Project Implementation Delay & Its Effect On

Loan Recovery Performance In Case Of

Manufacturing Projects Financed By
Development Bank Of Ethiopia

By: Yordanos Kebede Advisor: Efa Gobena (Asst. Prof.)

June, 2021
Presentation Outline

• Introduction
• Statement of the Problem
• Research Question
• Objective of the study
• Conceptual framework
• Research Methodology
• Results of the Study
• Conclusions and Recommendations
 Introduction
• Projects are amalgamation of serious of interrelated activities
that can be classified in project cycle & it is the cutting edge
of development.
• The objective of any effort in project planning & analysis
clearly is to have a project that can be implemented to the
benefits of the society. Thus implementation perhaps the most
important part of the project cycle.
• Projects to be successfully implemented, if it comes on-
schedule (time criterion), on-budget (monetary criterion) and
on Quality (achieving the purpose)
• To successfully implemented projects nations organize
different institutions that provide technical assistant & project
finance.
 Cont’d…Int
• Development Bank of Ethiopia (DBE) is specialized in project
financing Bank established by Government since1909 G.C.
• Even though it has long history in project financing, its
operations is fully challenges granted from sophisticated
/complicated nature of project financing. The intensity of
challenges can be expressed by poor quality of asset /NPL/.
• Hence, assessing the current level of manufacturing project
implementation delay as well as possible factors contributing
for the delay and its effect will help the bank to reduce the
intensity of the problem that hindering the bank from
achieving its ultimate goal to support economic improvement
through providing long term financing to Government priority
project owned by both the public and individuals.
• The research has assessed Manufacturing projects
implementation delay, contributing factors and its effect by
focusing projects financed by DBE.
 Statement of the Problem
• Most manufacturing projects implementation were lag behind
from what was planned. As per the 3rd quarter report of the
year 2020, of the bank different projects lag behind the
planned schedule & its NPL ratio increase time to time (10%
to 39% from 2013/14 to 2019/20)
• Delay leads to elevated amount of NPLs’ since the repayment
period are highly related to finalization of project
implementation & operation of projects. It also enforce
projects to repay the loan before commencement/begins/ of
production.
• Currently the bank is at critical stage, that minimize asset
quality/loan/ & revolving funds for other projects which
aggravated by implementation delay.
 Cont’d… Stat.P

• Even though there are different studies conducted on project

implementation delay, most of them are focused on construction
sector through out the world and there are few on Manufacturing
Project implementation delay.
• In Ethiopia as far as the assessment of the researcher there is no
studies on Manufacturing Project implementation delay.
• Beside the bank provide 75% of loan based on current
outstanding amount to manufacturing project.
• Besides, NPLs of the Bank is worsening time to time and
implementation has been indicated as a reason for fresh entrant to NPL’s
in different reports of the bank, it should be evaluated in scientific
manner.
• Hence, the research was focused to fill the gap which is the absence of
studies on manufacturing sector and to contribute the importance the
 Research Question
To address the problem statement, the following key research
questions are set:
• What is the status of project implementation in
manufacturing sector financed by Development Bank
of Ethiopia?
• What are the factors (bank specific, project
management related and a major external/Macro-
economic) are contributing to project implementation
delay in manufacturing projects financed by
Development Bank of Ethiopia?
• What is the effect of manufacturing project
implementation delay on loan recovery performance?
 Objective of the study
General Objective
 To assess the status of project implementation delay on
projects financed by development Bank of Ethiopia.

Specific Objectives

I. To assess the status of project implementation delay in

manufacturing projects financed by Development Bank of
Ethiopia.
II. To identify factors (bank specific, project management
related and a major external/Macro-economic) are
contributing to project implementation delay in
manufacturing projects financed by Development Bank of
Ethiopia.
III. To examine effect of manufacturing project
implementation delay.
 • Identifying major factors of project implementation delay
for DBE financed manufacturing projects and measuring
their significance in leading to project failure will help
the bank to select the focus areas in credit management.
The strategies to be proposed in this study may help the
Significance Bank to reduce project delay
of • Moreover, This study has provided policy
the Study recommendation by identifying those causes; the study
will also contribute some research avenue for those
researchers interested in this subject matter.
• Delay may affect the sustainability of the bank unless
those cause factors are identified. Hence investigating the
major causes of project implementation delay is crucial
• The study focused on manufacturing projects that are
financed by head office of Development Bank of Ethiopia
Scope of which are under implementation in the interval from July,
the 2017 to June 2019 for consecutive of three years in head
Office by including four customer relationship
Study
management Directorates (CRMD-I, CRMD-II, CRMD-
III & CRMDIV) and two project rehabilitation and loan
recovery directorate (PRLR-I & PRLR II).
 Limitation of the study

