CIRCULATING COPYJgm L E 3 P .Y TO BE RETURNED TO REPORTS DESK

DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION

Not For Public Use

Report No. P-1353a-BD

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO

THE PEOPLE'S REPUBLIC OF BANGLADESH

FOR AN

IMPORTS PROGRAM

January 15, 1974

This report was prepared for official use only by the Bank Group. It may not be published,quoted or cited without Bank Group authorization. The Bank Group does not acceptresponsibility for the accuracy or completeness of the report.

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CURRENCY EQUIVALENTSkas at December 28, 19i3)

Currency Unit: Taka (Tk)

US$ = Tks. 8.2 /aTk 1 = US$0.122Tks 1,uO = US$122iks 1,000,000 = US$122,000

/a The Taka is officially valued at 18.9677to the Pound Sterling. The Pound is nowfloating relative to the US dollar; con-sequently the Taka - US dollar exchangerate is subject to change. Unless otherwisestated, all currency conversions in thisreport have been made at the exchange rateprevailing at the time of appraisal inSeptember/October 1973, i.e. at Tks 7.55to US$1.

FISCAL YEAR

July 1 - June 30

GLOSSARY OF ABBREVIATIONS

BSIC - Bangladesh Small Industries CorporationCCIE - Chief Controller of Imports and ExportsMP - Muriate of PotashTCB - Trading Corporation of BangladeshTSP - Triple Super Phosphate

INTERNATIONAL DEVELOPMENT ASSOCIATION

RFPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

TO THIE PEOPLE'S REPUBLIC OF BANGLADESH FOR ANIMPORTS PROGRAiM

1. I submit the following report and recommendation on a proposeddevelopment credit to the People's Republic of Bangladesh for the equivalentof US$50 million on standard IDA terms, to help finance the foreign exchangecosts of an imports nrogram to sustain agricultural production and to pro-mote industrial production through higher utilization of existing capacity.

PART I - THE ECONOMY

2. A report entitled "Reconstructing the Economv of Bangladesh"(R72-230) was distributed to the Executive Directors on October 13, 1Q72.A Basic Economic Mission was in the field during September/October 1973,and its report is being prepared. A country data sheet is attached asAnnex I.

Background

3. The inhabitants of Bangladesh are poor, per capita income beingonly about IJSS70. They have little opportunity to generate savings. Popu-lation is growing at about 3 percent per annum, and the immediate needs ofthe people are so great that current commitments at least to prevent percapita GDP from falling form the major focus of economic management. Thismakes it difficult to give attention to coherent longer-term programs.The country is very densely populated (1,400 per square mile), lacksnatural resources, and is consequently heavily dependent on imports. Allof these factors combine to make decisions about resource allocationexceptionally complex.

4. Independence on December 16, 1971 brought rising expectations tothe average Bengali. But the task of improving his lot had clearly beenmade much more difficult by the destruction which had taken nlace over theprevious two years, first as a result of the cyclone of late 1970 and thenfrom the political upheavals of 1971 which resulted in war and finallyindependence. The first two years during which the Government of Bangladeshhas been in control of the country have been dominated by an emergencysituation in which law and order had to be re-established, political stabilityachieved, and the administrative framework reconstituted. The millions ofrefugees who had migrated temporarily to India had to be resettled andprovided with relief. The transport system needed to be reconstructed topermit the distribution of food and other supplies.

5. Most of these urgent tasks of reconstruction were tackled speedily,although viable long-term solutions to the problems of the Bangladesheconomy are still proving elusive. The Government was aided in its efforts

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in part by massive assistance initially from India and subsequently froma number of other countries and private international agencies, mostlyunder the auspices of the United Nations. United Nations relief operationshave been terminated as of December 31, 1973, after two years in which overUS$1.3 billion were disbursed, largely for emergency relief. The vital portof Chittagong was restored to 90 percent of its prewar capacity by the endof June 1972. Roads were quickly, if temporarily, repaired, and ferrieswere brought in to substitute for damaged bridges. The vital Bhairabbridge which links Chittagong to Dacca by rail was fully repaired inSentember 1973.

6. Among the principal achievements of the Government since in-dependence has been the establishment of a parliamentary democracy whichhas given the people a measure of political particination which thev felthad hitherto been denied to them. Some progress has been made towardsrestoration of law and order to the cotntryside - sufficient at leastto have permitted the first parliamentary elections to be held in March1073.

7. But these achievements nall in the face of significant anddisturbing prohlems which remain to be solved before Bangladesh can besaid to be launched on a path of stable economic development. Externalassistance has tapered off to a level below that of the initial infusionsof aid. Meanwhile the economy is empty and Government administration isfragile. Some staple consumer items are disappearing from the marketand inflationary pressures are a serious problem.

Food and Other Production

8. The gravest problem confronting the Government since independencehas been the food situation. The 1970/71 crops were poor and the crop of

December 1971 was disrupted by thle war. Record levels of food importsof about 2.5 million tons in 1972 prevented the widely feared famine fromoccuring. Nevertheless, per capita foodgrain availabilities in 1972were well below 1969/70 levels and this combined with internal transport

difficulties, widespread hoarding, and smuggling of foodgrains to India,led to a 50 percent rise in prices over the year. By October 1972 it wasapparent that the monsoon had again been poor, and the main rice crop was20 percent lower than normal. Ranid increases in population and the needto build up depleted stocks added to the crisis, and imports of approx-

imatelv 2.4 million tons of foodgrains were again necessary in 1973.

Assistance in financing, procuring, transporting and distributing these

massive imports was the United Nations' most conspicuous achievement, andalso an achievement for the Government, which has gradually taken over

this task.

9. The nresent position is still uncertain. Observers' estimatesdiffer, but there is a strong possibilitv that, due mainly to rather

favorable weather conditions, the main (aman) 1973/74 rice crop will prove

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to be 7-S million tons and if so production for 1973/74 could well be a

record 12-13 million tons. Much now depends on the ability of the Government

to implement its announced policy of procuring large quantities of foodgrains

in the local market in surplus areas for distribution through ration shops to

low and fixed income groups. Failure to do so could have serious implications

for the level of imports of other commodities. In the absence of Government

T?rocurement, hoarding and smuggling wqill reduce the total amouints available

to the economy. Even on "optimistic" assumptions - no increase in the con-

sumPtion level or in stocks, both of which are already too low; a good harvest;

no repayment of borrowed grains - the Government will have to imDort at least

about 1 million tons for calendar 1974. The stark reality is that even with

improv,ed crop production, Bangladesh will continue to reqtuire substantia].

foodgrain imports for a number of years.

10. Elsewhere in the economy, non-agricultural sectors have been

slow to rtcover. Industrial activity came to a virtual standstill from

November 1971 to January 1972. Industrial Droduction recovered to some

degree fairly rapidly in 1972 and 1973, but 1969/70 ]evels of output

have not yet been achieved consistently (with considerable variation

among inditstv-ies). The difficulties impeding a return to full production

arise from thti lack of raw materials, spare parts, components and other

material inpuits, the lack of repair and maintenance, the inability to

replace certain' key items of machinery and equipment lost during the

disturbances, aiid power failures. These latter have resulted more

from inadequate transmission and distribution facilities, or from problems

in transporting fuel, than from lack of generating capacity. Transport

is also a bottleneck; there are still fewer trucks and buses than were

available before the war. With stocks extremelv low or non-existent,

any one of these factors can cause an enterprise to come to a complete

standstill. The productivity and profitability of industrial enterprises

are generally low wnd their financial position precarious, making their

full r-ecoverv more difficult to achieve. In addition, there are significant

pockeirs of labor unrest. The resulting low levels of output have been

a major factor in contributing towards the high levels of inflation. In

major cities the cost of living increased by 60 percent in the year ending in

June 1973.

Trade

11. Total exports in fiscal year 1972/73 are estimated at about

US.q370 million, which compares with about US$500 million exported to

Pakistan and other countries in the prewar period. Much of this decline

is on items such as tea, matches and spices, which were formerly exported

to Pakistan. In view of the uncertain prospects for the international

prices of jute and jute goods, the 1973/74 export target of about T!SS450

million (Annex IV) will be difficult to achieve. A subsidy of 30 nercent

has been given to 79 non-jute exports since the beginning of FY1973/74,

but this is unlikely to contribute much to export earnings in the short

run becauise of sutbstantial increases in the costs of production since

indenendence, the industrial difficulties noted above, and the fact that

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non-jute exports now represent only about 10 percent of the total value

of exports.

12. One of the major factors impeding the growth of production (and

exports), and another major cause of the rapid increase in the general

level of prices, has been the lack of imports. Non-food imports in

1972/73 were well below the 1969/70 level. In part, this is due to

failures in the administrative arrangements for the procurement of

imports, including those provided under foreign aid. The increases in

the international prices of major imported commodities such as foodgrairis,

cotton and cement have also contributed significantly to the problems

of import planning and procurement. For 1973/74, the non-food import

targets of about US$720 million (Annex V) can be achieved only if the

efficiencv of the licensing and the importing systems is improved to a

significant degree, and only if funds do not have to be diverted to

increased food imports as a result of the failure of local procurement.

Further, it is important to note that the planned target for non-food

imports alloxws for no buildup of stocks, which is a crucial factor in

the production process.

The Annual Plans of 1972/73 and 1973/74

13. In July 1972 the first budget and Annual Plan (for 1972/73)

were presented; they proposed some US$430 million of public development

expenditure and a further US$160 million for reconstruction. About half

of the development expenditure was for agriculture, rural institutions,

and water and flood control. The revised estimates for the 1972/73

Annual Plan show a 20 percent shortfall in development expenditure.

Considering the price rises during the year, the shortfall in real terms

was far higher. The need to provide substantial subsidies for public sector

enterprises led to larger than budgeted deficit financing through net credit

to the public sector. The money supply expanded by 82 percent between

January and December 1972. This combined with commoditv shortages to cause

serious price problems; because of their political implications these loom

large in the short-term economic concerns of the Government.

14. The budget and Annual Plan for 1973/74, which appeared in July

1973, show an increase in projected development expenditure of 30 per-

cent over the revised estimates for 1972/73. The priority given to

agriculture remains unchanged. The volume of aid disbursements is

estimated to be at the same level as in 1972/73 and the Plan thus places

heavy reliance on mobilizing domestic resources. Given the shortfall

on this account which took place in 1972/73, the achievement of these targets

would require improved performance both on the fiscal and project im-

plementation sides.

The First Five-Year Plan

15. The First Five-Year Plan, covering the period 1973/74 -

1l77/78, was approved by the cabinet in earlv November 1973. The Plan

aims at increasing GDP at an average annual rate of 5.5 percent in real

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terms, and its primary strategies are to reduce dependence on imnorts

of foodgrains and to imDrove the balance of payments by imnort substitu-

tion and export promotion. Apart from self-sufficiency in foodgrains,

the Plan expects major import substitution to come from new industries,

notably fertilizer and synthetic fibers to be based on indigenous

natural gas. To achieve these targets, the Plan calls for financial

development outlay of US$5.9 billion, about US$5.3 billion of which is

allocated to the public sector. Agriculture and water resources would

receive the highest priority with a projected outlay of about 23 nercent

of total development expenditure.

16. The Plan places heavy reliance on mobilizing domestic resources.

It calls for savings generated in the public sector of about 41 percent

of public sector development spending, with foreign aid making un approx-

imately a further 43 percent. On the evidence of 1972/73, however, the

Plan targets for domestic resource mobilization now appear out of reach

in real terms, given current depressed income levels.

External Assistan e to Bangladesh

17. The preceding analysis makes it evident that Bangladesh will

reauire large and continuing external assistance on very favorable terms

for some vears, if it is to achieve an acceptable growth rate. Long-

term projections suggest that, even to maintain present per capita

income levels in the face of continued population growth, net aid dis-

bursements of between US$100 million and US$200 million per annum would

be required. Average net aid disbursements of IJSS500 million per year

over the Five-Year Plan period would be required to nermit imports

to be maintained at a level of US$0.9 to 1.0 billion and the rate of

investment at the 12-15 percent of GDP level which is needed for a 5

percent per annum growth of GDP. Net aid disbursement levels of about

US$300 million would permit imports of only about U!S$700 million which,

given a higher foodgrain component and substantiallv higher world

commodity prices, would allow for no more investment goods and raw

materials than were imported in 1969/70 into the area that became

Bangladesli.

18. Sustained growth of 5 percent per annum would produce only a

2 percent growth in per capita GDP; at this rate another two decades

would be needed before GDP per capita would pass USS100. The prospects

for achieving the required minimum import level for 1973/74, about

US$900 million including foodgrain imports, are not bright. As stated in

paragraph 11 above, the export target of US$450 million is optimistic.

Planned financing of the gap, another US$450 million, is as follows:

bilateral project aid, US$200 million; bilateral food and commodity aid,

US$150 million; IDA project aid, US$40 million; and IDA program credits

(the Reconstruction Imports Credit and the proposed Imports Progran Credit)

US$60 million.

19. The emergency phase of foreign assistance in Bangladesh has

come to an end with the termination of the United Nations relief opera-

tions. There are no large amounts of undisbursed funds left in the UN

coordinated rehabilitation program. Total aid commitments to date,

which were about US$1.4 billion as of October 1973, have been ample

and on generous terms (with suppliers' credits forming only a small

part of overall aid inflows), and indications are that the dollar amounts

of these commitments will remain at about the same annual level, about

US$450 million through FY75. Disbursements, however, are likely to be

limited by the capacity to procure and import efficiently, by world

supply shortages of some basic commodities, and by the lack of a suf-

ficient number of wmell prepared projects.

20. Bilateral programs of assistance during the immediate Post-

independence period have been flexible and oriented towards quick-

disbursing commodity and program lending both to relieve the critical

food situation and to respond to the country's immediate import needs.

All of the bilateral agencies, however, now wish to redirect their

operations program towards development projects, especially in agricul-

ture and rural develonment. 1Jowever, it is by no means certain that

project lending will be a major feature of external assistance to Bangladesh

over the next 12 months. Virtually all donors to Bangladesh have commit-

ted non-food commodity credits for 1973/74, though a good deal of this

aid is tied to designated sources of supply. (Even Sweden, which had

hitherto provided untied aid to Bangladesh, will tie 40 percent of its

commodity assistance this vear.) Annex VI shows that, even under present

assumptions about project preparedness, only about 55 percent of total

non-food aid to Bangladesh during 1973/74 will be in the form of program

lending, compared with about 70 percent in 1971/72 and 66 percent in

1972/73. The estimated percentage of program aid for 1974/75 is inder

50 percent, which reflects donors' intentions of redirecting aid commitments

towards projects in the Five-Year Plan. Major donors are colnscious, how-

ever, that they mav be reqtlired to direct more resources than presently

contemplated towards program aid, because so few projects are ready, and

because the need for program aid persists.

