Rwanda - Highway Maintenance Project

CIRCULATING COPY RESTRICTED TO BE RETURNED TO REPORT$ cIRJTING COPY Report No. P-1043 JQ BE RETURNED TO REPORTS DESK FILE COPY This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility fox the accuracy or completeness of the report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF RWANDA FOR A HIGHWAY MAINTENANCE PROJECT March 8, 1972   INTERNATIO0IATL DE .a-s^flr ASSIATICK REPORT AIMD RB &T?TiF (JT THE PRESIDET TO THE EE1CUTIVE DlIR. TORS ON A PROPCS3ED DEVEI,OP-QBMT CREDIT TO THE REPUBLIC OF PWANDA FOR A HIGHWAY MAINTENANCE PROJECT 1e I submit the folloaing report and recomnendation on a proposed credit to the Repubicj of Rwanda for the equivalent of US$3.0 million on standard IDA terms to help finance a Highway Maintenance Project. PART I - THE EC CNC1MY 2. An economic mission visited Rwanda in June 1971 to review recent economic developments and prospects. An economic report will be distributed shortly. Country data are given in Annex II and a map is attached. 3. Rwanda is one of the poorest coumtries in Africa; income per capita is about US$50. The economy is aLmost wholly agricultural with probably more than half of total output coming frcm subsistence production. Coffee is by far the most important cash crop and represents nearly 60% of export earmings. Tea and pyrethrum have been introduced in recent years and there are also good prospects for livestock development. The only significant non- agricultural resources are small amounts of tin and wolfram. 4. Because of extreme poverty Rwanda has no resources available for investment other than those provided by external .id. Moreover, the task of development is made particularly difficult by the rapidly expanding population and the limited availability of cultivable land. The population density averages 140 per square kilomoter, one of the highest in Africa and all the cultivable land is already occupied except for certain areas where settlement has been prevented by tse-tse fly. The farmland available per family averages less than 1 hectare (ha) and tha pastures are overgrazed. hiost of Rwanda's rural population, which makes up 95% of the total, has a standard of living little or no higher then subsistence level and, according to a recent food consumption survey, protein-calory malnutrition is widespread. 5. A further obstacle to development in Rwanda is the shortage of trained and experienced manpower. This is particularly marked in the civil service. Prior to independence RXanda hes been administered jointly with Burundi as part of the Belgian Trust Territory of Ruanda-Urundi and on independence in 1962 had consequently to establish both a government and civil service of its own. The civil service was initially staffed largely by Tutsi, the ruling and generally more educated elite. With the subsequent overthrow of the Tutai and their departure from Rwanda in large numbers,it has been difficult to recruit candidates of adequate eduicational level for important civil service positions. 6. Another significant factor hampering development in Rwanda is its landlocked situation and distance from the sea. Most of its mer-  -2- chandise trade has totravel some 1,200 km to Mombasa. The cost involved tends to limit exports to commodities with a high value relative to weight. 7. Between 1959 and 1964 real GDP declined as a result of the political disturbances after independence, but it recovered after 1 ,'26 and grew at perhaps 7% per year until 196b. However, because of the rapid growth of population there was probably little rise in per capita income over the decade as a whole. From 1968 to 1970, real GDP increased at slightly over 5% a year. However, this growth was assisted by unusually favorable circumstances which are unlikely to recur, namely a good coffee crop combined with high coffee prices and a very high price for wolfram. In the long run the economy is unlikely to be able to achieve a growth of more than 4% per year. 8. Rwanda's first five-year plan formally came to end in 1Th7D, although a number of projects have still to be completed. The Government is preparing a second five-year plan. In this plan as in the first the Government is expected to attach priority to diversifying the economy and increasing exports. In agriculture, emphasis is placed on the further expansion of tea and pyrethrum cultivation, while coffee production will be concentrated in the most suitable areas. Cattle ranchling will be encouraged to take advantage of non-arable lands, particularly in the eastern part of the country. In transport, the Governmentts primary objective is to improve and diversify the import/export outlets, while improving the maintenance of the domestic road network. 