Document of The World Bank RETURN -I*o MOS DESK Odw flU!WWfW AT W Tt'' #1LTT BT 11... fIVA U.rr1iUL, Uar, %J1Il vh HI Renort No. 1750 PROJECT PERFORMANCE AUDIT REPORT THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK (LOANS 588-UNI and 705-UNI) October 10, 1977 Operations Evaluation Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Document of
The World Bank RETURN -I*oMOS DESK
Odw flU!WWfW AT W Tt'' #1LTT BT 11...
fIVA U.rr1iUL, Uar, %J1Il vh HI
Renort No. 1750
PROJECT PERFORMANCE AUDIT REPORT
THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK
(LOANS 588-UNI and 705-UNI)
October 10, 1977
Operations Evaluation Department
This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.
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PROJECT PERFORMANCE AUDIT REPORT FOR OFCIAL USE ONLY
THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK
(LOANS 588-UNI and 705-UNI)
TABLE OF CONTENTS
Page No.
Preface
Basic Data Sheet
Highlights
PRUJECT PERFRUMANCE AUDIT MEMURANDUM 1
Sub-projects Financed and Overall Operations 1 - 2
Roe n Capi4tal Market9
Institution-building Objectives 3
Conclusions
Annex I
.L. .IntrouctL.Lon4 A. .1
II. The Environment A.1
The Economy A.1
The Industrial Sector A.1 - A.2
fovernmentis Industrial Plan anu rollces.
III. Financial Institutions A.4
Stock Exchange A.4
Merchant Banking A.4 - A.5
Commercial Banks A.5
Regional Development Finance Institutions A.5
State Investment Companies A.5
Nigerian Bank for Commerce and Industry (NBCI) A.6
This document has a restricted distribution and may be used by recipients only in the performanceof their official duties Its enntqmts may not nihorwicq ha AsOA-A . . ur^AD .. auth iti.. on.**z -**- A ru-W sW sW- . sa W U11 LHUIIl.LIUll. I
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Ownership and Share Capital A.6
Board A.6 - A.7
Management and Staff A.7
Turnover A.7
Policies A.8
Procedures A.8 - A.9
ICON Limited A.9 A.10
V. Operations, Resources, and Financial Condition A.LU
The Bank approved two loans, Loan 588-UNI for US$6 million andLoan 705-UNI for US$10 million (of which US$3.8 million was later can-
celled), in two successive years, 1969 and 1970, to the Nigerian Indus-trial Development Bank Ltd., a DFC which the Bank Group had activelyhelped to promote in 1964.
The audit memorandum is based on the attached Project Comple-
tion Report prepared by the DFC Department, on research of relevant files
and discussions with the Bank staff. The memorandum supplements the PCRcomment on the achievement of the obiectives and exnrtations of the Bank
under the two loans.
PROJECT PERFORMANCE AUDIT REPORT
THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK
(LOANS 588-UNI and 705-UNI)
BASIC DATA SHEET
Amounts (in US$ mln)
As of 8/31/77
Original Disbursed Cancelled Repaid Outstanding
Loan 50o-UNI 6.0 5.7 .3 5.0 .7
Loan 705-UNI 10.0 6.2 3.8 2.8 1-4
Proj ect Data
Original Plan Actual or Estimated Actual
T oan_ rOaO T--- -7tC T-- 0O T-- aIULL-UU jUCLL- I UJ iULanJU LU1 I UJ
oat I 1 10/ 0ra JUly 4it//
Loan Agreement March 5/69 Aug. 25/70
Effectiveness May 29/69 Feb. 26/71
Loan Closing December 1972 March 31, 1974 Dec. 31/72 Oct. 31/75
Mission Data
Month, Year No. of Date of ReportLoan-588 Loan-705 Persons Manweeks Loan-588 Loan-705
Supervision I 4/03/72 4/03/72 3 3.5
Supervision II 6/10/73 6/10/73 3 3.5 11/15/73 11/15/73
Supervision III 6/23/75 6/23/75 1 2.5 9/05/75 9/05/75
PROJECT PERFORMANCE AUDIT REPORT
THE NIGERIAfl INDUSTRIAL DEVELOPMENT BANK
(LOANS 588-UNI and 705-UNI)
HIGHLIGHTS
This is an audit of performance under two loans, Loans 588-UNIand 705-UNI. to the Nigerian Industrial Develonment Bank Limited
approved in 1969 and 1970 respectively. No successor loans wereapnroved to NIDB.
The main findiingy of the audrit reornt is that despite. the
difficult political situation, NIDB's performance, as measured by thescale~~...o was appovls ndtheof4:- 4-
The Bank also reached the institutional objectives of strengthening theappraisal caabili1ty of NMTB.
the capital market (paras. 8-10 in the PPAM and paras. 4.15, 4.16, 5.05a1 A C J U C . I-, 1Drn/~Lu .J v Li Li LIL I 111x/
PROJECT PERFORMANCE AUDIT MEMORANDUM
THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK
(LOANS 588-UNI and 705-UNI)
1. The Nigerian Tndustrial Development Bank Limited (NIDB) was set
up in 1964 by reorganizing the Investment Company of Nigeria, a privateinQtiti-n Th- -qn -rin wnz rt-ivl- v q niqr- -with NTDR frnm it
inception, with IFC making an investment of US$1.4 million (25% of equity)in NTDR. NTDR. Articles laid dorn nnlit-iaa ne innaQtmant rrit,-rin normal
to Bank-associated DFCs.
2. The main objectives of the two Bank loans were to meet the gap
capabilities. Under the first loan (Loan 588-UNI) for US$6 million,approuveu 1n 1MaLch LA69, tLe ------- clg elo wn onai ag eclu u~JjJ i.JVCU Li ii~LLAL £LtU' 1LC1.1 t=11CiiJLLCL0.L0 WC10 VLL OLLC1~LLL"CLI.LLL6 ULLIC
appraisal capability and improving the staff and organizational structure
0 ViLDe 111 17/U NIDD s IHELICleS WIXn lIIQrtueU LU Alrtuce wLL IlU enter iLntofina-icing of hotels and related enterprises, to provide for limits onfinance to a single group, and to enable it to provide finance to publicly-
owned enterprises. Under the second loan (Loan 705-UNI) for US$10 million,approved in August, 17/0, the emphasis was on improving the economic assess-
ment in NIDB appraisals, diversifying its operations (particularly awayfrom textiles), and encouraging financing of enterprises other than those
controlled by foreign ftrms or a single group. The free limit under
Loan 588-UNI was US$100,000 and under Loan 705-UNI US$UU,00
3. Given the short time iaterval between the two Bank loans and the
fact that they were the first two to the institution, the Bank objectives
and expectations relating to them were restricted to building up NIDB as
a DFC with good appraisal and follow-up capability on the basis of accept-able financing criteria. The audit report evaluates the performance ofNIDB in the light of these objectives and expectations.
Sub-projects Financed and Overall Operations
4. In many respects, particularly the average size of the loans anddiversification of operations, NIDB's use of funds under the second Bankloan showed considerable improvement over that under the first. The average
size of sub-loan under Loan 705-UNI (US$263,000) was smaller than that underLoan 588-UNI (US$450,000). Moreover, the size-wise distribution of sub-loans under the second loan was less skewed than under the first: sub-loans
above US$500,000 numbered 5 under Loan 588-UNI and 3 under Loan 705-UNI, andformed 71.7% of funds made available under Loan 588-UNI and 41.5% under Loan705-UNI: sub-loans below US$100,000 were 3 (3.6%) under Loan 588-UNI and 10(7.9%) under Loan 705-UNI. Projects under the second loan were more diver-
sified industrially and more broadly distributed geographically.
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5. The nronortion of Nigerian-controlled comnanies in annual annrovalsincreased from 14.3% in 1969 to 69.8% in 1974 (para. 5.09), thus meeting asnPrific onnrprn nf the (ovPrnmPnt nlqn P-nrAQPd in the Rank anprnianl of
the second loan. Moreover, actual approvals substantially exceeded projectedap.prov Ta IS ov er t he 6y ear p er ion-d, 196 to 194 ben --- , million ($9.
million) against N30.6 million (US$50.2 million) projected. This was partly
Disbursements, however, showed a considerable lag, being marginally lower~bZJ. 11k . LIIL ctat a. CI LA I Lt '1±. I . .UJ.LJILJ/ -L-L CLIC P j9.LLJJ Ct. LCU teVC.