The Case for Pro _gaL Tndin-

21. The case for program lending rests on tihree interrelated aspects

of the current state of economic development in Bangladesh: the urgent

need for materials, spares, components and machinerv to restore industrial

production to levels of existing canacitv: the need for rapidlv disbursing

aid to help meet the foreign exchange gap; and the lack of an adequate

p:_ 4 ect pineline. The first of these is discussed in paragraDhs 10 and 12

above and in more detail in paragraphs 37 to 39 below. The inescapable fact

is thiat, to restore existing industrial plant to good working order, equip-

ment that was destroyed, lost or worn out, Tmust be replaced and stocks of

vital spares and raw materials must be replenished. In many industries,

the priority need is simply for a steady supply of the raw materials or

components of production. UJntil the trade gap can be closed, the need for

such imports will have to be met from aid disbursements, and commitment

of aid against project requirements will only help after a year or two at

best. Finally, a number of obvious circumstances has prevented the develop-

ment of an adequate supply of projects which can ranidly absorb commitments

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and produce disbursements. The disturbances which resulted in the warcontinued to inhibit project preparation even after independence. Theresults of earlier efforts were often vitiated, and many key personnelwere lost or displaced. It is not surnrising that the Government is onlynow finding both the time and the personnel to begin tackling this problem.

22. In circumstances of continued shortages of critical items and asevere foreign exchange constraint, program aid must continue for sometime to be a mainstay of development aid to Bangladesh, both from multi-lateral and bilateral sources. All available funds under the ReconstructionImports Credit (see paragraph 47 below) have been committed since about theend of August 1973. The Government's ability to authorize vital importsmust not be interrupted. In particular, it needs now to place orders forthe 1974/75 fiscal year. Hence the importance of the proposed credit atthis time.

PART II - BANK GROUP OPERATIONS IN BANGLADESH

23. Sklce Bangladesh became a member of the Bank and of the Associa-tion in August 1972, Bank group operations in Bangladesh have concentratedmainly on reactivation of IDA credits for uncompleted projects financedunder credits to Pakistan before the independence of Bangladesh. Elevensuch projects in an aggregate amount of USS151.4 million (including USSt44.1million for the repavment of amounts that had been disbursed under thecorresponding previous credits to Pakistan) have been made to Bangladesh.The last reactivation credit (US$25.0 million for the Highwav Project) wassigned on June 29, 1973. In addition four new credits have heen made,totalling USf65.6 million: US$50.0 million for a Reconstrtuction ImportsProgram; USS7.5 million for the Cereal Seeds Project; US$4.0 million forthe Technical Assistance Project; and US$4.1 million for the Inland WaterTransport Rehabilitation Project.

24. Annex II contains a summary statement of (i) IDA credits madeto Bangladesh, (ii) the loan and credits to Pakistan for completed projectslocated wholly in Bangladesh for which a new loan and new credits have notbeen made to Bangladesh, and (iii) notes on the status of execution ofongoing projects. There are no IFC investments in Bangladesh.

25. Previous IDA lending and prospects for FY74 reflect the inter-runtion of project preparation efforts in 1971 and the precedence takensince then by reconstruction efforts. Two earlier IDA projects, theReconstruction Imnorts Credit and the Inland Water Transport Rehabilitationproject, therefore concentrated on program-type lending to meet the mosturgent short-term needs of the economy. This proposed imports programcredit also falls into this category.

26. Although program lending will continue for some time to be anecessary feature of IDA assistance to Bangladesh, the proportion of projectlending wil]. increase year by year, beginning with this fiscal year. Two

- 8 -

other projects are likely to be presented to Executive Directors shortly.

One, a telecommunications project, benefits from preparation work already

done and will support part of the Five-Year Plan for telecommunications.

The second, the Barisal irrigation project, has been preDared by the

FAO/IBRD cooperative program. Two further projects should be ready for

presentation in early FY75. They are a population planning project, for

which IDA missions did considerable preparatory work, and a fertilizer

production project, for which IDA preparation missions supplemented work

already done in Bangladesh.

27. For the longer term, IDA has provided funds under the Technical

Assistance Project to assist the Government with studies and technical

assistance needed in overcoming the hiatus in project preparation and thus

help to develop a stream of projects which would serve longer-term develop-

ment objectives. Several proposals are being prepared; subprojects are

expected to be approved shortly which will prepare for a second inland

water transport project and a second Dacca water supply project.

28. The Association recognizes the prime importance of the agricultural

sector (on which the livelihood of about 80 percent of the population

depends) and accordingly plans to allocate to agriculture a much higher

percentage of lending than before. Before 1971 only one-third of Bank

Group lending to the area of Bangladesh went to agriculture. This was the

result both of the difficulties encountered in the formulation and execution

of agricultural projects - difficulties arising from Bangladesh's river

dominated terrain and a climate that brings devastating floods as well as

drought - and of inadequate appreciation of possible alternative investment

strategies for agriculture. A review of alternative strategies for the

development of the agriculture and water resource sector was undertaken

by the Association during 1971 and 1972. It suggested the need for a

stronger emphasis - especially during the next few years - on proiects

designed to yield results rapidly. This view of priorities is set forth in

detail in the Bank's nine volume "Land and W4ater Resource Sector Study"

(Report No. PS-13, dated December 1, 1972). With this in mind, a number of

agricultural projects are being prepared or will be prepared under the

Technical Assistance Project. Projects already under preparation include

minor irrigation works and supporting agricultural inputs in the Mluhuri

and Karnafuli river areas, an inland fisheries project, an integrated rural

development project, an agricultural training project, and a second food-

grain storage project.

29. Growth of sectors other than agriculture will require attention

as well, particularly the development of the transportation system to

improve the distribution of agricultural inputs and bring farm output and

food imports to market, and the development of industries, especially those

serving the rural areas (such as fertilizer) and those based on agricultural

materials. The scope for further transportation projects should be defined

by the Bangladesh Transportation Sector Survey now being completed with

tUnited Kingdom assistance. In industry, the Association has completed a

survey of the small-scale sector (Report No. 154a-BD, July 23, 1973) and a

second small-scale industries project is expected to carry on the work of

the first, reactivated project. It may also help rural-based industries

such as cottage and handloom industries.

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PART III - THE PROJECT

30. The proposed Imports ProgLam credit, like its predecessor thi..Reconstruction Imports Program Credit, i. intended to provide thc Governmentwith the abiAty to finance priority imports of raw materials and equipmentnecessary to make use of existing productive capacity. In July 1973, theGovernment requested a second program credit. An Association missionappraised the proposed credit from September 13 to October 17, 1973, andnegotiations were held in Washington on December 17-z1. The Governmentwas represented by Mr. M. Syeduzzaman, the Secretary of the Planning Com-mission, Mr. A. H. Choudhury, an Executive Director of the Bangladesh Bank,and Mr. N. Islam, First Secretary (Economic) at the Bangladesh Embassy inWashington. A Cre.it and Project summary is attacned as Annex III.

31. The Reconstruction Imports Program Credit covered a broad, multi-sectoral range of goods. I_ is proposed in the second, or Imports Programcredit,to concentrate primarily on the revival of production in certaintpriority industries. As noted in detail in paragraphs 58 to 60 below,this will enable tht AssociaLion to monitor more closely the use of theproceeds of the credit, and to measure more effectively the benefitsachieved. It is appropri--e, therefore, to provide as background a briefpicture of the industrial sector in Bangladesh, and the conditions underwhich it has operated since independence. The forthcoming basic economicreport will provide a more exhaustive treatment of the sector, but it isimportant for the purposes of the proposed credit to provide a view of thebottlenecks preventing the fuller utilization of existing capacity.

The Industrial Sector

32. General - Historically, the manufacturing sector of Bangladeshhas been greatly influenced by the scarcity of natural resources. Today,industry is a small but important segment of the emerging national economy.It accounts for some 8 percent of GDP, and 6 percent of total employment.Perhaps two-thirds of all industry is agro-based, and the textile sectoralone (that is, jute and cotton processing) accounts for more than two-fifthsof total industrial value added, and for more than a half of total industriallabor force. At the other end of the industrial spectrum is the small-scale sector composed mostly of cottage-type units. Between these twoextremes are industries processing food, tobacco, skins and hides, wood,metals, oil, and natural gas. Bangladesh has among the lowest levels ofper capita production and consumption of industrial goods of any country.

33. Compared with other sectors, the direct physical damage to in-dustries caused by the war was not very sizeable, but the sector as awhole was seriously affected by the disruption of vital material linkagesof enterprises, and by general uncertainty. The new Government nationalizedmost medium- and large-scale industrial units and the public sector nowcovers the units that belonged to the public sector previously under tnemanagement of the East Pakistan Industrial Development Corporation,the units that were owned by West Pakistani entrepreneurs and abandoned

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by them during the war, and all the units in the jute, cotton textile andsugar industries. The public sector now comprises about 350 units withabout 250,UO0 workers and about 70 percent of the fixed assets of modernmanufacturing, that is, excluding cottage industries. These are organizedunder several industrial "corporations" called the Public Sector Corpora-tions, under a ministerial body.

34. The private industrial sector now consists mostly of small-scaleenterprises. Private medium- and large-scale units exist to a significantextent only in the pharmaceutical (three foreign owned units), edible oiland steel re-rolling industries. New enterprises with assets of aboveUS$333,000 must be in the public sector. Existing private sector unitsbelow the US$333,000 benchmark may not grow past US$465,000 without beingabsorbed into the public sector.

35. Industrial Production and Constraints in 1972/73 - Industrialproduction in 1972/73 showed some improvement over the previous year, butwas still unable to return to the prewar (1969/70) level in most enterprises.Production of most items (see Annex VII, Table 1) returned to about 70 percentof the 1969/70 levels, and only a few items surpassed the 1969/70 levels.

36. Problems derived from the transition into the public sector, whichstarted in April 1972 and continued through 1972/73, or inherited by thepublic sector from past conditions, affected industrial production in 1972/73.To resume production in these units, the Government and the Corporations oftenhad to rehabilitate physical production facilities and re-establish manage-ment structures. More important, they sometimes found that enterpriseslacked working capital. This problem was not solved until the Governmentdirected nationalized banks to meet the requirements. The problems oftransition still exist. Experienced management staff is scarce. Anefficient division of responsibilities among the Government, the Corporationsand the individual firms has not yet been worked out.

37. Other familiar major problems were sometimes aggravated in 1972/73.In general, shortages of imported inputs, labor troubles, and power failuresprevailed throughout all industries, while loss of markets in the former1West Pakistan and shortages of local raw materials hampered production insome industries.

Short-Term Prospects for the Industrial Sector - The prospects-ior z',7J/74 Industrial production depena on o-vercoming the shortages ofimported inputs and spare parts, and also the .cwer and labor problems.Regarding electric powe. some mechanical difficultie3 affecting powergsneration have been repaired; however, general shortages due to the in-adequate transmission network, small technical troubles and scarcity offuel are likely to continue. The future of labor problems is more difficultto foresee, and positive measures to deal with them must be a first prio-rity for the Government. Trantsportation bottlenecks for local and importedmaterials have been partly but not completely removed.

39. Availability of imported raw ma.erials and parts continues to bea major constraint. The scarcity of foreign exchange is of course themain factor. Against an estimated import requirement of about US$630 millionneeded to run industries on a single-shift basis only during the periodfrom independence to June 1973, the Government was able to issue onlyUS$265 million of import licenses. An ever worsening international com-modity price situation has further aggravated the problem and will surelyaffect production in 1973/74 and beyond (see Annex VIII). The supply situationof a few items has become so tight that Bangladesh is not able to importthem at any cost because goods simply are not available in the internationalmarket. As a result, most industrial units have kept very low stocks ofmaterials and parts, or none at all, whereas six months of stocks aredesirable for most items due to the long time needed for importing. Pro-vision of imported materials is the most crucial problem which the Govern-ment faces in increasing industrial production.

40. Production targets for 1973/74 for selected industries are givenin Annex VII, Table 1. These targets, based on Government estimates, havebeen adjusted downwards by the appraisal mission in some cases where theywere clearly a.ealistic. The resulting targets are still very optimistic;they do not reflect, for instance, the recent and expected increases inprices of imported materials. Even if these targets were achieved, pro-duction for about one third of the industries selected for illustrationwould still be below 1969/70 levels.

41. More important, production targets are not high enough to utilizeexisting capacity fully. If the targets were reached, capacity utilizationratios in 1973/74 would still b- less than 70 percent for the majority ofthe industries (see Annex VII, Table 2). These levels would be considerablylower were it not for the expected disbursements of large amounts of programlending by th.- Association and by bilateral donors. Utilization of existingcapaciry must continue to enjoy a top priority in the Government's industrialpolicy, and for external assistance to Bangladesh.

42. The Import Control System - Another important factor presents aserious obstacle to efficient industrial production in Bangladesh: thesystem of import controls. Some of the problems of the system, as theyhave affected the rate of utilization of the Reconstruction Imports ProgramCredit, are discussed, with suggestions for improvement, in paragraphs45-48 below. The system is summarized briefly in Annex IX, which indicatesthe considerable scope for delay which is inherent in the system. The systemis in need of a thorough review by competent analysts who should be asked forrecommendations for a complete overhaul. During negotiations, the Governmentagreed to conduct such a study, to be comupleted on a timetable and with termsand conditions to be agreed with the Association.

43. Supervision of the Reconstruction Imports Program Credit hasshown that although the system can lead to long and costly delays, constantvigilance of each transaction can greatly speed up the process. Accordingly,as an interim measure, the Government also agreed at negotiations to thestrengthening of the unit in the Planning Commission already established

- 12 -

to monitor the progress of the credit, especially to expedite actions inall concerned agencies in the import process up to the time of shipment ofgoods.

The Reconstruction Imports Credit (345-BD)

44. The Reconstruction Imports Credit w7as signed in November 1972 forthe purnose of assisting the Government in meeting the most pressing importrecuirements of an economy in the early stages of recovery from the severesetbacks caused by cyclone damage in 1970 and the war of 1971. The listof goods agreed between the Government and IDA as eligible for financingwas broad, covering all major sectors - agriculture, transport and com-munications, and industrv - and two major categories of needs: (i) equip-ment and snares to replace or repair capital goods destroyed or damagedin 1970 and 1971 in order to restore the economy's prewar capacity, and(ii) materials, components and intermediate goods needed as inputs toutilize existing production capacity in agriculture and industry.

