH Faculte des Lettres, Arts et Sciences HumaineseNI Fonds National d'InvestissementFRA/GTZ The German Association for Technical Co-operationFSA Faculte des Sciences Juridiques, Economiques et PolitiquesFST Faculte des Sciences TechniquesGRVC Groupement Revolutionnaire a Vocation CooperativeIBETEX Industrie Beninoise des TextilesIDA International Development AssociationIFAD International Fund for Agricultural DevelopmentINSAE Institut Nationale de la Statistique et de l'Analyse EconomiqueINEEPS Institut National pour l'Enseignement de l'Education Physique

et SportiveINSS Institut National des Sciences de la SanteINE Institut National de l'EconomieINSJA Institut National des Sciences Juridiques et AdministrativesMDRAC Ministere du Developpement Rural et de l'Action CooperativeMPSAE MinistereduPlan de la Statistique, et de l'Analyse EconomiqueOBEMAP Office Beninoise des Manutentions PortuairesOCBN Organisation Commune Benin-Niger des Chemins de Fer et des TransportsPAC Port Autonome de CotonouPAM Programme d'Alimentation MondialeSBEE Soclte BMninoise d'Eau et d'ElectriciteSCO Societe des Ciments d'OnigboloSNAFOR Societe Nationale pour le Developpement Forestier

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.

ABBREVIATIONS AND ACRONYMS (continued)

SOBEPALH Societe Beninoise de Palmiera HuileSOBEMAC Societe Beninoise des Materiaux de ConstructionSOBETEX Societe Beninoise des TextilesSONACEB Societe Nationale de Commercialisation et d'Exploration du BgninSONACI Societe Nationale des CimentsSONACOP Societe Nationale de Commercialisation des Pro4uits PetroliersSONAFEL Societe Nationale des Fruits et LegumesSONAGRI/SONAPRA Societe Nationale pour la Production AgricoleSONAPECHE Societe Nationale d'Armement et de Pache

VOLUME III

BENIN: THE PUBLIC ENTERPRISES SECTOR

Table of Contents

Summary and Conclusions

I. Sector Background ............................................O.1-Growth of the public enterprise sector. 1-Economic Functions of Public Enterprises. 3-Institutional and Regulatory Environment .......... 5-Recent Policy Changes......... 10

II. Public Enterprise Sector Impact on the Economy . . .13-Impact on Public Finance ................. . 13-Impact on Banking .... 16-Impact on the economy ... ......... ............. .18

III. Major Problems Affecting the Public Enterprises. 19-Description of Enterprise Sample .. 19-Major Problem Areas . ........................ .25

IV. Recommende IDA Assistance ..... 36-Project Objectives......... 36-Project Design .. 37

List of Exhibits ... ........ 39

APPENDIX A: CASE STUDIES........... . 59Save Sugar Project. 61Onigbolo Cement Project ...... . ....... 67IBETEX ............ 73SOBETEX........ .... .. ... ........ ... 79Oil Palm Sector. 83SONACOP ....... . ..92

AGB . .. 98La Beninoise ......................... 102COBENAM ............................ 106SONAL .. ....... 113CIB .B.......116Trans Benin .......... . ....... 120

SUMMARY AND CONCLUSIONS

i. The role of public enterprises in Benin has grown sharply since themid-seventies, when policy decisions were taken which adopted thisorganizational form as a key element of economic policy. The objective insome sectors was to place major activities entirely in public hands. In othersectors, public enterprises were created to compete with private firms inorder to ensure reasonable service and prices to Beninese consumers.Following a period of up to eight years experience with these enterprises, theGovernment of Benin determined that the economic performance of theenterprises as a group was not fully up to expectations. In order to remedythe situation the Government set up commissions to study ways ofrehabilitating several enterprises and restructuring the sector. At theGovernment's request, a Bank economic mission visited Benin, including areview of the public enterprise problems and prospects as one of its majorgoals.

This review focuses on the overall performance of the enterprises andtheir impact on the economy, and on an assessment of major problem areasconfronting particular groups of enterprises. Greater detail is provided fora sample of twelve public enterprises in the form of case studies. The reportpresents preliminary views based on brief visits to Benin, and is designed toserve as a basis for discussion with the authorities and as an aid indeveloping a useful program of financial and technical assistance. In manyways, the report reinforces and confirms policy decisions taken by theGovernment in April 1982.

Growth of Public Enterprises

ii. The Government of Benin adopted policies in 1974 directed atstrengthening national control over the economy, providing public sectorcompetition in key sectors, and accelerating economic development. To do so,the Government increased its holdings in certain firms, expropriated certaincompanies, and created a number of new enterprises from scratch. Theestablishment of public enterprises was concentrated in 1974 and 1975;altogether, over three-quarters of the public enterprises in existence todaywere created after 1973.

iii. Benin's public enterprises numbered some 60 firms (as of mid-1982)engaged in most economic sectors, particularly in industry and agriculturalprocessing, commerce, transport, and finance. These firms can be categorizedas major new projects, other industrial enterprises, import houses, or serviceenterprises. Briefly, the first category includes three projects currentlyunderway or recently completed: Onigbolo cement and Save sugar, both jointlyowned with the Nigerian Government and largely based on the Nigerian market;and Seme petroleum, involving offshore crude production for export. The totalinvestment in these three projects is likely to exceed CFAF 150 billion.Other industrial enterprises include agricultural processing (SOBEPALH andSONICOG oil palm products, SONAFEL fruits and vegetables, SONAGRI cotton),textiles (IBETEX and SOBETEX), cement production from imported clinker (SCBand SONACI), and ceramics (CIB). A large group of import enterprises includessuch items as foodstuffs (AGB), petroleum products (SONACOP), books (SONAPAL),and pharmaceuticals (ONP). Finally, the services include many publicenterprises such as those in transport (Air Benin, OCBN railway, PAC port,Trans Benin trucking, COBENAM shipping), finance (BCB; BBD and CNCA banks),and hotels (ONATHO).

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iv. Complex institutional arrangements govern the activities of thepublic enterprises. For both state companies (100 percent Government-owned),and mixed economy companies (partially Government owned), guardianship isprovided by a Ministry (Ministere de Tutelle). In addition, AccountingCommissioners and Government Commissioners review accounts and decisions, thePlanning Ministry draws up investment plans and leads the development of newenterprises, the Ministry of Inspection of Public Enterprises (MIEPSEP)reviews the enterprises' finances and monitors their performance, and a boardof directors plays in some cases major administrative roles. The complexityof this institutional network tends to reduce incentives and autonomy forpublic enterprise decision-makers.

v. Institutional and financial problems in the sector prompted aGovernment commission to recommend policy and operational changes. In April1982, a broad set of decisions was taken to merge or liquidate certainenterprises and to adopt policy measures aimed at improving productivity andmanagement. These measures address a number of highly important concepts, andseveral of them have already been implemented. Productivity bonuses,training, accounting standards, financial control and pricing policies are allintroduced as means to improve public enterprise performance. The decisionstaken are a highly positive step towards sector rehabilitation.

Impact on the Economy

vi. The public enterprise sector presents a low financial return from thetreasury viewpoint, has led to arrears with the banking system, and has had amediocre impact on the economy overall.

vii. At least CFAF 15 billion of public funds have been invested as equityin public enterprises, along with debts guaranteed in excess of CFAF 135billion. In exchange, the contribution of public enterprises has been limitedto taxes collected (CFAF 3 to 6 billion per year). No dividends have beencollected from public enterprises during the years 1979-1981, with theexception of one minor account. Increasing public outflows are expected overthe next several years, as past losses financed by short-term bank credit areabsorbed by the Treasury, rehabilitation investments are undertaken, and cashinfusions are required for several major new projects. It is estimated thatpublic funding of at least CFAF 10 billion annually may be required by thepublic enterprises in the short-term.

viii. The banks are heavily exposed to the public enterprises, whichaccount for over 60 percent of all domestic borrowings. Arrears have posedserious problems. Ten public enterprises maintain less-than-satisfactorybanking relations with the commercial bank, and these total balancesoutstanding exceed the bank's reserves. Twelve public enterprises are inarrears to the development bank, on original loan amounts exceeding the bank'sreserves. This situation has partially arisen because of the explicit orimplicit Government guarantees involved. The Government will be required tointervene in certain cases to protect the soundness of the banks.

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ix. Overall, public enterprises represent about 75 percent of modernindustrial output in Benin. They employed 28,000 persons in 1980 or 40percent of the formal sector labor force. There are some indications,however, that employment policies have caused inefficent absorption ofmanpower by the public enterprises and that consumer prices have not alwaysbenefited from public enterprises involvement. The latter problem is relatedto situations where a public enterprise holds a monopoly on importing a givenproduct, and in some cases also holds a monoploy on the distribution of thegoods which are required to be sold at a uniform price throughout thecountry. Not orgainzed to meet demand, the public enterprise must often sellto distributors who disregard official retail prices and obtain high marginsat the public enterprise's expense.

Major Problems and Recommendations

X. The mission found that two-thirds of the public enterprises studiedhad major financial problems. A number of firms had also encoutereed majordifficulties in initial project design, technical, managerial, and pricingareas. Generally, the poor financial situation of many public enterprises hasresulted from misjudgements at the initial stage, from managment andmaintenance problems, and from inadequate government pricing policies. Theweak international economy and restrictions on imports by Nigeria have alsocreated marketing problems recently.

xi. Initial design problems range from confused objectives to weakappraisal and unfortunate choice of technical partners. Projects sufferingfrom over-optimistic assumptions at the design stage are difficult to redresslater on. Building up the project analysis capability of the relevantMinistries (Directions d'Etudes et de Planification) is therfore an urgentpriority. An IDA project could contribute to that end.

xii. Institutional arrangements pose a heavy burden on decision-making atthe enterprise level. Not only do bureaucratic controls eliminate theincentive for risk-taking and responsible managment by the enterprise manager,but they are ineffective as presently practiced. The mission recommendssimplifying the supervision arrangements and granting operational autonomy tothe enterprises within a set of agreed objectives and resource levels. Thiswould set the basis for an objective assessment of performance and could beused as a basis for performance incentives.

xiii. Benin's enterprises suffer from a lack of experienced businessmanagers, and from a lack of exposure to practices in similar industrieselsewhere. Inadequate planning is one of the consequences of the weakmanagement. The introduction of training schemes, carefully thought-outperformance bonuses and greater cooperation with foreign technical partnerswould greatly improve the performance of the public enterprises.

xiv. Delayed maintenance owing to inadequate production planning orpressures on enterprise cash flow has been a major technical problem for theenterprises. Rehabilitation plans should be developed for firms whoseequipment has seriously deteriorated. Such rehabilitation, together withtraining of mechanics, could be financed in part by an IDA project.

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xv. Large public enterprises in Benin rely to a considerable extent onunhindered access to the Nigerian market. Complications involving the sale ofSave sugar and Onigbolo cement in Nigeria indicate the importance of thoroughnegotiations early-on in the project design cycle regarding conditions ofmarket entry, quantities and prices. Recent import cutbacks by Nigeria havehurt sales of traditionally successful public enterprises such as negotiationsbetween the Governments concerned, both on specific and general issues.

xvi. Low fixed prices for the outputs of several public enterprises havecaused very serious problems and distortions. This is particularly true forcement, grain, beverages, transport enterprises and the utilities. The resultis consumer subsidies, opportunities for private speculation and excessprofits, and a cash drain on the public enterprises. The mission, thereforesupports the decision taken in April 1982, to allow higher imported inputcosts to be passed through on the price side. Monopolies held by publicenterprises for the importing or distrubuting of certain commodities haveproved inefficient, as noted by the government. Measures to increasecompetition in those sectors should be taken.

xvii. Financial problems arise from cumulative operating losses, inadequateinitial equity, excessive debt leveraging, and slow payments by the rest ofthe public sector. In several cases, equity has clearly been insufficient topermit achieving objectives, and borrowings have been over-utilized to financeexpansion. A network of unpaid bills between the enterprises and withGovernment have exacerbated liquidity problems. Financial re-structuring willbe necessary for a number of public enterprises, based on individualrehabilitation plans. For many enterprises, cash injections will need to bein the form of equity or long-term debt. In other cases, debt re-schedulingsare being sought as well. An IDA project could assist in making fundsavailable on a flexible basis. For those enterprises which are in serioustrouble and have negative prospects, closing should be considered.

Recommended IDA Assistance

xviii. The actions required at enterprise and policy levels for Benin'spublic enterprises call for financial and technical assistance which IDA couldhelp provide. At the sector level, a public enterprise project would aim tohelp bring about appropriate pricing policy and government-enterpriserelations; to introduce a multi-year system of agreed objectives andresources; to assist in strengthening the enterprises' financial performance;and to help in reassessing the role of Government involvement in certaineconomic activities. At the enterprise level, the goals would be to assessthe enterprise's viability, help develop a rehabilitation plan, and assist inits implementation.

xix. A line of credit could be made available to assist in financingenterprise rehabilitation. Funds would be disbursed against agreed programsin a flexible format. IDA could support increased Government equity in theenterprise, operating subsidies, or loans for equipment, inputs or workingcapital. The credit would be allocated with a view to assisting onlypromising enterprises, to spreading the funds over a representative group offirms, and to obtaining Government commitments for necessary policy changes.

xx. Technical assistance would include the development of rehabilitationplans, provision of resident managers and technicians, and short-termconsultancy services. Management would also be strengthened by a trainingprogram building on existing efforts and the technical assistance to beprovided.

xxi. While detailed project design depends on further discussions with theGovernment of Benin, the general objectives and main components of an IDAproject would be those indicated above.

I. SECTOR BACKGROUND

1.01 Public enterprises have become the predominant organizational formfor economic activities in Benin, responding to political orientations adoptedin 1974. Government policy decisions taken at that time encouraged a leadingrole in the economy for publicly-controlled commercial, industrial and serviceorganizations as of mid-1982, there were sixty public enterprises operating atthe national level. They account for approximately three-quarters of theoutput of Benin's modern industrial sector, and receive over half of thenation's domestic banking credit. This chapter sketches the expansion of thepublic enterprise sector in recent years, reviews the economic role of keyenterprises, discusses the institutional and regulatory environment, andsummarizes recent policy and organizational changes made by the government.

GROWTH OF THE PUBLIC ENTERPRISE SECTOR

1.02 The Government of Benin adopted policies in 1974 aimed at transform-ing foreign domination of the modern economy into state leadership and controlof key sectors. Although Benin achieved independence in 1960, numerousaspects of its modern sector had remained under the economic control offoreigners, e.g., the petroleum distribution firms, banking, Benin's publicutility and the beverage industry. In other key sectors of the economy, suchas transit activities, foreign firms existed alongside private Beninese enter-prises. In a small economy like Benin, this meant that considerable economicpower -- in some cases virtual monopolies -- resided in the hands of those whowere not necessarily directly responsive to Benin's priorities. Thus, theobjectives of the change in policy governing the organization of key elementsof modern sector activity were to strengthen national control over the eco-nomy, to provide public sector competition to private sector firms, and tohelp accelerate the economic development of the country in line with plannedpriorities.

1.03 The Government's objectives in this area were implemented by pur-chasing increased shares in existing enterprises, by expropriating certainfirms (against compensation), and by creating a number of new enterprises tocompete with existing firms in a given economic activity. For instance, theGovernment increased its holdings in both SCB (clinker grinding plant) andSOBETEX (textile printing) to 51 and 49 percent respectively in 1975. In thekey banking sector, three foreign banks were expropriated and merged into asingle, state-owned commercial bank (the BCB) in 1974 and 1975. The interestsof six international oil companies operating in Benin were bought out between1976 and 1978 to form a national petroleum distribution company (SONACOP).Numerous other public enterprises were created in order to provide a publicpresence in various sectors, without necessarily acquiring monopoly powers.Thus, a wholly state-owned enterprise (SONAFEL) was created in 1975 to growand market fruits and vegetables, in competition with other domestic producersand canned imports. A shipping company (COBENAM) was established in 1974which competes with foreign steamship lines on an equal basis for the carriageof Benin's imports and exports.

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1.04 The establishment of public enterprises -- created from scratch orobtained by acquiring or increasing the share of Government ownership in anexisting firm -- was concentrated in the years 1974 and 1975, declininggradually in subsequent years. Figure 1.1 presents this trend graphically,for a sample of thirty public enterprises. The details of this evolution ofthe public enterprise sector are given in Exhibit 1.1. Three-fourths of theenterprises created since 1970 were newly-established firms, while the remain-ing quarter represented organizational changes within ongoing activities.

Figure 1.1

PACE OF PUBLIC ENTERPRISE CREATION

0)

0 c rS 0 1r te3 7 07

-- I-------Ta fcrain

U2-4 4-0

0)

4-40

7 0 71. 7Z 73 74. 775 76 77 78 79 80

…-------Year of creatio… --------

1.05 There were sixty national-level public enterprises in Benin as of mid-1982,and their combined importance to the economy is substantial (see list inExhibit 1.2). Based on 1979 data (the latest year for which official detailedGovernment estimates of economic output are available), public enterprisesaccount for 75 percent of modern industrial production. The public enter-prises employ approximately 28,000 persons (1980), or 40 percent of totalformal sector employment. The public enterprise sector also absorbs 62 per-cent of the domestic credit available to the Benin economy. The largestdevelopment projects presently being undertaken -- the Save sugar project,Onigbolo cement and Seme petroleum -- are all organized as public enterprises.

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ECONOMIC FUNCTIONS OF PUBLIC ENTERPRISES

1.06 Benin's public enterprises play a major role in most economicsectors, and particularly in industry, agro-industry, commerce, transport,finance and public utilities (see list of major enterprises, Exhibit 1.3).Ranked by magnitude of revenues (see Table 1.1), public enterprises in thecommerce sector are the largest; a sample of nine out of twelve firms in thesector recorded

Table 1.2: Sector Distribution of Public Enterprises

-------Sample of Firms-/------Total Number of Number of Revenues

Sector Firms Firms (billion CFAF)

Agro-Industry 10 4 6.0Industry 9 6 15.4Construction 5 1 0.7Transport 9 6 8.3Public Utilities 1 1 3.6Information 4 1 0.04Finance 7 2 10.5Commerce 12 9 35.0Other Services 3 2 1.0

TOTAL 60 32 80.5Source: Mission Estimates

1/ These firms for which data were obtained generally represent the largestpublic enterprises.

revenues of CFAF 35 billion in fiscal year 1981. 1/ Public enterprises sharethe commerce role in Benin with large foreign trading firms, and with numerousprivate local traders. Next in importance are the industrial firms (CFAF 15billion revenues); these firms make up all the largest industrial enterprisesin Benin, and account for 100 percent of modern output in many fields. Finance,transport, and agro-industry are other areas in which public enterprises arevery prominent. Overall, the sample of 32 public enterprises studied recordedrevenues of CFAF 80.5 billion in fiscal year 1981 (or in 1980, when 1981 datanot available).

1.07 The analysis of individual enterprises leads to a different catego-rization of firms, combining sector differentiation with economic purpose.This perspective focuses on the sectors and enterprises of primary concern(major firms, and firms with difficulties), rather than on a classificationaccording to the ministry of tutelle. We distinguish primarily between fourtypes of enterprises: (1) major new export-oriented industrial projects,(2) all other industrial enterprises, (3) import enterprises and (4) service

1/ Most public enterprises adhere to a July 1-June 30 fiscal year.When a single year is stated for the fiscal year, the reference is toend-period year.

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enterprises. The following discussion provides a brief review of thesecategories and the major public enterprises involved.

Major New Export-Oriented Industrial Projects

1.08 These comprise three large projects which are in the final stages ofconstruction or initial operation: the Onigbolo cement and Save sugar projects(jointly owned with the Nigerian Government and based largely on exports toNigeria), and the Seme petroleum project (offshore oil being developed inpartnership with SAGA Petroleum of Norway). Production from Onigbolo beganofficially in July 1982; Save is scheduled to begin sugar production inFebruary 1983; and Seme should also begin producing within the next year.Together, the investment in these three projects totals about CFAF 150billion, exceeding the investment in all the existing industrial enterprisesin Benin. The profitability of these projects will depend on the actual costsof production in relation to price levels on the Nigerian and world markets.Recent estimates (prepared by specialist teams of the economic mission) arethat the Save project may operate with negative cash flow through 1990, thatOnigbolo may experience a temporary cash flow shortfall in 1983, and that Sememay breakeven until it begins to generate a surplus in 1985.

Other Industrial and Agricultural Enterprises

1.09 Traditional exports are essentially limited to vegetable oil process-ing by SOBEPALH and SONICOGI!, and cotton ginning by SONAGRI, all mainly forexport to Europe. Output has stagnated in recent years.

1.10 A number of import-substitution industries have been established,producing consumer goods for the local market (Benin and neighboring coun-tries). Two relatively successful examples of this type are SOBETEX, a mixed-economy firm which produces printed cotton fabrics from imported calico, andLa Beninoise, the nationalized brewery, soft drink and mineral water enter-prise. Both have expanded sales and operated profitably over the past fiveyears.

1.11 Several import-substitution enterprises have been less successful.IBETEX, a large integrated textile mill originally designed for export butpresently producing for the local market, has incurred heavy losses. CIB, aceramic tile and bathroom appliance manufacturer with private German parti-cipation, is now in liquidation. SONAFEL, a state enterprise aimed at supply-ing tomato sauce, fruit juice, and fruits and vegetables to the local market,is in a difficult financial position as well.

1.12 The two clinker grinding plants, operated by SCB and SONACI, are keyexamples of import processing industries. Both import clinker and gypsum, andgrind it into cement for sale on the local market; imported raw materialsaccount for a high percentage of total costs. The low fixed price for cement

1/ In a reorganization which became effective after this report was writtenSOBEPALH was dissolved and its industrial activities were transferred toSONICOG, SONAGRI became part of SONAPRA, SONAPAL's activities were takenover by SODIMAS, AIR BENIN became part of Transport A6riens du Benin(TAB) and SONAMEL was taken over by SOGECOB.

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has prevented these firms from passing on their costs normally, and hasresulted in large losses.

Import Enterprises

1.13 A large group of public enterprises imports and distributes variousconsumer goods: AGB (foodstuffs), SONACOP (petroleum products), ONP (pharma-ceuticals), SOBEMAC (construction materials), SONAPAL (books), SONAMEL(household electrical appliances), etc. Most of these state enterprisesoperate as importers, wholesalers and retailers. Pricing policy and manage-ment problems have afflicted several enterprises.

Service Enterprises

1.14 Services, especially transport, form a major part of Benin's economyand include a number of key public enterprises. In the transport sector,public enterprises run the port (PAC), stevedoring (OBEMAP), transit (SONATRAC,SOTRACOB), ocean shipping (COBENAM), railroad (OCBN), trucking (Trans Benin),and airline (Air Benin). Together, these enterprises make up the key transitrole of Benin for landlocked interior nations and neighboring countries.

1.15 A number of other services in banking and finance, tourism and tradehave been nationalized or created as public enterprises. Three banks -- thedevelopment bank (BBD), commercial bank (BCB), and agricultural credit bank(CNCA) -- now perform all the banking functions of the country as state com-panies. Another public enterprise (ONATHO) is active in hotels and tourism.

INSTITUTIONAL AND REGULATORY ENVIRONMENT

1.16 A complex institutional and policy environment has grown up aroundthe public enterprises over the past decade; this environment is discussed inthe following paragraphs. Reporting relationships to the supervisingministries are specified, as well as detailed administrative arrangements forenterprise decision-making. The pricing policy practiced by the Governmenthas had a negative impact on a wide variety of public enterprises, in partthrough the lengthy delays involved in the approval of price increases. TheInvestment Code does not appear to have imposed major barriers to foreign ordomestic investment. In April 1982, major decisions were taken by theGovernment in an effort to improve the performance of the public enterprisesector; these changes are discussed later in this chapter.

Legal Forms of Public Enterprises

1.17 The major forms of public enterprises are the state companies and themixed-economy companies. In addition, public establishments or "offices" areconsidered public enterprises. At the provincial level, provincial enterprisesare a fourth form of public enterprise. The forms are legal in nature, andhave little bearing on the economic substance of the enterprise. "Offices"excepted, accounting and management practices of public entrprises are inaccordance with private business methods.

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1.18 Two-thirds of the national public enterprises are organized as statecompanies (Societes d'Etat). This includes a number of the basic agro-indus-tries, the banks, and ths commercial enterprises. State companies are 100percent Government-owned and are created as specific instruments of thenation's economic development program. Their role is either to supplementprivate initiative where this has been lacking, or to take on economic tasksof general public interest. State companies have a corporate persona, and arefinancially autonomous, though they may receive funds through the Government'sinvestment budget. The state companies operate under the conditions ofprivate law.

1.19 Mixed-economy companies (Societes d'Economie Mixte) are those inwhich the Government of Benin has a shareholding of less than 100 percent.These companies include ventures with the Beninese private sector, and withforeign private and public partners. Examples can be found in industry (oneof the clinker grinding plants, both textile firms, and the ceramic tileenterprise); the three major industrial development projects now underway areall established as mixed-economy companies with foreign partners.

1.20 Public establishments (Etablissements Publics) are generally desig-nated as "offices," and may be operated as nonprofit institutions. Thesepublic enterprises are the closest to being direct entities of Government, andinclude such services as the post office, radio and television, data process-ing, and social security.

1.21 Provincial companies (Societ6s Provinciales) were authorized in 1978to assure the control and direction of the economy at the provincial level, tocarry out Government economic measures aimed at price stability, and to pro-mote cooperative organizations. While 60 of these provincial companies wereorganized on paper many of them were never properly established. In April1982 the government decided to terminate most of the provincial enterprises.This report concentrates on the national-level public enterprises, and doesnot deal specifically with the six remaining provincial companies whichinclude the provincial bus companies.

Administrative Arrangements

1.22 The relationship between the Government and the individual enter-prises is not fully satisfactory at present. These paragraphs describe thevarious bureaucratic relations; in Chapter III, the section on institutionalarrangements presents the problems from the enterprise viewpoint and proposessolutions.

1.23 In Benin, each public enterprise -- state company, mixed-economy com-pany, or office -- is attached to a ministry providing guardianship (Ministerede Tutelle). Most ministries have supervision responsibilities for at least afew public enterprises; some key ministries are the Ministry of Industry,Mines and Energy, the Ministry of Transport, the Ministry of Commerce and theMinistry of Rural Development. This liaison generally takes place through theplanning unit of the ministry (Direction d'Etudes et de la Planification).Due to weak staffing of these planning units, supervision by the ministry isnot always as well-informed and constructive as it might be. The ministryinvolved is charged with making recommendations on pricing policy, invest-ments, and other major decision areas. The ministry also reviews annually the

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company's inventory, balance sheet, income statement, and projected incomestatement before these are taken up at the Council of Ministers. In addition,the ministry of tutelle can organize a special ad hoc commission to examinethe accounts of the company at any time.

1.24 Separate Accounting Commissioners (Commissaires aux Comptes) areappointed by the Council of Ministers upon the joint recommendation of theFinance Ministry, the Ministry of Inspection of Public Enterprises and theCouncil of Ministers to audit the accounts and cash position annually.

1.25 The Planning Ministry is also involved with the public enterprises,both in the determination of investment plans and in the implementation ofmajor new enterprises. Working through the ministries of tutelle, the Plansets priorities and aggregates the projected investments of the various publicenterprises. During the current planning exercise, some enterprises did notseem to feel that their input was solicited at the proper stage in the pro-cess. The Planning Ministry has taken a leadership role in organizing suchmajor new public enterprises as the Onigbolo cement plant.

1.26 The Ministry of Inspection of Public Enterprises (MIEPSEP -- Minis-tere de l'Inspection des Entreprises Publiques et Semi-Publiques) was createdin 1980, with the decree defining its purpose, organization and functionsissued in December 1981, to centralize control within the Government over thepublic enterprises, to serve as an independent reviewing and data collectionagency, and to provide technical assistance to the enterprises themselves. Itis not successfully playing its intended role. This ministry has only recent-ly become operational and still operates with a very small staff. Despite anongoing ILO program to train MIEPSEP staff in the techniques of externalaudit, the MIEPSEP staff are just beginning their first external audits ofpublic enterprises, and the data available at MIEPSEP on the enterprisesremains limited and often out-of-date.

1.27 Each state company is run by a Board of Directors (providing policyguidance) and is managed by a General Manager assisted by a ManagementCommittee. The make-up of these groups is determined by the Council ofMinisters. The relative responsibilities of the Board and the Management, andthe composition of the Board, are currently under revision. As of mid-1982,the Board of Directors was generally composed as followsl/:

1/ The Annex to Law 82-008 of December 30, 1982 changed the membershipcomposition somewhat. The number of members cannot now exceed 14.

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President: The minister of tutelleVice President: The Director-General of the ministry of tutelleMembers: One representative of the national

legislative or consultative bodyOne represertative of the Ministry

of Industry or CommerceOne representative of the Minister of PlanningO:, representative of the Minister of FinanceOne representative of the Minister of LaborFive representatives of the staffTwo other representatives of theServices or Bodies interested in the

company's social goalsThe Governmaent Commissioner

1.28 A Government Commissioner was in the past appointed to each statecompany, generally attached to the Presidency and retaining his normal dutiesin addition to this special assignment. He was a member of the Board ofDirectors and of the Management Committee, and was charged with ensuring thatGovernment policies are carried out by the enterprise and with providing day-to-day surveillance of operations. The Commissioner appeared to exercise adecision-making role in certain state companies. In certain cases, theCommissioner's role appeared to constrain the manager's autonomy. Thisposition was recently eliminated in most state companies.

1.29 The ministry of tutelle receives all the minutes from meetings of theBoard of Directors and may require, within 15 days of a meeting, a reconsider-ation of any issue. The ministry can also suspend any decisions with which itdisagrees. These prerogatives would seem to injure the autonomy of the enter-prise and its board even if infrequently exercised.

1.30 The allocation of net profits (after payment of taxes) earned bystate companies is fixed by law. Prior to December 30, 1982, fifteen percentof the profit (not to exceed certain proportions of original equity or sales)was retained as reserves by the enterprise. Of the remaining 85 percent, 80percent were to be contributed to the investment budget and 20 percent to thecurrent budget.1/ In fact, no dividend contributions to the budget have beenmade by the public enterprises in the past several years (see Chapter II).

1.31 Similar administrative arrangements apply to mixed-economy com-panies. These are defined as companies in which the state controls at least51 percent of the stock, or is a minority shareholder but decides to treatgenerally the enterprise as a mixed-economy company. In particular, suchcompanies have a Government Commissioner who performed the same role as in astate company. The Government reserves for its representatives a minimum oftwo positions on the Board of Directors, in all mixed-economy companies where

1/ Law 82-008 of December 30, 1982 changed these proportions. Five percent(5%) is now to be allocated to legal reserve; ten percent (10%) toextraordinary reserve; fifteen percent (15%) to a reserve for renewal ofproductive equipment; and the remaining seventy percent (70%) is to go tothe national budget in the following proportions: 60% to investmentbudget, 20% to operation budget and 20% as state contribution to FNI.