9. The prospects for the success of the new development plan, and for economic growth in general, are largely dependent on the volume, nature and utilization of external aid. The poverty and low growth of the economy mean that the Government is unable at this stage to geneiate sufficient revenue to finance an adequate level of services. In these circumstances, a substantial part of external aid is being allocated by donors directly to specific recurrent expenditures, for example on education, public health and agriculture. The Government cannot make a net contribution to development from its own resources and investment has to be financed entirely by foreign aid. The Government can reasonably expect to receive an increasing volume of foreign assistance,particularly from Belgium and from the European Development Fund (FED). The main constraint is not likely to be a shortage of project aid but the ability of the Government, even with substantial technical assistance, to build up the necessary governmental and organizational structure to carry out the investment projects for which aid is likely to be available. 10. In view .of the dependency of the Government on external aid for both capital and recurrent expenditure there is no scope for borrowing on conventional terms. All aid should therefore be provided on very soft terms and should cover a substantial part of the costs of projects, including local costs. Most of the aid So far afforded to Rwanda has, in fact, been in the form of grants so that its external debt is still small; it amounted, at the end of 1970, to US$11.7 million, including undisbursed amounts, of which US$9.3 milu:1idi was accounted for by the IDA credit for the Kigali-Gatuna road project. Debt service accounted for less than 3% of export earmings in the period from 1966 to 1970.  -3- PART II - BANK GROUP LENDING TO RWANDA 11. Rwanda has received one IDA credit(No. 196 RW),amounting to US$9.3 million. There have been no Bank loans or IFC investments. A statement of the IDA credit as February 29, 1972 is attached as Annex I. 12. This credit financed a highway project to provide a 79 km paved road to link Kigali, the capital and main economic center, with Gatuna on the Uganda border. The paved road will replace an existing circuitous earthtrack and reduce by 73 km the road distance to Kampala, the market center and trans-shipment point in Uganda for 90% of Rwandese imports and exports, thus lowering substantially transport costs. Although there have been initial delays in the execution of the project mainly due to a four-month delay in the preparation of bidding documents by consultants, progress is now satisfactory. All contracts provided for under the project have been awarded and construction started in early January, 1972. 13. Future lending will concentrate on the continued improvement of road transport and agriculture, reflecting the central place of agriculture in the economy and the heavy emphasis placed by the Government on the development of the rural sector. In addition to the proposed highway maintenance project, the Government will probably request the Association's financial assistance for the paving of the Ruhengeri- Gisenyi road. A feasibility study of the road, financed by the UNDP, has just been completed; the Bank was executing agency. Assistance for agriculture will aim at increasing and diversifying production, mostly for exports, and at raising farmers' income. A credit for an agricultural development project was negotiated in early February 1972, but the Government has proposed a number of changes in organization, which call for further examination before the proposed credit can be submitted to the Executive Directors. Four other projects have been identified by a Bank Agriculture Sector Review Mission which visited Rwanda last October. In theBe projects emphasis will be laid on the further expansion of tea and groundnut cultivation and on the development of livestock. In cooperation with the Government, projects in education, water supply and tourism are also under preparation. PART III - THE HIGHWAY MAINTENANCE PROJECT The Transport Sector 14. With no railways and with water transport limited to minor services on Lake Kivu, Rwanda is almost totally dependent on road transport for the movement of its domestic and foreign trade. It is landlocked and must rely on long international routes for its imports and exports. Prior to  -4 - independence, as much as 50 percent of its international trade was routed via the former Belgian Congo to the Atlantic Ocean ports of Lobito and Matadi. Today these routes have been abandoned in favor of the shorter routes to the Indian Ocean ports of Mombasa (Kenya) and Dar-es-Salaam (Tanzania). Air transport is limited to interna- tional connections through Kigali airport, which is equipped to handle modern long-range jet aircraft. 15. Although the highway network is extensive, totaling about 6,000.km of roads, it consists almost exclusively of low standard earth and gravel roads. Some 2,200 km are designated as national roads and maintained by the Directorate General of Roads and Bridges *(DRB) in the Ministry of Public Works-and Power. The remaining 3,800 km are local roads, and their maintenance is the. responsibility of the local authorities. The bulk of the network is in very poor con- dition, because of inadequate maintenance resulting from a shortage of staff, funds and equipment. 