45. Utilization of the Credit suffered immediately from delays by theGovernment in organizing imports to be financed. The Government wasreluctant to issue licenses against the Credit until the Credit becameeffective. It did not even begin the process of allocating the funds topotential end-users tntil late February 1973. Given the time necessaryunder the import control system for the notification of end-users and thepreparation, review and approval of license anplications, the majority oflicenses were issued only in the June - August 1973 period. Of course,further time'was required for tendering, ordering, and shipping, beforedisbursements could begin.

46. Another cause of slow utilization of the Credit was the Govern-ment's reluctance to issue import licenses for goods to be financed outof the proceeds of the Credit, in amounts greater than the total amount ofthe Credit. Thus, delavs by individual users, or cauised by the importcontrol svstem, or arising from the need to reallocate funds to higherpriority uses, have not been balanced by more rapid utilization elsewhere.

47. As a result of these delays, only a small portion of the goodsto he imported under the Credit has arrived and been utilized so far.Accordingly, the Credit had no impact on production in 1972/73, althoughit will contribute substantiallv to production in 1973/74. As of November30 the Government had issued licenses against the proceeds of the Credit fora total value of US$49 million. Of this amount letters of credit havebeen opened for UtS$37 million, including IJS$21 million against which theAssociation has issued agreements to reimburse. In addition, the Governmentrequested reimbursement for an additional UJS$11 million of eligible goodsor(lered before, hutt paid for from the Covernment's cash resources after,the signing of the Credit. Disbursements as of December 31, 1973 amountto US$21.7 million.

48. After the initial slow start, progress in accelerating letter ofcredit openings and disbursements has been rapid and heartening in recentmonths, and it now appears that the Credit should be almost fully disbursed

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bv the end of June 1974. However, the Government has been urged to adoptpractices xwhich will prevent repetition of the kind of delays experiencedunder the Credit. The Government has realized the cost of excessive cautionin issuiing licenses under the Reconstruction Imports Credit and confirmedat negotiations that it planned substantial advance licensing (US$25 millionbefore December 31, 1973) against the funds to be made available under theproposed Imports Program credit. Further, the Government agreed atnegotiations to issue licenses well in excess of the amount of the credit.

49. The Government's allocation of the proceeds of the ReconstructionImports Credit reflected the availability of alternative financing andthe feasibility of importing goods rapidly, as well as the Government'soverall priorities and development objectives. The initial pattern ofallocation was changed from time to time as the Government withdrew allo-cations from enterprises whose utilization of their share of credit wasslow and reallocated the funds to those whose utilization had been moreexpeditious. Difficulties in procuring some eligible items, suchas rock phosphate, were also a cause of license reallocation. The presentexpected pattern of utilization of the proceeds of the Credit, by sector,is: agriculture, 10 percent; transport and communications, 20 percent;industry, 61 percent; and construction, 9 percent.

50. The beneficiaries which have been able to act most expeditiouslyin utilizing their allocations have been the Public Sector Corporations andthe Trading Corporation of Bangladesh (TCB), a Government owned organiza-tion which, at the direction of the Government, procures certain items,e.g. bulk commodities where large orders may get better prices, for bothpublic and private sector firms. Imports administered by the eight majorPublic Sector Corporations, together with raw cotton imported through theTCB (but used exclusively by public sector mills), account for 68 percent ofletters of credit opened. A few major items - vehicle spare parts, cottony:-rl, cement - were directed towards specific industrial units in both thepublic and private sectors. Apart from those items, private industrialunits have used only a small portion of the credit.

51. The TCB utilized its licenses fairly rapidly for most items forwhich it was the sole importer through bulk procurement (which includedcaustic soda, cotton yarn, raw cotton, and cement). It encounteredproblems, however, in procurement and distribution of certain items. Inthe case of rock phosphate, TCB was not able to cope with rising pricesand a difficult stupply situation, and the stubstantial purchases necessaryto keep up fertilizer production were not made.

52. In the case of cement and corrugated iron sheet delays and confusionoften resulted from the complicated distribution system, although it wasdesigned to meet priority needs first. Because of their importance - con-struction is almost at a standstill - these items are included in the proposedlist of goods for the proposed Imports Program credit. However, given thecritical, shortages, there is need for a clearer definition of priorities,anl(l better adlministration of distrihtition arrnngements to see that essentialconcstruction needs are met. Accordingly, the Government has discussed1 withthe Association plans for the distribution of the amounts of these goods to

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be financed under the proposed credit, and the Government and the Associationalso have agreed to keep these plans under continuous review.

53. Cotton yarn also had distribution problems. Both raw cotton andfinished yarn were imported under the Reconstruction Imports Credit, andboth are includee again in the proposed list of goods for the proposed ImportsProgram credit. As with the construction items, future distribution plansand continuous review were agreed at negotiations.

54. Parts of the small-scale industries allocation also have beenslow to be used. Two agencies, the Ministry of Industry and the BangladeshSmall Industries Corporation (BSIC), were each allocated $1 million. TheMinistry was able to find takers for only 20 percent of its allocation.BSIC recommended to the Chief Controller of Imports and Exports (CCIE) theissuance of licenses to 237 small units on the basis of an extensive assess-ment of applicants' requirements. However, because of differences of opinionon division of responsibility for administration of the credit beLween BSICand CCIE, issuing the licenses took nearly six months. The Government agreedat negotiations that BSIC should have sole responsbility for distributing theproceeus of the proposed Imports Program credit to the Small-Scale Industriessector.

55. There are many difficulties within the national banking system.It took some time for the nationalized banks to establish sufficientcorrespondent banking relationships in some countries wnere goods were tobe procured under the Credit. A further problem has been that many keyposts in the foreign departments of the banks had been occupied by WestPakistanis before independence, resulting in a lack of adequately trainedstaff and administrative continuity after independence.

56. Mlany of these difficulties might have been expected in a newstate. Specific remedies 'or some have been suggested and agreed, and forothers it is hoped that the general review of the import system (paragraph42 above) will suggest methods of improvement. However, as mentionedabove, progress has already been much improved in recent months. TheGovernment has shown its concern for rapid utilization by reallocatingfunds to other priority users, and it is acting to license ahead for theproposed Imports Program credit. 'Tle Government's concern, and the arrange-ments made during negotiations should go a long way towards assuring thatthe purpose of the proposed credit, rapid provision of vital imports, willbe n<

TEh; Proposed Thports Progrym Credit

57. The Reconstruction Imports Program Credit was designed to meetthe needs of an emergency situation, and it truerefore financed inputsfor several sectors - industry, agriculture, power, and the transportsystem - with agriculture and transportation receiving large allocations.It is now appropriate to provide a sharper focus to the uses of theproposed credit by concentrating more resources on the highest priorityindustries. Broadly defined, these are the industries that (a) produce

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goods for export, (b) serve the essential requirements of consumers, and(c) serve the key transportation and construction sectors. The need forexports, transportation and construction is obvious; essential consumergoods also must be given high priority in order to reduce the scarcity ofnecessity items contributing to the high rate of inflation and the generalfeeling among the public that the living standard is deteriorating.

58. Narrowing the range of industries will make it easier to monitortheir progress and to follow and supervise the use of Association funds.It will also make it possible to meet their needs more systematically.For many industries, raw materials were not provided under the ReconstructionImports Credit. For others, replacement machinery was not covered. Forthe proposed Imports Program credit, the industrial part of the list ofgoods has been arranged on an industry-by-industry basis. The industrialcategory provides for components, spare parts, balancing equipment, rawmaterials, chemicals and packing materials for each of the eleven sub-sectors covered.

59. Another reason for sharpening the focus of the proposed creditis that, for many of the items financed under the existing ReconstructionImports Credit, it is now appropriate to consider project lending. Finishedtugs and barges for the inland water transport system and telecommunicationsitems are examples for which projects are already in the pipeline. (Theproposed credit does, however, include a small amount of steel in theshipbuilding industry which will make tugs and barges in Bangladesh.) Foritems such as tubewells and low lift pumps, which were included in theReconstruction Imports Credit, the need is still urgent and the potentialbenefits great, but there are problems in utilization which should properlybe dealt with in the context of a project credit. These include such issuesas proper location for pumps and wells and their integration withcomplementary programs in agriculture and rural development.

60. Proposed Uses of the Proceeds of the Credit - The categories ofitems which would be eligible for financing out of the proceeds of thecredit are set out in Annex X which also shows the main items expectedto be imported for each industry, the estimated total annual import require-ment for each and the proposed ceiling for expenditures under the credit(see paragraphs 17 and 78 below). The proposed Development Credit Agree-ment will contain only the major headings ana tht. propostd ceilings. Thecategories are discutsed in detail in the paragraphs which follow.

bl. A. Agriculture. FertilizeL is one of the key inputs in the agri-cultural technology bas-d on hig.i yielding seeds for agricultural production.In Bangladesh, increased use of fertilizer along with other agriculturalinputs is of immense significance as, due to limited possibilities forexpansion of cultivated land, increased production must come from landalready being farmed.

62. Th_ proposed credit would help meet remaining import needs for1973/74 and the requirement to build up stocks by July 1974 to meet theneeds of the 1974 aman rice crop. The total requirement for 1973/74 isthus estimated at 716,000 tons of urea, triple super phosphate (TSP) and

- 16 -

muriate of potash (MP). Allowing for estimated local production of ureaand TSP, and expected arrivals from the aid pipeline, there are uncoveredimport requirements of 84,000 tons of urea, 17,000 tons of TSP, and29,000 tons of MP.

63. The actual requirements may differ from the above figures asbetween urea, TSP and MP, because distribution of fertilizers may differfrom the planned programs. More important, it may be necessary to importmore finished TSP if rock phosphate cannot be procured. The two local TSPfactories did not produce any TSP in 1972/73 because imported rock phosphatewas not available. The ceiling proposed in Annex X would meet the needs forrock phosphate imports and the uncovered import requirements listed above,less an estimate of new aid commitments from other sources. Given thepossible need for importing a different mix, the Government should be allowedto use the funds flexibly for any fertilizer or material for the manufactureof fertilizer.

64. B. Industry. Eleven priority industrial sub-sectors have beenselected to be recipients of the proceeds of the proposed credit. Althoughprivate sector firms in these industries will be eligible, it is expectedthat public sector units, because they dominate these industries, willutilize the majority of the industry portion of the proposed credit. Themost important private sector users would be handloom weavers, small-scaleinduatries and construction businesses. Tute first two sub-sectors discussedbelow, the textile and jute industries, were the subject of an intensivereview during appraisal and are discussed in more detail in Annex XI. If

there are further program credits to Bangladesh, there will be furtheradditional inteiLsive surveys of industries selected as recipients of

Association funds.

b5. The jute industry is the major foreign exchange earner of Bangladesh.Export of jute manufactures (i.e. excluding raw jute) amounted to aboutUS$185 million in 1972/73. In addition, the industry is important for employ-ment, with 160,000 workers. It depends on imports for consumable andmechanical spare parts, dyes and chemicais.

66. The textile industry is comprised of mills and handloom weavingshops, and also is a major employer in the country. Because of inabilityto import sufficient quantities of cotton (much of which formerly came fromPakistan), the industry has not been able to meet local demand and thereforethe country has had to import finished products. Even so, there is drasticshortage of finished cloth. The industry can utilize the large and presentlypartly unused capacity in mills and handlooms shops only by securing impurtsof raw cotton, cotton yarn or synthetic substitutes. These latter areincluded as eligible items under the proposed credit because of the worldwide shortage of cotton and cotton yarn. The industry has demonstrated thatit can effectively use synthetics as a substitute. This industry needs alarge amount of spare parts because most equipment is old ana has been poorlymaintainea.

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o7. The paper and board industry, utilizing locally available bamboo,jute waste and bagasse pulp, not only supplies writing and printing paper,newsprint and board to the local market, but also has export potential.It has already been exporting newsprint, and is trying to develop exportsof other items. Imported wood pulp is required to mix with local pulp soas to attain better quality, which is particularly important for export,and to fill the supply gap from local sources.

68. Among food and allied products, the proposed credit would coverspare parts and chemicals for processing shrimp, which is mostly exported,and other packaged food goods.

69. The chemical industry includes such important products as fertilizer,pharmaceuticals and soap. Both pharmaceuticals and soap are in short supplyin Bangladesh. For pharmaceuticals, the Government estimates annual importrequirement of finished goods at US$13 million, which accounts for about60 percent of the country's total requirement. The industry saves foreignexchange by importing raw materials and processing them locally. Currentutilization of overall local capacity is estimated at about only 4U percent.The credit would cover materials and spare parts required by the industry.

70. The sugar industry has not been able to satisfy local demand,although it has sufficient production capacity. Raw materials are locallyavailable. The industry would use the proceeds of the proposed credit forimportation of spare parts and balancing equipment.

71. The steel and foundry industry consists of the Chittagong SteelMill, re-rollers and foundries. The products of the Mill and re-rollers(the Mill also supplies materials for the re-rollers) are used mainly forconstruction and partly for shipbuilding. Foundries are important insupplying small local works producing simple spare parts, which would takei4`ustrial units a long time and cost a great deal to import. The industryrequires imported pig iron, steel scraps and billets.

72. The commercial vehicle industry assembles completely knocked-downcomponents into trucks and buses with less cost than that of importingfinished vehicles. Because an estimated 5,000 trucks alone were damagedduring the war, out of about 9,000 private trucks on the road previously,the Government has imported about 3,000 trucks and buses. However, morevehicles are clearly necessary to meet the road transport requirement. Theneed for buses for public transport, where there are both public and privatesector firms, is particularly urgent.

/3. The shipbuilding industry supplies barges, tugs and ferries andtankers for inland-water transportation which assumes the largest trafficburden in Bangladesh. After independence the Government established a planto reconstruct the war-damaged inland-water fleet, and nationalized a majorpart of it. There are at present two large shipyards in the pub±ic sector,and two more are under construction. These yards are technically capable ofmeeting the demand for these vessels though the industry is heavily dependenton imports of steel materials and equipment to be installed in the vessels.

- 18 -

74. The construction industry is hard pressed to meet demands for newand rehabilitated houses and facilities for essential government and businessactivities. Shortages of cement and corrugated iron sheets have constrainedconstruction, and, at the same time, endangered jobs for many constructionworkers. Shortages in cement, which were more severe than in corrugated ironsheets, have brought the price per bag up from US$2 just after independenceto US$7. Recently cement has virtually disappeared from the market.

75. small-scale industry units cover a wide sDectrum both in types ofindustry and in geographic L-ocations. They have close links with local marketsand local material sources.

76. The Public Sector Corporations will continue to be responsiblefor administering most imports under portions of the proposed credit tobe utJl±zed by their subsidiar1 units. TCB or CCIE will be responsiblefor importing textile yarns, foundry grade pig iron, cement and corrugatediron sheets to be used by both the private public sectors.