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the state has contributed at least 10 percent of the initial capitalization.Following the allocation of 15 percent of net profits to reserves, the portionof remaining profit accruing to the states' participation is remitted (intheory) 60 percent to the investment budget and 40 percent to the currentbudget.

Investment Code

1.32 Benin's Investment Code contemplates various options for new invest-ments, and does not appear to have hindered investment in the past. The Codeestablishes various preferential taxation regimes for different categories ofprojects. Investments in the manufacturing, agricultural, energy, hotel andinfrastructure sectors are eligible; trading companies are not. Freedom totransfer capital and to receive fair compensation in case of expropriation areguaranteed. In granting preferential regimes under the Investment Code, theGovernment considers the degree to which the investment coincides with objec-tives set under the Plan, and the size of the investment, number of jobscreated, use of local materials, and incorporation of modern technology.

1.33 At the time of the mission's visit to Benin (June 1982), a newInvestment Code had been approved by the National Assembly and was beingfinalized, but was not available for review. Based on documentation receivedafter the mission, 1/ Exhibit 14 highlights the main differences between theInvestment Code of T972 and the new one. The major innovation concerns publicenterprises which now enjoy a special regime: the new regime A. Under thisregime for which only public enterprises are eligible, substantial advantagesare granted including exemption from the turn-over tax, profit tax (for twoyears), and 50% of profit tax (the three years following the two years oftotal exemption). Unlike the 1972 Code which granted advantages on the basisof total investment costs and regardless of the enterprise ownership, the newCode grants specific advantages to public enterprises that no other privateenterprise can enjoy. Although the impact of the new Investment Code is yetto be seen, there is a risk of discouraging private initiatives (national aswell as foreign) in activities in which public enterprises are involvedbecause of the unfair competition that the new code tends to create.

1.34 The investment code does not appear to have been a constraint toforeign investment in Benin. The government has shown flexibility in nego-tiating contracts and preferential treatment with investors.

Pricing Policies

1.35 In Benin, certain basic imported commodities are price controlled,the margins on other consumer goods are fixed, and agricultural exports arehandled by a marketing board with administratively-fixed prices. Threedifferent price regimes can be distinguished:

1/ Loi No. 82-005 du 20 Mai 1982 portant Code des Investissements.

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1. Maximum margins are fixed for most imported foodstuffs, such asrice, powdered milk and sugar.

2. The Council of Ministers sets the prices of certain materials ona national basis -- for petroleum products, cement, water,electricity, and beverages.

3. Agricultural export commodity prices are fixed according toannually-published baremes.

1.36 While many local products are not controlled, imported goods are con-trolled with respect to margins if not price. Lengthy delays can occur, as aGovernment commission is set up to review each request for a price increase.In the case of the SBEE, it apparently took a year to develop a proposal for aprice increase, and 18 months for the Council of Ministers to act. The pro-fitability of the clinker grinding companies (SCB and SONACI) and the petro-leum products distribution firm (SONACOP) is thus directly linked to theprices fixed by the Government. Some officials believe that the process isspeeding up, and state that the Government is now more conscious of the prob-lems caused to the public enterprise by delays in granting price increases.

RECENT POLICY CHANGES

1.37 Important changes in Government policy toward the public enterprisesector have recently been made. Despite the positive original intentions ofstrengthening Beninese control over the economy, public enterprises have inpractice encountered difficulties which have led to unsatisfactory performancein some cases (see Chapter III for a discussion of major problems). Particu-larly, the inefficiency of many public enterprises is costing the Governmentmoney, has not always brought about lower consumer prices, and in some caseshas encouraged speculation and excess profits in the private sector.

1.38 A Commission Nationale des Bilans was established in 1979 with thepurpose of reviewing all public enterprises and suggesting measures forimproved management. A second commission continued this work in 1980, and aSpecial Commission reviewed the work over the period December 1980 to April1982. Decisions were taken by the Central Committee and the National Execu-tive Council in meetings from April 19-22, 1982, to dissolve or liquidatecertain enterprises, to merge others, to end the operations of most of theprovincial enterprises, and to adopt policy measures aimed at improving enter-prise management and productivity. Concrete actions to implement thesedecisions have now begun.

1.39 The general policy meausres adopted are of particular interest, asthey will influence the functioning of all public enterprises. Major measurestaken include:

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a. Establishment of a new relationship between the public enterprisesand the Government. This includes changes in the make-up of theBoard of Directors, greater emphasis on collegical management of theenterprise through the Management Committee, revised allocation ofenterprise profits, and the termination of the post of GovernmentCommissioner.

Status: On December 30, 1982, a revised statute governing publicenterprises promulgated. The new statute apparently specifies thedivision of responsibilities between the Board and the director ofthe enterprise. The Board is no longer necessarily chaired by theMinister of Tutelle, and the legislative representatives have beendropped from the Board. Government Commissioners have now beeneliminated in all but two state-owned companies.

b. Productivity measures, to be determined in detail by a TechnicalCommittee chaired by the Minister of Labor. The measures generallyinclude the institution of a physical productivity bonus, the paymentof a profit-based bonus in place of the traditional "13th month"bonus, and the payment of authorized overtime.

Status: Existing incentives--the 13th month and the productionbonus--have been eliminated. New measures have not yet been decided,so at present managers have no production incentives available.

C. Prices are to be set in relation to costs, having regard to thepreservation of purchasing power by a proper phasing-in of priceincreases.

Status: This policy change is very widely quoted throughoutGovernment, though it is difficult to determine its practicalapplication. Also, a revised procedure requires the publicenterprises to alert the Government to any likely price increasesprior to the finalization of the national budget in December of eachyear. There have not yet been any instances, however, of pricesubsidies being directly incorporated in the budget, with theexception of the fertilizer case.

d. Monopolies of distribution are to be reconsidered except for the caseof petroleum products.

Status: The Ministry of Commerce is presently considering whatmodifications should take place. Generally, the decision appears tobe that the terms of distribution in the past have unfairlydiscreminated against production-based enterprises; the role ofmarketing organizations may well be revised.

e. Improved training for managers of public enterprises, through nightschool and other courses.

Status: This is viewed as a long-term goal. One seminar for publicenterprise managers was conducted in November 1982, under an ongoingILO project.

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f. Improved public enterprise accounting standards, through theimplementation of the National Accounting Plan.

Status: The new accounting standards were introduced on January 1,1983, and all companies except banks have changes their fiscal yearsto a calendar year basis. The new system introduced flow-of-fundsconcepts which will enhance the analytical usefulness of theaccounts.

g. More rigorous control of the management of public enterprises, byestablishing internal audit capabilities and strengthening externalcontrol. Centralized monitoring of accounts (a Centrale des Bilans)is to be established at the Central Bank (BCEAO).

Status: Both internal and external audit capabilities remain weakbut are being strengthened. The staff of MIEPSEP continue to receivetraining in the field of external audit, and have begun the practicalstage of their training by auditing three public enterprises.

Both MIEPSEP and the Ministere de Tutelle have the authority to seekdata directly from the public enterprises. In practice, obtainingthese data has been a very slow process. A law was recently passed--text not yet available--specifying fines and imprisonment if theenterprises do no promptly submit their end-of-period accounts andtheir proposed budgets. MIEPSEP has already noticed an improvementin the timely submission of financial documents.

The Centrale des Bilans has, in principle, been established at theCentral Bank in order to assemble performance data on industrialfirms in other countries as a standard of reference.

h. Tighter control over cash funds, debts and accounts payable. Debtsbeetween enterprises are to be settled, and schedules are to beestablished for payment of moneyt owed to the enterprises by theGovernment.

Status: The Ministry of the Interior and the banks have begun aprocess of sorting out inter-enterprise and enterprise-Governmentdebts. Public enterprises generally have been found to have owedmore to the Government than vice versa.

i. Standards for the appointment of enterprise managers have beenestablished, emphasizing technical competence.

Status: Discussions indicate that these standards have not alteredthe essentially political dimensions of key enterprise appointments.

j. Contributions to the National Investment Fund (FNI) by statecompanies and offices are to be eliminated as of January 1983.

Status: This change has been implemented. It will result in reducedpayments by the public enterprises, saving them up to CFAF 1.6billion per year (1981 level).

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k. Incentives for Beninese nationals to invest in the industrial sectorare to be established.

Status: Long-term objective.

1.40 In the mission's opinion, the measures adopted are a step in theright direction. However, the cumulative effect of years of inefficiency,financial difficulties, postponed maintenance, and inadequate personnel andpricing policies indicate the need for major efforts to implement the revisedapproach to public enterprises evidenced in the April 1982 decisions. ChapterIII of this report explores several of these same issues, and attepts toindicate alternative options and concrete actions which might be of assistancein achieving the Government's objectives.

II. PUBLIC ENTERPRISE SECTOR IMPACT ON THE ECONOMY

2.01 This chapter addresses the overall impact of public enterprises on theeconomy, measured primarily in financial terms. It summarizes the macro-economic situation which has spurred the present search for measures to improvethe performance of the public enterprise sector. The first section discussesthe flow of funds between the public enterprise sector and the Government.Next, the relations between public enterprises and the banking system areassessed. The third section summarizes the general impact of public enter-prises on Benin's economy. Prospects are addressed in each section as well aspast performance, although the future is likely to be strongly influenced bypublic policy decisions.

IMPACT ON PUBLIC FINANCE

2.02 The Government is either the sole or a major shareholder in all publicenterprises, and the fortunes of the firms thus have immediate implicationsfor the country's public finance situation. Conceptually, the financialrelations may be viewed as inflows from the public enterprises and outflows tothem (Exhibit 2.1). 1/ The inflows most clearly attributable to the enter-prises themselves are business taxes, dividends, and contributions to the FNIinvestment fund. Businesses also collect and pay to the Treasury certainpayroll and excise taxes; these taxes are considered here although they couldwell be attributed elsewhere in the economy. Finally, import duties are paidby enterprises as well. As this tax is really borne by consumers, and sincedata are not available on the proportion of total duties paid by public enter-prises, we have not included it in our analysis.

2.03 Outflows of funds to the public enterprises consist of initial capitalcosts and recurrent items. The Government generally commits funds for the

1/ For purposes of analysis, "Government" is considered to be theconsolidation of Treasury, CAA, FNI and3. Special Accounts.

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start-up of a public enterprise either in the form of a capital subscriptionor in order to buy out existing owners. Other initial financing consists ofFNI project financing, direct overseas borrowing by the Government for onlend-ing purposes, and guarantees of foreign and domestic borrowings by enter-prises. The Government's initial costs also often include infrastructurecosts which, though not quantified in this study, do increase the publicfinance burden. On a recurrent basis, the Treasury and the CAA sometimes pro-vide both direct subsidies to the public enterprises and transfers (termed"net lending" in the public finance accounts).

2.04 Inflows to the Government from the public enterprises have totalledapproximately CFAF 2.8 to 5.5 billion annually in recent years (see Table2.1). These data are compiled from Treasury and FNI accounts (Exhibits 2.2and 2.3), and represent totals for all public enterprises and the major cate-gories of income noted in Exhibit 2.1 (with the exception of import/exportduties). Total inflows from the public enterprises amount to between 8 and 15percent of Government revenues during the years 1979 through 1981. Particu-larly striking is the fact that virtually no dividends have been paid into theTreasury at all by public enterprises in the last two years. It is alsointeresting that "business taxes," that is, taxes on business profits andturnover, make up only about one-third of total taxes paid by the publicenterprises. The contributions to the FNI -- which included a major effort tocollect arrears in 1981 -- are substantial; these are scheduled to cease atthe end of 1982 for state companies and offices.

Table 2.1: Public Finance Inflows from Public Enterprises(million CFAF)

Year Business Taxes Dividends Payroll Taxes Excise Taxes FNI TOTAL

1979 1,527 15 368 1,989 462 4,3611980 1.004 0 476 779 550 2,8091981 1,880 0 685 1,278 1,636 5,479

Source: Exhibits 2.2, 2.3

2.05 Government financing of the public enterprise sector has amounted tobetween CFAF 1 and 7 billion annually in equity funds in recent years, plusnet lending of CFAF 3 to 5 billion and Government guarantees and onlending upto CFAF 71 billion (see Table 2.2). These amounts include financing for thethree major projects now underway (Save sugar, Onigbolo cement, and Semepetroleum), which accounts for a large share of the total. Approximately 85percent of the Government guarantees and foreign borrowings onlent to publicenterprises shown in Table 2.2 are for the three large projects. It is thusunfair to set these outflows directly against the inflows previouslycalculated. Nevertheless, the public enterprise sector has been costly from apublic finance viewpoint. At least CFAF 15 billion has been invested in theform of equity in the public enterprises, and debts have been contracted orguaranteed in amounts exceeding CFAF 135 billion. On the inflow side, nodividends have been received. However, taxes of CFAF 3 to 6 billion per yearhave been collected from the public enterprises.

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Table 2.2: Government Financing of Public Enterprises(million CFAF)

CAA CAA Equity a FNI Projeited Net c GovernmentYear Expropriations Contributions Finance Lending Guarantee Re-Lending

1979 356 3,948 2,642 4,860 70,518 2,3631980 196 268 838 4,090 2,154 26,9671981 42 592 1,382 2,770 not avail. 4,252

cumulativethru 1981 1,981 3,832d 9,261 n.a. 83,775 52,214

Source: Exhibits 2.4, 2.8

a/ Total CAA equity contributions, from CAA accounts, includes CARDERsb/ Includes Onigbolo and Benin Sheraton Hotelc/ From public finance accounts; may not be exclusively to public enterprisesd/ Excluding CARDERs (see Exhibit 2.5)e/ Through 1980

2.06 All the amounts shown except net lending are associated with investments;whereas net lending includes advances that can be considered as currenttransfers. Data were not obtained from the Government on possible subsidiespaid directly from the Treasury; however, these amounts are not believed to belarge.

2.07 The financial return must be considered low, because the correctmeasurement criterion would compare the incremental returns to the Governmentversus its incremental costs. If one assumes that the private sector couldhave generated equivalent levels of revenue and employment (hence taxes), thereturn is zero, as the enterprises have yielded no dividends to the Govern-ment. While recurrent costs incurred by the Government have been small sofar, this reflects the fact that enterprise losses have been covered by short-term bank credits; this may change in the future.

2.08 The outlook for the impact of public enterprises on public finance is forincreased Government outflows over the next several years (see Exhibit 2.9).This negative picture incorporates several elements:

o Ongoing losses of public enterprises (which were CFAF 3.8billion in 1981 for a sample of 30 enterprises) areassumed to be reduced to CFAF 2 billion per year.

O Cumulative losses over past years, partly financed bybank credit, have amounted to CFAF 7 to 10 billion. Itis assumed that the Government will absorb these lossesover a five-year period.

O Rehabilitation investments required by existing indus-trial and agro-industrial enterprises alone are estimatedat CFAF 6 to 10 billion. It is assumed that Governmentwould fund 20 percent of this cost over three years.

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o Additional counterpart funds required for the major pro-jects now underway are assumed to total CFAF 10 billion.This includes urgent infrastructure requirements for theSave and Onigbolo projects, and cost overruns on severalprojects. It is assumed that Government would fund halfof this amount over a two-year period.

o Subsidies to major projects are estimated to total CFAF 4to 9 billion per year, based on the cash flow projectionsprepared by Bank consultants. The bulk of this will berequired by the Save sugar project, essentially in theform of repayment of foreign debts.

2.09 Based on these assumptions and estimates, which can only be termedhighly approximate, the outlook is for a negative impact by the public enter-prises on the Government amounting to at least CFAF 10 billion annually overthe next several years. The factors underlying this forecast are discussed inChapter III. This amount cou'ld vary substantially, however, depending uponprice movements for sugar and cement, and would also be reduced to the extentthat Nigeria might be willing to help cover the losses on the Save andOnigbolo joint ventures. The projected burden on public finances can becompared with 1981 total public revenues of CFAF 53 billion.

hIIACT ON BANKING

2.10 Public enterprises as a group claim a major share of the creditextended by Benin's banking system. As of June 1981, public enterprises hadborrowed CFAF 38 billion, accounting for 62 percent of all domestic credit(see Table 2.3 below). Much of this borrowing carries an explicit Governmentguarantee, and the portion that does not still benefits implicitly from thecreditworthiness of the state as owner of the enterprise. The fact that thepublic enterprises' share of credit is higher for medium and long-term creditthan for short-term funds, reflects the concentration of private sectoractivities in the trading sector, which has a relatively low requirement forlonger-term financing.

Table 2.3

PUBLIC ENTERPRISE ACCESS TO DOMESTIC CREDIT(billion CFAF, as of June 1981)

Short-Term Medium-Term Long-Term Total

Credit to Public Enterprises 25.9 9.6 3.0 38.5As Percent of Total Credit 56.8 72.2 100.0 62.3

Source: BCEAO

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2.11 Benin's banking operations are in the hands of three banks, each ofwhich is heavily exposed to public enterprises. Due to financial problemsexperienced by the enterprises, arrears in payment to the banks are common andthe accounts of several public enterprises are rated as less-than-satisfactoryby the banks. The mission obtained limited information from the two largestbanks (BCB and BBD), but none from the third bank (CNCA); the data obtainedare presented in Exhibits 2.10 and 2.11. As of September 1981, these datapaint the following picture:

BCB -- Ten public enterprises were judged by the BCB to be maintain-ing less-than-satisfactory banking relations. Credit outstanding to theseenterprises totaled CFAF 13.0 billion, or 58 percent of the bank's lending toall public enterprises. BCB's reserves amounted to CFAF 5.7 billion inSeptember 1980.

BBD -- Twelve public enterprises are in arrears to the BBD for atotal amount of CFAF 2.3 billion (principal and interest), on original loanamounts of CFAF 3.8 billion. Five of these firms maintain less than satisfac-tory relations. BBD's reserves and provisions amount to CFAF 3.4 billion.

2.12 The exposure of these two banks to public enterprises is thus consid-erable. In the unlikely event of complete nonrecovery of these loans, bothbanks would be bankrupt. In any case, however, the banks would likely expectthe Government to make good on public enterprise debts.

2.13 The banks' problem lies partly in the special nature of public enter-prises. Because they are owned by the Government, it is difficult for thebanks -- also owned by the Government -- to refuse credit in some cases.Also, when losses are incurred by the enterprises (for reasons discussed inthe next chapter), the only option available is often short-term credit. Thegovernment's unwillingness to provide subsidies, or in some cases to approverealistic pricing or personnel policies, leave the enterprises with littlechoice. As losses build up and an enterprise's net worth diminishes, bankswould call the loans to a private enterprise. Yet with public enterprises --backed by the Government -- the banks continue to lend even to firms withnegative net worth. The result is an untenable situation for the banks andheavy financial charges for the enterprises.

2.14 Government intervention is clearly called for in this situation. TheGovernment will need, over the next few years, to assume the debts of severalenterprises that are likely to be closed or reorganized. The estimate pre-sented earlier of CFAF 7 to 10 billion for cumulative losses is seen to re-flect about half of the existing debt by the public enterprise sector to thebanking system. The actual amount will depend on the final liquidation valueof enterprise assets, and will reflect the rehabilitation plans developed foreach enterprise in need. Assuming that the Government assumes this burden,the remaining problem is to try to guard against a repeat of the same occur-rence. Stricter reviews by the banks themselves should be implemented toavoid a recurrence, coupled with more realistic financing plans and pricingpolicies for the enterprises.

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INPACT ON THE ECONOMY

2.15 The overall economic performance of the public enterprise sector hasbeen mediocre. While investments have been made and employment expanded, thepoor financial results of certain enterprises have placed an increasing burdenon Benin's public finances and banking system.

2.16 In output terms, public enterprises represent about 75 percent of theindustrial sector. The public enterprises have absorbed a substantial shareof the labor employed in the formal sector. Employment by public enterpriseshas increased from 17,600 in 1977 to 28,100 in 1980. This represents an aver-age annual growth rate of 17 percent yearly, and public enterprises employed40 percent of the formal sector workers in 1980. On the one hand, this absorp-tion of labor must be viewed as a positive economic contribution in a countrywith considerable underemployment. On the other hand, the evidence gleaned ininterviews with enterprise managers suggests possible inefficiencies in laborpractices. Pressure is placed to hire school graduates whether they areneeded or not; and in several firms, the difficulty of firing individuals orreducing the labor force in response to plant closings was mentioned.

2.17 The impact on domestic prices may well have been favorable toconsumers, but there are hidden costs as well. Discussions with Governmentofficials and enterprise managers suggest that public enterprises are morestrictly constrained to respect official prices than are some private enter-prises. In this sense, the public enterprises are more effective agents ofpublic policy. On the other hand, the several instances of severely inade-quate prices imposed by the Government on public enterprises (e.g., for cementand grain) place an unfair burden on the firms which can only be lifted in theend through Government subsidies to the firms or higher prices. There arealso instances where inefficiencies in public enterprises and low prices mayhave actually created an umbrella protecting high actual prices and providingopportunities for private speculation. This occurs when a public enterpriseis unable, for instance, to supply the country's demand at a low fixedprice. Wholesalers make large purchases from the public enterprise, and thenadd large margins, related to the scarcity value, in selling at the retaillevel.

2.18 The major balance of payments impact of public enterprises has beenthrough the rising external debt. Backed by Government guarantees or benefit-ing from onlending of direct foreign public borrowings, the public enterpriseshave enjoyed broad access to overseas credit sources. The public enterprises'external debt stood at US$360 million in 1981, reaching 47 percent of Benin'stotal public external debt. Public enterprises have so far contributed littleto exports, though the three large projects now underway are all export-oriented and should provide a quantum increase in Benin's export proceeds anda major shift in the composition of exports. The anticipated low levels ofprofitability of these projects over the next several years will hinder thebalance of payments impact, however. It is also certain that the publicenterprises will continue to require considerable imports of intermediategoods.

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2.19 The outlook for the impact of public enterprises on the economydepends in part on the implementation of corrective actions by the Govern-ment. It will also reflect developments on the world market, particularly asthey affect the earnings of export projects. The financial performance of thepublic enterprises can certainly be improved, and this would form the basis ofa much more sound contribution to the national economy. However, necessaryrehabilitation measures are likely to lead in the short-run to higher pricesfor certain commodities and reduced employment levels in certain enterprises.The uncertainties concerning the Save sugar project are likely to strain thepublic finance and external debt situation over the next five years, though asubstantial number of jobs will be created (about 3,500). The difficultiesencountered in absorbing the three large projects (total investment of CFAF150 billion) may well limit further public investment in the eighties.Benin's creditworthiness and fiscal soundness will probably be severely testedas a result of counterpart financing, rehabilitation and debt servicingobligations on behalf of the public enterprises.

III. MAJOR PROBLEMS AFFECTING THE PUBLIC ENTERPRISES

3.01 Benin's public enterprises are experiencing considerable difficul-ties, as noted in several recent Government reports. Many of these problemsstem from common environmental roots. The mission gathered data and conductedinterviews with a sample of public enterprises in order to assess the par-ticular situations affecting individual enterprises, and to serve as a basisfor distilling problems common to groups of enterprises. Case studies havebeen prepared for eleven firms, believed to be representative of the range ofpublic enterprises, and are presented in Appendix A. Drawing from the casestudies, from the discussions with some 21 enterprises and with officials inseveral ministries, and from financial data assembled on over 30 enterprises,the mission has summarized the major problems which appear to confront thepublic enterprises in Benin. This chapter begins by describing the majorenterprises included in the study and by arranging them in a matrix formataccording to their major problems. Problem area are then discussed by thefollowing categories: initial design and set-up, institutional arrangements,management and staffing, technical, marketing, pricing, and financial aspects.

DESCRIPTION OF ENTERPRISE SAMPLE

3.02 This report deals only with a sample of Benin's public enterprises.Out of a total of 60 firms (mid-1982), financial data were obtained (thoughoften incomplete) on 39 enterprises. These likely include Benin's majorpublic enterprises, but in the absence of data, it is not possible to becertain. For instance, some minor enterprises in terms of sales volume haveoperated at substantial losses in the face of difficult problems; thus, thepicture presented is by no means complete. The mission did not obtain sub-stantial information on the provincial enterprises, of which there were at onepoint 60 in theory; most of these have recently been discontinued.

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3.03 This section provides brief descriptions of the sample of enterprisesconsidered (Exhibit 3.1), in order to give the reader a general idea of thetype of enterprises reviewed. Greater detail was available to the mission incases where interviews were conducted; for most of these 21 firms, data at thelevel of detail presented in the case studies were available. Enterprises notmentioned here are those for which the mission did not obtain any significantinformation. Major problem areas are identified and discussed following thissection of descriptive material.

Major New Projects

3.04 Three major investment projects organized as public enterprises areincluded in this category. These are the Save sugar complex, the Onigbolocement factory, and the Seme petroleum project. A fourth new project -- theBenin Sheraton Hotel -- is not included due to unavailability of data to themission. The three projects are currently either completing their construc-tion phase, or have very recently (in the case of Onigbolo) been placed inservice. Consequently, their problems are not typical of the operationaldifficulties confronting the rest of the public enterprise sector. Theseprojects generally exemplify the difficulties associated with project designand start-up.

3-05 The Save sugar project is being managed by the Societe Sucriere deSave (SSS),a joint venture between the Benin and Nigerian Governments andLonrho Limited as technial partner. Irrigated cane fields have been estab-lished to supply a mill capable of producing 47,000 tons of refined sugar peryear; initial operation is scheduled for early 1983. Investment cost isestimated at CFAF 69 billion. Low cane yields combined with current very lowworld sugar prices are likely to cause substantial financial losses over aperiod of years (see case study).

3.06 The Onigbolo cement project began production in the third quarter of1982 as the Societe Cementiere d'Onigbolo (SCO). The enterprise is designedto produce 500,000 tons of cement per year for the Nigeria and Benin markets.SCO is owned by the two governments and by the technical partner, F.L. Smidth& Co. Total cost is estimated at CFAF 32 billion. Onigbolo's major problemsconcern the level of market demand in Benin, the conditions of access to theNigerian market, and the low world cement prices. Losses are likely over theshort- to medium- term (see case study).

3.07 The Seme oil production project is being developed by SAGA Petroleumof Norway under a service contract with the Benin Government. Production ofoffshore wells is expected to begin in 1983. The crude will be sold on theexport market (initial estimates of recoverable reserves approximately 22million barrels), and the rate of return will thus depend critically on worldoil prices. Present projections indicate that the Seme project may break evenuntil it begins to generate a surplus in 1985. First-phase costs areestimated at CFAF 45 billion; a second phase costing a further CFAF 16 billionis envisaged. There are no plans to install refinery capacity in Benin.

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Other Industrial Enterprises

3.08 Existing industrial public enterprises in Benin have mainly beenestablished on an import-substitution basis. A few are large by Benin stand-ards. The manufacturing processes involved are generally not complex.Results have been mixed, with a wide variety of problems encountered.

The Societe Cimentiere du Benin (SCB) is a mixed-economy clinker-grinding company in which the state has a 51 percent holding. Its sales in FY1982 were CFAF 3.0 billion, with losses of CFAF 272 million. SCB's profit-ability has suffered in recent years due to low, fixed prices for cement inBenin.

The Societe Nationale des Ciments (SONACI) is a wholly ownedgovernment clinker-grinding plant established more recently. With FY 1982losses of CFAF 179 million on sales of CFAF 3.1 billion, SONACI suffers fromsimilar pricing problems.

The Industrie Beninoise des Textiles (IBETEX) is an integrated cottonspinning, weaving and garment-making factory located in Parakou. The mixed-economy company has had numerous problems with foreign partners, with itsEuropean market, and with cotton quality. IBETEX has accumulated a negativenet cashflow of CFAF 3.2 billion over the past three years (see case study).

The Societe Beninoise des Textiles (SOBETEX) is a joint venturebetween French textile interests and the Benin Government (holding 49 percentof the shares). SOBETEX has consistently been a well-managed and profitableenterprise, based on printing imported calico for sale to local merchants.Profits were CFAF 240 million on sales of CFAF 6.5 billion in FY 1981. Re-strictions on access to the Nigerian market have recently hurt SOBETEX. sales(see case study).

La Beninoise is Benin's brewery and soft drink bottler. It is astate-owned enterprise with FY 1981 profits of CFAF 20 million on sales ofCFAF 3.9 billion. The enterprise has rapidly expanded its capacity in recentyears, though operating problems have kept the output of beer from rising.Profitability has been eroded in part due to financing charges on investmentsoverly-financed by borrowings (see case study).

The Ceramique Industrielle du Benin (CIB) is a small manufacturer ofceramic tiles and bathroom appliances, with 80 percent Government ownership.Inadequate equipment, disagreements with the foreign technical partner, andproduct design and marketing flaws have caused poor results. The firm is nowin judicial liquidation (see case study).

SOBEPALH is the state company responsible for industrial productionof palm oil. It manages three palm oil mills and collects oil palm from thegrowers' cooperatives. The oil palm sector has performed poorly due to inade-quate rainfall conditions in Benin; plantation maintenance and collection offresh fruit bunches has also been a problem. SOBEPALH lost CFAF 370 millionin FY 1981 on sales of CFAF 2.1 billion; it is due to be merged into SONICOG(see case study).

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SONICOG processes palm kernels into oil and cake, produces soap,processes other edible oils, and handles the exports of all Benin's industrialvegetable oil products. SONICOG's palm kernel oil output has been limited dueto low supplies of kernels from the traditional oil palm sector. Neverthe-less, it has remained profitable (see case study).

SONAGRI is the state enterprise responsible for cotton ginning (nowtransformed into SONAPRA). SONAGRI has reached a very bad financial positiondue to numerous technical problems discussed in the economic report.

SONAFEL produces fresh fruits and vegetables, as well as tomato pasteand fruit juice. It has turned in a negative financial performance due toinappropriate project design, inadequate equity, and organizational problems.

SABLI a livestock enterprise owned jointly with Libya, is juststarting operations and had no revenues in FY 1981. It is to take over theoperations of SODERA, another livestock firm.

SONIAH is a rice-growing and irrigation agency which has performedvery poorly. The rice perimeters have deteriorated, and it lost CFAF 150million on sales of CFAF 110 million in FY 1980. SONIAH is to be discontinuedunder the April 1982 changes regarding public enterprises.

SONAPECHE is a fisheries production and distribution enterprise(accounts not available). It has encountered severe equipment and otherdifficulties, and is in arrears with the banking system. It is to be absorbedby BELIPECHE, a joint Benin/Libya fishing firm.

SNAFOR, the forestry enterprise, which was also in arrears to thebank has been dissolved.