(N26.1 million, equivalent to US$42.8 million) over the 6-year period.
6. As presented (Annex 11), actual net profit of NIDB was higher thanprojecteU durUg Le ist Ltee years, 177 to 71,i and (after making muchlarger provisions for losses) lower during the three years, 1972 to 1974.aharp inureases in salaries and other administrative expenses in 1iJ analater years were mainly responsible for the poorer profit performance inthese years. NIDB's net profit improved in 975, the last full year of IFCinvestment in NIDB (Annex I to this Memorandum).
7. The period under review was a difficult period for NIDB. Thehostilities arising out of the separatist movement and their aftermathjeopardized NIDB's investments in the eastern region, and had an adversebearing on the investment climate throughout Nigeria. The quality of NIDB'sportfolio was affected by the political situation, with some of the projectsbeing Located in the eastern sector. Arrears, both on principal and oninterest account, were, therefore, substantial (para. 5.04 of the PCR).Moreover, the high liquidity of the commercial banks led to increased com-petition for NIDB. Despite this environment, the operations and financialperformance of NIDB showed an improvement in trends over the levels pro-jected in the appraisals. As the Government was able to provide resourcesto NIDB at low cost, an amount of US$3.8 million was cancelled under Loan705-UNI.
Role in Capital Market
8. NIDB played a significant role in developing the capital marketboth through its own operations and through its stock-dealing subsidiary,ICON Ltd. The proportion of equity holdings in its total portfolio waslarge when it approached the Bank for funds in 1969, and the average returnon such holdings was low. During the period under review, the share ofequity operations in its total operations declined, reflecting partly theadverse investment climate in the country. On the other hand. the averagereturn on its portfolio improved; the yield on the average equity port-folio was 6.8% in 1973 ar.d 6.3% in 1974- much hicher than LA% in 1972-
9.The- mnin qrt-ir- it,q nf T(.nN qi-r-ir tir,Q NT)IR I ,Q ,h 1 1 -n r -r
subsidiary, comprised underwriting, private placements and dealings insecurities. It nals rted, in turin wit the stock dealr, as brokerof the Government for its securities. As the Table in para. 3.02 of the
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PCR Shows, the share of industrial stock transactions in total security
transactions on the Lagos Stock Exchange, was small, being less than 2%durin the nrin 1970 to 1974 (Prcent for 1971 and 1972 when it was 10%
and 5% respectively). The operation of ICON Securities were affected
placement of securities to bring about Nigerian participation in foreigncompnies in 1075, ICONA SQurtes was reorganized int ICON LrrMTd. withi
participation from Morgan Guaranty, Baring Brothers and National InsuranceU%lrpoLratLin oL INigeria, ULLo undetak merant bakn actvi. 4
IU LIro-ughoUut Lte per. oU~ d L~ aLd sur.plus .. Lq'.uLL .L LL L U. 4L" L -i e firt
Bank loan was conditional upon the Nigerian Government providing to NIDB
the undisbursed portion (Na million) of a N2 million loan which the Govern-
ment had authorized to NIDB; this was done. Moreover, NIDB was assured
access to large Government funds at low interest rates unuer te ThiruNational Development Plan, 1975-80 (para. 5.03). It, therefore, did not
need to raise resources on the market.
Institution-building Objectives
11. In these first two loans, the Bank laid considerable emphasis on
institution-building objectives, particularly building up staff capabilities.
12. On the whole, these objectives were generally achieved. The
appraisal standards of NIDB, as evidenced by the Bank review of sub-projects
above the free limit, showed improvement over the period of commitment of
the two loans; the quality of NIDB's appraisal standards was such that it
was sometimes asked to provide assistance to other development finance
institutions at both national and regional levels. So also, NIDB's super-
vision capability improved during the period under review. NIDB, however,continually faced personnel shortages, particularly at middle and upper
management level, and the health of its projects was adversely affected by
outside non-economic forces over which it had no control.
13. A reorganization of NIDB was carried out in 1975, with a viewparticularly to reducing the time taken on appraisal and improving the
supervision system. Besides ensuring more efficient management, it was
intended to improve NIDB's position in the competitive situation that had
developed in industrial financing.
14. The Bank played a major role in the conception and formation of
NIDB and in laying down a basic framework for its (NIDB's) operations. It
helped NIDB in finding management personnel, and two of its officers as
advisers to help NID6 strengthen its capabilities. EDI also provided
training facilities to NIDB's staff.
15. The Bank also helped strengthen NIDB's appraisal capabilities,nartrii1,r1v thronh the wide-ranoing comments on annraisal reauirements
which it made on sub-projects -eeding its prior approval. Its supervisionefforts wore adnunate. The Bqnk' rr1.ition.hin with NTDB and the DFCsector in Nigeria ended with the second loan as NIDB obtained access to
_11ecapert GoU~vernmenflt AS.
4.-
Conclusions
16. No further loans were made to NIDB on grounds of priority as agreedbetween the Government and the Bank Group. IFC sold out its investment inNIDB ii 1976, making a capital gain of US$200,000 (arising mainly out of arevaluation of the Nigerian currency) on an initial investment of approx-imately US$1.4 million. The Bank's influence on NIDB was strongest duringthe period of the commitment of the two loans, which also was marked bypolitical difficulties. The Bank succeeded, to a large extent, in reachingits goals in respect of NIDB. NIDB's appraisal improved, and its portfoliobecame more diversified in terms of industry groups and client-ownership.
17. Considering the environment, NIDB's performance, in terms ofbuilding up its portfolio and appraisal capabilities, is consideredsatisfactory. NIDB is recognized to be the premier development financecompany in Nigeria. The Bank Group's contribution to this development issignificant.
Operations Evaluation Department
ANNEX I
Page 1
NIGERIAN INDUSTRIAL DEVELOPMENT BANK
Year ending December 31, 1975
Income
Interest and fees on loans and debentures 2,360
J.Le LU L~L~ "en rcieV.1V
Subsidiary fees and other income 180
Income from short-term deposits 164
Total Income 3,400
Expenses
Interest and commitment charges on loans 1,171
Salaries 11.206
Other administrative expenses )
Other pnpa expnses 176
Provisions for losses 294
Depreciation 55
Total Expenses 2,902
Net Profit 498
Appropriations
Dividends 202
Reserves 296
ANNEX I
Page 2'DA T'rlr nDD V nAATjV ATTnTM n VTV',AD
NIGERIAN INDUSTRIAL DEVELOPMENT RANK
Year ending December 31, 1975
ASSETS
Cash, deposits and short-term investments 6,517
Outstanding loans and debentures
- Foreign exchangeJ Tocal currency 28,152
Less Provision for doubtful loans (692)
Equity investments 7,302
Less Provision for doubtful investment (336)
Total Loans and Investments
Prelim. and Reconstruction expenses
not written off
Investment in subsidiary
Fixed Assets 4,112
(Depreciation) (286)
Total Assets 48,702
Liabilities and Equity
Current Liabilities
Di vidend-u'. pay ableC." -0
- Other current liabilities 6,620
Long-term loans
- Foreign 4,169
- iJoirLIC 1, 13.3
Share Capital 4,500
Reserves 2,001
Equity 6,501
Total Liability and Equity 48,702
PROJECT COMPLETION REPORT
THE NIGERIAN INDUSTRIAL DEVELOPMENT BANK
(LOANS 588-UNI and 705-UNI)
I. INTRODUCTION
1.01 The Nigerian Industrial Development Bank (NIDB) was set up in196 4 with the assistance of the Bank =roup by reorganizing the InvestmentCompany of Nigeria, a private institution. IFC has a 25% interest in NIDB'sordinary share capital of N4.0 million.* NIDB received its first Bank loan(Loan 588-UNI) of US $6.0 million on March 3, 1969 which became effectiveon Mby 29, 1969. By December 31, 1972 (the original closing date),US $5.7million had been disbursed, and the balance of US $0.3 million was cancelledat NIDB's request. As of May 31, 1975, US $2.9 million had been repaid andUS $2.8 million remained outstanding. Repayments have been on schedule. The loanshould be fully repaid by January 1, 1983. The second Bank loan (Loan705-UNI) of US $10.0 million was made to NIDB on Aup-ust 28. 1970 which becameeffective on February 26, 1971. By March 31, 1975 Tan extension of theoriginal closinq date which was March 31. 1970. US $6.2 million had been disbursedand the balance of US $3.7 million was cancelled by NIDB because of its recentaccess to cheanpr p,vernment funds; however. 10.1 million remains committedbutundisbursed because of an unexpired (expiration date October 31, 1975) lineof cradit for a mnhn ntt which the Bank has guaranted. As of May 31. 1975.US $0.6 million had been repaid. The second loan is expected to be aortized
S_Tvlnr 1 10A9 M-T1 nrmne2i.iai fn-r third lnAn in 1973 for whinh n TWC
appraisal mission prepared a draft report, and the DFCD strongly recommended4-1.-A. 4-U.-. n-I m_ , 4-44--t e - ~4+1k MiTT)n P-rn1 ,A neyv Aineati^-nex
between bhe Bank and the Government on priority sectors for further Bank
LendIng, a decision was made not to proceed with the loan. The las super
vision mission was carried out in May, 1973; its findings were set out in a
report Uded "novemuer 1, .