7X. Ceilings - Annex X shows the estimated annual import requirementsfor fertilizer and the selecl.'t.d industries. These amounts were based uponthe import requirements for 1973/74, but the levels are not expected tochange significantly from one year to the next. The proposed credit willin fact cover imports largely to be made in 1974/75, although some goodsare expected to arrive in 1973/74, and all of the licenses are expectedto be issued in 1973/74. The ceilings have been determined in most cases bytaking the estimated annual import requirement and subtracting amountsexpected to be filled by other foreign assisLance or normally covered bycash licenses against Bangladesh's foreign exchange earnings. In some cases,e.g. the textile industry, the ceilings have been further reduced in order toassure that the proceeds of the credit will be spread over all of the vitalsubsectors selected.

78. The ceilings which were agreed with the Government during negotia-tions have been incorporated into the Credit Agreement. However, theGovernment and the AssociaLion will keep these ceilings under continuingreview.

79. Procuremenrt - The bulk of the imports to be financed under theproposed credit, including some of the goods to be used by the privatesector, will be imported through Government agencies. Normal Governmentpz-r-urement procedures require international competitive bidding or atleast requesti-ag offers frovi a minimum of t}.-ae international suppliers.These procedures will be foliowed ror all procurement under the creditexcept for (a) goods cos,:ing less thaa US$100. )00C, and (b) special casesin which proprietary items, compatible spares and components, or deliveryon an emergency basis are required. Imports of goods costing less thanUS$1U0,000 will be made through normal commercial channels.

80. These procedures follow those of the Reconstruction Imports Creditwith the exception that the exemption from international bidding or shoppingfor goods costi.g less than US$100,000 would now be applied to the public

as well as the private sector. This will simplify and expedite Association

approval of disbursement applications.

81. Disbursement - Under the Reconstruction Imports Credit, there

were disbursement delays which arose because of the IDA disbursement pro-

cedure chosen by the Government in all cases over US810,000: the issuance

by the Association of agreements to reimburse. The Government had not wished

to first make payment to suppliers from its an foreign exchange resources,

and then be reimbursed by the AssociLation, giving as its reason the temporary

loss of reserves in a very tight foreign exchange position. This position

is still precarious, but because the Government recognizes the need for

rapid utilization of this proposed Credit, it was agreed to raise the amount

below which the Government would first make payment from its own foreign

exchange reserves to US$20,000.

82. The Bangladesh Bank would be responsible for obtaining disburse-

ment from IDA and arranging with banks to obtain the necessary shipping

documents. The Bangladesh Bank would also assure, and certify, in each case

that the goods have been supplied by IBRD member countries or Switzerland

and that they have not been previously financed by any bilateral or other

multilateral source. These documents would then be forwarded by the

Bangladesh Bank to the Association in support of withdrawal applications.

All items included in the list of goods and paid for after the date of the

credit would be eligible for financing under the Credit. It is expected

that all contracts under this credit would be placed by September 1974

and that the bulk of disbursements will be made within 18 months of the

date of the credit. The credit should be fully disbursed within 24 months,

i.e. by about January 1976.

PART IV - LEGAL INSTRUMENTS AND AUTHORITY

83. The draft Development Credit Agreement between the People's

Renublic of Bangladesh and the Association and the Recommendation of the

Committee provided for in Article V, Section 1 (d) of the Articles of

Agreement, and the text of a resolution approving the proposed credit are

being distributed to the Executive Directors separately. The draft Credit

Agreement contains no unusual provisions and is similar to the Credit

Agreement for the Reconstruction Imports Program Credit.

84. I am satisfied that the proposed development credit would comply

with the Articles of Agreement of the Association.

PART V - RECOMMENDATION

85. T recommend that the Executive Directors approve the proposed

credit.

Robert S. McNamaraPresident

Januarv 15, 1974

BANGLADESHAlMEXS

COUNTRY DATA Page 1 of 3 pz~geo

AREA POPULATION DENSITY

141,131 kIsM 75 million (mid-197 )530Pe3r Ice2

840 Per leot2o arahle land

SOCIAL INDICATORS

Reference Countries

___________________Indonesia Japan _ Ira1960 197o 1970 197 0 19706

GNP PER CAPITA US$ (ATLAS BASIS) LI08 12 8

DEMOGRAPI{ICCrd7 7hrate (per thoeusand) 57 48 48 18.9 45-47

Crude death rate (per thousand) 27~ 19 19 6.9 15417

Infant mortality rate (per thousand live births) 167 140 125k 13.0 100O-140

Life expectancy at birth (years) -46 47 48 71.0 49-53

Gross reproduction rate! 321.6 3.2 32 1.0 3.6

Population growth rate 13 2.8 3.0 2.0 1.0 3.1

Population growth rate - urban _________4.5 3.25G-

Age structure (percent)2407Ž0_1~~~~~~~~ ~~~547 44 2. 7

15-6b _48 51 54 69.1 4E

65 and over 3 3 2 6.9

Derzendency ratio /5 1.1 1.0 0.9 0.5 1.8

Urban Population as percent of total 5 7 17 68.0 41--

Family Planning: Noa of acceptors cumulative (thoujs.) L7_______15 662

No. of uasers (% of carried women) ________ _____________5-10

EILf OYMENTTotal labor force (thousands) 18,300 24,900 40.100 52,215.0 894BE/

Percentage employed in agriculture 75 75 63 20.6 41

Percentage unemployed _________2 1.2 3

INJCOME DISTRIBUTION .

Percent of national income received by highest 5% soP'ercent of national Thrcone received by highest 20% ________ 14.85O

Percent of national income received by lowest 20% 455'

Percent of national income received by lo'west 40% _________

DISTRIBUTION OF L.AND OWNERS1IIP%owned by top 10% of -ownr 34________ I

% owned by smallest 10% of owners . .1________________

HEALTH AND UUTRITIONIPopulation per physician io400L 10SQ 6 000 898- 0 --- 3100D

Population per nursing person 164 ,00 107.005 5.740 300 20

Population per hospital bed 11.200 9,400 1200 79.0 842

Per capita calorie supply as % of requirements /5 54-E/ 76,/ 104.3 0

Per capita protein supply, total (grams per dayTL/6 3.&9' gS 75.1 hi

Of which, animal and pelse ____3_______iA 47.3

Death rate 1-bi years /7 3.0/ 2.1-

EDUCATIONAdJusted /d primary school enrollment ratio 44. 57 77 98.0 56E/

Adjusted 7W secondary school enrollment ratio 9±' '/1 86.0 285-/

Years of achoolieg provided, first and second level 10.1 10--c-

Vocational enrollment as % of see. school enrollment _________ 20 9.

Adult literacy rate % 23 56 ~ y

HOUSINGAverage No. of persons per room (urban) 3 1f'11 2. 2,

Percent of occupied units without piped water 82.1' 5 1

Access to electricity (as % of total population) .

Percent of dural population connected to electricity _________ 4lik

CONSUMPTIONRadio receivers per 1000 population _________ 114 255.0 9 3-2

Passenger cars per 1000 population _ _______ 2 84.8 20

Electric power consumption (kwh p.c.) 3 11 18 2972.0 267S'

Newsprint consumption p.c. kg per year... 0.2 19.1 0.4

Notes: Figures refer either to the latest periods or to account of environimental temperature, body weights,an

the latest years. Latest periods refer in principle to distribution by age and sex of national populations.

the years 1956-60 or 1966-70; the latest years in prin- /6 Protein standards (requirements) for all countries as ectab-

ciple to 1960 and 1970. On'ly significantly different lished by USDA Economic Research Service provide for a minimum

periods or years are footnoted separately. allowance of 60 gramns of total protein per day, and 20 grazes of

/I The Per Capita GNIP estimates for years other than 1960 animal and pulse protein, of which 10 grams should be animal

is at market prices, calculated by the same conversion protein. These standards are somewhat lower than those of 75

teohunique as the 1972 World Bank Atlas. grams of total protein and 23 grams of animal protein as an

/2 Average nu.mber of daughters per woman or reproductive average for the world, proposed by FAO in the Third World Food

age. Survey.

/3 Population growth rates are for the decades ending in /7 Some studies have suggested that crude death rates of children

- 1960 and 1970. ages 1 through S may be used as a first approximation index of

/A Ratio of under 15 and 65 and over age brackets toI malnutrition.

those in labor force bracket of ages 15 through 65. /8 Percentage en~rolled of corresponding population of school age

15 FAG reference standards represent physiological re- as defined for each counitry.

qairerents for normal activity and health, taking

2/ 1962; b/ aver 5020 inhabitants; c/ 1971; d/ 1967-68; a! Nurses only, excludes otlher psranedi2-;

f/ Percent of population receiving ad-equate protein/calories in 1962/64; V/ 1964 -66; 5/ 1-5

i/ Up to eind ci lower secondary; J/ 1968; k/ 1966; 1/ Urban only, 19681 Ln/ 1969

010110MIC DWEMPEU30TJf 21T0(A.Ounots in, rallc f U.S. dollars)

A~~t-l p '961 ~~/197Actual 9P~1 71 - 'H 1909O -197r- 1797 - 7ii 19 1972

53210181. 3013121115~~~~~~ I -q72 3-3.-a4 A0--r4 at ____ - --

iCcolt. (ccot capacity --.8 33' -5I 5 7 1.

Pecat ,lp I 5 I'- 12 3

'oaip.-p-occdit-ccco iii -,33,1 I9302

lc' nta (ia- clt 7~ I P'. 1.11 7 13

Ucoocc cO r5e. 3 384 3 2 6I .1

Nat io-l Savlwng 7a 5 -

OPP.ClJ.011-"i all Auci oP 01cc at ourect~~~~~~~~F cArct i- If ctcl-

lispt~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~4

Cap to] flcc - ~~~~~ -1 - -1 -7 .7 -7

CcaoeIcl I ,0 V--- T- -t

Tota T.c r Ompu c(i0)i-45 TTI31.

l>rcnaey ic clot .- 'I i -- --~~~~~~,2 .

It -70 2Icod it-I Ii.2

7313 Al '--t --- ] ex,i I i 7- )9 1 31B i -oi oloog ioe oo Grc3 c-.5 co

A "r.i-I z. n- 2~,50 3o45P t.5 531.0

Mi.ni- )fO2 7~L -3 3.1 303 -

o 1 iC T-rootict 1 935 I773) I07 07 117 1 7 2 I9272U3 1 73/4! 19174/ S 1517 15727 3 191 73i10 9

-i 31e - -- ~~~~ ~~~~~~~~~~3 2' 4 3> 07

_____ IA-~ ~~ ~ ~~~~~~~ 4 - i1 391 2 -5 50

7 3 --- 742 23

dcc 3-'coil- Iit"orcacilt 379 - - 527 055 - 72.2 -- 03 0.0 12.1~~~~~~~~4 2 2 3 1

ladir-c.o I-i len I; cp-cIcd IIuc

-Il;r FmXP-r13T)1515r 'EP )i T33 A, c.ca 1T00 I cl.. ho). l JfT,l -YI-[sAmI I 3 1 Z

A o Tc, LI ar -c -.ri.( __9 I, 1-7 2i73 ia 3I- 13ul00 I .i 3 i To :OFic

lootec ~~~~~~~~~~~~~~~ ~ ~~~20. 0 19.0 --8 1 71 /74 -7i(. 7-,

01,h 0- 010 -i-c-sl 6.3 b3. 103 1 5 3

Hiirr,odotiic '.er'icOl ~~~~ ~~~~~~~6.6 52 nd fc-tryso) 1711c81,05 20,7

D-: W M~~~~~~~~00 10 Ri.-I lu.7

3.i. C 6002-. fuT- ;- jo stilt t 8 t lo 1 6.3

PoILC~TLo 1121 1008.35 1967- 1965 - 10721- 1973- - H)li3tii liii

-tlcce Iou --ceoo-edIdci Q360 - __ 5.75 3970

Ovra4eIr 01-7 - -l -- 2 9 211 -t crSetg 2,12 609.0

i-Yor 3lur--ty 2 - 29 ro-geed P-t- AtOltrccd728 4

- Nrccrc iujucI Savinga Rotc! 3 5 -- -. I ttoc--443 0.

CIli7 1 F I Wt101?01t It -ll7s3etlo! 901 - 23 I

iSao/-l 1972/ 3 IC9uI 139711 roosth cot- 1Ž7 12i Ii It 'Ir-Lt Pat-i

t.-ttiOotitc-c ~~~~~~~~~~~16.1 20 .5 o5I 20. 32.1.I

),sJcti6/ 1. 1.08 5.2I 6.9 5 - cc 1.0 ~~~~ ~~~~ ~~~~3.9 9.2 134. 9 3

Total 16.9 ~~~~~~~~~~~~2tc.m2 1 0-0 100.3oo 721128

-ooc opplicoblo - cii croopl~~~Ii;i 0blc -- not t.coilaclc . 1.-to hea hlE cii.-

tolIt ia t o oi-o

I/ IThe, dote fcc 1973 --wadc or tootc c tii-p,je 00- booed on thcc Fira 88c-Y-ur P1-

tihe, or iteoa ot1972/23 prli- -ed -h-iagt rot -od herni cli.-yor - tecto.p-rble

oPt cliceh a--,io oioca tcr 1965 - l9ll.

2/ includes ate~ ii-of,c-r- a-d lobe r-pocca.

3/ioldocd 1- co,Iioth -od -ulfare

4/ DebL -atri,.-s.

5/ Oobt atri-it -nd coigo

'I7/,t colodieg c , lcccoc ~t) cod aciIcos

7/1922/73 pri- -c cd echoerat-

0/ T-1a Fe--adaitoe

c-tt 311I fig-c- fce cc iao couc botia J,oy 1 J1- J 30.

ANNEX IPage 3 of 3

EALANCE OF PAYMENTS, EXTTiFNAL ASSISTANCE AIID DEBTmaaoentn in millicns of 11.7. do1lars at c-rrent pricea

2a 2/ Ag oonActual Estimated Pro loted Growth Fits19-69 19710 1971 l71 1973 177. 197 5 1976 197 18 17965-1970

SUMMARY BALANCE OF PAYMENTS

7portn (in1. NFS) 449 48^ 404 295 450 532 384 677 702 12Tmporta (incl. 6FS) h30 711 717 _750 3IA 992 1,970 1,170 1, 17L 4.9anonurcels 1-8) 101 -223 313 -661 -A90 -4;3 -7.1 -GIl .467

Foteorot (set)3ireot -ntnet T-onco 53 58 22i torlerS Bni4tan )

CurreDt Trasosfor (rst) 75 56 50Ra10n00 00 Corrent A.o-ootS -203 2 21 T-361 -53W

Private Lirsot Ecnoetloent- -OffYsi.a1 Capital Graoto

Publir 14&LT Loans

msTb..ren2ertn 426 112 282 296 365 416-800' Sten 24 61 61 74 77 AlST~~~~~~~n~~~~~stn - - i'a~~~~~~~~~~~~~~~~---r W78 -let Drusnn 222 21223

Otl1el P-i-T 14ac-DIo 94ur41 oars

lot DioborsnernDts

-rital Trslisoatolns n.e.i. 1999 19970 19 1972 1971;Re.e9Chanre in lint Fesorvo- 10R1 AlD DEbT 3SRVICEPubli c Debt 3u t . P Di3 b-s dP t;r_tNbt 4 -io .ome.