Import Enterprises

3.09 A large number of public enterprises have been created in the pastfive years to handle the importing and distribution of a wide range ofconsumer goods. These firms have had mixed results. Some have suffered frompricing regimes which did not allow import costs to be translated intoadequate prices on the domestic market. Some of these enterprises werecreated with inadequate capital and limited business knowledge. Others havebeen granted monopolies which have led to inefficiencies, higher prices, andincentives for speculation by the private sector.

AGB is the state agency which imports and distributes foodstuffs andgeneral consumer goods. It lost CFAF 240 million on sales of CFAF 5.3 billionin FY 1981. These losses have been due in part to low fixed prices on food-grains enforced by the Government. Equal prices throughout Benin seem tofoster inefficiencies in the distribution system.

SOBEMAC is a construction materials importer and distributor, sellinglargely to individuals who are building houses. SOBENAC has the monopoly incement distribution, and receives a margin on all cement sold even though itprovides no services for much of the cement, which is sold directly by the

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clinker grinding plants. The constant price throughout the territory alsoleads to shortages, and to opportunities for private profit at publicexpense. SOBEMAC achieved a CFAF 80 million profit on sales of CFAF 4.6billion in FY 1981.

SONACOP imports and distributes petroleum products, for which itholds the monopoly in Benin. It is a relatively well-managed enterprise withFY 1981 profits of CFAF 240 million on sales of CFAF 14.8 billion. SONACOPneeds to strengthen its planning process, however; it has not paid sufficientattention to matching investment needs with available resources (see casestudy).

SONAE imports vehicles and earth-moving equipment (see case study).

SONAPAL (books), CNPB (drugs), SONAMEL (household appliances), andSTC (shoes) are all import and distribution agencies with negative or lowprofitability. CNPB has been restructured and no longer has monopoly on theimport of pharmaceuticals. SONAMEL and STC have been merged to formSOGECOB. They appear to suffer from organizational and financial difficulties(not interviewed by the mission).

Service Enterprises

3.10 There are a number of public enterprises in the service sector, par-ticularly in transport. Some serve functions which are typically in publichands in most countries, whereas others have been created more recently todevelop a public presence in a key activity. Tariffs are a key issue for manyof these enterprises, and Government pricing policies have generally causednet losses among these firms. The initial capitalization of several of theservice enterprises was very low. On the other hand, the larger and moremature firms have recently taken steps to improve their organizational effec-tiveness and some progress has been noted.

The railway (OCBN) is owned jointly by Benin and Niger. It operatesprimarily from Cotonou to Parakou, where goods are transshipped to trucks forthe remaining journey north to Niamey and other points. Branch lines run toPobe and Ouidah. The OCBN has not been profitable recently it lost CFAF 590million on sales of CFAF 3.2 billion in FY 1980 -- but it has made greatefforts to improve its organization. The OCBN's situation and outlook arediscussed in more detail elsewhere in the economic report.

The port of Cotonou (PAC) is losing money as well (lossesof CFAF 570million on revenues of CFAF 1.4 billion in FY 1981), largely because of lowutilization relative to greatly expanded capacity recently installed. Withheavy fixed charges and traffic considerably lower than originally projected,this is almost inevitable over an interim period if tariffs are to be kept inline with those of neighboring ports. The organization of the port and of thestevedoring agency (OBEMAP) have been strengthened recently (see further dis-cussion in the economic report).

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COBENAM is the Benin-flag ocean carrier serving the liner shippingroute to Europe. Formed in partnership with the Government of Algeria, thisenterprise has grown and maintained profitable operations until recently, withnet income of CFAF 55 million in FY 1981 on revenues of CFAF 2.9 billion. Thesharp downturn in imports via Cotonou destined for the Nigerian market, due toNigerian restrictions imposed in spring of 1982, has greatly reduced COBENAM'scargoes. Combined with the introduction of additional tonnage, heavy finan-cial losses have been sustained in 1982. A business planning study couldassist COBENAM's managemnt to be followed by technical assistance in dealingwith containerization, chartering and financial control issues (see casestudy).

Air Benin is a local and regional airline formed recently with aninadequate experience and financial base. Aircraft which were not well-suitedto its operations are now being sold, and a more modest profile adopted.Losses of CFAF 370 million were recorded in FY 1981 on sales of CFAF 180million.

Trans Benin is a trucking firm owned jointly by the Government and agroup of private truckers. The firm was established with inadequate capi-tal. The private shareholders were apparently compelled to subscribe itsinitial capital, and have provided no assistance to the firm since. Theoperation has lost money heavily, recording a loss of CFAF 150 million onsales of CFAF 100 million in FY 1982 (see case study).

SONATRAC is a state-owned transit company, originally formed in 1974to handle Government-generated cargoes on a monopoly basis. It has not beeneffective in its role, and lost CFAF 440 million on revenues of CFAF 510million in FY 1980. A second transit firm -- SOTRACOB -- was created as amixed enterprise with private Benin interests in 1980; data were not availableto the mission.

The SBEE is Benin's state-owned power and water utility. It i-s aprofitable enterprise, and is discussed elsewhere in the economic report.

The banking sector is a Government monopoly served by a commercialbank (BCB), development bank (BBD), and agricultural credit institution(CNCA). As indicated in the previous chapter, these institutions have lentheavily to the public enterprise sector, and could not withstand the bank-ruptcies of several large borrowers without Government assistance.

ONATHO is the Government-owned hotel and tourism enterprise whichcontrols most of the hotels in Benin. Competition from remaining privatehotels imposes a certain efficiency on ONATHO. The big, new Benin Sheratondoes not appear on the books of ONATHO, though it is a Government-owned hotel.

There are, finally, several public enterprises in the informationfield. These include ORTB (radio, television), OBI (data processing) andOBECI (movie theaters), and ONEPI (printing). The ORTB resembles a Governmentagency more than a public enterprise. OBI and OBECI are in arrears to thebanks, although financial data were not available.

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MAJOR PROBLEM AREAS

3.11 The mission assessed the major problem areas affecting selectedenterprises in order to generalize the situation of the public enterprises.The problems highlighted are similar in many respects to those determined bythe Government in the studies which culminated in the April 1982 decisionsdiscribed in Chapter I. In summary form, the review of selected firms appearsas a matrix (Exhibit 3.2) which relates problem areas to selected enter-prises. This format reflects the judgment of the mission, based on the oftenincomplete information obtained, and should be viewed as a preliminaryapproximation. The matrix also emphasizes financial problems more thanothers, since financial data were available for almost the entire sample offirms whereas information on other problem areas was mainly available only forthe 21 enterprises interviewed.

3.12 The matrix shows 22 out of 34 enterprises judged to have major finan-cial problems. A number of firms (from seven to nine) have encountered majordifficulties in the areas of initial design and set-up, technical, managementand staffing, and pricing. Fewer major enterprise-specific problems wererecorded in the areas of marketing and institutional arrangements. Patternsemerge within each of these problem areas, and these are discussed in thefollowing paragraphs.

Initial Design and Implementation

3.13 The original objectives established for public enterprises have oftenbeen unclear or contradictory. As in many other countries, Benin's publicenterprises have difficulty in reconciling commercial and non-commercialobjectives. Without a clear statement of these objectives, and withoutappropriate financial and human resources, it becomes very difficult forenterprises to perform satisfactorily. Certain enterprises created withimplicit social, regional or sectoral objectives were hindered by a lack ofsound business planning. As an example, the provincial enterprises which arenow being closed down illustrate confused objectives. They were ofteninvolved in the production and distribution of goods in competition with theprivate sector. However, they were placed under the management or control ofAdministrative District Heads, reflecting social and political objectives atvariance with commercial goals.

3.14 In some cases the decision to establish a new enterprise or tonationalize privately owned corporations was not taken in light of a compre-hensive appraisal of the project or the corporation. Weak appraisals bear alarge responsibility in public enterprise failures, especially in achievingmarket objectives and in anticipating technical problems. The IBETEX textileoperation does not appear to have been adequately appraised with respect tothe market, the required quality and hence technical and skilled laborrequirements, and the working capital needs of the enterprise. It has had tovirtually abandon the originally planned European market in favor of the localmarket, entailing totally different machinery and product. Three agro-industrial firms -- Save Sugar, SONAFEL, and SOBEPALH -- all apparently basedtheir investments on exaggerated yield estimates at appraisal. For instance,

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the tomato paste factory at Natitingou, operated by SONAFEL, was ill-conceived. Transport costs for the imported cans and the finished product arehigh, the plant location is unfavorable, and tomato supplies have not beenadequate. This sort of technical misjudgment makes it impossible later on forthe project to achieve planned levels of economic and financial return. Inthe case of La Beninoise (brewery and soft drink bottling), it seems that aninadequate analysis was made of the condition of the fermentation unit andbottling line at the time of the purchase from foreign investors.

3.15 Foreign technical partners often seem to be suppliers who arrive inBenin and promote a project involving their equipment. This is a worldwideproblem, but it has had unfortunate consequences for several enterprises. Thecontinuous disagreements with the foreign partners engaged in the IBETEXtextile and CIB ceramics projects contributed directly to their inadequateperformance.

3.16 Time and cost overruns are a consequence of weak appraisals. TheSave Sugar and Onigbolo cement projects will probably cost 25 to 30 percentmore than originally planned. In the case of Save, lower-than-planned yieldswill result in less than full factory utilization based on existing acreage.

3.17 Recommendations. Project appraisal and start-up is always diffi-cult. A careful appraisal of all the economic, financial, technical, man-agerial, marketing, and organizational factors is essential. Greater capa-bility in project analysis is needed within the Benin government, particularlywithin the Directions d'Etudes et de Planification (DEPs) of the major mini-stries. Meanwhile, independent consultants should be retained more frequentlyto review projects submitted by foreign partners to verify the criticalassumptions involved. Brief missions by consultants during the constructionand early implementation stage could also pay large dividends.

Institutional Arrangements

3.18 The public enterprises are subjected to oversight by a variety ofgovernment agencies. Each enterprise comes under the authority of a Ministerede Tutelle (e.g., the Ministry of Industry, Energy and Mines for an enterpriseengaged in industrial activities). In addition, the Ministry of Finance andthe Caisse Autonome d'Amortissement review and clear external borrowings; theMinistry of Labor supervises recruitment; the MIEPSEP reviews enterprisefinancial data; the Ministry of Planning requests performance data and invest-ment plans; and the Council of Ministers must approve the accounts and proforma statements annually, and makes all management appointments. This typeof multiple supervision is, of course, not unique to Benin.

3.19 The constraints placed on decision-making at the enterprise level areexcessive, however. The mission was told of difficulties in hiring and firingin many enterprises. One firm, for instance, mentioned the struggle to limitthe intake of new personnel in the face of general pressures to use the publicenterprises as a form of employment creation. Another enterprise mentionedthe complexity of hiring new staff, and the inability of the enterprise'sgeneral manager to make hiring decisions even for support staff; this author-ity seems to lie with the Ministry of Labor. A third public enterprise

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stressed that reductions in staff were regarded as political decisions takenat a level well above the enterprise.

3.20 Excessive supervision often acts as a disincentive to enterprisemanagement and leads to a tremendous waste of time. Initiatives are frequent-ly stalled by the numerous clearances necessary, for instance, for businesstravel. The few senior staff members of most public enterprises are alsorequired to attend an inordinate number of meetings, conferences, and commit-tees outside their own enterprise. Ministries utilize public enterprise staffmembers routinely without compensating the firm for the services rendered.

3.21 The sophisticated procedures often are of no real benefit in monitor-ing, controlling or even understanding the performance of the enterprises. Nobroad objectives, approaches and resource levels are agreed between governmentand enterprise. The enterprises complain that they recieve very little feed-back from the ministers in response to the frequent documentation requestedand submitted. The only ex-ante documents produced by the enterprises forgovernment review are the forthcoming year's provisional accounts, which goall the way to the Council of Ministers, with an analysis attached byMIEPSEP. Several of the provisional accounts reviewed by the mission weretotally unrealistic (though others are more substantive). A firm whose saleshad never exceeded CFAF 30 million projected revenues of CFAF 150 million,without any supporting rationale or request for additional resources.Important government officials' time is wasted in reviewing unrealisticplans. MIEPSEP's analyses so far (the ministry is very new) have beensuperficial, without proposing pragmatic solutions or alternatives.

3.22 Recommendations. The mission recommends a streamlining of super-vision functions and a more positive government-enterprise relationship. Theproblem is not so much control of the enterprises as it is proper managementby the enterprises themselves. Each supervising Ministry should have a per-formance evaluation system which enables it to follow how enterprises'objectives are being achieved, while leaving room for initiative and propermanagement.

Management and Staffing

3.23 Benin is very short of experienced business managers, particularly insectors other than trading. Despite the country's reputation for a highstandard of education in the past, many trained Beninese work in neighboringcountries where compensation is higher. The shortage of modern sectormanagers affects both the public and private sector, and results in lowefficiency of the enterprises.

3.24 The circumstances under which many public enterprises were createdhave contributed to the poor performance of managers. The enterprises werelargely staffed with civil servants without expertise in the enterprise' proposed activities, and often without any previous business experience.Several managers were appointed to head up new enterprises before the preciserole of their organization, the work program or the resource requirements hadbeen established. These problems were found in Trans Benin and SONAPAL, forinstance.

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3.25 The managers of Benin's public enterprises are offered no incentivesto perform well. The institutional arrangements tend to encourage conformityand to penalize risk-taking. There is no performance bonus -- partly becausethere is no standard for measurement of performance -- so that the mianager hasno personal incentive for efficient management. The April 1982 decisionsrecongize the need for performance incentives, but these have not yet beendeveloped. Salaries are so low (presently about CFAF 100,000 per monthmaximum for a general manager; this level was fixed by a 1974 decree) thatmany managers devote considerable portions of their time to private activitiesthat are more remunerative. The very cautious approach to management taken inthe central government, often involving management-by-committee, is oftennoticed in public enterprises as well.

3.26 The Benin private sector also is short of experienced managerscapable of running a modern industrial or service firm, so that it is ques-tionable how much reinforcement can be obtained locally. Discussions withlocal bankers indicated a group of 25 to 30 small private industrial andservice firms operating in the modern sector. However, their managers are notprofessionals or technicians, and it is not certain that they could be ofservice to the public enterprises. Benin counts less than a handful ofbusiness managers trained by foreign corporations.

3.27 The managers of Benin's public enterprises seem to have few oppor-tunities to learn from colleagues in similar industries elsewhere. Often, asmall public enterprise shares the local market with one or two privatetraders and is not exposed to modern operational techniques. Apparentlycontracts with foreign suppliers are often made on unfavorable terms becauseof lack of knowledge concerning alternatives, and because Benin representsonly a small market to overseas suppliers. Even among public enterprises,there has been too little cooperation in foreign purchases in the past. Forinstance, SONACI and SCB have only recently begun to coordinate their pur-chases of clinker.

3.28 The lack of adequate planning in the public enterprises is one of theconsequences of weak management. Orders for equipment and supplies seem to beplaced with little planning as to the implementation of the investment. Forinstance, the petroleum distribution firm SONACOP is now building storagetanks with medium-term credit on the expectation that National Investment Fund(FNI) money would be available as permanent financing. However, it appearsthat these funds are not likely to be available. Meanwhile, SONACOP'smanagers have planned additional investments (CFAF 1.1 billion) including anequity participation in a plastics factory.

3.29 Conclusion. The mission agrees with the April 1982 decision toinstitute performance incentives for public enterprise managers. This couldalso extend to key staff. Agreed-upon objectives and resource levels willhave to be set, bearing in mind institutional and economic constraints.

3.30 To strengthen the level of management, greater cooperation withforeign technical partners is recommended. Technical assistance from con-sultants or firms in the same industry abroad could help improve the effi-ciency of numerous enterprises in Benin. For instance, La Beninoise could

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benefit from closer relations with a welloperated brewery overseas; andCOBENAM is seeking help in adjusting to new technology.

3.31 Strategic planning should be introduced in selected enterprises.This should be closely linked with the establishment of multi-year objectivesand resource needs with the government. The document resulting from a peri-odic planning process would form a basis for discussions with the Ministere deTutelle. Large enterprises (e.g., SONACOP, SONICOG, La Beninoise, COBENAM andAGB) should be the first to apply strategic planning. The process wouldgreatly aid in raising management's understanding of resource needs based onenterprise objectives and requirements.

3.32 Coupled with the establishment of agreed objectives and an internalplanning capability, public enterprises should be allowed greater operatingautonomy. Enterprise managers must have the authority in practice to hire andfire staff, to authorize business travel, and to train staff. This requires achange in perceptions and expectations, over a period of time, as well asformal changes in administrative procedures. While further detailed analysisis required, the mission suggests that consideration be given to affirming thegeneral manager's responsibility for enterprise performance. The role ofcommittees should be reduced.

Technical Aspects

3.33 The most widespread technical problem encountered in the publicenterprises is maintenance. Breakdowns have resulted in substantial downtimeand consequent higher production costs in such enterprises as La Beninoise,CIB, SCB, SONACI and Trans-Benin. Poor maintenance is partly a function ofthe shortage of well-trained mechanics. It also reflects inadequate fundingof the enterprise; Trans-Benin, for instance, never had enough money to estab-lish a modern workshop for its trucks, with the result that repairs must stopwhen it rains. In another case, a single broken piece kept a plant out ofoperation for months while bureaucratic disagreements and possibly lack offunds delayed obtaining a replacement. Unavailability of spare parts seemsmainly the result of poor planning by the enterprise; there are no restric-tions on foreign exchange as in other countries of the region.

3.34 As a contrast, the SOBETEX textile factory has been running at orabove its design capacity for many years, until a recent downturn in demand.This is due in part to a very well-organized maintenance system. Beninesemechanics are trained by the machinery manufacturers in Europe, and are fullyconversant with the equipment. The company maintains close contact with themanufacturers and is able to quickly resolve any serious equipment problems.

3.35 A few enterprises have wound up with inadequate machinery, due toweak initial appraisals and insufficient supervision during the installationperiod. The kiln equipment of CIB is perhaps the clearest example. Apparent-ly, the foreign partner did not install the tunnel kiln called for in thecontract. The kiln installed has never functioned properly. In other cases,equipment is simply beyond the limit of its economic life; this is reportedlythe case with SONACOTRAP's road-building equipment, purchased second-hand fromforeign contractors. Benin's public enterprises do not include any obviousexamples of inappropriate choice of technology.

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3.36 Conclusion. Thorough maintenance planning and training of mechanicsis essential. In the start-up phases of new projects such as Save sugar andOnigbolo cement, training is of great importance.

3.37 Planned maintenance programs are also essential. This requiresleadership by engineers trained in maintenance procedures. Adequate spareparts inventories are needed, and procedures must be available to procureparts from overseas quickly when key unstocked items fail. The cost ofdowntime must be properly weighed against the cost of rapid parts procurement.

3.38 Postponed maintenance has by now led to major rehabilitation needsfor numerous enterprises. Several of the enterprises have already developedrehabilitation plans-SOBEPALH, SCB, AGB, and La Beninoise. These plans shouldbe reviewed by industry specialists.

Marketing

3.39 Distribution channels for goods sold domestically, market access toNigeria, and overseas marketing are major issues for Benin's public enter-prises. Within Benin, the marketing of certain key commodities is handled ona monopoly basis by the appropriate public enterprise. This creates problemswhen the enterprise is not fully equipped to carry out the required distri-bution, and may diminish the incentive to provide good customer service. Forinstance, SOBEMAC holds the monopoly on cement distribution, and collects afixed margin on all cement sold in the country. However, much of the cementis purchased directly at the clinker grinding plants, so that SOBEMAC iscollecting revenue without providing corresponding service.

3.40 The market within Benin is relatively small, but the proximity toNigeria offers a much larger, though fluctuating, market. Many public enter-prises rely to a considerable extent on direct and indirect access to theNigerian market. These include the textile producers (IBETEX and SOBETEX), LaBeninoise brewery, and the consumer goods importer, AGB. Therefore, Nigerianimport restrictions, even when they are temporary, affect the sales andprofits of Beninese public enterprises. SOBETEX, for instance, has generallynot had marketing problems in the past, selling for cash on the localmarket. However, a large percentage of SOBETEX fabrics are resold to Nigerianbuyers, who sharply reduced their purchases in mid-1982 due to officialrestrictions on imports. Production has had to be substantially cut back.

3.41 The Trans-Benin trucking company provides another example of criticaldependency on the Nigerian market. Trans-Benin was originally established totake advantage of the excessive unloading delays in the port of Lagos duringthe late seventies. The Beninese expected to capture a large share of theLagos traffic in Cotonou and to deliver the goods to Nigeria by road. By thetime Trans-Benin had commenced operations, improvements in the operation ofLagos and other Nigerian ports had substantially reduced the volume of freighttransshipped at Cotonou. Trans-Benin's anticipated market niche disappeared,and the firm had to place its trucks on the highly competitive routes to Nigerand other Sahel countries.

3.42 Most of Benin's substantial enterprises rely to a considerable extenton unhindered access to the Nigerian market. Two large recent projects --Onigbolo cement and Save sugar-were both planned with the Nigerian market in

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mind, and are owned jointly with the Nigerian government. However, the termsand conditions of access to the Nigerian market were apparently not finalizedduring the early phases of the projects. At present, Nigeria has raised theprospect of imposing an import duty on Onigbolo's cement, which would renderthe delivered price non-competitive on the Nigerian market and result in heavylosses for the company. For Save, which will sell 80-90 percent of its sugarto Nigeria, the price eventually paid by the Nigerian Supply Company willdetermine the enterprise's financial viability; if currently low world pricesprevail, the firm will require some form of cash infusions or may be forced toseek debt relief.

3.43 The overseas market has so far only been of interest in the case ofBenin's commodity exports such as vegetable oil, cotton, and now,petroleum.IBETEX is the only firm that has recently been established with a view towardexporting to Europe. The results illustrated the serious difficultiesinvolved. Certain European partners involved in the marketing end wereapparently unreliable. Other purchasers in Europe were slow to pay or wentbankrupt. The firm also had trouble meeting European quality standards.IBETEX has had to re-orient its marketing efforts and product lines to localdemand.

3.44 Conclusion. The Government has stated that it will review the basisfor monopolies by certain public enterprises on the distribution of key com-modities. Customer service may be improved, in some circumstances, bypermitting a more competitive marketing system.

3.45 The present restrictions on imports to Nigeria are seriously affect-ing a number of the Beninese public enterprises, and would justify government-to-government discussions to obtain exemptions for certain Beninese goods.Benin is a valuable low-cost producer for Nigeria, and benefits in turn fromeconomies of scale based on the larger market. This special relationshipshould be more fully recognized on both sides of the border.

Pricing Policy

3.46 Prices which are fixed at low levels have caused problems for publicenterprises that import their inputs and sell their output on the localmarket, or which distribute imported commodities. These problems have beenrecognized by the Government commission which reviewed the situation of thepublic enterprises. The National Price Commission must approve requests forprice increases on controlled commodities such as cement, imported foodgrains,and beer. Through lengthy delays during times of inflation, this policysubsidizes consumers at the expense of the public enterprises, which areforced to carry out public policy without receiving subsidy.

3.47 The two clinker grinding plants are clear examples of inadequateprice levels maintained by the National Price Commission. Despite whatappears to be reasonably efficient operations at the two plants, and decliningoperating costs for at least one of the plants, price increases for cementhave lagged so far behind the imported clinker costs that SONACI is losingabout CFAF 600 million per year and the SCB some CFAF 300 million per year (34percent and 13 percent of sales respectively). This amounts to a subsidy oncement consumption -- widely used by individuals for house construction, andhence a politically-sensitive commodity -- borne by the two enterprises rather

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than directly by the Government. On the other hand, a price increase of some40 percent granted in late-1982 appears to have exceeded the level of demand,and may not reflect current low world prices. The lack of flexibility may beas much a problem as the price level itself.

3.48 The AGB lost so much money on wheat imports -- due to the Government-set sales price which did not reflect rising wheat import costs -- that thefirm refused to continue its involvement in wheat. The privately-owned flourmill (GMB) now imports wheat directly, and is presumably able to pass itscosts through to the bakeries. AGB is still losing money on rice, and handled5,000 tons of corn imports in March 1982 at a loss. AGB's profits on otherfood imports (for which the margin is regulated, rather than the price levelitself) have not offset these losses in recent years.

3.49 The slow pace adopted by the Government in considering price revi-sions is frustrating to many public enterprise managers. La Beninoise, forinstance, was notified in May 1981 of Government authorization to increase theprice of beer twenty months after it submitted its request. These delaysweaken management's interest in striving toward profitable operations, as itis possible to blame the overall pricing policy for any financial difficul-ties.

3.50 Inadequate pricing policies lead to serious economic distortions.While both clinker grinding companies are losing money on every bag of cementsold, considerable profit opportunities have been created for traders andmiddlemen. Fixed prices throughout the country exacerbate cement shortages inthe north, so private traders purchase cement in Cotonou and sell it in thenorthern provinces far above the official price and also substantially abovethe actual costs, transportation included.

3.51 Other controlled commodities are also the targets of speculators.Beer and rice are sold by public enterprises at low official prices to whole-salers and retailers who profit by reselling the goods above the authorizedmargins. The end result is that the pricing policy is not fully effectivefrom a consumer viewpoint, and that profits are siphoned from publicenterprises to private traders.

3.52 Recommendations. Government pricing policy, particularly the fixedprices for certain commodities should be reviewed. In cases where publicenterprises import most inputs, price increases should be permitted to reflectactual costs more accurately. This could be achieved by setting marginsinstead of prices, by indexing prices to import costs by more timely approvalof price increase requests or by reducing the list of controlled commodities.The Government should explicitly adopt a policy that public enterprises willnot be made the de facto agents of price-subsidy policies. Any subsidiesdeemed necessary should be identified in the current expenditure budget,transferred to the enterprise, and given a specific sunset date.

Financial Problems

3.53 Two-thirds of Benin's public enterprises are believed by the missionto be suffering from major financial problems. These problems arise fromcumulative operating losses due to the difficulties already discussed. Theyalso reflect inadequate initial equity bases, excessive debt leveraging to

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finance investment programs, and high receivables from the public sector.

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3.54 Several enterprises were initially undercapitalized in relation totheir planned tasks and working capital needs. IBETEX had insufficient fundsto finance its export sales. Enterprises such as SONIAH, SONAPECHE andSONAFEL were established with capital of CFAF 50 million each, very smallsums. Most of the ill-fated Provincial enterprises did not receive any equityfrom the Government, and their bank debts have nearly all gone bad. Under-capitalization was due both to weak or nonexistent project appraisals and tothe limited Government resources provided.

3.55 Even when initial equity was satisfactory, some public enterpriseshave had to carry out large investment programs without obtaining correspond-ing increases in their equity base. In the absence of capital increases,these investments have been financed by medium- and short-term borrowing,leading to excessive debt-to-equity ratios for most of the public enterprisesand increasing vulnerability in case of a business downturn. Out of a sampleof 30 enterprises, only 20 percent have debt-equity ratios below two to one,while 50 percent have ratios that are above ten to one. For instance, LaBeninoise has invested CFAF 6.2 billion between 1977 and 1982, without anyequity contribution by the Government. Its debt-equity ratio stood at 7.6 toone in 1981.

3.56 Public enterprises also suffer from an inability to collect debtsfrom other public entities. The banks (BCB and BBD) are a special case, withat least 60 percent of their arrears related to loans to public enterprises.In the case of the book distributor, SONAPAL, it seems that the company'sfinancial problems resulted partly from outstanding bills for books and otherschool supplies delivered to various administrative districts. SONAE, whichimports and distributes cars, trucks and civil works equipment, also has tocope with long payment delays from its major client, the Benin Government.IBETEX, which is in arrears to numerous banks and suppliers, encounters longdelays in being paid for army uniforms it sells to the Government.

3.57 The pattern of interlocking arrears in the public sector has createda vicious circle of insufficient liquidity among the enterprises, as noted ina recent Government report. Enterprises do not receive sufficient equitycontributions or subsidies needed from the government, and suffer from growingreceivables. The enterprises then defend their liquidity by building uparrears in payments to the banks and other enterprises, and by not payingdividends and other taxes demanded by the Government. Sometimes when publicfunds are required for a particular purpose, a special drive is undertaken tocollect the money from the most prosperous public enterprises. A completelyad hoc payment system tends to develop, marked by a lack of liquidity.

3.58 Causes such as poor initial project design, weak management andinadequate pricing policies have combined to create operating losses for manyof the public enterprises. Thirteen enterprises out of a sample of 29recorded net negative cash flow in their most recent financial statements.Eleven out of 21 firms are operating with negative net working capital. Tenout of 30 firms are technically bankrupt -- their liabilities exceed assets.These and other financial indicators (see Exhibit 3.1) portray the weak con-ditions of the public enterprise sector. 1/

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3.59 In general, enterprises created from scratch in the midseventiesappear to be more prone to financial difficulties than those which had existedpreviously as state-owned utilities or as private operations. The most solidenterprises financially are the larger, older organizations such as SBEE, PAC,and SONACOP and a few other firms such as SOBETEX and COBENAM. The technical-ly bankrupt firms -- SONIAH, SCB, SONACI, IBETEX, CIB, Air Benin, Trans-Benin,SONATRAC, SONAPAL and AGB -- were all created in the mid-seventies, and onlySCB had existed earlier (as a private venture). As shown in Exhibits 3.2 and3.3, 75 percent of the sample of public enterprises have some degree of finan-cial difficulty. Approximately 60 percent of the sample can be considered tohave serious financial problems such as net losses, arrears to banks, andnegative net working capital.

3.60 Recommendations. The financial problems noted here generally stemfrom a variety of causes addressed in earlier sections. Resolving thefinancial difficulties therefore requires action aimed at ameliorating thefundamental conditions involved. Curing these deep-seated problems will re-quire more than just infusions of money or superficial organizational changes.

3.61 In the current situation, those enterprises deemed to be worth saving-- as most are -- need to be financially restructured. This will requireadditional equity and long-term debt to handle accumulated deficits financedwith short-term borrowings. The amount of the injection required depends onthe working capital situation, the equity base, and the prospects for improve-ments through pricing policy or other changes. Funds will also need to bemade available for rehabilitation investments (see Exhibit 2.9). An IDAproject should include funds for the preparation of individual rehabilitationplans, and funds for the implementation of such plans.

3.62 Enterprises with poor performance in the past and meager future pros-pects need to be eliminated. The funds required for the public enterprisesare substantial--estimated in Chapter II at CFAF 7-10 billion for past lossesand CFAF 6-10 billion for rehabilitation investments, without considering theparticular problems associated with the three major new projects. This meansthat difficult choices must be made. While decision criteria should remainflexible, viable public enterprises will generally be those which can generateenough cash to cover their out-of-pocket operating costs, including propermaintenance. This break-even cash flow should be achievable at prices whichare reasonable in relation to those offered by private sector competitors oravailable on imported goods.

