Report No. 4708-BU

Burundi FManufacturing Industry: Performance,Policies and ProspectsMay 15, 1984

Eastern Africa Projects DepartmentIndustrial Development and Finance Division

FOR OFFICIAL USE ONLY

Document of the World Bank

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

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Currency Equivalents

Currency Unit

The Burundi Franc (FBu)

Exchange Rates

Through February 1973 - US$1.00 = FBu 87.5March 1973 - May 2, 1976 - US$1.00 = FBu 78.75

May 3, 1976 - November 23, 1983 - US$1.00 = FBu 90.0

Since November 1983 - SDR1.00 = FBu 122.7US$1.00 = FBu 118.4

Fiscal year

January 1 - December 31

FOR OFFICIAL USE ONLY

PREFACE

This report is an assessment of the performance of themanufacturing sector and of the program envisaged by the Government toaccelerate the pace of industrialization in Burundi. It is based on thefindings of a mission which visited Burundi in March 1983. The members ofthe mission were: Messrs. Chuong N. Phung (Mission Chief), Henk Koppen(Industrial Economist, Consultant), Fernan Ibanez (Industrial ProjectsSpecialist, Consultant) and Ms. Marie-1161ane Desgranges (Statistics,Consultant). The work of the mission was greatly facilitated by thesupport provided by all institutions involved in industrial development inBurundi. The report deals essentially with the current situation andmedium-term outlook for manufacturing during the Fourth Plan period(1983-87). A key factor behind the performance and competitiveness of thesector is the Government's industrial policies. Accordingly, the reportputs the emphasis on the administrative and policy framework with a view tosuggesting changes for a sound development of the sector.

An earlier draft of this report was discussed with the Governmentin February 1984. The comments received were incorporated in this finalversion.

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

BURUNDI

Manufacturing Industry: Performance, Policies and Prospects

Table of Content

Page No.

Glossary ............................... * .................. ......SUMMARY and CONCLUSIONS ................. ....................... i - viii

I. THE SETTING

Economic Structure ...... .......... * 1Major Constraints .. ...................... ...... 2Experience with Industrial Planning ........................ 3Recent Economic Developments ........... ................... 5Investment Climate .... 0.... * ................. ............... 7

II. PERFORMANCE AND ISSUES IN THE MANUFACTURING SECTOR

Industrial Structure .............. *............. * ..* .....* .. 8Recent Sector Developments ....... ................ 13Execution of the Third Development Plan .................... 14Issues in the Manufacturing Sector ............... O.*......... 18

(a) Unused Capacity ........................... 18(b) Dependence on Imports ... ........ .......... 18(c) Role of Government in Manufacturing ................. 19(d) Sector Effectiveness ................... ....... ... .. 20

III. POLICY FRAMEWORK AND INDUSTRIAL FINANCE

A. Industrial Policies * * * * * * *...... ,, .... 22

1. Description and Implementation ............ 22Import Licensing ...... .. . ............. 22Import Tariffs . .......... ...... , , 23Price Control , ................... ....... 23

- Investment Code . ............... ...... 24- Foreign Exchange Regulations ................... 26- Company Tax .............. .. ...... , , 26

Wage and Salary Policies ........... ......... 26Exchange Rate Policy ...... ... .. .*..* .......... 30Export Tax .................................. t. 31

2. Impact of Industrial Policies .... ....................... 31

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Page No.

B. Industrial Finance ............. ............. 34

1. Description of the Financial Sector . . 342. Interest Rates ............................... 353. Credit Regulation and Availability of

Finance for Industry ........................ 36

C. Industrial Promotion Efforts ........................... 38

1. Past Efforts and Present Situation .............. 382. Issues and Recommendations . . ....................... 39

IV. REGIONAL ARRANGEMENTS

A. Existing Arrangements...... 40

1. The Economic Community of the Great LakesCountries ................................. . 40

-The Executive Secretary ........................... 40- BDEGL ........ .. 41- Trade and Customs Cooperation Agreement . . 42

2. Other Regional Arrangements .. .42

- The Kagera Basin Organization (KBO) ............ 42- The Preferential Trade Area (PTA) ....... ....... 43

B. Effectiveness of Existing Arrangements ....... .... 43

V. PROSPECTS AND STRATEGY FOR INDUSTRIAL DEVELOPMENT

A. The Fourth Development Plan (1983-87) ............. 49

The Proposed Investment Program ............. .... 50

B. Elements of a Medium-Term Industrial Strategy .... .-... 55

1. Role of Industry ........... 552. Improvement of Existing Firms' Level of Operation... 563. Role of Government ................................. 574. Promotion of Small-Scale Manufacturing Enterprises.. 585* Industrial Policies . . ................. 59

Import Restrictions .................. . ..... . 59Incentives for Employment ........................ 60Investment Code .............. ............ 60Price Control .............. ................ 61Future Studies .............. ................ 61

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List of Text Tables

Table 1: Main Industrial Products, 1949 and 1960.Table 2: Structure and Growth of GDP, 1978-82.Table 3: Main Characteristics of the Manufacturing Sector, 1979-80.Table 4: Economic and Financial Characteristics of Selected Manufacturing

Enterprises, 1981.Table 5: Level of Formal Education in Manufacturing, 1980.Table 6: Execution of Industrial Projects under the Third Plan.Table 7: Financing of Industrial Investments, 1978-1982.Table 8: Value Added per Worker in Manufacturing: Selected Countries.Table 9: Benefits Granted Under the Investment Code, 1980-82.Table 10: Minimum Salary by Level of Skills as of May, 1982.Table 11: Monthly Salary of Skilled Labor by Sector, 1980.Table 12: Changes in Minimum Wage, 1977-82.Table 13: Average Monthly Earnings per Employee in Manufacturing in

Selected Countries, 1980.Table 14: Exchange Rate Movements of Burundi Franc vis-&-vis currencies

of Burundi's Major Trading Partners, 1977-82.Table 15: Some Results of a Survey of Enterprises, 1978.Table 16: Credit Outstanding by Branch of Activity, 1978-82.Table 17: Share of Selected African Countries in Burundi's External

Trade, 1978-82.Table 18: Composition of Burundi's Recorded Manufactured Exports, 1977-82.Table 19: Tariff Rates on Selected Manufactured Goods in Burundi and

Rwanda.Table 20: Investment and Employment Creation in Manufacturing During the

Third and Fourth Plans.Table 21: Largest Industrial Projects of the Fourth Plan.

ANNEX 1 : Note on Measurement of Protection in Burundi.

STATISTICAL APPENDIX

GLOSSARY

BBA Banque Belgo-AfricaineBanCoBu Banque Commerciale du BurundiBCB Banque de Credit de BujumburaBDEGL Banque de Developpement des Etats des Grands LacsBRB Banque de la Republique du Burundi

(Central Bank)BNDE Banque Nationale pour le D6veloppement Economique

(Development Bank o:E Burundi)BRD Banque Rwandaise de Digveloppement

(Development Bank of Rwanda)BRARUDI Brasserie de BurundiBBC Brown Boveri and CompanyCADEBU Caisse d'Epargne de BurundiCAMOFI Caisse de Mobilisation et de FinancementCPI Centre de Promotion IndustrielleCEPGL Communaut6 Economique des Pays des Grands LacsCOTEBU Complexe Textile du BurundiEAC East African CommunityFPE Fonds de Promotion EconomiqueINSS Institut National de Securite SocialeIRAZ Institut de Recherche Agricole et ZootechniqueKBO Kagera Basin OrganizationNIC National Investment CommitteeCPP Centre des Cheques PostauxOCIBU Office des Cultures Industrielles de BurundiEGL Energie des Grands LacsPTA Preferential Trade AreaSBF Societe Burundaise de FinancementSOCABU Societe d'assurances du BurundiSOFIDE Societe Financiare de Developpement

(Development Bank of Zaire)SOMEBU Societe Mixte d'Etudes du BurundiTIC Technical Investment CommitteeVERRUNDI Verrerie du Burundi

SUMMARY AND CONCLUSIONS

i. Burundi is about to embark on the! execution of its FourthDevelopment Plan (1983-87) which accords priority to the development ofmanufacturing industries. With a diminishing supply of arable land percapita and little mineral resources, the Government feels it has toaccelerate the pace of industrialization to provide employment for therapidly growing population. Thus, the Burundian planners propose that FBu18 billion (US$200 million), representing 18% of the country's GDP in 1981,be invested in manufacturing over the next five years and project that, by1987, 6,300 new jobs would be created in the sector. According to thePlan, industry should be able to expand at a real rate of 17% per year.Meeting these goals constitutes a formidable challenge for a sector whichemployed about 7,000 people and had a total value added of US$85 millionand exports of less than US$2.5 million in 1982.

ii. This report assesses the situation and prospects of manufacturingin Burundi. In assessing performance, the report puts the emphasis on theimpact of industrial policies which have received little attention so far.Yet, these influence the use of existing resources, affect the relativeprice of capital and labor, and determine the sector's effectiveness. Amain conclusion of the report is that changes in the policy framework areneeded to increase the contribution of manufacturing to the Government'sdevelopment objectives. Looking at the future, it also appears thatBurundi will face a difficult financial situation. Resources available fornew investments are not likely to be as abundant as in the recent past.Thus, another recurrent theme of this report is that in view of the highlevel of industrial investment in the past and the still limited absorptivecapacity of the sector, the Government should concentrate efforts onconsolidating past achievements. Existing firms operate, on average, atless than 50% capacity, with some as low as 15-20%. Improving theoperation of existing activities should therefore have the highestpriority. New investments should be de-emphasized and every effort shouldbe made to improve their quality. Although the long-term prospects of theBurundian economy depend to a large extent on a strong and efficientindustry, the physical and human constraints faced by the sector also implythat the pace of industrial development should not be forced.

The Setting

iii. Burundi is a small, densely populated and land-locked country

where over 4 million people live on a hilly territory of about 27,800 km2.GNP per capita, estimated at US$255 in 1982 is among the lowest in theworld. The population is overwhelmingly rural (95%) and derives itslivelihood from subsistence agriculture and coffee cultivation. Despitethe predominance of the rural economy (60% of GDP and 95% of exports),Burundi has a relatively developed services sector and a small but activemanufacturing sector which the Government is eager to promote asagricultural development is limited by soil detWerioration and erosion.

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In its efforts to accelerate industrial growth, the Government_ces many constraints:

(a) the quality of the industrial labor force is low and there is anacute shortage of managers;

(b) Burundi's small market and the low purchasing power of itspopulation limit investment opportunities; and

(c) Burundi's land-locked position and difficult transport conditionsincrease prices of imported inputs and often result in supplyinterruption, forcing firms to hold large stocks of inputs andspare parts, thus increasing costs.

v. Despite this difficult environment, the country does offercertain advantages for industrial development and it has recently attractedsome foreign investors of Asian origin from neighboring countries. Basicinfrastructure (electric power and water) is available in the major urbancenters at reasonable costs and a telephone system connects the capitalwith the United States, Europe and neighboring countries. Burundi'sland-locked position constitutes a natural protection for importsubstitution projects. Finally, domestic finance is readily available tomanufacturers through financial intermediaries engaged in term lending toindustry.

Government Policies

vi. The main characteristic of Burundi's incentives system is theblanket protection it provides to local manufacturers:

(a) The import licensing system protects the local manufactureragainst foreign competition. All imports require a license from theCentral Bank and this is not granted if there is a local manufacturer ableto satisfy the domestic market. If local demand is not met by localproduction, an import license is issued but only to the extent necessary tofill the gap; and

(b) The industrial licensing system protects the existingmanufacturer against excessive local competition. A license issued by theMinistry of Commerce and Industry is required to establish an industrialfirm and is generally not granted if an existing enterprise is able tosupply the domestic market.

vii. In such a protective environment, the Government controls pricesto prevent producers and traders from making excessive profits. All goodsrequire price approval by the Ministry of Commerce and Industry. Pricesare set on a "cost-plus" basis, with manufactures receiving a net profit

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margin of 10% to 20%. Gross wholesale and retail mark-ups are also set forimported products and vary between 15% and 30%. The measure has probablyhad some success in reducing profit margins in a few cases. However, asthe instructions given to manufacturers do not specify at what level ofcapacity utilization the prices should be calculated, the system actuallyallows firms operating at very low capacity to pass on all the costs andensures them a safe and adequate return.

viii. As a means of protecting domestic industry, tariffs are of littlerelevance as long as imports of competing products are strictly controlledor prohibited. They, nevertheless, serve to alleviate the impact of anyremaining foreign competition as imports competing with domestic products(i.e., those which are allowed in Burundi because the local manufacturercannot satisfy the domestic demand) have high import duties, generally inthe range of 50%-150%. In addition, the tariff structure of low duties onimports for industry and for machinery and eq[uipment tends to make importdependent processes relatively attractive and results in a bias against theintensive use of labor.

ix. The impact of the Investment Code on investment decisions isprobably overrated. The financial incentives offered are not in-considerable, but there is some doubt as to how real they are, given themonopolistic market structure and the "cost-plus" price control system.Equally, the benefit of a tax holiday may be more apparent than real inview of the relatively short period (five years) for which it is actuallygranted. Interest rates, on the other hand, are low and generally negativein real terms.

x. With regard to the exchange rate, the sharp appreciation of theUS dollar, to which the Burundi Franc was pegged until recently, had anunsteadying effect on industry over the last two to three years. Importsbecame cheaper but the effective banning of competing imports did notencourage Burundi's import substituting industries to pass along toconsumers the lower prices occasioned by exchange rate fluctuations. Theseindustries until very recently thus reaped the benefits of appreciation.Exporting industries had no such opportunity or protection against exchangerate changes. The substantial devaluation of the Burundi Franc (30%) andthe decision to link it to the SDR taken last November 1983 reduced thispossibility of super profit for import substituting industries. Althoughmanufactured exports from Burundi are currently insignificant, the new andmore realistic exchange rate should in the long run help shift resourcestoward export activities.

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xi. The Government fixes minimum wages and salaries for all levels ofskill in the public and private sectors. Currently, the minimum levelsare US$30/month for unskilled labor, US$51/month for skilled personnel andUS$253/month for professionals. While unskilled workers generally receivethe minimum wage, qualified labor is generally paid more, particularly inthe private sector. Burundian monthly earnings are higher than in someother African countries (e.g. Malawi and Mauritius) and considerably higherthan in Asian countries. In addition, employers are required to pay a taxon the wage bill. This payroll tax is progressive, starting at 5% if afirm's total wage bill is up to US$33,800 and rising to 30% for wage andsalary payments in excess of US$59,100.

Performance of the Manufacturing Sector

xii. During the period 1978-82, manufacturing expanded at an averageannual rate of 13% in real terms to reach 8% of GDP in 1982. This highgrowth yielded little structural change. Production remained typical ofthe first generation of import substitution, with exports limited toprocessed coffee, tea, cotton and a few other items. Capacity utilizationwas low because of the difficulty of finding equipment adapted to the smallsize of the domestic market and because of high tariff protection inneighboring countries. Many firms have the capacity to export (some wereeven designed to serve the Rwanda and Eastern Zaire markets) but produceonly for the small domestic market because the present incentives systemdoes not encourage them to look for foreign markets.

xiii. Except for a few firms, the manufacturing sector is inefficient.Despite the natural protection and high tariffs, many firms need prohi-bition of competing products to operate. Their production costs are high,in many cases exceeding the cif price of comparable imports, but thequality of the products is generally well below international standards.However, the sector is profitable, with profits before tax averaging 20% ofsales. This is due to the monopolistic situation enjoyed by most firms andthe "cost-plus" system of price control.

xiv. With the exception of coffee, cotton and tea processing,manufacturing industries are based on imported raw materials. Imports forindustry (raw materials, spare parts and equipment) accounted for anestimated 35% of total merchandise imports in 1981. Available data do notpermit a calculation of the net foreign exchange savings to the countryresulting from local manufacturing production, but these are probably smalland are produced at a high cost of domestic resources. The pastindiscriminate import substitution strategy should not continue asBurundi's already delicate balance of payments could further deteriorateand require the establishment of mechanisms to allocate scarce foreignexchange. Burundi needs to be more selective in the choice of importsubstitution projects and make a special effort to promote exports.

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Government's Industrial Investments

xv. Since the mid-1970s, the Government has emerged as a dominantforce in the development of manufacturing, participating in a number ofjoint ventures with foreign interests and establishing public enterprisesto manage large industrial operations that the private sector had avoidedbecause of their complex management and large financial requirements. Mostof these public enterprises have been created without an adequate financialstructure and/or sufficient qualified personnel and are now a drain on thebudget. The projects they manage are also often of doubtful viability. Inview of these disappointing results, the Fourth Plan's stated objective isto give the private sector a greater role in manufacturing. It furtherrecommends to make existing state-run manufacturing operations moreefficient, to sell off enterprises to private investors where possible, andto phase out those that are unlikely to become viable.

xvi. Despite the Plan's industrial strategy, the proposed industrialinvestment program shows that the Government's presence in manufacturingwould remain strong. Only 23% of the projected total investment isprivate, while 38% will be either fully or majority-owned by theGovernment. The remaining 39% has a public participation ranging from 25%to 50%. Equally disturbing is the fact that six projects in whichGovernment has an important participation, have a total investment cost ofFBu 13.6 billion (US$151 million, or 60% of the proposed investment programin industry), despite the fact that Burundi does not have the managementcapabilities to operate large industrial concerns. To be credible andattract foreign donors interested in the development of Burundi, the Planshould present a consistent picture and propose an investment program whichreflects its objectives.

xvii. The proposed investment program should be carefully re-examinedand tailored to better reflect conditions in Burundi. First, it will bedifficult to find the necessary financing. The program is too ambitious:US$200 million in 1981 prices, or the equival(ent of 4% of GDP per yearwhile during the Third Plan (1978-82) less than 2% of GDP was invested inmanufacturing annually. Second, the number of projects is too large: 62compared to 33 executed over the past five years. It is doubtful thatexisting institutions would be able to handle this many projects, some ofwhich have sophisticated technological and managerial requirements. Third,about 45% of the projects do not yet have feasLbility studies and shouldnot be launched unless their economic and financial viability have beenestablished; among those which have, a few are losing propositions andshould be redesigned or dropped. Finally, the average investment cost perjob of US$35,500 is very high and will not help solve the country'sunemployment problem. It is worth noting that although the averageinvestment cost per job created in manufacturing between 1977 and 1982 wasabout US$40,000, jobs created in projects promoted by private sector costUS$25,000.

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Elements of a Medium-Term Industrial Strategy

xviii. The role of Industry. Prospects for the Burundi economy remainclosely linked to the outlook of the agricultural sector. Food productionand the output and price of coffee will determine to a large extent thewell-being of the Burundian people for the foreseeable future. In thatcontext, an objective of industry should be to support the development andmodernization of agriculture. Local production of small agriculturalimplements, fertilizers, seed drillers, grain crushers should be given highpriority. In addition, basic consumer goods and those using local rawmaterials such as processing of vegetables, preserves, fruit juices,furniture and fixtures in wood and bamboo, pottery, manufacture of rope,cordage and related products from jute and cotton, etc., are types ofindustries which appear economically viable given the country's resourceavailability.

xix. With this role assigned to industry, a selective importsubstitution strategy should be pursued. However, because of the largeunused capacity in the manufacturing sector Burundi will need to promoteexports. In this strategy, priority should also be given to the develop-ment of small and medium enterprises because of their potential as a sourceof employment creation. A study on the SSE sector is currently beingundertaken by the Government with IDA financing and is expected to becompleted in late 1984. This study will serve as a basis for theformulation of a financial and technical assistance program to smallenterprises.

xx. Proposed Action Program. In the short-term, apart from the needto eliminate uneconomic projects from the current investment plan, the mostimportant tasks for Burundi are to (i) improve the country's capacity toprepare industrial projects and (ii) increase the capacity utilization ofexisting firms. In 1981, the Government created the Industrial PromotionCenter (CPI) and entrusted it with the task of preparing small and mediumindustrial projects. The center has recently become operational withtechnical assistance from UNIDO, but its mandate is too broad and coverseverything from project preparation and assistance to enterprises toindustrial research and management of industrial estates. It isrecommended that CPI's terms of reference be redesigned: CPI's main taskshould be to assist private promoters in the preparation of theirprojects. Specifically, CPI's activities should cover the following areas:

(i) Identification and preparation of small and medium industrialprojects for private promoters in coordination with banks andMinistries involved in industrial development;

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(ii) Technical advice to entrepreneurs in the selection andprocurement of equipment and in the preparation of loanrequests to local financial institutions;

(iii) Assistance to entrepreneurs in obtaining the necessaryadministrative clearings and authorizations, and during theimplementation of their projects;

(iv) Assistance to enterprises in difficulty in collaboration withthe Ministry of Commerce and Industry;

(v) Exploration of new local and foreign market outlets; and

(vi) Promotion, through fairs, visits, seminars etc., of investmentopportunities in Burundi.

xxi. To improve the capacity utilization of existing firms, theGovernment may consider taking the following actions:

(i) establishing "production and/or employment contracts" withselected firms whereby they will be granted financial and fiscaladvantages when achieving an agreed production or employmentprogram;

(ii) helping entrepreneurs (through CPI) improve the management oftheir operations and reduce production costs;

(iii) exploring new local and foreign markets and assisting Burundianfirms in concluding production arrangements with complementaryfirms in neighboring countries. Such arrrangements have beensuccessfully tried by a few firms in ZaLire.

xxii. In contrast to the actions proposed above, which can be takenrapidly and are quick yielding, some longer term actions are outlinedbelow.

(a) The incentives system. The Government should change the presentincentives system and lend more weight to the concept of economicefficiency. In terms of industrial policy, this entails moving away fromthe present indiscriminate protection of industry, exposing existing firmsto foreign competition, and adopting economic criteria for evaluating largepublic industrial projects. Although a shock treatment has been appliedwith success by some countries which opted to expose their manufacturingsector to foreign competition, in the case of Burundi a gradual approach isrecommended. As a first step, the Government could consider to graduallyrelax quantitative restrictions. This measure should be discussed with

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manufacturers and implemented over an agreed period, say five years, sothat an increasing proportion of domestic production is exposed to foreigncompetition every year. As a second step, the present tariff structure,which is uneven, should be replaced by a more uniform structure toestablish a more neutral incentives system for all manufacturing firms.This would, however, require a comprehensive review of Burundi's existingtariff system. The broad policy reforms recommended above would introducean element of competition in the domestic scene. Control over prices couldbe temporarily exercised on a no-objection basis, and gradually released asthe trade policy reforms are implemented. This would be a less costly andmore effective means of keeping prices down.