16. The DRB suffers from an acute shortage of trained personnel. Its staff includes only twelve engineers and technicians of whom nine are provided by bilateral technical assistance from the Federal Republic of Germany and Belgium. The staffing situation is expected to improve over the next 5-1.0 years, when nationals now studying engineering abroad will return upon graduation. At present, however, more expatriate experts are required for reorganizing and strengthening the highway adminis tration. 17. Most of the capital investment in highways has been financed by foreign aid. Government expenditures for highway development have been mainly devoted to minor construction works, and averaged about US$150,00p annually over the past five years. Expenditures for highway administration and maintenance during the same period averaged about US$660,000 per year which is considered to be inadequate. This insufficient allocation of funds is one of the primary causes for the deteriorated condition of the network. 18. The Government has given priority to the development of efficient and reliable routes for exports and imports to reduce transport cost, as for example by the construction of the Kigali-Gatuna road. The southern route to the Indian Ocean, through Bujumbura and Kigoma to Dar-es-Salaam, will be improved with the assistance of FED, which is to finance the reconstruction of the road from Kigali to Bujumbura. The Government is also considering the development of a third outlet to the East African Railways line from Mwanza to Dar-es-Salaam.  19. Another major objective of the Government's transport policy is. the improvement of internal caommunications. To this end, proper maintenance of the road network is of primary importance. While major construction cannot be justified on most roads because of low traffic, substantial benefits can be derived from minor betterment works and regular maintenance. A UNDP-financed highway maintenance study, for which the Bank was the executing agency, was completed in February 1971 and formed the baeis for the proposed project. The Highway Maintenance Project 20. A report entitled "Appraisal of a Highway Maintenance Project, Rwanda" (No. PTR,-1OOa, dated March 7, 1972) is being distributed to the Executive Directors separately. A Credit and Project Suwmary is provided in Annex III. 21. The project was appraised in the field in July 1971. Negotiations for the proposed IDA Credit were held in Washington from January 19 to 21h, 1972. The Rwanda Government was represented by: Mr. F. Nkundabagenzi, Ambassador of Rwanda in Washington; Mr. A. Katabarwa, Secretary General, Hinistry of Public Works and Power; Mr. J.B. Rugigana, Secretary General, Ministry of Finance; Mr. C. Ndandali, Administrator of the National Bank of Rwanda. 22. The UNDP study has drawn up an eight to ten-year maintenance program designed to improve road maintenance operations throughout the country. The Project constitutes the first phase of this program, to be implemented over four years. The Project would comprise: (i) the reorganization and strengthening of maintenance operations including the training of maintenance personnel at all levels; (ii) the purchase of maintenance equipment, spare parts, fuel and materials; (iii) the construction and equipping of maintenance workshop facilities; (iv) the improvement of routine and periodic maintenance operations over the 2,200 km national road network; and (v) the betterment of selected roads and the elimination of a backlog of deferred maintenance on about 600 km of the above roads. 23. A prerequisite for the successful implementation of an improved maintenance program would be the reorganization and strengthening of the highway administration. The main deficiency of the present organization is over-centralization and lack of delegation. The Government has agreed to a reorganization under which the DRB would have four divisions with well defined functions and responsibilities. A new administration division  - 6 - would deal with all &dtdnistrative matters, accounting and personnel. A planning division would be responsible for the planning of new roads and bridges, related economic and engineering studies, and ,supervision of new construction. An equipment division would operate the central workshop at Kigali, and a maintenance division would program, execute and supervise regular maintenance of the national road network as well as minor betterment works. Four mechanized maintenance units to be established within the maintenance division would be equipped under the project. 