3.63 Closing certain non-viable firms could prevent cash flow losses ofbetween CFAF 1.5 and 2.0 billion per year, a considerable sum in the contextof the country's public finances. In a pure market economy, inefficient firmsare generally eliminated. In a planned economy, the firms and banks areGovernment-owned, and financial difficulties tend to continue too long withoutcorrection. Only Government action can reverse this trend, by settingcriteria and taking action at the appropriate time. Jettisoning some of thesector's excess baggage will also enable the authorities to concentrate on thenumerous other enterprises in need of--and deserving--financial and technicalsupport.

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IV. RECOMMENDED IDA ASSISTANCE

4.01 The problems and recommendations noted in the preceding chaptersrequire action at the enterprise and at the central government levels. Policychanges are clearly called for. External resources, in the form of technicaland financial assistance, can play a constructive role in supporting Benin'swillingness to address the problems at hand.

4.02 The Government is clearly concerned with the situation of publicenterprises. Several commissions have analyzed their problems, resulting in aset of decisions taken in April 1982, as reviewed in Chapter I. A number ofpositive decisions were taken, involving re-structuring of entersprises, theelimination of Government commissioners, and recognition of the importance ofadequate pricing policies and distribution systems. On the other hand, muchremains to be done. Production incentives and management bonuses have not yetbeen introduced, and much of the pricing and distribution policy has yet to beput into practice. Nor has the commission apparently adopted a medium-term(five to seven year) strategy designed to place the public enterprises on asound footing, and recognizing a realistic timeframe for such a substantialaccomplishment. Nevertheless, the measures adopted are a step in the rightdirection and should be encouraged.

4.03 The mission believes that IDA assistance can make a useful contri-bution toward resolving some of the problems faced by Benin's public enter-prises and clearly recognized by the Government. Discussion of the presentreport with the authorities can serve as a basis for agreement on desirablepolicy measures, technical assistance, and financial support for individualenterprises. The objectives and design of an IDA project should reflect thereactions of Beninese officials to this report. Despite their tentativenature, the following paragraphs broadly present the key elements of apossible IDA Public Enterprise Sector Project (PESP) in Benin.

PROJECT OBJECTIVES

4.04 The wide range of public enterprise problems and issues presented inearlier chapters suggests tackling them at both the sectoral and enterpriselevels. IDA assistance should acknowledge this double approach and set itsobjectives accordingly.

The proposed PESP would have the following sector-wide objectives:

1. Help to bring about appropriate pricing policy, surveillanceregulations, and business practices in dealing with the centralgovernment and other public entities.

2. Introduce a multi-year system of agreed objectives and resourceavailability levels for the enterprises. This system would containperformance evaluation criteria.

3. Assist in reversing the negative impact of public enterprises onBenin's public finances and banking institutions.

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4. Assist the Government in reassessing the desirability and the natureof its involvement in certain economic activities.

At the enterprise level, IDA assistance would endeavor to:

1. Assess the enterprise's viability and economic outlook, and recommendeither its rehabilitation, merger, sale to private interests orclosing down.

2. Provide non-viable enterprises with a program for merging or closingdown.

3. Develop rehabilitation plan for the viable enterprises and assistancein their implementation.

PROJECT DESIGN

4.05 IDA could support these objectives by financing studies, rehabilita-tion and investment programs, technical assistance at the enterprise level,and management training.

Studies

4.06 The project would finance studies to be carried out by local andforeign experts on both the sectoral and individual enterprise levels. Thesector-wide studies could assess options on such key policy issues as pricingpolicy, personnel management, and greater autonomy for managers. At theenterprise level, studies would assess viability and develop rehabilitation orclosing-down plans for specific firms. Assistance would also be made avail-able to help major enterprises develop strategic plans.

4.07 In deciding whether an enterprise should continue or not, theanalysis should consider whether the firm can genrate enough cash to meet itsoperating costs (including adequate maintenance) while charging prices thatare reasonable in terms of import-parity prices. If an enterprise cannot beexpected to reach such a position, it should be phased out, absent overridingpublic interest considerations. The attractiveness of viable commercial andindustrial enterprises to private sector investors should be assessed.Finally, viable enterprises which are to remain as state-owned or mixed-economy companies should be provided with assistance in preparing a soundrehabilitation plan.

Line of Credit

4.08 Direct assistance to selected enterprises would be accomplished bymaking available a line of credit to be disbursed in accordance with theenterprise rehabilitation programs agreed upon. Flexibility in addressing theenterprises' financial needs would be provided. The IDA funds could be dis-bursed in the form of Government equity, operating subsidies, or loans to theenterprises for the purpose of providing equipment (modernization or expan-sion), importing raw materials or spare parts, and providing working capital.

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4.09 The funds available under a possible IDA line of credit would clearlybe limited. Criteria are therefore necessary to determine which enterpriseswould be assisted under the project. The mission's general view is thatenterprises assisted should have a reasonable chance of profitable operationwith financial re-structuring; that the Government should be willing toconsider any policy changes deemed essential for efficient operations; andthat the funds should be spread over a representative group of enterprises.The choice of enterprises to be assisted, would be determined on the basis ofthese criteria and in conjunction with Government priorities. Operationsrequiring potentially large cash infusions, such as Save sugar or Onigbolocement, would be reviewed closely to determine the suitability for possibleIDA Assistance.

Technical Assistance

4.10 Funds should be earmarked within the proposed PESP for technicalassistance needed by several enterprises. This would include resident tech-nical assistance (mostly managers, engineers and technicians) and short-termconsultancy services especially in the fields of planning, personnel, main-tenance, accounting and auditing. The assistance under the PESP would bedirected to the enterprise level, and would thus be complementary to a generaltechnical assistance project being considered by IDA.

Management Training

4.11 IDA support for improved management of public enterprises could alsoinclude financing training programs required by the rehabilitation plans.

4.12 These views on a possible IDA project are based on the mission'sfindings, and will require full discussion with the Benin authorities in orderto define the content more precisely.

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LIST OF EXHIBITS

1.1 Evolution of Public Enterprises1.2 Benin's Public Enterprises by Sector of Activity1.3 Major Public Enterprises1.4 Major Provisions of Benin's Investment Code2.1 Analytical Framework for Public Enterprise Impact on

Public Finance2.2 Taxes Received by the Treasury from Public Enterprises2.3 Public Enterprise Contributions to FNI2.4 Expropriation Payments Made by CAA to Previous

Shareholders2.5 Equity Funds Provided to Public Enterprises by the CAA2.6 FNI Project Financing for Public Enterprises, 1978-19812.7 Government Guarantees Accorded to Public Enterprises2.8 External Debt of Public Enterprises Handled by CAA2.9 Estimated Future Public Finance Impact of Public

Enterprises2.10 Credit Extended to Public Enterprises by the BCB2.11 Public Enterprise Debts in Arrears to the BBD3.1 Public Enterprise Financial Indicators3.2 Major Problems Facing Selected Public Enterprises3.3 Enterprises with Financial Problems

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Exhibit 1.1

EVOLUTION OF PUBLIC ENTERPRISES

Government Year Public YearOwnership Year Owership Operations

Public Enterprises (percent) Created Increased Began Comments

Aqro- IndustrySONAFEL 100 1975e 1976eSABLI 51 1980 1980 Government of Libya 49SSOBEPALH 100 1975 1976 Continuation of previous entitySONICOG 100 1961 1963SONIAH 100 1975 1975555 49 1975 1983e Nigeria 46S, Lonrho 5S

Industrysc8 50 1967 1975 1968 Government holding increased from 25S in 1975SONACI 100 1976 1978IBETEX 48 1971 1975 Private French Firms 52^SOBETEX 49 1975 1968 Government holding increased in 1975La Beninoise 100 1975 1950s Government obtained 100S controlCIB 80 1974 1976 Private German firm 20SSCo 49 1977 1982 Nigeria 41%, F.L. Seidth 10SSags Petroleum-Benin Mixed 1979e 1982e Ownership details not available

Construct ionSOBEMAC 100 1975

TransportOCBN 50 1959 Jointly owned with NigerPAC 100 1960sAir Benin 100 1977e 1978Trans Benin 49 1977 1979 Private Benin truckers 51%COBENAM 51 1974 1975 Algeria 49^

Ptblic Utilities5BEE 100 1973 old Nationalized in 1973

ComerceSONAPAL 100 1975ONP 100 1964AGB 100 1978 Took over operations of SONIBOAE 100 1975SONAE 100 1975STC 100 1978SONACOP 100 1974 Took over operations of 6 oil companies

Other ServicesONATHO 100 1974 Acquisition of existing hotelsSEMAC 100 1976

e = estimated.

*Source: Dats furnished by pLblic enterprises nd Government of Benin.

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Exhibit 1.2

BENIN'S PUBLIC ENTERPRISES BY SECTOR OF ACTIVITY

Acronym Activity Enterprise Name

…-----------------------------------------------…Agro-Industry…------------------------------------------------

SONAGRI Cotton Societe Nationale pour le Developpement AgricoleSNAFOR Forestry Societe Nationale pour le Developpement ForestierSODERA Livestock Societe Nationale pour le Developpement des Ressources AnimalesSONAPECHE Fisheries Societe Nationale d'Armement de PecheSOBEPALH Palm Products Societe Beninoise de Palmier a HuileSONIAH Rice Irrigation Societe Nationale d'Irrigation et d'Amenagement Hydro-AgricoleSONAFEL Fruits and Vegetables Societe Nationale des Fruits et LegumesBELIPECHE Fisheries Societe Benino-Arabe Libyenne de PecheSABLI Livestock Societe Agro-Animale Benino-ArabeSSS Sugar Societe Sucriere de Save

-----------------------------------------------------Industry--------------------------------------------- -----

IBETEX Integrated Textiles Industrie Beninoise des TextilesCIB Ceramic Tiles Ceramique Industrielle du BeninSONACI Clinker Grinding Societe Nationale des CimentsSONICOG Vegetable Oil Societe Nationale pur l'Industrie des Corps GrasSBEE Public Utility Societe Beninoise d'Electricite et d'EauSCB Clinker Grinding Societe des Ciments du BeninLa Beninoise Brewery Societe Nationale de BrasserieSOBETEX Textile Printing Societe Beninoise des TextilesSCO Cement Societe des Ciments d'OnigboloOBEMINES Minerals, Petroleum Office Beninois des MinesSAGA Petroleum SAGA Petroleum-Benin

---------------------------------------------------Construction-------------------------------------------------

SONACOTRAP Public Works Societe Nationale de Construction et des Travaux PublicsCNER-TP Sails Laboratory Centre National d'Essais et de Recherches des %ravaux PublicsINC Cartography Institut National de CartographieSONAGIM Real Estate Societe Nationale de Gestion ImmobiliereSTEA Rural Electrification Societe des Travaux d'Electrification et d'Adduction

-------------------------------------------Transport and Communications------------------------------------------

Air-Benin Airline Societe Nationale des Transports AeriensCOBENAM Shipping Compagnie Beninoise de Navigation MaritimeOCBN Railway Organisation Commune Benin-NigerPAC Port Port Autonome de CotonouTrans-Benin Trucking Societe des Transports du BeninOPT Post Office Office des Postes et Telecommunications

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Exhibit 1.2Page 2

Acronym Activity Enterprise Name

---------------------------------------------------…Information…-------------------------------------------------

ORTB Radio and TV Office de Radio-Diffusion et Television du BeninOBECI Movie Theatres Office Beninois de CinemaONEPI Printing Office National d'Edition de Presse et d'Imprimerie

----------------------------------------------------- Commerce--------------------------------------------------

SONAPAL Book Distributors Societe Nationale de Papeterie et de LibrairieONP Pharmaceuticals Office National de PharmacieSONAMEL Household Appliances Societe Nationale de Materiel Electrique et Electro MenagerSTC Shoe Imports Societe des Textiles et ChaussuresRAVINAR Ship Chandler Regie de Ravitaillement des NaviresAGB Food/Supermarket Imports Societe d'Alimentation Generale du BeninOAE Supplies Office d'Approvisionnement d'EcatSOBEMAC Construction Materials Societe Beninoise de Materiaux de ConstructionSONAE Equipment Societe Nationale d'EquipementSONACEB Agricultural Exports Societe Nationale de Commercialisation et d'Exportation du BeninSONACOP Petroleum Products Societe Nationale de Commercialisation des Produits Petroliers

…-----------------------------------------------------Finance-------- - - - - - - - - - - - - - - -

SONAR Insurance Societe Nationale d'Assurances et de ReassurancesCNCA Agricultural Credit Caisse Nationale de Credit AgricoleLNB Lottery Loterie Nationale du BeninBBD Development Bank Banque Beninoise pour le DeveloppementFAS Agricultural Stabilization Fund Fonds Autonome de Stabilisation et de Soutien des Prix des

Produits AgricolesBC8 Commercial Bank Banque Commerciale du BeninCAA Debt Management Caisse Autonome d'Amortissement

------------------------------------------------ Other Services ------------------------…---------___________

OBI Data Processing Office Beninois d'InformationSEMAC Cotonou Market Societe d'Exploitation des Marches de CotonouONATHO Hotels, Tourism Office National du Tourisme et de i'HotellerieSONATRAC Transit Societe Nationale de Transit et de ConsignationSOTRACOB Iransit Societe de Transit et de Consignation du BeninOBEMAP Stevedoring Office Beninois de Manutention PortuaireOBSS Social Security Office Beninois de Securite Sociale

Notes: 1. List of public enterprises furnished by the Ministry of Inspection of Public Enterprises, March 1982.2. In addition to these national public enterprises, there were formerly 60 Provincial enterprises. This

number has been reduced to six (one public bus company in each province) by the decisions taken inApril 1982.

Source: Government of Benin.

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Exhibit 1.3

MAJOR PUBLIC ENTERPRISES

Sector Activity Public Enterprise

Agro-Industry Palm oil SOBEPALHVegetable oil processing SONICOGCotton SONAGRIFruits and vegetables SONAFELFisheries SONAPECHE, BELIPECHELivestock SODERA, SABLIForestry SNAFORRice irrigation SONIAHSugar (new project) SSS (SAVE)

Industry Clinker grinding SCB, SONACITextiles IBETEX, SOBETEXBrewery La BeninoiseCeramic tiles CIBCement (new project) SCO (Onigbolo)Petroleum (new project) SAGA Petroleum-Benin

Construction Public works SONACOTRAP

Transport Railway OCBNPort, Stevedoring PAC, OBEMAPAirline Air BeninTrucking Trans BeninShipping COBENAMTransit SONATRAC, SOTRACOB

Public Utilities Utility SBEE

Information Radio, TV ORTB

Finaince Banks 8CB, BBD, CNCA

Comrierce Petroleum distribution SONACOPFood imports AGBConstruction materials SOBEMACPharmaceuticals ONPVehicles and Equipment SONAE

Other Services Hotels ONATHO

Source: Exhibit 1.2.

Exhibit 1.4

MAJOR PROVISIONS OF BENIN'S INVESTMENT COOE

Regime Eligibilitys Advantages

General Provisions All new enterprises Equitable compensation in case of expropriation;freedom to transfer capital within framework ofexisting exchange regulations; benefit of othergenerally available advantages.

Preferential System Common Conditions Enterprises in agriculture, industry, Start-up time can be added to the accord; accord can beenergy, hotels, or infrastructure extended up to five years if beneficial to regional

sectors balance; an arbitration procedure is allowed.

Regime A Investments between CFAF 25-100 million For 5-7 years: exemption from import duties on capitalequipment; reduction in duties on other inputs and onexports; exemption of duty on raw materials for goodsmanufactured for export; exemption from turnover tax.

Regime 8 Investments between 100-500 million For 8-10 Years, Regime A advantages plus:undistributed profits exempt from tax for first twoyears; for three subsequent years, profits taxable at2/3 current rate.

Regime C Priority projects requiring investment A convention is signed with the Government for a periodof over CFAF 500 million of 15-17 years, granting advantages of Regimes A and B

plus: guarantees on stability of legal, economic andfinancial conditions, freedom of management, freetravel of foreign personnel; freedom of financialtransfers; and administrative guarantees on occupancyof land.

Regime D (Special Regime for Minimum investment of CFAF 10 million Exemption from import duties for capital equipment, andSmall-Scale Beninese Enterprises) and employment for more than 10 workers (for five yeara) for other raw materials; reduction in

export duties; exemption from turnover tax for fiveyears; exemption from profite tax for two years,provided that 50 percent of profits are reinvested.

5Required investment amounts are only half as much for agricultural enterprises.

Source: Mission analysis of Ordonnance No. 72-1 of 8 January 1972.

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Exhibit 2.1

ANALYTICAL FRAMEWORK FOR PUBLIC ENTERPRISE IMPACT ON PUBLIC FINANCE

INFLOWS FROM PUBLIC ENTERPRISES

Business Taxes BIC Corporate income tax levied on net profits of enterprises;minimum taxable profits are calculated on basis of turnover.

ICAI Turnover tax. Levied on gross receipts from sales of goods andservices.

Dividends 85 percent of net profit to be contributed to national budget.

Payroll Taxes VP Employer's payroll tax. Levied on employers on total wages andbenefits paid.

IPTS Progressive tax on salaries and wages. Individual income tax,withheld at source.

Excise Taxes Taxes remitted by enterprises on sales of cement, beverages,textiles, petroleum, and interest payments.

Import/Export Duties Duties paid by enterprises on import and export of goods.

Investment Fund FNI Contributions to National Investment Fund, levied on sales.

OUTFLOWS TO PUBLIC ENTERPRISES

Equity Contribution Contributions to equity, from the Treasury or CAA.

Indemnization Expropriation payments made by the CAA to previous firmowners.

Project Financing FNI financing of investment projects.

Loan Guarantees Government guarantees of foreign or dtmestic borrowings bypublic enterprises.

Infrastructural Costs Government pays counterpart costs for infrastructurerequirements.

Re-Lending Foreign borrowing by the Government, onlent to publicenterprises.

Subsidies Operating subsidies paid by the Treasury or CAA.

Net Lending Both the Treasury and CAA make advances to public enterprises.

Source: Mission analysis.

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Exhibit 2.2

TAXES RECEIYED BY THE TREASURY FROM PUBLIC ENTERPRISES(million CFAF)

Corporate Turnover Dividends Employer's Individual TotalIncome Tax Tex Paid to Payroll Taxf Incoue Taxf Excise and Payments

Year (SIC) (ICAI) Tresaury (VP) (IPTS) Other Taxes Received

_____________________________________- --- --- -All Public Enterprises---------…--------------------------------

1979 866 661 15 123 245 1,989 3,8991980 823 181 0 184 292 779 2,2591981 956 924 0 255 430 1,278 3,843

-…S----------------------------------------------------Selected Public Enterprises-----------------------------------------------SOBETEX'

1979 155 71 0 3 22 971 1,2221980 40 13 0 2 12 50 1171981 35 125 0 5 26 160 351

SONACOPb

1979 220 207 0 6 8 598 1,0381980 0 54 0 5 7 556 6231981 93 137 0 12 19 523 78a

SONICOOc1979 153 41 0 10 15 12 2331980 2 0 0 0 0 0 21981 0 156 0 11 16 138 321

BC8d

1979 7 119 0 17 31 10 1831980 500 0 0 6 15 0 5211981 639 108 0 23 47 59 876

9801979 26 15 2 2 6 0 521980 89 33 a 3 6 0 1311981 90 29 0 3 8 0 130

La Beninoisee1979 0 161 0 8 13 350 5321980 0 0 0 0 0 146 1461981 0 273 0 22 29 303 628

'The tax on textile production accounts for the excise taxes shown.bThe petroleum products tax accounts for the excise taxes shown.cthe tax on soap accounts for the excise taxes ahown.dThe tax on interest paid to COmpanies and individuals, withheld at the aource, accounts for the sounts shown under 'excise and other taxes.'eThe beverage tax on beer and soda accounts for the excise taxes shown.fTheae taxes are levied on employees' wages, rather then on corporate incomse or revenues, but are reaitted to the Treasury by the enterprise.

Source: Oirection du Tresor et de Is Coeptabilite Publique, 1982.

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Exhibit 2.3

PUBLIC ENTERPRISE CONTRIBUTIONS TO FNI(millions of CFAF)

A. Normal Contribution Paid In

Year Amount

1974 23.21975 383.31976 470.61977 609.31978 451.71979 188.21980 275.81981 1,636.2

1974-1981 4,038.3

B. Contributions to Creation of New EnterprisesDecree 79-204 of 1979

Total owed 727.5Paied in, as of 31 July 1980 410.0

C. Contributions to 1979 Tranche of the State Plan1

Total owed 264.6Paid in, as of 30 June 1980 138.1

D. Total Amount Paid in, 1974 to 1981 4,586.4

Year Amount1974 23.21975 383.31976 470.61977 609.31978 451.71979 (including 1/2 of B and C) 462.21980 (including 1/2 of 8 and C) 549.91981 1,636.2

1974-1981 4,586.4

1Excludes contribution of Commission Cerealier Nationale, whic his not consideredto be a public enterprise.

Source: Caisse Autonome d'Amortissement.

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Exhibit 2.4

EXPROPRIATION PAYMENTS MADE BY CAA TO PREVIOUS SHAREHOLDERS1975-1980

(million CFAF)

--- …------Name of State Company Created-----------------Year 8C8 BBD La Beninoise SONACOP OBECI Total

1975 170 -- -- -- -- 1701976 41 -- -- 216 40 2971977 240 18 216 95 -- 569197B 134 17 163 79 -- 3931979 184 16 156 -- -- 3561980 48 -- 148 -- -- 196

Total 817 51 683 390 40 1,981

Source: Caisse Autoname d'Amortissement, 1982.

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Exhibit 2.5

EQUITY FUNDS PROVIDED TO PUBLIC ENTERPRISES BY THE CAAas of December 31, 1981

(millions of CFAF)

Remaining ForecastEnterprise Funds Provided To Be Paid In 1982

SONACI 445 55 15STEf, -- 20 10CIB 118 -- --OBEMINES 25 25 10I8ETEX 864 -- --

SONIAH 50 __ __SONAPECHE 50 -- --SONAFEL 50 -- --SOBEPALH 98 52 26SODERA 194 6 --SNAFOR 13 --

BELIPECHE 55 166 --

SABLI 55 166 --AGB 25 275 25ONP 250 -- --

SOTRACOB 49SOBEMAC 100 -- --SONAE 300 __ __ONATHO 24 1 --STC 50 -- --

SONAMEL 25 50 25SONAPAL 72 --AIR BENIN 268 232 75SONAGIM 75 25 10SONACOTRAP 120 -- --CNCA 100 -- --

SONAR 52 50 --

ORTB 75 -- __OBECI 100 -- --

ONEPI 52 -- --

081 78 22 11

TOTAL 3,832 1,145 207

NOTE: Excludes CARDERs, Inc and CNERTP, not considered as public enterprises.

Source: Caisse Autonome d'Amortissement, 1982.

Exhibit 2.6

FNI PROJECT FINANCING FOR PLBLIC ENTERPRISES1978-1981

(millions of CFAF)

----------- Actual Expenditures --------------- TotalPrior Planned Project

Enterprise Project to 1978 1978 1979 1980 1981 1982 Costa

ONATHIO hotel 534 355 786 516 1,257 1,034 4,5000BEMINES Seme oil 110 44 73 8 -- -- 21,000SSS Save sugar 3,000 -- -- 300 125 1,700 57,000La Beninoise Parakou brewery -- -- 268 -- -- -- 2,500SOBEPALH Ouidah irrig. _- -- 184 4 _- -- 575SBEE/SONIAH Save Beterou Dam -- -- 150 -- -- -- 1,188SONAGRI Advance -- 100 -- -- -- 100SCO Onigbolo Cement 41 -- 1,181 -- -- -- 25,000SONACOTRAP Advance -- 215 -- -- -- -- 215IBETEX Advance -- -- -- 10 -- -- --New Enterprise Fertils/pesticides -- -- -- -_ -- 120 --

Not Given Selected palm -- -_ -- -- -- 150 --SONAFEL Re-Start -- -- -- -- -- 300 --Not Given Abomey Brewery __ __ __ __ 434 __

Total 3,685 714 2,642 838 1,382 3,738 112,078Total Spent through 1981: 9,261

Planned for 1982: 3,738

aCAA data for total project costs presented here appear to be out of date. Latest estimates are CFAF 69 billionfor SSS, CFAF 34 billion for SCO, and CFAF 45 billion for the first phase of the seme petroleum project.

Source: Caisse Autonome d'Amortissement. Taken from a larger table which included public administrativeservices as well as public enterprises.

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Exhibit 2.7

GOVERNMENT GUARANTEES ACCORDED TO PUBLIC ENTERPRISES1973-1980

Amount ofGuarantees

Enterprise Purpose Lender Date (CFAF millions)

Agro-IndustrySONICOG Equipment BCB 1973 300.0SONiCOG Equipment BD 1973 80.0SONICOG Porto Novo Soap Factory BBD 1974 170.0SONICOG Edible Oils Refinery BBD 1978 173.0SONICOG New Oil Mill BBD 1980 350.0

1,073.0

SONAFEL Irrig. Equip. for Za-Zoume CNCA 1978 47.0

47.0

Save Sugar Equipment BBD-BCB 1979 43,732.3

43,732.3IndustryIBETEX Spinning & Weaving Equipment B8D 1973 568.0IBETEX Spinning & Weaving Equipment B8D 1973 26.4IBETEX Spinning & Weaving Equipment BBD 1974 15.7IBETEX Spinning & Weaving Equipment 86D 1974 89.2IBETEX Spinning & Weaving Equipment BBD 1974 63.0IBETEX Spinning & Weaving Equipment BBD 1974 36.0IBETEX Spinning & Weaving Equipment B8D 1974 23.9IBETEX Spinning & Weaving Equipment BBD 1974 164.1IBETEX Spinning & Weaving Equipment BBD 1974 14.4IBETEX Spinning & Weaving Equipment BBD 1974 160.9IBETEX Spinning & Weaving Equipment BBD 1974 19.0IBETEX Spinning & Weaving Equipment B8D 1974 75.7

1,256.3

SOBETEX1 Vaporizer B8D 1978 70.0

70.0

CIB Industrial Ceramic Plant BBD-BDB 1974 284.5CIB Industrial Ceramic Plant 880 1978 135.0

419.5

La Beninoise Modernization Project B80 1978 500.0La Beninoise 2nd Tranche of Project BBD 1979 230.0

730.0

Onigbolo Cement Equipment BBD-BCB 1979 20,768.0

20,768.0

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Exhibit 2.7Page 2

Amount ofGuarantees


TransportOBCN 1st Tranche Equipment COFACE 1977 750.0OCBN Equipment Program CCCE 1977 800.0OC8N_ 2nd Tranche Equipment CCCE 1978 1,000.0OCBN 2nd Tranche Equipment Suppliers Credit 1979 890.0OC8N Equipment Program CCCE 1979 1,250.0OCBN Equipment Program BBD 1980 500.0

5,190.0

PAC Tugboat Purchase CCCF 1973 200..0Equipment Program BBD-CCCE 1974 80.0Port Productivity Improvement BOAD 1978 1,000.0Port Extension CCCE 1979 900.0

2,180.0

COBENAM Freighter Purchase BBD 1978 450.0

450.0

Public UtilitiesSBEE Elec. Network Extension BAD 1974 444.8

Elec. Network Extension BAD 1977 444.82Upgrading Akpakpa Diesel BOAD 1978 575.0

1,464.6

OtherTrans-Oueme Vehicles Acquis. BBD 1976 100.0RETRAZ Vehicles, Garage, Offices BBD 1978 100.0SONACOP 15 Tank trucks BBD 1978 150.0

OBECI New Cinema 8BD 1978 125.0OBECI Extension Program 8BD 1978 70.0OBECI Equipment Program B8D 1890 100.0

297.5

OBI New Installations BBD 1979 148.0ONATHO New Hotel Construc. Work B8D-8CB 1979 2,100.0

SONACOTRAP Equipment Program BBD-BCB 1979 500.0SONAGIM Building Plot Program BBD 1980 37.0SECS/Atlantique New Cotonou Stadium BCB 1977 150.0

- 53 -

Exhibit 2.7Page 3

Amount ofGuarantees


BanksB8D African Enterprises USAID 1973 250.03

New City CCCE 1975 244.2African Enterprises USAID 1976 250.03Mineral Water, Tomato Paste,and Fruit Juice Projects Alger. Dev. Bk. 1976 250.03

Finance for Bohicon Maize Mill CCCE 1977 250.0Finance for Indust. Projs. CCCE 1977 278.0Finance for Housing Construc. CCCE 1980 200.0Credit Line OPEC 1980 967.5

2,689.7

BCB Film Abiscal Films 1976 5.0CNCA Finance for COBEMAC BOAD 1977 100.0

Total 83,775

NOTE: This table excludes guarantees accorded to ASECNA, Air Afrique, OPT,certain secondary schools (CEMGs), the CNHIU and the CNERTP, which arenot considered public enterprises for purposes of this study.

1Identical amounts lead to question whether perhaps first guarantee never used.2Listed as "OBETEX"; not clear whether SOBETEX or IBETEX.3U.S. $1.0 million.

Source: Caisse Autonome d'Amortissement.