!'-. *., : ' '__Inotoreot ss Public DebtTRepeyments 00 PDblit Debt

_:Ilis 11.1. 1.7000 Total Public Bobs Bonbon1015 - Othbr D0b Serion (0.t)

ID9 72 Total Dbo S-rvio (st)1- :.-r 10I'll Ir MlltilatoI l oTrdes on Export O-oroogns (f) 11.2 1 b f 13.1.l,ovorsmnmets 151lopPl or:s 30 Pu510c Itbt SnrvicnF-niX.roarl Institataora - Total Dobt so-si-o10000 - T BDSDiro-t 3nveat. Ice.Public boos n.e.i.

T1t,IA :, 4..1 loan 662 Aver.go To-so of PfbliT DBbt

Acturl Debt NOtatanding 00 Dos. 31,1913 Iot. a- Prior Year W&D 2.7 2.7 2 . I 2X7TE'RNAL DEBT Dishbesed Only P-rreot AMort. 00 f Pr-ar Year W&D 41 .6 4.1 1.s 2 (. 1World BAko 61.8 4.4TIDA 98.G 6.9 IbRD DBbt CDt. & DibuhrnedOtber 0:ltilstoral 6.8 .5 as f .ublic Dlbt OB.D 5.7 5.7 5.3 4.1loosroansnets 1,129.3 fl a 0 Public Debt Snrvicn 10.7 11.2 14.( '2 1suppliors 91.4 0.4.-os7.:oi.ai Institutions 25.4 1.0 NDA Debt Ot. & DinburoedBonds as ji% bli DebtAGU 3. 7.9 7.3 h,' 6.10lbli5 Debts s.o.i -as b POle3 Debt Sorvioo I.0 1.1 1.0 1Total Plblit M&LT Debt t,412.9 100.0

Oth0r M&LT D0bt5Shaot-t.ro DBet (diNb. only)

. sot eppltoable e ntaff -estirtesot avAilablo - nil or negligible00- rasilable separately -- leen thoo half thsbht included io tatal smallest uoit shoes

If Col-ndap ypor/ Bab1oon of poy-enns deco for 1973 oo.erdc are eop-ees-d i0 -on-ta-t 1972/73 pBios end .ooheno.g

ANNEX IIPage 1

BANGLADESH

STATUS OF BANK GROUP OPERATIONS

A. IDA Credits to Bangladesh

Credit US$ MillionNumber Year Purpose Amount Undisbursed

339 1972 Cyclone Area Reconstruction(replaces Credit No. 228 of 1971) 25.0 24.8

340 1972 Chandpur Irrigation II (replacesCredit No. 184 of 1970) 13.0 12.0

341 1972 Tubewells (replaces Credit No. 208of 1970) 14.0 13.5

343 1972 Telecommunications (replaces partof Credit No. 192 of 1970) 7.3 5.1

345 1972 Reconstruction Imports 50.0 2803353 1973 Small-Scale Industry (replaces

Credit No. 192 of 1970) 3.0 2.7367 1973 Chittagong Water Supply (replaces

Credit No. 42 of 1963) 7.0 3.3368 1973 Dacca Water and Sewerage (replaces

Credit No. 41 of 1963) 13.2 6.1S-14 1973 Irrigation Engineering (replaces

Credits Nos. S-8 and S-10 of 1969and 1970) 3.15 0.5

381 1973 Foodgrain Storage (replaces CreditNo. 83 of 1966) 19.7 1.3

407 1973 Education (replaces Credit Nos. 49and 87 of 1964 and 1966) 21.0 13.2

408 1973 Highways (replaces Credit No. 53of 1964) 25.0 21.2

409 1973 Technical Assistance 4.0 4.0410 1973 Cereal Seeds 7.5 7.5424 1973 Inland Water Transport Rehabilitation 4.1 4.1

Total 216.95- b k147.6

/a Not yet effective.

1 Ab Prior to exchange adjustments.

ANNEX IIPage 2

B. Bank Loan and IDA Credits to Pakistan for Projects Wholly inthe Territory of Bangladesh (excluding credits being replaced by

credits to Bangladesh showJn in A abovea/

Credit US$ MiUionNumber Year Purpose Amount (Less Cancellations)

Bank IDA

11 1961 Dacca Irrigation 1.016 1961 Inland Ports 2.0

321 1962 Railways 4.739 1963 Brahmaputra Flood Control 5.040 1963 Chandpur Irrigation I 5.3

56 1964 Eastern Railway 10.065 1965 Inland Water Transport 5.2

136 1969 Technical Assistance (EPWAPDA) 2.0

4.7 30.5Of which has been repaid 1.6 0.1

Total outstanding /b 3.1 30.14

a/ In addition tn the loan and credits listed in Parts A and B of this Annex.

there were further lending operations to Pakistan for purposes whichbenefitted both Pakistan and Bangladesh.

b/ Prior to exchange adjustments.

C. Prjects in Execution

Cr. No. 339 Cyclone Area Reconstruction Project; US$25.0 MillionCredit of October 18, 1972; Closing Date: June 30, 1976

Credit became effective January 17, 1973. Implementation of the

original project, financed under Credit No. 228-PAK of 1971, had not commenced

1/ These notes are designed to inform the Executive Directors regarding theprogress of projects in execution, and in particular to report any pro-blems which are being encountered, and the action being taken to remedythem. They should be read in this sense, and with the understanding thatthey do not purport to present a balanced evaluation of strengths andweaknesses in project execution.

ANNEX IIPage 3

prior to the suspension of disbursements. The Government has now set up thecentral organization for the project; local consultants have recently beenemployed and task forces for execution of the subprojects are being assembled.Mobilization of staff and preparation of tender documents have begun. Fiftymiles of primary roads have been completed and 60 cyclone shelters are underconstruction and disbursements have begun to pick up. Construction-or the other subprojects commenced during the dry season beginning in Octooer1973, but project execution will be at least a full year behind the scheduleanticipated at reappraisal. Additional delays may occur if the current Problemof shortage of cement in Bangladesh cannot be quickly remedied.

Cr. No. 340 Chandpur Irrigation II Project; US$13.0 Million Credit ofOctober 18, 1972; Closing Date: December 31, 1977

Credit became effective January 17, 1973. WAhen work on the project,previously financed under Credit No. 184-PAK of 1970, was suspended in 1971,the major project civil works were about half completed. The contractormanufacturing equipment for the regulators had also made substantial progress.Interim financing by Sweden provided for reappointment of project consultants,resumption of construction and renegotiation of the contract for manufactureand installation of the equipment for the regulators. Manufacture of thisequipment has continued on schedule. While about three million dollars worthof construction have been completed and some additional contracts have beenawarded, preparations for tendering of most remaining construction contractsand orders for materials and equipment are only now underway. Constructionthis season will be delayed by shortage of cement.

Cr. No. 341 Tubewells Project; US,$14.0 Million Credit of November 6,1972, Closing Date: December 31, 1976

This project was originally financed by IDA Credit No. 208-PAKof 1970 and credits from Sweden and Canada. Although bids had been receivedin 1971, no contracts were awarded before the disturbances. The presentCredit, also in conjunption with a US$6 million Credit from Sweden and aUS$6 million grant from Canada, became effective on January 17, 1973. Contractsfor the major civil works have been awarded and construction has started.Due to problems in evaluating some of the provisions of the tender documentsfor pumps and engines, a second tendering will take place shortly. Due toinitial delays, present implementation is about one year behind schedule.

Cr. No. 343 Telecommunications Project; US$7.3 Million Credit ofNovember 15, 1972; Closing Date: December 31, 1975

Credit became effective January 17, 1973. The project was originallyfinanced as part of Credit No. 145-PAK of 1969, and goods and services valuedat about US$2.2 million were received in Dacca prior to suspension of dis-bursements. Orders have not yet been placed for the remaining equipment nowto be financed under Credit No. 343.

ANNEX IIPage 4

Cr. No. 345 Reconstruction Imports Project; US$50.0 Million Creditof November 30, 1972; Closing Date: August 31, 1974

Credit became effective January 30, 1973.

(see text paragraphs 4)4-56)

Cr. No. 353 Small-Scale Industry Project; US$3.0 Million Creditof January 19, 1973; Closing Date: June 30, 1976

Credit became effective May 14, 1973. The project was originallyfinanced by IDA Credit No. 192-PAK of 1970. By December 1971, when dis-bursements were suspended, 28 subprojects had been approved and US$2.19 millionhad been allocated to these projects. Work has now begun on reactivation ofthe int-errupted subprojects and canvassing for new subprojects. So far about70 applications have been submitted by entrepreneurs for a total of aboutUS$6 million equivalent, of which 10 applications for about US$1.0 million equiva-lent have been approved by the sponsoring agency (BSIC).

Cr. No. 367 Chittagong Water Supply Project; US$7.0 Million Creditof April 9, 1973; Closing Date: June 30, 1975

Credit became ef'fective June 7, 1973. The project was originallyfinarnced by IDA Credit No. 42-PAK of 1963. By December 1971, when disburse-m.ents were suspended, US$3.3 million had been disbursed. The project is nowabout 60 percent completed. Following reactivation the project has been proceedingon, schedule. However, difficulties in procuring cement and steel may causedelays during the current construction season.

Cr. No. 368 Dacca Water and Sewerage Project; US$13.2 Million Creditof April 9, 1973; Closing Date: June 30, 1975

Credit becamne effective June 7, 1973. The project was originallyfinanced by IDA Credit lo, 41--IFAK of 1963. By December 1971, when disbursements-ere suspended, US$6.0 million had been disbursed. The water supply portionof the project is now about 75 percent completed and the sewerage portion aboutL5 per..ant completed. Follo0-Vfng reactivation the project 'has been proceedingon schedale. However, difficulties in procuring cement and steel may causedelays durinig the current construction season.

Cr. No. S-1l1 Irrigation Engineering Project; US$3.15 Million Creditof April 9, 1973; Closing Date: July 31, 1975

Credit became effective July 9, 1973. When IDA suspended disbursementsunder the original credits to Pakistan (Credit Nos. S-8 and S-10) in December1971, the Dacca Southwest engineering was completed and the Karnafuli-Muhuri

ANNEX IIPage 5

engineering was about three quarters completed. Interim financing from Swedenallowved the work to continue. Feasibility studies for the Muhuri project, areexpected to be finished by December 1973. Studies for the Karnafuli andComilla-Noakhali project, are expected to be completed by May 1974. Theseproposed projects are scheduled to be appraised in FY74.

Cr. No. 381 Foodgrain Storage Project; US$19.7 Million Creditof May 18, 1973; Closing Date: December 31, 1974

Credit became effective July 17, 1973. The project was originallyfinanced by a US$19.2 million IDA Credit No. 83 of 1966 and a 25 million Krcnorcredit from the Kingdom of Sweden. The Kingdom of Sweden is again providinga 25 million Kronor Credit. The project is almost completed and 95 percentof the new IDA and Swedish credits will go towards repaying the previouscredits. The remaining funds (US$1.25 million from IDA and about US$0.25 millionequivalent from Sweden) will be used to pay outstanding bills f or work com-uleted crior to the war, completion of some supporting facilities for thegrain storage silos, replacement of spares and equipment damaged during thel:ar, strengthening of the infestation control system, and a feasibility studyfor a second grain storage project. Negotiations are underway with consultantsfor the feasibility study. Progress on the slrengthening of the jetty servingthe Chittagong silo has been delayed due to slow progress in the selection ofconsultants. Negotiations with these consultants have started.

Cr. No. 407 Education Project; US$21.0 Million Credit ofJune 29, 1973; Closing Date: June 30, 1978

Credit became effective September 27, 1973. The project was originallyfinancel >,z two IDA credits, Credits Nos. 49-PAK and 87-PAK. By December 1971,ihen disburseme:nts -were suspended, US$7.7 million had been disbursed out ofUS$17.5 million, the aggregate total of the two former credits. The creditadds US$3.5 million to the total of the original credits, in order to help the

government meet part of the increase in total project cost. Progress on theagricultural university portion of the project is being delayed due to diffi-culties in reaching agreement with the consultant architects on a revisedcontract. Constructioni may also be delayed due to shortage of building material.

Cr. No. 408 Highways Project; US$25.0 Million of June 29, 1973;Closing Date: December 31, 1977

Credit became effective September 27, 1973. The project was originallyfinanced by IDA Credit No. 53-PAK. By December 1971, when disbursements weresuspended, US$3.62 million had been disbursed, out of the original credit ofUS$22.5 million. The new credit adds US$2.5 million to the original creditamount, in order to help the government meet part of the increase in totalproject cost as a result of currency realignments. The project consultant'scontract and construction contracts for the Dacca-Chittagong road (except forpaving) were signed in September. The present implementation schedule involvesseveral months delay in the completion of the project but the closing dateshould not be affected.

ANNEX IIPage 6

Cr. No. 409 Technical Assistance Project; US$U.0 Million Creditof June 29, 1973; Closing Date: December 31, 1975

Credit became effective August 20, 1973. A consultants contracthas been signed for an inland water transport study, and work is under wayfor completing arrangements ifith consultants for a study of future requirementsof' the Dacca Water and Sewerage Authority, and for technical advisory servicesfor preparation of a proposed fertilizer project. Discussions are under wayconcerning several other subproject proposals.

Cr. No. 410 Cereal Seeds Project; US$7.5 Million Credit ofJune 29, 1973; Closing Date: December 31, 1977

The terminal date for the effectiveness of this Credit has beenpostponed from September 29 to January 31, 1974 due to difficulties inthe hiring of consultants.

Cr. No. 424 Inland Water Transport Rehabilitation Project;US$4.1 Million Credit of August 10, 1973; ClosingDate: December 31, 1975

Credit became effective September 27, 1973. Detailed investigationshave indicated that the damage to the Chittagong offshore oil terminal wasmore severe than previously believed. Alternative technical solutions arebeing studied, and the start of work on the restoration of the terminal orpossible alternative solutions will be delayed. Delays have also occurredin the Government's submission of comprehensive lists of spare parts, toolsand equipment to be procured under the Credit.