(b) Export Promotion. The reform discussed above combined with therecent devaluation should go a long way in removing the anti-export bias ofthe present incentives system and put exporters on a more equal footingrelative to import substituting industries. However, the Government canalso act on two other fronts to encourage exports. On the internationallevel, the Government should negotiate with its CEPGL (CommunauteEconomique des Pays des Grands Lacs) partners a reduction of tariffbarriers to regain access to this regional market which was the traditionalmarket for its industrial firms. On the national level, the Governmentshould revive the drawback system which apparently exists in thelegislation but is not known to local manufacturers. As a temporarymeasure to stimulate exports, the Government could also considerintroducing an export subsidy based on net foreign exchange earnings andfinanced out of the budget. Although such a subsidy would have to besubstantial to have an impact, its budgetary cost is likeky to be small.

(c) Employment Policy. To encourage employment, the Government mayconsider the following changes: (i) increase tariffs on capital goods andabolish exemptions on them; (ii) raise real interest rates on credits forequipment and capital goods to positive levels; and (iii) abolish thepayroll tax which is increasing labor costs. The revenue loss for thebudget would be marginal as the tax itself is small (about US$1.1 million ayear on average during 1979-81, or less than 1% of the budget), while 45%of it could be recuperated through higher profit tax (industrial firms aresubject to a profit tax of 45% and, by scrapping the payroll tax, theirtaxable profits will increase by the amount of the payroll tax). Inaddition, the revenue loss would be largely compensated by the extrarevenue brought by the proposed increase in duties on capital goods.

xxiii. Further studies. The implementation of part of this actionprogram will require detailed data and information that this report cannotprovide. It is, therefore, recommended that the following studies beundertaken:

(a) comprehensive tariff study;(b) study on the export potential of existing firms; and(c) study on the effective demand for small agricultural implements,

and the feasibility of producing such equipment in Burundi atprices competitive with imports.

I. THE SETTING

Economic Structure

1.01 With a GNP per capita of US$255 in 1982 (World Bank Atlas)Burundi is classified among the 25 Least Developed Countries in the world.Life expectancy is 45 years. Average daily per capita caloric intake isslightly below minimum levels. The population has been growing at a rateof 2.1% per year over the last decade and now about 4.4 million people livein a territory of 27,800 km2, making Burundi one of the most denselypopulated countries in Africa (150 inhabitants/km2); ninety five percent isrural and derives its livelihood from subsistence agriculture and coffeecultivation. Burundi's 200,000 urban residents mainly live in the capitalcity (Bujumbura), the most important business and industrial center.

1.02 Most of the economic activity in the country depends on the sizeof the coffee crop and the price it commands on the world markets. Cottonand tea are also grown for export, but they are still small foreignexchange earners, accounting for less than 10% of export receipts.Manufacturing exports are negligible. The most important food crops arebeans, potatoes, sorghum, maize, and manioc, the main staple of thepopulation.

1.03 Productivity in the rural sector is low because of poor soils,irregular rainfall and traditional cultivation methods, but adoption ofmodern agricultural techniques is hampered by the absence of practicaltraining and the weight of tradition. However, what is most worrisomeabout the Burundian situation is that agricultural development tends to bemore and more constrained by land availability and by the rapid degradationof agricultural soils due to high population pressure. 1/

1.04 Despite the predominance of the rural economy (60% of GDP andemploying 85% of the active population), Burundi has a relatively developedservices sector and a small but fast growing modern sector. Trade hasalways been important (although not fully documented in officialstatistics) and reflects to a large extent tlhe historical ties betweencountries in the region and a certain complemnentarity of their economies.This border trade plays an important role in redistributing food and othergoods from surplus to deficit areas to the mutual benefit of thepopulations concerned. Traditionally, it involved countries of theEconomic Community of the Great Lakes (Communaute Economique des pays desGrands Lacs - CEPGL), with Eastern Zaire supplying Burundi and Rwanda withcoffee for re-export and other foodstuffs in exchange for manufacturedgoods, but now includes Tanzania and Uganda as well. Industry has beengrowing at a fast annual real rate of 13% over the last five years and hasnow emerged as an important sector, accounting for 8% of GDP at factorcost. Production is typical of the first generation of importsubstitution: brewing, food processing, soaps, etc. Another sector ofimportance is public administration, which contributes only 4% to GDP butemploys 36% of the total salaried labor force.

1/ For a comprehensive analysis of the problems and prospects of theagricultural sector, see Burundi - Agricultural Sector Memorandum,World Bank.

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Major Constraints

1.05 The country has the basic infrastructure necessary forindustrialization. Electric power and water are available in the majorurban centers (Bujumbura and Gitega) and a telephone system connects thecapital with the United States, Europe and neighboring countries.Nevertheless, Burundian manufacturers work in a very difficult environment:

(a) There is an acute shortage of skilled personnel in all the sectorsof the economy. Training facilities for adults and unschooledprimary leavers are inadequate. Seventy five percent of the adultpopulation is illiterate, despite efforts to improve adulteducation. Enrollment in primary and secondary education (29% and2.5%, respectively) are among the lowest in the world;

(b) Burundi's small market and the low purchasing power of itspopulation limit investment opportunities and domestic demand,although firms manufacturing light consumer goods can and do takeadvantage of the sizable unrecorded trade between Burundi and itsneighbors;

(c) Last but not least, Burundi's land-locked position and difficulttransport conditions increase the prices of imported inputs andoften result in interruption of crucial supplies, forcing firms tohold large stocks of inputs and spare parts. Two main transportcorridors currently link Burundi to the Indian Ocean: 2/ theBujumbura-Kigoma-Dar-es-Salaam central route by lake and railthrough Tanzania (about 1,430 km), and the all-road northern routefrom Bujumbura to Mombasa through Rwanda, Uganda and Kenya (2,025km). Both routes suffer from serious bottlenecks. On the northernroute, some sections are in poor condition and transport is furthercomplicated by cumbersome and uncoordinated administrativeprocedures in the transmitted countries for customs formalities,border charges, axle loading and vehicle licensing. On the centralroute, the operating conditions of the railway are inefficientsince the breakup of the East African Railways Corporation whiletwo transhipments due to the use of lake and road transports delaytraffic and increase losses. These continuing difficulties haveoften been aggravated by other developments, such as the diversionof Zambian traffic to Dar-es-Salaam between 1975 and 1978, or theUganda-Tanzania war in 1978-79, which forced Burundi to relytemporarily on special expensive airlifts for much of its imports.Political difficulties and border closures are also frequent. Dueto the low level of traffic generated by Burundi (about 150,000tons) compared to the total traffic using the same routes, the

2/ Burundi does not use routes to the Atlantic Ocean via Zaire or tothe south via Zambia because they are as difficult, while thedistances and costs involved are greater than for those to theIndian Ocean.

Government can exert little influence over transport decisions madeby the countries on which it relies. The Central corridor offersBurundi the least cost alternative and all of its coffee exports isevacuated through that route. It is, however, less reliable andtakes longer than the northern route (1'5 to 21 days from Bujumburato Dar-es-Salaam normally, but the journey can take more than threemonths, depending on the operating conditions of the Dar-es-Salaamport or the railway). At present, about 40% of Burundi importsstill comes through Mombasa. In Burundi, the road network isadequate in length (5,500 km) for the country's needs,butmaintenance is difficult and costly due to heavy rains and thecountry's hilly terrain.

Experience with Industrial Planning

1.06 Burundi's first experience with planning for industrialdevelopment dates back to 1950 when Belgium decided to plan the developmentof the Great Lakes region (Burundi, Rwanda and Eastern Zaire) andelaborated a 10-year Economic and Social Development Plan (1951-60) forBurundi and Rwanda which were administered as one territory. In industry,the Plan put the emphasis on the processing of agricultural products tosupply the region in such basic goods as soap, palm oil, flour, sugar,cigarettes, etc. Investments were to be made by the private sector, withthe role of the Government limited to providing the basic infrastructure.Because Burundi was thought to be poor in mineral resources, the Planconcentrated on its territory most of the industrial projects, while Rwandareceived the bulk of resources allocated to mining exploration anddevelopment.

1.07 It was during that period that the ERuzizi hydro-electric powerstation was built at the outlet of Lake Kivu on the border between Rwandaand Zaire. Until recently, this station was the only source of electricityfor Burundi. With energy readily available at reasonable cost, industrialfirms, mainly from Belgium, established themselves in Burundi to serve therelatively large regional market of Burundi-Rwanda and Eastern Zaire. Theywere mainly concentrated in the food processing subsector, although textileand construction materials also attracted a few investors. Today, thesefirms still constitute an important part of Burundi's manufacturing sector.

1.08 The early 1960s were marked by important political changes,notably Burundi's accession to independence and the breakup of the economicunion formed with Rwanda under the Belgian Administration. Thesedevelopments adversely affected the performance of Burundi's manufacturingsector as most firms were created to produce for the Great Lakes region andlost the Rwanda and Eastern Zaire markets.

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Table 1: Main Industrial Products, 1949 and 1960

1949 1960

Food ProcessingCotton Oil 28 tons 1,500 tonsOil Cake 100 tons 5,500 tonsBeer - 227,000 hlMilk 2,000 1/day 2,500 1/daySoft Drinks - 24,000 hl

TextileCotton Ginning 1,325 tons 10,310 tonsBlankets - 498,000 blankets

Metal ProductsCooking Utensils - 338 tonsBoilers - 1,600 tonsNails - 356 tons

Construction MaterialsTiles, Flagstones - 18,000 m2

Fibrocement Products 632 tonsCement (grinding) - 2,164 tons

Lime 1,703 tons 493 tons

Chemical ProductsSoap 620 tons 2,987 tonsOxygen - 3,280 m3/month

Source: Potentiel de D6veloppement Industriel a partir des RessourcesNaturelles Dans les Pays le Moins Developpes: Burundi.UNIDO, February 1982.

1.09 Since independence, Burundi has implemented three 5-yearDevelopment Plans. All of them accorded a relatively high importance toindustrial development. The First Plan covering the period 1968-72 gavepriority to increasing capacity utilization of existing enterprises andemphasized the need to regain access to neighboring countries' markets.Measures were introduced to facilitate industrial exports, including adrawback system whereby duties paid on imported inputs would be reimbursedto exporting firms. In this strategy, creation of new enterprises was notencouraged and no special advantage was given to them. The Plan generallyrelied on the initiative of the private sector, which was to find in BNDE(Banque Nationale de Developpement Economique), the newly createddevelopment bank, the necessary resources to finance its investment needs.

The results were, however, disappointing. Over the plan period, onlyFBu 60 million were invested in industry per year (less thanUS$700,000/year). Burundian firms did not succeed in penetratingneighboring markets and their capacity utilizaLtion remained at about thesame level as in 1967, i.e., less than 40%.

1.10 The Second Plan (1973-77) took a new orientation. It recommendedthe creation of new enterprises that use local raw materials and producefor the local market, and assigned to the Government a more active role inthe industrial sector. Directed and led by the public sector, industrialinvestment increased rapidly during the period 1973-77, and averaged aboutFBu 255 million (US$2.8 million) per year. This period also saw astrengthening of the planning machinery with the effective use of foreigntechnical assistance. Industrial data started to be collected and partialsurveys of industrial enterprises were conducted to better understand thesector and monitor the execution of projects.

1.11 The Third Plan (1978-82) pursued essentially the same policies,objectives and strategy as the Second Plan. The Government continued toplay a leading role in the sector, accounting for more than two-thirds ofthe FBu 8.7 billion (US$97 million) invested in industry between 1977 and1982. On the institutional side, the Industry Division of the PlanningMinistry was reinforced and the investment code was revised to inter aliaextend its application to public enterprises, many of which have beencreated to manage the Government-sponsored industrial investments.However, it soon appeared that most of these public enterprises have beencreated without an adequate financial structure and/or sufficient qualifiedstaff to operate efficiently. The projects they are supposed to manage arealso often of doubtful viability. In view of these disappointing results,the Government recently decided to reduce its involvement and intends torely more on the private sector to promote the development of industry.

Recent Economic Developments

1.12 The growth of the Burundi economy over the last decade was veryuneven. From 1970 to 1975, real GDP increased at a low rate of 2.2% peryear, about the same as population growth, mainly as a result of the slowgrowth of the agricultural sector. Gross fixed investment represented only10% of GDP, while gross national savings averaged less than 2%, one of thelowest rate in the world. During this period, the economy also sustainedthe first oil shock and high international inflation. Despite someincreases in export prices, the terms of trade deteriorated by more than40%, resulting in income losses equivalent to 2.6% of the average 1970-75GDP. In 1976-77, owing to good weather conditions, GDP expanded at a realrate of 7.6% per year, while the sharp increases in world coffee prices(more than 400%) permitted the country to accumulate substantial foreignexchange reserves (US$86 million at the end of 1977, equivalent to 10months of imports).

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1.13 The downturn which began in 1978 with a 55% decline in thecountry's terms of trade has not been reversed, despite Government'sefforts to stimulate growth and contain the budgetary deficit. GDP atfactor cost stagnated in 1979, recovered in 1980-81 to grow at an averagerate of 7% per year but fell in 1982 by an estimated 1%. This erraticperformance reflected to a large extent the effects of weather conditionson agricultural production, and the weight of that sector in overall GDP.The rest of the economy (secondary and tertiary sectors) grew steadily atan average annual rate of 7.3% between 1978 and 1982. Transport andcommunications, and energy and mining registered the highest growth,followed by industry which increased its share in the GDP from 6% to 8%.

Table 2: Structure and Growth of GDP, 1978-82

(1970 prices)

1978 1982 Average AnnualFBu million % FBu million % Growth rate 1978-82

Agriculture, Livestock 15,939 64 16,505 58 0.9and Forestry

Industry 1,386 6 2,226 8 12.6Artisanat 683 3 748 3 2.3Energy and Mining 87 - 151 1 14.8Construction 1,255 5 1,561 5 5.8Transport andCommunications 489 2 912 3 16.9

Commerce 1,724 7 2,391 8 8.5Administration 1,087 4 1,261 4 3.8Other Services 2,367 9 2,797 10 4.3

GDP at Factor Cost 25,017 100 28,552 100 3.4

Source: Ministry of Planning, Burundi.

N.B.: Data subject to changes as the Planning Ministry is currentlyrevising GDP estimates for the period 1978-82.

1.14 Fiscal developments are more disquieting. As a result of theGovernment's efforts to raise the country's traditionally low investmentrate, the Treasury incurred deficits since 1978 as budgetary savings couldnot keep pace with the fast increase in development outlays and had to besupplemented by advances from the central bank. Money supply expandedrapidly and, together with sharp increases in import prices, fueledinflation, which averaged 14.3% per year between 1978 and 1982. Publicinvestments started to slow down in 1980, and the budgetary situation

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improved significantly during that year. In 1981, however, the Treasurydeficit widened again to 2.8% of GDP as no tax was levied on coffee exportsbecause of depressed market conditions, while receipts from import dutiesfell by 20%, reflecting the slowdown of economic activity. In 1982, thebudgetary situation further deteriorated with the treasury deficit reaching4% of GDP.

1.15 Another area of concern is the balance of payments, which hasalso been constantly in deficit since 1978. Over the last five years,Burundi lost almost FBu 8 billion (US$89 million) of foreign exchange, andat the end of 1982, for the first time since independence, its net reserveposition turned negative. Poor export performance due to unfavorable worldmarket conditions for coffee and high imports were the main factors behindthis drastic deterioration of Burundi's external accounts. High inflows offoreign assistance during this period alleviated to a certain extent theburden for the economy.

Investment Climate

1.16 Despite this difficult foreign exchange situation, Burundi stillmaintains a relatively liberal exchange system. Of particular interest toforeign investors is the possibility of repatriating 50% of distributedprofits every year. The remaining may be repatriated after having beeninvested in savings bonds in Burundi, with half transferable after 2 yearsand the remainder after 5 years. Manufacturers can apply for foreignexchange at the central bank for payment to foreign contractors, providedthe services performed are not available in Burundi. The advance importdeposit scheme introduced in 1965 was abolished in March 1978. Thus, theinvestment climate remains good and recently some foreign investors ofAsian origin from neighboring countries have settled in Burundi, bringingwith them the needed capital and know how, and a good knowledge of workingconditions in Africa. Many more are prospecting for investmentopportunities as Burundi appears stable and safe compared to the chaoticsituation prevailing in most of the region. The Government encouragesmanufacturers in many ways, including the guarantee of the domestic marketand welcomes foreign investors to whom it grants generous fiscal advantagesunder its Investment Code.

II. PERFORMANCE AND ISSUES IN THE MANUFACTURING SECTOR

2.01 Burundi started to collect industrial statistics in a systematicway only in the mid-1970's when more attention was given to industry andthe need for information to better plan its development was felt. Sincethat time, surveys of manufacturing enterprises are periodically conductedby the Planning Ministry and cover about 40 to 50 firms, most of them withnet assets exceeding FBu 25 million (US$210,000) and employing more than 30people. Small enterprises are thus left out, but the surveys cover themodern sector reasonably well.

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2.02 Because of Burundi's limited experience in collecting andprocessing industrial statistics, the data are often inconsistent anddifficult to interpret. The reliability of the information is alsoaffected by two other factors:

(i) The sector is small and, except for clothing, wood furniture and afew other products, industrial branches often consist of fewerthan five firms, or are dominated by a large one. Special eventsat the firm level, or the lack of information on a majorenterprise, can distort the whole picture and undercut the valueof year-to-year comparisons; and

(ii) The sector is still very closely linked with commerce. Manyindustrial enterprises continue to have substantial commercialoperations and often report them in the surveys together withtheir industrial activity. Efforts have been made by the PlanningMinistry to separate these two activities, but it was not alwayspossible because of the unsophisticated accounting systems used bymost enterprises. The use of the OCAM accounting system inBurundi should improve the quality of the data in the future.

2.03 The latest year for which relatively comprehensive data areavailable is 1980. Consequently, the description of the structure ofBurundi's manufacturing sector will be based on these data, complemented byinformation obtained by the mission. Table 3 presents the maincharacteristics of the sector. To minimize distortions, an average for theyears 1979-80 is taken, whenever possible. Table 4 provides additionalinformation on a number of selected firms, and is based on a questionnairesent out by the mission.

Industrial Structure

2.04 The picture which emerges from these tables is that of a sectorgeared toward meeting the domestic demand for basic goods. Exports arelimited to processed coffee, tea, cotton and a few other products such asbeer, soft drinks and cigarettes. As in many countries at the same stageof industrial development, food processing (excluding coffee and tea)dominates the sector, contributing 59% of total manufacturing value addedand 17% of manufacturing employment. This branch is in turn dominated byone company, the brewery (BRARUDI), which accounts for more than two-thirdsof the value added in food processing and 26% of its employment. Thebrewery is in fact the most important modern activity in Burundi aftercoffee, generating many commercial activities and financing directly about35% of the Government ordinary (current) and extraordinary (mainlyinvestment) budgets. Its impact on productive sectors is still verylimited as most of its inputs, from malt to beer cases, are imported. Thecompany is, however, a potential source of development for industry andagriculture. Recently, a number of projects designed to serve the needs ofthe brewery have been implemented (bottle caps and beer bottles), orare under execution (sugar) and if successful, they should help reduce thecompany's dependence on imports and increase its contribution to theeconomy.

Table 3: Main Characteristics of The Manufacturing Sector

(1979-80 average, unless otherwise specified)

As % of Total Sales As % of Total Production Cost

Number of Total Value Wages Materials, Taxes Value

Enterprises Sales Added Value Profit and Supplies Interest and Other Employment Added per

Surveyed (FBu million) (FBu million) Added Before tax Salaries and Services Depreciation Payments Duties Costs (1980) Worker (000')

(~1980)

Coffee and Tea Processing 6 4,196 -530 13 4 24 56 8 4 4 4 2,237 237

Other Food Processing 11 3,882 2,269 58 46 15 75 4 1 4 1 1,154 1,966

Textiles (incl. clothing) 4 751 309 41 14 16 72 6 1 4 1 1,348 229

Wood and Wood Products 5 189 83 44 1 25 60 8 1 1 5 282 294

Mechanical Industries 8 503 190 38 11 29 61 3 2 2 3 643 295

Chemicals aind Co-struction 13 724 247 34 13 18 74 3 1 2 2 559 442

Materials

Metal products (1981) 5 649 236 36 3 22 67 4 2 3 2 478 493

TOTAL MANUFACTURING 52 10,894 3,864 35 20 19 69 5 2 2 3 6,701 577

Source: EnquSte des Entreprises de Bujumbura. 1979-80. Minist6re du Plan, Service National des Etudes Statistiques, Burundi, and World Bank questionnaire sent to main

manufacturing firms, February 1983.

Table 4: Economic and Financial Characteristics of Selected Mansfacrering Enterpriose, 1981

Year of An l cf total

Operation Ovnership Capacity -PTdcFtion cent An Z of total nalen Import Duty

or Maei Privete Utilieation Imported Labor V_ei n of cc-parable In-et-ent Major

Creation Actiitry Foreign Gooernenr B-rundi (x) Inpets Cent Value Adddd Eports prodact Z Code Prhblens

BRARUDI 1955 Seer and soft 59 41 _ 88 36 19 35 4 FSe SO/liter 10 years doty

drinks relief aod

7 years taxholiday

Rweg-rs 1973 Tea processing 93 7 - 64 19 22 20 97 - - Le wrid ma hoft prices and

appreiatiee ef FEe againstp0... sterling.

Tore 1975 Tea processing 90 10 - n.a. 23 8 n.a. 95 - lSame as R.egera.

Mlsote-ie 1981 Fleer - 100 - 15 55 6 n.a. - 50 5Yearne rta lity H-g-iihy M nrdt; redacd stility High pr-dactien cost.

charges I...ffcis-t local chest.