Exhibit 2.8

-v EXTERNAL DEBT OF PUBLIC ENTERPRISES HANDLED BY CAA

(million CFAF except as noted)

ArrearsDebt Service------- of Enterprise

Enterprise Project Lender Date Amount 1981 19H2 1983 as of 12/31/81

SODEPALH Agonvy oil mill EI[ 1970 910 -- -- -- 314

SOUEPALH Grand Hinvi IDA 1969 1,300 -- -- -- 534

SONICOG Bohicon oil mill KFW 1,955 -- -- -- 278

SONAFEL Allahe frt. juice CCCE 50 6 6 7 19

PAC Port extension IDA 1978 5,404 15 29 103 8PAC Port extension IDA 1979 840 2 4 33 1

PAC Port extensiotn AFDB 1978 692 30 44 44 8

PAC Port extension BADEA 1978 1,150 82 173 173 128

SODERA Livestock AFDF 1978 1,148 2 24 29 1

SODERA Slaughterhouse Entente 1973 239 15 24 32

SONACI Clinker grinding EADEA 1976 2,000 67 212 200 513

SONIAH Oneme Valley II AFDF 1975 896 6 13 13 37

SONIA11 Oueme Valley I AFDB 1973 86 15 16 16 36

AIR BENIN Corvette Cr. Lyoniais 1979 263 77 72 34 --AIR BENIN Fokker Citibank 1978 1,120 357 180 -- --

SBEE Parakou W.S. Denmark 1969 557 -- -- -- --

SBEE Cot. Par. Water Denmark 1974 800 -- -- -- --

SBEE Boh. Abo. Water KFW 1974/76 850 -- -- -- --

SLEE Lokossa Water KFW 1977 160 -- -- -- --

S8EE Onigbolo Elect. AFDB 1978 1,429 49 61 212 --

PAC Port extension CCCE 1978 900 -- -- -- --

SBEE Porto Novo Water KFW 1970 410 --

B8D -- OPEC 1979 1,260 -- -- -- --

SONAGRI Hagoume Cotton Gin Zaire 1968 100 -- -- -- 115

ASECNA Cot. Airport CCCE 1980 900 16 54 54 --SONAGRI Tech. Assist. IDA 1977 476 3 4 2 --

Seme Oil Seme Oil Ekaport Fin 1980 14,124 -- -- -- --

Seme Oil Seme Oil Den Norsk Kredit 1980 9,143 11 26 30 --

IBETEX Tex. Factory Various n.a. -- 166 215 __

AIR BENIN Twin Otter SEE 1981 433 -- 141 141 --

Seine Oil Seme Oil Midland 1981 3,036 -- 117 118

BOD Ind. Dev. IDA 1980 2,800 -- -- --

PAC Port extension BADEA 1981 783 -- -- -- --

TOTAL 52,214

- 55 -

Exhibit 2.9

ESTIMATED FUTURE PUBLIC FINANCE IMPACT OF PUBLIC ENTERPRISES

Billion CFAF --…-Total Per Year

Ongoing Losses

1981 level, approximately 4Projected future levels, approximately 2

Past Cumulative Losses

Estimated losses 7-10Paid off over five years, annually 1-2

Rehabilitation Investments

Estimated cost 6-10Government funds required 1-2Annual funds requirement, 3 years 0.3-0.7

Additional Counterpart Funds for Large Proj.ects

Infrastructure and cost overruns, assume 10Assume 50' financed abroad, rest over 2 years 2.5

Subsidies to Major Projects

Save (per consultants) 4-8Onigbolo (per consultants) 0-0.7Seme (assume no impact until positive results in 1985) 0

Total Government Funds Resuired 9.8-15.9

Source: Mission estimates.

*REDI,. -. ENDU . PUIBI-t LNE IERi. Rb i;.. BCB(million CFAF)

Public Enterprises with Credit Outstanding Credit Outstanding Credit OutstandingLess-Than-Satisfactory -- September 1979 ------- ------- September 1980 -------- ------- September 1981--------

Banking Relationsa Short-Term Medium-Term Short-Term Medium-Term Short-Term Medium-Term

SONAFEL 47 68 78SONIAII 549 451 645SONAPECHIE 20( 829 857SONAGRI 2,877 4,270 2,051IBETEX 3,507 4,219 3,676CIB 31 249 68 178 100OCON 1,314 1,760 1,916SONATRAC 270 15 588 372SONAPAL 938 1,123 946AG8 100 2,377 140 2,404 _

Subtotal 9,833 264 15,753 318 13,045 0

All Public Enterprisesb 20,227 557 24,160 331 22,395 0Subtotal as X of all P.E.s 48.6% 65.2% 58.2%

'As defined by the BCB, June 1982.bincludes 41 enterprises as of September 1981. 1

Source: Banque Commerciale du Benin, 1982.

Exhjhit I.1

PUBLIC EN1tRPRISE FINANCIAL INDICAIORS

(selected enterprises onlyl dats In million CFAF)

_ _ _ j Unatihfactory BankAccounts& Credit

Latest Cumulative wet Debt/ OutsandingDte Net Cash Cah Flow Working Total Fixed Equity

Public Enterprises Activity fY Sales Profit Flow (3-years) Cspit.l Equity Debt Assets Ratio mC8 se0

Aaro-Industry* SoNAFEL Fruits ard vegetables __ _ _ _ __ _ _ _ 78 548

SABLI Livestock e1 __ -30 -26 -41. 366 38 5 22 0.01* StBEPALH Palo Oil e1 2144" -370 -60 582 234 2.037 4,106 3,391 2.02* SONICOC Vegetable oil 8D 3,724 79 lea 7040 S60 1,049 5,066 2,712 4.83

SONIAN Rice irrigetion sO 115 -154 -39 40e -719 103 1,937 1,564 1.881 645 __SOHAPECI( Fisheries __ 857 -S8NAGRI Cotton __ 2,051 1,654SNAFOR Forestry _ 579 -

Industry* SC0 Clinker grinding SI 2,376 -309 -282 -398 -511 -434 693 77 neg.* SONACI Clinker grinding 61 1,743 -592 -347 -711 __ -817 3,118 463 nag.* IDETEX Textile mill 31 838 -1,324 -1,002 -3,225 -1,953 -7,016 11,366 1,621 neg. 3,676 990* SCE1TEX Textile printing 61 6,522 244 362 932 776 1,516 1,763 738 1.18• Lo Usninoise Urewery 81 5S934 21 236 736 -941 1,033 7,619 6,01 7.57* C1I Ceraeic tiles s0 29 -167 -95 -295e -244 -324 805 418 ng. 100 -

ConstructionSONACOTRAP Public works 80 632 -17 69 0S. 432 184 1323 457 7.19 145 320S* 0EI"C Sales construc. mt. ei 4,615 77 111 291 93 220 1,457 126 6.62

Transport^ OCBN Railway so J,228 -588 -131 -120. 1,273 7,170 7,171 9,121 1.00 1,916 2,034 U'* PAC Port SI 1,449 -570 123 __ __ 17,296 10,612 25,126 0.61* Air Benin Airilnr 31 160 -370 128 -111 -736 -701 2,768 1,772 neg.* Trnns Benin trucking s0 61 -121 -63 -155. __ -21. 2506 261 neg.* CEENAM Shipping a1 2,906 55 138 443 __ 649 1,684 611 2.65

SWIATRAC Transit 60 514 -437 -342 -424e -523 -116 4,690 406 n. 572

Public Utilities5BEE Utility 81 3,600 101 951 __ - 4,969 4,610 6,705 0.93

Infor_stionOR10 Radio, TV s0 40 -177 -J3 23e -237 7 525 1,049 46.43C01 Dats processing __ _ __ __ __ __ __ __ __ __ __ 125IBECI bv4i theatres __ _ _ __ __ _ _ __ -_ 10 356

Co_erceSONAPALb Bookstore e1 543 -182 -172 -879 __ -201 1,558 93 n 946 -

09P Pharmaceuticals 60 3,236 loss __ -123. __ 385 4,235 429 11.00 IOO 14ZSONAffL Household appliances 31 624 7 28 46 22 107 1,047 45 9.79

* AGO Food imports 61 5,511 -240 -90 -72 -416 -53 5,673 705 nag. 2,404 164O*E Supplies el 601 22 31 105 125 202 1,140 77 5.64

* SONAE Equipmnt 81 3,029 46 74 207 _ 580 3,090 111 5.33SIC Shoe imports 31 1,850 7 30 60 -23 65 1,257 63 19.34

* S5WACOP Petrolem products e1 14,765 239 421 890 -179 1,341 6,632 2,027 4.95SO18 Oefnct Import Firs 59

Other ServicesO ATHIIO Hotel. e1 602 32 8 263 96 54 39 276 1.155EF"C Cotonou _rket S1 155 9 32 29 -_ 29 676 562 23.3

*Enterpriee vilsited by mission.

O eatietml.

*Net profit plue depreciation.bealenc eheet date FY 1980.

- 58 -

Exhibit 3.2

MAJOR PROBLEMS FACING SELECTED PLBLIC ENTERPRISES

Initial ManagementDesign Administrative & Staffing Technical Marketing Pricing Financial

Public Enterprise

Maior New ProiectsSave Sugar 40 0Onigbolo Cement o 4Sene Petroleum 0 o

Other Industrial EnterprisesSCB Clinker Grinding * 0SONACI Clinker Grinding 0 oIBETEX Textiles 0 o 0 4

SOBETEX Textiles 4

La Beninoise Brewery o o oCIB Ceramics 4 4SONACOTRAP Public Works1 o o 4SOEPALH Palm Oil o o 4

SDNICOG Vegetable Oil oSONAGRI Cotton Ginning 1

4 4 4 *SONAFEL Fruits and Vegetables * 0SONIAH Rice, Irrigation 0 0 aSONAPECHE Fisheriesl oSNAFOR Forestryl

Imoort EnterprisesAGB Food Imports a o a 4

SOEMAC Construction Materials o o sSONACOP Petroleum oSONAE Equipment a o oSONAPAL Booksl * o 0ONP DrLigS

Service EnterprisesOCBN Railway 0 4

PAC Port 0COBENAM Shipping aAIR Benin Airline * 4 oTrans-Benin Trucking * o 4

SONATRAC Transit 1o o o a

SBEE Utilityl o o88D Bank o o oBCB Bank o o oONATHD HotelsORTB Radio, TV

1o o o p {

Note: m a ijor problem; o = minor problem

lEnterprises not visited by the piblic enterprise miasion.

Source: Miasion analysis of public enterprises.

- 59 -

Exhibit 3.3

ENTERPRISES WITH FINANCIAL PROBLEMS

(only negative indicators checked)

Negative Negative High.or ArrearsNegative Net Cash Working Negative b to Local

Enterprise Equity Loss Flow Capital Debt/Equity Banks

SONAFELa xSOBEPALH* x xSONIAH* x x x x x xSONAPECHEa xSONAGRIa xSNAFORa xStB* x x x x xSONACI* x x x xIBETEX* x x x x x xLa Beninoise xCIB* x x x x x xSONACOTRAP* x xOCBN* x x xPAC xAir Benin* x x x xTrans-Benin* x x x x xSONATRAC* x x x x x xORTB* x x x xa3 Ia x

tlECIa xStlNAPAL* x x x x xONP* x x x xSONAMEL xAG8* x x x x x xSiC* x xSONACOP xSE.MAC x

* Enterprises with more than one negative financial indicator.

aComplete financial data not obtained by public enterprise mission.bCut-off point of 9 to one.COnly those with problems shown (27) out of a sample of 36 (75 percent).

Source: Mission analysis of enterprise data.

- 60 -

Appendix A

CASE STUDIES

- 61 -

SAVE SUGAR PROJECT

1. This project consists of an irrigated cane plantation and factorydesigned to produce 47,000 tons per year of refined sugar. A special company,the Societe Sucriere de Save (SSS), has been established to manage theproject, Jointly owned by the Governments of Benin and Nigeria with a smallshareholding by the technical partner, Lonrho Limited. The development phaseis nearly completed, and the first production of refined sugar is scheduledfor February 1983.

Summary Assessment

2. The! Save project presents serious potential financial losses for theGovernments of Benin and Nigeria. The very high investment cost--currentlyestimated to total approximately CFAF 69 billion--has been heavily financed byforeign borrowings. Production cost estimates recently prepared byconsultants Booker Agriculture International Limited are relatively high, dueto low cane yields from poor soils. The consultants estimate directproduction costs of CFAF 116/kg, against current cif sugar prices of CFAF 160-200/kg in Benin, and CFAF 144/kg ex-factory in Nigeria (at official exchangerates; less than half this level at parallel rates). Despite projections ofincreasing world sugar prices in the future, it appears that the project isunlikely to be able to cover much of the debt service payments unlesssubstantial subsidies are accorded by the Governments of Benin and Nigeria.As no pricing arrangements have yet been made with Nigeria, which is expectedto absorb about 80 to 90 percent of the output, it is impossible to quantifythe extent of SSS's losses. However, the consultants estimate negative cashflows of approximately CFAF 2 to 10 billion annually from 1984 through 1991,on the assumption of a CFAF 250/kg sugar price in 1983 terms.

3. The critical issues to be addressed are as follows:

- Technical aspects--How is project performance likely to be affectedby technical factors and by decisions taken at the design stage?

- Marketing aspects--What are the expected levels of market demand,ease of market access and potential prices?

- Management aspects--What arrangements have been made to assureadequate transition of management responsibilities to nationalstaff?

- Financial aspects--What are the current and potential financialresults of the project and what effect would they have on B6nin'spublic finance situation?

These issues are addressed in the following sections, concluded by ourrecommendations. The analysis is largely based upon the Booker AgricultureInternational report, Benin: Review of Save Sugar Project, dated July 1982.

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Technical Aspects

4. The major technical problems are related to the agriculturalconditions. While the project feasibility study (completed in 1973 by LonrhoLimited) is based on cane yields of 100 tons/ha/year, the consultants estimatea yield of only 75 tons/ha/year. The lower estimate is primarily because ofthe high proportion of poor land(about 70 percent is classed as marginal orworse). Due to the great variability of soil classes in the area, it will bedifficult fo find sufficiently large contiguous blocks of good land on whichto plan a field layout. The absence of low night temperatures during theharvest period of November to March also indicates that natural ripeningconditions for the cane will not be good. Another agricultural factor ofconcern is that the most sandy soils are high risk areas for nematode damageto cane.

5. The lower yeild estimates imply that steady-state sugar production ofsome 37,300 tons per year could be achieved utilizing the 5,200 ha ofirrigated land (supported by a dam built for the project). Increasing theoutput to the design level of 47,000 tons per year (in order to fully utilizethe installed factory capacity) would require developing an additional 2,000ha of rainfed cane land (if an area of suitable soils can be located) at aninitial cost of CFAF 1.3 billion and correspondingly higher operating costscompared to the initial feasibility study. The desirability of increasing thecane production will depend on the success achieved in marketing the presentlevel of output.

6. The physical development of the project and its plant and equipmentare all of a high standard. The factory is of fairly conventional design. Ingeneral, the factory appears unlikely to be the major constraint on theproject's productivity and viability.

Marketing Aspects

7. The key marketing issue is pricing, and this is particularly complexsince some 80 to 90 percent of Save's output will likely be exported toNigeria. Nigerian demand is strong, and should not be a constraint: itsimports range between 500,000 and 700,000 tons/year of sugar (mostly refinedsugar). Save's entire output would thus represent less than 10 percent of theNigerian import market. Beninese demand, on the other hand, appears currentlyto be considerably lower than earlier estimates. Benin's official food importagency (AGB) has recorded sugar imports of 1,000 to 4,000 tons annually overthe past four years. The International Sugar Organization estimates Benin'sconsumption as remaining static at about 7,000 tons/yiar. The difference isapparently imported illicitly, particularly from Nigeria, due to lower pricesand the use of sugar as a barter comodity for Beninese goods and re-exportssold to Nigeria. Total consumption is thus about half of the 15,000 ton/yearestimate in the feasibility study.

8. World sugar prices are currently low, and this poses severe problemsfor the marketing of Sav'e's production. From an average level of US$630 perton in 1980 (for bulk raw sugar, stowed, at Caribbean ports), the price hasdropped to about US$270 per ton in 1982. The World Bank's long-termprojections show increases to US$379 per ton by 1985 (in 1982 prices), andconstant thereafter.

- 63 -

9. Imported sugar prices in Benin and Nigeria are currentlysubstantially lower than the price level assumed in the project feasibilitystudy. In Benin, the cif price is CFAF 200/kg for cubes (which represent themajor output of Save) and CFAF 160/kg for granulated sugar. In Nigeria,similar cif refined sugar prices likely apply. The consultants believe thatthe current ex-factory price charged in Nigeria for refined granulated sugaris about Naira 300/ton, or CFAF 144/kg at the official exchange rate and CFAF65/kg at the parallel rate. These lower prices in Nigeria would tend toexplain the present illicit imports of Nigerian sugar into Benin.

10. There have so far been no negotiations on sugar prices between SSSand the Nigerian Supply Company (counterpart to the AGB). It is thus notpossible to state what price the SSS can expect for the 80-90 percent of itsoutput destiLned for Nigeria. The commencement of discussions on this point isurgently required.

11. In estimating the likely future price for Save sugar, import parityprices must be used. Even though the Benin Government levies import duties onsugar, these duties are revenues which will be lost when Save production issubstituted for imports. The same concept applies to Nigeria. Therefore, themost likely price scenario appears to be a gradual increase from the presentimport parity price of CFAF 180/ton (average of cube and granulated sugar) tothe level of CFAF 250/ton (in 1982 prices) representing the cif Cotonouequivalent cif the World Bank long-range price forecast. Although the 1973feasibility study utilized a price level of CFAF 300/ton, this no longerreflects the latest projections.

Management Aspects

12. This section focuses on the structure of project organization andmanagement, and the adequacy of arrangements made for training and housing ofstaff.

13. Shareholdings in SSS comprise the Governments of Benin (49 percent)and Nigeria (46 percent), and Lonrho Limited (5 percent). The Governmentsnominate the Chairman and Vice-Chairman of SSS, and Lonrho nominates theGeneral Manager.

14. Lonrho has been contracted to provide management and technicalassistance to the project during the design and construction phase and duringthe initial five years of operation.

15. Management effectiveness has been hindered by SSS Board over-involvement in the company's day-to-day activities, and by some dissensionbetween expatriate Lonrho staff and national staff. The existence of threeimportant committees of the Board, given the reported difficulty in conveningBoard meetings, tends to slow the decision-making process. The expatriatestaff, recruited by Lonrho for SSS, appear to continue to identify themselveswith Lonrho. Differences in salary scales contribute to divergences betweenforeign and local staff.

- 64 -

16. The lack of adequate training to date is likely to hinder the properoperation of the factory and the project. Recruitment and training do notappear to be proceeding satisfactorily, despite the fact that trained keyworkers in the factory and field sections are essential to project start-up.Due to disagreements between Lonrho and SSS regarding the training scheme, notraining has been arranged at sugar factories outside Benin, and training atthe Save plant will now have to proceed in parallel with commissioning of thenew factory. Agreement on a training policy is urgently required to permitstart-up with a maximum number of trained local employees, and to achieve thefastest replacement of expatriates by local staff, consistent with themaintenance of standards.

17. Housing is another key management concern at present. Although theoriginal feasibility study included the cost of housing and otherinfrastructure for all of the 3,500 permanent and seasonal workers, only themanagement housing (34 units) was actually included in the project contract.Estimates recently received indicate that housing for 1.000 permanent staffwould cost about CFAF 3.3 billion. While contingency plans involvingdormitory space and camping equipment have been prepared, there is as yet noagreed program to construct workers' housing. This issue must be resolved assoon as possible, as even initial operation of the factory will require a fullcomplement of employees for efficient operation.

Financial Aspects

18. The current financial position of SSS is not good. As of June 1982the bank overdraft was at its limit and cash on hand was insufficient to payoutstanding invoices and the June payroll. Cash contributions were expectedfrom the Nigerian and Beninese Governments in July (CFAF 1,400 and 662million, respectively), but no confirmation was available from either side.This cash shortage could have serious implications on the progress of theproject.

19. Medium-term liquidity is likely to pose a problem, owing to costoverruns that are projected at 21 percent over the 1979 estimates. Additionalfunds will be required as soon as late 1982. Additional credits andpostponement of principal repayments totaling CFAF 6 billion are being soughtfrom the British, French and Belgian banks which have financed the project.(All the loans carry export credit guarantees from the respective Europeangovernments, and the debts of SSS are jointly and severally guaranteed by theGovernments of Benin and Nigeria.) It is not certain, however, that thesecredits will be granted, particularly not at the assumed interest rate of 7.5percent per annum. The local management staff of SSS appears to preferobtaining the needed funds from the shareholders, though the availability offunding from this source is uncertain.

20. The long-run financial viability of the project is marginal. Thefour scenarios presented in Exhibit I indicate that net cash flow is notexpected to turn positive until 1989 to 1994, depending upon the assumptionsmade. Using a price of CFAF 250/kg for 1983 (increasing only with inflationin future years), a peak cash deficit of either CFAF 34 billion or 47 billion(depending upon the output level) is reached in the year 1991. Additionalcontributions by the shareholders of roughly this amount over the 1985-1990period would be required. If a price of CFAF 300/kg can be obtained, the

- 65

required shareholders' advance would be lower (still at least CFAF 15billion). 'If full sugar production could be achieved in year 3 (instead of inyear 5 as assumed here), and a price of CFAF 300/kg could be achieved, thengovernment advances of only CFAF 8 billion (or equivalent debt postponement)would be required.

21. The best estimate of sugar prices (CFAF 250/kg) thus gives annualcash losses of between CFAF 2 and 10 billion during the 1984-89 period. Therepayments on foreign debt account for CFAF 6.8 billion per year from 1985through 1991. Thus, the main financial problem is the repayment of this debt,unless higher world sugar prices are reached.

22. The Save sugar project currently faces a number of urgent problems--agricultural, marketing, managerial, training, and financial. Given thelatest estimates of cane yields and development costs, the project yields aninadequate economic return of about 5 percent. However, operating costs areestimated at roughly half the economic sales price, so completion andoperation of the project is now the best alternative. Closing the plant wouldbe more costly than continuing in operation.

Recommendations

23. Agriculture--Efforts to improve production efficiency should beundertaken. This includes conservation of cane trash at harvest, exploratorysurveys of the nematode population, and field trials to assess the yieldresponse to irrigation. In the longer term, detailed mapping of the wholeestate and soil surveys outside the area of existing development may be usefulif the level of demand appears to support increased production.

24. Marketing--SSS should immediately begin negotiations with AGB and theNigerian Supply Company on the price structure and volume of SSS sugar to besupplied, including the currency to be used for sales to Nigeria. SSS shouldrequest that the Benin Government clarify whether Save sugar is liable to aduty or not.

25. Management--Unified policies between the Board of SSS, its seniormanagement and Lonrho are urgently required to accelerate necessary actions.The issues which must be acted upon promptly include cash shortages, sugarpricing, housing, recruitment and training. The decision-making processshould be streamlined by having the Board focus on policy guidance and leavingimplementation to SSS management.

26. Finance--Discussions between SSS and the two Governments should seekto confirm a plan for medium and long-term support for the project, and toobtain any cash contributions presently owing. Based on consultants' recentprojections, the two Governments should plan on continuing contributions toSSS, particularly in relation to debt-servicing obligations. It is understoodthat negotiations are underway with the lenders regarding postponement ofprincipal and interest payments.

- 66 -

Exhibit 1

SAVE PROJECT CASH FLOW PROJECTIONS

Major Assumptions

Sugar price, CFAF/kg 250 250 300 300Sugar production, tons/year 37,300 47,000 37,300 47,0Year

…------------------…Net Cash Flows (million CFAF)---------------------

1983 4,008 4,008 4,307 4,3071984 -5,551 -5,551 -4,621 -4,6211985 -8,243 -8,375 -6,437 -6,5701986 -6,416 -7,048 -3,967 -4,5991987 -5,392 -3,312 -2,483 2351988 -10,113 -7,732 -6,814 -3,7031989 -4,800 -2,084 -1,070 2,4771990 -4,215 -1,127 -8 4,0221991 -3,551 -53 1,181 5,7461992 920 4,871 6,232 11,3881993 -1,809 2,644 4,143 9,9521994 5,552 10,558 12,208 18,738

-----------------End-year Cash Position (Million CFAF)----------------

1983 1,848 1,848 2,147 2,1471985 -12,055 -12,187 -9,020 -9,1531987 -23,985 -22,670 -15,592 -13,6391989 -39,288 -32,874 -23,865 -15,2541991 -47,207 -34,208 -22,846 -5,6401994 -42,811 -16,402 -530 34,170

Assumptions Common to All Four Alternatives

1. Sugar production--full production is reached in year 52. Production costs-estimated at CFAF 116/kg.3. Additional financing--interest at 9.5 percent.4. Postponement of debt service--one year.5. Inflation--6 percent per year.6. Interest on bank overdraft--8 percent per year.7. Increased production--based on increased capital and

current costs of rainfed cultivation needed to raisesugar output from 37,300 tons to 47,000 tons.

Source: Booker Agriculture International Limited,Benin: Review of Save Sugar Project, July 1982.

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ONIGBOLO CEMENT PROJECT

Background

27. The Onigbolo cement project is designed to produce 500,000 tons/yearof cement for the Benin and Nigerian markets. It is based on extensivelimestone and shale deposits at Onigbolo, in southeastern Benin about 130 kmfrom Cotonou and very close to the Nigerian border. The public enterprisewhich has been developing and will operate the project is the Societe desCiments d'Onigbolo (SCO), owned 51 percent by the Government of Benin, 43percent by the Government of Nigeria, and 6 percent by the technical partner,F. L. Smidth & Co. A/S of Denmark. The feasibility study was carried out in1976-1977, and a contract was signed with F. L. Smidth in 1979 to supply thecement plant; on a turnkey basis. The first clinker was produced at Onigboloin June 1982, and cement production is scheduled to begin in July 1982.

28. The analysis present here is largely based on a report prepared bythe consultants SNC Services Ltd. (Montreal), Onigbolo Cement Plant:Preliminary Evaluation Report, dated July 1982.

Summary Evaluation

29. The project has been launched based on too optimistic assumptionsconcerning sales and production build-up and, on an ex-post analysis, appearsto have at best a marginal rate of return. Cash flow deficits are projectedto prevail until 1987 in the most likely case and even 1989, under morepessimistic assumptions. However, the plant is technically sound and,providing a market can be captured at a reasonable selling price, it willprobably be more economical to continue operations than to close the plant.The major market for Onigbolo cement is in Nigeria, and so far no negotiationshave been undertaken concerning price or supply arrangements. While theNigerian market can likely absorb its planned share of Onigbolo output, thepricing arrangements will affect the extent of any cash flow shortfalls.Collaboration of both governments is required to waive Nigerian import duties,to acquire fuel oil at Nigerian domestic prices, to facilitate border crossingprocedures, and to construct new road links to the Nigerian consumptioncenters. Certain infrastructure is urgently required in Benin to support theproject, including construction of workers' housing, paving of the accessroad, installation of a telephone connection, and completion of oil storagetanks at the port of Cotonou.

Major Project Aspects

30. This section addresses the major aspects of the project as follows:technical aspects, marketing, management, and financial aspects. Themarketing arrangements and certain financial aspects are the main areas thatappear problematic.

Technical Aspects

31. The plant is technically appropriate to Benin's needs. The design isnot too sophisticated, and each section has its own control panel.Manufacturing standards have been met, and proper pollution controls andenergy-savingt measures have been incorporated. Maintenance so far appears to

- 68 -

be good. The design of the plant will not, unfortunately, permit easyexpansion or the handling of cement with admixtures, due to the layout andchoice of equipment.

32. The main technical problems concern uncompleted infrastructurerequired for the smooth operation of the plant. These infrastructure problemscould limit the volume of production. The needed infrastructure includes atelephone exchange at Pobe, the paving of 14 km of the road from Pobe toOnigbolo, the Pobe to Ilaro road for shipments to Nigeria, housingaccommodation for workers, completion of heavy oil storage tanks at the portof Cotonou, and possible rail links from Pobe to the plant and between Beninand Nigeria.

Marketing Aspects

33. The marketing plan calls for 60 percent of SCO's output to be sold inNigeria, with the remaining 40 percent sold in Benin. However, recentestimates by consultants indicate that Benin will not likely be able to absorbthis amount in the short-term. Cement consumption was 270,000 tons in 1981,supplied by the two clinker grinding plants using imported clinker.Additional unsatisfied demand is hard to estimate, but is believed to beapproximately 30,000 tons in 1982, making total demand approximately 300,000tons. Thus, in the short-term, only 10-20 percent of SCO's output could besold in Benin, unless the clinker grinding plants were to reduce their output.

34. An adequate market is available in Nigeria, provided market pricelevels can be met. Nigerian cement consumption amounted to 6.8 million tonsin 1981, of which 4.0 million tons were imported. Import levels are estimatedto range between two and five million tons over the 1982-1985 period, greatlyexceeding Onigbolo's output. In order to compete with Nigerian domesticcement producers, the SCO cement would have to carry an ex-factory price of nomore than CFAF 23,000 to 25,000/ton.

35. Several administrative problems must be overcome to ensurecompetitive access for Onigbolo cement to the Nigerian market. First, anexemption must be obtained from the 20 percent duty normally levied on cementimported into Nigeria; the basis for this exemption would be the jointNigerian ownership of SCO. This exemption is essential to the success of theproject. Second, arrangements must be formalized to permit fuel oil to beimported from Nigeria for Onigbolo at Nigerian domestic prices, plus shippingcharges. The fuel oil price would thus be substantially lower (CFAF 60,000/m3as opposed to CFAF 88,000/m3) than if imported from overseas, and is essentialto achieving a competitive production cost. Third, priority will be needed toobtain Nigerian import permits for Onigbolo cement, given Nigeria's currentsevere import restrictions. Fourth, both Governments will need to cooperateto facilitate border formalities for the cement trucks.

Management Aspects

36. Although marketing and financial management have not receivedadequate attention, the implementation of the project has proceededsatisfactorily.

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37. The main scope for improved management is believed to lie in thepossibility of greater integration between SCO and the two clinker grindingplants (SCB and SONACI). Combined purchases of imported gypsum, bags, andspare parts (plus clinker for the two grinding plants), fuel oil, and domesticsupplies could result in lower unit costs, reduction in transport costs,reduced personnel and standardized equipment. Production planning should alsoconsider the possibility of Onigbolo providing clinker to the grinding plants,if not all the output can be marketed, or of Onigbolo selling cement in placeof SCB and SONACI production to allow these plants to be rehabilitated.

Financial Aspects

38. Onigbolo is quite profitable on an operating cost basis, but onlymarginally so on a full-cost basis. At full capacity (producing 500,000 tonsof cement), operating costs are estimated at roughly CFAF 14,600 per ton ofcement, against a likely sales price of around CFAF 25,000 (all figures are in1982 prices). If fixed costs are considered, however, the degree ofprofitability varies according to the specific sales and price assumptionsutilized, and temporary cash flow short-falls are likely for the next fiveyears.

39. Financial rates of return range from low to moderate depending onsales and price assumptions. The consultants (SNC) prepared financialforecasts on the basis of two sales scenarios and a range of cement prices.The "most likely" marketing forecast involves reaching full output in 1984(year 3), but composed partly of clinker to be sold to the Benin grindingplants (during 1982 to 1987) until the Benin market is projected to be able toabsorb the full increment of 200,000 tons of cement (see Exhibit 1). (Theforecast growth of Benin cement demand is 6 percent/year through 1985, andthen 12 percent/year through 1990; this must be considered optimistic.) Forprices ranging from CFAF 24,000 to 27,000 per ton, this sales forecast yieldsfinancial rates of return varying from 5.8 to 11.0 percent. With a price ofCFAF 25,000 which is representative of an economic price, the economic rate ofreturn would be about 7.5%. If Onigbolo's output could be sold entirely ascement, whether in Benin or Nigeria, the financial rate of return would rangefrom 8 to 12 percent (for prices of CFAF 24,000 to 26,000 respectively ) andthe economic rate of return would be 10%.

40. The lower profitability of clinker sales (at the assumed CFAF 14,000per ton price) causes negative cash flows over the short-run for the "mostlikely" scenario. Additional cash injections of CFAF 4.3 billion over the1983-1987 period would be required in the base case (corresponding to a 6.0percent financial rate of return).

