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The Technical Assistance and Preinvestment Activities of the World Bank

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
September 1967
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“The Bank fully appreciates that the world will not develop by finance alone.” This statement by George D. Woods, the President of the World Bank, to the Economic and Social Council of the United Nations in December 1963, could well serve as the motto for the Bank’s technical assistance and preinvestment program.

Norbert Koenig

EVER SINCE THE WORLD BANK started in business, it has found itself called upon to give technical aid to member governments on matters relating to loan operations; it has helped in defining priorities among different projects and in recommending financial, economic, technical, or organizational modifications. At first, a great deal of such work was done by the Bank staff, but with the increasing number of loan requests the Bank ran out of experts in the numbers required. The Bank accordingly began to discuss with prospective borrowers the kind of advice that was needed and gave suggestions on how to obtain the proper technical services from consultant engineers or other appropriate sources. When the project was ready for financing and the loan was finally made, the Bank would include in it the amount necessary to reimburse the expert advice involved during both the planning and execution of the project. Such activities are still an important part of the Bank’s assistance to its member countries. Where appropriate, the Bank may also include in a loan the cost of feasibility studies for related future projects. For instance, studies for subsequent development of a country’s highway system might be included in a highway loan.

Growth of the Program

Over the 20 years of the Bank’s existence its program of technical assistance to the less developed countries has grown to include general survey missions; advisory missions; the stationing of development advisors in member countries; the organizing and financing of capital market studies, as well as help in project identification and preparation, in particular through sector and project feasibility studies. In addition, the Bank has served and continues to serve as executing agency for the United Nations Development Program (Special Fund) in a wide variety of projects financed by that organization. The project identification and preparation activities have in more recent years assumed the most important role in the Bank’s technical assistance program. Once an over-all development program has been established through the work of a general survey mission, it must then be determined through which actions and projects its aims can be achieved.

Training is another part of the Bank’s technical assistance work, and for more than a decade the Bank has operated the Economic Development Institute, a senior staff college to provide specialized training to high-ranking officials of its member countries who are concerned with economic development.

General Survey Missions

The purpose of a general survey mission is to examine a country’s development problems and potential and to prepare a report embodying recommendations to guide the government. The kind of advice it gives to a government would include an estimate of the amount of investment the country could undertake with the resources expected to be available to it; the allocation of public investment resources among the principal economic sectors; the order of priority among types of undertakings and major projects; and the economic and financial policies, institutional arrangements, and administrative measures likely to accelerate economic growth.

The survey missions differ from the other missions organized by the Bank in two important respects: First, a survey mission is organized only at the request of a member government. Second, the report of a general survey mission is an independent one, and the Bank always makes clear in transmitting the report to the government that the views expressed are those of the mission rather than recommendations by the Bank as an institution. Nonetheless, the Bank’s staff keeps closely in touch with the progress of the mission and carefully reviews its work.

Normally, the costs of a general survey mission are shared by the Bank and the country concerned—the Bank bearing the foreign exchange costs and the country concerned bearing the local costs.

The nature of the economy to be surveyed determines the size of the mission and the fields of specialization of its members. Normally, the mission includes, in addition to one or more general economists, experts in industry, power, agriculture, transportation, and education; but there may be other specialists as well—in health, housing, tourism, mining, public administration, and the like. Usually several members of a mission, including particularly the chief economist and the other general economists, and often the chief of mission, are drawn from the Bank’s staff; the sector experts are usually recruited from outside. The Bank looks to other international organizations, such as the International Monetary Fund (IMF), the Food and Agriculture Organization (FAO), the United Nations Educational, Scientific and Cultural Organization (UNESCO), and the World Health Organization (WHO), to provide or assist in recruiting experts in their respective fields.

The recommendations of a general survey mission are, of course, useless if they are ignored or not put into effect. The Bank has consistently urged, therefore, that the report of a mission should not be pigeonholed; even if it cannot be acted on at least it can be widely disseminated in the country, and its recommendations can be studied. If study leads to discussion and modification the Bank regards that as natural—far better indeed than meaningless acquiescence. The Bank also asks that some continuing agency be established to keep under constant review and periodically to revise whatever program may eventually emerge from consideration of the report.

In 1949 the first of the Bank’s general survey missions went to Colombia. On the basis of the mission’s report, the Government of Colombia drew up a development program, established a planning organization, undertook other institutional improvements, and made a series of policy changes. A steady stream of funds began to flow to essential projects, especially to highway, railway, and electric power development. A program of mechanization in agriculture was undertaken. Colombia began to achieve a momentum in its economic development which continued during more than 10 years. During that period the Bank alone assisted by making 25 loans totaling nearly US$390 million for development projects. In addition it has sponsored the Consultative Group, which has coordinated the financial aid of other foreign and international lenders, and stimulated a broad flow of capital into Colombia.

In all, the Bank has sponsored a total of 24 general survey missions; the most recent one was a mission to Morocco in 1964.