-ar, n,nwernararwawn
The Econonty
2.01 The 1974 population of Nigeria is estimated to be 80 million,growing at an average of 2.5% per annum; per capita GDP is approximazely US$228. With the moderation of crude petroleum production and the effect ofthe world-wide recession on other sectors, the Government estimates thatGDP growth rate has dropped from the 1971 high of 18.4,% per annum to 9.7%per annum for 1974. Although the dominant sector in the economy contimuedto be agriculture with over 40% of the GDP in 1973, mining and quarrying(which is dominated by petroleum) is expected to. if it has not already,displace agriculture as the greatest contributor to GDP.
The Industrial Sector
2.02 Despite the Civil War, value-added in mamfacturing grew at anaverage rant nf 10t np. nnnim hptwPn 19579 vit.h -n mn r n 1i 7t'-71 nm%.f-jpitated by suppressed consumer demand at the end of the civil war. In addi-
facturin; sactor was also able to enlarge its share of GDP slightly, fromS ce sold of v 4 P -Apa71 r
Since sold off, vide PPAM' para. 16
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2.03 Structure. Annex 1 presents a breakdown of manufacturing
in 1972. Consumer products continue to dominate with the main two sub-8secto r -P^ 1 T n"a wY% n-mvA 'knI~AJnc Al i t~
and 17%, respectively of total value-added. On the other hand, textiles
tobacco accounting for 21%. For the future, Government expects to encourageproduction of consumer durables such as automobies and capital gouuo ma.as trucks, iron and steel, and petrochemicals (para. 2.0 ).
2.04 Regional Diversification. Manufacturing continues to be inequitablydistributed in Nigeria. In Iyt1, Lagos State aicne accounted for 55% of manafacturin,value-added while the Western State accounted for another 12%. In an effortto reduce this problem, Government plans to create a model industrial estatein each of the twelve states and is considering the zoning of the countryfor industrial development, based on a resource inventory survey to be con-ducted in 1975. locations of future Federal industrial projects will alsobe reviewed by an inter-ministerial committee. The establishment of stateinvestment corporations--seven to date--should also aid in expanding regionali-zation.
2.05 Indigenization. The 1972 Nigerian Enterprises Promotion Decreewhich required 1006 Nierian control of enterprises in comnercial, transport,service, and small- to medium-scale industrial sectors, and 40% Igerian .ownerSh_n nf LIrar industrin ent-rnrisq (nvr 1 million R1les or NOOwOO
. -_ - Q--_- ---- -_- -.-- -- - --__ -- ____
in paid-up capital) by March 31, 1974 has been successful. Characteristic
tions fQr Nigerian-owned enterprises (para. 5.09,) and the fact that it is,
(para. 4.01). In fact, for 1975-80, Government intends to consolidate andnot~~ to pusli- co-Up"lsory ownership.,
2.06 investment. After the Civil War (1967-1970) investment in manu-facturing increased considerably. From the N33 million invested in 1969,the amount increased by o7' in 97U to > million' and by another 52% in 19-to N84 million. Possibly as a result of the import liberalization policy of1971 and some excess industrial capacity, the increase for 1972 was only about18% or a total of W99 million. Although national industrial investment datafor 1973 is not yet available, a survey of Lagos State indicated an increasein industrial investment for expansion and improvement to premises. The ThirdNational Development Plan (TNP - 1975-80) projects industrial investment tototal approximately N6.6 billion bet-een 1975-80, or an average of N1.3 billionper anum. The anticipated sources :.f financing are the Federal Government(66%). State Governments (M%). and .-ivate sector (30%).
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Government's industrial Plan and Policies
2.07 The uovernment launched the ISUP (1975-80) in Oarch, 1975 wit. anaggregate investment targdt of N30 billion, whict includes 10 billion anti-cipated to come from the private sector. This - . pares with the SNDP, (1970-74)target of N3 billion (actual expenditure was N$., billion). ManufacturinZ'sshare is 22% which, along with that of transport and communication, isthe highest of all the sectors.
2.08 The Plan believes that Nigeriats manufacturing sector should re-present 15-20% of GDP (versus its present 8%) if it is to be comparableto other countries at a similar economic development stage. Although itrecognizes the 15-20% range to be high, it feels that achievement of sucha range is more likely if manufacturers take greater advantage of sub-sectors such as engineering (viz., agricultural and special industrialmachinery manufacture, other machinery and euipment. electrical anliancesand transport equipment) and intermediate goods such as basic industrialchemin1s. fertilizer, and nsticidess
manufacturing sector as the following - (i) inadequate infrastructure;(ii)restrictiv indus'A,itrial policy n? d admnstrative prceurs (iii shrtgof skilled industrial manpower and relative unattractiveness of manufacturing+n Mew4n kinem4eaan. .A (4w 1 re 4sl w mn+n4io n fnk can+ 4 f
dustrial projects. The Government is taking steps to overcome such obstacles.
more active in manufacturing by opening up all sectors to them except defenseanu Curity printUg, au vy redXaing ad. lUera-141 zing some existing regula-tions and policies; it is also attempting to streamline its administrativemachinry. Second, it envisages major roles for NIDB and NBCI to stimulatemanufacturing activities by the private sector (both foreign and local) andto play an active role as a promoter and developer of sound projects that canbe realistically implemented.
1 Tncrase in Cnsnmer Price Tndaxry aa s for O 197L is eta+4m+A
at 15%; it is unofficially estimated that increase for 1975 will beinth 2-5% rage
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1L1*. 1"NANUJIAL IMTITU1TIUN6
3.01 Sixteen commercial banks and two merchant banks (with five moreabout to commence operations) now operate in Nigeria. There is also agrowing number of state and regional financial institutions, some withinvolvement in the manufacturing sector. Nigeria has a stock exchangewhich, despite its long existence, is still very much in the formativestage.
Stock Exchange
3.02 The table below summarizes the activity of the Lagos Stock Exchange(ISE) since 1970-
1970 1971 1972 1973 1974
i. Industrial stocktransactions as a %of value of totaltransations 1_9_ 10.of 5.0% 1: A 1 34
ii. Value (N'O00) 200 L60o 1 600 670 12 6
Wni no of ne P sue Wa 6 n._ 12 6.
3.03 The table shows that industrial stock transactions involving the LSEW~L ~ .LVJ±.L./I~f t4LJ.LAU _LL10.LL"L.LLC11U,L nzopJV .)4 : U A J_111Fr.UUz. UU grea-Ler
volume that the Nigerianization decree should have provided to the exchange,businessmen POund it preferable to have their stocks privately placea; in lact,it is estimated that 90% of the companies affected by the Nigerianzationvdree suld their shares privately. The major problems seem to lie in the ISE
and the Capital Issues Commission (CIC--established 1973) which is vestedwITn the responsibility of valuing shares of public companies,both quoted andunquoted. Companies wishing to undertake new issues or sell existing sharesfind little consistency in the price-setting system of the CIO and LSE; inextreme cases, it is suggested that similar companies are induced to yielddividends as varied as 13-83%, and permitted to sell at price/earnings ratiosranging between 0.95 to 6.