41. The actual level of additional equity required will depend uponmarket and price factors, and could be greater or smaller. The projectionsall assume that concessions with regard to import duties and fuel oil costsare fully obtained, and that the design capacity is reached by 1984. In lightof the absence (as of June 1982) of any conclusive discussions between the twogovernments and the SCO regarding conditions of market access and prices, andin view of the remaining infrastructure problems, there is a considerabledownside risk that the cash shortfalls may exceed those projected as the mostlikely case. On the other hand, the existance of a market in Niger (until atleast 1986 when a new 250,000 ton/year plant at Malbaza is scheduled to start

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up) which is presently importing 190,000 tons/year provides some upsidepotential. Niger is presently paying about CFAF 27,500/ton for the portion ofits cement imports (about 10 percent) brought in via the port of Cotonou.

42. Alternative projections prepared by Bank cement sector specialistsassume both a longer period for production build-up (reaching 95 percent ofcapacity in year 5) and a slower growth in cement sales in Benin. Using thesesales forecasts and a price of CFAF 24,000 per ton, the alternative estimatesshow a cash shortfall of CFAF 8.1 billion over the 1983 to 1989 period.

Outlook

43. The Onigbolo project is technically a well-designed operation. Inthe long run, it will prove a valuable asset to Benin's economy (including theprovision of 500 jobs). Short and medium-run concerns arise mainly from themarketing and pricing questions which had not been answered as of June 1982.While the Nigerian market can absorb large quantities of cement, the necessaryfavorable conditions of access (exemption from import duties and granting ofdomestic fuel oil prices) for Onigbolo's output have not yet beennegotiated. The ability of the Benin market to absorb cement beyond thepresent capacity of the two clinker grinding plants is an unknown factor, butbest estimates are that it will take some years before Onigbolo can sell theplanned 200,000 tons of cement on the local market. The learning curve forproduction may also be slower than presently anticipated. Further equitycontributions of about CFAF 4 to 8 billion will probably be required byOnigbolo over the next five years, though the magnitude of the cash flowshortfall will be quite sensitive to marketing, pricing, and productionvariables.

Recommendations

44. The following recommendations are presented with a view to resolvingthe major problems currently foreseen:

- Agreement with Nigeria should be sought on the issues of importlicense priority, exoneration from import duties, and granting ofdomestic fuel oil prices to Onigbolo.

- Market studies should immediately be undertaken in some detail forthe Nigerian and Niger cement markets.

- Essential infrastructure, such as telephone links, road linkswithin Benin and to Nigeria, completion of oil storage tanks atCotonou, and construction of workers' housing, should be undertakenon a priority basis.

- The economic viability of other infrastructure projects, such aspossible rail links, should be studied.

- Sector improvements to increase integration and reduce costs,through joint purchasing arrangements, etc., should be addressed(see also case study on cement sector companies).

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- Technical and financial assistance to support necessarycomplementary investments, technical and organizational studies,and interim financing needs should be sought from concessionarysources. Support to the Onigbolo project could be included in apossible IDA credit to strengthen Benin's public enterprise sector.

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Exhibit 1

SALES, FINANCIAL, AND ECONOMIC FORECASTSFOR THE ONIGOBOLO PROJECT

A. Sales Forecast (thousands of tons)

Nominal Most Likely -- optimistic---Year Output Benin Nigeria Clinker1 Benin Nigeria

1982 150 30 30 90 120 301983 400 50 175 175 225 1751984 500 70 300 130 200 3001985 500 90 300 110 200 3001986 500 130 300 70 200 3001987 500 180 300 20 200 3001988 500 200 300 0 200 3001989 500 200 300 0 200 3001990 500 200 300 0 200 300

B. Financial and Economic Rates of Return (percent per year)

…____-__Financial------ --- Economic -Price (thousands of Price (thousands of

…--------CFAF/ton)------- --------CFAF/ton)-------Sales Scenario 24 25 26 27 24 25 26 27

Most Likely 2.0 6.0 9.2 12.3 5.8 7.6 9.3 11.0Optimistic 6.4 10.7 15.1 - 7.9 10.1 12.2 -

Note: Other assumptions per SNC.

1Stated in equivalent tonnage of cement.

Source: Analysis of SNC, Onigbolo Cement Plant: PreliminaryEvaluation Report, July 1982.

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IBETEX

Background

45. I:BETEX (Industrie Beninoise des Textiles) is an integrated textileand garment-making operation located in Parakou. It is a mixed-economycompany, with the State holding 48% of the stock and private French, Germanand Swiss :Lnvestors holding the majority. The VOYER group of Tours (France)was one of the main suppliers of equipment, the promoter and one of theowners. The company was created in 1971, and production began in October1975. IBETEX comes under the authority of the Ministry of Industry.

Business Lines

46. The original concept was to create an integrated operation whichwould add (lown-stream value-added to Benin's production of cotton, which wasrunning at about 50,000 tons in 1970. The plant was aimed exclusively at theEuropean market, and was designed on the basis of 3,000 tons of cotton peryear with 2,600 employees.

47. The complex includes spinning (17,000 spindles), weaving, finishingand garment-making. There are four product lines:

- Knitwear--T shirts, underwear, pyjamas;- Fabric--exported to Europe to make workelothes;- Garments--workelothes, casual shirts and jeans;- Towelling--towels, washcloths and bathrobes.

Problems

General

48. From the start, IBETEX encountered a host of problems linked to theinitial project conception, equipment and marketing difficulties, poor cottonquality, low productivity, and disagreements with the foreign partners.IBETEX has struggled along during the past seven years by modifying itsproduct mix and markets, running up its debts and running down fixed assets,and laying off excess staff.

Financial

49. The foreign partner's financial problems in France caused its plansfor British financing of IBETEX to fall through. Therefore, suppliers'credits (mostly medium-term, with a maximum of 7 years' maturity) had to besought, and Government guarantees were required. The Government is currentlytrying to re-negotiate the foreign debts. The CAA indicates foreign debtservice of CFAF 166 million and 215 million due in 1982 and 1983,respective:Ly, on behalf of IBETEX (the company is not contributing towardthese payments). Some CFAF 600 million of BBD loans to IBETEX in 1973 and1974 were guaranteed by the Government.

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50. Initial capital was set at CFAF 600 million, and later raised to CFAF2.4 billion. Management is not certain how much of this was paid in,particularly as some was certainly provided in kind. The CAA recordscontributions to IBETEX equity of CFAF 864 million.

51. IBETEX's financial situation, never on a solid basis, has continuedto deteriorate (see Table 1). Although the accounts are laced with unorthodoxentries, it is clear that the firm is bankrupt by any normal standards. Theaccounts show a negative net worth of CFAF 7 billion at June 1981, and anegative cash flow (excluding financial charges which are not paid) of CFAF500-600 million per year. Some relief was provided in 1981 when the BCB,major financer of IBETEX (CFAF 4.7 billion in loans outstanding), agreed toconsolidate short-term credit of CFAF 4.2 billion into a medium-term loan. Itis not clear from the balance sheet whether the additional short-term debt toBCB in 1981 represents unpaid interest or a new injection of cash. IBETEXmanagement has stated that the firm has had no access to bank credit since1978.

52. In January 1981, the IBETEX board decided to place the enterprise inliquidation. The Government is the major creditor, through the banks,SONAGRI, SONACEB, SBEE, the Treasury (taxes), the OBSS (employer's payrolltaxes). In the interim, IBETEX has continued its normal operations.

Production

53. Production problems have contributed to IBETEX's difficulties.Certain equipment was never delivered or installed. There are transportproblems from Parakou to Cotonou.

54. The local cotton is of poor quality, and appears to have deterioratedsince project start-up. Better varieties are needed, and more attention tothe crop. Cotton picked too early does not take dye well, and picked too latecontains too many parasites. Inadequate SONAGRI cotton storage facilitiesresult in bales of ginned cotton rotting in the rain. In the past, cotton wasgraded into three categories; now there is no grading process.

55. IBETEX management also believes that the productivity of its workersis low enough to offset wage advantages compared to Far East producers such asHong Kong. Average wages of CFAF 20,000 per month (about US$3.00 per day) forworkers and CFAF 50-60,000 for foremen do not compensate for the low output.

Marketing

56. Marketing of IBETEX's output in Europe encountered numerousproblems. Low quality and production delays (partly because inadequateworking capital hindered the purchase of materials) prevented IBETEX fromfulfilling its contracts. Clients were lost. Other European customers hadfinancial problems and never paid. The lengthy delay between shipment ofgoods to Europe and receipt of payment caused further working capitaldifficulties for IBETEX.

57. The product mix and market orientation was changed a few years ago toconcentrate on local mass-market items. IBETEX makes uniforms for the BeninArmy, towelling sold on the local market (essentially re-sold to Nigerian

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traders), sheets and clothing. The goods are sold for cash at the factory, orat IBETEX's Cotonou outlet.

Pricing

58. In practice, IBETEX's sales prices are market-determined, and havenot generally been a problem. They are allowed, under Ministry of Commercerules, a 10% production margin above their costs. Since this includesfinancial charges and other costs which are not actually paid, the margin issufficient.

Management

59. Management was initially provided by the foreign technicalpartners. When the bank overdraft reached CFAF 2.5 billion, the Governmentconducted an investigation of the IBETEX situation, and in 1977 installed aBeninese general manager and Beninese deputies to the foreign production andmarketing managers. The last foreign technicians left IBETEX at end 1981.The firm considers that it has built up its human capital; it now has 8Beninese textile engineers and sufficient foremen and mechanics.

Potential Losses

60. Although the present IBETEX management has been remarkably adept atstaying afloal financially, the cumulative cost to the Government hasincreased with every additional month of operations. Using the June 1981accounts, and roughly estimating the liquidation value of fixed assets at 40%of book value and inventory at 70%, the mission estimates the net cash loss atliquidation (disregarding the Government's equity investment) would be aboutCFAF 8.3 bi:llion. If a new operator cannot be found to make some use of theexisting equipment and building, the loss could go as high as CFAF 9.2billion. Estimates of the results of the 1982 fiscal year (about CFAF 450million in sales with a net loss of at least CFAF 1 billion) the liquidationloss as of June 1982 might be around CFAF 9 billion. About half of thisamount would initially be borne by the BCB, though presumably the Governmentwould compensate the bank.

Restructuring

61. The Government has taken the decision to wind down IBETEX and form anew joint venture with foreign partners to produce textiles for the local andpossibly foreign markets. The Belgian textile firm UCO (Union Cotoniere deBelgique) has been carrying out feasibility studies over the past year for there-structuring of IBETEX. The initial view seems to be that the existingbuildings are alright, but that certain additional equipment would beneeded. IBETEX management favors avoiding heavy new investments at this stageand wants to focus on the local market.

62. The IBETEX view of product lines which should be promoted in thefuture includes:

- Towelling. These products are successful and should be continued.- Clothing. Cotton/polyester blends are popular in Africa, and:[BETEX wants to try to blend the cotton and polyester fibers at the

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- Sheets and tablecloths. There is a good local demand for theseproducts, but wider looms would be needed to manufacture sheets fordouble beds.

- Face flannel and baby garments.

Outlook

63. IBETEX management and the Ministry of Industry are currently awaitingthe results of the UCO rehabilitation study, due shortly. The immediateoutlook, therefore, is for continued losses of around CFAF 1 billion per year,followed in the next year or two by a liquidation resulting in costs as highas CFAF 9 billion to the kGovernment.

64. The future profitability of any textile operations using IBETEX'spresent facilities will depend upon a successful restructuring of thebusiness, with new injections of capital by the Government and by a foreignpartner. The current cost structure is not encouraging:

Sales = CFAF 450 millionOperating Costsof which:Cotton: 500T CFAF 300/kg = 150 millionWages: 600 people (incl.

social charges) = 216 millionFuel: for generators = 150 million

CFAF 516 million

These costs indicate losses of CFAF 66 million when only the most basicoperating items are included. Therefore, sales must be raised (probablythrough price/quality increases) and costs must be brought downsubstantially. These are the issues which must be successfully resolved bythe UCO feasibility study before either the Government or a foreign partnershould consider any further investment.

Recommendations

65. The Government's decision to bring in a foreign firm experienced inspinning and weaving appears sound. However, the decision to continue textileoperations should be based on an objective assessment of the feasibility studyresults, particularly in light of the very poor past performance. The missionrecommends:

- Careful review of the UCO study, employing specialized textileconsultants if required to give an independent opinion.

- Maximization of the foreign partner's equity involvement in anytextile operation involving significant new investments to ensureadequate incentives for efficient cooperation.

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- Consideration of an alternative strategy of producing second-quality goods for the local market utilizing existing equipment, asmaller work force, and minimum new investments. Such a strategymight minimize further Government financial risks and achieve aquicker break-even than a more elaborate rehabilitation.

- Cotton quality problems should be fully discussed with SONAGRI anda realistic assessment of future quality should underlie theselection of product and market mix prior to embarking on newtextile investments.

- The Government should develop a financial plan for the liquidationof IBETEX and the allocation of losses among the variouscreditors. The bulk of the losses will have to be covered, over amulti-year period, by the Government. BCB, the major creditor,will not likely be able to absorb more than a portion of its shareof the losses involved, over a period of several years.

- Subject to a positive re-structuring plan, Government contributionsmight be partially financed from IDA funds.

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Table 1

IBETEXSummary of Financial Data

(in millions of CFA francs)

-Fiscal Year (July 1-June 30)-1979 1980 1981

------- ---------- …Income Statement - ----------------- -

Sales 1,010 974 847Purchases 577 613 494Change in Stocks -298 -21 -199

Gross Margin 135 340 154

Operating Costs, of Which: 1,819 1,953 1,462personnel 658 570 510financiala 508 560 450depreciation 479 531 322duties and taxes 14 9 38

Operating Profits -1,684 -1,613 -1,308

Exceptional Profits/Losses 21 45 -14Taxes (BIC and FNI) 0 2 2

Net Profits -1,663 -1,570 -1,324

…------- --- ---- ---- dalanceSheet…----------- -----

Liquid Assets b 256 435 374Accounts Receivable 1,714 1,707 1,623Inventory 752 731 532Fixed Assets 2,473 2,086 1,21

Total Assets 5,195 4,959 4,350

Short-Term Debt 4,127 5,709 1,826Other Short-TermLiabilities 2,354 2,296 2,688

Long-Term Debt 2,881 2,690 6,852Capital & Reserves -2,504 -4,166 -5,692Results of Current Period -1,663 -1,570 -1,324

Total 5,195 4,959 4,350

- -- --- ------- --- Financial Indicators …-------------

Cash Flow -1,184 -1,039 -1,002Cash Flow net of -676 -479 -552

financial chargesNet Working Capital -3,759 -5,132 -1,985

Profit Margin, % -164.7 -161.2 -156.3Return on Equity, -c __ _

Purchases/Sales, %d 86.6 65.1 81.8Personnel/Sales, % 65.1 58.5 60.2Accts. Rec./Sales, months 20.4 21.0 23.0Inventory/Sales, months 8.9 9.0 7.5

Current Ratio 0.42 0.36 0.56Acid Test Ratio 0.30 0.27 0.44

Notes: a99Z of the financial charge is a provision; only1% actually paid. Foreign debt not included.

blncludes CFAF 880 million in share capital duefrom stockholders.

cNot meaningful since equity is negative.dPurchases less change in stocks.

Source: IBETEX Annual Reports, fiscal years 1979, 1980,1981.

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SOBETEX

Background

66. SOBETEX (Societe Beninoise des Textiles) is a mixed-economy companywhich bleaches and prints fabrics for the local market using imported cottoncloth. The firm was established in 1968 as ICODA, in which the state has asmall holding. In 1975-76, the government increased its holding to 49percent. The other eleven shareholders are mainly large French trading andtextile firms (CFAO, CNF, SCOA, ICODI, Schaeffer). Technical expertise isprovided by the Schaeffer Group (of Alsace), which prints fabric in Europe.SOBETEX is under the authority of the Ministry of Industry.

Business Lines

67. SOBETEX engages in a single product line, the production of printedrolls of cloth to order. Each production run is in accordance with a designspecified by the buyer or created by SOBETEX's own design department. Thecompany's factory in Akpakpa (Cotonou) includes a complete graphic design unitand all the requirements for modern film transfer of the design to therollers.

Major Aspects

68. SOBETEX serves as a useful model of a successful public enterprise.It is well-managed, operates profitably, has generally enjoyed a strong localdemand, is well-maintained, and has pursued conservative financial policies.The present economic situation, particularly Nigeria's import restrictions,has caused some slowdown in recent months.

Management

69. The management team of SOBETEX appears to be particularly competentand hard-driving. The 12 higher and mid-level cadres include only oneEuropean; the Beninese deputy general manager is a textile engineer with yearsof experience in the textile industry of Europe. The managers appear to keepa very close eye on the textile operations, with frequent inspections ofactivities and insistence on very high maintenance standards.

Production

70. In contrast with other public enterprises in Benin, SOBETEX does notseem to encounter production difficulties. The factory has a capacity of 20million meters of printed fabric; the actual figures have exceeded this levelin three of the past four years, reaching about 22 million meters in 1981-82. First-rate maintenance by SOBETEX's own mechanics is certainly one reasonfor this success. Mid-level cadres are normally sent to Europe for extendedtraining periods with the machinery manufacturers. SOBETEX also ensurescontinuity of production by stocking about two months of raw materials.

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Marketing

71. Until recently, there has been no difficulty in selling SOBETEX'soutput. Orders are obtained from the large trading firms in Cotonou (CFAO,SCOA, John Walkden, etc.) and from many other wholesalers. The goods are thensold on the Cotonou market, and much of the production finds its way toNigeria. This has resulted in problems beginning in June 1982, as Nigeria isstrictly prohibiting imports. The Benin Government is investigating thepossibility of obtaining a special license to supply SOBETEX fabric toNigeria.

72. The SOBETEX sales price level, set by the Ministry of Commerce, hasbeen sufficient to ensure an adequate margin. SOBETEX is generally paid cashon delivery. SOBETEX fabrics are among the cheapest for equal quality inAfrica.

Financial

73. SOBETEX's sound management, stable and well-trained labor force, andhigh-demand product have predictably brought reasonable financial returns.Positive net profits have been achieved and return on equity was 17.5 percentin 1981. Personnel costs have been held to a declining percentage of sales.The company has no long- or medium-term debt, and only reasonable short-termcredit (equal to three months' sales) and for working capital requirement.Cash flow has ranged between CFAF 150 and 420 million in recent years.SOBETEX has contributed CFAF 1,613 million in income taxes and over CFAF 100million to FNI in contributions to the Government during the calendar years1979-81.

Outlook

74. When interviewed in March 1982, SOBETEX management had no plans forexpansion. However a CFAF 300 millions credit application has been submittedto the BBD to finance three-fourths of a modernization program. The projectedinvestment will not increase the SOBETEX's production capacity but it willsubstantially improve the quality of output.

Conclusion

75. SOBETEX is well-managed and well-structured financially and will beable to survive any temporary downturn in its sales.

76. For other public enterprises in Benin, a few lessons may perhaps bedrawn from the SOBETEX experience.

- SOBETEX demonstrates the possibility for success in a Beninmanufacturing industry, where the plant's output is in strongdemand.

- Strong management is required. This involves direct, personalsupervision of the work and a sense of accountability for thefirm's results.

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- Attention to training of staff, particularly in areas such asmaintenance and repair, is essential. Training is facilitated bythe involvement in the enterprise of a technical partner withsimilar installations located elsewhere.

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Table 1

SOBETEXSUM4ARY FINANCIAL DATA

(in millions of CFA frsncs)

Fiscal Year (July 1-June 30)1979 1980 1981

------------------ lncome Statement--------------------

Sales 5,707 4,635 6,522Purchases n.a. n.*. n.s.Change in Stocks n.a. 38 58

Gross Margin n.a. n.a. n.a.

Operating CostsPersonnel 329 324 360Financial 87 118 129Depreciation 107 B8 118Duties and Taxes na. n.e. n.e.

Operating Profits 685 141 53B

Exceptional Profits/LossesTaxes (BIC and FNI) 1 375 76 294

Net Profit 310 65 244

-------------------- Balance Sheet_----------------------

Liquid Assets 1 1 1Accounts Receivable 1,821 1,294 1,411Inventory 1,053 1,091 1,149Fixed Assets 584 579 738

Total 3,460 2,966 3,300

Short-Term Liabilities 2,083 1,742 1,783Long-Term Debt 52Capital and Reserves 1,008 1,158 1,272Results of Current Period 310 65 244

Total 3,460 2,966 3,300

---------------------.Finance Indices--------------------

Cash Flow 417 153 362Cash Flow net of 504 271 491

financial chargesNet Working Capital 792 644 77B

Profit Margin, S 5.4 1.4 3.7Return on Equity, S 26.7 5.5 17.5

Purchases/Sales, v n.a. n.e. n.a.Personnel/Sales, S 5.8 7.0 5.5Accts. Receivable/Sales, months 3.8 3.4 2.6lnventory/Sales, months 2.2 2.8 2.1


Note: SOBETEX furnished summary financial deta but not itsannual reports, so certain figures were not available tothe mission.

Source: SOBETEX data and mission calculations.

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OIL PALM SECTOR

Background

77. The oil palm sector is a major element of Benin's export performanceand an important wage employer. Two state enterprises (100 percent Governmentowned) conduct the agroindustrial operations: SOBEPALH (Societe Beninoise dePalmier a Huile)1/ is responsible for collection, processing and local salesof palm oil and kernels from selected palms; SONICOG (Societe Nationale pourl'Industrie des Corps Gras) processes palm kernels, exports all palm products,manufactures soap, and processes other vegetable oils. Production of thefresh fruit bunches (ffb) is in the hands of individual farmers for thenatural palms, and cooperatives for the selected palms.

78. The oil palm sector comprises some 400,000 ha of natural palms and29,000 ha of selected palms planted mainly between the mid-1950s and the mid-1970s. The industrial palm oil mills operated by SOBEPALH utilize exclusivelythe selected palm ffb; of six mills, three are inoperative and the other threeoperate at well below capacity. SOBEPALH's output of about 15,000 tons peryear of palm oil is sold either on the local market, to SONICOG for soapmanufacturing, or exported. SONICOG operates in the same sector as SOBEPALH,but its operations are largely independent since it relies on natural palmproducts for its input rather than on selected palm. Its main business is theprocessing of palm kernels-(80-90 percent from natural palms and the balancefrom SOBEPA],H)-into palm kernel oil and palm kernel cake for export.

Summary Assesment

79. Benin's oil palm sector has not performed well, due primarily toinadequate rainfall conditions, but also to labor shortages and transportdifficulties. Oil palm yields have been very low, resulting in negative ratesof return for investments in selected oil palm production and processing. Thetwo public enterprises, though only marginally profitable, are quite viable onan operating cost basis, that is, ignoring sunk costs. Improvements could bemade which would raise the oil palm yields per ha and hence profitability ofSOBEPALH, SONICOG, and the growers' cooperatives. No new planting of oil palmis envisaged, however, owing to insufficient rainfall.

80. This case study is based upon a report prepared by Booker AgricultureInternational Limited, Benin: Review of the Oil Palm Sector, dated July 1982;and upon interviews conducted by the mission.

Present Situation

81. This section addresses the major aspects of the sector and its twopublic enterprises under the headings of technical, marketing, management, andfinancial aspects.

1/ The description of the activities pertain to the period before itsdissolution in 1982 and the transfer of its industrial activities toSONICOG.

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Technical

82. The single most important factor influencing the low productivity ofBenin's oil palm sector is rainfall. The moisture deficit at the Poberesearch station has averaged 530 mm over the past 32 years; in the Atlantiqueand Mono regions, deficits of over 600 mm have occurred in at least 45 percentof recent years. The IRHO (French oil palm research organization) qualifies awater deficit of 400-500 mm as "marginal" for oil palm, and over 500 mm as"clearly unfavorable," the lowest classification.

83. The inadequate rainfall causes low yields for selected palms. Meanyields over a twelve-year period were 3.4 tons/ha in Oueme, 2.3 tons/ha in theAtlantique and 2.8 tons/ha in the Mono Province. These yields are poorcompared to the 8.0 tons/ha initial projections of the IDA-financed GrandHinvi project (1969) which established many of the plantations. The yieldsare worse when compared against yields of about 16 tons/ha elsewhere in WestAfrica, and over 20 tons/ha in Asia.

84. Another problem affecting yield is poor maintenance of theplantation. A recent change to paying labor on a piecework basis has hadlittle effect. Urgent action is needed to improve access, to clean the palmcircle and clear inter row vegetation, and to prune the fronds properly.

85. A proportion of the production is lost at the collection stage. Lackof transport equipment for collection is the most important problem under thecontrol of SOBEPALH and should be remedied. A high proportion of trucks areinoperable, with the result that only 60 percent of harvested crop reaches thefactory at times. Approximately 20 new 10-ton trucks are required.Procedures could be improved with greater coordination between factory andfield as regards the timing and location of fruit to be collected. Bad roadconditions to Ouidah-Nord (the irrigated plantation) need to be urgentlycorrected.

86. The three SOBEPALH mills currently operating are all fairly new andare running well, though underutilized. The major technical problems notedwere in the areas of nut cracking at Grand Hinvi (hydrocyclone repair urgentlyneeded), kernel drying (new facilities required), and empty bunch disposal(incinerator repair needed). Routine maintenance should be strengthened inall the factories.

87. The consultants also note that the three closed factories (atAvrankou, Ahozon, the Gbada) would be extremely expensive if not imposssibleto bring back into production. If additional capacity were ever required, itwould be preferable to add production lines to the modern mills. Therefore,the old mills should either be sold or scrapped.

Marketing

88. SOBEPALH sells its palm oil on the local market, to SONICOG as aninput to the soap factory, or through SONICOG for export. SONICOG purchasespalm kernels from small farmers (mainly) and from SOBEPALH which it processesinto palm kernel oil and cake. These products are all exported. In addition,SONICOG manufactures soap and processes other mixed edible vegetable oils(mainly groundnut and cottonseed).

- 85 -

89. SOBEPALH's palm oil is sold first to SONICOG's soap factory, whichhas generally purchased 3-4,000 tons of palm oil per year out of SOBEPALH's15,000 tons produced (see Exhibit 1). The remaining palm oil production iseither sold locally (both to Beninese and Nigerian traders), or for export.The Beninese apparently prefer the higher fatty acid content of artisanallyproduced palm oil, and much of the local sales is believed to go to Nigeria.Prices for palm oil (Exhibit 2) have declined over the past few years on theworld market, though strong Nigerian demand in 1981 accounted for a high localsales price.

90. SOBEPALH generally supplies about 10-15 percent (3-4,000 tons) ofSONICOG's total purchases of palm kernels. The remainder are purchased fromfarmers at collection points in the growing areas, or from middlemen whodeliver the kernels to the factory. SONICOG is thus heavily dependent uponproduction from natural oil palms. The price paid for kernels is set by theInter-Ministerial Price Commission each September for the year. The producerprice has increased at an average annual rate of 6 percent over the past threeyears. Apparently, this price level no longer presents sufficient inducementto small farmers, because SONICOG's purchases from them have dropped from asteady 40,000 tons through 1976-77 to 20-25,000 tons in recent years.

91. SONICOG has no particular marketing problems, except for the low palmkernel oil prices currently quoted on the world market. Overall, Benin'sincome (fob) from official exports of all palm products has declined by 24percent form 1976-77 to 1980-81 (CFAF 2.7 billion). The soap factory, on theother hand, has done very well, and its capacity of 5-6,000 tons has beenreached. The laundry soap produced enjoys a strong market, and a secondproduction line is planned. The luxury soap ("Cob") did not sell well, andhas been discontinued, as the local market seems to prefer imported toiletsoap.

Management

92. There are several managerial problems, involving agriculturalproduction labor, factory labor, and organizational problems of SOBEPALH andSONICOG.

93. Fruit production is in the hands of over 20,000 small farmersorganized into 40 cooperatives. There is no direct involvement of SOBEPALH inthe management of production (although this was originally planned), except inthe case of the irrigated area at Ouidah Nord. Within the cooperatives, asharp distinction is made between proprietors and non-proprietors.Proprietors are guaranteed a return, but non-proprietors are paid essentiallyfor their labor, at a rate of CFAF 200 per day for upkeep and CFAF 15/ffb cutand carried to roadside collection points. However, these labor rates are notattractive compared to the CFAF 1,000 per day (at unofficial exchange rates)that Beninese workers can obtain in Nigeria. As a result, a labor shortagehas occurred which has exacerbated the poor maintenance and low yields of theoil palm plantation.

94. Another problem involves the structure of SOBEPALH's labor force.The work force was originally built up in the 1960s and 1970s when SOBEPALH'spredecessor (SONADER) employed large numbers of laborers to clear the land and

- 86 -

establish the plantations. It appears that these personnel were not let gowhen their tasks were finished, but were employed in work at the palm oilfactories. Now that three of the mills have permanently closed, there appearsto be surplus labor in the SOBEPALH organization (totalling 1,254 permanentstaff). How many laborers are surplus is difficult to tell, though there are178 workers carried on the books as employed at the closed mills. Personnelcosts average about one-third of SOBEPALH's total expenditures.

95. Adequate cost control is a problem for both SOBEPALH and SONICOG. AtSOBEPALH, annual accounts are available within three months of the end of thefiscal year. But no attempt is made to prepare monthly or quarterly accountsas a basis for budgetary control and there is no systematic cost accountingprocedure. At SONICOG as well, though most financial accounts are prepared ona monthly basis, there is no full periodic expenditure and profit statementpreparation and no systematic cost accounting. Costing and budgetary controlsystems should be introduced at both SOBEPALH and SONICOG so that costs andrevenues can be monitored and compared to budget estimates.

96. A major organizational issue at present concerns the future ofSOBEPALH. The Government announced in April 1982 that SOBEPALH would bemerged into SONICOG. However, the detailed implementation aspects are not yetclear. It was only in 1976 that the palm oil mills were transferred toSOBEPALH from SONICOG. Thus, it would not seem overly difficult to move themills back under SONICOG's control. However, SONICOG officials expressinterest in the mills but not in the plantations. Their view appears to bethat the plantations are unprofitable, employ excessive numbers of people, andare subject to agricultural and organizational problems which SONICOG is notideally equipped to deal with. Since the critical aspects of SOBEPALH'spresent operation seem to lie at the plantation and fruit collection levels,it is not clear how these problems would be resolved simply by foldingSOBEPALH into SONICOG. This means that considerable planning is required todefine how SOBEPALH's agricultural aspects (including the whole cooperativeset-up) can be improved, in addition to the implementation of the SOBEPALH-SONICOG merger.