However useful the report and the immediate results of a general survey mission may be, they do not in themselves constitute an adequate development program. Such a program must derive from careful study and discussion of issues by the responsible authorities of the country concerned. The mission’s recommendations, in order to be useful, must become “naturalized,” understood, and accepted by the country as its own. Also, development programing cannot be done once and for all; to be effective it must become a continuous process of analysis and imaginative adjustment. Most important, the real success of a development program lies in the extent to which it is actually carried out.

Advisory Missions

While the Bank has stationed long-term advisors in a number of countries to help the governments in the preparation and implementation of economic programs, it is becoming the practice more and more that the Bank sends short-term missions from headquarters to advise on special problems of a member country. An example of this activity is the mission that from August 1965 to October 1966 studied the Gezira Scheme for cotton in the Sudan. It made recommendations to the Government on the intensification of the cropping pattern, the improvement of extension services, the organization and administration, and incentives for farmers.

Another example is the joint Bank/FAO mission to Spain, which explored the role of agriculture in the Spanish economy with a view to recommending allocation of resources of land, labor, and capital in that sector. This was a fairly typical advisory mission; an examination of a country’s agriculture (for example) and an agreement with the country about how to increase its agricultural productivity and production often precede the stage in which the Bank could consider providing financial assistance.

A different type of mission is that which is undertaken by the Bank’s Adviser on Planning Organization. Through him advice has been provided to a number of member countries on planning questions, such as choice of planning machinery; distribution of planning functions; role, organization, and location of a central planning agency; regional and local planning bodies; and programing units in operating organizations. (See “Public Administration for What?” in this issue.)

Mobilization of Local Capital

The Bank is very much interested in the capital markets in its member countries and is often concerned with analyzing their organization and operation and advising on measures for their improvement. In Pakistan, for example, a Bank consultant studied the securities market and then helped in the preparation of a stock exchange law.

Often the Bank’s interest is even more specific, as when it provides assistance for the establishment and growth of financial institutions in member countries. It is the Bank’s experience that a promising instrument for promoting industrial development in many countries is the development finance company (sometimes called a development bank). These institutions can be useful for mobilizing domestic private capital for efficient industrialization, in evaluating the technical and economic merits of industrial projects and determining what must be done to establish them on a sound basis, in attracting foreign investment and know-how on advantageous terms, and in spreading investment risks and broadening participation in the ownership of industries.

The main contribution that the Bank and the International Finance Corporation (IFC), the Bank’s affiliate for private enterprise financing, have made to such development finance companies consists of loans to and investment in these companies. However, the Bank and IFC have also aided the establishment and initial operation of these development finance companies in other ways: advising on the provisions of their charters; helping them to set up operating procedures and to recruit qualified staff; assigning resident advisers for periods of a year or more; and bringing staff members of the local institutions for training at Bank/IFC headquarters.

Project Identification and Preparation

National planning involves the determination of the over-all economic potential and the establishment of a development program. It involves a judgment on the relationship of the principal sectors to the development of the economy as a whole and the relative emphasis to be given to major projects within each sector. Development plans of this general nature exist in nearly all developing countries, but they are not always realistic or even meaningful. It frequently happens that the various economic sectors have not been analyzed in enough detail to identify specific potential investment projects. In other instances potential projects have been identified but the country has been unable to undertake the further studies needed to bring the project to the point where it could be appraised by the World Bank or other potential lenders.

Identification and preparation of projects have during the more recent years been found to be one of the principal needs in the less developed countries. In these preinvestment activities the Bank has particularly close relationships with other international agencies. Thus, the Bank has been executing agency for a considerable number of sector and project feasibility studies which the United Nations Development Program has financed. In 1964 the Bank concluded agreements with FAO and UNESCO embodying working arrangements for cooperative programs with these two organizations for the purpose of assisting governments in the identification and preparation of agricultural and educational projects. The aim is to find projects that the Bank might finance. In 1965, on a less formal basis, the President of the Bank agreed with the Director-General of WHO that the two organizations should increase their cooperation in various areas of common interest and, in particular, water supply.

Project identification is the preliminary determination of the nature and size of potential projects and of their importance for development. There are several ways in which the Bank assists member countries in the identification of projects. Bank economic missions, in exploring possibilities for future operations, may note and bring to the governments’ attention projects that appear to deserve priority. Bank resident missions may do the same. In 1965, the Bank established two Permanent Missions, one in East Africa (Nairobi) and one in West Africa (Abidjan), to assist member governments in the regions in the identification and preparation of development projects; for the time being, these missions concentrate on agricultural and transport projects. (Attached to the East Africa Permanent Mission is the Agricultural Development Service. This is a group of experts who are available for employment by governments in the region to assist in the execution and management of agricultural projects.) The Bank also sends out missions with the specific object of identifying projects; these are undertaken by its own staff, by FAO, or by UNESCO, in accordance with the relevant cooperative agreements, or jointly with the staffs of these organizations. Another important means of project identification are studies of a particular sector of a country’s economy with a view to the preparation of a coordinated investment program for that sector.