Merchant Banking
3.04 Two firms, ICON Ltd. and Nigerian Acceptances Ltd., currently operatein the newly emerging area of merchant banking in Nigeria, and five new companies(mostly backed by foreign banks) have received licenses to comence operation.Although not much is yet known about the prospect of merchant banking, thenew issue business--especially private placement--seems to be doing well. Theother areas of stockbroking, providing corporate financial advice, and under-taking short-to-long-term financing will depend on the LSE and CIC (para. 3.03).acceptance of merchant banks by Nigerian businesses, and the details ofa merchant banking law that is due at the end of 1975. At present,. merchant
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banks are permitted to operate generally under existing commercial bankinglaws with fewer restrictions on lending limits and spheres of activities(e.g., leasing).
Commercial Banks
3.05 Of the sixteen commercial banks in existence, nine are Nigerian-ownedand seven are foreign-owned. The "big three" are Barclays. Standard, and theUnited Bank of Africa (UBA). By the end of the first quarter of 1974, theyheld 78% of the banking system's total deposits and over 33% of the totaloutstanding commercial bank loans and advances. Forty percent of the foreign-owned banks are held by the Federal Government. Commercial banks are facinga serious problem of surplus liquidity; their liquidity ratio was 74% inMarch. 197h aLainst 60% a year earlier. The problem is earbAt_d by Govern-ment's issuance of only a limited volume of Government securities. Consequently,commercial banks are beconming Tnnrin' +.JvP in +.wrm lonriincr of upr to 7 manrmsz
3.06 Criar-AnI 'Kn1 ntl e s ratesm4m havnc knw beeTV%na- limwAted bya enrBank decree to a range of 6-9% (versus 9-12% previously) in an effort to en-
excessive profitability which, for the "big three" in 1974, ranged between~~'~L.)jYCL.%,v,& Ud.LAJ U .L IUdA 1 .L~ 17.). Int-erestvL raut0 LOU Liu pad.LU UJY
commercial banks for savings deposits have recently gone up from 3.0% p.a.t V.V% p.a., in turn, We 1os ufIce SavIngS ban was requirea to razue Itinterest payable on deposits from 4.0% to 5.0% p.a.
PAgional Development Finance Institutions
3.07 Four institutions--Comonwealth Development Corporation (CDC), theNew Nigeria Development Company (NNDC), the Northern Nigeria Investments Ltd.(NNIL), and the Development Finance Company (DFC) undertake financing inthe transport, agriculture, tourism, as well as industry, sectors. Of thefour, NNIL--which is jointly owned by CDC and NNDC (itself wholly-owned byGovernments of the six northern states)--is the only institution with sub-stantial industrial activity in3ecent years; in 1972-73, it had approved2.0 million in industrial investments.
State Investment Companies
3.08 Seven state investment companies have been recently established bystate governments in the Kano, East Central, Rivers, South Eastern, NorthEastern, Kwara, and Western States. Although they face constraints such aslimited resource allocations from state government budgets, small equity basesaveraging N2.0 million, and manpower scarcity, some--especially the one inKano state--are already quite active. These companies are undertadng -*ointventures with NIDB and, in some cases, have been receiving manpower/technicalassistance from NIDB.
Nigerian Bank for Commerce and Industry (NBCI)
3.09 Established by the Government in April, 1973, NBCI began operations4" Til 1071 v.4+Vh a v,- AA-v, abo- ,m, 4 +l ,i %+lI AD nr11-4 n m TA A
million). It is headed by Mr. Celestine Ckobi, former Controller of Banks atLAM~ -- Lu± ." 4XIII&V. _L L, .J L£.L. V V U u A U4L SJ...a."~ La~IJ ~ a...jJ..L LU.L%.J"
of foreign firms by Nigerians under the Nigerianization Decree; however, as
necessarily limited. NBCI is authorized to provide medium- to long-termloaus and equity Linance to businesSes and projects as well as to engage ilcommercial and merchant banking if it wishes. To date, it has already assembleda staff of 93 (of whom 30 are professionals) and approved 30 projects for atotal of N27.0 million (of which one hotel project accounts for N10.0 million).it has disbursed a total of X3.0 million to 10 projects thus far. Due tothe relative inexperience of its staff in project evaluations, its appraisalshave been limited in scope and depth. The bank anticipates improvement in thisarea with farther staff training and assistance from present and former staffof NIDB (one on secondment and two hired permanently). NBCI also expects toundertake more joint financing with NIDB (para. 5.02). Its resources fromGovernment are expected to be about N100 million over the TNDP period.NBCI's interest rate is at present between 6-8% p.a. (with most at 6.5%).forloans with maturities up to a maximum of 15 years. It charges a conmtmentfee of 0.5%; it assesses no appraisal fee.
IV. THE COMPANY
Ownership and Share Capital
4.01 NIDB's foreign shareholding including IFC*accounts for 74% of the
total. Following several years of deliberation over the desirability of a
fully Nigerian-owned national development finance institution, the Nigerian
Bank of Commerce and Industry (NBCI) was established in 1973 (para. 3.09).
However, as a result of NIDB's interest in enlarging its scope of operations
in the country and Government's recognition of NIDB's potential and the
Qiiffirinry of nroiects to occupy both development institutions, the Govern-
ment recently agreed to subscribe to the entire proposed NIDB share capitalof n5 us million (to a total of N10.0 million) and gave indications
of its willingness to buy the shares of those existing foreign and non-
G-vernment shareholders who wished to disnose of them.
. n aITUB's manement has aiv-,r ai -mei +.dipqese evPlnmnts with itsBoard and expects to convene a special shareholders meeting to authorize theI-.. - 4 .- 4 - - -ki -- -r- -- r n nh ATh-r+ A -np
shareholding patterns. In the interim, IFC iill be ccnsulting with ILB andthe Goverrmient befLore adopting a course i_n rega:rd to the- --. V-io of itshare capital.*
Board
4.03 Annex 2 gives details of NIDB's current Board and Executive Commrttee.Excluding two vacancies among the Glass -'Au- arecuer o.Mrer y L.Y by
* Since sold off, vide PPAM para. 16
- A. 7 -
Nigerian businessmen, five of the twelve directors are new since 1973.The Board, as constituted, is considered to be an improvement over thepast; it has been more active in seeking further project details and hasrecently sent back several nraincts with snecift Instrntions Qnt nMigetIonsfor improvement.
4.04 Half of the present fourteen Board seats are now allocated toNionyi.qns ciprnit. thep 7)A frn?,pJan sharehotding. With ,
participation in the offing, the Board composition should soon be majority,If no'niel,maera.Te ban"' K ctve Vormltt Q LIumTzllu
to authorize investments up to N500,0oo (versus N200,000 before), and theMang Dgirector 4S permited. 4-0esona3lly a:utChor-L-iZe upt__ O,OO
A LA r, Irrrl"_.I' ~4.0a Nirs curreit organization chart is shown in Annex . In Decemer,1974 its management carried out a major organizational change by dividingthe work of the lormer Operations Department into four new departments--Appraisal,Investment Supervision, Promotion and Development, and Management Services.The heads of the first two fully-staffed departments report directly to theGeneral Manager while the heads of the latter two departments which are stillbeing formed will report through the newly created Deputy General Manager posi-tion (filled by Mr. Cmo, previous head of the Operations Department). Benefitsof such a reorganization are beginning to accrue through better allocation of workand subsequent reduction in project processing time and more meaningful projectfollow-up.
4.06 NIDB's management has been able to maintain the bank's indepen-
dence while still sustaining a useful dialogue with the Government's
highest-ranking officials. As highlighted by previous Bank missions,NIDB management's greatest weakness has been its inability to administer
its staff properly with lack of inter-departmental coordination and lack
of systematic work nlanning- This situation is imoroving, especially at
the secondary departmental level with the recent reorganization, although
management will have to continue overseeina the development carefully.