Financial Aspects

97. Declining world market prices and inflexible cost structures haveresulted in unprofitable operations recently for the oil palm cooperatives andfor SOBEPALH. SONICOG's profits have been reduced as well, in part due tolower output volume.

98. The price paid to the cooperatives has not been sufficient in lightof poor productivity, and the cooperatives as a group have lost CFAF 400million over the five years to 1981. This has caused financial difficultiesfor SOBEPALH, which has pre-financed the cooperatives and is now unable torecover the funds.

99. SOBEPALH has recorded losses in four out of the past five years. Ona cash flow basis, results have been negative only in FY 1981. This poorperformance is due to falling export prices and rising costs, particularlyfinancial charges (Exhibit 3). Working capital has diminished, but stillamounts to CFAF 233 million. SOBEPALH has not made any payments on loansonlent by Government from IDA and FED.

87 -

100. SONICOG has been profitable in three out of four years (to FY 1980),and cash f:Low has generally been strongly positive. On the other hand, assetshave increased recently with construction of the Bohicon Mill (with a Germanconcessionary loan), and the results cannot be considered healthy given thelevel of investment (Exhibit 4). Growing financial costs and lower salesvolume have combined to reduce profitability. Soap has been SONICOG'sstrongest product financially.

Recommendations

101. The oil palm sector is never likely to provide more than marginalreturns to Benin, because of inadequate rainfall conditions. There is noeconomic justification for expansion of oil palm acreage. However, the twoenterprises already established are viable on an operating basis, and provideconsiderable foreign exchange earnings. Rehabilitation investments arejustified, on an incremental basis, to improve productivity.

102. Alternative organizational systems for the plantations should beconsidered. The cooperatives do not appear to be functioning properly. IfSOBEPALH's oil mills are taken over by SONICOG, the coordination withproducers may become even more difficult.

103. The major investment required is for vehicles, machinery andequipment at SOBEPALH. An estimated CFAF 950 million are needed, particularlyto ensure adequate transport of ffb to the mills.

104. Better maintenance procedures are urgently required in order toachieve yields of 5 tons/ha. Upkeep, harvesting and collection must all beimproved. Visits by SOBEPALH staff to neighboring countries might help tointroduce better practices.

105. SOBEPALH and SONICOG should establish cost accounting and budgetarycontrol systems. SOBEPALH should monitor the financial position ofcooperatives closely.

106. A possible IDA assistance project should finance a rehabilitationplan for SOBEPALH, based largely on re-equipping the necessary vehicle fleet.

- 88 -

Exhibit 1

PRODUCTION VOLUME OF PALM PRODUCTS

A. Production and Sales of SO8EPALH Palm Oil (tons).

--- … Sales ----Production SONICOG soap Local Market Export via

factory SONICOG

1976/77 13 464 1 354 5 177 4 2001977/78 19 524 4 433 4 974 3611978/79 11 854 5 160 1 682 1 0231979/80 13 337 552 2 243 8 0041980/81 14 849 2 833 12 487 3 816

B. Purchases of Palm Kernels by SONICOG (tons).

- ------Suppliers - ----- …SOBEPALH CARDER IRHO Small Farmers Total SCBEPALH

1976/77 5 002 821 219 35 382 41 424 121977/78 2 673 216 88 8 840 11 817 231978/79 3 271 64 58 17 037 20 430 161979/80 3 025 113 6 25 892 29 036 101980/81 3 293 182 - 26 132 29 607 111981/82 (provisional) 3 740 327 _ 19 054 23 121 16

C. Production of Palm Kernel Oil and Palm Kernel Cake by SONICOG.

Palm kernel Palm kerneloil, tons cake, tons

1976/77 22 189 22 9071977/78 5 337 5 7071978/79 10 745 11 1531979/80 12 217 13 2161980/81 12 380 13 683

Source: SOBEPALH and SONICOG.

'8g -

Exhibit 2

PRICES OF PALM PRODUCTS

A. Palm Oil (CFAF/kg)

Year Local Sales Export, fob Soap Factory

1976/77 108 139 n.a.1977/78 116 132 n.a.1978/79 126 137 n.a.1979/80 95 110 n.a.1980/81 101 100 n.a.1981/82 175 n.a. 120

B. Palm Kernels (purchased by SONICG, CFAF/kg)

Delivered toYear Producer Price Factory

1978/79 33.5 39.61979/80 35.0 41.61980/81 37.5 45.41981/82 40.0 48.7

C. Palm Kernel Oil and Palm Kernel Cake (fob, CFAF/kg)

Year Oil Cake

1976/77 10X.4 30.31977/78 152.6 30.31978/79 193.3 24.51979/80 179.3 25.51980/81 119.5 27.2

Source: SOBEPALH, SONICG.

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Exhibit 3

SOBEPALH INCOME STATEMENTS

1976/77-1980/81

(million CFAF)

Year ending 30 June 1977 1978 1979 1980 1981

Iran

Sales after stock adjustments:Palm oil 1 793 1 090 1 290 1 367 1 583Xsrnels 184 98 124 133 151Other 96 344 (79) 46 44

Total sales 2 073 1 532 1 335 1 546 1 778Services 2t 23 13 94 27Operating subsidies and grants S0 280 128 - -tber income - 106 348 140 8

Total incoe 2 181 1 941 1 824 1 780 1 813

Expenditure

Purchases:

Fruit bunrhes 450 283 261 339 349Materials 525 421 449 253 S1l

Total ogrchases 975 704 710 592 860Personnel costs 627 649 703 665 678Taxes a-rT dties 27 100 35 5 25External services 67 73 46 62 67Transport and general 24 19 16 20 20Financial costs 7 84 55 177 168Depreciation 392 366 403 324 310

Total expenditure 2 119 1 995 1 968 1 845 2 128

Net ire 62 (54) (144) (65) (315)Profits (losses) previous years (54) (94) 127 (120) (26)rxcptional profits (losses) 2 (10) 78 74 49Protits taxes - - (35) - (78)

Surplus/ (deficit) (20) (158) 26 (111) (370)

Source: SOBEPALH

- 91 -

Exhibit 4

SONICOG INCOME STATEMENTS

1976/77-1979/80

(million CFAF)

Year ending 30 June 1977 1978 1979 1980

Sales after stock adjustments

Kernel oil 2 324 1 073 1 772 1 593Kernel cake 964 151 495 388Soap 423 820 642 934Other products 453 1 151 470 809

Total sales 4 164 3 195 3 379 3 724Stock adjustments 191 17 687 96Other revenue 139 25 43 273

Total income 4 494 3 237 4 109 4 093

Purchases

Fresh fruit 11 2 - -Kernels 1 582 457 947 1 244Other materials 1 347 1 622 1 549 1 193

Total purchases 2 940 2 081 2 496 2 437

Personnel costs 328 304 301 341Taxes and duties 129 164 98 263External services 127 113 116 124Transport and general 453 245 278 397Financial costs 71 90 244 298Depreciation 219 283 226 103

Total expenditure 4 267 3 280 3 759 3 963

Net income 227 (43) 350 130Profits (losses) previous years 76 (242) (30) 187Exceptional profits (losses) (56) 41 (2) (3)Profits taxes - (93) (136) (152)Contributioni to national investment fund - (47) (84) (83)

Surplus/ (deficit) 247 (384) 98 79

Source: SONICOG

92 -

SONACOP

Background

107. SONACOP (Societe Nationale de Commercialisation de ProduitsPetroliers) was founded as a state-owned company in 1974. It took over thepetroleum product import and distribution networks which had belonged toTexaco, TOTAL, BP, Shell, AGIP and Mobil. During the years 1976-78,expropriation payments of CFAF 390 million were made by the CAA to theseforeign firms. SONACOP holds the monopoly for petroleum product imports andmarketing, under the authority of the Ministry of Commerce. It sits on theCommission for the Seme offshore petroleum project, but is not directlyinvolved.

Business Lines

108. SONACOP imports a range of petroleum products from overseas for thedomestic market and re-export. There is no refinery in Benin. The mainsource of supply was switched from Italy (71 percent of imports in 1979) toAlgeria (60 percent in 1981); there have been no supply problems, but aconscious policy of diversification of sources is being pursued.

109. Sales were CFAF 15.5 billion in 1981 (fiscal year July to June),making SONACOP number one among Benin's enterprises in terms of businessvolume (see Table 1). The domestic market accounts for 94 percent of totalsales. The major products are diesel fuel, gasoline, lamp kerosene, jet fuel,heavy fuel oil, bitumen, and lube oil, in decreasing order (see Table 2).

110. Domestic sales volume in 1981 was at the same level as in 1977. Netprofits dropped sharply in 1979 when the fixed local prices seriously laggedbehind import cost increases. Though profits have increased in the past twoyears, they are still far below the 1977-78 levels.

Problems

Pricing

111. Fixed sales prices have been a major cause of financial difficultyfor SONACOP. Petroleum products are sold at fixed prices, revisedperiodically by the National Pricing Commission. Prices were raised inFebruary or March 1980 and again in January 1982 (by 25 percent), but eachtime only after lengthy delays which weakened the company's financialstructure. There were no price increases between 1976 and 1980. The abilityto raise prices is also constrained by unofficial imports of gasoline fromNigeria; the price there is roughly one-third the Benin price. Managementdoes not anticipate further pricing problems in 1982.

Finance

112. SONACOP is profitable, and is currently yielding an acceptable returnon equity. But its profit margin has not been sufficient to provide adequateliquidity in recent years. The gross margin per liter on major products hasgenerally been rising since 1979 (see Table 3), but not enough. Cash flow inthe last three years has been much lower than in the 1977-78 period, and net

93 -

working capital, which was negative through 1980, was only marginally positiveat end-June 1981. SONACOP has no foreign debt and only modest domesticdebts. The current investment program of CFAF 1.8 billion for storagefacilities in Cotonou and Bohicon is being financed 45 percent by a long-termBBD credit with Government guarantee. For the remaining 55 percent, SONACOPis counting on a reimbursement of its FNI contributions. This will not bepossible, according to FNI officials (no reimbursements have been made to anyfirms in the past two years). SONACOP may therefore have to finance thisamount from its own resources, and working capital will be reduced. In orderto maintain liquidity, SONACOP has paid out only CFAF 90 million of the CFAF600 million owed in income taxes over the past two years and has not paid anydividends.

Management

113. SONACOP is well-managed, relative to other Benin publicenterprises. For instance, personnel cost increases have been held down to 6percent annually in the past two years; inventories have been kept at aboutone month's sales, and the collection period for accounts receivable wassharply reduced in 1981.

114. The mission sensed a problem in the planning area, however. Thecurrent investment in storage capacity based on government financing which isnot liekly to be forthcoming exemplifies poor financial planning. There is nosystematized strategic planning process at SONACOP. Nor has SONACOPestablished cost standards for the various stages of the business, such asstorage, transport, and retail sales. Weak planning in a firm as large asthis contributes to its financial problems.

Marketing

115. SONACOP owns all the gas stations in Benin. Most are managed byprivate ind:ividuals. Starting two years ago, SONACOP has also been managingsome stations directly, and has taken over the stations previously run byprovincial agencies. Competition from Nigerian supplies imported unofficiallyis a major marketing problem in the Cotonou/Porto Novo area.

Technical

116. No particular technical problems were noted by management.

Outlook

117. The considerable price increase granted in early 1982 shouldcertainly lead to better profitability in FY82. The only negative aspects arethe increased incentive to import Nigerian gasoline, which will cut intoSONACOP's market, and the strength of the US dollar relative to the Frenchfranc, which could have some effect on oil product costs. A considerableshare of SONFACOP's 1982 cash flow is likely to be required to finance the CFAF1.8 billion storage tank program. This will likely require some additionalbank borrowing, but should not require any direct funding from the Treasury.

- 94 -

Recommendations

118. First, cost standards should be introduced for the variousoperations: storage, transport, retail sales, etc. This would provide thebasis for cost control and performance measurement. Second, a strategicplanning process should be undertaken to prepare a 5-year plan of investments,operations, financial results, and resource requirements. The process itselfwould enhance management's understanding of objectives and resource needs, andthe document would provide a useful basis for discussions with the Ministriesof Commerce and Planning. Third, SONACOP may wish to consider selling some ofits gas stations to private operators. These stations represent businesses ofa size that could be attractive to the Benin private sector, stimulatingentrepreneurship and hopefully leading to efficient operations. SONACOP couldprovide technical assistance on a fee basis. Finally, the generalrecommendations elsewhere in the report on pricing policy and managementpolicy apply to SONACOP.

- 95 -Table 1

SDNACOPSuLaary Financial Data

(in millions of CFA fracs)

---- ia---- Fiscal Year (July 1-3une 30)-----------1977 1978 1979 1980 19B1

- --____-___-----------------Income Statrnts- n- -------------

Sales 11,105 12,525 16,409 16,009 15,546Purchases 6,222 6,575 11,152 11,535 9,576Change in Stocks 182 -105 572 574 -528

Gross Margin 5,065 5,845 5,829 5,048 5,442

Operating Costs, of which: 4,093 4,652 5,588 4,698 4,830personnel 225 239 267 291 343financial 115 144 164 154 152depreciation 129 143 151 149 182duties and taxes 2,344 2,550 3,290 2,904 2,626

Operating Profits 972 1,193 241 350 612

Exceptional Profits/Losses -62 -26 -12 114 -14Taxes (BIC and FNI) 364 467 200 324 359

Net Profits 546 700 29 140 239

------------------------ alance Sheets ------------------------

Liquid Assets 598 529 1,866Accounts Receivable 3,251 5,220 2,605Inventory 1,429 2,002 1,475Fixed Assets 1,638 1,589 2,027

Total Assets 6,916 9,340 7,973

Short-Term Liabilities 5,861 8,069 5,768Long-Term Debt 0 104 864Capital and Reserves 1,026 1,207 1,102Results of Current Period 29 140 239

Equity and Liabilities 6,916 9,340 7,973

____________-_---------------Finwncial Indicators---------- … -

Cash Floa 675 843 180 289 421Cash Flow net of 790 987 344 443 573

financial chargesNet Working Capital -583 -318 178Investments 165 290 231 160 328

Profit Margin, S 4.9 5.6 0.2 0.9 1.5Return on Equity, S 2.8 12.8 19.6

Purchases/sales, 2t 54.4 53.3 64.5 68.5 65.0Personnel/Sales, S 2.0 1.9 1.6 1.8 2.2Accts. Rec./Sales, monthe 2.4 3.9 2.0Inventory/Sales, months 1.0 1.5 1.1


Cash Flow/Investents, 2 409.1 290.7 77.9 180.6 128.4

D'ats not obtained for 1977 and 1978.bPurchases less change in stocks.

Source: SONACOP Annual Reports, fiacal years 1979, 1980, 1981.

- 96 -

Table 2

SONACOPProduct Volume by Market, 1977-1981

(sales in metric tons)

Fiscal Year 1977 1978 1979 1980 1981

Domestic Market

Gasoline - Super 6,243 7,083 9,434 9,102 6,612Gasoline - Regular 22,799 25,568 31,661 24,267 17,000Lamp Kerosene 22,801 27,257 19,653 18,413Jet Fuel f 27,379 9,447 12,302 8,544 10,736Gas Oil (diesel fuel) 41,370 39,077 40,107 37,425 38,255Lubes 2,017 1,949 2,123 2,367 2,767Bottled Gas 335 396 452 500 552Bitumen 4,303 305 3,800 1,552 4,790Fuel Oil 8,510 7,609 6,836 7,943 8,099Aviation Gas 148 145 128 131 29

Subtotal 113,104 114,380 134,100 111,484 107,253

Re-Exports

SONACOP Re-Exports 66,038 84,306 90,676 29,335 10,946Niger Products in Transit - - - 74,272 78,104

Subtotal 66,038 84,306 90,676 103,602 89,050

Total Sales 179,142 198,686 224,776 215,091 196,303

Source: SONACOP Annual Reports, fiscal years 1979, 1980 and 1981.

- 97

Table 3

SONACOPCalculation of Margins for Selected Products

1979-1981

1979 1980 1981

A. Gasoline

Import:Q 771.80 455.60 263.60V 3,019.60 2,611.70 1,783.10Unit Cost, CFAF/l 39.10 57.30 67.60

Domestic Sales:Q 446.00 341.80 239.50V 3,068.70 3,410.30 2,925.10Unit Price, CFAF/l 68.80 99.80 122.10

Margin, CFAF/l 29.70 42.50 54.50

B. Kerosene/Jet Fuel


Domestic Sales:Q 506.30 360.90 373.10V 2,243.10 2,613.80 2,879.20Unit Cost, CFAF/l 44.30 72.40 77.20

Margin, CFAF/I 5.70 6.30 4.80

C. Diesel Fuel


Domestic Sales:Q 488.10 455.50 465.60V 2,688.00 3,829.00 4,419.10Unit Cost, CFAF/l 55.10 84.10 94.90

Margin, CFAF/l 17.90 20.40 29.10

Q = quantity, in thousand hectoliters.V = value, in million CFAF

Source: SONACOP Annual Reports,fiscal years 1979, 1980 and 1981.

- 98 -

AGB

Background

119. AGB (Societe d'Alimentation Generale) is a 100 percent state-ownedenterprise which imports and distributes consumer goods. It was created in1978 to carry out the supermarket import activities of an earlier stateenterprise (SONIB). AGB maintains a nationwide wholesale and retail network,and it operates under the aegis of the Ministry of Commerce.

Business Lines

120. AGB's business is dominated by four products for which it has beengranted a state monopoly: wheat, rice, sugar, and milk. For these products,AGB is charged with importing the quantities needed and selling at officialfixed prices. For three other major consumption items cigarettes, tobacco andalcoholic beverages AGB has the legal right to import, but in fact allowsprivate trading firms to handle most of the imports against payment of acommission. AGB also imports, in competition with other trading firms, a fullrange of food and other supermarket items. AGB has its own warehouses inCotonou, Bohicon and Parakou, maintains a fleet of twelve trucks (10-25 tons)and a dozen vans, and operates ten wholesale outlets and 17 retail stores.

Present Situation

121. AGB's operating profits are strongly influenced by the officialGovernment pricing system, particularly on basic foodstuffs. As a result ofrising import costs and higher AGB operating costs, net profits have turnednegative and a negative cash flow has been recorded in the past two years.Nevertheless, a new management team is making changes and planning on a boldexpansion.

Pricing

122. ABG operates under three different pricing regimes for the productsit handles:

- Wheat, rice, suagr and milk. AGB holds the state monopoly on thesegoods, and must sell at prices fixed by the Commission Nationaledes Prix or the Commerce Ministry's Service des Prix. Wheat andrice caused heavy losses to AGB in the past two years becauseprices were not raised by the Government to reflect import costs.AGB estimates tha CFAF 450 million were lost on wheat imports, andsomewhat more on rice, over the fiscal years 1980 and 1981. Theselosses represent a subsidy to consumers paid for by AGB. AGB soldthe wheat at a low fixed price to GMB, a private flour mill; due tocontinued losses, AGB ceased importing wheat in December 1981, andGMB now imports its own wheat and passes the price through toconsumers. AGB management claims it is losing roughly 15% and 5%or sales respectively on rice and sugar imports.

- Cigarettes, tobacco and liquor. On these commodities, AGB receivesa commission from the private importers who handle these items.For cigarettes, for instance, AGB receives CFAF 700 per carton, or

- 99 -

about 1.75% of the retail price. (This commission has not beenraised since 1978). Commissions appear to represent about 6% ofAGB's sales. AGB also imports some cigarettes directly, but thisrequires the agreement of the private concession-holders in Benin,of the quantity is quite limited; profits are high, however, on:Liquor and cigarettes.

Other supermarket items. AGB also sells numerous supermarketproducts through its retail outlets, at prices based on marginsapproved by the Service des Prix. The Government so far has notallowed AGB to include transport costs to interior points in thecalculation of final sales price; since the company has a number ofsales points outside Cotonou, it has to absorb transport costswhich do not accrue to private trading firms selling primarily inCotonou.

Markets

123. The subsidized mass-consumption goods such as wheat (previously),rice and sugar are mostly sold at AGB's rice is eventually sold to Nigerianconsumers, representing a serious leakage of the public subsidy. Forcigarettes and liquor, AGB supplies less tha 10% of the local wholesalemarket, but estimates that 80-90% of these goods are sold to Nigerian buyers,directly or indirectly. Sales of cigarettes, previously a very fast-movingitem, slowed dramatically in May-June 1982 due to vigorous enforcement ofNigerian import restrictions. AGB does not control a large share of the totalsupermarket sales in Benin, though it is often the only modern retailer in theinterior towns where it has outlets.

Management

124. A new management team was brought in to AGB in June 1981. A campaignwas undertaken to reduce operating costs by addressing personnel and transportexpenditures. Some surplus employees were fired, and the organizationstructure was streamlined to eliminate administrative layers. These changeswere apparently needed, as personnel costs had been rising sharply as aproportion of sales. Nevertheless, AGB management generally feels that it isvery difficult to fire employees and that there is considerable pressure tohire new workers. Transportation costs are being reduced by using the trainline to Parakou to move goods north.

Finance

125. AGB's implicit subsidization of certain foodstuffs in the past twoyears has greatly weakened its financial structure. Overall, AGB has recordednet losses of some CFAF 250 million each in 1979-80 and 1980-81 (see Table1). AGB has negative net working capital, and its net worth was negative inJune 1981.

126. Without more detailed financial data by product line, it is notpossible to analyze in detail the company's profitability. The balance sheetindicates that assets (particularly liquid assets) have been built up. Thisincrease along with the two years of losses, have been financed by sharpincreases in short-term debt from banks. Bank debt rose from CFAF 200 million

- 1 00 -

at June 1979 to CFAF 3.2 billion at June 1981. The corresponding increase ininterest charges has represented a substantial financial burden.

Expansion Plans

127. AGB has ambitious plans for expansion, and has presented a CFAF 1.5billion 3-year plan to the Government. This expansion would includetransportation equipment, the construction of new warehouses, and theestablishment of new sales outlets. AGB would like to build six retail storesin Atacora and Borgou Provinces, which it sees as fulfilling socialobjectives. The management would also like to install computerized inventorycontrol systems.

128. AGB envisages a transition over time to a cooperative structure forconsumer goods distribution. The AGB would serve as the central purchasingand distribution organization, dealing with local consumer coops which wouldsell at the retail level. Some consumer coops already exist in Zou and BorgouProvinces. AGB presently receives training assistance from the Coop Suisse,which trained a dozen AGB distribution agents in a six-week course.Discussions are also underway with Coop France to receive similar assistance.

Recommendations

129. The mission believes that there is a positive economic role to beplayed by the Government in the consumer goods importing and distributionbusiness in Benin, where a handful of private enterprises would otherwisecontrol the market. However, AGB's profitability is so strongly influenced byGovernment pricing policy at present that it is hard to tell how efficientlyAGB is performing its economic role.

130. The mission recommends, therefore, that AGB be allowed adequatemargins on urban food commodities. Transport costs should also beincorporated into the prices to permit rational allocation of costs. If theGovernment wishes to phase in a realistic pricing policy over time, thediminishing subsidies could be reimbursed to AGB by the Treasury. Possiblyforeign aid could contribute to the financing of this dwindling subsidy.

131. The mission recommends also that prior to expanding its retailoutlets at interior points, AGB or consultants (including cooperativeorganizations) should assess the potential for AGB or a local coop to providecheaper goods while retaining viable margins.

- 101 -

Table 1

AGBSUMMARY FINANCIAL DATA


-Fiscal Year (July 1-June 30)--1978/1979 1979/1980 1980/1981

-Income Statement----------------------

Sales 5,383 8,250 5,682Purchases 4,166 6,725 4,199Change in Stocks -464 -492 -163

Gross Margin 753 1,033 1,320

Operating Costs of which: 356 869 1,231Personnel 102 224 284Financial 60 339 594Depreciation 54 93 150Duties and Taxes 12 20 31

Operating Profits 397 164 89

Exceptional Profits/Losses 0 -203 -1B5Taxes 236 217 144

Net Profit 161 -256 -240

-------------------- …Balance Sheet-----------------------

Liquid Assets 1,209 1,611 2,611Accounts Receivable 1,160 1,365 1,358Inventory 1,620 1,126 946Fixed Assets 532 702 705

Total 4,521 4,804 5,620

Short-Term Debt 253 2,297 3,261Other Short-Term Liabilities 3,531 1,979 2,071Long-Term Debt 198 357 341Capital and Reserves 378 427 187Results of Current Period 161 -256 -240

Total 4,521 4,804 5,620

-________-__---_--Finance Indices--------------------

Cash Flow 215 -163 -90Cash Flow net offinancial charges 275 176 504

Net Working Capital 205 -174 -417

Profit Margin, % 3.0 -3.1 -4.2Return on Equity, Z 35.2 -85.6 -

Purchases/Sales, Z 86.0 87.5 76.8Personnel/Sales, % 1.9 2.7 5.0Accts. Receivable/Sales, months 2.6 2.0 2.9Inventory/Sales, months 3.6 1.6 2.0


Source: Analysis of AGB accounts, 1978/1979 to 1980/1981.

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LA BENINOISE

132. In 1975 the Benin Government bought the Cotonou brewery soft drinkplant from the French group Brasseries et Glacieres d'Indochine (BGI). Sincethen, two other plants have been built (a brewery at Parakou, and a soft drinkand mineral water plant at Possotome), and a third one is under construction(Abomey). La Beninoise's capital stands at CFAF 637.5 million totaly paid in,and it is completely state-owned. The company employs 400-500 staff.

Performance and present situation

133. La Beninoise has been profitable every year since 1975, but profitshave been declining for the last three years. Unlike net profits, earningsbefore interest, taxes and depreciation (EBITD) have remained at the samelevel. The burden of interest and depreciation has been growing. Thisincreasing trend of interest and depreciation results from the sustainedinvestments that the company has made in recent years. These investmentstotalled CFAF 6.2 billion between 1977 and 1982. Without any additional cashoutlay from the shareholder, the investment program was financed up to 24% bycash from operations, and the company had recourse to medium-term loans andsuppliers credits for the remainder (CFAF 4.7 billion).

134. The company is presently very undercapitalized. Its ratio of equityto fixed assets dropped from 1.12 to 0.29 between 1977 and 1980. Thedebt/equity ratio is 7.6. To maintain a certain liquidity, La Beninoise hassystematically deferred various payments due to the Government and otherpublic entities (income tax, contribution to FNI, district and countytaxes). The total deferred payments were estimated at CFAF 750 million as atMay 1982.

Main Problems

135. The declining financial results of La Beninoise's activities reflectincreasing difficulties which can be summarized as follows.

Technical Problems

136. It seems that several technical problems were not anticipated at thetime La Beninoise was taken over by the Beninese government. Having lost theassistance of parent companies in Europe and in the region, La Beninoisesuffered from long delays in spare parts delivery. Furthermore, since theexpatriate maintenance specialist's departure in 1976, the machinery has notbeen overhauled. Poor maintenance has tended to downgrade the quality of thecompany's production which does not exceed 60% of the installed capacity inthe Cotonou plant (450,000 hl of beer, 150,000 hl of soft drinks).

137. Partly as a result of poor maintenance, the fermentation unitinstalled in 1958 and the bottling line installed in 1962 (both for theCotonou plant) are no longer in good condition. They should be replaced toenable La Beninoise to meet quality and quantity standards dictated by themarket.

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Pricing

138. Pricing is another issue which causes La Beninoise some problemsalthough the company has made profits every year. The last price increaseauthorized by the Government took place in May 1981, twenty months after LaBeninoise submitted its request. These long delays in revising sales pricesadversely affect the company's profitability given the continued increase ofproduction costs. Between January 1980 and May 1981 sales prices were raisedby 50% on average while malt, maize and sugar cost La Beninoise respectively78%, 105% and 133% more. These delays tend also to encourage speculators whotake advantage of a relatively low price of beer in Cotonou and sell it athigher prices in other Beninese towns and even sometimes in Nigeria.Recently, the government instructed La Beninoise to stop selling towholesalers and to supply the retailers directly. However, the effectivenessof this measure in reducing speculation is not yet known.

Management and Staffing

139. Despite the ongoing recruitment and training program, La Beninoisemay increasingly suffer from a lack of experienced technicians given the needsof the most recent plant at Possotome. Besides additional requirements at thelevel of production lines and maintenance, the company suffers from thegeneral Beninese shortage of middle managers in the fields of accounting,financial management, and administrative services.

Prospects

140. According to estimates prepared by UNIDO/BCP (Bureau Central desProjets--Ministere du Plan, de la Statistique, et de l'Analyse Economique)team, the market prospects seem favorable. La Beninoise' s installed capacityrepresents only 40% of the market and despite imports, the demand remainssubstantially unsatisfied. The company's profitability has been constrainedby production problems. Thus, appropriate investments and technicalassistance should be able to make it considerably more profitable.

141. Rehabilitating the Cotonou plant would cost approximately CFAF 3billion, including new fermentation and bottling lines, and new administrativeoffices. In addition to this program of CFAF 3 billion considered forCotonou, La Beninoise has begun construction of a brewery in Abomey which isexpected to cost CFAF 6.2 billion. La Beninoise's management requested acapital increase of CFAF 15. billion. Even if the Government agrees to such acash outlay, the debt service would substantially increase, calling forunrealistically high sales price increases.

Recommendations

142. Given the relatively good performance of La Beninoise and itsfavorable outlook, it deserves support from its shareholder. The missionrecommends that IDA assistance to the Beninese public sector include financialand technical assistance to La Beninoise, subject to a careful review of themarket situation and projected operating costs.

143- While reviewing in detail the company's rehabilitation program(preparation of which could be financed under PPF), IDA should raise the

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following issue in addition to the company's major problems stated above. LaBeninoise's aggressive expansion tends to exacerbate management problems. Ifthe country is to comprise other breweries or soft drink plants, management ofall plants within a single corporation may not be the most efficientsetting. The Beninese Government may be better off establishing separatecompanies and, eventually, in joint ventures with private investors.

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LA BENINOISE

SUMMARY FINANCIAL DATA

(in million of CFAF)

Fiscal year July 1 - June 30

1977/78 1978/79 1979/80

From Income Statement

Sales 3 062 3 202 3 379

EBITD 519 467 524

Financial charges 74 83 215

Depreciation 128 198 196

Net profit 85 73 31

From Balance Sheet

Fixed assets (gross) 2 235 2 284 4 704

Equity as % of Net fixedassets 74.8 70.4 29.6

Inventory 956 1 423 1 834

Accounts receivable 291 244 354

Short term liabilities 1 316 1 619 2 188

Long term liabilities 364 571 2 506

Net working capital 38 134 143

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COBENAM

Background

144. COBENAM (Compagnie Beninoise de Navigation Maritime) was created in1974, following a determination by the Government that maritime transport wasa key sector. The company was established as a mixed economy enterprise withan equity base of CFAF 500 million, 49 percent subscribed by the AlgerianGovernment and 51 percent contributed by Benin. The company began operationsin February 1975, chartering vessels to serve Benin's trade with Europe.Algeria provided initial technical assistance to the venture, but is no longerdirectly involved in COBENAM management. The company also performs steamshipagency and travel agency activities in Cotonou. At present, COBENAM operatesthree small general cargo vessels (one owned, two time-chartered) in the tradeto northern Europe, and participates in the relevant liner shippingconference.