• The study focused on projects financed by DBE Head office to

make the research manageable, the research will have limited
representativeness on small loans that have approval below 45
million Birr.
• Besides since research utilized questioner survey and interview as
major source of primary data and the quality of data is dependent
on the willingness, cooperativeness and understanding project
owners, it has subjected to diminished data quality
Conceptual Framework of the Study
 Research methodology
Research Design Descriptive and Inferential statistics
Research Approach qualitative, quantitative and mixed approaches

Sources of Data Both primary data backed some document review

total number of manufacturing projects of the bank
Sampling Frame found in the head office.
Project contacts and key informant Team Managers
Sampling Unit (DBE, Head Office)
131 Manufacturing projects and 18 Team Managers
Sample Size for interview
Data Collection Tools Questionnaires and Interview
Descriptive Statistics
Relative Importance index
Data Analysis RII= Σw ------------------------- Equation 1
A*N
ANOVA (Analysis of variance) analysis
Data Presentation Textual, Figure, Graphs, Tables
 Result and Discussion
The level of project implementation delay
(Based on the respondents opinion)
Level of Delay
Appraisal
81% delayed 19 % no delay
Feasibility
Intensity of Delay
From Appraisal 41% highly delayed
6% critically delayed
From Feasibility 39% highly delayed
Period of delay /Actual
From Appraisal 0.5 years to 3 years 78%
From Feasibility 0.25 years to 3 years 69 %
 Ranking Contributing Factors and effects of Implementation
Delay
The Respondents are given the opportunity to major cause and effects of delay
Major Contributing Factors Major effects of Implementation

Bank 1st Cost overrun 1st

Management 2nd Low repayment Performance 2nd

Government/bureaucracy 3rd Change in Marketing 3rd
Macro economic/External 4th Change in Technology 4th
Causing dispute with stakeholders 5th
 Factors Contributing for manufacturing project
implementation delay
Factors identified by interview

Factors of implementation delay identified by interview Possible classification

Insufficient awareness for the nature of project both by the Project Management related, Bank related and External/economic
promoters, the bank staffs and stakeholders related
Political instability & social unrest External/ economic related
Poor attitude of customers to utilize domestic product/ reduced
External/ economic related
demand
Infrastructure accessibility External/ economic related

Land locked nature of the country External/ economic related

Failure of the client to fulfill conditions stated in approval by
project management related
the client
Reluctance of other stack holders External/ economic related

Lack of commitment client side project management related

Price fluctuation of imported and local materials External/ economic related

Change in policy of the bank Bank related

Unable to higher potential project advisor project management related

Rent seeking of behavior by the promoter, concerned bodies project Management related, Bank related and external/economic
and the bank related
Project Management problems project management related
Lack of detailed assessment that the impact of the project on
Bank related and Project management related
society and economy using shadow price
Wrong assumptions during appraisal Bank Related
• The study has identified 23 factors that contribute for
manufacturing projects implementation delay by interview of
key informants which are grouped in to management related,
bank related, and external/macro economic related factors.
 Ranking Major effects of Implementation Delay
Ranking Project Management related factor of delay RII Rank
Design change during implementation of the project 0.675 1

Lagging behind the schedule to deposit equity as required 0.642 2

0.642 3
Elongate time taken in fulfilling missed documents required by the Bank
Ranking Bank Specific related contributing factors of delay RII Rank
Inefficient L/C facilities (IBD works) 0.724 1
Unrealistic assumptions in appraisal projection 0.719 2
Unable to pass timely decisions when unforeseen circumstances
occurred 0.719 3
Improper planning and scheduling of the project 0.681 4
Ranking Macro-economic/External related factors of delay RII Rank
Foreign exchange fluctuation 0.771 1
Increase in inflation rate 0.725 2
Political instability and social unrest 0.725 3
 Raking the effects of manufacturing project delay