RAFINA 1952 Oil. 100 - - 30-40 4 44 46 - 100 - Sales affected bydintrihatios of oil

given by U.S.A.

COTEbU 1979/80 Te-tile- - 100 - 30 20 26 36 3 Ban en impo-rt of 5 yearn e-port tax Management;

cottr fabrics relief; 2 years High labor ceots;tan hniiday Untl 1982 c-perStlon

ice cheap inperts.

RUZIZI 1962 Cotton proceaning - 100 n.a. 2 10 8 73 - - Old equipoent.

maagmet.

LOVINCO 1952 BIanker- 100 - - 55 45 25 40 - 57Ipportt allowed onlyto the oxt-nt LOVINCOenrot satisfy themacbet

ETC 1978 Cigarette- _ _ 100 30 86 4 12 25 150 50% duty relief for Competition frow3Iyears smagglieg.2yyeats tan holiday

INAHU 1978 Pri,ting - 100 - 0.0. 30 34 35 - 10

iECARUDI 1963 Metal and WSed 100 - - n.a. 12 30 44 - - lrregularity of *aport

F-rnit-re supply.

HETALUIA 1952 Metal Predctes 100 - - 45 45 33 49 - 50

ALTECO 1967 Metal Sheets 100 - - n.a. 85 10 18 - 35 -

Uteme-T-avhydro-E-rnndi 1963 Metal nod Plaatic 100 - - 40 70 6 29 1 - 4 years

1980 (itd. Tubes tan holiday

ac-tiity)

SAVONOR 1972 Soap 75 - 25 60 59 7 37 - 70 Duty relief 0

FADI 1976 Insecticides - 51 49 n.a. 64 10 32 - Inporto ailosed 3 yearn

only if cspany duty reliefcaet nat7r,nfylecal m arke t

Haydry Industrien 1980 Matches 75 - 25 30 50 20 12 - Eon en isperrt 3re-f yearn Corpetitiontoting; 2 year iron osoggling.tan holiday Foot pred-ct qaliry.

Fabriplaetic 1977 Plantic products - - 100 50 60 16 40 - 15 3 yearn doty Working capitol.relief; 5 yearsta holiday

CHANIC 1980 Oxygen and 99 - I onygen; 35 17 69 44 -

-cetylene acetylene: 55 55 27 11

Source: World Bask Q.estionn-Mre.

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2.05 Compared to food processing (excluding coffee and teaprocessing), the other branches are relatively small with value addedranging from 2% to 14% of the sector's total. However, two of them (coffeeand tea processing, and textiles) are very important employers, accountingfor 33% and 20% of total labor force in manufacturing, respectively. This,again, is due to the presence of a large enterprise in each of these twobranches: OCIBU (Office des Cultures Industrielles de Burundi) in thecoffee and tea processing branch, and COTEBU (Complexe Textile du Burundi)in textiles.

2.06 The share of value added in total sales is on average about 35%,with the exception of coffee and tea processing which has a share of only13%, their value added being mainly generate,d in agriculture. This isrelatively low compared with other countries. A surprisingly high share ofvalue added is obtained by the food processing industry, which uses simpleprocesses and relies mainly on imported inpuits. This is due to theextraordinarily high gross profit margin of the brewery, of which more than80% go to the Government in the form of taxes. For the remaining branches,the variations in the share of value added seem to conform to the patternobserved in other countries, although on the low side.

2.07 With the exception of the wood products and metal processinggroups, which have low profits before tax of 1% and 3% of sales,respectively, manufacturing appears quite profitable. (Table 3). This isanother distinguishing feature of the sector and seems at first glancerather surprising, considering the relatively low capacity utilization (onaverage less than 50%), the rather poor quality of most products, and thehigh cost of doing business in Burundi. This is explained by the highlyprotective environment in which industry operates, the generous taxincentives granted by the Government, and the monopolistic situationenjoyed by most firms. With a few exceptions, manufacturers do not appearto have liquidity problems, despite the need to maintain high stocks ofimports due to transport difficulties. Their main problems are the poorquality of the labor force, the difficulty of repairing broken equipment,and the frequent disruptions of supplies of crucial imports.

2.08 The general education level of manufacturing labor is very low,as can be seen in Table 5 below:

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Table 5: Level of Formal Education in Manufacturing, 1980

University Graduates 1.5Secondary Education + less than 4 yearsPost High School Training 1.0

High School Graduates 0.9Some Secondary Education 10.5Primary Education 22.7Some Primary Education 29.6Illiterates 33.8Total 100.0

of which: Technical Training (all levels) (3.3)Economics and Administration (all levels) (1.0)Other (95.7)

Source: La Situation de l'Emploi en 1980, Revue de Statistique du Travail,

Ministare des Affaires Sociales et du Travail, Burundi.December 1981.

This situation reflects to a certain extent the acute shortage of skilledpersonnel in Burundi; but what is more worrisome is the apparent inabilityof manufacturing to attract the skilled manpower available in the country.Only 8% of Burundi's skilled labor work in manufacturing, as compared to22% in construction, 19% in commerce, 13% in agriculture and banking.Indeed, manufacturing ranks only above mining and transport services,although its GDP share is higher than these two sectors combined.

2.09 Except for coffee and tea processing, manufacturing activity ismainly concentrated in Bujumbura (the capital and former business center ofthe Burundi-Rwanda Union before independence), where infrastructure is moredeveloped. Ownership is largely in private hands and includes a relativelyimportant foreign participation, particularly in large enterprisesestablished in the 1950s and early 1960s. More recently created firmsoften have important private Burundian interests. Government control ismostly found in companies processing agricultural products for export or inlarge undertakings. However, the Government has become more active in thesector in the past few years, intervening either directly by promoting andfinancing important projects or through parastatal enterprises, many ofwhich are now in a difficult financial situation.

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2.10 A last distinguishing characteristic of Burundi's manufacturingis its close links with commerce. In fact, many industrial activities havegroTwn out of commercial operations. 3/. Some traders enteredmanufacturing to diversify their activities, others because their importbusiness became less profitable as a result of protection given tosubstitute products manufactured locally. The Government's favorableattitude toward industry is an important factor in this passage fromcommerce to manufacturing.

Recent Sector Developments

2.11 Over the period 1977-82, manufacturing expanded at an averagerate of 13% per year in real terms. Part of this growth was due to thestart of production of new enterprises, such as plastic bags, textiles,cigarettes and matches. Among firms in operation before 1977, the highestgrowth was recorded for soap and soft drinks, the latter more than doublingits production over the last five years. Modern beer production stagnatedin 1979, but recovered in 1980-82 when it. increased at an average annualrate of 15%. With a few exceptions, other manufactures also expandedrapidly.

2.12 Despite this growth in output, capacity utilization has remainedlow, at less than 50%. The reasons for this poor performance include thedifficulty of finding equipment adapted t:o the small size of thedomestic market, the inexperience of some manufacturers in dealing withforeign suppliers, and the high tariff barriers in neighboring countries,which make official exports almost impossible. Many firms have thecapacity to supply Rwanda (some were even designed to serve this market)and other neighboring countries, but only produce for the small domesticmarket because of the difficulties involved in trying to export and becausethe present incentives system does not encourage them to look for foreignmarkets. While import substitution activities are encouraged in many ways,including quantitative restrictions, there is no positive assistance of anykind to exporters. On the contrary, they are penalized through theimposition of an export tax and by the absence of clear provisions fordrawback of duties paid on imported inputs. In addition, the cost-plusprice control system which does not specify at what level of capacityutilization the prices should be calculated actually allows firms to passon all the costs and ensures them an adequate return, even when they areoperating at very low capacity.

2.13 Between 1977 and 1982, an estimated 2,360 jobs were created inmanufacturing at a cost of US$41,100 per job. Two projects, COTEBU and theextension of BRARUDI, accounted for 38% and 14% of the total newemployment, respectively. The other 31 projects implemented during theperiod created only an average of 37 jobs each. In 1982, the share ofmanufacturing employment in total modern employment was at about the same

3/ Out of 30 enterprises which replied to the mission's questionnaire,10 have substantial commercial activities, ranging from second-handclothes (friperie) to car imports.

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level as in 1978 (7%), given the expansion of employment in the othersectors, particularly public administration. Manufacturing growth duringthe period also yielded little structural changes and the relativeimportance of the different industrial branches has remained unchanged.Perhaps the greatest change since 1978 occurred in the ownership ofindustry. In 1982, out of a sample of 62 industrial enterprises, 20 wereowned by the Government, 3 were mixed enterprises (with Government's

participation ranging from 41% to more than 60%), and 39 were private,while before 1978, there were only 12 public industrial enterprises and twomixed enterprises.

2.14 So far, development of manufacturing has not been a cause ofconcern for the environment. With a few exceptions, the types ofindustries in Burundi are not generally pollutant and the sector is stillsmall. It is however growing fast and rightly the Government insists thatthe environmental impact of industrial projects be carefully reviewedbefore an industrial license is granted. Health and safety of industrialworkers are also important aspects that have recently attracted theGovernment's attention as the working conditions in some firms are verydifficult.

Execution of the Third Development Plan

2.15 With FBu 8,729 million (US$97 million) invested in industrybetween 1978 and 1982, the sector accounted for 14% of total investmentunder the Third Plan and achieved one of the highest implementation rates(54% of Plan investment target). However, nearly 75% of the industrialprojects completed during the period were not initially included in thePlan. They were, for the most part, identified and executed by privateentrepreneurs as can be seen in the Table 5 below. Of the 30 Planprojects, only nine were completed; nine are still under execution; ninehave not yet started (most of them are now included in the Fourth Plan);and three were dropped.

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Table 6: Execution of Industrial Projects under the Third Plan

TotalUnder Not yet Investment

Completed Execution Started Dropped (FBu million)

Plan Projects 9 9 9 3 6,198of which: Textile Plant (1) (2,447)

Projects Identifiedduring 1978-82 24 6 - - 2,531of which: Brewery Extension

(1) (843)

Total 33 15 9 3 8,729

Source: Draft Fourth Development Plan. Burundi, November 1982.

2.16 Projects selected by the Plan had indeed a very low rate ofimplementation. In addition, they were of much larger size than projectsidentified and implemented directly by private promoters. Excluding thetwo largest projects in each group (COTEBU, the textile plant, in the "Planprojects group" and the extension of BRARUDI in the "private promotersgroup"), the first group had an average investment of US$5.2 million perproject and a cost per job created of US$37,700. Comparable figures forthe second group are US$815,500 per project and US$25,000 per job created.

2.17 Distribution by ownership shows that, out of the 48 projectscompleted or under implementation, 31 belong to the private sector, 13 arefully Government-owned and four are joint venture between the Governmentand private interests. Government projects represented an investment ofFBu 4,550 million, or an average size per project of FBu 349 million(US$3.9 million), whereas private projects amounted to FBu 1,909 million,i.e., an average project size of FBu 61.6 million (US$684,000).

2.18 Measured by the number of projects executed, their size (i.e.,use of more appropriate technology), employment creation, and speed ofexecution, the private sector appeared to have performed better than thepublic sector. However, private sponsored projects are typically of theearly import substitution stage, with many of them relying entirely onimported raw materials and having short pay-bacik periods. On the otherhand, projects financed by the Government. are based mainly on local rawmaterials, are more complex and have longer gestation periods. They arealso relatively large and require sophistlicated management.

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2.19 COTEBU is an example. The project cost FBu 2,447 million(US$27.2 million) and was financed by a soft loan from the People'sRepublic of China. It has now 900 workers, but at full production of ninemillion meters of fabric could provide employment for 1,300 people. Thefactory is fully integrated vertically and includes spinning, weaving,dyeing, printing, finishing and all the ancillary workshops. It useslocally grown cotton, which is of good quality. Production started inearly 1980, but sales only reached 2.7 million meters of fabric in 1982.COTEBU's financial situation is very weak. In 1981, the latest year forwhich financial statements are available, it had a loss of FBu 169 millionand a negative cash flow of FBu 20 million. Working capital requirementsamounted to FBu 364 million and have been covered by a Government subsidy.COTEBU faces a number of problems, including:

(a) Competition from imported synthetic fabrics which are cheaper and

of more varied design;

(b) Competition from import of second-hand clothing which currentlyamounts to 2,500-3,500 tons per year;

(c) High production costs resulting mainly from a too large andinefficient staff (wages and salaries accounted for 35% ofproduction costs in 1981) and high energy consumption (fuel andelectricity cost more to COTEBU tha,n cotton fiber); and

(d) Poor management. Stocks are too large and affect working capitalrequirements. Budgetary control is inadequate and there is nofinancial planning or forecasting, which is surprising for acompany of COTEBU's size whose activity is subject to wide

fluctuations.

2.20 COTEBU's situation and prospects were analyzed in a recentstudy 4/ which recommended: (i) improvements in product quality;(ii) diversification of the production; (iii) strict control of productioncosts at all levels; (iv) establishment of a financial forecasting systemand strengthening of the cash management system; and (v) recruitment ofshort-term technical assistance to help implement the aboverecommendations.

2.21 To protect its nascent textile industry, the Government is alsoconsidering raising tariffs on finished fabrics or prohibiting importsaltogether. This would, however, be a step in the wrong direction as itwould not provide COTEBU with the necessary incentive to improve itsproduction and designs. Imports of second-hand clothing present a moredifficult dilemma. On the one hand, this trade is affecting the survival

4/ Joel Malkin et al: Les Entreprises Publiques au Burundi, 1982.For a detailed analysis of COTEBU's problems and measures tostrengthen the company's situation, the reader may refer to thisstudy.

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possibilities of COTEBU, and is a critical iactor in any attempt to set upclothing industries or small garment shops. Second-hand clothingrepresents an unfair competition to a small textile industry as it iscollected free in developed countries for resale at low prices indeveloping countries, but with substantial profits for the traders. Thisbusiness has blocked the development of textile industry in manycountries. On the other hand, second hand clothing is only what theimpoverished masses could afford to purchase. Welfare considerationsdictate that this trade should not be cut. It should however be closelycontrolled and reexamined with an eye on its long-term effects.

2.22 The average implementation period for all the industrial projectscompleted during 1978-82 was 25 months whiich is not excessively long butthis was due to the large number of medium-size projects (less than FBu 90million, or US$1 million). Indeed, most of the larger projects (teafactory, COTEBU, fish factory, cigarettes, extension of BRARUDI, etc.)were implemented over a period ranging from 36 to 48 months. Deliverydelays of imported equipment due to transport difficulties, butparticularly inadequate preparatory work (many projects were undertakenwithout proper feasibility studies) were the main reasons behind theseimplementation difficulties.

2.23 On average, industrial projects were financed for 55% by localresources and for 45% by foreign loans arid equity as Table 7 below shows:

Table 7: Financing of Industrial Investments, 1978-82

Number of Investment FinancingProjects FBu-i1OToTn7-ff Local (%) Foreign (%)

Public Sector 13 4,550 52 38 62Mixed Enterprises 1/ 4 2,270 26 65 35Private Sector 31 1,909 22 83 17

Total 48 8,729 100 55 45

Source: Draft Fourth Development Plan, Burundi, November 1982.

1/ Mixed enterprises are defined in Burundi as enterprises in which theGovernment has an equity participation of more than 25% but less than100%.

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While the public sector used mainly foreign resources to finance itsprojects, the private sector succeeded in mobilizing locally most of itsfinancing requirements. Initially, the P'lan had envisaged to finance mostof the public industrial projects with local savings but had to rely moreon foreign financing, because of the depression of the coffee market whichprevailed all through the Third Plan period. This had not proved to be aproblem as most of the large projects sponsored by the Government, such asthe glass bottle project, the Mosso sugar complex or the coffee processingplant, were completed or are under execution.

Issues in the Manufacturing Sector

2.24 The review of past performance shows that the manufacturingsector is confronted with a number of important issues which need to beaddressed to increase its efficiency and contribution to the country'sdevelopment efforts. The most important are summarized below.

(a) Unused capacity

2.25 This is perhaps one of the most difficult problem facing thesector. On an average, existing firms operate at less than 50% capacity,with some as low as 15%-20%. In addition, according to the PlanningMinistry, production capacity was overestimated in 90% of the projectsimplemented between 1977 and 1982; those already in operation use only 35%of their capacity. 5/ This poor performance is reflected in anexceptionally high fCOR, estimated by the Plan at 8.5, as compared toabout 2.0 to 3.5 in most other countries. Burundi cannot afford to letthis capital lie idle. Thus, rather than investing in new enterprises,every effort should be made to increase the sector's use of existingcapacity. 6/ This is clearly the highest priority for the Government,particularly considering the impact that a higher capacity utilizationcould have on the country's employment situation. Given the small size ofthe domestic market, exports which are now insignificant should beencouraged in every possible way. There is also an urgent need to improvethe country's limited project preparation capacity, which appears to be themain reason for the technical and economic design flaws of the past, andassist promoters in their negotiations with foreign equipment suppliers.

(b) Dependence on Imports

2.26 At present, with the exception of coffee, cotton and teaprocessing, all the other manufacturing industries are based on imported

5/ Capacity here does not refer to full theoretical capacity. Fromdiscussion with manufacturers and officials of the PlanningMinistry, it is the capacity that the manufacturer believes he canachieve, given availability of inputs.

6/ Obviously, this requires an assessment of existing firm's growthpotential as the idea is not to increase capacity utilization of allexisting firms but only those which are economically viable in thelong-term.

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raw materials. The weight of manufactured imports (raw materials, spareparts and equipment) is important on the balance of payments, accountingfor an estimated 35%-37% of total merchandise imports. Available data donot permit an estimation of the net foreign exchange savings to the countryresulting from local manufacturing production, but these are probablysmall, and are produced at a high cost of domestic resources.

2.27 Clearly this indiscriminate import substitution strategy cannotbe pursued in the future as Burundi's already delicate financial situationcould further deteriorate and require the establishment of mechanisms toallocate scarce foreign exchange. Burundi needs to be more selective inthe choice of import substitution projects and make a special effort topromote exports.

(c) Role of Government in Manufacturing

2.28 Since the mid-1970s, the Government has emerged as a dominantforce in the development process because of its desire to accelerate thepace of development in Burundi and the conviction that the public sectorwas in a better position to mobilize the necessary resources and injectsome dynamism into a sluggish private sector. In manufacturing, theforceful role of the Government manifested itself through participation ina number of joint ventures with foreign interests and in the establishmentof public enterprises to manage large industri'al operations that theprivate sector has avoided so far because of their complex management andfinancial requirements. The performance of these public enterprises wasanalyzed in a recent IDA-financed study which pointed out that many of theproblems were due to a lack of adequate management. The study outlined theserious financial implications for the Government of continuing to rely onpublic enterprises without action to improve their performance. Itcoincided with a drastic deterioration of the budgetary situation and hashelped bring about a reassessment of the Government's role in industry.The draft Fourth Development Plan (1983-87) envisages a greater involvementof the private sector in manufacturing. It further recommends to makeexisting state-run manufacturing operations more efficient, to sell offenterprises to private investors where possible, and to phase out thosethat are unlikely to become viable in the medium-term.

2.29 A look at the proposed investment program, however, shows thatthe government's presence in manufacturing remains strong. Only 23% of theprojected total investment are private, while 38% will be either fully ormajority owned by the Government. The remaining 39% have a publicparticipation ranging from 25% to 50%. Equally disturbing is the fact thatsix projects have a total investment cost of FBu 13.6 billion (US$151million, or 60% of the proposed investment program). They all have animportant Government participation, although past experience has shown thatBurundi does not yet have the management capabilities to operate largeindustrial concerns. While inconsistencies are often unavoidable, to becredible and attract foreign donors interested in the development ofBurundi, the Plan should present a consistent picture and propose aninvestment program which reflects its objectives.

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(d) Sector Effectiveness

2.30 Except for a few firms, the manufacturing sector is inefficient.Despite the natural protection and high tariffs, many firms needprohibition of competing products to operate. Their production costs areextremely high, in many cases exceeding the cif price of comparableimports, but the quality of the products is generally well belowinternational standards.

2.31 It is true that the cost of doing business in Burundi is high.Firms have to hold large stocks due to frequent disruptions of supply ofcrucial inputs. The cost of petroleum products is prohibitive: aboutUS$100 per barrel, including freight but exclusive of taxes, or twice whatmany other countries have to pay. However, many firms use electricity 7/,the tariff of which is reasonable (FBu 5-6/kwh for low voltage andFBu 7.6/kwh for high voltage), with the exception of BRARUDI and COTEBUwhich are the main industrial consumers of petroleum products.

2.32 Labor productivity appears low, although it is difficult tomeasure due to the scarcity of information. In the absence of better data,the mission attempted to compare the value added per worker in the mainindustrial branches in Burundi with a number of selected countries. Theresults are presented in Table 8 below and should be taken with cautionbecause of distortions caused by factors such as overvaluation ofcurrencies, data consistency and the use of different technologies. Theynevertheless suggest that, with the exception of the foods, beverages andtobacco branch in which BRARUDI dominates, the value added per worker inBurundi is generally lower than in other countries. Burundian textiles andclothing has the lowest labor productivity, less than 40% that of Botswanaand Zimbabwe and half that of Mauritius. The average for the sector showsthat Burundi is below Botswana, a country also in its early stage ofindustrial development, but above Mauritius. This is due to the weight ofexport enterprises which are important and very labor intensive inMauritius, the high tax component of the brewery in the value added of thefoods, beverages and tobacco branch, and the fact that Burundian industriesare highly protected and develop local value added at the expense of theconsumer.

2.33 Burundian manufacturers face many constraints and work in adifficult environment. However, the monopoly situation that most of themenjoy is also not conducive to changes and efficiency improvements,particularly as they are assured of an adequate profit. In fact, many ofthe issues discussed above have their roots in the Government's policiesand measures regarding import restrictions, import tariffs, exchange ratepolicy, investment incentives, etc. All these affect the performance andcompetitiveness of the manufacturing sector but have so far received little

7/ Private industry consumes about 35% of electricity in Burundi.