145. COBENAM's strategy of moderate growth based mainly on chartered(rented) vessels resulted in substantial financial success through early1982. At that time, the introduction of additional capacity by COBENAMcoincided with a sharp reduction in cargo destined to Nigeria via Cotonou andresulted in very low utilization levels. COBENAM has consequently sufferedheavy losses over the past year (early 1982 to early 1983).

Growth of Operations

146. The company's growth has been characterized by a gradual but steadyapproach to business. Algeria initially provided assistance in COBENAM'smanagement, and also placed Beninese merchant seamen aboard its vessels fortraining (until 1978). The company began operations by chartering smallvessels (each of about 4,000 deadweight tons) for periods of six to twelvemonths. In 1978, a second-hand vessel of 4,400 deadweight tons (DWT) waspurchased. This vessel and two other vessels of about 5,400 DWT each havebeen operated since 1978. A third vessel was chartered-in, as an experiment,in May 1982, but wasredelivered in November 1982.

147. This growth pattern is reflected in COBENAM's rising traffic figures(Table 1). Initial traffic of 12,000 metric tons in 1975 rose to 40,000 tonsper year during the 1976-78 period when two chartered vessels were beingoperated. From 1979 through 1981, a traffic level of approximately 60,000town has been achieved. The most recent data (July 1981 to June 1982)indicate 53,000 tons carried.

Current Situation

Recent Trade Developments

148. The Nigerian measures taken in the spring of 1982 to reduce importshave had a substantial effect on the volume of import cargos throughCotonou. Traffic dropped precipitously in May 1982 and has been lowthroughout 1982. Benin's exports of cotton, cocoa, and palm cake were alsovery low in the second half of 1982, and Niger's exports dropped as well. Thereduction in cargo to Nigeria not only reduced COBENAM's traditionalsouthbound volume, but also caused more direct competition. Non conference

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lines such a Medafrica which had been heavily dedicated to the Nigerian tradefound themselves with excess capacity and began to compete with COBENAM forCotonou cargo. These outsiders undercut COBENAM's rates and reduced COBENAM'smarket share.

Market Position

149. Historically, COBENAM has obtained a market share of 20 to 30 percentof the COWAC (Continent-West Africe Conference) trade to and from Benin (Table1).

150. This represents a 20 percent share of Benin's import traffic fromnorthern Europe and a 50 percent share of the export trade. COBENAM hascaptured this share with a three-vessel fleet offering a sailing every two orthree weeks (seven rotations per year per vessel, giving 21 sailingsannually).

151. COBENAM management is fully aware that service levels are not of thehighest quality. The vessels are small tween deckers without refrigeratedcontainer capacity or deeptank capability. COBENAM does not yet own anycontainers, although it carries about 100 per trip southbound and recentlyleased 300 containers for a two-year period. The COBENAM fleet does not beginto compare with the sophisticated container ship tonnage recently introducedby carriers such as the French line Delmas-Vieljeux.

152. COBENAM's market can be segmented into distinct groups. On theexport side, COBENAM handles about 90 percent of Benin's produce since thecarrier is specified by the two state enterprises (SONACEB and SONICOG)handling agricultural shipments. COBENAM's export traffic thus consistslargely of palm products (cake only, since the vessels have no deeptankcapability to carry vegetable oil), cotton, coffee and cocoa.

153. On the import side, the market can be segmented between importspurchased by Benin public enterprises, Benin private firms, and parties inadjacent (especially landlocked) countries. COBENAM has not carried outmarket research in these areas, but it is believed that state enterprises givesome priority to COBENAM in terms of recommending that some portion of theirpurchases be shipped by the Benin-flag carrier. Malt imports for the LaBeninoise brewery (state-owned), for instance, are a large import cargo forCOBENAM. Since most goods are ordered on c.i.f. terms, the shipping decisionis generally made in Europe, and COBENAM depends upon its overseas agents tosecure freight bookings. For private Beninese buyers and others (importingcigarettes, for example), COBENAM has no specially privileged position, andmust rely on its service and reputation to attract customers.

154. With reference tothe UNCTAD Liner Shipping Code, which has introduceda concept of 40:40:20 cargo reservation (40 percent for the vessels of eachtrading nation partner, with 20 percent for third-flag "cross/traders"),COBENAM exceeds its share of Benin's exports. It carries only about half ofits theoretical 40 percent share of imports, which is the heavy leg of thetrade. COBENAM does not directly participate in any cross/tradingactivities. That is, it does not call at any other African ports, with theexception of occasional cocoa loadings at Lome and Abidjan northbound.

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155. COBENAM has recently entered into a slot charter arrangement with theprivate Ivorian shipping line, SIVOMAR. This agreement extends COBENAM'sreach to the Mediterranean, which it does not serve directly, via SIVOMAR'svessels. This type of arrangement provides COBENAM with a portion of therevenue from freight which it cannot carry presently itself, and gives thepartner a preferred position in handling some of Benin's imports. COBENAM isseeking similar slot charter arrangements with lines serving the Far East, theU.K., and the U.S./Canada.

Management and Personnel Situation

156. COBENAM's management has been quite successful (until the recentworldwide downturn) in the complex world of liner shipping. This isparticularly remarkable given the absence of any technical assistance since1976. However, current porblems have prompted the general manager of the firmto request management strengthening in several areas. These include:

- Assistance to develop a chartering capability and to investigateother shipping services that might be offered;

- Assistance in developing a management information system to tracklhe containers that are increasingly being carried;

- Assistance in strengthening the voyage accounting system; and

- A marine superintendent to provide technical oversight of vesselmaintenance and crew training activities.

157. Training of merchant seamen has progressed well. Out of the crew of25 persons aboard the M/S Ganvie (the only Benin-flag vessel), 23 areBeninese. A Benin national will soon be qualified as chief engineer, andeventually the master will be a Beninese as well. The seamen were initiallytrained at the merchant marine school in Abidjan, and afterwards at sea onAlgerian ships.

Financial Situation

158. COBENAM's financial situation was quite positive through fiscal year1980-81. At that time, the company was profitable, enjoyed strong cash flow,a substantial net working capital, and new worth of over CFAF 600 million (seeTable 2). Revenues had reached CFAF 2.9 billion in 1980-81, reflecting a tenpercent volume increase over the previous year and higher freight rates aswell (see Table 1D). Return on equity had ranged between 5 and 15 percent.Personnel costs as a proportion of sales were falling, as were accountsreceivable over sales. This indicated good cost control and collectionefforts.

159. The past year has witnessed developments which reversed COBENAM'sfinancial fortunes. The untimely addition of a third chartered vessel to thefleet in May 1982 coincided with a sharp drop in southbound tonnage, resultingin the additional vessel sailing almost empty. Northbound cargos were verylow as well. In the fall of 1982, the owned vessel was drydocked in Antwerpand repair costs of over CFAF 100 million were incurred. Exchange ratefluctuations also hurt, as dollar and deutschmark-denominated costs increased

- 1 09 -

without compensating revenue increases. While sales totaled CFAF 4 billion in1981-82, a loss after tax of CFAF 250 million was recorded. Results for theinterim fiscal period (July-December 1981) are expected to be even worse.Thus, the net worth of the company may have bee almost entirely eliminated.COBENAM has so far had sufficient cash flow, however, and has not had recourseto short/term bank borrowing.

Commentary

160. Th-Ls rapid change in COBENAM's fortunes indicates the need for a verystrong equity base in shipping. COBENAM's initial equity of CFAF 500 millionwas substantial compared to many of the public enterprises, but shipping is arisky and highly cyclical business. Further equity contributions may beneeded.

161. The importance of timing is also noted. Despite the flexibilityinherent in operating chartered tonnage, the decision to add a vessel for sixmonths in 1982 probably had a negative impact of several hundred million CFAFon the financial results.

162. The downturn in southbound traffic also provides evidence of theimportance of Nigeria-destined cargo; market research would enable this cargoto be identified and assigned a higher degree of risk than, say government-generated cargos.

Plans for Expansion

163. COBENAM has been planning for some time the purchase of a new vesselof approximately 6,000 DWT. Technical specifications were drawn up withAlgerian assistance, and bids have been received from shipyards andevaluated. A feasibility study has been prepared by COBENAM and revised inconjunction with the BBD.

164. Preliminary review of the feasibility study indicates that purchaseof a new vesisel might not be as attractive financially as maintaining theexisting chartered tonnage. The timing is questionable given the currentweakness in the marketplace and COBENAM's current lack of financialresources. Ideally, investment decisions of this magnitude (CFAF 4 to 5billion) should be based on a thorough business strategy analysis.

Recommendations

165. COBENAM has suffered a recent downturn in its fortunes. However, itis a relatively well-managed public enterprise that has enjoyed a reasonablemarket share and is continuing to generate cash flow even in a very difficultenvironment. Technical assistance would be useful at present to strengthenmanagment capability in the face of a demanding economic situation and newtechnology (containerization). Both technical assistance and eventuallyfinancial support for new investments could be provided under a possible IDA-financed public enterprises project.

166. It is recommended that the precise rehabilitation and assistanceneeds of COBENAM be developed in the context of an overall business strategystudy. Such a study should include an analysis of the external environment

- l1 0 -

(regulatory situation, economic conditions, market reserach and competitiveanalysis), the internal capabilities of COBENAM (objectives, organization,personnel, operations, marketing, cost analysis, finance and accounting), andthe development of a rehabilitation plan. The rehabilitation plan shouldassess both the Government's and COBENAM's strategic objectives, analyze theoptions available, and recommend preferred options. Necessary resources andconditions should be specified as well.

- ill -

Table 1

COBENAM TRAFFIC, MARKET SHARE AND FREIGHT RATES

1975-1981

A. COBENAM Traffic (cargo carried in metric tons)

Year Import Export Total

1975 4,094 8,247 12,3411976 17,831 24,702 42,5331977 20,185 20,586 40,7711978 28,974 10,739 39,7131979 38,429 21,617 60,0461980 35,979 25,703 61,6821981 49,122 17,054 66,176

B. Total Liner Traffic North Continent/Benin (COWAC) (metric tons)


1977 210,3991978 171,174 22,306 193,4801979 154,364 35,006 189,3701980 177,982 55,126 233,108

C. COBENAM Share of COWAC Traffic, %


1977 - - 19.41978 16.9 48.1 20.51979 24.9 61.8 31.71980 20.2 46.6 26.5

D. Average Freight Rates Obtained by COBENAM

Average Freight-Revenues (million CFAF)- ----Tonnage Carried---- Revenue Obtained

CFAF perFiscal Year per Year per Vessel per Year per Vessel metric ton

1977-1978 894.7 298.2 41,000 13,666 21,8201978-1979 1,223.9 408.0 58,000 19,333 21,1001979-1980 2,012.2 670.7 50,000 16,666 40,2401980-1981 2,485.0 828.3 55,000 18,333 45,180

Source: COBENAM, Dossier Acquisition d'un Navire, February-March 1982.

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Table 2

COBENAMSUMMARY FINANCIAL DATA


1978/79 1979/80 1980/81

-------------------------------------- Income Statement -------------------------------------

Sales 1,538 2,397 2,908Purchases n.a. n.a. n.a.Change in Stocks n.a. n.a. n.a.uross Margin n.a. n.a. n.a.

Operating Costs, of which: n.a. n.a. n.a.Personnel 148 163 187Financial 54 48 40Depreciation 90 91 83Duties and Taxes 46 133 110Uperating Profits n.a. n.a. n.a.

Exceptional Profits/Losses n.a. n.a. n.a.Taxes n.a. n.a. n.m.Net Profit 31 93 55

---------------------------------------- Balance Sheet --------------------------------------

Liquid Assets 190 196 363Accounts Receivable 1,209 1,492 1,450Inventory 5 1 1Fixed Assets 720 647 111Other 64 104 572

Total 2,188 2,440 2,497

Short-Term Debt/Liabilities 1,178 1,319 1,400Long-Term Debt a/ 394 338 281Capital and Reserves 542 586 594Results of Current Period 31 93 55Total b/ 2,079 2,347 2,442

…____--------------------------- Financial Indicators -----------------------------------

Cash Flow 121 184 13BCash Flow net ofFinancial Charges 175 232 178

Net Working Capital 226 370 414

Profit Margin, $ 2.0 3.9 1.9Return on Equity, % 5.6 14.7 8.8

Purchases/Sales, % n.a. n.a. n.a.Personnel/Sales, % 9.6 6.8 6.4Acets. Receivable/Sales,

months 9.4 7.5 6.0Inventory/Sales, months 0.0 0.0 0.0


a/ Computed from terms of BBD credit.b/ Figures supplied by COBENAM do not match total assets.

Source: Analysis of COENAM data.

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SONAE

Background

167. The Societe Nationale d'Equipement (SONAE), which presently employs150 people, was founded as a state-owned company in 1975 to enable thegovernment to better control the importation and distribution of capitalgoods, vehicles and civil work equipment. However, the Beninese Governmentdid not grant SONAE any monopoly privilege.

Business Lines and Performance

168. SONAE imports and distributes cars and trucks from Renault-Saviem andNissan, and civil work equipment manufactured by Komatsu. Cars and trucksamount to 6C)% of total sales, with the balance resulting from spare parts andservice charges.

169. SONAE has managed to control about 35% of the small car market, buthas to contend with very keen competition from private companies (whichdistribute Peugeot, Mercedes, Caterpillar, Massey/Ferguson, etc.) in the largecar, truck, and heavy equipment product lines.

170. With a turnover of CFAF 3 billion, SONAE has had an average netprofit of CFAF 50 million in the last three years. This is a mediocreperformance (profit equals 1.6% of sales) given the free price policy underwhich SONAE operates.

Main Problems

171. One of SONAE's major problems is the absence of modern garage.Negotiations have been going on for quite some time to buy the garage ofSGACI, a bankrupt private company which closed in 1976. The cost would bearound CFAF 200 million (equipment excluded) while construction of newpremises would cost more than CFAF 400 million

172. Staffing has also been an issue for SONAE. The company is short ofqualified sales managers. For the technical department, an expatriatemechanic was recruited two years ago. He has strengthened the maintenancedivision but problems remain in the workshop as well as at the customers'level.

173. Finance charges paid by SONAE have been too high (9.2% and 6.3% ofsales in 1980 and 1981 respectively) and are largely responsible for thecompany's lolw profitability. These financial charges result mostly from shortterm borrowing (suppliers' credit to a large extent) necessary to finance CFAF1.0 and 2.5 billion of stocks and receivables respectively. The receivables,which amount to 83% of annual sales, reflect the long delays of payment fromcentral government and other public entities.

Prospects and Recommendations

174. SONAE's prospects will depend on its capability to provide good back-up services in a modern garage and to reduce the level of credit it extends toits customers. For the time being, SONAE's performance is too mediocre to besatisfactory.

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175. The mission believes that IDA financial assistance to SONAE is notadvisable nor necessary. Nevertheless, SONAE should be listed among publicenterprises to be formally reviewed. SONAE's original purpose of establishinggovernment control over capital goods imports is highly questionable. On theother hand, the company could be maintained if its performance can beimproved. This could be achieved by opening the company's capital to one ortwo suppliers who could bring their expertise for better back-up services,finance part of a modern garage, and eventually offer better credit conditionsto SONAE.

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SONAE

Summary financial Data

(in millions of CFAF)

Fiscal year July 1 - June 30

1978/79 1979/80 1980/81

From Income statement

Sales 2.876 3.587 3.029

Financial charges 58 387 191

Operating Profit 121 97 122

Net profit 62 35 46

From Balance sheet

Accouni: receivable 2.044 2.889 2.494

Inventory 443 505 1.036

Short-term liabilities 2.144 2.973 2.979

Long-term liabilities 99 111

Fixed assets (net) 99 112 111

Capital and Reserves 405 *478 534

Net working capital>- 306 465 534

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CIB

Background

176. CIB (Ceramique Industrielle du Benin) is a mixed-economy firm thatproduces tiles, sanitary fixtures, and decorative ceramic items. Theenterprise was created in 1974 as the successor to the Societe Nationale deCeramique formed in 1969. Stock is held 80 percent by the government and 20percent by a West German company, AGROB Anlagembau GMBH. CIB is supervised bythe Ministry of Industry.

Business Lines

177. CIB's factory is located in Cotonou's industrial area near theport. Production began in mid-1976. Originally, imported clay and othermaterials were used, but at present virtually all the clay is supplieddomestically. There are two separate production lines, one for tiles and theother for sanitary fixtures (sinks and toilets). The factory also producessmall ceramic items such as ashtrays, vases, beer mugs, etc.

Problems

178. CIB has experienced numerous difficulties over the past six yearswhich have led to a recent decision to liquidate the company. Productionproblems, linked to deficient equipment, have continually affected the volumeand quality of output. Despite the fact that local demand for wall tiles hasbeen very strong, inadequate production has led to negative financial results.

Technical

179. A major technical problem has been that the kiln heats unevenly,resulting in warped tiles of varying color, and often requiring a secondfiring for a portion of the tiles. This is partly due to the problems withthe electric resistor elements (heating coils), which break frequently. Theelectric kiln is also very expensive to operate, and was originally supposedto have been an oil-fired tunnel kiln. The original tile presses did notdevelop enough pressure to product floor tiles, so that a new press had to beinstalled. The sanitary items, built to a German design, did not always matchthe plumbing hardware available on the local market. Finally, the productionline moves very slowly due to deficient equipment at various stages.

Relationship with the Foreign Partner

180. CIB sells its output at the factory and enjoys an excess demand forits wall and floor tiles. The Benin market for tiles is estimated at 250,000m2/year for wall tiles and 60,000 m2/year for floor tiles. CIB's productionin 1980 was only 10,000 m2 of wall tiles, or 4 percent of the marketsegment. Though the quality is not high, the prices appear to beattractive. Imports from overseas meet the remaining demand; no imports fromNigeria have been noted. The market for sanitary items does not appear asrobust, and CIB had to lower its prices in 1979 to meet competition fromimports.

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Management

181. Production management and planning have been weak. The CIB workforceof 60 persons is drawn from ceramic artisans, who have not been molded into anindustrial production team. This lack of a suitable production-line pace ofactivity and of adequate production planning has hindered CIB's operations.The staff has been kept on even though production has never exceeded 10 to 20percent of capacity. The most recent three-year financial forecast, which issent to the Council of Ministers, indicates plans for CFAF 210 million insales when the latest accounts show sales of CFAF 29 million. This sort ofunrealistic planning cannot assist a rational management of the enterprise.

Financial

182. CIB is financially insolvent, with negative cash flow, negativeworking capital, and a negative net worth (see Table 1). Although the latestfinancial statement available is for fiscal year 1980, even by that pointcumulative losses had reached CFAF 470 million, considerably more than theoriginal equity (CFAF 118 million) contributed by the government. CIB hasdefaulted on loans from BBD and BCB, and has paid no dividends or income taxesin recent years (it was exonerated from taxes during 1977-79 under Regime B ofthe Investment Code). Preliminary results for the 1981 fiscal year suggestanother loEIs of some CFAF 160 million, despite increased sales.

Rehabilitation

183. The CIB is in judicial liquidation and the Government plans torestart operations in a different manner. The market value of fixed assets(using a recent government assessment of current equipment value) was aboutCFAF 230 million as of June 1980, or about 56% of book value. Assumingcontinued losses since then, the firm's liquidation value might stand at aboutnegative CFAF 750 million in June 1982. This is the most approximate loss tobe taken into account in designing a rehabilitation program.

184. New investments would then be required to make CIB operational on asound basis. A mission by the German ceramic company ENCON of Hamburg (whoare suppliers themselves) in late 1981 estimated total investments necessaryat CFAF 750 million.

Recommendations

185. The government has properly recognized CIB's problems and is takingsteps to restructure the operation on a firmer footing. The mission offersthe following observations:

- By all indications, a large local market for tiles exists. Giventhat the clay and other materials (nine minerals in all) exist ingood quality in Benin, it makes sense to operate a ceramic factoryof some sort.

- A consultant should be sought to provide an independent assessmentof several rehabilitation options. Specifically, the viability ofa low-cost rehabilitation should be compared with the expectedbenefit/cost relationship of a major investment program.

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- Some management assistance appears to be needed in the organizingof the factory's plans and procedures. Ideally, a foreign partnerwith directly relevant experience can be found who will participatein the management and financing of the new enterprise.

-s 119 -

Table I

CIBSUW4ARY FINANCIAL DATA

(in millions of CFA frwcs)

Fiscal Year (July 1-Jue 30)1980

- -- ----------- Income Statement--------- …-_-_-----

Sales 29.1Purchases 24.5Chwnqe in Stocks -2.1

Gross argin 2.5

Operating Costs, of aiich: 167.2Personnel 26.8Financial 44.2Depreciation 71.7Duties & Taxes 1.8

Operating Profits -164.7

Exceptionel Profits/Loose -1.5Taxes 0.6

Net Profit -166.9

-------------------- B lace Sh t---- ----------

Liquid Assets 0.5Accounts Receivable 11.0Inventory 52.7Fixed Assets 417.5

Total 418.7

Short-Term Bonk Debt 51.3Other Short-Term Liabilities 256.7Long Term Debt 497.3Capital and Reserves -156.7Results of Current Period -166.9

Total 481.7

-…-----------------Finaicial Indices…----------------

Cash Flow -95.2Cash Flow net of Finwncial Charges -51.0Net Working Capital -245.8

Profit Margin, t -5?3.5Return on Equity, S __

Purchases/Sales, % 91.4Personnel/Sales, S 92.1AcCts. Receivable/Sales, months 4.5Inventory/Saies, months 21.7

Current Ratio 0.21Acid Test Ratio 0.04

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TRANS-BENIN

186. Trans-Benin is a mixed-economy trucking company created in 1977,which began operations in September 1979. Initial capital was fixed at CFAF300 million, to be subscribed 49% by the state and 51% by a group of privateBeninese truckers. To date, only CFAF 103 million have been paid in, as theprivate truckers declined to contribute their full share. The objective ofthe company is to haul freight by road, particularly between Benin andneighboring countries. This objective is to be extended to passengertransportation as well.

Early Development

187. Trans-Benin was planned to take advantage of the considerable trucktraffic to Nigeria from the port of Cotonou. This Nigerian traffic, which hadformed the basis for the initial feasibility study, dropped sharply just afterthe company's creation. According to Trans-Benin, this traffic fell from213,000 tons in 1977 to only 6,000 tons by 1979. This occurrence severelydamaged Trans Benin's prospects.

188. An unusual aspect of the company's formation is the reliance on alarge group of private truckers to provide a majority of the equityrequired. It is not clear how this was arranged, but Trans-Benin managershave explained that this participation was reticent at best, and that theprivate shareholders have not taken any interest in Trans-Benin's fortunessince its establishment.

Present Situation and Ma.jor Problems

189. Trans-Benin is in a deplorable situation, with negative cash flow,negative net working capital, and negative net worth. Many of its vehiclesare inoperative, it has no workshop facilities, and its revenues do not comeclose to meeting expenses. Trans-Benin operates in a highly competitiveenvironment dominated by small, entrepreneurial private truckers whose capitaland operating costs are much lower. The management's proposals to help thefirm survive appear to be based upon the introduction of non-competitivemeasures which would reserve certain freight for Trans-Benin at remunerativerates. These measures are not necessarily in the best interest of Benineseconsumers of trucking services.

Technical Problems

190. The initial fleet deployed in 1979 was as follows:

- 10 Berliet tractors, 30 ton load- 10 Berliet trucks, 19 ton load- 5 Umberto semi-trailers, 25 ton load- 8 Fruehauf semi-trailers, 30 ton load

At present, the fleet condition is as follows;

- 4 out of 10 tractors operating- 5 out of 10 trucks operating- 6 out of 13 semi-trailers operating.

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191. This situation is due to a lack of maintenance, aggravated by thelack of a Berliet service agent in Cotonou which entails trips to Nigeria orTogo for any purchase of spare parts. In addition, Trans-Benin does not havea workshop cf its own, and all repairs are conducted in the open air whichrenders maintenance activities inefficient. The inability to establish aworkshop is in turn largely the result of initial financial difficulties withequipment financing, which did not leave sufficient funds available.

Financial Difficulties

192. Trans-Benin's financial problems surfaced very early on. Theshareholders were apparently unwilling to contribute more than about a thirdof the agreed-upon equity. Once the Nigerian traffic plummeted, the plannedsuppliers credit fell through as well. However, the company purchased itsequipment through a three-year bridge loan of CFAF 250 million from one of theBenin state-owned banks. Only the first principal repayment (May 1980) ofCFAF 42 million has been met. This first repayment exhausted the company'sworking capital.

193. The company has never enjoyed a profitable year, and this reflects afundamental imbalance between revenues and costs. Table 1 presents summaryfinancial data, and indicates that operating suppliers (fuel, tires, and spareparts) plus personnel costs have ranged from 60 to 130 percent of sales.Thus, aside from the capital cost elements of depreciation and financingcharges, there appears to be little potential for profitability from theoperations as presently structured.

194. Trans-Benin recorded a current ratio of 0.2 as of June 1982, and networking capital of negative CFAF 124 million. A negative cash flow of CFAF 48million was reported for the 1981-82 year. Net worth stood at negative CFAF263 million.

Pricing Problems

195. Pricing is characterized by intense competition by numerous small andlarge operators. Although trucking tariffs are officially set at a level ofCFAF 31 per ton-km, these rates are not respected and private truckers oftenaccept 15 francs. The public enterprises take the lowest-price transport withno preference for Trans-Benin. For instance, the official cement pricestructure is based on a 31 franc transport cost, but Trans-Benin is actuallyreceiving only 17 francs to haul cement to the northern part of the country.This freight was obtained partly because the private truckers do not care totransit the rough roads to Natitingou. At present, Trans-Benin does not havedifficulty in securing freights, although the rates are low.

196. The cost structure of private truckers is undoubtedly lower than thatof Trans-Benin. Private truckers may obtain their vehicles on the unofficialmarket, do not pay social charges for their employees, and do not necessarilypay any taxes. There are also under-the-table rebates paid to obtainfreight. Trans Benin, as a public enterprise, is constrained to operateabove-board and hence with higher costs and more difficult marketing.

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197. Trans-Benin's management suggests that a possible solution is theestablishment of a freight bureau which would allocate freight to registered,regulated carriers. The concept of a national freight bureau has apparentlybeen accepted in principle, but the government has not yet found anappropriate agency to manage the bureau, having rejected the proposals of theOCBN and Trans-Benin to fulfill this role. Such freight bureaus apparentlyexist in Ivory Coast and elsewhere.

Management Problems

198. Trans-Benin's managers encountered in the mission's 1982 and 1983visits do not appear to have had any commercial experience in trucking. Theyhave come from backgrounds in the civil service, either in Public Works orelsewhere. They do not appear to have been well-prepared to deal with theharsh competitive realities of the trucking world. The managers' key effortat present appears to be toward obtaining some protection from the competitionthrough the establishment of a freight bureau which would favor Trans-Benin.However, it should be noted that Trans-Benin prepared a cogent summary oftheir present difficulties for the mission and that up-to-date accounts weremade available.

Recommendations

199. The government's Commission des Bilans apparently recommended thatTrans-Benin be closed. However, this recommendation was overturned and thechosen solution appears so far to lie with regulatory protection of TransBenin and its expansion into long-distance passenger transport which might bemore lucrative than the present freight operations.

200. In the mission's opinion, it would not be advisable to create anyregulatory structure which would result in less competition and potentiallyhigher rates. Our experience is that trucking is a highly competitiveindustry in most developing countries, and that rates have fallen in developedcountries (such as the United States) which have dismantled their regulatoryframeworks. The preservation of a high-cost operator, even if it hasbenefited from government equity, should not dictate the policy approachtoward the subsector.

201. The continued existence of Trans-Benin deserves a thorough review.Its operations have been quite unprofitable, and it is questionable whetherfurther investments would improve the situation. To this end, the missionrecommends that a study be conducted of Trans-Benin with a view toward makingrecommendations as to its future. This study should include the followingelements:

- Review of equipment suitability, condition, and maintenance;- Analysis of utilization, rates obtained, and cost structure;- Analysis of the trucking market, both national and regional;- Review of Trans-Benin's competitors in the trucking subsector;- Review of alternative opportunities for Trans-Benin;- Recommendation of a rehabilitation, reorganization or closing planfor Trans-Benin;

- Recommendations concerning appropriate national policy for thetrucking subsector.

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Table 1

T'RANS BENINSllMhAkY FINANCIAL DATA


1979/80 1980/81 1981/82

- - - - - - - - - - - - - - - Income Statement - - - - - - - - - - - - - - -

Sales 67 145 102Purchases (fuel, tires, spare parts) 34 52 56Changes in Stocks 5 1 1

Gross Margin 38 94 45

Operating Costs, of which: 169 193 184Personnel 53 34 41Financial 15 12 17Depreciation 58 134 104Dutie3 and Taxes 10 5 3Other 33 35 19

Operating Profit -131 - 96 -139

Exceptional Profit/LoS3 0 0 -13Taxes 0 1 0

Net Profit -131 - 97 -152

- - - - - - - - - - - - - - - - Balance Sheet - - - - - - - - - - - - - _

Liquid Assetsl 4 4 7Accounts Receivable 7 35 19Inventory 5 6 7Fixed Assets 262 173 69

Total 27B 218 102

Short-Term Debt 91 124 157Long-Term Debt 203 238 208Capital and Reserveal la - 17 -111Results of Current Period -131 - 97 -152

Total 278 218 102

- - - - - - - - - - - - - - - Financial Indices - - - - - - - - - - - - -

Cash Flow - 73 7 - 48Cash Flow net of financial charges - 58 19 - 31Net Working Capital - 75 - 79 -124Net Worth - 21 -114 -263Profit Margin, X (loss) (loss) (loss)Return on Equity, X n.a. n.a. n.a.

Purchase/Sales, X 50.7 35.9 54.9Personnel/Sales, X 79.1 23.4 40.2Accounts Receivable/Sales, months 1.3 2.9 2.2Inventory/Sales, months 0.1 0.5 0.8


lExcludes CFAF 197.5 million of "non-called shareholder capital."

Source: Analysis of TRANS BENIN accounts, 1979/80 to 1981/82.

Documents

Report No. 4686-BEN Public Disclosure Authorized Country ...documents.worldbank.org/curated/en/175091468208735243/pdf/multi... · Country Economic Memorandum (In Four Volumes)