Turnover
4-07 Tn vipw of Niapria's searrity of iunior and middle Pxecutives,NIDB has become a popular source of recruitment by other institutions suchna financial institutiona inivrance firms and onQiAting firms. Due to
this and perhaps other reasons, NIDB was experiencing an unusually highturnover rate (fire out of 45 professionals will have left by August, 1975
versus an average turnover of 6-7 professionals per year).
- A.8 -
I O Tv% 14 -,1,+ Pf -P , +' "- W- +4
+4
w- a4 4
-. 4-4, f- 'I f~ -- A I rIOt. ~ ~ X -4Li. AeLL - VIUA , &4 " ri U .f.V .. U G.LWJAA %I CO UJ "W4 .~,
infusion of low-cost Goverment money, and increasing size of Nigerianprojects, Clevera.-&' changes in policy we.re recentl 4 ppo1e by- NArrW0o1rdThe interest rate charged on loans was reduced from 8.0% to 7.0% p.,a.,gi.LVing a.. a 0lVU VL 49)/V LtQ L=W UVV.LL&U1tL1U UV.L.L_W.LL60 W%7ULU VC dLU
2.5%. The commitment charge was lowered from 1.25% (which had originally__~L _rrn____ -r,,Tr r1af~L ___ ____t_IUeen esau.zzuDu oU uuver U .Uan LmIULLenLL uargej U1r o U.b U , an I.iue
former 0.25% appraisal fee was eliminated. NIDB's madmum commitment toa single project was raised to M million; NMB is to seeX t1ird-partyguarantees for large exposures to non-Federal Government projects. Themaxnum assistance to any one project was also established at 60% of projectcost (versus the present 50%). Such policies have already been applied byNBUI; commercial banks have lowered their interest rates to 6-9% p.a.
Procedures
4.09 Following in the wake of the recent reorganization, a mmber ofIBRD and Dutch consultant (Berenschot Bosboom, Inc.) recommendations havebeen implemented to improve internal procedares. Mach incentive for changehas also come from strong competition arising from the comnercial banks and,to a lesser extent, the NBCI. Five standing committees have been established(see Annex 4)--Loan Applications Committee (LAC), Investment Committee (IC),Negotiation Committee (NC), Projects Committee (PC), and the anagementCommittee (MC).
4.10 Despite being nearly halved in size by the reorganization, theAppraisal Department under its Controller and 10 staff seems to havemanaged to increase its productivity through a new division-type structureunder which an Assistant Controller and two-experienced submanagers super-vise engineers and investment executives. The Controller established rhepriorities and delegates specific projects to the rest of the staff. Theaverage time lag for Annlirntions to rench the diqbur.Pment stage hAqdecreased from 18 to 12 months, and in the case of second loans 3-4 months.By dividinp hiq dnArtment into four nrniet annraisal tems of twn echthe Controller hopes to average eight projects per team per year with noPrnqinn of nrniort annnacnl n-nlitT.
4.11 Tb0Tnx,ctmnt i~orisin Deartenthas re-allocated itsproject responsibilities so that the Controller and his two Assistant
projects while the remaining 7 staff supervise and average of 15 projectseCiLe L L 10 LO Ue 11t1111LU to LCHIGLLL LL LULIUW-Up ViL La LU PLUJUI_LS
and taking a tougher stance in cooperation with the bank's legal staffT7_1 T 1 -1- L- . - - - -
also beginning to probe more in-depth for the real reasons for companjUeLaULLs.
- A.9 -
4.12 The Economics and Statistic Department with its Chief Economist andthree professional staff (includes one librarian) has been hamstrung by alack of staff resource and has therefore not met its full potential. It hasbeen undertaking the economic analysis of all projects sent to the Board,but has not made its input early enough in the appraisal process to materiallyaffect projects. ith the three positions it hopes to fill by the end of1975, the department expects to have its economists participate directly onappraisals. In addition, it hopes to plan for NIDB's future lending programby conducting sector studies of promising areas, undertaking limited marketresearch for the Promotion/Development and Appraisal Departments, and Dossiblyserving as NIDB's overall work programming center. To attain such objectives,the department will need to exhibit more enery and initiatives in the future.
4.13 The Accounts Department with its Controller and three professionalsis cooperating well with the Investment Supervision (IS) Department. Itis making more conservative provisions for nossible losses on its loansand equity investments with the assistance of the IS Department. After pro-lonapd B%nk urai ins NTn with the mnn-rt -f its nieinrq (Pon+ Mb.raCastleton, Elliott and Co.) have agreed to deduct provisions directly fromP.nnino-, rathe-r thaqn f'rom a-capitaln sunrplursereq TlnhcoutDepartment now prepares annually a 5-year financial forecast and manages its
the Projects Committee. The visits to ashington and TSK arranged by he
couraging the use of new and different ideas.
4. 1 A y T-g-mDepa , an -en' -I oonmIc ana Statistics Department,is suffering from staff shortage as it has only one professional in additicnto the Seior Coun"l L'aUn tionazLy, the completion or legal formalities
has been a major bottleneck to project commitment and this continues to bee "ith as much as haIf of the project processing time or 6 months takenup by legal procedures.
ICON Limited
4.15 ICON Securities, NIDB's wholly owned stockdealing subsidiary,was restructured in January, 1975 and re-named ICON Ltd., so as to enableit to begin merchant banking. Its authorized share capital is N2.0 million(of which al.5 million has been paid in); it is subscribed by NIDB (h5%)Morgan Guaranty (25%), Baring Brothers (15%), and National Insurance Coroora-tion of Nigeria (15%). It has a Managing Director provided by Morgan,
1/ Turkiye Sinai Kalkinma Bankasi (TSKB)
- A.10 -
an Executive Director from NIDB, a corporate finance expert from Baring's,and hq recentilv hired a former Cntral Bank stnff to head administration.
Though still in the process of establishing itself, ICON Ltd. plans to be
mergers, acquisitions), acceptance of deposits and other money'market opera-tjos ^-Piio oI lans an A~~ mi r14V~QW ~ 7 ~ArYof loans, and provision of investment advice and services such as portfolio
remains under NIDB but will be managed for a fee and share of profits by1CON Ltd. !UN Nominees! name has been changed to ICON Stockbrokers;authorized share capital has been raised to N200,000.
V. OPERATIONS, RESOURCES, AND FINANCIAL CONDITION
Operations
5.01 NIDB's net approvals in 1974 totalled N17 million (compared withN16 million in 1973). Three large cement projects comprised h% of thetotal approved amount, followed by two large salt projects which made upnearly 18% of total approved amount. Other projects belonged to such sectorsas wood and paper, mining. electrical, metal. chemical and tourism. Therewere only two textile projects equal to 5% of the total amount sanctioned.Tensc. th.n nno thii-rr nf t.hp n-rniPrt wpre qnonsorPd i vrovrrnmint (StAtp orFederal) but made up 46% of total amount. Less than one third of the projects
jointly with NBCI in 1975 in brewery and shrimping. More joint financing isant-iL.'pateu L,UZd P1UJV,; ouu~v= LM.WU LCL6= &LI 10AJ.Li1= W.A. CL ~ LLUL±±
tion becomes more usef ul.
Resource Position
5.03 Excluding newly retained Government resources, NIDB had N1.6million available for new commitments as of Earch 31, 1975. It has accessto N348.0 million from Government chring the Third National DevelopmentPlan (1975-80) at 2.5% p.a. interest. Because of the scarcity of high-yieldingshort-term investments in Nigeria today, IDB plans to draw down the Governmentfunds only when there are clear disbursement needs. NIDB's cancellation ofthe uncomitted portion . ($3.7 million) of IBRD Loan 705-UNI was pro-,pted bythis availability of cheap Government funds and the fact that its borrowerswill not have to bear any foreign exchange risk which allows IDB to offersimilar benefits as its competitors and the quicker disbursement of Governmentfunds. 87 late 1976, NIDB expects the completion of its new office buildingwhich is expected to provide rental income averaging N600,000 per annum.The bank obtained bridging finance from a commercial bank which it plans
-A.11i-
to retire in the near future with prepaid rent and cash generated fromits own expanding operations.