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Table 8: Value Added per Worker in Manufacturing: Selected Countries

(US Dollars 1/)

Burundi Botswana Mauritius Zimbabwe(1980) (1980/81) (1981) (1980)

Foods, Beverages and Tobacco 21,800 2/ 11,300 4,500 3/ 9,500Textiles and Clothing 2,500 6,500 5,000 6,900Woods and Wood Products 3,300 2,300 2,800 4,700Chemicals 4,900 6,600 7,700 15,300Metal Products 5,500 2,600 6,000 10,400

Total Manufacturing 6,410 8,600 3,200 10,000

1/ Converted into US dollars using official exchange rates.2/ Excluding coffee and tea processing. The brewery dominates and

its tax aspects introduce a very particular bias.3/ Excluding sugar.

Source: Ministry of Planning, Burundi and varLous Industrial Sectorreports, World Bank.

attention from the Burundian decision-makers. Whereas the Plan is strongin setting out the Government's objectives, it does not clearly outline howthey can be achieved. In its discussion of industrial policies, the Planfocuses mainly on the investment code, ignoring the effect of some of theother measures. To ensure that manufacturing industry fulfills theexpanded role assigned to it by the Government, action over a much widerfront may be needed. An evaluation of the most important measuresaffecting manufacturing is provided in Chapter III, together with anassessment of availability of finance for industry and the Government'sefforts to promote the sector. Chapter IV discusses the regionalarrangements concluded with neighboring countries and the need for Burundito regain access to neighboring markets. Finally, Chapter V attempts toassess the medium term prospects of the sector and outlines the mission'smajor recommendations.

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III. POLICY FRAMEWORK AND INDUSTRIAL FINANCE

A. Industrial Policies

1. Description and Implementation

3.01 In Burundi, the responsibility for the formulation andimplementation of industrial policies is divided between four institutions.The Planning Ministry is responsible for overall industrial policyformulation and plays an essential role through the National InvestmentCommission (NIC) in the granting of benefits under the investment code.The central bank (Banque de la Rgpublique du Burundi - BRB) controls importlicensing and all foreign exchange transactions, sets interest ratescharged by financial institutions, and manages the country's exchangerate. The Finance Ministry influences industrial development through taxesand import tariffs. Finally, the Ministry of Commerce and Industry has theauthority for delivering industrial licenses and controls industrialprices. Other institutions also indirectly affect industry, such as theMinistry of Social Affairs and Labor, which fixes minimum wages andsalaries for different levels of skill. Recently, the Government createdthe Center for Industrial Promotion (CPI) and entrusted it with the task ofpreparing industrial projects and assisting enterprises in difficulty.

Import Licensing

3.02 All imports require a license from BRB. Import licenses forgoods that compete with local manufactures are only issued to the extentthat the supply from domestic sources is insufficient. To estimatedomestic demand in order to arrive at import requirements, BRB reliesmainly on past sales data, to which a rough annual growth rate is applied.All domestic enterprises have to supply BRB with monthly production data.

3.03 The operation of the licensing system is efficiently managed byBRB and has been a powerful instrument for protecting existingmanufacturing operations and, through its guarantee of the market, for thecreation of new ones. However, this type of support for industry, whichhas no relation to efficiency, has a high cost. The removal of all foreigncompetition, coupled with limited domestic competition 8/ has led to theestablishment of high-cost industry, while the absence of pressure toreduce costs and improve quality is likely to make them even lesscompetitive.

8/ A license is required to establish an industrial firm and is generallynot granted if an existing enterprise is able to supply the domesticmarket.

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Import Tariffs

3.04 Imports are subject to three different duties: an entry duty(varying from 0% to 10%), a fiscal duty (5% to 150%) and a statistical tax(a flat 3%). All are based on the CIF value, which includes a substantialtransport cost element due to Burundi's landlocked position.

3.05 The tariff structure shows a familiar pattern: low duties(5%-15%) on essential foodstuffs (wheat flour, sugar) and on many inputsfor agriculture and industry, including machinery and equipment; highduties on luxury consumer goods (generally 100% or more); and medium tohigh rates on imports competing with domestic products (i.e., those whichare allowed in Burundi because the local manufacturer cannot meet thedomestic demand) and on various consumer goods. The disparity in dutyrates is further increased by the policy, set down in the Investment Code,of granting exemption of duty on many industrial inputs.

3.06 The average rate of duty collected on imports is 13%, and therevenue from this source accounts for about 20% of total Governmentrevenue. During the period 1978-82, the cost of the exemptions was aboutFBu 1.1 billion (US$12 million), or about 9% of total revenue from importduties, which is not substantial, considering that duties exemptions underthe Investment Code represent the main incentive for industrialinvestment. Unlike other countries, Burundi does not promote industrythrough establishment of industrial zones, service centers etc. Noexemption of the statistical tax was granted during 1978-82.

3.07 As a means of protecting domestic industry, tariffs are oflimited relevance as long as imports of competing products are prohibited.However, low duties on imported inputs do tend to make import-dependentprocesses relatively more attractive. Also some preference in favor ofusing capital rather than labor could in principle result from the low,often exempted, duties on machinery and equipment.

Price Control

3.08 All imported and locally manufactured goods require priceapproval before they can be sold. Responsibility for price control lieswith the Ministry of Commerce and Industry, and is implemented by theDepartment for Internal Trade. Prices are set on a 'cost-plus' basis, withmanufactures receiving a negotiable net profit margin of 10% to 20%. Grosswholesale and retail mark-ups are also set for imported products, and varybetween 15% and 30%. A staff of only ten persons is charged with reviewingall price submissions by traders and manufacturers, as well as withcarrying out inspections.

3.09 Price control is mainly aimed at preventing producers and tradersfrom making excessive profits in a monopolistic market. The measure hasprobably had some success in reducing profit margins in spite of inadequateinspection due to lack of staff. Its main drawback is that it discouragesefforts towards greater efficiency. A fixed profit margin removes theincentive for manufacturers to reduce costs and become more efficient.

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While the price control officials can in principle disallow costs theyconsider avoidable, and thus exert some pressure on firms to cut out waste,the lack of adequate staff limits controls. Some investment opportunitiesmight also have been lost as a result of price control because a fixedprofit margin does not encourage firms to enter new and more risky fields.Because of its disincentive effect, price control is not in tune with theGovernment's concern about the growth of the productive sectors.

3.10 Investment Code. Burundi gives prominence to the Investment Codeas an instrument of industrial policy. Established in 1967, and revised in1979, the Code aims at encouraging investment in priority areas by offeringcertain privileges and guarantees. 9/ To qualify for these benefits,investments must (i) be in a priority sector as defined by the Plan;(ii) be of a minimum size, i.e., FBu 15 million (US$166,700) for newprojects and FBu 10 million (US$110,000) in the case of extensions; and(iii) be considered satisfactory from a technical point of view, as well asin terms of job creation and value added, the provision of training, theimpact on the balance of payments, etc.

3.11 The benefits offered include exemption of import duty onmaterials and equipment at the time of installation, exemption of duty onimported inputs for up to five years, and a tax holiday for up to fiveyears. Of the various other kinds of assistance offered, the mostimportant is the protection against competing imports which, however, themanufacturer could also obtain from the Ministry of Commerce and Industryand the central bank. In addition, firms may benefit from Governmentprocurement, exemption of export duty, and facilities provided byindustrial zones.

3.12 Projects of particular importance for the development of thecountry, and those established outside Bujumbura, may receive additionalassistance. The former must either create a minimum number of jobs (100for industrial enterprises, 150 for projects in agriculture oragro-industry), or consist of an investment of at least FBu 500 million(US$5.6 million) (agriculture and agro-industry) or FBu I billion(US$11 million) (other industries). Such investment may, in addition tothe benefits already mentioned, enjoy a reduction in tax on profits for afurther ten years, while an extension of the tax holiday to seven years isavailable for those located away from Bujumbura.

3.13 To obtain any of these advantages, the proposed investment isevaluated by two committees and must receive Cabinet approval. TheMinistry of Planning plays a key role in the whole process. It chairs boththe National Investment Committee (NIC), and the Technical InvestmentCommittee (TIC), and is responsible for the Secretariat of the former. TheSecretariat of the TIC comes under the Ministry of Commerce and Industry.The Ministry of Planning receives the original application and, once theproject is approved, supervises its implementation. The TIC has someproject appraisal expertise and considers the operation only from a

9/ An elaborate "Guide for Investors" provides potential entrepreneurswith a wide range of information on the Burundi economy and theinstitutional and administrative setting, including an outline ofthe Investment Code.

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technical and financial point of view, while the NIC places it in thecontext of the overall investment strategy, and recommends to the Cabinetthe benefits to be offered.

3.14 The whole administrative review process is elaborate andtime-consuming. To avoid delays in the execution of projects approved bythe NIC, the application requires the promoters to submit a great amount ofdetail on the technical, financial, economic and legal aspects of theproject. If all information is provided as requested, it takes about fourmonths from the time of submission before the application is approved.Usually the process takes longer.

3.15 The benefits actually granted vary considerably from case tocase. As Table 9 below indicates, only 26% of the applications passed bythe TIC received all available benefits (though not for the maximumperiod). Exemption of the import duty on equipment is normally granted.The average tax holiday was only 2.5 years, compared to the five yearsallowed in principle.

Table 9: Benefits Granted under the Investment Code 1980-82 1/

Benefits granted/refused Number of cases

Exemption of duty on imported equipment only 9Exemption of duty on imported equipment and tax holiday 11Exemption of duty on imported equipment, tax holiday,and duty exemption for future imported inputs 9

Extension of benefits previously granted 5Applications refused 8

Total applications 42

Source: Ministry of Planning.

1/ Applications received by National Investment Committeeafter approval by Technical Investment Committee.

3.16 The impact of the Code on investment decisions is probablyoverrated. Some of the main attractions of Burundi for investors are thecountry's political stability in a continent known for rapid changes, theliberal regulations with regard to the transfer of foreign exchangeearnings, and the protection against imports of competing products. Theseare available outside the Code. The financial incentives offered by thelatter are not inconsiderable, but there is some doubt as to how real theyare. Given the monopolistic market structure and the 'cost-plus' system ofprice control, it is likely that firms paying import duties would be able

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to recover at least part of them through higher prices. Equally, thebenefit of a tax holiday, may be more apparent than real in view of therelatively short period for which it is actually granted. Many firms arenot very profitable in the initial years. When these limited advantagesare set against the cost of going through the lengthy application process,the Code is expected to have limited success in bringing about investmentthat would not otherwise have occurred in the present economicenvironment. Its real attraction to investors is the protection that itprovides against any change in the Government's present favorable policytoward industry. Although the code can also be changed, the advantagesalready granted are not withheld.

3.17 Foreign Exchange Regulations. The business community is allowedconsiderable freedom in their foreign currency transactions. Theregulations specifically permit:

(i) the repatriation of the capital originally invested once theproject has ceased or been sold, as well as 50% of profits aftertax every year. The remaining 50% can be transferred afterhaving been invested in savings bonds in Burundi, with halftransferable after two years and the remainder after five years.

(ii) the remittance of debt service payments (interest and principal)on foreign loans;

(iii) the transfer abroad of 60% of expatriates' earnings; and

(iv) the payment for foreign goods and services required as inputs inthe production process except when they are obtainable locally.

3.18 Company Tax. The tax rate on company profits is 45%, with aminimum of 1% of turnover. Standard depreciation provisions allowbuildings to be written off over 20-33 years, and machinery, and equipmentover 5-10 years. The same provisions apply to domestic and foreignenterprises.

Wage and Salary Policies

3.19 The Government fixes minimum wagres and salaries for all levels ofskill in the public and private sectors. The present range of minimumsalaries dates from May 1982, when they were raised from the levels set inJune 1977 (Table 10).

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Table 10: Minimum Salary by Level of Skill as of May 1, 1982 1/

Minimum Salary Housingper day per Month Allowance

FBu US$ 2/ FBu US$ 2/ FBu US$ 2/

Unskilled - normal 140 1.2 3,,500 29.6 )heavy 154 1.3 3,850 32.5 ) 600 5.1specialized 170 1.4 4,250 35.9 )

Semi-skilled - normal 240 2.0 6,000 50.7 )heavy 276 2.3 6,900 58.3 ) 1,000 8.4specialized 294 2.5 7,350 62.1 )

Skilled - normal 351 3.0 8,775 74.1 )heavy 403 3.4 10,075 85.1 ) 1,350 11.4

Highly skilled - - 15,625 132.0 1,875 15.8

Semi-Professionals - - 21,600 182.4 7,200 60.8(Agents de Mattrise)

Professionals - - 30,000 253.4 12,000 101.4

Source: Ordonnance Ministerielle of May 5, 1982.

1/ In addition, a monthly family allowance is payable of FBu 300 (US$2.5)for a wife/husband and FBu 150 (US$1.3) for each child.

2/ US$1 = FBu 118.4

While unskilled workers generally receive the minimum wage throughout thepublic and private sectors, qualified labor are generally paid in excess ofthe legal minimum, particularly in the private sector. All employees areentitled to a housing allowance, and annual salary increments of at least2% are normally granted to reward length of service.

3.20 Skilled labor salaries in indust'ry compare unfavorably with thosepaid in the other sectors. With the exception of food and mechanicalindustries, which remunerate relatively well their higher staff, the otherindustrial branches mostly rank at the bottom of the scale in terms ofemployees' compensation (Table 11). The irelatively low salaries paid maymake it more difficult for industrial firms to recruit high caliber people.

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Table 11: Monthly Salary of Skilled 'Labor by Sector, 1980

(In Burundi Francs)

High LevelSkilled Labor Professionals Professionals

Services 24,999 Maximum 25,000-45,999 46,000 MinimumCommerce 24,999 Maximum 25,000-45,999 46,000 MinimumFood Industries 29,999 Maximum 30,000-44,999 45,000 MinimumTransport and Communications 23,999 Maximum 24,000-44,999 45,000 MinimumMechanical Industries 24,999 Maximum :25,000-43,999 44,000 MinimumBanking and Insurance 21,999 Maximum 22,000-42,999 43,000 MinimumEnergy 19,999 Maximum 20,000-39,999 40,000 MinimumConstruction and Public Works 19,999 Maximum 20,000-39,999 40,000 MinimumGarages 24,999 Maximum 25,000-36,999 37,000 MinimumChemical Industries 19,999 Maximum 20,000-34,999 35,000 MinimumIndustrial Agriculture 24,999 Maximum 25,000-34,999 35,000 MinimumTextiles, Clothing and Leather 19,999 Maximum 20,000-33,999 34,000 Minimum

Mining 16,999 Maximum L7,000-32,999 33,000 MinimumConstruction Materials 15,999 Maximum 16,000-31,999 32,000 MinimumNon-Profit Organizations 14,999 Maximum 15,000-29,999 30,000 MinimumAdministration 11,999 Maximum [2,000-24,999 25,000 Minimum

Source: Ministere des Affaires Sociales et du Travail, Burundi.

3.21 In real terms the minimum wage has declined, notably in the late1970s when the nominal wage remained unchanged wlhile inflation was high.

Table 12: Changes in MiniLmum Wage, 1977-82

1977 1980 1982

Minimum Wage (FBu/day) 80 80 140Minimum Wage Index in Current Prices (1977 100) 100 100 175Consumer Price Index (1977 = 100) 100 177 205Minimum Wage Index in Constant Prices (1977 100) 100 56 85

Source: Ministare des Affaires Sociales et du Travail, Burundi.

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3.22 Employers pay a tax on the wage bill. This payroll tax isprogressive, starting at 5% on a wage bil:L up to FBu 4 million (US$33,780)and rising to 30% for wage and salary payments in excess of FBu 7 million(US$59,120). Wages of employees earning Less than FBu 3,000 (US$33) amonth are exempted, which, until the 1982 rise in the minimum wage,excluded wages of unskilled workers.

3.23 Some comparative information on labor rost in several countriesis given in Table 13. The figures which are indicative only due to theproblem of data comparability, show that ]3urundi, while ranking somewherein the middle, relative to some other countries in Africa, has earnings perworker that are considerably higher than in some Asian countries.

Table 13: Average Monthly Earnings per Employee in Manufacturing inSelected CountrLes, 1930

Monthly Earnings Index 1980 GNP/capita(US$) (Burundi = 100) (US$)

Burundi 102.50 100 200

Malawi 62.50 61 230MaurLtius 66.00 64 1,060Kenya 145.00 1/ 141 1/ 420Zambia 199.50 1/ 195 1/ 560

Bangladesh 27.00 26 120Sri Lanka 36.50 36 270India 59.00 2/ 58 2/ 240

Source: UN - Yearbook of Labour Statistics and World Bank Atlas.

1/ 1979.2/ 1978.

3.24 With wages and salaries accounting for about 20% of productioncosts in industry, measures that raise the cost of labor may have someimpact on employment. The minimum wage legislation is not thought to havehad much effect on employment, given its decline in real terms, but thepayroll tax, by making labor more expensive, may have discouraged its useand favored small firms as the tax rate rises with the size of the payroll.

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Exchange rate policy

3.25 Until recently, the Burundi franc (FBu) was pegged to the USdollar at the rate of FBu 90 = US$1.00. Thus, the exchange rate of the FBuvis-a-vis the currencies of Burundi's main trading partners reflected thefluctuations in the value of the US dollar. Between 1977 and 1980 the FBudepreciated against these currencies by 14.4% (22.2% against the mainnon-dollar currencies) as a result of the weakness of the dollar (Table14). When the latter strengthened in 1981 and 1982, this not only reversedthe earlier depreciation, but resulted in a net appreciation of the FBu ofalmost 9% over the period 1977-82 (13.2%if the dollar is excluded). Thesharp appreciation of the FBu since 1980 has coincided with a rapiddeterioration in the balance of payments and the external reservesposition.

3.26 The exchange rate is a key determinant of the internationalcompetitiveness of manufacturing industry. The Government's past policy oflinking the FBu to the dollar, and not to a basket of currencies reflectingBurundi's trading pattern, meant that price relationships between Burundiand non-dollar markets experienced considerable changes, and must have hadan unsteadying effect on industry. In practice, the effective banning ofcompeting imports had insulated Burundi's import substituting industriesfrom much of the effects of exchange rate fluctuations, though at a highcost to the economy. Exporting industries had no such protection againstexchange rate changes. The important devaluation of the Burundi Franc(30%) and the decision to link it to the SDR taken in November 1983reduced the anti-export bias in Burundi's incentives system and should inthe long-term help shift resources toward export activities.

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Table 14: Exchange Rate Movements of Burundi Franc vis-a-vis Currencies ofBurundi's Major Trading Partners, 1977-82 1/

(percent)

Sharein 1977/80

tradePercentage change with major Weighted percentage change

1977-80 1980-82 1977-82 partners 1977-80 1980-82 1977-82

US dollar - - - 35 - - -

Belgian Franc 22.3 -35.8 -21.5 20 4.5 -7.2 -4.3Deutsche Mark 27.6 -25.3 -4.6 15 4.1 -3.8 -0.7French Franc 16.3 -35.8 -25.4 11 1.8 -3.9 -2.8Japanese Yen 18.4 -8.9 7.8 7 1.3 -0.6 0.5Pound Sterling 33.3 -24.8 0.3 6 2.0 -1.5 ne.gKenyan Shilling 11.6 -32.1 -24.2 6 0.7 -1.9 -1.5

Weighted average 14.4 -18.9 -8.8Weighted average excluding US dollar 22.2 -29.1 -13.5

Source: Annex table 15.

I/ A negative sign indicates an appreciation of the Burundi francvis-&-vis the foreign currency.

Export tax

3.27 In principle, all exports are subject to an export tax butexemptions can be granted by the Finance Ministry. For manufactured goods,it is a flat 3% on the f.o.b. value. When duties have been paid onimported inputs, exemption of the export tax can in principle be obtained.

2. Impact of Industrial Policies

3.28 Assessing the combined impact on. industry of a wide range ofpolicies is a complex task. Given the long-term objective of creating aneconomically efficient manufacturing sector, questions arise as to howpolicies (i) encourage existing industries to improve their performance;and (ii) influence the establishment of new enterprises.

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3.29 One way of approaching this problem is to try and measure theeffect of Government intervention on the financial outcome of manufacturingoperations, or in other words to measure the amount of assistanceenterprises receive. Such assistance is provided in many different ways:by protecting enterprises against foreign competition (through tariffs orimport restrictions) and, thus, allowing them to produce at higher costs,or by granting them fiscal advantages through direct subsidies, etc. Onthe other hand, certain policies may have a negative impact on a firm'sresults, such as an overvalued exchange rate, price controls, selectivetaxes etc. It is the net effect of all these influences and their relativeimpact on manufacturing activities that has to be measured.

3.30 An indication of the degree of assistance an activity receives isprovided by a comparison of the value of its output (or better, its valueadded) at domestic costs and prices with that at world prices, i.e., cifprices). If this is done for a wide range of manufacturing operations,some insight is gained into the level and structure of assistance toenterprises. Such an exercise requires detailed and reliable informationon the cost structure of firms as well as on comparable world prices.

3.31 In Burundi a first step toward the measurement of Governmentassistance to industry has been taken (Annex 1). If this exercise is toyield useful results, considerably more time will have to be spent onclarifying the data on production costs through visits to enterprises, aswell as on obtaining relevant price comparisons. The latter presents aparticular difficulty in Burundi because imports of goods that couldcompete with local products are effectively prohibited. However, in spiteof these difficulties, a number of broad conclusions can be drawn withrespect to the overall impact of Government intervention on the basis ofthe earlier review of individual policies:

(i) A major drawback of the existing set of policies is that theyprovide little guidance toward the establishment of economically viableindustries. By shutting out foreign competition from a market with strongmonopolistic tendencies, the Government is creating an environment in whichuneconomic enterprises could be financially viable.

(ii) Once an enterprise is established it is given little incentiveto improve its performance. In a situation where the scope for competitionis limited by the small size of the market, and where there is already aconsiderable degree of natural protection because of the country'sgeographical position, the Government has removed the threat of foreigncompetition as well. Tariff protection is a better policy instrument as itintroduces an element of competition and puts sone pressure onmanufacturers to maintain financial discipline an.d pay attention to thequality of their products. At present such pressure comes only fromsmuggling. The open-ended protection provided to local industry isconducive to the emergence of inefficient, high-cost industries.