Effects of delay RII Rank

Leads to request loan repayment period restructuring 0.819 1
Leads to request additional loan 0.773 2
Additional investment due to cost escalation leads to reduce loan
0.769 3
repayment
Failed to repay loan as per schedule 0.756 4
Additional cost due to ret fluctuation leads financial stress 0.754 5
Leads to NPL's 0.724 6
Leads to rework in the bank 0.719 7
Delay in job creation opportunity 0.702 8
Change in market situation 0.647 9
Cause dispute with stockholders ( contactors, machinery
0.593 10
supplier, and others) that reduce loan repayment more
Forced to repay loan before commissioning 0.588 11
Forced to repay loan before operation (producing products for
0.564 12
market)
 1.ANOVA analysis of factors and effect of delay
Inferential statistics
• Inferential statistics
• To achieve the objective the research has utilized Analysis of
variance and covariance (ANOVA) for checking whether the
mean of period of delay (continuous variable) is differs
significantly among the level of contribution (highly contributing,
moderately, contributing or low contributing) or not.
• ANOVA analysis of factors and effect of delay
Factors Probability
Limited knowledge about the project area for planning inclusive project (missing
0.00060
investment items)
Low capacity to cover unseen costs while planning the project 0.00220
Shortage of equity contribution 0.00140
Lack of comprehensiveness of feasibility study submitted by the promoter 0.00850
Elongate time taken in fulfilling missed documents required by the Bank 0.00100
 CONCLUSIONS AND RECOMMENDATIONS
• Project implementations delay caused due to different factors create effects the projects.
• High level significant amount project implementation delay in manufacturing projects and ranked
bank related factor as a major contributing factor for the delay which primarily creates cost overrun
to implement the projects.
• Project management, Bank and Economic/external related factors that have contribution for the
delay.
• There is various factor of delay in the major factors and found that Design change, Inefficient
international Banking works and foreign currency fluctuations are the primary factors that are
contributing to the delay relative to the others.
• The effects of project implementation delay and ranked the identified effects based on their
frequency of happening. This effects related to cost overrun, loan restructuring and low repayment
capacity are ranked in primary place to be happened more due to manufacturing project delay.
• Implementation delay have effect both on the bank, the customer and broadly on the country.
• The study have important for the bank and Customer’s if they have taken remedial action; to
eliminate the delay’s occurred due to the identified factors, number of Non-performing loans and
project failure, cost overrun related to implementation delay and save the additional investment cost
spent related to it.
• Identifying the basic factors and relative importance of the factors that contribute to the delay and
possible effects of the delay will have a contribution to the Bank in creating best method for
minimizing implementation delay and to reduce its effect on the bank as well as the country.
 RECOMMENDATIONS
• Delay is a critical issue that needs identified since the extended implementation will
result in project failure.
• Due to different reasons so many manufacturing projects are lagging behind their
implementation schedule, as a result most of projects failed from attaining the
desired objective at the initial stage and resulted/impacted from individual to
country level economic crises,
• Identified those factors contributing to delay of project financed by DBE; it
becomes obvious that giving adequate consideration to them at the planning stage
and implementing stage would help to reduce the consequences.
• The bank should properly evaluate its assumptions before utilizing it for appraising
the project and customers should properly identify and prepare the required
document, make sure that the appropriateness of design and their financial capacity
before starting the implementation phase.
• The bank should create effective system to minimize inefficiency and to give timely
decision in unforeseen circumstance. Besides the bank should again make sure that
the appropriateness of design and customers financial capacity before starting the
implementation phase.
 Cont’d…

• To minimize management related factors, the customers should be recruiting well

experienced and qualified Manger to have sufficient knowhow and awareness for
smooth implementation of the project and the bank should create enforcement
mechanism on the recruitment of proper management staffs.
• The bank should undertake detailed Due Diligence Assessment (KYC) apprising
projects, and gives clear and necessary information for the customers regarding to the
required document.
• The bank should create strong and proactive system that assess the trendy foreign
exchange fluctuation, increase in inflation rate, political instability and social unrest .
• bank should create contingency plan during manufacturing project planning stage to
minimize the factors impact on the implementation delay.
Thank You!