Once a project is identified the primary responsibility for its “preparation” rests with the member country or the project sponsor. But the Bank is prepared to help in a number of ways. Often the Bank’s assistance may consist in advice by its staff, or where appropriate, by FAO or UNESCO staff, on the planning of feasibility studies by specifying the information which has to be gathered, by establishing the relative urgency and emphasis to be given to different aspects of the studies, and by advising how those studies can best be organized and presented, and, where appropriate, financed. In particular, prospective borrowers often need advice on whether the consultants they have in mind are suitable; they frequently need help in drafting terms of reference for consultants and negotiating contracts with them.

The Bank also appoints advisers to assist member countries in preparing projects. Advisers on project preparation have been provided to Chile, Jamaica, and the Sudan; a transportation adviser to the Government of East Pakistan, and a Bank staff member is stationed in Bogotá to help with the planning and executing of highway development programs in Colombia and Ecuador.

One of the most effective means of preparing development projects is the project feasibility study. Such studies help to determine the technical feasibility and economic and financial viability of individual projects. They include preliminary engineering work, establishment of cost estimates, determination of likely economic benefits and financial profits, investigation of the management capacities or administrative readiness of the project’s sponsor to execute a project on the scale contemplated, and an examination of the adequacy of the proposed financial contribution of the sponsor of the project. Feasibility studies should also provide data which will enable estimates to be made of physical requirements for raw materials, equipment, supplies, and manpower; in projects involving the production for export or substitution of imports, they should also give information on world market conditions and their outlook as well as costs of production abroad.

Investment Flowing from Studies

The Bank established its program to finance sector and feasibility studies in 1961. Already in 1959 the United Nations had created the Special Fund, now the United Nations Development Program (UNDP), to undertake preinvestment work. (See “Charting the Channels for Development Capital,” by David L. Gordon, in Finance and Development, Vol. II, No. 2.) It was, and it continues to be, the Bank’s policy to refer all requests for financial assistance for sector and feasibility studies to the UNDP. Only studies that the UNDP is not able or prepared to handle on a time schedule appropriate to the requirements of the project have been organized by the Bank and financed out of its own resources. On many occasions the UNDP has financed a study and asked the Bank to execute it. Whatever the source of financing, the Bank almost always employs consultants for the actual carrying out of the studies. However, the Bank, in cooperation with the government concerned, prepares terms of reference for the consultants, supervises their work, and carefully evaluates their final report.

The UNDP finances the foreign exchange costs for sector and feasibility studies by outright grants not by loans. Until late in 1965, this was also the Bank’s practice. (The local costs of a study are in each instance met by the government concerned.) Now the Bank’s financing of foreign exchange costs of preinvestment studies is on a reimbursable basis, with the exception that studies involving Bank financing of $200,000 or less continue to be financed as grants. The new policy facilitates an appropriate division of functions between the Bank and the UNDP.

From 1961 to the present time the Bank has undertaken 40 sector and feasibility studies under its own program and allocated $13.8 million to cover their foreign exchange costs. Of these studies, 22 have been substantially completed, and out of these, 8 studies have led to Bank loans totaling $226 million—for roads, railroads, and water supply. Several more may lead to Bank lending. One study served the useful purpose of showing a proposed project to be uneconomic.

So far, the Bank has agreed to be the executing agency for 31 UNDP projects, out of a total of 727 that have been approved by the Governing Council of the UNDP through its January 1967 session. The UNDP has allocated $26.6 million to pay for the foreign exchange costs of the 31 projects. The Bank has a good record of completing UNDP projects for which it is the executing agency: at the end of 1966, 13 projects had been completed. Of these, 6 studies have led directly to 7 Bank loans totaling $244 million.

Financial Aspects

The Bank’s financial statements contain a category “Services to Member Countries” which includes the technical assistance and preinvestment activities described above. The first time the cost of these services was shown separately was for the fiscal year 1950/51, when it was $333,837. The growth of this program is reflected in the figure for the fiscal year 1965/66, which was $8,268,496.

As a frame of reference it is appropriate to mention that the Bank’s entire administrative budget, including “Services to Member Countries,” for the fiscal year 1965/66 was $29,807,676. Its lending operations during the same fiscal year totaled $839 million and IDA credits totaled $284 million. The Bank’s net income for the year was $ 144 million.

Conclusions

Over the years the Bank’s program of technical assistance and preinvestment activities has grown to become a widely diversified program which at present forms a major part of the Bank’s total activity. Substantial achievements have been made both in terms of immediate short-term results and in terms of a longer-range impact on the economic development of the less developed countries of the world.

The experience of the World Bank has been that technical assistance, preinvestment activities, and lending for economic development are closely interdependent, and that the Bank is able to make a valuable contribution to the development process by bringing these essential components together. Its lending, preinvestment, and technical assistance activities will continue to go forward hand in hand.

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