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(iii) Government intervention has a strong anti-export bias. Importcontrols provide a blanket protection for industries producing for thelocal market, but there is none for exporting industries. In fact, thelatter are taxed, and, in the absence of an effective duty drawback scheme,are put at a disadvantage vis-a-vis their competitors. The sharpappreciation of the FBu over the past two years further made exporting anunattractive proposition. The recent devaluation, however, eliminated thisdisadvantage for exporters.

(iv) Government policies are changing the relative prices ofcapital and labor in some ways. While the payroll tax is increasing thecost of all but unskilled labor, capital is made cheaper by exemptions ofimport duty on capital goods. Whether these policies induced changes inrelative factor prices and had any effect on the use of labor or capital ishard to ascertain. However, they ignore the Government's concern regardingemployment creation.

(v) While this report focuses on the manufacturing sector, thequestion of how assistance to manufacturing enterprises compares to that toother activities is important. If one sector is put in a privilegedposition, it tends to draw resources away from others, at a potential lossto the economy. Considering sectors that have close links (agriculture,industry and commerce), it would appear that industry is generally favoredrelative to agriculture, but is possibly at a disadvantage vis-a-viscommerce. Though there are exceptions (e.g., wheat), many crops (notablycoffee and green tea) are produced at costs that are internationallycompetitive, while many manufactured goods would not be able to competewithout substantial protection. A comparison of commercial and industrialenterprises' earnings shows a much higher return to capital invested in theformer (Table 15).

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Table 15: Some Results of a Survey of Enterprises, 1978

(in FBu million, unless otherwise specified)

Commerce Industry Services Fisheries Construction

Number of Enterprises (No.) 220 40 97 14 8

Equity 1,288 1,000 1,582 294 65Sales 9,918 3,233 2,147 259 552

Total Labor Cost 401 513 519 133 237Interest 80 48 65 5 33Amortization 126 85 306 16 15Gross Profit 1,166 489 650 88 29

Value Added 1,773 1,136 1,540 242 314Number of Employees (No.) 2,368 3,179 2,079 1,626 2,192

Profit/Sales (M) 12 15 30 34 5Profit/Equity (%) 91 49 41 30 45

Source: Ministry of Planning.

B. Industrial Finance

1. Description of the Financial Sector 10/

3.32 For a country at a still early stage of financial and economicdevelopment, Burundi has a relatively large number of financialinstitutions. Apart from the central bank (BRB), the financial systemcomprises: (i) 3 majority foreign-owned commercial banks (BanqueCommerciale du Burundi - BanCoBu; Banque de Crgdit de Bujumbura - BCB - andBanque Belgo-Africaine - BBA); (ii) a development bank (Banque Nationalepour le Dgveloppement Economique - BNDE); (iii) a public sector resourcemobilization and financing institution (Caisse de Mobilisation et deFinancement - CAMOFI); (iv) a holding/investment company (Societe HoldingArabe Libyen Burundais); (v) a savings bank (Caisse d'Epargne de Burundi -CADEBU); (vi) the social security system (Institut National de Securit6Sociale - INSS); (vii) an insurance company (Socifte d'assurances du

10/ For a detailed analysis of the financial sector, see BurundiFinancial Sector Report, World Bank, July 1982.

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Burundi - SOCABU); and (viii) the Postal Office Checking system (Office desCheques Postaux - CPP). CAMOFI, SOCABU and the Societe Holding werecreated in the late 1970's and CADEBU's previously modest role wassignificantly expanded in 1976/77 when it was charged with implementing thenewly introduced obligatory savings scheme. Recently, the Governmentcreated two new institutions: a development financier (Societe Burundaisede Financement - SBF), and a fund for investing in and lending to financialinstitutions (Fonds de Promotion Economiqu.e - FPE). Total assets of thefinancial system amounted to FBu 34.5 billion (US$388 million) in 1980.With the exception of the commercial banks, all the other institutions arecompletely or, to a significant extent, Gavernment-owned. BNDE is thefinancial institution most involved in financing industrial projects,although CAMOFI, Societ6 Holding, and SBF can and do provide term loansand/or equity to industry. Since 1978, the three commercial banks havealso become active in industrial lending with the introduction of themedium-term discountable credit ratio. 11/

2. Interest Rates

3.33 Interest rates charged by commercial banks and BNDE, includingthose on loans made with foreign lines of credit, are regulated by BRB.CADEBU's interest rates are not subject to the general BRB regulation, butare set by CADEBU's board, which, however, is chaired by the Vice-Governorof the BRB. CAMOFI also is not subject to the general regulation; itsrates are specified in its statutes or are determined by its ManagementCommittee. Nevertheless, through its presenc:e on CAMOFI's board, BRB caninfluence the decision for those rates in principle freely determined.Finally, Societe Holding, while not specifically cited in the interest rateregulations, has been advised to follow BRB's guidelines.

3.34 Burundi's present interest rate structure is shown in Tables 7to 10 of the Statistical Appendix. Lending rates on short-termdiscountable credits (less than two years) range from 6% for exportcredits, 7% for capital imports to 10% for imports of non essential goods.Equipment credits are charged 8.5%. Discountable medium-term (two to sevenyears) and long-term credits (over seven years) to industrial enterprisesare 9% and 11%, respectively. Non-discountable credits are more expensive,ranging from 11% to 15%. Although the inflation rate is forecast to slowdown in the future (about 10% per year as compared to more than 14% overthe last five years), interest rates on discountable credits, whichrepresent the bulk of credits distributed to the economy, are low andgenerally negative in real terms. They should be increased to reduce thepro-capital bias of present policies discussed in para. 3.31(iv) andencourage employment.

11/ Since 1978 commercial banks are required to allocate a minimum of8% of their resources for medium-term discountable credit. Themeasure is designed to encourage the traclitionally conservativebanks to participate in the country's development efforts.

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3. Credit Regulation and Availability of Finance for Industry

3.35 Since May 1978, practically all credits extended to industrialenterprises are subject to control by the central bank as the regulationrequires that credit must be submitted for prior review by BRB whenever itwould cause the cumulative amount of all credits outstanding (excludingcredit prefinancing exports of coffee and other export credits aftershipment) to a given enterprise to exceed FBu 3 million (US$25,340).However, once this limit is reached, BRB can assign to individualenterprises global discount ceilings for short-term credit needs. Theseceilings are reviewed annually and, if needed, may be readjusted. Creditsgranted within the global ceilings are not subject to BRB review but ifbanks grant credits, which would cause the ceilings to be exceeded, thesecredits would not be discountable. Medium- and long-term credits are alsoeligible for discount with prior BRB approval. In principle, long-termlending is the domain of specialized institutions such as BNDE, SBF, or theSociete Holding. However, commercial banks may be authorized on acase-by-case basis to lend long-term, but only that portion of the creditwhich does not exceed seven years would be eligible for discount.

3.36 The system is complex and cumbersome but does not appear to havebeen a constraint for manufacturing enterprises. Global ceilings assignedto individual enterprises are generally adequate and meet their short-termneeds. In 1982, only a few enterprises had exceeded their ceilings andvirtually no firm visited by the mission mentioned credit as their majorproblem. Term loans are also readily available, given the large number offinancial intermediaries involved in financing industry. The evolution ofcredit to industry and other economic activities is given in Table 16.

3.37 The table shows that over the period 1979-82, credit to industryalmost quadrupled, increasing its share in total credit outstanding to theeconomy from 6% in 1978 to 15% in 1982. Industry was only second toconstruction in the holding of term loans, accounting for 24% of allmedium- and long-term credits distributed during that period. Availabilityof finance has not been a constraint to the development of the sector. Onthe contrary, during these past few years of high inflation and relativelylow borrowing costs, enterprises might have sought more credits than theyneeded and have financed marginal projects as shown by the number ofindustrial operations now in difficulty. The situation may be different inthe future with the difficult balance of payments situation facing Burundiand the continued high demand for credit on the part of the Government.The availability of foreign exchange at BNDE and the comfortable resourceposition of the newly created Great Lakes Countries Development Bank(Banque de Developpement des Etats des Grands Lacs - BDEGL - para. 4.06)should help mitigate the impact of a difficult local situation, althoughshort-term credits may be more difficult to obtain from a financial systembusy to serve the needs of the Government. At present, the liquiditysituation of the manufacturing sector is satisfactory.

Table 16: Credit Outstanding by Branch of Activity, 1978-82 1/

(Year End, FBu million)

1979 1980 1981 1982Short M. & Short M. & Short M. & Short M. &Term L.T. Total Term L.T. Total Term L.T. Total Term L.T. Total

Agriculture 55.0 152.3 207.3 188.5 39.9 228.4 101.0 48.7 149.7 134.2 186.7 320.9Industry 324.0 150.6 474.6 551.2 354.2 905.4 539.8 767.3 1,307.1 699.4 1,006.8 1,706.2Civil Works,Constructionand Public Works 493.0 466.9 959.9 215.1 816.7 1,031.8 227.0 1,499.7 1,726.7 437.8 2,129.4 2,567.2

Transports 35.6 271.9 307.5 99.7 202.2 301.9 53.7 124.3 178.0 78.7 41.3 120.0Services 2/ 75.5 360.1 435.6 47.2 338.2 385.4 74.4 361.2 435.6 73.6 356.7 430.3Commerce 4,898.3 155.4 5,053.7 5,165.1 254.7 5,419.8 6,901.5 228.3 7,129.8 5,211.6 218.5 5,430.1of which: coffee (2,822.1) (-) (2,822.1) (2,776.3) (-) (2,776.3) (4,723.7) (-) (4,723.7) (3,124.9) - (3,124.9)

Miscellaneous 210.5 19.9 230.4 376.2 36.4 412.6 149.3 85.2 234.5 746.1 202.6 948.7

Total 6,091.9 1,577.1 7.669.0 6,643.0 2,042.3 8,685.3 8,046.7 3,114.7 11,161.4 7,381.4 4,142.0 11.523.4

1/ Same breakdown not available for earlier years.2/ Mainly Tourism.

Source: BRB, Burundi.

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C. Industrial Promotion Efforts

1. Past Efforts and Present Situation

3.38 Until 1977-78, BNDE was the only institution in Burundi with someexpertise in preparation and appraisal of small- and medium-sizedindustrial projects. Under the first credit to BNDE, IDA helped strengthenthis institution's project appraisal unit by financing the services of anindustrial expert who stayed with BNDE until the expiration of his contractin 1982. The unit is now staffed with two experts financed by the FederalRepublic of Germany and Belgium, and two local economists, but its capacityto appraise and supervise projects still need strengthening. Recently,BNDE received funds from EIB to finance feasibility studies for largeprojects, particularly those of an industrial nature. The other financialintermediaries do not have any project preparation/appraisal capability andrely mainly on outside expertise to evaluate the viability of potentialoperations. The commercial banks only extend credits to their own clientswhose credibility and financial situation they know. In general, financialinstitutions in Burundi work with collateral and emphasize secured lending.

3.39 In the late 1970s, Burundi received financial and technicalassistance from UNDP and UNIDO to develop its project preparationcapability. A UNIDO team posted in the Ministry of Trade and Industryhelped prepare a number of industrial projects (plastic bags, flour mill,insecticides etc.) and assisted a few enterprises in their starting period(flour mill, tannery). The team also assisted in establishing theIndustrial Promotion Center (CPI), which was formally created in May 1981as an autonomous institution under the supervision (tutelle) of theMinister of Trade and Industry. CPI has a very broad mandate and canprepare industrial projects, assist enterprises as well as conductindustrial research, create training centers or establish and manageindustrial estates. The Center is managed by a Board of Directorsconsisting of representatives of the Ministries of Trade and Industry(Chairman of the Board), Finance (vice-chairman), Planning, Agriculture,and Labor; of the Central Bank, the Chamber of Commerce, and arepresentative named by the financial institutions. In 1981 and 1982, theCenter received subsidies from the Government totalling FBu 17.5 million.Its current budget is FBu 12 million, of wVich FBu 10 million comes fromthe Economic Promotion Fund to help undertake a few project studies. Thecenter has established close relations with SBF which intends to rely on itto firm up its project pipeline.

3.40 The Center has recently started operation with technicalassistance from UNIDO. It is managed by a Director-General and itsBurundian staff consists of five economists, one engineer and two lawyersrecruited in 1982 and early 1983.

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2. Issues and Recommendations

3.41 The creation of CPI was a major step taken by the Government tostrengthen the country's project preparation and appraisal capability; andits establishment as an autonomous institution should give it the necessaryindependence of action to become effective. The Government has rightlyseparated CPI from the Ministry of Commerce and Industry whose mainfunctions are administration and control of industrial activities. It hasthus avoided the risk too often encountered in other countries of havingCPI burdened with administrative tasks and be regarded by privateentrepreneurs as an arm of the Administration through which they have to goto obtain the necessary authorizations for their projects.

3.42 Admittedly, there is some overlapping of functions between CPIand the Industry Department (Ministry of Commerce and Industry), as thelatter is also in charge of identifying andl preparing industrial projects.This has, reportedly, hampered the functionaing of CPI but is not, in themission's opinion, a major issue as there is ample room for cooperationbetween the two institutions in this critical area. CPI's impact onproject preparation depends on the quality of its staff and the ability ofits management to demonstrate that the institution can carry out the tasksfor which it was created.

3.43 A more important issue appears to be the broad mandate given toCPI which is supposed to cover everything from technical assistance toindustrial research and management of industrial estates. Although allthese functions seem well-conceived, there is a need for narrowing thescope of CPI's activities and set clear priorities to avoid dispersion ofefforts. In the mission's opinion, CPI's activities should be essentiallygeared toward the private sector and its main task should be to assistprivate promoters in preparing their projects. It should, to the extentpossible, avoid being involved in the preparation of important operationsor assistance to large enterprises which would strain its limitedcapability. Specifically, CPI's tasks would cover the following areas:

(i) Identification and preparation of small and medium industrialprojects for private promoters in coordination with banks andMinistries involved in industrial develoDpment;

(ii) Technical advice to entrepreneurs in thes selection andprocurement of equipment and in the preparation of loanrequests to local financial institutions;

(iii) Assistance to entrepreneurs in o!btaining the necessaryadministrative clearings and authorizations, and duringimplementation of their projects;

(iv) Assistance to enterprises in difficulty in collaboration withthe Ministry of Commerce and Industry;

(v) Exploration of new local and foreign market outlets; and

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(vi) Promotion, through fairs, visits, seminars, etc., of investmentopportunities in Burundi.

3.44 CPI will also need to establish close working relations with thefinancial institutions involved in the financing of industry and makeefforts to enhance its image with the business community as its successdepends to a large extent on the perception of private promoters of theinstitution's ability to help them overcome administrative bottlenecks andimplement their projects.

IV. REGIONAL ARRANGEMENTS

A. Existing Arrangements

4.01 For a small landlocked country like Burundi, good relations withneighboring countries are of utmost importance. Because of historical tieswith Rwanda and Zaire, Burundi entered into a cooperation agreement withthese countries during the second half of 1970s, but recently also joinedother regional arrangements which include its Anglophone neighbors withwhom Burundi has important economic relations. A description of existingarrangements is provided below and will be followed by an assessment oftheir effectiveness.

1. The Economic Community of the Great Lakes Countries

4.02 The Communaut6 Economique des Pays des Grands Lacs (CEPGL) wascreated in September 1976 and embraces Burundi, Rwanda and Zaire, a regionof about 2.4 million km2 and 37.5 million inhabitants (15 millioninhabitants, if only the Kivu region of Zaire is included). Its objectivesare, first and above all, to ensure the security of the three member statesand their populations and, second, to promote trade and economicintegration of the region. The institutional framework established forachieving these objectives includes: an Executive Secretariat, a RegionalDevelopment Bank (BDEGL), and two specialized agencies: the Institute ofAgronomic and Zootechnical Research (IRAZ) and the Organization for Energy(EGL).

4.03 The Executive Secretariat located in Gisenyi, Rwanda, is run byan Executive Secretary and two Deputy Executive Secretaries from the twoother countries. It has a staff of about 40 professionals transferred fromthe Government services of their respective countries, and two Departmentsdealing with (i) political and social matters, security and immigration;and (ii) economic affairs, transport and communications. The Secretariat'sbudget comes from member countries' contributions and amounted to about

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FBu 260 million in 1983. Most decisions, including the definition of theCommunity's general policy, adoption of the budget and selection of thelocation for a community project, are made by the Conference of the Headsof State, the supreme body of the community. The Executive Secretariat hasonly an execution role and prepares meetings and studies for decision bythe Heads of State.

4.04 The Secretariat receives support from a number of countriesincluding the United States, Belgium and France which contribute to itsbudget and provide experts and funds for carrying out feasibility studies.It has established close links with the Economic Commission for Africawhich set up an agency in Gisenyi in 1977 (the Gisenyi MULPOC -Multinational Programming and Operational Center) to assist thesecretariat's staff in identifying and implementing projects and programs.Recently, UNDP approved a technical assistance project aimed atstrengthening the Secretariat and the Regional Development Bank andproviding funds for carrying out feasibility studies of regional projects.

4.05 Although CEPGL is entrusted with promoting economic cooperationin all productive sectors, its main preoccupation has been industry.There, its role has been to finance feasibility studies requested by themember countries and to recommend the location of regional projects which,in principle, are guaranteed the market of the three countries. Amongindustrial projects at various stages of study or implementation are theglass bottles project in which IFC has a participation, bottle caps,pharmaceuticals, agricultural implements, ceiments, plastic products andsugar.

4.06 BDEGL, the other regional institution concerned with industrialdevelopment, was established in 1977 and began operation in Goma, Zaire inMarch 1980 with an authorized capital of SDR 25 million, which wasincreased to SDR 50 million in 1982. As of April 1983, SDR 33.4 millionhave been subscribed by the three member Governments and a number ofnational and international institutions, and about SDR 10 millionpaid-in. 12/ The bank is still a young institution and will needconsiderable technical assistance to improve its procedures and systems inproject appraisal and supervision, as well as in financial management andloan administration. Officially created to finance regional projectsrequiring substantial financing, BDEGL can also intervene in smalleroperations, which are normally the sphere of the three national developmentbanks (BNDE in Burundi, Banque Rwandaise de D6veloppement - BRD - inRwanda, and Societ6 Financiere de Ddveloppement - SOFIDE - in Zaire).

12/ BDEGL's capital is expressed in Units of Account (which areequivalent to the SDR) but should be paid-in by the threeGovernments and national institutions, half in foreign exchangeand half in local currencies, and by foreign institutions andcountries (ADB and Belgium) entirely in foreign exchange.

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So far, BDEGL has made one loan of about US$2 million for the Ruzizi IIregional hydroelectric power project. It is negotiating the purchase of10% of the Burundi's Government's equity participation in the glass bottleproject and is considering co-financing with other institutions therehabilitation of the Kiliba sugar complex and the Katana cement plant.Besides these regional operations, BDEGL's pipeline includes projects whichare already in the three national development banks's pipeline. Aware ofits limited appraisal capacity, BDEGL emphasizes co-financing and relies onthe national development banks's experience to prepare viable projects.The technical assistance provided by Belgium and UNDP (for which the WorldBank is the executing agency) should help develop that needed capacity, butthe role that BDEGL can play in the development of the region needs to bedefined more clearly. At present, the bank's main asset is its foreignexchange resources. Thus, it can help finance a few large projects, whichare beyond BNDE and BRD's capacity, although such projects are a rarety asthe main constraint to industrial development in Burundi and Rwanda is notthe availability of finance but the lack of viable projects. Such is,however, not the case in Zaire, and this is where BDEGL may concentrate itsinterventions.

4.07 In 1978, the three countries also entered into a Trade andCustoms Cooperation Agreement, whereby certain imports originating in themember countries do not require import licenses but only import notices.This agreement was reinforced by a Monetary Arrangement concluded the sameyear which stipulated that payments for these imports would be made throughspecial clearing accounts to be settled at the end of each quarter in theconvertible currency of the creditor country's choice. The effectivenessof these arrangements are assessed in para. 4.12 below.

2. Other Regional Arrangements

4.08 Burundi is a member of the Kagera Basin Organization (KBO), aregional institution common to Rwanda, Uganda and Tanzania as well, createdin 1977 with UNDP assistance to accelerate the development of the Kagerariver basin (60,000 km2 and 6.7 million inhabitants in 1980). Theorganization consists of the Commission for the Management and Developmentof the Kagera River Basin and the Secretariat which has three Departments:Research and Statistics; Projects, Planning and Execution; andAdministration and Management. The commission is the decision body of theorganization and is composed of one representative from each of the fourmember countries. The headquarters of KBO is in Kigali, Rwanda.

4.09 At present, KBO's highest priority is agriculture and its effortshave focussed on designing with UNDP assistance an action program centeredon food production with the objective of reaching self-sufficiency as soonas possible. The program also includes provision for infrastructure toensure transport of goods in the region and production of hydroelectricpower to reduce the member countries' dependence on imported energy.Although considered a key factor in the development of the Basin, industryis not given a high priority at this stage because of the need to develop a

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common agricultural base. The importance of KBO for the Burundian industryshould therefore be seen with a long-term perspective and will depend to alarge extent on the successful implementation of the agricultural programand the development of economic relations and trade among member countries.

4.10 In early 1983, Burundi also joined the Preferential Trade Area(PTA), an arrangement concluded by 18 Eastern and Southern African Statesin late 1981 to facilitate intraregional tradle. The PTA arrangements aimnot only at tariff reduction (10%-70% on selected commodities traded in theregion), but also includes wide-ranging cooperation agreements, such asclearing and payment facilities, and industrial development. However,these arrangements are not yet fully operational.

B. Effectiveness of Existing Arrangements

4.11 The efforts deployed to conclude or join regional arrangementsshow the determination of the Government to cooperate with its neighborsand to enlarge its economic horizon. The effectiveness of thesearrangements is assessed below. The discussion will focus on CEPGL, whichhas a more structured framework, and because the other arrangements areeither only marginally concerned with industry, or are of too recentcreation to be evaluated.