Portfolio Evaluation
04 Loan Portfolio. Annex 5 lists NTDB1s loan nortfolio as ofAr ch 31, 1975. Among the approximately 158 companies with total outstandinglans of N20.1 wmillion, 45 wr in arrears over 3 months, Ihis nronortion
of companies, which is 28%, is unchanged from 1973. The total value of arrearsover 3 months is N2 0 million, equal to 10% of the loan portfolio (comparedto 9.2% in 1973). The value of loans outstanding to these companies was
Eighteen of the companies, accounting for over 53% of the outstanding amounts
pally related to poor management. They are being monitored by NIDB's Investmentvupervisoun U-nd legal Departments, witn sume being threatoeu.dwith legal action.
NIDB has made adequate provisions against those loans which are likely to de-UL''t --u. have insuffi1cient secrity.
.v Equty Forsioio. MI±'s equity investments numoerea o1 (listea inAnnex 6) and totalled N.O million as of arch 31, 1975. Of these 51 or*8% also have loans from NIDB. EQuity investments canprised 22% of NIDB'stotal loan and equity portfolio as of March 31, 1975. Nine companies(of whichsix are companies with loans and already designated in para. 5.04-as thosewith long-term problems)accounting for 11.9% of the total value of the equityportfolio, are considered unprofitable with long-term problems (mostly manage-ment) and four companies, representing another 4.0% of the total value of theequity portfolio, are considered to have temporary problems (e.g., projectimplementation delays). NIDB's Supervision Department is monitoring theseinvestments and, with the Accounts Department, has arranged for NIDB to setaside N296,000 as provision against the most doubtful investments whose netasset values are unlikely to cover NIDB t s exposure.
5.06 NIDB's dividend yield on average equity portfolio in 1974 was 6.3%as compared to 6.8% in 1973. Nevertheless, this is still a marked improvementover the 1972 yield of 3.8% when the textile industry was badly affected byGovernment's import liberalization program of 1971.
5.07 Portfolio Characteristics. NIDBIs investment by industrial sectorhas traditionally concentrated on the textiles sector with the peak coming in1969 when 68% of the total value of anrovals went into that sector. Invest-ment in this sector tapered off dramatically from 1972 through conscious di-versification efforts so that by December 31. 1974. O.Sh of the nortfolio amountwas in textiles. As of the same date, food and beverages constituted 20.2%of the portfolio amount, metal products 12.31 and chemical and chemical prodacts8.2%; the remainder wasstattered in such sectors as wood products and footwear.
5.08 The location of investments continues to be predominantly in LagosState which holds 53.1% of the portfolio amount (55.8% of total number of
-A. 12-
investmentiy. NIDB is aware of uovernment's strong desire for greatergeographic diversification and expects to work with its branches and stateand regional financial institutions (paras. 3.07 and 3.08) to identifyproject possibilities.
5.09 As contrasted to 1968-69 when it came under criticism for not doingenough for Nigerian entrepreneurs, NIDB has dramatically shifted the owner-ship base of its projects. Gbmpared to 1968 when only 14.3% of the totalamount approved went to Nigerian-controlled companies, the correspondingfigure in 1974 was 92.2%,with 69.8% of the total number of investments goingto Nigerian-controlled companies.
Cbnsolidated Financial Fesults
5.10 NIDB's consolidated profits after provisions dropped from N501,000or 11.1% of share capital in 1973 to N355.000 or 7.9% of share danital in1974, representing a decline from 8.0% of average equity to 5.7%. This occurreddespite a more than four-fold increase in ICONSECs results (from N90000in 1973 to N426,000 in 1974) mainly because of significant increase in administra-tive expenses as a result of the Mdni narris 1neras -in nrniAns envn.losses, and a higher average cost of debt from the use of IBRD funds. NIDBdid not declare any dividend to its ordinarr sharahnlderq in 197b.
VTT TTQV Ov T TIMI UN D TA C O1V _T TQQ.T?.T AMT '7At TTMTT
£ Tl,% i 'k v r a , + 1, a a l s-,+^ as I. - ; a + 'A a - 4 a i, s
industrial development through (i) the provision'of foreign exchange tofinL.ance necessary J-orts to enable theJJ imlmntto ofprjetsithe private and later, the public, sectors and (ii) to establish and strengthen
LUJD as dn 1 UL LU LUL .U WUU L1 UURLAU URLLV.LVe ZU a U-LIU Ul U1.L1GUALLpolitical and economic conditions in the country, and be more effectivein alocating and mo-lizng resources. Both objectives were successfullymet. The foreign exchange provision was most useful during the civil warperiod when foreign exchange scarcity was acute, but also Just after thewar when the reconstruction and establishment of new industrial enterprisesbegan. The success of the instituticn-building task is evident by the factthat NIDB has been provided N348 million over the TNDP period to providelarge amounts of industrial financing, by its provision of technical assistanceto evaluate the feasibility of some major new Government projects, and byits increasing role in assisting the development of qualified project evalua-tion staff to the new Nigerian Bank for Commerce and Industry and state in-vestment companies.
Loan 588-UNI
6.02 This first loan to NIDB was signed on March 3, 1969 and becameeffective on March 29. 1969. It was a $6.0 million loan with an interestrate of 6 112% and a repayment period between 1972-83. The free limit onsubpro-ects was $100,000. The entire loan amount was committed betweenAugust, 1969 and December, 1970. A total of $325,000 was cancelled. Netof ennnellations- .7 million was disbursed. Annex 15Y%ives furthe-r rstils.,
The loan was closed on December 31, 1972. Annexes 12-14 show projected andnatual n nv.Jton.s and finannial qanunts for NT)R h hatwe.n 1969-1974.
-A.13-
6.03 During appraisal, two main shortcomings were identified. First,despite some useful NIu contributions towards improvement of project prepara-tion by its clients and financial plans, the quality of appraisal work neededimprovement. Second, partly because of the political situation at the time,its staff and organization needed strengthening. The Bank assisted in theresolution of the problems by providing some of its own staff on secondmentto NIDB, assisting in the identification of relevantly experienced expatriates,and providing substantial feedback on NIDB appraisal reports over the freelimit. And, until very recently, two of the Bank's former Nigerian staffmembers who had elected to go on their own had been working as permanent NIDBstaff members. The one who remains at present holds the Chief Economist posi-tion.
6.04 The present situation has greatly improved. Although NIDB's appraisalwork can still be improved (para. 4.13), it is the best done in Nigeria andcompares favorably with the better appraisal in some other African dfcs.The staff and organization, especially in the wake of the recent reorganization(para. 4.06), is fully professional and, in most cases, experienced; in fact,it is becoming a significant source of executive talent for the new NBCI.emerging state investment companies, and Nigerian consulting and accountingfirms.
Loan 705-UNI
A _q This wns thp spond Ank lonn tNTMA which wan saignAd n blmia+ 2A1970; it became effective on February 26, 1971. The loan of $10.0 millionca.qrri&,d an -"tere o raenf 71 andl rovided fo-r a 1-%p+.tpeo btwe1973-82. The free-limit on individual subprojects was raised to $200,000.TTnlike- Loan rRA-Thrr +1 loan -. 1^~ ,,- - +- 13: -- P 41,_ I-- to,.,4 4-P*
Government projects. The entire loan amount was committed between March, 1971a.LA.V Une , .L7f4j IIUWCVeMry P4.1 IIL_L..LUL Wcd UHULLUU--UIIt: UALA, UekaJUou Q.0
NIDB's recent access to much cheaper Government funds at 2.5% (para. 5.03)LC of cancellatiOnS, 4o.C mIlon has been udisbrsed to date with $v.1 millionstill outstanding on an unexpired line of credit for a subproject which theWMA LICLO~ rJL&" GLLV-U@ . U4- L_-iA ) 6.LVCQ aLLU.LU.LOLAc_-L LIU .L.L09. Lit L V U.LI W.I.I.I Ut:
closed on October 31, 1975. The Closing Date of the second loan was revisedtwice tue urigLna_ . ute was Marc 31, L7t4). Me main reason lor the slowutilization of this loan was delayed project implementation, partially becausethere was a greater number of lgerian promoters, who had haa limited previousexperience in project establishment.