ANNEX III

BANGLADESH

IMPORTS PROGRAM CREDIT

Credit and Project Summary

Borrower: People's Republic of Bangladesh

Amount: US$50 million equivalent

Terms: Standard.

Project Description: Finance imports of fertilizers and rawmaterials for fertilizer production,industrial components, chemicals, rawmaterials, spare parts, balancing equip-ment and packing materials to supportBangladesh's priority import needs toimprove utilization of existing productivecapacity.

Procurement Arrangements: Mainly throagh Government agenciesand the Trading Corporation of Bangla-desh. For procurement of all itemsexceeding US$100,000 (except for proprie-tary items) offers from at least threemajor international suppliers will berequired. For imports under US$100,000.normal commercial channels will be used.Eligible categories of goods are shownin Annex X.

Estimated Disbursements: FY75 FY76

First Quarter - 8 4

Second Quarter - 12 1

Third Quarter 1 12 -

Fourth Quarter 4 8 -

5 40 5

ANNEX IV

BANGLADESH

PRDJECTED EXPORTS DURING THE FIRST FIVE-YEAR PLAN-(US$ Million)

Loss of Earnings Total ForeignMerchandise Due to Decline in Exchange

Year ExPorts Invisibles Terms of Trade Earnings

1973-74 417 33 450

1974-75 498 34 11 521

1975-76 547 37 17 567

1976-77 600 40 25 615

1977-78 660 42 36 666

Total 2,722 187 89 2,820

1/ Plan estimates. All exports are shown at F.O.B. prices.

ANNEX V

BANGLADESH

PROJECTED IMPORT REQUIREMENTS DURING THEFIRST FIVE-YEAR PLAN 1/

(US$ Million - 1972/73 Prices)

Interme- Consumption Total Non-Capital diate Goods Except Foodgrain

Goods Goods E'oodgrains Invisibles Imports

1973-74 242 279 166 33 720

197h-75 322 327 200 34 883

1975-76 356 363 221 37 977

1976-77 377 409 252 40 1,078

1977-78 390 387 260 42 1,079

1/ Plan estimates.The plan does not distribute Taka 45 crores of shipping and aviation capitalimports between the years of the plan. In the table above an approximate divi-sion is assumed in which expenditures on these items increases progressively.In addition, a contingency provision of Taka 100 crores made in the plan isassumed to be used to increase imports of intermediate and consumption goodseach by Taka 50 crores in 1977-78.

ANNEX VI

BA.NGLADESH

ESTIMATED COMK_T1ENTS BY SOURCEOF NON-FOOD AID 1973/74

(US$ million)

Commodity/Project Program Total

Australia 2 4 6Belgiun - 1 1Canada 5 30 35Denmark 5 2 7France 3 2 5

Germany 12 20 32Japan - 34 34Netherlands 2 4 6New Zealand - 1 1Norway - 3 3

Sweden 4 14 18U.K. 6 12 18U.S. 40 20 60EEC - 10 10ADB 30 - 30

UNDP 4 - 4IDA 30 50 80India 15 25 40Socialist Countries 10 10 20Miscellaneous 2 2 4

Sub-total 170 244 424

Add suppliers' credits 32 - 32

To-al 202 244 456

Source: Planning Commission, aid agencies and mission estimates.

IDA figure is indicative and may be less.

ANNEX VIITable 1

BANGLAJESH

PRODUCTION TREND OF SELECTED PUBLIC SECTOR UNITS

CampArison -with 1969/70(Pe-rcentage)

1973/74 Govern- 1972/73 1973/74 Govern-Industry Unit 1969/70 1972/73 ment Target - ment Target

Jute 1000 tons 587 446 568 76 97Textile - Yarn million lbs. 106 81 100 77 94

- Cloth million yds. 59 57 80 97 136Steel - Ingot!/ 1000 tons 54 68 80 126 148

- M.S. Rods and Sections2/ 1000 tons 40 18 40 46 100Engineering - Commercial Vehicles number n.a. 1200 3500 n.a. n.a.

- Shipbuilding million taka 20 27 81 134 405- Diesel Eigines number 1279 1353 1750 106 137

Paper - Writing and PrintingPaper 1000 tons 31 21 39 3/ 68 127

-Newsprint 1000 tons 44 30 43 68 97Fertilizer47 1000 tons 96 277 415 289 433Pharmaceuticals - Tablets million nos. 326 81 200 25 61

- Injectables million nos. 5 1 3 20 66Food - Edible Oil 1000 tons U1 14 30 129 278

- Fish Processing 1000 lbs. 2502 1181 1620 47 65- Tobacco million sticks 1241 1145 3052 92 246- Flour and Confectionary 1000 tons 13 14 15 104 113- Beverages 1000 bottles 622 396 540 64 87

Sugar 1000 tons 93 20 100 21 108Cement 1000 tons 53 29 168 i/ 55 226

17 The Chittagong Steel Mill.Re- Rolling Mills.

3/ This includes a new mill .4Ach is expected to start production in 1973/74.*/ Nurmber of units are: 1 iunit for 1969/70, 2 for 1972/73 and 3 for 1973/74e;'/ This includes a new plTuit tThich is eaxpected to start production in 1973/74.

Soucrce: Plrmnning Comnissin, Public. Sector Corporations and mission estimates.

ANNEX VII

Table 2BANGLADESH

CAPACITY UTILIZATION RATIO (%) SELECTEDINDUSTRIES

Actual Actual Actual Target

Industry 1969/70 1971/72 1972/73 1973/74

Jute=/ 69 35 48 57

TextileYarn_/ 79 31 60 66Cloth 1/ 48 19 47 66

SteelIngot2/ 46 34 57 67M.S. Rod and Sections 30 n.a. 15 30

EngineeringCommercial Vehicle n.a. 10 41 1173/Diesel Engines 43 37 46 58

PaperWriting and Printing Paper 103 n.a. 69 80Newsprint 85 n.a. 58 83

Fertilizer 96 n.a. 68 69

PharmaceuticalsTablets 10 n.a. 3 6Injectables 116 n.a. 23 75

FoodEdible Oil 31 12 40 85Fish Processing 37 n.a. 17 24Tobacco 22 n.a. 21 55Flour and Confectionery 51 n.a. 53 58Beverages 68 n.a. 40 55

Sugar 55 :L14 11 60

Cement 35 n.a. 19 37

1 Based oII capacities calculated from numbers of installed spindles or loomsulLtiplied by attainable unit production.

',' Although original designed capacity of the Chittagong Steel Hill is 250,000 tonsper year, the ratios here are based oni esLimated physical capacity of 120,000 tons.

3/ Capacity is on a one shift basis.

Source: Planning Commission, Public Sector Corporations and mission estimates

ANNEX VIII

BANGIADESH

C AND F COMMODITY PRICES

(US $)

1973 as a PercentageUnit 1972 1973 of 1972

Raw Cotton Bale 170 220 129

Big Iron Ton 75 140 187

Steel Scrap Ton 70 120-130 179

Pulp Ton 180 300 167

Tallowi Ton 300 517 172

Cement Ton 21 35 167

Corrugated Iron Sheet Ton 240-265 310 123

Source: TCB and Sector Corporations

ANNEX IX

BANGLADESH

THE IMPORTS CONTROL SYSTIT1

1. The Government controls irmports of' raw materials and suppliesrequired by industrial users, including spare parts and replacement machinery.The Ministry- of Commerce is responsible for these controls, while the coordinatingagency for the allocation of foreign exchange is the Ministry of Finance, andthe Planning Commission provides overall coordination and policy guidance. Eachsix months, an Import Policy Order is issued by the Ministry of Commerce, aftercoordination among the ministries through a series of interministerial boardsand advisory councils, and after approval of the agreed proposals by the Cabinet.The Policy Order sets out who may import what, and what funds ifill be used topay for it.

2. After being notified that he has received an allocation for import,the potential end-user must apply for his import license. In many cases,further sub-allocations must be made, e.g. by the Chief Controller of Importsand Exports (CCIE) for the private sector or Public Sector Corporations fortheir subordinate units. The basis for an allocation is normally the "entitlement'of a particular unit -- an amount of imported requirement determined by theunit's estimated needs for capacity operation on a one-shift basis. -With foreignexchange shortages, the allocation is usuaLlly for only a small percentage ofthe "entitlement"l.

3. An importer must apply for a license through a bank; this may meanpassing the request from a branch office to an off'ice in Dacca which can approachthe CCIEo Import licenses are issued only by the Licensing Board of the CCIE,which is an office of the Ministry of Commerce0 At this level, a request isexalmined to be sure thet it is wviithin both the entitternents and the allocationspreviously determined.

4. Units of public sector corporations may apply for licenses onlythrough their parent corporations. The license issuing procedure is frequentlytime consuming. 'When the license is passed back tc. the end-user, he mustthen apply for a letter of credit, throuOh his bank. If he is a public sectorunit, this must pass again through the parent corporation.

5. A letter of credit, however, cEn be opened only through thenationalized commercial bank ''designated' to handle all letters of credit forthat particular item. There is a designated bank for every item0 If thedesignated bank for the particular item to be imported is not the importer'sregular bank, he must have his application for a letter of credit approved bythe designated bank, probably after approval by his owt7n bank0 It must thenbe approved also by the Bangladesh Bank (the central bank)0

6. At any of these stages, the basic decision to import the item maybe called into question and reviewed, from the point of view of either continuedpriority of the import or continued availability of foreign exchange funds tofinance it.

BANIGLhDESH ANNEX X

PROPOSED CATEGORIES liND CEILINGS-IMPORTS PROGRAM CREDIT

(US $ Million)

Total AnnualImport Recuirement Proposed Ceiling

A. Agriculture.

1. Fertilizers and raw materialsfor fertilizer manufacture. 38-4 17.0

B. Industry. Components, chemicals rawmaterials, spare parts, balancing equipment

and packing materials for:

1. Jute Industry. 12.8 10.0

Spare Parts and Chemicals.

2. Textile Industry0 111.5 12.0

Raw Cotton and Synthetic Pibers.Cotton Yarn and Synthetic Yarn.Balancing Equipment, other materials

and spare parts.

3. Paper and Board Industry. 12.9 800

PulpOther Materials, spare parts.

4. Food and ;llied Products Industry. 3.4 3.0

Materials and spare parts.

5. Chemical and 'harmaceutical Industry. 4503 10.0

Materials for soap0MaterialE for pharmaceuticalsOOther materieIs and spare parts(excluding materials for fertilizer)0

6. Sugar Industry. 2.2 2.0

Balancing enuipment, spare parts

and materials.

7. Steel and Foundry Industry. 260 10.0

Steel scraps.Pig :ron.Billets.

8. Commercial Vehicle Industry. 22.7 20.0

CED Components for assembly.

9. Shipbuilding Industry. 3.7 1.0

10. Small-Scale Industry. 2.0 1.0

BSIC

11. Construction Industry. 47.9 15.0

Cement0Corrugated Iron Sheets.

TOThL 329.3 109.0

ANNrEX XIBANGLADESH Page 1

INTENSIVE SURVEY OF TEXTILE AND JUTEINDUSTRIES

0.1 As a part of appraisal of the Imports Program credit, the missionwhich visited Bangladesh in September/October 1973 made an intensive surveyof the textile and jute industries in Bangladesh in order to better assessthe industrial situation through analysing problems in these sample industriesand evaluating government policies that affected them. These industrieswere selected for this survey from the industries covered by the creditbecause of their importance to the economy. The survey has revealed thatthe industries have suffered from various problems, a major one beingshortages of imported inputs.

I. The Textile Industry

1.1 The textile industry in Bangladesh consists of the mill sectorand the handloom sector. After independence the mills were nationalized andplaced under the jurisdiction of the Bangladesh Textile Industries Corporation.The mill sector comprises some 60 mills which employ about 54,000 people,makingit the second largest modern sector industry after the jute industry.

A. Cotton Textile Mills 491. In operation

- spinning mills 23- spinning and weaving

mills 22

2. Under Construction 4

B. Specialized Mills (synthetic 11yarn production, towelweaving, etc.)

1. In operation 9

2. Under construction 2

The handloom - or cottage industries - sector, comprises an estimated250,000 handlooms and employs some 500,000 workers. Although handloom weavingis done on a small scale by traditional techniques, this sector is the majorproducer of cloth in Bangladesh, accounting for over 80 percent of totalproduction.

1.2 Before independence all mills were privately owned except fortwo mills th.t belonged to the East Pakistan Industrial Development Corporation.With nationalization, the Government appointed general managers of the mills,retaining former owners as managers except in all but 24 mills that wereowned by non-Bengalis and abandoned by them after the war. The Textile

ANNEX XIPage 2

Industries Corporation guides and coordinates mills in various aspects

of marnagement. It recomrmends investments in mills to the Government, has

recently taken over the import and distribution o-f raw cotton to the mnills,

and allocates foreign exchange to the mills for other imports. It coordinates

production plans and the labor pol:cies of the mills. It assists mills in

obtaining finance from banks, including working capital. In addition, mills

are subject to institutional controls in marketing. Mills can sell yarn only

to the Bangladesh Small Industries Corporation and to weavers' cooperatives,

and cloth only to the Col-sumers Sunpl--es Corporation. Prices for their

p-roducts have to be appro-vc by the Government. However, the division of

responsibility between the Textile Industries Corporation and individual mills

is still fluid, and the optimum allocation of responsibility for the industry

-;s still an opern question.

1 3 Handloom weavers are left free except in the purchase of yarn.

Yarn shortages have been the key problem for the nandloom sector. To cope

with the shortages, the Government has introduced control in the distribution

of yarn. Both local and imported yarn is channeled through the Bangladesh

;Small Industries Corporation or cooperatives. This control has brought

inconvenience to handloorn weavers because they have had to arrange credit and

transportation by themselves, whereas previously, traders provided these

services. Since most weavers have found these arrangements difficult to cope

with, mills have ended up keeping about two months production of yarn in stock

despite the general shortage of yarn0 Notwithstanding the control system,

yarn has been traded on the unofficial market at about twice or more the

official prices (Table 1). This in turn has affected cloth prices for consumers.

Production and per capita consumptiorn

;,while cottvon cloth production (Tables 2 and 3) in the mills in

1972/73 alnost returned to the pre-war 1969/70 level, yarn production reached

only 70 percent of that year's level. These production levels were 60 percent

of attainable production by existing facilities for yarn and 47 percent for

_loth. Since tne mills are the largest source of yarn supply for handloom

weavers, low yarn production curtailed their cloth production. To fill the

shortfall of yarn supply, the Government authorized the Trading Corporation

of Bangladesh (TCB) to import yarn and cloth equivalent to 257 million yards

of cloth in 1972/73 in comparison with 179 million yards of cloth equivalent

purch-,ased in 1968/t69 from what was then West Pakistan, and abroad. Based

on this data, total cloth availsbility in 1972/73 is estimated at about 500

mz..L'0 yards ofr cloth or u.7 yards per canita. This is lower than an

estimiated o.9 yards Der capita for 1_69/70 and a Good deal lower than the

7! ycrds att<ained in 9i,/'&1. As most of the foreign exchange allocation

.>r the imports of y;rn and cLoth was m.de in the Iatter half of 1972/73,

-ctual availability for the year was probably even lower.

~fficiency of the Industry

1.5 The products of cotton textile mills in Bangladesh appear uncompetitive

with imported gooas. Production costs per pound of yarn in 1972 were between

70 and 100 percent higher than the costs of imoorted

ANNEX XIPage 3

yarn (Table 4). MYainly due to high yarn prices, ex-mill prices of locallyproduced cloth were on an average double those of imported cloth. When in1972 the Corporation proposed an investment program for the Five YearDevelopment Plan, it emphasized the foreign exchange saving that could beachieved by expanded local production. In the proposal, which assumesan over-optimistic efficiency for new mills (see para. 1.16), the foreignexchange costs of producing a pound of yarn were calculated at 49 to 53 cents,as compared to a cost of imported yarn of 72 cents, per pound. However, theforeign exchange production cost included only cotton and excluded importedequipment and parts. As the estimated cost for these items roughly fills thegap between the costs of imported cotton and yarn, there seems to be littleforeign exchange savings. For locally weaved cloth, the foreign exchangecost per yard estimated at 26 cents, compares with the actual cost of importedcloth at 20 to 30 cents. Thus, the industry is not yet competitive enoughto yield clear benefits, either to consumers in terms of market prices, orin terms of saving foreign exchange for the country.

Problems of the Industry

1 . The low levels of production are the results of several problems.According to the Corporation 28 percent of available spindle hours were lostfor spinning in 1972/73, to which electric power shortages are estimated tohave contributed 10 percent, labor troubles 3 percent, and other reasons(mostly mechanical breakdowns and shortages of raw materials and spare parts)15 percent. For weaving, 40 percent of loom hours available were lost, towhich power shortages are estimated to have contributed 12 percent, labortroubles 6 percent, and other reasons including shortages of yarn 22 percent.In addition to these problems, poor and variable quality of cotton, scarcityof managerial and technical staff, and poor production control have affectedthe production level.

1.7 The problem of electric power has stemmed mainly from reasons externalto the industry. Power supply has been frequently interrupted and voltage hasfluctuated because mechanical troubles have occurred, and the low-capacitytransmission network has become a bottleneck.

1 .8 Labor troubles are widely spread over all industries and theircomplete solution requires government policy initiatives. Labor problems haveboth contributed to and been exacerbated by high levels of inflation. Thetroubles have not only stopped production by strikes and gheraos, butproductivity has also been reduced by go-slows and absenteism. This problemhas arisen partly because workers at one mill demand benefits equal to thoseat all other mills, and managers have had to wait for long periods of time forinstructions from the Government in negotiating with workers. To improvethe situation, the Corporation has studied wage practices and is planning tointroduce a uniform wage structure. It is also considering creating an incentivescheme for greater production.

ANTNEX XI

1.9 The industry is responsible for solving problems arising frommechanical troubles and spares shortages except insofar as imports arecontrolled by the Government. Of the 45 cotton textile mills, 19 were builtbefore the mid-1950s, including seven as early as the 1930s. The capacityof these old mills is 322,900 spindles and 3,300 looms, accounting for 39percent of spindles and 47 percent of looms currently installed. Accordingto the Corporation, 75,000 spindles (9 percent of the total installed) and1 .00C0 l3ooms ( iL percent o-f thie total installed) are too old to be used.The capacitv ta-x scheme, vhicll cperated oefore independence and under whichtax w'-s levied on operaboe production capacity, worked to the detriment ofthe mzchines, particularly looms, because weavers kept the number of loomsto a mi-ninwun or even less by dismantling many looms to avoid taxation. Poor

maintenance has added to the problem. Because most mills did not have a

scheduled maintenance program, they have repaired machinery only when break-downs occurred. Moreover, the uncertainty prevailing in the two years beforeindependen,e led managers to avoid expenditure for maintenance. Thus,the situation after the was was particularly bad. As late as March 1973 about2C percent of installed spindles and 40 percent of looms were lying idledue to lack of spare parts. At that time, scarcity of consumable parts was so

severe that five or six year old parts were often used even though they werethemselves worn out.

1o10 In 1972/73, the Government allocated about US$2 million, including

US$1.5 million out of the IDA credit, for the import of parts. However, thisamount was not enough to improve substantially the condition of most of themachinery. Mills used this allocation mainly for importing consumable parts,leaving little for machine repair. Accordingly, 100,000 spindles and 2,000looms are still estimated to be out of operation due to lack of spare parts,and mary working machines are not in desirable operating condition. Old

and poorly maintained machinery not only limits the available productioncapacity but also affects productivity and product quality. Iumprovement ofexisting equipment should receive high priority.

1.11 Raw cotton is an important factor in yarn production accountingfor about 60 percent of total costs. The sharp increase in internationalcotton prices, together with the devaluation of the Taka, significantlyraised the costs of yarn production, and consequently of cloth production.However, the cost increases by themselves did not directly affect theindustry because the Government approved increased sales prices of yarn andcloth. There were other problems; prior to independence, the industryprocured raw cotton from West Pakistan, but since the war it has to import

from various countries: USA, Brazil, India, USSR, Iran, Australia, Sudan,Uganda, Egypt, and Greece. Miills took time and experienced problems inadjusting to the use of new and various kinds of cotton. A major problemconcerning raw cotton resulted from the inferior quality cotton which Bangladeshwas able to purchase. Cotton imported with severely limited foreign exchange,or with foreign assistance, often was of inadequate type. The fiber was tooshort for exfiple, cotton imported from USiA and India, major suppliers,had fiber of 5/6" to 5/16" length which is technically not suitable to spininto yarn popular in Bangladesh with 32, 40 or higher counts. The fiber was

inferior in quality; it had many slubs ana neps ana cointained a lot of foreign

ANNEX XIPage5

it had many slubs and neps and contained a lot of foreign matter. As aresult of these defects in cotton, productivity has been low and productquality has also become inferior. As for productivity, yarn breakagein the spinning process took place so often that more than one worker perspinning frame is required, wnich is too high for normal productionconditions in Bangladesh. As for product quality, yarn was weak anduneven in size. The inferior quality yarn which resulted then affectedproductivity and product quality of the weaving process. Although theseproblems can be mitigated by better process control, only the import ofbetter cotton can really solve the problem. This may not be easy in timesof short supply.

1.12 Given the difficulties in procuring raw cotton, the industryis planning to use more synthetic fibers where possible. Synthetic fiberis more economical than cotton. Polynosic fiber can be imported at 8 percentlower cost than cotton, and viscose fiber 19 percent lower. The wastagerate of these fibers (10 - 18 percent) is less than that of cotton (20 - 36percent). Consequently, according to estimates made by the Corporation,production cost of yarn blended with 60 percent cotton and 40 percentpolynosic fiber is about 95 percent of that of 100 percent cotton yarn, andthat of yarn blended with 60 percent cotton and 40 percent viscose fiber is89 to 93 percent of that of 100 percent cotton. If the ratio of cotton isreduced from 60 to 40 percent, these production costs decrease a few morepercentage points. Technically, although these synthetic fibers reducestrength when they are moistened, there is no problem if they are blended.Consumers have accepted synthetic fiber blended cloth favorably, as well ascloth made of 100 percent synthetic yarns. Because experiments of usingsynthetic fibers in some mills have been successful, the Corporation isplanning to use these fibers on a large scale. Although old equipment cannottechnically use synthetic fibers, the Corporation estimates 30 percent ofoperative spinning capacity can use them. Fewer than ten mills have air-conditioning facilities and productivity in other mills is slightly, but notcrucially, affected when they use synthetic fiber. Airconditioning is alsodesirable for cotton yarn production so, investment in it should be economic.

1,13 Scarcity of managerial and technical staff has hurt the industry.Before independence, non-Bengalis held a significant portion of managerialand technical posts both in non-Bengali owned mills and in locally ownedmills. Although these posts have been filled by Bengali mill workers, itmay take some time for them to adjust to their responsibilities. Moreover,according to the Corporation, at least 20 percent of the posts are stillvacant or temporarily manned by unqualified persons. Existing trainingschemes are not adequate to meet the industry's requirements fully, evenunder normal circumstances. Two training institutes produce only 50 graduatesanually and the training is inadequate; there is no program for trainingtecnnical staff. A normal worker may be assigned, for instance,to machine maintenance master only to reward his good performance asweaver, and not have any mechanical engineering background. In spiteof this scarcity, the Five Year Plan includes investment in additional400,000 spindles and 4,000 looms. The total personnel requirement for theplanned new mills may amount to 300 workers. The Plan lacks a specific

ANNEX XIPage 6

progrmn to train these personnel. The Government should train more managerialand technical staff before launching on expansion of production capacity.

71.14 Proper production control is almost absent in Bangladesh, in spiteof its importance for productivity and quality. Machinery should be operatedin conditions (i.e. tension given to fiber) suitable to each kind of rawmaterial used. Marn mills lack air conditioning and clean facilities,stop motion, knotter and other equipment and tools that are necessary tosecure productivity and quality. Machines are not well maintained. This problemcarnnot be solved by supuly of spare parts and equipment alon : a maintenancepro-ram should be introduced and training shoulcd be provided for maintenancestaff. Quality control is necessary not only to maintain the merchandisevalue but also to attain high productivity. However, there are no guidelinesin Bangladesh. In addition to investing in a minimum of equipment and toolsand improving technical competency of staff, formulating guidelines inmachine maintenance and quality control is imperative. Incentives should beoffered to mills and to workers for greater production and better quality.

Strategies for Development

1.15 The Government envisages total investment of US$143.1 millionequivalent in the industry over 1973-78, of which $73.2 million is in foreignexchange. There are two problems in this plan. The first question is whetherthe many problems in the industry stated earlier can be attacked in the planperiod. Tne plan includes $13.1 million for balancing, modernization andreplacement of existing equipment, and $1.3 million for research and development,rhich may include training of staff and formulating quality standards. However,*no concrete program has yet been formulated to utilize these funds effectivelyin order to solve these problems. This may be an area where technical assistanceneeds could become crucial.

1.1-i Second, there is a problem of policy: whether expanding local

cloth demand should be met by imported cloth or by cloth produced locallyfrom imported cotton and synthetic fiber. Investments in new mills, w-hichconstitute $1285. million or 90 percent of the total planned investment in theindustry, are aimed at; expanding local manufacturing capacity including increasesin the n-umber of spindles by i4O0,000 from the existing 836,000 and the numberof looms by L,000 from 7,000 and establishing twio specialized mills. The Govern-ment plans, by these investments, to meet the target per capita consumption of8.8 yards for 85.4 million population in 1977/78 exclusively from local productionof yarn and cloth. Concerning this decision of total local production, theCorpo ralion, in its proposal for the five year plan, carried out in 1972 a:omparat:ve cost aralysis of importing cloth, processing imported yarn, and

processing imported cotton. Hlaowever, this analysis is; faulty in some

-ssuwmpions and argument. ['ox example, one of -che major assumptions is thatnewly established mills will be efficient with only 5 perce-t+ idle capacityand their per pound production cost (other than raw cotton cost) will be only55 percent of actual costs in 1973. This may not be realistic because manyproblems stated earlier are not likely to be solved to this extent. BecauseLocal production is not now competitive with imports anra thus does not necessarilysave foriegn exchange problems, improvemeint of productivity by solving theseproblems should receive the first priority. Only after improving the use ofexisting capacity should major new investments be made.

ANNEX XIPage 7

1,17 The t.ssociation has suggested to the Government that it adopt threegroups of programs to attack current problems. The first group would be comprisedof programs to solve external problems of the industry, the powier problem andlabor troubles. Here, the main responsibility rests with the Government. Thesecond group would comprise programs concerning technical ability of industryin procuring raw cotton, controlling production lines and production quality,and maintaining machinery and equipment. The Corporation, in collaboration..ith mills, should establish a training scheme for managerial and technicalstaff, establish standards for production control, quality control andmaintenance of machinery and equipment, streamline responsibilities of theCorporation and individual mills, and create incentive schemes. In carryingout this task, the Corporation may require assistance of foreign experts. Thethird group would be comprised of programs to improve production facilities.Following a survey on present condition of existing facilities, the Corporationshould draw up a plan for replacement, modernization, and balancing of them.This task mLay require technical assistance of foreign experts and foreignfirnancial assistance for importing necessary machinery, equipment and spares.

1.18 IDA may be able to assist the industry through such programs. Itcculd provide services of foreign experts through the Technical AssistanceCredit and foreign exchange financing through program credits. All thisassistance can benefit the economy a good deal by rehabilitating the textileindustry which is one of the most important industries in Bangladesh writhrespect to potential foreign exchange savings, employment, and supply ofessential consumer goods. The Corporation is one of the most competentamong sector corporations and appears to be capable of handling the programsand the recessary foreign assistance.

II. The Jute Industry

2.1 In Bangladesh jute manufacturing is the largest industry, with161,000 workers, and the main foreign exchange earner, with about US$185 millionexport in. 1972/73 (50 percent of total export.). The industry converts about halfthe locally grown jute into hessian,sacking and carpet backing. The other halfis exported as jute Der se. There are 76 jute mills in Bangladesh, of which

w4 were previously owned by non-Bengalis. After the war, all the 76 mills werenationalized, and put under the management of the Bangladesh Jute MillsCorporation. Public sector management was not new to the industry, becauseeight mills were totally owned and managed by the former East Pa.kistanIndustrial Development Corporation, and 22 mills were joint ventures of theCorporation with private industrialists.

The Bank Survey

2.2 The World Bank made a survey (November 1972 to January 1973) con-cerning agricultural and industrial aspects of the jute trade in the world,1devoting a. substantial portion to the Bangladesh jute industry. The report_/of the survey revealed three problem areas of this industry. First, sincethe export bonus system that benefitted the industry before the war wasabolished, and the currency was devalued, the effective exchange rate for theindustry has become unfavorable to it, and the industry has suffered losses.Second, departure of experienced non-Bengali managers and engineers, labor

I/ The World Jute Economy (11ha-RD), July 12, 1973

ANNEX XIPage o

trcu:: es, power shortages, and scarcity of spare parts have constrainedp-roduction. Third, because the industry lacks close contacts with world

markets, and therefore market intelligence, the industry has not been able

to keep up w.ith world market trends. The report recommended: that the

Government reassess its foreign exchange policy insofar as it adversely

affects the industry; that the Government and/or the Corporation should

assist a-nd coordinate mill operaticns, establish a uniform labor code, and

train managers; and, that the Corporation should allow competent mills to

nego.tiate their ovm export contracts, and establish a central marketingorganization for weak nills.

2.3 The problems revealed by the report still remain, and no

significant steps have yet been taken to solve them. The Five-Year Development

Plan (1973-1978), which the Cabinet approved in. November 1973, includes a list of

programi;s. It sets production target for jute producers in 1977/78 at 766,000

-tons, about 30 percent larger than the output of 587,500 tons in 1969/70, It

plans to develop markets by reducing cost of raw. jute, substantially increasing

industrial efficiency, and promoting exports more vigorously. The plan also

includes investment of about $17.8 million for 1436 looms, only 6 percent of

the number of presently installed looms. A higher amount, US$20 million, is

allocated for balancing, modernization and replacement of existing equipment.

To solve thle management problem, it plans to establish a jute industries

development center. It also intends to expand research and development programs.

Production and Export

2.4 11,Reflecting the unsatisfactory industrial situation, with many

unsolved problems continuing, production and export of the industry have returned

to only about 80 percent of the pre-war 1969/70 levels (tables 5 and 6). onlywith respect to carpet backing, which accounts for a relatively small tonnage,

have production and export surpassed the 1969/70 levels in 1972/73. Thisreflects the strong pull of market demand, which has been much stronger for

carpet backing than for hessian and sacking. Overall, the demand for jute

products has been practically stagnant, and production efficiency or price

competitiveness greatly affects export performance of both Bangladesh and

India. Inc:.ease in export sa-les by one essentially means a change in its

share in the stagnant market at the expense of the other. Bangladesh had been

able to expand its share due to its relatively favorable competitive position

before the war; it has not been successful since then due to the unfavorable

foreign exchange rate for this industry since 1971.

Financial Problems

2.5 Although the report concluded that the industry must reduce its

export prices in order to secure markets which have been quickly invaded

by synthetic substitutes, the actual prices increased as shown in table 7. In

1972/73, the prices have been determined mostly by Indian exports which were

dominant in world markets. Bangladesh prices followed the Indian, but with

large losses. The mills recorded in 1971/72 a. loss Of US$11.4 million equivalent

on US$91.0 -worth of sales. In 1972/73, the loss increased to US$28.6 million.

ANNEX XIPage 9

These losses have caused two problems. First, because all mills arefinancially autonomous, even though they are owned by the Government, theirlosses have not only increased the interest burden for bank borrowing, theyhave also endangered the financial position of some mills. The financialposition at the end of the fiscal year 1971/72, as shown in a consolidatedbalance sheet of all mills, was not sound, with a 70:30 debt-equity ratio,and it has further deteriorated in 1972/73. Second, under a loss-dominantsituation, financial results fail to be an effective yardstick of efficientmill management, and only production levels receive management's attention.In the Bangladesh situation, production cost is not likely to be reducedsw'T:iciently to generate profit. Even before the war, production cost washigher than FOB price; but the latter was supplemented by export bonuses togenerate profit (table 7), Consequently, as the Bank report recommends, seriousthought should be given to foreign exchange policy insofar as it affects thisindustry.

Production Problems

2.6 Productivity has dropped significantly since the war. Comparisonof production costs (table 7) is not easy because devaluation of the taka inJanuary 1972 increased prices of stores which are imported, and of jute, whichcan be exported as such at higher prices; and it has also affected other costsindirectly. However, it may be noted that the rates of increase for wages andsalaries, for other conversion costs (except for sacking), and for total productioncosts are much higher than the devaluation rate of 58.4 percent. The lowerproductivity is more clearly presented in table 8. As showNn in the table, 18percent of installed looms still remained idle in July/August 1973 as comparedto 11 percent in 1969/70. Although productivity per loom was higher by 30percent in 1973 as compared to 1969/70 for carpet backing, the demand for whichincreased more quickly than the number of looms, that for hessian and sackingw.Tas about 20 percent lower. Productivity per worker was wJorse; it was 23 percentlower for all products together because of a sharp increase in the number ofworkers per loom.

2.7 The jute industry has faced similar production problems as thetextile industry in respect of electric power, machinery and spare parts, rawmaterials, labor, managerial and technical staff, and production control. Someof these problems have been intensified due to special circumstances in the juteindustry. About 30 percent of jute goods production capacity is located inKnulna area, where one of the large povier stations was shut down for over amonth in the first half of 1973 due to mechanical trouble. This, combined withothler minor but frequent electricity troubles, caused a time loss equivalentto 35,200 tons production, which is calculated at 17 percent of the productionactually achieved. Labor management has been particularly bad. According tothe Government, there are at least 8,000 excess laborers, equal to 5 percentof total employment in the industry, because of uncontrolled hiring of wJorkers.Poor labor management, together with general labor uncertainties in Bangladesh,caused a number of strikes, gheraos, lock-outs and go-slows, which resultedin a loss of production of at least 9,000 tons in the first half of 1973. Asfinancial difficulties have constrained their raw jute procurement, mills havetended to purchase low quality jute and also to keep less than normal amountsof stock. These difficulties have also affected the availability of spare parts.

ANIT EX XIPage 10

kLthouh _in;.cially capable nills have kept better stocks, many mills have

seen aable only to meet mirniunm current requirements, and have sufferedexcessive work stoppages.

2.8 To solve these and other production problems, the Corporation is

planning to strengthen its control and coordination of mills. To secure closer

contact with mills which are :Located in or around Dacca, Chittagong and Khulna,

it has created regional offices in each area. However, as each of these

offices is staffed by only one senior officer and very limited supporting

sta`ff, it functions as a reere liaison of'fice. If the rationalized industry

schemo is to work successfully, the Corporatiorl will have to intensify its

efforts to assist rmills.

2.9 Because jute goods are mainly exported, tne industry has to meet

cameetitive requirements. First, its products should have satisfactory

,uclity; and increasing competition from synthetic substitutes makes this all

the more important. Before the war, only 12 mills had equipment and systems

:for quality control. Since then, the Corporation has introduced quality

control urograins in 65 mills, but the results are not yet satisfactory. The

Corporation is now planning to invest about US$ 1 million eauivalent for

testing equipment, so that all mills can test their products on their own

premises. It is planning also to establish a grading scheme for mills and

their products, which can be used for export business. Second, in order todevelop new markets which can supplement stagnant markets for hessian and

sackzig, research and development efforts should be intensified. There are

plans for creating research centers, but no concrete step has been taken yet.

Mkarketing Problems

2.10 Export marketing has also been a weak area for the industry. Even

before the war, as it relied on buyers for its export sales, it lacked close

contact with consumer countries. Because of the lack of world market information

to the industry, Bangladesh has fallen behind in meeting increasing demand for

carpet backing. During the war and uncertainties preceding it, foreign buyers

lost confidence in Bangladesh as a reliable source of supply. Presently, the

Corporation is trying to establish a strong marketing system, but it has not

decided yet whether the exporting should be completely done by mills or be

centralized. While allowing mills to export by themselves, if they have

established channels, it centrally handles other exports at present. To obtain

market information, it is planning to set up offices abroad, but it has not

obtained government approval yet. The Corporation should be allowed to expedite

its efforts to establish a strong marketing system.

2.11 Transportation was a bottleneck in exoort after the war and it still

remains one. Until recently, transportation capacity of jute goods from mills

to ports for export was severely restricted due to war damage to water

transport, road transport and railway systems. Although this problem has been

more or less solved by noTw, shortages of vessel space to foreign markets still

remain. i\t tne time of wvar, ocean lines stopped sending vessels to Bangladesh,

acd some line-s nve not returned to the pre-Tewar service level yet. Mainly due

to this roasoAn, an avernge stock of 105,000 tons was kept in 1972/73 as against

0 3.000 tons in lc,9/70.

A201EX XIPage 1 1

Conclusions

2.12 The problems that the Bank survey identified still persist, andsome are -orse. Realizing these problems, the Government envisages solutions;however, few concrete steps have been taken. The Government and theCorpoiation should intensify their efforts. Insofar as foreign assistance isconcerned, the industry should receive high priority in the import of spareparts and balancing and modernizing equipment. In the short run, theefficiency of the industry could be improved by solving the problems ofelectric power, machinery and spare parts, raw materials, labor, managerialand technical staff, and production control. In the long run, however, ifindustrial protitability cannot be improved significantly, the foreign exchangepolicy for tnis industry may need re-examination.

ANNEX XIPage 12

Table 1

The Textile IndustryComparison of Cloth Prices: 1972

(US Cents per yard)

A. B.Average Ex-Mill Price Import Price (C&F) A/B

(percent)

Markin 47 21 224

Loeng-Cloth 53 22 240

Frolin 64 38 168

60 36 167

Soree 42 20 210

Source: The Textile Industries Corporation.

Table 2

The Textile IndustryInstalled and Wiorking Production Facilities in the Cotton Mills

Number of Spindles ('000) Number of LoomsInstalled/ Installed/

Installed 'dorking Working Installed Vlorking WorkingTpercent-nt)

1065/66 654 573 87.6 6,ooo 3,000 50.0

1'.WC9/70 750 660 88,0 7,000 3,000 42.9

1 ,O/71 830 650 77.8 7,000 4,000 57.1

1'7,1'/72 836 650) 77.8 7,000 3,000 42.9

1972/73 830 625 74-9 7,000 3,500 50.0

Soarce: The Textile Industries Corporation

ANNEX XIPage 13

Table 3

The Textile IndustryProduction in the Cotton Mills

Yarn Production (million lbs) Cloth Production (million yds)

Installed Actual/ Installed Actual/Capacity Actual Capacity Capacity Actual Capacity

Tp-erce~nt) (percent)

1965/66 98.1 73.0 75.7 108.0 40.0 37.0

1969/70 112.5 105.6 95.0 121.0 59.2 48.8

1970/71 125014 64.6 58.9 121.2 40.9 33.7

1971/72 125.)4 40.6 37.0 121.2 23.1 19.1

1972/73 125.4 81.0 60.2 121.2 57.0 47.1

Source: The Textile Industries Corporation

Table 4

The Textile Industry

Comparison of Local Production Costand Irnported Cost of Yarn : 1972

(US Cents per pound)

Local Production Cost Approved Unofficial ImportedRaw 1o-bton Duies and-- ZEHer Selling Market Yarn Cost

Count (C & F) charges Costs Total Price Price _ (C & F)

20's 50 28 32 105 105 185 53 - 65

3 ' t s 52 28 50 130 128 240 50 - 91

's( '3 55 28 65 148 150 291 53 - 87

'0 's o67 30 101 198 202 662 106 -123

Source: The Textile Industries Corporation

AnTEX XIPage 1)4

Table 5

The Jute IndustryProduction o-f' Jute Goods

(1,000 tons)

Carpet Comparison of total toHessian Sacking Backing Others Total 1969/70

(percent)

1i909/70 234.6 297.4 33.0 22.5 587.5 100.0

1 70/71 221.2 190.8 40.5 27.8 470.3 8o.1

1971/72 118.2 139.1 32.7 10.2 300.2 51.1

1972/73 155.1 210.4 53.8 27.0 446.3 76.0

Scurce: Bangladesh Jute Mills Association

Table 6

The Jute IndustryExport of Jute Goods

(1,000 tons)

Carpet Comparison of total toHessian Sacking Backing Others Total 1969/70

(percent)

1 909/70 204.2 232.0 34.0 28.0 498.2 100.0

1T70/71 172,6 146.1 -- 63.2 -- 381.9 76.7

i)71,'72 7'.7 100.5 32.7 11.1 221.0 44.4

1 9;72/73 1 63.1 169.8 50.0 28.7 411.6 82.6

a cuaze: Bangladesh Jute Mills Association

ANNEX XITable 7 Page 15

The Jute jnEComparison of Production Costs and Prices

Taka per ton 1/

Hessian Sacking Carpet Backing972/73 1972/73 T~ 972/73over over over

1969/70 1972/73 1969/70 1969/70 1972/73 1969/70 1969/70 1972/73 1969/70(percent) (percent) (percent:

Raw Material 165 802 1530 191 1321 2179 165

Jute 751 1450 1234 2016

Others 51 80 87 163

Wages and Salaries 213 442 828 187 711 1391 196

Other Conversions Cost 181 476 622 131 971 1746 180

Power 60 49 129 260

Stores 64 100 199 223

Others 352 473 643 1263

Total Cost TT 172T0 2980 _73 3003 5316 177

Export Price (FOB) 3939 207 1038 2622 253 2741 4700 171

(in US$) ($400) ($522) (131) ($218) ($347) (160) ($576) ($623) (109)

Export Bonus 972 _ 541 - 1355 -

Profit (loss) 330 (705) (141) (358) 1093 (616)

1/ Taka was devalued in January, 1972: per dollar rate of taka was T.h.76 before and isfloating around T. 7.5. In order to show actual changes in local production costs, thetable is presented in Taka.

Source: Data for 1969/70 are from a sample survey of 12 mills undertaken by Qazi KholiquzzamonAhmad of the Bangladesh Institute of Development Economics. Data for 1972/73 areaverages of 67 mills and obtained from the Corporation.

AhMEX XIPage 16

Table 8

The Jute IndusLComparison of .roducti4vit

CarpetHessian Sackin Backing Total

Worked looms as percentage otinstalled looms

- 1969/70 90.7 88.3 78.0 89.3

- June/August, 1973 85.5 78.9 73.8 82.3

(change in percentage) (-5.7) (-10.6) (-5.4) (-7.8)

Monthly output er workedloom

- 1969/70 1.59 -cons )4.23 tons 2.80 tons 2.40 tons

- June/August, 1973 1.2y 3.49 3.6h 2.28

(change-in percentage) (_18.9) (-17.5) (+30.0) (-5.0)

Monthly output ker

- 1969/70 370 kg

- June/-ugust, 1973 - - _ 208 kg

(change-in percentage) -_ - (-23.<)

;Iorker per f.orked loom

- 1969/70 _ _ 5.0 worker

- June/August, 1973 - - - 8.0 worker

(change-in percentage) - _ _ (+60.o)

Source: Data for 10969/70 are from a survey by <azi Kholiquzzernon Abnad, and those

for June/hugust, 1973 are from the Corporation.