4.12 Although the political commitment of the member Governments toregional cooperation is indisputable, CEPGL has so far not been effectivein promoting regional trade and establishing a common industrial strategyfor the three member countries. The Trade and Monetary Arrangements(para. 4.07) did not work well because of the large differential betweenthe official and the parallel rates of the ZaiLre currency vis-a-vis theRwanda Franc and the Burundi Franc. The system was mainly used by Zairianbusinessmen until it was suspended in 1982 because Zaire did not have theforeign exchange to settle its account with Burundi and Rwanda.

4.13 CEPGL's attempt to coordinate and promote industrial developmentalso proved to be an impossible task, given national ambitions andinterests. Sugar is an example. Burundi is going ahead with its MossoSugar Project for which financing from a number of Arab funds and ADB hasreportedly been obtained, although the Kiliba sugar plant in Zaire, therehabilitation of which is planned, would be sufficient to supply the wholeregion. Rwanda is also considering building a sugar complex of 15,000 tonscapacity because the present one is too small (2,000 tons/year) for itsneeds.

4.14 Tariff harmonization is another example. There is no plan in thenear future to reinforce cooperation in this area. Yet, such cooperationis essential to the viability of the three regional projects which are nowin operation or under construction: the glass bottles project (Burundi),bottle caps (Burundi), and agricultural implements (Rwanda).

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According to recent information, without a preferential tariff it isdoubtful that Burundi would be able to export its glass bottles or caps toRwanda as the ex-factory cost of the products is already higher thanimports, partly because of the appreciation of the FBu. The glass bottlesproject has received all the advantages reserved in the Burundi'sinvestment code and the Government will probably take the necessarymeasures to secure the domestic market. But without exports, the projectwill not be able to operate profitably as the present demand in Burundi iswell below the break-even point currently estimated at 10 million bottles.The other regional projects (pharmaceuticals, methane gas, metal boxes,plastic products, cement, etc.) are still for the most part at thepre-feasibility or market study stage. CEPGL expects that some of themwould be prepared by UNIDO and financed by UNDP under its technicalassistance project to the Great Lakes States.

4.15 Official trade among CEPGL countries is negligible (Table 17).Over the period 1978-82, Burundi's imports from Rwanda and Zairerepresented less than 1.5% of its total imports and consisted of a fewproducts, such as cement, sugar and vegetables (mainly from Zaire). On theexport side, the amounts involved were even smaller in absolute terms,consisting mostly of rice and wood panels bought by Rwanda. Burundiexported little to Zaire, except in 1981 when sales to that countryincreased more than sixfold to reach FBu 225 million (US$2.5 million).Manufactured goods (mainly beer and cigarettes) accounted for 38% of thetotal and agricultural products (meat and beans) for the remaining 62%.The CEPGL clearing arrangement in place at that time appears to have beenthe main factor behind this surge of exports to Zaire since, valued at theofficial exchange rate, Burundian products were very competitive comparedto other sources of supply. 13/

4.16 During the same period, Burundi's main trading partners in Africawere two countries outside the CEPGL zone with a relatively developedindustrial sector: Kenya and Tanzania. Trade with these countries was veryunbalanced as Burundi imported manufactured goods from them, but could notoffer much in exchange, except for some tea to Kenya.

4.17 The low level of official trade and the grim picture depictedabove do not mean that all manufacturing firms in Burundi are restricted totheir small domestic market. Those producing essential or easilytransportable consumer goods such as beer, plastic products, soap, etc.,can and do take advantage of the unrecorded trade between countries in theregion which, although not documented, is thought to be important.

13/ Zairians importing from outside the CEPGL region should purchaseforeign exchange to settle their transactions at the parallelmarket, the rate of which was 3 times higher than the officialrate in 1981. In September 1983, Zaire devalued massively and setits currency at about US$1 = Z 30, while the officialpre-devaluation rate was US$1 = Z 5.7.

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Table 17: Share of Selected African Countries in Burundi's External Trade, 1978-82

(Value in FBu million; share in percentage of total imports or exports)

Jan. - Oct.1978 1979 1980 1981 1982

Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports

ZaireValue 47.7 4.7 117.4 3.9 190.2 34.4 144.5 224.5 139.6 n.a.Share 0.5 0.1 0.9 0.1 1.3 0.6 1.0 3.5 0.9 n.a.

RwandaValue 20.2 71.9 22.5 50.6 20.6 81.0 29.6 79.0 17.6 n.a.Share 0.2 1.2 0.2 0.5 0.1 1.4 0.2 1.2 0.1 n.a.

Total CEPGL

Value 67.9 76.6 139.9 54.5 210.8 115.4 174.1 303.5 157.2 n.a.Share 0.7 1.3 1.1 0.6 1.4 2.0 1.2 4.6 1.0 n.a.

TanzaniaValue 362.9 - 511.0 - 423.2 - 576.2 1.5 500.9 n.a.Share 4.1 - 3.7 - 2.8 - 4.0 - 3.2 n.a.

UgandaValue 0.6 - 0.2 - 2.2 - 0.4 - n.a. n.a.Share - - - - - - - - - n.a.

Total KBO 1/

Value 383.7 71.9 533.7 50.6 446.0 81.0 606.2 80.5 518.5 n.a.Share 4.3 1.2 3.9 0.5 2.9 1.4 4.2 1.2 3.3 n.a.

KenyaValue 586.4 - 954.5 77.1 692.2 25.9 984.8 53.2 601.1 n.a.Share 6.6 - 7.0 0.8 4.6 0.4 6.8 0.9 3.8 n.a.

Total Africa

Value 1,101.8 112.9 1,792.4 147.5 1,572.0 145.5 2,485.3 431.9 1,937.4 n.a.Share 12.5 1.8 13.1 1.6 26.7 2.5 17.1 6.7 12.3 n.a.

I/ Including Rwanda.Source: BRB, Burundi.

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Traditionally, this trade mainly involved the CEPGL countries, with EasternZaire supplying Rwanda and Burundi with coffee and other agriculturalproducts in exchange for manufactured goods, but now includes Tanzania andUganda as well. The reasons most often advanced for the expansion of thistrade include disparities in the availability of goods due to a tighteningof exchange control practices in some countries, and exchange rates that donot reflect market forces. Burundian beer and soft drinks are reportedlybeing sold in Tanzania or exchanged for salt, groundnut oil or mattresses.Zaire exports coffee, beans, milk, palm oil, etc. to Burundi to buyfabrics, beer, pans, and second-hand clothes. However, Rwanda seems tobenefit the most from this market because of lower prices due to itsconservative monetary and fiscal policies and comparatively lower importcosts. Moreover, Rwandese products are starting to penetrate the Burundianmarket.

4.18 It is generally recognized that controlling this trade is costlyand difficult, if not impossible, given the existence of cultural and otherlinks between Burundi and its neighbors, and the largely unpatrolledfrontiers. Goods or funds move across borders in response to the demand orprice differentials and could not be effectively controlled in the absenceof direct efforts to correct the causes of the imbalances that lead to suchflows. This would argue for some coordination of policies between Burundiand its immediate neighbor, Rwanda, because as long as Burundi pursues amore liberal monetary policy, the pattern of unrecorded trade which hasdeveloped between the two countries is likely to continue. Suchcoordination already exists in an important area of mutual interest: thesetting of the producer's price for coffee which has been kept unchangedover the last five years and was identical in the two countries from 1978to November 1983, when expressed in US dollars. It would be to the mutualbenefit of both countries if this coordination could be extended tomonetary and fiscal matters as pursuing divergent policies in these areaswould be self defeating in the long run, given the similarities of theireconomies and the permeability of their borders. A revitalized CEPGL couldbe a forum where discussion of these matters could take place.

4.19 CEPGL should also play a more active role in promoting industrialcooperation. The importance of this cooperation is recognized by the threemember countries and the need for it is evidenced by the existingduplication of production capacity within the region, particularly betweenBurundi and Rwanda where the industrial sector has essentially the samestructure and produces the same goods. Because of high tariff barriers andthe difficulties to export, some firms in Burundi or Rwanda even had toestablish themselves in the other country to capture the market. So far,CEPGL has tackled this coordination task by focussing on the promotion ofnew projects and has devoted most of its efforts to help, with limitedsuccess, carry out feasibility studies. This action is needed and shouldbe pursued because the region is richly endowed with natural resourceswhich should be exploited in common. However, CEPGL may also want toaddress the constraints limiting regional trade and initiate discussionwith a view to reducing tariff barriers among its member countries.

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4.20 This question is of utmost importance to Burundi for whichregaining access to neighboring countries' markets is essential, given thelarge unused production capacity of its industrial firms. At present,Burundi's exports of manufactured goods are relatively modest accountingfor less than 3% of total exports in 1981 and are for the most part boughtby the other CEPGL countries. Their composition is given in Table 18below:

Table 18: Composition of Burundi's Recorded Manufactured Exports, 1977-82

(FBu million)

Jan-Oct1977 1978 1979 1980 1981 1982

Fibrocement Products 32.3 37.8 35.8 66.4 51.2 39.1Soft Drinks 0.3 0.6 2.2 2.0 0.1 0.4Beer - - -- 4.3 9.6 62.2Oxygen 2.2 5.5 4.3 7.7 8.3 7.0Metal Products 3.1 3.9 2.1 1.4 - 7.2Cigarettes - - - - 72.0 42.3

Other 10.2 33.9 10.4 19.9 29.0 29.5

Total 48.1 81.7 54.8 102.1 170.2 187.7

Source: BRB, Burundi.

4.21 Without the substantial increase in exports to Zaire in 1981 and1982 due to the CEPGL clearing arrangements, Burundi's exports ofmanufactured goods would have registered a decline compared to 1980. Theseclearing arrangements were suspended in late 1982 (para. 4.12) and, as aresult, Burundi's manufactured exports to Zaire would probably not increasemuch in the future. Rwanda has traditionally been Burundi's main client.Exports to that country have, however, stagnated over the last few years atabout FBu 80 million (US$900,000) a year and would certainly benefit froman agreement to reduce tariffs with Rwanda. The tax revenue forgone by theGovernment would be marginal, given the low level of official trade, butBurundi would have to open its small market to Rwandese products. This mayimpinge on the Government's present import substitution policy and createadditional problems for some industrial firms, but in the long run, thebenefits that Burundi could derive would by far exceed the costs of openingup its market. At present, both countries maintain relatively high tariffand non-tariff barriers for the protection of local industry, with noregional preference. This protection, which was designed to allow time for

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new firms to develop, has tended to perpetuate, resulting in relativelyhigh-cost domestic production and discouraging trade.

Table 19: Tariff Rates on Selected Manufactured Goods in Burundi and Rwanda

(in percent of cif value)

Burundi RwandaFiscal Duty Imnport Duty Fiscal Duty Import Duty

Cigarettes 1/ 150 Exempted 130 20Soap 50 3 50 20Blankets 2/ 50 7 40 10Plastic Utensils 30-50 5 15 exemptedMattresses 55 10 40 20Wood Chairs 100 10 80 20Cushions, Pillows 55 10 40 20Brushes, Brooms 45 2 30 10Metal Sheets 15 5 10 5

1/ Imports prohibited in Burundi since 1982.2/ Imports in both countries allowed only to the extent the local firm cannot

satisfy the market.

Source: Tarif des Douanes. Burundi and Rwanda.

4.22 Another area where CEPGL countries would need to devote someattention to in the future concerns the trade and industrial policies toadopt vis-a-vis non-member countries. CEPGL countries trade more withKenya and Tanzania than among themselves. Kenya emphasizes the promotionof exports as a matter of policy, particularly since the emergence ofa manufacturing surplus capacity after the breakup of the East AfricanCommunity (EAC). Tanzania presently faces a difficult economic andfinancial situation, but when growth resumes could become an importantcompetitor for export markets. Should CEPGL adopt a protection policyagainst these non-member countries or should they be invited to join thecommunity? The issue is further complicated by the fact that Rwanda andBurundi are members of KBO which includes Tanzania but not Zaire andKenya. Both Rwanda and Burundi are also parties in the PTA arrangements,but not Zaire. To a large extent, the future of CEPGL would depend on theresolution of this issue.

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V. PROSPECTS AND STRATEGY FOR INDUSTRIAL DEVELOPMENT

A. The Fourth Development Plan (1983-87)

5.01 Since the sharp decline in coffee prices in 1978 and in spite ofa bumper coffee harvest in 1981, economic events in Burundi have taken aturn for the worse. At present, coffee :Ls no longer a source of revenuefor the Government, whereas it previously accounted for approximately 25%of total budgetary revenue. On the balance of payments side, lower foreignexchange receipts and reduced foreign aid inflows in the face of continuedincrease of imports have created a serious current account imbalance whichwill be difficult to resolve in the absence of balance of paymentsassistance.

5.02 The Fourth Plan, drawn up when all indications are pointing to adifficult period ahead for the Burundi economy, gives a prominent role forthe directly productive sectors: agriculiture and industry. While for theprevious five years industry had been allocated 12% of total plannedinvestment, its share has been increased to 20% in this new plan. The mainobjectives in pushing for a rapid growth of industrial production, apartfrom its effects on income, are the creation of jobs and a strengthening ofthe balance of payments. Decentralization of industry, which could spreadits benefits more widely, is also to be encouraged. Also links between theagricultural and industrial sectors are seen as the key to the achievementof these aims, with industry being required to rely on local raw materialsto a much greater extent than in the past.

5.03 The Plan outlines very ambitious targets for industry. Itprojects an average annual growth rate of 17%. New projects are expectedto create 25% of all industrial value added during the plan period.This is to be achieved with the help of an investment of FBu 18 billion(US$200 million), representing 18% of the country's GDP in 1981 and twicethe amount invested in industry during tlle Third Plan Period (1978-82).The new projects are expected to rely more on local inputs for their needsand would create 3,800 new jobs at an average cost of US$35,500 per job;another 2,500 jobs will be generated by existing enterprises throughbetter capacity utilization.

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Table 20: Investment and Employment Creation in Manufacturing DuringThe Third and Fourth Plans

Third Plan Fourth Plan1978-1982 1983-1987(Actual) (Objectives)

Investment (1981 FBu million) 8,729 17,948Number of Jobs 2,359 6,293 1/Number of Projects 48 62

- Completed (33) (-)

- Under execution (15) (-)

1/ Of which, 2,500 new jobs resulting from a better capacity utilizationof existing enterprises.

Source: Draft Fourth National Development Plan - Burundi.

5.04 On the policy and institutional front, the Plan is proposing totake measures in areas such as public enterprises, investment incentivesand productivity increase in existing enterprises. Concerning publicenterprises, and building up on the recommendations of the recentIDA-financed report on the subject, the Plan proposes to transfer to theprivate sector some of the viable public projects and to liquidate thosewhich are unlikely to become profitable in the long run. With respect toinvestment incentives, the Plan is consi.dering increasing the advantagespresently available under the investment: code and making them moreaccessible to small enterprises. Finally, regarding productivity increase,the Plan recommends granting financial and fiscal advantages to encourageexisting enterprises to increase the use of their fixed assets.

The Proposed Investment Program

5.05 The Plan's investment program has been prepared in great detail,identifying all projects and spelling out their funding requirements aswell as their expected results, including the employment and value added tobe created and the balance of payments impact. However, for many of theseprojects no pre-feasibility or feasibility study has been prepared yet, andthe figures given are thus highly tentative.

5.06 The first striking feature of this proposed investment program isthe large number of projects slated for implementation during the planperiod (62 compared to 33 executed over the past five years). Even if allthe projects were already well defined and prepared (which they are not),

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it is doubtful that existing institutions would be able to handle thislarge investment program with sophisticated technological and managerialrequirements and complex financing plans.

5.07 The second striking feature is the relatively large size of theprojects, with an average investment of FBu 365 million (US$4.1 million)per project, resulting in an investment cost per job of US$35,500. Sixprojects 14/ account for more than 60% of the proposed investment, addingvulnerability to the program and contradicting the implicit objective ofemphasizing small and medium size projec:ts which use technologies betteradapted to Burundi's market size.

5.08 All these six projects will eiLther be owned by the Government orhave a large public participation and this is another striking feature ofthe plan which goes against the declared policy of assigning a moreimportant role to the private sector in industry. Admittedly, industrialinvestment must be viewed against the dual objective of employment creationand balance of payments alleviation. The latter type of projects are oftencapital-intensive and more complex and, thus, could only be promoted by theGovernment as Burundi's private sector appears more motivated by smallprojects requiring simple technologies. Elsewhere in this report, themissionI suggested that Government's parl:icipation in the sector should notbe excluded because of the complexity and long gestation periods of someimportant projects. It should, however,, be used with caution as theirmanagerial requirements may exceed the country's present capacity.

5.09 Ten projects are considered decisive by the Plan for achievingthe objectives assigned to the industrial sector. Excluding theagricultural component of the sugar facl:ory, they represent a totalinvestment of FBu 16,152 million (US$179 million), of which FBu 12,249million (US$136 million) during 1983-87,

14/ They are: a sugar complex in Mosso, a new brewery in Gitega, twocoffee factories for OCIBU, a cement plant, a fertilizer plant andVERRUNDI, the Glass bottle factory.

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Table 21: Largest Industrial Projects of the Fourth Plan

(FBu Million)

Total Cost 1983-87

Agro-IndustriesSugar Complex (Mosso) 1/ 2,750 2,228Brewery (Gitega) 2,640 1,320BRARUDI Extension 800 800Coffee Factories 2,450 1,723Slaughterhouse 703 703Distillery (Mosso) 450 450

Construction MaterialsCement Plant 2,500 2,250

Wood and PaperParticle Board 579 579

ChemicalsFertilizers (Phosphates) 1,200 840

GlassVERRUNDI 2,080 1,456

TOTAL 16,152 12,349

1/ Excluding the agricultural component,. Total cost of this project iscurrently estimated at FBu 6,180 miLlion (US$69 million).

5.10 Two of these projects : the BIARUDI extension (150,000 hl/year)and the slaughterhouse in Bujumbura are still at an early stage ofpreparation and estimates of investment costs indicated in the Plan mayhave to be revised subsequently. The execution of the Gitega breweryproject has reportedly started with a loan from a French bank. However,market studies will have to be made to assess the possibility for export astwo breweries with a total capacity of 1,150,000 hl/year will be too largefor the local market. Present beer consumption is about 600-700,000hl/year and is expected to increase at t:he same rate than in the past(8%-9% per year).

5.11 Feasibility or pre-feasibility studies are planned or are beingcarried out for three other projects:

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(i) the distillery which at full zapacity is estimated to produceabout 4 million liters of alcohol from sugar molasses andother agricultural products as a partial substitution forimported gasoline. The project is e:xpected to generate 80 newjobs at a cost of US$62,500 per job.

(ii) the fertilizer plant with a capacity of 100,000 tons whichwould use the phosphate deposit at Matongo. Two hundred newjobs would be created at a cost of US$66,700 per job; and

(iii) the cement plant using the limestone deposits under thephosphate deposit in Matongo. Demand for cement is estimatedat 100,000 tons per year. The plant would have a maximumproduction capacity of 120,000 tons per year and would create250 new jobs at a cost of US$111,100 per job.

5.12 The sugar complex in Mosso is already at an advanced stage ofexecution as a joint venture between foreign investors and the BurundiGovernment. Total cost of this project!, including sugar plantation andinfrastructure, is estimated at about US$69 million and would be financedby the Burundi Government, a small equit:y investment from the foreigninvestors and loans from a number of local banks and foreign institutions,including ADB. Present sugar consumption in Burundi is estimated at about8,000-9,000 tons per year. The project should be in operation in 1985 andwill produce 6,000 tons of sugar that year, gradually reaching its maximumproduction capacity of 15,000 tons in 1990. The feasibility studyestimated the ex-factory price at US¢ 72/lb., which is higher than cifprice Bujumbura. Besides its import substitution objective, the project isexpected to stimulate the development of the Mosso region, one of thepoorest in Burundi. This is a rather expensive proposition, consideringthe possibilities for cooperation with Zaire, which is also rehabilitatingits sugar plant at Kiliba on the other side of the border with Burundi.

5.13 The two coffee factories (Bujumbura and Gitega) are also underexecution. They are needed to improve coffee processing and replaceOCIBU's old facilities in Bujumbura. Their cornbined installed capacitywill be 40,000 tons per coffee campaign.

5.14 VERRUNDI, the glass bottle factory in which IFC has a 10% equityparticipation commenced production in late 1983. The project wasco-sponsored by the Burundi Government and Browrn, Boveri and Company (BBC)of Switzerland, which installed the plant under a turnkey contract and willmanage and provide technical assistance in association with Vetropack,S.A., also of Switzerland. At the time of appraisal, ex-factory price for

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"tubby bottles 15/ which the project wi:Ll produce was estimated at USCts.49.3 per bottle, i.e., about 10% above the cif import price, but lower thanthe delivered cost of imported bottles of USCts. 55.9 per bottle in Burundiand USCts. 72.2 per bottle in Rwanda when taxes and duties are included.Beer bottles account for about half the project's output. Soft drinksbottles, which represent the other half, are expected to be produced at aprice competitive with imports. The project's markets are Burundi andRwanda where the demand for beer and sol't drinks bottles was estimated at10 million bottles the first year of the project's operation. Currentavailable information cast some doubts about the expected returns of theproject, at least, in its first years of' operation. Revised estimates putthe ex-factory price of a stubby bottle at USCts. 81. The delivered pricein Rwanda for the same type of bottle irmported from Spain is USCts. 78.With the present production costs, the break-even point of the factory isestimated at 5,000 tons per year, or the equivalent of about 11 millionbottles, while the demand for bottles in Burundi and Rwanda totals about8-9 million bottles per year.