6.06 During appraisal, four weaknesses were identified. First, whilerecognizing an overall improvement in Nlus's appraisal methods, economic assess-ment of projects still needed improvement; in addition with the increase inthe number of projects in its portfolio, supervision work was found to requirestrengthening. Second, NIDBts investments were overconcentrated in the textilesector. Third, NIDB was financing mostly resident foreign firms rather thanNigerian firms. And fourth, its investments were too heavily concentrated in
-A. 14-
businesses controlled by the same resident foreign group. Although theBank assisted by pressuring in all areaS, it M urnge"nO UotrUuUL±i camein the improvement of economic appraisals by means of its seconded staffand subproject reviews. While the Bank played a usefui role in highlignuingand constantly reminding NIDB of the need fcr improvement in those areas, creditgoes to NIDB for recognizing the needs and implementing necessary changes.
6.07 The present status is as follows. NIDB consistently undertakeseconomic analysis for all pertinent projects and is a leader in the fieldin Nigeria; nevertheless its economic input should be made at an earlierstage during the appraisal (para. 4.13). Steps are being taken to correctthe situation. Supervision, as we have seen (para. 4.12) is improving signi-ficantly under a reorganized department and a new head. The textile sector,while still important in NIDB's portfolioprepresents only 40% of the totalportfolio amount (para. 5.07) versus nearly 70% in 1969. This shift to non-textile sector lending came about because (i) more attractive investmentopportunities in other sectors were emerging and (ii) Bank Group pressurefor NIDB to diversify its portfolio, especially away from textile projectswhich vielded lower economic returns than some othAr RAtnr.q +.hn+. hnAless protection and better market prospects. Loans to Nigerian promotersand businesses now are runnine at a rate exceeding 90% of total Dortfolioamount (para. 5.09) and is expected to contine. To avoid overexposure toany gron of interlnCkPd businessa--saifly forniLn--NB ndemtPd q nnliav
limiting its exposure to business controlled by a single interest 15% of~~~~+i- l~v-~g14 ~*~ 4~4a "~n 1nav on vvn"nK1O?
a rNQ ~~-------------------------TKr wre-e--- 1 -4--
new and 4 expansions. The average Bank sub-loan size was $405,000. Tocoip~±IVleent~i thStLIJ4'CU±L6L1.u~LL1 QU-LVWLLQ ±L.LJD JJ.LV.V.LUWU d" i:V1_6 L.
$110,000 equivalent Naira assistance to each project in the form of addi-tluonal loan or equuy. nefLecting the scarcity of viaUle prY cJu7 durangand after the Civil War, all the projects with one exception:/ were in thetextile sector (Annex 12). Annex lb provides details of 12 projects forwhich either the capital costs (estimate and actual) or completion data wereavailable. Certain aspects of the project data were unavailable due tounsystematic follow-up/supervision in the past; steps are being taken toremedy the situation. The estimated capital cost of 10 projects totalledN24.9 million versus the actual which totalled N29.8 million, an overrunof 20%. Except for one project (Enpee Industries) which had a project costoverrun of 140% because of a complete change in project design to meet changesin the market, the majority of the overruns were due to delayed implementationwhich, in turn, was caused by input shortages as a result of the war andoveroptimistic completion predictions. Of 9 projects, 6 were completed within12 months of the estimate while the remainder ranged between 12-26 months.Among the 10 projects above the free-limit, three were foreign-owned, twowere Nigerian-owned, and five were joint ventures (most with de facto foreigndominance). All four projects below the free limit were Niger7an-owned. Of
1/ Manufacture of imitation leather.
-A. 15-
the five (all Nigerian firms) out of the fourteen subprojects which werein 1arearr 3 months of M e-b f11 107C nA ,na,yi+aA P^w k0A Avny
or 34% of the total principal in arrears, three (accounting for only 11%of the totIal. Um=lntkA W-'' L k CL.L&ArZ &.W.L-WLU~ kL.LJ..L.L
culties brought about by serious management problems. These companiesG6& WJ.UJi%.L &JV.L1.LrZ _U LL%,UL_V% W.U11 1VL.D13 as-~ U Uanc or J~. un e le a-.. io.L
Of the other two projects in arrears, one faced temporary problems due totU 71 import liberai-ation anU the uter frm UIays IL ilaplemenuaion.The remaining nine projects financed by Loan 588-UNI are doing well.
6.09 Twenty-three projects (one of which was a Loan 588-UNI project forWnich the remaining amount in the previous loan account was insufficientto cover its total needs) were financed by Loan 705-UNI. Excluding thesingle overlapping project already covered in the previous paragraph, 12projects were new, 4 were for expansion, and 6 were for balancing equipmentor modernization. Reflecting the financing of more diverse sectors ascompared to the first loan as well as the cancellation of portions of Bank fi-nancing, average Bank financing per project dropped to $263,000 while NIDBprovided an average of $125,000 equivalent in Naira per project. The muchgreater sectoral diversification achieved in the secad loan (Annex 13)was distributed as follows: food and beverages (36% of total value), chemicaland chemical products (12%), rubber and rubber products (11%), metal products(8%), textile (6%), and other sectors (27%). As shown in Annex 14, only 6at the 22 projects financed by the second loan have been completed. Theiractual total capital cost came to N4.4 million versus the orizinal totalestimate of N3.7 million, or an overrun of 19%. Of the remaining 16 projects,10 are under various stages of implementation and data for 6 were not yetavailable either because a supervision visit was pending or the client hadnot yet Drovided the information. AmonL five of the siy nmlAt.r1 nrn!Pntsfor which data was available, each was completed an average of 16 months afterthe original estimat cip to aminment deliver n 11un, anr Unvriacapital shortages precipitated by such delays, and/or unrealistic completionschedules. All except one or the f-inn-ne by T 70 - nn WereVNigerian-controlled--the one being a foreign-owned project. As of arch 31,1975- ninp- prni.t hnri nron In princinal ranymen+ of onv 3 mn+ha mon+4ito nearly N300,000 or about 15% of the total principal in arrears. Seven ofthose projects we tl 1 iider4Jrm= wnna+ -;^Y% f4 -,~, -- neM v- d
delays while two were completed projects with serious management problems.(if l~~-4,-remel +-"oned 4 are tli n.l-.- -ones wLL1-
long-term problems while the remaining four are making good progress.
6.10 Annex 15 shows the 20 subprojects financed under the two Bank loansthat i navo unts ves the efree x,mi-n and onequently required priorBank approval; the value of sub-loans for these subprojects totalled $10.6million or Wie of the financing under bohU loans. Bank reviews on no5e-subprojects gave rise to marketing questions (e.g., adequacy of market sizeestimate, price/output of competition, seling arrangements through whole-salers versus individual retailers), technical issues (e.g., appropriatenessof equipmenu size or model, reliability of technical know-how, reliability ofproduction coefficient estimates), financial questions (e.g., adequacy ofworing capital arrangements, financial projections with need for sensitivity
-A. 16-
tests, adequacy of provisions for overruns, reliability of cost estimates),a--4 4. ne a (a ,, n.n+an4nn lnwal a m,ra+awn+
4 arn'rnr,rm4ta w',ln,- 44a
economic viability of certain product lines), and other general points (e.g.,
tion versus foreign ownership). NIDB's responses were generally satisfactory,altnougn the UU jImJe."LeZ 01 jUU11 reL-pUeUi WaZ ZULUoU_lmen oUULI WULing. rUmits viewpoint, NIDB found the Bank's comments to be useful in improving thecomprehensiveness and depth of its appraisals; in particular, it found itselfanticipating more of the Bank's questions through its extended associationand feels its appraisal standard to have been raised as a result.
Industrial Impact
6.11 In terms of the volume of industrial financing provided, NIDB'sown direct role was a modest one; its disbursements between 1969-72, accountedfor an average of 5.4% of total industrial investment in Nigeria. On the otherhand, NIDB-supported projects accounted for about 20% of total industrialinvestment. NIDB's main contributions came through applying more rigorousproject evaluation procedures on projects with which it was involved and,in some cases, enabling projects--especially Nigerian-owned--to be implementedthat otherwise would have been abandoned due to lack of financing.