24. The present staff of the DRB, which alreadly includes nine experts currently provided by Belgian and German teclical aid, is inadequate to implement the proposed project. The UNDP has agreed to finance five additional experts.to fil key positions at headquarters and supervise the mechanized maintenance units in the field. Another task of the experts would be to train Rwandese staff as and when qualified candidates becane available. During the project period, it is expected that at least two newly graduated englneers or technicians would join 'the IRB annually. Moreover, the experts would also train maintenance personnel at all levels of the highway organization. Cn-the-job training wc'ld be conplemented by classroom work. 25. In addition to its routine and periodic maintenance on the 2,200 km national road network, the DRB would undertake a program of betterment works on about 600 km of national roads selected on the basis of traffic volume and condition. The Goverrnent has agreed to consult with the Association in 1975 on the work to be carried out in a second phase of the maintenance program and its possible financing. By the end of the second phase, it is expected that the DRE would be able to take over responsAtility for an additional 1,300 kn of district and comnunal roads currently maintained by local authorities. 26. While the maintenance prokram would continue to be labor intensive, certain operations, such as the haula'ge of fuel, water and materials, as well as the compaction of road surfaces, cannot be carried out without prcper equipment. The present stock of equipment iB both inadequate and in generally poor condition. The proSett would,therefore, provide for the purchase of additional equipment and for the purchase of spare parts to rehabilitate existing equipment. 27. The total cost of the project is estimated at US$5.1 million equivalent, with a foreign exchange ccmponent of US$4.4 million (about 8650. The proposed IDA credit of IUS$3.0 million will cover the foreign exchange costs of equipment, spare parts, fuel and materials as well as construction of a maintenance depot at Ruhengeri for equipment servicing. The Federal Republic of Germnmy will finance the foreign costs of the central workshop at Kigali estimated at US$5004000. A UNDP grant of US$1.1 million will cover both the forelgn costs estimated at US$930,00o and US$170,000 of the local costs of a consulting contract to provide the five experts.  -7- The Government will finance the remaining local costs of the project, amounting to about US$500,000,of which about half represents taxes and duties on supplies for the project. Arrangements have been made with the Government and with other financing agencies involved to ensure proper coordination during project execution. The Association will act as the executing agency for the project component covered by UNDP financing. Signature of the consultants' contract is a condition of effectiveness of the proposed credit. 28. Capital and recurrent expenditures called for under the project, which are to be borme by the Government, will total about US$3.5 million over a five-year period (1972-1976). The Government confirmed during negotiations that sufficient funds would be allocated in the annual budgets for highway maintenance. 29. The DRB will be responsible for executing the project. Both the Federal Republic of Germany and Belgium have assured continuation of their support for the nine experts they have already provided to the DRB. 30. Contracts of US$25,000 equivalent or more for equipment and the contract for the construction of the maintenance depot to be financed with IDA funds will be awarded on the basis of international campetitive bidding. Equipment costing less than US$25,000 equivalent will be purchased subject to local tender. Fuel and construction materials will be procured on the basis of quotations from local suppliers. 31. The project's estimated economic rate of return is about 28% on the basis of a projected annual traffic growth of 7%. The rate of return remains satisfactory when tested against lower rates of future traffic growth and road user savings. However, the most significant benefit to be derived from the project is the establishment of a base on which a competent highway organization can be built. PART TV - LEGAL INSTRUMENTS AND AUTHORITY 32. The draft Development Credit Agreement between the Republic of fwanda and the Association, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association and the text of a Resolution approving the proposed Development Credit are being distributed to the Executive Directors separately. The draft Credit Agreement conforms to the normal pattern for credits for highway projects.  33. I am satisfied that the proposed Development Credit would cormply with the Articlews of Agreement of the Association. PART V - RECMHMDATIa4 34. I recommend that the Emcutive Directors approve the proposed credit. Robert S. McNamara President bt J. Burke Knapp Attachments Washington, D.C. March 8, 1972  ANNEX I RWANDA STATEMENT OF IDA CREDIT AS OF FEBRUARY 29, 1972 Amount (US $ million) Credit No Year Borrower Purpose IDA Undisbursed 196 RW 1970 Republic of Highways 9.3 9.1 Rwanda Total (less cancellations) 9.3 of which hes been repaid Total now held by IDA 9.3 Total undisbursed 9.1 9.1 l.= .  ANNEX II Page 1 RWANDA COUNTJRY DATA Area and Population Area: 26,340 square kilometers Population (1970): 3.7 million Po,,u