5.15 The last project among the big 10 is a particle board plant forwhich a detailed study was prepared by SOMEBU (Societ6 Mixte d'Etudes duBurundi). The project proposes to use palm fibers available in largequantities in the Rumonge region to manufacture board panels, using thesame technology developed for wood particle boards which has been extendedto almost any fiber materials. The project could produce a much neededreplacement for timber to be used in construction and furniture. Theproposed plant has a capacity of 20 m3 per day and would cost about FBu 580million (US$5.4 million). 16/ Production costs are, however, extremelyhigh. Even by assuming no cost for the palm fibers and only 8% tax on theimported resin, the study estimated that ex-factory prices would have to beFBu 652/m2 (US$7.2/m2) for 8mm thickness boards and FBu 1,237/mi2

(US$13.7/m2) for 25 mm thickness boards for the project to be profitable.These prices are four times higher than the fob prices quoted by Europeanfiber board suppliers and probably more than double the cif pricesBujumbura. There is no reason why, with presently available technologiesand equipment, a particle board plant of the size required in Burundi(6,000 - 10,000 m3 per year) could not produce at prices competitive withimports. In the mission's opinion, this project needs substantialadditional preparatory work before it could be implemented. If the plant

15/ Burundi and Rwanda presently import Brewer-type bottles butare expected to switch to stubby bottles by the time ofproject start-up. Stubby bottles are shorter and lighter thanBrewer bottles but have the same fluid carrying capacity. Theex-factory price of a Brewer bottle if produced by the project, wasestimated at USCts. 53.3, i.e. 20% above the lowest cif price of acomparable bottle.

16/ The feasibility study has not been updated after the November 1983devaluation. The conversion of costs and prices into US dollarstherefore uses the old exchange rate (US$1 = FBu 90).

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were to be established with its present design, it would probably need fullprotection from imports and with its high prices would block any growthpotential in the furniture and related wood processing industries.Confronted with a shortage of projects and eager to develop industry, thecountry may be tempted to go ahead with ill-prepared projects, unlessbetter alternatives exist. This illustrates the urgent need to reinforcethe project preparation capacity, which at present is almost non-existent.

5.16 Geographically, industrial projects would be more evenlydistributed than in the past, with only 37% of the proposed investmentconcentrated in Bujumbura. To finance the irnvestment program, the Planintends to rely as much as possible on foreign resources to minimize theburden for the budget, but substantial public external borrowings may berequired if private promoters could not be found to participate in thelarge projects. At present only 24 projects with a total investment ofFBu 7,832 million have a financing plan. Of the remaining 38 projects,some have attracted the interest of private investors or foreign donors,but most of them are still without finarLcing.

B. Elements of a Medium-Term Industrial Strategy

1. Role of Industry

5.17 With the diminishing supply of arable land per capita and littlemineral resources, Burundi is forced into industrial development to provideemployment for its rapidly growing population. However, the constraintsfaced by the sector and described elsewhere in this report also imply thatthe pace of industrial development cannot, and should not, be pushed toorapidly. It will take time to overcome some of these constraints and trainthe labor force to industrial work. Thus, although the objectives assignedto industry in the Plan are worth pursuing, t'he investment program is toolarge to be achieved in the next five years, given the difficult balance ofpayments and budget situations and the growing external debt burden. Inaddition, many projects are still at an early stage of preparation and needsubstantial preparatory work before they can 'be implemented. Others arelosing propositions and should be redesigned before being included in thePlan. Clearly, a more selective approach is needed in terms of newinvestments, while action over a much wider range of policy instrumentswould be necessary to establish a framework within which the potential ofthe sector can be achieved.

5.18 Despite the stagnation of agriculture over the last few years,prospects for the Burundi economy remain closely linked to the outlook ofthat sector. What happens to food production and to the output and priceof coffee will determine to a large extent the well-being of the countryand its people for sometime to come. A strong growth ii: agriculture canalso stimulate domestic demand for manufactures and provide the rawmaterials for agro-processing industries. In that context, the role of

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industry should be to support the development and modernization ofagriculture. Local production of small agricultural implements,fertilizers, seed drillers, grain crushers should be given high priority.At the other end, basic consumer goods and those using local raw materialssuch as processing of vegetables, preserves, fruit juices, furniture andfixtures in wood and bamboo, pottery, manufacture of rope, cordage andrelated products from jute and cotton, etc., are types of industries whichappear economically viable given the country's resource availability.

5.19 In emphasizing the need to develop strong links betweenagriculture and industry, the mission is not, however, advocating a"voluntarist" approach of privileging agro-industries at all costs. Theseindustries should be encouraged but only to the extent that they arecompetitive with imports without excessive tariff protection. Otherwise,they would only penalize farmers, forcing them to purchase high cost localproducts. Outside agro-industries, there are also many products which,although relying more on imported materials, could be manufacturedeconomically in Burundi. Some have been tried successfully, others lessso, mainly because the projects were insufficiently prepared, the marketbadly studied, or the labor inefficient. In many cases, the causes offailure had more to do with the conception of the operation and managerialcapabilities than the idea of the project per se. Here, the Government hasan important role to play in helping develop the skill and knowledgenecessary for translating promising ideas into profitable industrialventures (paras. 5.21 to 5.23).

5.20 With this role assigned to manufacturing, a selective importsubstitution strategy will be followed. However, because of the largeunused capacity in the manufacturing sector, by necessity, Burundi willneed to promote exports. In this strategy, the highest priority shouldalso be to the development of small and medium enterprises because of theirpotential as a source of employment creation.

2. Improvement of Existing Firms' Level of Operation

5.21 The period ahead promises to be a difficult one for the Burundieconomy. Resources available for new investments are not likely to be asabundant as in the recent past and must be used efficiently. In view ofthe industrial sector's still limited absorptive capacity, the Governmentmay wish to consider de-emphasizing new projects and take this opportunityto consolidate past achievements. The need to improve existing activitieshas not escaped the attention of the Burundian planners who estimated thata better capacity utilization could generate 2,500 new jobs (i.e., 40% oftotal employment creation in industry during the Fourth Plan period). Thisobjective should have the highest priority as the efforts and therelatively small financial resources spent are likely to pay offhandsomely. The Government may, for exaimple, consider:

(i) establishing "production and/or employment contracts" withselected firms whereby they will be granted financial and fiscal

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advantages when achieving an agreed production or employmentprogram;

(ii) helping entrepreneurs (through CPI) iLmprove the management oftheir operations and reduce production costs;

(iii) negotiating with the other CEPGL courntries a reduction of tariffbarriers to facilitate exports;

(iv) exploring new local and foreign markets and assisting Burundianfirms in concluding production arrangements with complementaryfirms in neighboring countries. Such arrangements have beensuccessfully tried by a few firms in Zaire.

3. Role of the Government

5.22 There appears to be a growing interest of the private sector formanufacturing and this is evidenced by the large number of private venturesestablished over the last few years. It i'ould thus seem that theGovernment's main role should be to encourage such initiatives andestablish a framework in which they could develop to the maximum benefitsto the country. In this context, the first priority should be to help CPIevolve into a strong institution capable of assisting entrepreneurs in thepreparation, implementation and managemenl of their projects (para. 3.39 to3.44).

5.23 The second task would be to improve the working environment inindustry. Some of the constraints limiting industrial development arealmost permanent features of the country (e.g., high cost of transport),others have already been discussed elsewhere in this report (small domesticmarket and the need to gain access to foreign markets). There is, however,one area where remedial action is needed and that is improvement in thequality of manufacturing labor. This is a long and exacting task but aslong as labor productivity is not increased, industrial progress will beslow. There is at present no adequate technical training facility inBurundi and on-the-job training is insufficient. It will take time for theformal education system to produce labor suitable for industrial work butfirms should be encouraged to train their workers. The Government coulddevelop on-the-job training programs and grant firms which agree to carrythem out subsidies or tax privileges. New projects should all have a stafftraining program. Training components of projects financed by externaldonors could also be expanded to include accounting and, where feasible,technical matters (engineering, mechanics, etc.).

5.24 These tasks represent a formidable challenge and much time andefforts would have to be devoted to achieve them. In this context, theGovernment, which already owns or has a significant hand in many largeindustrial enterprises, should consider reserving its direct interventionto only a few well-prepared projects for which the financial requirementsexceed the capacity of the private sector.

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4. Promotion of Small-Scale Manufacturing Enterprises

5.25 Large projects of the type included in the Fourth DevelopmentPlan cannot solve Burundi's unemployment problem. The Government whichemphasizes employment as a matter of policy should give high priority tothe development of small-scale manufacturing enterprises (SSMEs) 17/. Atpresent, little is known about SSMEs, but a study is being carried out bythe Government with IDA financing to identify the needs and formulate afinancial and technical assistance program for their development. Fromthe limited data collected by the mission, SSMEs appear relativelyproductive, quite profitable and labor intensive, but dependent on importedraw materials, although less so than larger manufacturing firms. Accordingto the 1978 survey, which included about 40 SSMEs, value-added accountedfor about 27% of these enterprises' gross production (as compared to 35%for larger, more capital intensive firms), and profits before taxes about21% of estimated net total assets. About two-thirds of the SSMEs surveyedused imported raw materials, but this dependence should reduce as wheatflour and textiles are efficiently produced in Burundi. SSMEs appear to beconcentrated in a few traditional activities: bakeries and other foodproducts; garages and repair services; clothing; and wood-working andnon-metallic furniture. Artisans are mostLy in hanana beer manufacturing,saw-milling, and butcheries.

5.26 More than larger enterprises, SSMEs suffer from the generalshortage of technically qualified manpower in Burindi, the availability andcost of inputs, and limited access to bank credit. They are, however, lessconstrained by the small size of the domest:ic market. Overall, the SSMEsector seems to have reasonably good growth prospects. There is stillample scope for new enterprises in import substitution and in theprocessing of local resources such as leather, bamboo, sisal, and buildingmaterials.

5.27 Policies and regulations to assist SSME development are yet to bedeveloped. An SSME Investment code was issued in 1979, but was consideredinadequate and never implemented. In principle, most SSMEs are noteligible for advantages under the National Investraent Code, which requiresa minimum investment of FBu 15 million (US$166,700) for new projects andFBu 10 million (US$110,000) for expansions. However, the NationalInvestment Commission (NIC) has adopted the practice of also reviewing SSMEapplications and granting them similar advantages, although generally forshorter durations. Until a new SSME code is issued, it is recommended thatNIC continue its practice of considering SSMEs for the same advantages aslarger enterprises. Another area where changes would greatly benefit SSMEsconcerns the Government procurement proceduLres which, at present, requireopen local bidding for packages above FBu 250,000 (US$2,100), but includeno special features to facilitate the participation of SSMEs. In

17/ In the absence of an official definition, SSMEs may be defined asenterprises having net fixed assets less than FBu 25 million(US$210,000) and employing fewer than 30 people.

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particular, no allowances are generally made for aLccepting bids for partsof large series produced by SSMEs (chairs, uniforms, tables, etc.). TheGovernment may wish to review its procurement procedures and see how theycan be adjusted to provide an incentive to small enterprises.

5. Industrial Policies

5.28 In trying to encourage the industrialization process, andmaximize the contribution of the sector, the Government must in itsinvestment decisions and in the formulation of its industrial policies,lend much more weight to the concept of economic efficiency. Newinvestments in manufacturing must make economic sense, and existingenterprises must be forced to become more efficient. In terms ofindustrial policy this entails: (i) moving away from the presentindiscriminate protection of industry to a system of incentives thatrewards economic efficiency; (ii) exposing existing industries to foreigncompetition; and (iii) adopting economic criteria in the public sector.

5.29 While this report does not intend to provide detailed policyprescriptions, the kind of measures that fo:Llow from the general policyguidelines outlined above are set out below.

Import restrictions

5.30 High priority should be given to t:he elimination of therestrictions on imports of goods competing with local manufactures, andtheir replacement by protection through import: tariffs. In conjunctionwith other policies, notably the exchange rate, tariffs are a moreeffective tool for influencing the investment pattern than import controls.Although a shock treatment was applied with success by some countries whichopted to expose their manufacturing sector to foreign competition, agradual approach is recommended in the case of Burundi because of thefragility of many existing firms. As a first step, the Government shouldgradually relax quantitative restrictions. The measure would be discussedwith manufacturers and implemented over an sgreed period, say five years,so that every year an increasing proportion of domestic production isexposed to foreign competition. While the sector is being open tocompeting imports, existing tariffs should not be increased as they arealready high. In the second step, the present tariff structure which isuneven, protecting some products more than others, would be replaced by amore uniform structure, the objective being to establish a more neutralincentives system for all manufacturing firms. This change would, however,require a comprehensive review of Burundi's existing tariff system and itis recommended that the Government undertake such a review as soon aspossible since it will take time to be carried out.

5.31 The policy changes suggested above, coupled with the adoptionsince November 1983 of a realistic exchange rate, should bring a moreneutral long-term incentives structure, which wqould put exporters on a moreequal footing relative to import substituting industries. Yet, suchchanges require time. While they are being prepared and slowly

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implemented, a more direct means of support for exports of manufacturescould be introduced at short notice as a temporary measure. This couldtake the form of an export subsidy based on net foreign exchange earningsand financed out of the budget. Although such a subsidy would probablyhave to be substantial in order to have an impact, its budgetary cost islikely to be small.

Incentives for Employment

5.32 Without going into the desirability of having employment creationas a separate objective, it does appear that existing policies could bebetter directed to this end. First, it might help if the effect ofexisting policies of making capital cheaper and labor more expensive wereundone. To an important extent, the adoption of a realistic exchange rateand the tariff reform, specifically the raising of duties on capital goodsand abolishing duty exemptions on them, would help reduce the presentpro-capital bias. The extra revenue thus obtained might compensate in partfor the revenue loss resulting from scrapping the payroll tax which isincreasing the cost of labor.

5.33 Second, it is suggested that measures directly encouraging theuse of more labor, such as tax privileges re:Lated to the creation of jobs,might be effective in raising employment in manufacturing. However, notmuch is known about the structure and operation of the labor market, andthe possible impact of such measures should be looked at in more detail.

Investment Code

5.34 It was mentioned elsewhere that the main attractions offered byBurundi to potential investors (political stability, liberal foreignexchange remittance regulations, and a guaranteed market) are not thoseoffered by the Investment Code. Compared to some of the other industrialpolicies, the effect of the code is thought t:o be limited. Nevertheless,its operations and effectiveness could be improved.

(i) economic efficiency should become a principal criterion for aproject's participation in the incentives scheme. A satisfactory economicrate of return and a positive foreign exchange impact should thus berequired in every case;

(ii) the procedure for obtaining approval could be simplified, andmade less discretionary, by automatically granting specific benefits to allprojects meeting specified criteria;

(iii) as duty exemptions discriminate against the development anduse of local substitutes, they might be replaced by greater emphasis on the- already existing - tax holiday, but for a fixed period, and by fiscalbenefits that are directly linked to, e.g., the creation of jobs or the useof local inputs.

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Price Control

5.35 The principal argument for price control has been the need toprevent traders and producers from making excessive profits. The broadpolicy reforms recommended above would introduce an element of competitionin the domestic scene. This would be a less costly (in administrativeterms) and more effective means of keeping prices down. Control overprices could temporarily be exercised on a no-objection basis, andgradually relaxed as the trade policy reforms are implemented.

Future Studies

5.36 The implementation of the measures outlined above will requiredetailed data and information that this report cannot provide. It istherefore recommended that the following studies be undertaken:

(a) a comprehensive tariff study with the objective of establishing amore neutral incentives structure. The study will take intoconsideration the protection requirements of existing firms and theimpact of the proposed changes on the Government budget, includinga reduction of tariff barriers between Burundi and its CEPGLpartners;

(b) A study on the export potential of existing firms, taking intoconsideration the quality of the products offered, their productioncosts and potential markets; and

(c) A study on the effective demand for small agricultural implements,taking into account the low purchasing power of the ruralpopulation and the possibility of producing such equipment inBurundi at prices competitive with imports.

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Annex I

NOTE ON MEASUREMENT OF PROTECTION IN BURUNDI

Objective

An effort was made to illustrate the level and structure ofprotection afforded by Government policies to manufacturing activities.The intention was to try and measure for selected enterprises the nominalprotection (on the value of output) as well as the effective protection (onvalue added) they received.

Method

A questionnaire was sent to 35 enterprises (see attached list)requesting information on the breakdown of the cost of production of theirmajor products, on taxes and duties paid and subsidies received, and onc.i.f. prices of imported comparable inputs andl outputs. The questionnairewas completed by 25 firms, of whom 11 were subsequently visited.

Problems

The two main problems were finding prices of comparable imports,and obtaining reliable cost data: (i) Prices. No comparable productsare allowed to be imported. Reference prices would have to be obtained inneighboring countries or from potential exporters. The problem isexacerbated by the irregular and generally high transport costs.(ii) Costs. Although the response rate to the questionnaires appearshigh, many of them were only partly completed. Interpretation of the maincost elements differed, and the requested information was often notavailable. During company visits some of these problems were resolved, butusually there was insufficient time to go into details. Only in a handfulof cases were consistent and reasonably detailed cost data obtained.

Results

A nominal rate of protection (comparison of the price of thedomestic product with that of the equivalent imported products) could onlybe calculated in a few cases and an effective protection on none. Even forillustrative purposes, these results are at this stage of little value.

Conclusion

Studies of this kind, particularly in countries where the database is weak, require a considerably larger input of time and manpower thanwas available. Follow-up work is needed to (a) clarify the cost data,requiring visits to all firms for at least a full day each, and (b) obtainrelevant reference prices. The latter would probably need a visit to Kenyaas the most likely and nearest source of such information.

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BURUNDI

LIST OF ENTERPRISES TO WHOM QUESTIONNAIRE WAS SENT

Enterprise Activity

BRARUDI SARL Beer and soft drinksOCIBU Coffiee processingThe TORA Tea processingThg Teza Tea processingThe Rwegnora Tea processingSRDT Rice hullingCOGERCO Cotton grindingMinoterie du Muramvya FlourBTC SARL CigarettesRAFINA SARL Cotton oilLaiterie centrale MilkSUPOBU FishAGROPRO SPRL Fish, preserves, tomatoes

concentratesFABENA SPRL Cattle foodCOTEBU TextilesLOVINCO BlanketsLa Commerciale SPRL ClothingSIRUCO SPRL ClothingMETALUSA SARL Metal workingALTECO SPRL Iron sheets, cooking utensilsFAMETAL SPRL Metal constructionSITRACO SPRL Metal furnitureMECARUDI SPRL FurnitureUTEMA-TRAVHYDRO Metal frames, steel sectionsETERNIT SARL Fibroceinent productsCHANIC SARL Oxygen and AcetyleneSAVONOR SPRL Soap, detergenlsRUDIPAINTS Paints, varnishROBBIALAC Paints, varnishFADI SARL InsecticidesONAPHA PharmaceuticalsBATA SARL ShoesFABRI PLASTIC Plastic bagsINABU PrintingHAYDRY INDUSTRIES Matches

- 64 -

STATISTICAL APPENDIX

Table No.

1: Gross Domestic Product, 1978-1982.2: Composition of Investments, 1978-1981.3: Production of Major Manufactures, 1978-81.4: Employment in Industry and Other Sectors, 1980.5: Distribution of Industrial Employment by Branches, 1980.6: Distribution of Wages and Salaries in Main Manufacturing Branches,

1981.7: Minimum Deposit Rates for Financial Institutions.8: Maximum Lending Rates on Discountable Credits.9: Maximum Lending Rates on Non-discountable Credits.10: Discount Rates.11: BNDE - Portfolio as of December 31, 1981.12: Composition of Exports, 1978-82.13: Destination of Manufactured Exports, 1981.14: Composition of Imports, 1978-82.15: Exchange Rate Movements of Burundi Francs vis-a-vis Currencies

of Burundi's Major Trading Partners.16: Economic Characteristics of Projects Implemented during the Third

Plan Period.17: Industrial Projects Included in the Fourth Plan, 1983-87.

Table 1: Gross Domestic Product, 1978-1982

(FBu million)

Current Prices Constant 1970 Prices1978 1979 1980 1981 1982 1978 1979 1980 1981 1982

Agriculture 28,819 36,897 49,289 57,941 56,087 15,939 15,516 15,825 18,380 16,505Food Industry 2,858 4,295 4,527 4,963 6,921 1,542 1,626 1,836 1,892 2,000Textile and Leather 253 346 310 557 793 111 118 113 120 223Wood and Paper 622 1,188 1,474 1,413 2,079 284 380 443 388 609Other Industries 326 387 406 451 374 132 132 128 179 143

Total Manufacturing 4,059 6,216 6,717 7,384 10,167 2,069 2,256 2,520 2,579 2,975of which: Modern Industry (2,557) (4,086) (4,437) (4,911) (7,610) (1,386) (1,557) (1,805) (1,848) (2,227)

Handicrafts (1,502) (2,130) (2,280) (2,473) (2,557) (683) (699) (715) (731) (748)

Mines and Energy 200 301 419 472 515 88 102 131 138 151

Construction 2,859 3,481 4,373 5,051 5,843 1,256 1,180 1,371 1,344 1,561

Transport andCommunications 1,114 1,770 1,795 2,049 3,116 489 600 563 600 912

Commerce 4,041 5,356 6,089 6,932 8.166 1,724 1,882 1,912 2,030 2,390

Public Administration 2,651 3,397 4,056 4,609 5,123 1,087 1,097 1,082 1,196 1,261

Foreign Aid 2,120 2,239 3,039 3,407 3,633 869 723 781 860 894

Other Services 3,490 4,944 4,401 5,535 7,089 1,496 1,641 1,725 1,719 1,903

GDP at Factor Costs 49,353 64,601 80,178 93,380 99,739 25,017 24,997 25,910 28,846 28,552

Indirect Taxes 6,106 7,888 8,640 7,101 9,276 2,596 3,352 2,502 1,956 3,361

GDP at Market Prices 55,459 72,489 89,358 100,481 109,015 27,613 28,349 28,413 30,802 31,913

Memo ItemGDP per capita (US$) 157 200 242 266 282 78 78 77 81 83

Source: Ministry of Planning, Burundi.N.B.: Data subject to changes as the Planning Ministry is currently revising GDP estimates for the period 1978-82.

Table 2: Composition of Investments, 1978-1981

(FBu million and percentage)

1978 1979 1980 1981FBu million % FBu million % FBu million % FBu million %

Industry 546 7 998 10 1,452 13 945 8of which: Public (363) (5) (717) (7) (1,186) (10) (544) (5)

Private (183) (2) (281) (3) (266) (3) (401) (3)

Agriculture 1,568 20 1,713 16 1,681 15 1,801 15

Mines and Energy 1,265 16 1,396 13 1,336 12 1,409 12

Transport andTelecommunications 1,338 17 2,316 22 2,967 25 2,744 23

Social Infrastructure 1,925 25 3,027 29 1,988 17 3,003 25

Housing 517 7 623 6 1,556 14 1,278 11

Commerce and Banking 210 3 115 1 403 3 560 5

Tourism 340 5 318 3 110 1 89 1

Total 7,709 100 10,505 100 11,494 100 11,831 100

Source: Data provided by the Burundian authorities.