6.12 For the future, NIDB expects to maintain approximately the sameproportion of total industrial financing (viz., 5.3%) despite the greatlyincreased volume of industrial investment between 1975-80 (para. 2.07).Its qualitative influence, however, is likely to be even greater than in thepast as evidenced by Government's increased preference to seek NIDB's appraisalexpertise at the pre-appraisal stage of various large Governent projects.As a noint of comnarison. the other national dfc. the NBCT. is exnented toaccount for only about 1.5% of total industrial investment over the next 5 years.
Postscript
6.13 Following ten years of close association with the Bank Group, Bank.L ~ ~ ~ ~ ~ ~ ~ L.l #AM VJ L.4SX %t.. LAW % &~ A6.A.L CLL~. V M L W ILW C 4 W M
in general as a result of discussions between the Bank's Programs DepartmentZJ11A UIt-, UUVt1_LJ11tL1 WIA A6AZUL. UL LUL F.L.LJL.YJ L)CUML .LW&LAr *
Deapite this development, NIDB has managed to continue to grow along with apL, exp4JZtLding econom1Iy . XW%AZU.L.LY, itU QW%.;L_U 6UU-ILLOC V.L UUWVr.±1U1IJ.. .L.LJCU1%;.L&J.
resource support and plans are underway to enable Govemment to hold a majorityof NUvWs snares.
6.L4 While NIDB believes that its resource needs will be fully met bythe Government over the next 5 years, it still values continued associationwith the Bank Group--particularly with respect to indirect technical assist-ance via occasional mission visits. In addition, the international network
of contacts afforded by the Bank Group is also valued by NIDB.
Africa Division, DFCD
September 5, 1975
-A. 17-
ANNEX 1
RQ+wn.+-, W4 ni T"rAn,z+wr 1079
(Iy Value-Added and Employment)
of .L011 INP r0U.L Lg . A
Value-Added Enployment
1. Food, beverages, tobacco 33.9 21.0
2. Textiles, apparel 17.0 28.0
3. Paper products, boards, printing 4.6 7.9
4. Basic metals, metal products 9.8 8.1
5. Non-metalliferous, cement 4.6 4.9
6. Rubber products, tires and tubes 4.7 7.0
7. Petroleum and coal products 9.4 0.3
8. Soap, perfume, cosmetics 5.4 3.1
9. themicals, paints, plastics, drugs 3.2 2.4
10. Footwear. tannine 0.8 2.4
11. Fu rniture (wooden. metal) 2.1 6.A
190 Sm.wnfli n .I I
b. H ll m 0.5 1.9
Jl9A ,) 197
JulY 9, 1975
-A 18-
ANNEX 2
NIGERIAN INDUSTRIAL DEVELOPMENT BANK
Present Shareholders and Shareholding Pattern
Class A Ordinary Shareholders N Percent
Central Bank of Niaeria 999.6q6 2h.99Nigerian Institutions 10,890 0.27Niaerian Tndividiial.q 2o Ann -7h
IFC 99964 24.99
2,oo,000 50.99
Class B Ordinary Shareholders
Privnfte Miap.riin nh0tr A~ 9 n
*Chase Overseas Banking Corporation 321,650 8.04Communalth DePvAlonment Finance comnpany R00An e n
*Instituto Mobiliare Italiano 146,200 3.65*Bn fAeric- .'J ) ~
Commonwealth Development Corporation 100,000 2.50lur mya .u. I r,w LRy -9
*Ccmerz Bank A.G. 77,000 1.93TTMu-L4e iria kumpany _) UUU .00Barclays Bank of Nigeria 50,000 1.25Other private foreign shareholders 776,270( 118
1,9ou,000 9.01
Total Ordinary Share Capital 4,000,000 100.00
Preference Shares.I- 500,000
Total Share Capital 4,500,000
* These five institutions were, essentially, brought in during 1964 when IFChelped create NIDB; the group also includes Irving International FinancingCorporation, Northwest International Bank and Societe Financiere pour lesPays d'Outre Mer S.A. The eight hold 97h,400 Class B shares, equivalent to24.36% of all ordinary shares.
1 5.5% ciumiulative participatin., preferred. All of the preference shares areheld by former shareholders of the Investment Corporation of Nigeria (ICON),NIDB's predecessor.
1/ IFC and the Gentral -axn are each entitled to nominate three directors.However, IFC has delegated the right to nominate two of its directorsto the Central Bank.
-A.20-
AlkTIThrY 9
page 2
T%2 D-cou sent ersuat-re fur van1a --I . rurOSILJ. L31Z.-Lne L~vakireoV .LU.L LU 1XILI 01
Bank of Tokyo Tokyo, Commerzbank,.Lnu 4bu 11U t -1 aUL rta: .Lua IaIwL
13. Marsnall Lewis, Jr. nepresentative ior Bank of America,anaging Director SFC)M, and Irving InternationalBank of America (Nigeria) Ltd.
14. Hans van den Houten Representative, case International
Executive Committee
1. Alhaji Jalo Waziri Chairman
2. Silas B. Daniyan anaging Director
3. Ernest N. Ukochio Representative, "A" Directors
h. Charles Patrick Johnston Representatives, "B" Directors
5. Hans van den Houten
NIGERIAN INDUSTRIAL DEVELOPMENT BANKORGANIZATION CHART AS OF MAY 15, 1975
inclu,dingE.ec.t,v Co . e, ISI
(ZLManaging O,recor,IS B Oan yanI
E IM A A4-stere
AD GEMENT EON CS AND APPAA SAIL UNES TONT ACCOUNTS AD 5ISRATION L
tVE P 1' PT S'RCE,,,STTIS'.C DEPT, DEPT. DEPT. DEPT.DP EA. 'EEVELCP"NT EICES DEPT. 1Che E,oo-n.t: ((Cnt r DEPT. OFICES
S H G.E. Oku.~met Y A u G.O. SJnoA Ogm K ogow~)
t cnt r PEPA IAT ON V. Lb . (Aa Conte, A A ^b (A. conroe & Se,otry
As Cod'kr, M.O Ad ikel 8.O ghkl . M.A. FBhn0 R.O. F~l O.O. Ogn-Ek. u El.
A. J Sal~9
JZ =ÆL::i i 1- 4--f Irs.r,I2 I~&oIrWg TF. M A - to
Projlsoa.. Staff • 45 (escln 3 veceio..Es
Non-professiona Stf• 112T.,d 157
DFCO.y9.1975
-- Iv sæs-50
-A.22-ANNEX 5page 1
NIDB: Standing Committees
1. Loans Application Committee (LAC)
a. Members: Deputy General Manager, heads of Economics, Appraisal,Promotions and Development Departments, and headof Reception and Preparation Division.
b. Purpose:
(i) To discuss new applications and whether they should berejected, developed, or appraised.
(ii) To review new applications rejected by R & P Division orthe Area Offices on grounds that such projects felloutside NIDB's sphere of operations.
(iii) To discuss project development reports developed by theP & D Department and approve them for transfer to theAppraisal Department or reject them.
c. Frequency of meetings: Weekly.
2. Investment Coumittee (IC)
a. Members: General Manager, Deputy General Manager, and heads ofall departments except Management Services and Administration.
b. Purpose:
(i) To discuss investment proposals related to appraisedDrojects and to recommend DroJect approval to the ManaingDirector, Executive Committee, or the Board of Directors.
(ii) To discuss and recommend proposals related to NIDBts in-vestment Dolicies and nroedures to the Mnnain_ Director.
No. of r f Mtain Nature (N'000) (H'000) paital EnployedS.b-prcicc:t Prje2.t Product Prolect- Prolect:ed Actual Pro-ected Actual Projected Actual Location
Lcan 5SS-L'NIAl En,e cndx.sries Ltd. textiles N 1,170, 930 540 1,577 35.0% (5.7%) LA2 g Textile Mills Ltd. textiles E l8,000 10,964 - 2.005 38.0% (15.0%) LA3 Speco-nill Textiles Ltd. textiles E - 12,616 - 12,971 18.5% 7.0% LA4 Afprinc (Ng.) Ltd. textiles E 11,506 9,940 9,844 13,576 17.0% 8.2% LA5 Woollen & Synthetic Textiles textilei N 2,850 n.a. 965 n.a. 52.0. n.a. L