- 67 -

Table 3: Production of Major Manufactures, 1978-81

Units 1978 1979 1980 1981

Beer Hl 525,492 525,727 660,368 686,913Soft Drinks HI 77,969 95,733 111,484 115,112Shoes Pairs 386,058 471,156 440,060 460,144Blankets Pieces 435,206 400,440 373,220 380,990Oxygen M3 36,247 44,479 45,228 49,562Acetylen Kg 7,811 8,253 11,297 10,498Paint Tons 424 427 530 589Fibrocement Products Tons 2,700 2,309 4,090 3,460Insecticides Tons 2,075 1,260 1,542 1,851Mattresses Pieces 5,500 6,000 3,000 5,600Cigarettes Cartons 1/ - 1:3,007 12,297 25,992Fabrics Meter - - 2,200,000 1,737,673Matches Cartons 2/ - - - 9,202Cement Tons - - 50 820Soap Tons - - 2,566 2,829Metal Sheets Tons - - 2,128 3,067Cotton Oil Liter - - 131,570 347,274Polyethylene Products kg 72,505 67,382 80,399 135,814

1/ Carton of 500 packs of 20 cigarettes.2/ Carton of 1,000 boxes.

Source: Data provided by the Burundian authorities.

- 68 -

Table 4: Employment in Industry and Other Sectors, 1980

Employment

Modern Industry

Food, Beverages and Tobacco 1,890Textiles, Leather and Clothing 1,520Mechanical Industries 760Garages and Repairs 720Wood and Paper 480Chemical Industries 460Construction Materials 380Total Modern Industry 6,210

Handicrafts

Food and Beverages 21,110Clothing and Basket Making 35,820Other 148,040Total Handicrafts 204,970

Total Industry 211,180

Other Sectors

Mining 3,050Energy 920Agriculture, Livestock and Fisheries 1,685,770Construction 56,410Commerce 25,840Administration 18,380Other Services 54,210

TOTAL EMPLOYMENT 2,055,760

Source: Revue de Statistiques du Travail, December 1981.Ministare des Affaires Sociales et du Travail, Burundi.

- 69 -

Table 5: Distribution of Industrial EmLployment by Branches, 1980

Private Mixed Non Profit PublicEnterprises Enterprises Organizations Enterprises Total

Food, Beverages and Tobacco 594 904 - 392 1,890Textiles, Leather and Clothing 510 65 78 867 1,520Mechanical Industries 746 - 14 - 760Garages and Repairs 720 - - - 720Wood and Paper 143 - 244 93 480Chemical Industries 348 65 - 47 460Construction Materials 257 - - 123 380

Total Modern Industry 3,318 1,034 336 1,522 6,210(In percent) (53) (17) (5) (25) (100)

Source: Revue de Statistiques du Travail, December 1981. Ministere des Affaires Socialeset du Travail, Burundi.

Table 6: Distribution of Wages and Salaries in Main Manufacturing Branches, 1981

(in FBu per month and percentages)

Food, Beverages Textiles, Leather Mechanical Wood Chemical Constructionand Tobacco and Clothing Industries Industries Industries Materials

Number of Number of Number of Number of Number of Number ofEmployees X Employees % Employees % Employees % Employees % Employees %

Less than FBu 7,999 894 70 891 91 100 38 193 52 229 73 242 65C

FBu 8,000- FBu 11,999 149 12 22 2 76 28 102 27 21 7 76 21

FBu 12,000- FBu 18,999 116 9 38 4 70 26 53 14 52 16 22 6

FBu 19,000 -FBu 29,999 63 5 23 2 13 5 17 5 8 3 23 6

Over FBu 30,000 55 4 4 1 9 3, 6 2 4 1 6 2

Total 1,277 100 978 100 268 100 371 100 314 100 369 100

Source: Ministdre des Affaires Sociales et du Travail, Burundi.

- 71 -

Table 7: Minimum Deposit Rates for Financial Institutions

In percentper annum

Demand Deposits No interest paid

Savings Deposits: 1/Up to FBu (200,000) 7.00Over FBu (200,000) 6.00

Term Deposits and Savings CertificatesI to 3 months 4.503 to 6 months 5.006 to 12 months 6.0012 to 18 months 7.0018 to 24 months 8.50More than 24 months Conditions unregulated

Advance Notice Deposits1 month 5.003 months 6.006 months 7.0012 months 8.00Over 12 months Conditions unregulated

1/ Available only to individuals.

Source: BRB.

- 72 -

Table 8: Maximum Lending Rates on Discountable Credits

In percent per annum,including commissions

Commercial Banks BNDE

Short-Term

Export Credits 6.00Import Credits:Equipment and Basic Consumption Goods 7.00Other Products 10.00

Refinancing of Commercial Claims 8.50 Set on caseby casebasis by theCentral Bank

Advances on Contracts with Public Agencies 8.50

Working Capital Credits:

Harvest Credits 6.50Equipment Credits (2 years maximum) 8.50

Other Credits 10.00

ONC No special treatment

Medium-Term

AgricultureNational enterprises 7.00 7.00Other enterprises 7.00 7.00

HousingConstruction for Personal Use 8.50 8.50Construction for Other Purposes 11.00 11.00

Other Medium-Term CreditsNational Enterprises 9.00 9.00Other Enterprises 9.00 9.00

Long-Term

Equipment Approved and 11.00set by theCentral

Housing for Personal Use 3/ 11.00Housing for Other Purposes 13.00Agriculture 9.50

Source: BRB.

- 73 -

Table 9: Maximum Lending Rates on Non-discountable Credits

Commercial Banks 1/

(in percent per annum, including commissions)

Short-Term

Import CreditsEquipment and Basic Consumption Goods 11.0Other Products 14.0Exceeding Individual Limits and Suspension ofRefinancing Agreement 12.0

Refinancing of Commercial Claims 12.0

Advances on Public Contracts 12.0

Working Capital Credits

Harvest Credits 11.0Equipment (2 years maximum) 11.0Installment Sales and Personal Loans 15.0Exceeding Individual Limits, Suspension andRejections of Refinancing Agreement 15.0

Medium-Term

AgricultureAgriculture, National Enterprises 11.0Agriculture, Other Enterprises 12.0

Other Medium-term Credits

National Enterprises 12.0Other Enterprises 12.0

HousingConstruction, Personal Use 3/ 10.0Construction, Other Purposes 12.0Acquisition, Personal Use 10.0Acquisition, Other Purposes 13.0

Long-Term

Approved and set by the Central Bank on a case by case basis.

1/ Condition unregulated for BNDE but interest rates should not exceed15% per annum.

- 74 -

Table 10: Discount Rates

(in percent per annum)

Commercial Banks BNDEDiscount Rates Spread Discount Rates Spread

Short-Term

Export Credits 4.75 1.25 Set by the CentralBank on a case by casebasis.

Import CreditsEquipment and BasicConsumption Goods 5.50 1.50Other Products 8.50 1.50

Refinancing of CommercialClaims 7.00 1.50Public Agencies 7.00 1.50

Advances on Contracts withPublic Agencies 7.00 1.50

Working Capital CreditsHarvest Credits 4.50 2.00Equipment Credits(2 years maximum) 6.50 2.00

Other Credits 8.00 2.00ONC No special No special

treatment treatment

Medium-Term

AgricultureNational Enterprise 5.75 1.25 4.50 2.5Other Enterprises 5.75 1.25 4.50 2.5

HousingConstruction for

Personal Use 1/ 6.50 2.00 6.00 2.5Construction for other

Purposes 9.00 2.00 8.50 2.5Other Medium-Term CreditsNational Enterprises 7.00 2.00 6.50 2.5Other Enterprises 7.00 2.00 6.50 2.5

Long-Term

Equipment Set by the Central Bank 7.50 3.5on a case by case basis.

Housing for Personal Use 7.50 3.5Housing for Other Purposes 9.50 3.5Agriculture 6.00 3.5

Source: BRB.

- 75 -

Table 11: BNDE - Portfolio as of December 31, 1981

(in FBu million and percent)

TotalLong-Term Medium-Term Short-Term Bad Debts FBu million %

Housing 530 - - 2 532 36

Industry 144 91 - 99 334 23

Commerce/Handicrafts - 59 - 60 119 8

Tourism 334 7 - - 341 23

Agriculture 27 56 4 2 89 6

Small Equipment - - 54 5 59 4

Small AgriculturalEquipment - - 6 1 7 -

TOTAL 1,035 213 64 169 1,481 100(in percent) (70) (14) (4) (12) (100) (-)

Source: BNDE.

- 76i -

Table 12: Composition of Exports, 1978-82

(FBu Million)

Jan-Oct.1978 1979 1980 1981 1982

Primary Products 6,152 9,295 5,775 6,243 5,137Coffee 5,360 8,612 5,237 5,621 4,688Cotton 394 198 102 113 177Tea 171 185 136 212 207

Other Primary Products 227 300 300 297 65

Manufactured Products 82 55 102 170 188Fibrocement Products 38 36 66 51 39Soft Drinks 1 2 2 - 1Beer - 4 10 62Cigarettes - - - 72 42Oxygen 5 5 8 8 7Metal Products 4 2 1 - 7Other Manufactured Products 32 10 21 29 30

Other Exports 9 11 11 10 10

Total 6,243 9,361. 5,888 6,423 5,335

Source: BRB.

- 77 -

Table 13: Destination of Manufactured Exports, 1981

(FBu Million)

Zaire Rwanda Other Countries Total

Fibrocement Products - 51 - 51Beer 8 - 2 10Cigarettes 72 - - 72Oxygen - 8 8Acetylen - 1 - 1Cotton Fabrics - - 18 18Other Products 4 6 - 10

TOTAL 84 66 20 170

In Percent of Total (49) (39) (12) (100)

Source: BRD Annual Report, 1981.

- 78 -

Table 14: Composition of Imports, 1978-82

(FBu Million)

Jan.-Oct.1978 1979 1980 1981 1982

Raw Materials and OtherIntermediate Inputs

Used by:Metal Working Industries 331 427 495 484 664Food Industries 851 1,230 1,310 1,207 900Textile and LeatherIndustries 75 76 128 43 87Construction Industries 295 540 653 1,109 966Wood and PrintingIndustries 56 134 65 79 148

Agriculture 125 120 196 105 157

Sub-Total 1,733 2,527 2,847 3,027 2,922

Used by all Industries:Chemical Products 74 127 160 135 143Petroleum Products 600 1,137 2,223 2,901 2,235Other 234 335 584 583 857

Sub-Total 908 1,599 2,967 3,619 3,235

Total Raw Materials and OtherIntermediate Inputs 2,641 4,126 5,814 6,646 6,157

Equipment Goods

Boilers, Machines andMechanical Appliances 454 820 1,147 830 1,070Spare Parts 260 380 455 277 510Electrical Equipment 337 511 555 478 736Tractors, Vehicles andAutomobile Spare Parts 839 949 588 1,131 1,103Other 213 921 210 417 368

Total Equipment Goods 2,103 3,581 2,955 3,133 3,787

Consumer Goods

Foodstuffs 992 1,604 1,584 1,674 1,718Pharmaceutical Products 290 237 350 269 260Textiles 1,180 1,679 1,933 876 1,272Vehicles 434 676 637 436 785Other 1,203 1,817 1,841 1,435 1,819

Total Consumer Goods 4,099 6,013 6,345 4,730 5,854

- 79 -

Table 15: Exchange Rate Movements of Buru.ndi Francs vis-a-vis Currenciesof Burundi's Major Trading Partners I/

1977 1978 1979 1980 1981 1982

US Dollar 90.00 90.00 90.00 90.00 90.00 90.00

Belgian Franc 2.51 2.86 3.07 3.07 2.42 1.97

Deutsche Mark 38.80 44.80 49.10 49.50 39.80 37.00

French Franc 18.32 19.94 21.15 21.30 16.58 13.67

Japanese Yen 33.52 42.77 41.07 39.69 40.81 36.15

Pound Sterling 157.09 172.76 190.94 209.36 182.54 157.53

Kenyan Shilling 10.87 11.64 1]2.03 12.13 9.95 8.24

Source: IMF - International Financial Statistics.

1/ Expressed in Burundi Francs per unit (or 100 units) of foreigncurrency.

- 80 -

Table 16: Economic Characteristics of Projects Implesented during the Third Plan Period

Investment ImplementationMain 1978-82 Period Production Capacity Raw MaterialsActivity (BuF million) (moonths) Installed Utilized Utilization Employment Local Imported Ownership

Usine A Poisson Pish 219 48 9.000 tons 4,500 t 50 80 100 - PublicConditioning

Usines a The Tea Processing 640 48 n.s. n.a. n.a. 107 100 - Public

Minoterie de MURAMVYA Flour 280 15 17,000 tons 5,100 t 30 56 10 90 Mixed

COTEBU Textiles 2,447 48 9 million m2

2 million m2

22 900 60 40 Public

FABRIAC Agricultural 101 28 150,000 - 0 - - 100 Publiclmplements

ENACCI Construction 134 22 20,000 tons 1,000 t 5 87 50 50 PublicMaterials

llAYDRY INDUSTRIES Matches 75 36 96,000 cartons 30,000 cartons 31 120 - 100 Private

Usine Peinture Paints 39 12 1,000 tons 450 tons 45 18 - 100 Private

UTEHA-TRAVHYDRO Metal Tubes, Plastics 88 36 1,200 tons 600 tons 50 22 - 100 Private

OCIBU-Trienses Coffee Processing 64 6 - - - - 100 - Public

Boulangerie Industrielle Bakery 27 28 2.6 million 2.6 million 100 27 - 100 Privatepieces pieces

Carreaux en cirent Tiles 29 8 25,000 c2

15,000 M2 40 - 10 90 Privateet Granito

TOLIBU Iron Sheets 27 6 12,000 tons 1,600 tons 13 26 - 100 Private

Extension ETERNIT Fibro-Cement Products 32 12 1 million m2

455,000 .2

45 10 3 97 Private

Extension BRARUDI Beer, Soft Drinks 843 30 250,000 Pl 250,000 H1 100 323 80 20 Mixed

Extension SIRUCO Clothing 49 36 300,000 n2

110,000 x2

37 60 - 100 Private

BATA Shoes 118 24 1 million pairs 250,000 25 - - 100 Private

Fils a coudre Sewing Cotton Threads 11 24 Cotons 20 tons 33 22 20 80 Private

Paper Supplex Paper 27 15 300 tons 80 tons 27 20 - 100 Private

IMABU Printing 106 18 n.a. n.a. 42 75 15 85 Private

TUBURLAST Plastic Tube 112 18 400 tons 200 tons 50 45 - 100 Private

TRANNAFF Matteresses 15 36 90,000 pieces 52,000 pieces 58 30 - 100 Private

UTEMA-TUBES Steel Tubes 39 12 300 tons 170 tons 57 28 - 100 Private

ONAPHA Pharmaceuticals 87 36 300 tons 75 tons 25 50 - 100 Public

Extension SAVONOR Soap 13 10 1,500 tons 750 tons 50 15 50 50 Private

Extension PADI Insecticides 20 12 500 tons 200 tons 40 - 60 40 Mixed

SAVOBU Soap 21 22 1,000 tons 400 tons 40 25 100 - Private

BURCAp Bottle Caps 49 20 300 million 20 million 7 28 - 100 Privatecaps caps

FABENA Cattle Foddler 16 15 2,000 tons 1,000 tons 50 20 95 5 Private

BTC Cigarettes 484 48 60 million 30 million 50 100 - 100 Privatepacks packs

Abattoir Slaughter house 87 36 40 units 30 units 75 - 100 - Public

Boulangerie Michel Bakery 25 24 1 million 500,000 pieces 50 27 - 100 Privatepieces

AMETAT 25 24 2,500 pieces 800 pieces 32 23 - 100 Public

TOTAL - 6,349 - - - - 2,344 - - _

Source: Ministry of Planning, Burundi.

Table 17: Industrial Projects Included in the Fourth Plan, 1983-87 Page 1 of 5

(value in 1981 prices)

N' PROJECT Investment Employment Value Added Raw Materials Due Completion Status(million FRu) (million FBu) Local Foreign On going New Project

1982 1983-87 (million FBu)

7201 BRARUDI (Raw Materials) 66.1 28,3 110 269,9 8,7 5,0 1985 X _

7202 Medicine Plants 44,7 71.8 658 228,0 16,6 23,0 1986 X _

7204 Paper - 74,5 70 61,6 22,7 27,1 1986 _ x

7205 BRARUDI, Extension - 800,0 300 1 920,2 - - 1987 _ X

7206 Vegetable Processing - 266,1 - - - - 1986 . X

7207 Cattle Fodder 18,9 108.4 35 88,0 45,2 4,5 1984 X _

7208 Sugar Mill 2/750,0 300 640,0 11305,9 146.0 1987 _ X

7209 Brewery, Gitega - 2P240,0 - - - - 1985 _ X

7210 Tea Factory (Ijenda) 217.2 215,0 80 230,0 153,3 153.3 1984 X _

7217 Coffee Factories 727.3 1.722.3 - 435,0 531,3 531.3 1984 X _

7218 Soft Drinks - 250,0 - - _ - 1987 _ X

7220 SIRUCO, Clothing 10,6 16.0 20 318,2 128,5 42.8 1987 X _

7221 Oil Mill - 128.2 56 114.0 100,2 6,4 1985 X

Table 17Page 2 of 5

N° PROJECT Investment Employment Value Added Raw Materials Due Status

(mill ion FBu) (million FBu) Local Foreign Completion On going New Project

1982 1983-87 (million FBu)

7222 Slanghterhouse - 702,6 . _ = 1987 X

7223 Margarine _ 77,4 - - - 1987 X

7224 Destillery (Mosso) _ 450,0 100 225.0 105,1 . 5,6 1986 _ X

7225 COTEBU, Textile _ 122.2 200 711,4 354,7 104,4 1984 X _

7227 Shoe Factory _ 298.1 143 209.4 255,3 79,8 1987 _ X

7228 Tannery 38,0 65,1 132 415.7 407,3 71,9 1987 X _

7232 Particle Board - 579,0 110 345.5 22,2 72,9 1985 - X

7236 IPABU, Paper & Printing 28,4 42,7 29 236.7 5,4 364,0 1983 X

7237 Cardboard - 19,5 18 63.2 3,2 59,6 1984 -

7238 Garments, Gitega - 212,9 _ _ _ 1987 X

7239 Jute bags, SONACO - 163.5 23 121,3 22, 5 443,3 1985 X

7240 Charcoal - 44,5 20 58.8 10,2 3,5 1984 _ X

7242 Ice Blocks - 16.0 40.2 7,1 3,5 1985 _ _

Table 17Page 3 of 5

N' PROJECT Investment Employment Value Added Raw Materials Due Status(mil ion FBu) (million FBu) Local Foreign Ccmpletion On going New Project

1982 1983-87 (million FBu)

7243 Napkins _ 27.0 _ 82.6 25,5 55.4 1985 _ x

7244 Tobacco - 343.1 120 210,0 126,0 14,0 1987 X _

7245 Sweet Drinks - 68,2 19 78,8 94.0 3,8 1986 _ X

7246 Hosiery - 18,1 25 41.3 4,8 28,6 1985 _ X

7247 Herts processing - 23.6 27 72.1 86.7 - 1985 _ x

7402 Metallic furniture 31,0 3.1 133 245,4 26,9 230,6 1983 X _

7403 Radio Assembly - 18.1 24 41,6 4,3 6,9 1984 _ X

7406 Plastics - 25,4 27 107,7 23,3 47,1 1984 _ x

7409 ONAPHA, Pharmaceutical 87,0 106,4 50 160,0 9,1 51,7 1984 X _

7411 Match Factory 5 31 l 11,7- 40 150,8 54,0 183.9 1983 x _

7413 Batteries _ 141.3 45 35,0 8,Q 47,0 1986 _ X

7416 Fertilizers _ 700,0 - - - - 1988 _ X

7417 Car Batteries _ 30.6 25 49.9 10,0 35,3 1985 X

Table 17Page 4 of 5

N0

PROJECT Investment Employment Value Added Raw Materials Due Status(million FBu (million FBu) Local Foreign Completion On going New Project

1982 1983-87 (million FBu)

7418 Steel Tubes - 35,3 35 35,0 3,8 13,0 1986 - X

7419 Bricks - 290.9 115 146,7 63,4 15,0 1985 - X

7422 Cement Plant 2,250,0 - - - - 1988 - X

7423 Tooth paste _ 35,0 25 60,0 5,0 122,4 1985 - X

7425 Cables - 450,0 - - - - 1987 - X

7426 Printing, INABU - 350v0 104 121.9 28,7 168,8 1986 X

. .. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~OD7427 Plastics, Ext. - 181,0 68 220,3 31.2 170,5 1987 X

7428 INABU, Gitega - 129 5 60 64,0 - - 1987 X

7429 Tire Retreading 17.2 9,9 20 113,2 24,1 90.0 1983 X

7430 School books - 30.2 15 43.9 12,1 105,0 1984 _ X

7432 Plastic bags _ 101,0 49 77,7 63,2 55,1 1985 _ x

7433 Glass bottles 624,0 1,230,0 175 11 533,6 20318 229,5 1983 X

7435 Ceramics - 269,6 _ . 1986 .. X

Table 17Page 5 of 5

N' PROJECT Investment Employment Value Added Raw Materials Due Status(million FR,) (million FBu) Local Foreign Completion On going New Project

1982 1983-87 (million FBu)

7443 Diesel Garage - 21.3 25 9,00 4,2 21,8 1984 X

7444 Stone cutting _ 37.3 35 57,6 6,

28,2 1985 X

7450 TOLIBU, Extension _ 50,0 20 53,0 23,0 83,0 1984 X

7451 INDURUNDI (Coffee) 70,O 20,0 48 215.0 239,8 76,6 1983 X

1. _ __ I . . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ . _ _ _ _ , _ _ _ _ _ _ _ I- . . . . _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _c