Guinea - Highway Project

CIRCULATtNG COPY FILE Copy TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1705a-GUI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GUINEA FOR A FIRST HIGHWAY PROJECT December 11, 1975 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  Currency Equivalents Currency Unit = Syli US$1 20.46 Syli Syli 1 million = US$48,878. System of Weights and Measures: Metric 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 2 = 0.62 mile (mi) 1 square kilometer (km ) = 0.386 square mile (sq. mi) 1 metric ton (m ton) = 2,204 pounds (lb) Fiscal Year October 1 - September 30 Abbreviations and Acronyms DPC = Direction des Ponts et Chaussees MPW = Ministry of Public Works, Mining and Geology ONRR = Office National Rail-Route  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF GUINEA FOR A FIRST HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Guinea for the equivalent of US$14.0 million on standard IDA terms to help finance a project to rehabilitate and begin maintenance operations on about 2,500 km of the highest priority roads. PART I: THE ECONOMY 2. The last economic report (No. AF-63b, dated September 1, 1967) was distributed to the Executive Directors on January 22, 1968. Economic missions visited the country in November 1970, February 1973, and January 1974. The findings of the latest mission are incorporated below. Country_ data appear in Annex I. Economic Structure 3. Guinea's natural endowments make it potentially one of the richest countries in West Africa, with substantial resources in the rural sector, mining and hydroelectric power. Rural potential is very diversified, reflecting the different climatic conditions throughout the country, which range from the sub-saharan areas in the north and sub-tropical mountain areas in the center to the tropical forests in the south. The wide variety of agri- cultural commodities which can be produced includes such food crops as rice, cassava and maize and such export crops as coffee, pineapples, palm kernels and bananas. The country is particularly well suited for rice production and cattle raising. With respect to mineral resources, Guinea's bauxite deposits are tentatively estimated at 4-5 billion tons, equivalent to nearly half of the world's known reserves. High grade iron ore deposits are estimated to be over one billion tons. 4. Despite the country's natural resources, economic growth has been slow, probably not more than an average annual rate of 2.5 percent since Independence in 1958, or somewhat less than the estimated annual population growth of 2.8 percent. In 1972, GNP was estimated at US$450 million, popula- tion at 5.1 million, and per capita income at US$90. Latest estimates show the continuing predominance of agriculture and related activities in the country's structure of production. In 1972 the rural sector contributed 49 percent of GDP, mining and manufacturing about 12 percent, public administra- tion about 17 percent and transportation, construction and other services  the remaining 22 percent. With respect to the distribution of income, estimates made on the basis of the official 197) census indicate that GNP per capita might be on the order of US$55 in tlie rural sector and US$315 in the non-rural sectors. 5. Since Independence, a comprehensive reorganization of economic and social activities has been undertaken with a view to building a socialist economy. This has entailed a sharp curtailment in the role of the private sector and a corresponding increase in that of the Government, public agencies and state enterprises. Manufacturing and banking are almost entirely controlled by state enterprises while mining has been declared a mixed sector, with Gov- ernment and foreign companies working together. Trade in agricultural and consumer commodities is de jure Government controlled, but a large parallel market continues to function outside the official system of price controls and state trading enterprises. Similarly, despite more than ten years of effort to introduce cooperative and collective production and marketing systems throughout the agricultural sector, traditional forms of farm orga- nization prevail. The emergence of two separate production and marketing systems, one operating through official channels with controlled prices and rationing and the other operating through unofficial channels at much higher price levels, is a major structural weakness of the present Guinean economy. Economic Objectives 6. The Government's economic objectives may be viewed in the context of its development plans, which have emphasised infrastructure, manufacturing and mining. Over the last ten years, Plan outlays have averaged 15-16 per- cent of GNP, increasing from some US$53 million per year between 1966 and 1970 to nearly US$70 million during the past three years, when implementation of the Boke and Kindia bauxite mines resulted in a sharp increase of invest- ments. These figures include not only public investments per se, but also private participation in major mining enterprises which might account for approximately 80 percent of total investment in the country. From May 1964 to September 1971, investments were carried out in the framework of a Seven Year Plan. On the whole, Plan implementation reached a high 81 percent of its goals; however, this was due primarily to much higher mining investments than originally anticipated, which partly resulted from the far greater than expected costs of the Boke project. Excluding investments in mining, manu- facturing, and energy (accounting for 47 percent of total Plan outlays), 58 percent of Plan targets were fulfilled. The shortfall was particularly marked in the rural sector with a fulfillment rate of only 38 percent; this reduced the share of rural development outlays to 6.9 percent of total Plan outlays as compared to the original target of 15 percent. Transport and communications accounted for one-third of total Plan expenditures.  -3- Performance 7. The emphasis in the Government's investment strategy on heavy out- lays in infrastructure, mining and manufacturing, combined with the relative neglect of agriculture, contributed to serious economic difficulties during the period of the Seven Year Plan. Expansion and improvement of the infra- structure of the country did not stimulate rural production which was in- creasingly hampered by lack of producer incentives. Investment in mining did not generate a significant rise in mineral output and export during the Plan time-span, given the long gestation periods of the projects undertaken. Many new manufacturing plants were set up in the seven years, but production levels at most of them remained low relative to capacity because of poor design, lack of local raw materials and unavailability of spare parts. With declining exports of the country's principal agricultural commodities and rising import demand, the balance of payments came under substantial pres- sure. Heavy foreign borrowing brought debt service obligations to exceptional levels,which in turn put a drain not only on limited foreign exchange resources but on government revenues as well. 8. Guinea's long-term development record has been disappointing, but there have been marginal improvements in performance over the past three years. First, inflationary financing of public development outlays has been sharply curtailed. As a result, the money supply has increased very little. While this has not alterec the fundamental disequilibrium between demand and supply, at least the situation has not worsened. Second, after a period of large budget deficits on current accounts in the late 1960s, current budgetary surpluses were realized in each of the three years 1969/ 70 - 1971/72. Third, the performance of public enterprises has somewhat improved; while their production does not seem to have risen much, their financial situation has definitely improved, contributing among other things to a better public finance situation. Fourth, management of the foreign debt has become more efficient; the considerable short-term debt in the form of accumulated deficits of bilateral trading accounts has been con- solidated and the use of supplier credits has declined. As a result, authorities have regained some margin of maneuver with their foreign re- sources, and foreign exchange reserves have slightly increased. Fifth, overall economic management shows signs of improvement as a result of more and better-qualified local staff. Technical ministries are better staffed, but still suffer from over-centralization of decision making. Prospects 9. These factors have been either too limited or too recent to lead to tangible changes in the overall economy, which is still seriously de- pressed. However, the situation is likely to improve substantially over  -4- the next decade because of sharply expanding mining production which will bring about sizeable improvements in the country's balance of payments and public savings. The situation is all the more favorable as the two major bauxite projects were completed (Boke in the fall of 1973, Kindia in mid-1974) before world-wide inflation pushed up investment costs. Exports from these projects along with a 10 percent increase in alumina output will alone double the value of exports in constant 1972 prices by the year 1977. At current prices, total export values in 1977 would be six times as high as in 1972 (US$350 million compared with US$57 million in 1972). Import prices during the same period are projected to rise by 75 percent. Looking farther ahead, prospects for continued growth in mining production and exports are excellent, and include additional bauxite expansion as well as some 5 million tons of iron ore annually from Mount Nimba by the early 1980s. 10. The projected increase in export earnings will permit the Government much more maneuverability in its balance of payments and public financial policies. Nevertheless, during the next two or three years the Government will be constrained by the existing claims of public debt service and trans- fers associated with the new mining enterprises, which are expected to run at annual levels of US$60 million and US$70 million respectively. The extent to which the availability of foreign exchange over and above these amounts will contribute to real economic development depends very much on the orienta- tion of public development policies. 11. In this connection, development of the rural sector would permit-- more than any other strategy--the bulk of Guinea's population to participate in the expected benefits from mining. At the same time, it would enlarge the country's production base and make it less dependent on price fluctuations of minerals. Creation of job opportunities in the rural sector--for which there is a definite potential in Guinea--would also help slow down rural- urban migration with all its social and economic problems. 12. Under the circumstances, except for the possible development of aluminum transforming industries, medium and long-term rural development ought to receive top priority in parallel with expansion of mining industries. Within the rural sector, development of smallholder farming and livestock herding ought to receive primary attention although some plantation develop- ment could also be justified, particularly nucleus estates providing extension services to outgrowers. Such an investment strategy should not exclusively concentrate on directly productive investments, but should also include im- provement of rural education, health services and the necessary transport infrastructure. There is now evidence that the Government is thinking along these lines and is exploring ways and means to develop the rural economy. 13. With respect to the fiscal situation, budgetary revenues are expected to increase very substantially through 1977, owing particularly to rises in taxes and profit sharing revenues from mining companies as well as to rising receipts from import duties. Current expenditures are projected to grow by at least 16 percent annually from 1972-77, considering that there is a serious need for such increased expenditure, first of all in the rural sector and for road maintenance throughout the country. With this probably somewhat conservative expenditure estimate, public savings could attain the  - 5 - high level of 15 percent of GDP in 1977. However, most of this surplus will be absorbed by the high public debt service, so that the Government's ability to finance new development expenditures will remain very limited, including the increase in maintenance expenditure necessary to keep existing infrastructure operational. 14. Similarly the balance of payments is likely to remain under pressure through 1977. This reflects in part the deterioration in Guinea's terms of trade, but is due primarly to sharply increasing transfer payments associated with the recently established mining enterprises, imports in association with expected new mining investments, and the expected and much-needed rise in imports of intermediate and consumer goods. During 1972-80, imports are projected to rise by 20 percent annually in current prices (8 percent in cons- tant terms). Throughout the period, import demand and debt service and trans- fer payments will substantially exceed export and other current foreign exchange receipts and an average annual gross public capital inflow on the order of US$100 million will be required. Foreign Assistance, Debt Service and Terms of Lending 15. Guinea has always received a high amount of foreign aid. During 1970-72, gross capital inflow averaged about US$55 million per year, or about US$11 per capita. Until 1970, about 68 percent of that aid came from centrally planned economies. Large IBRD disbursements for the Boke project reduced this share to an average of 45 percent in 1970-72. The bulk of foreign aid was in the form of loans and credits (in part on very soft terms) while grant aid has been limited. Since the resources necessary to service debt were not generated, frequent and sizeable debt rescheduling became inevitable. In mid-1974 Guinea's public debt, outstanding and dis- bursed, stood at an estimated 120 percent of GNP. Actual debt service pay- ments in 1974 were over 30 percent of export earnings (Annex I). Considering that over the next few years, an increasing part of formerly rescheduled debt will become due, this ratio is likely to decline only marginally to about 25% by the end of the 1970's in spite of the jump in bauxite revenues. 16. There is now some evidence of the Government's heightened concern to improve resource allocation and economic management--both necessary corollaries of capital assistance if it is to be effective in promoting development. In view of the deferred debts and notwithstanding the more favorable prospects for Guinea's export growth and financial position, the country's ability to service new borrowing is negligible and its credit- worthiness vis-a-vis private and other lenders is doubtful. Yet Guinea will still need large gross capital inflows through 1980 to realize its development potential. In view of the above constraints and Guinea's low per capita income, assistance ought to be given on highly concessionary terms and donors should be prepared to finance a proportion of the local costs of development projects.  - 6 - 17. An economic mission to re-evaluate the country's situation and prospects is planned for next spring. PART II: BANK GROUP OPERATIONS IN GUINEA 18. In the past, Bank Group lending to Guinea has included three loans in the mining sector and, recently, one credit in the agricultural sector. The three loans were all associated with the Boke bauxite mining project. The credit was for a pineapple development project. 19. In 1966, the Bank made a US$1.7 million loan (Sl-GUI) for engineer- ing studies for infrastructure related to development of the Boke mine. This loan was absorbed by the 1968 US$64.5 million loan (577-GUI) for construction of the mining town-site and for port and railway facilities to provide a transportation system for export of the bauxite. The 1971 US$9.0 million Boke extension loan (766-GUI) increased the evacuation capacity from the originally planned 6.6 million tons per annum to 9.2 million tons. The Bank's project has been completed satisfactorily (about a year behind schedule) despite two accidents in July 1973 and 1974 which destroyed two locomotives and a large section of track and hampered full utilization of the railroad. The mine itself, financed by a consortium of private sponsors with Government participation, is also complete, although harder than anticipated bauxite necessitated substantial modifications in the crushing machinery and a slower than anticipated build-up in bauxite production. An estimated 4.5 million tons of bauxite will be exported this year, up from 700,000 tons last year. Despite the delays, the successful completion of the construction phase of both the mine and the infrastructure has demonstrated the feasibility of establishing large-scale mining ventures in Guinea. 20. In June 1975, a development credit of US$7.0 million (569-GUI) was approved for a pineapple development project. The project consists of the development of a pineapple estate, assistance to small growers in the vicinity of the estate and provision for studies and project preparation in the rice and livestock fields. Annex II contains a summary statement of Bank Group operations in Guinea as of November 30, 1975. 21. The Bank Group's inivolvement in Guinea had until the pineapple development project been limited to the Boke project. The problems Guinea has had in sustaining an effective development plan and in managing its economic affairs, together with its lack of emphasis on the rural sector, made it difficult to agree on the exact nature of projects to be submitted to the Bank for financing. Recently, however, there has been some evidence (para 8) of improvement in fiscal and monetary management, and of opportuni- ties for development afforded by the increased financial resources expected during the next few years from mining operations. In addition, Government has been exploring ways of developing the rural economy. We believe that these signs of improvement in Government's policies and priorities provide  - 7 - grounds for Bank Group assistance in sectors directly related to rural deve- lopment. We began with a small agricultural project, which is so far pro- gressing satisfactorily, and we propose to continue with a road rehabilitation and maintenance project, which was appraised following the updating of an earlier road maintenance study and on which agreement was reached with Govern- ment in record time. In the light of Guinea's poverty and low per capita income and the size of its prospective debt service obligations, this assist- ance should be on IDA terms. 22. The major constraints impeding rural development are poor sector planning and a concomitant difficulty in properly preparing projects, weak institutions, a general lack of technical expertise to implement projects, and a lack of real assistance to and incentives for producers. The Pineapple Development Project is an attempt to demonstrate that farmer incentives are basic to agricultural development. The proposed project will provide assis- tance to the rural sector by facilitating travel and economic activity and stemming the deterioration of the present road system. Future operations are designed to facilitate the transfer of benefits accruing from mining operations to rural areas. 23. The Bank Group's share in Guinea's publicly guaranteed external debt outstanding and disbursed amounted to about 9 percent in mid-1974. At that time, the Bank Group's share of debt service payments was about 3% as amortization of the Boke loans had just begun. Two missions, one to update our debt information and another to collect all information available on the mining sector, visited Guinea during September and October, 1975. PART III: THE TRANSPORTATION SECTOR Geographical Situation 24. Guinea is bordered by Guinea-Bissau, Senegal and Mali to the north, the Ivory Coast to the east, Liberia and Sierra Leone to the south and the Atlantic Ocean to the west. Land communications with its neighbors are difficult. Internally, the country is divided into four major geographical regions: Lower Guinea, which comprises mainly low-lying coastal plains; Middle Guinea, with altitudes between 600 and 1,500 m; Upper Guinea, which straddles the flood plains of the Niger River and its affluents; and the Forest Region, in the south and southeast of the country. Road and railway construction becomes progressively more difficult and costly as one moves away from the Lower Guinea region, and is especially difficult in the mountainous areas of Middle Guinea and the Forest Region.  -8- Transportation Sstem 25. The transportation system consists of about 13,300 km of roads, 1,tOQ km of railroads, two deep water ports at Conakry and Kansar, an international airport at Conakry and ten airfields in the interior of the country served by the domestic airline. For the bulk of the population as well as for transportation of minerals, the rail and road networks represent the most important means of transportation. While the extent of these networks is considered generally adequate for Guinea's needs at least over the next five years, the condition of both is poor mainly because of inade- quate maintenance. In the past, Guinea's strategy for development of the transportation sector was two-fold: to provide the infrastructure needed for exploitation of its mining reserves and to pave the more important roads. Railways 26. The railway system consists of four lines: the 70 year-old main line from Conakry to Kankan ('660 km), which runs parallel to the road, and three other lines connected with bauxite mining operations; Conakry-Kindla (135 km); Kamsar-Sangaredi (136 km) and Conakry-Fria (145 km). Traffic on the main line has declined substantially since 1965, reflecting the general decline in the economy. Plans for further railway construction depend almost entirely on developments in the mining sector; at present, two additional lines are contemplated: a 17 km line connecting a proposed iron ore mine at Mount Nimba in the Forest Region with the railway across the border in Liberia which is used to evacuate Liberia's iron ore deposits from that region; and a 60 km line connecting the Kamsar-Sangaredi line with Aye-Koye, site of a proposed bauxite mine. The Government also has a far more ambi- tious project under study, but not yet indicated in the Plan, to construct the Trans-Guinean railway (about 1,200 km long and estimated to cost about US$1.2 billion) to transport iron-ore and timber from the Forestry Region and bauxite from the Tongue-Dabola area to Conakry. Hizhways 27. Guinea's highway network comprises about 13,300 km of roads and tracks. It includes 6,000 km of national and inter--regional roads linking the main population centers with each other and with the transport networks of Mali and Liberia, and 7,300 km of local roads which provide access to rural areas. Emphasis has been put on paving selected primary roads. Over the past 9 years the total of paved roads increased from 190 km, about 90% of which were in Lower Guinea, to nearly 1,060 km of which more than 50% are outside Lower Guinea. Rehabilitation and maintenance of roads falls under the Directorate of Bridges and Roads (Direction des Ponts et Chaussees, DPC) in the Ministry of Public Works, Mining and Geology (NPW); while the DPC appears to poasess the manpower to carry out maintenance operations, it has been considerably hampered by a lack of funds, spare parts and equipment. The effects of inadequate maintenance are visible everywhere with many roads no longer at a proper level of traffic serviceability nor in suitable condi- tion for normal maintenance operations. Government realizes that much higher  - 9 - returns from investments could be derived from a comprehensive program of rehabilitation and maintenance works rather than new construction; the first highway project is designed to help Government put this realization into practice. PART IV: THE PROJECT 28. The First Highway Project is based on a 1969 consultants' Road Maintenance Study, financed by the UNDP, which was subsequently updated in February 1975 by consultants. An Association appraisal mission was in Guinea in May/June 1975. Negotiations took place between November 17, 1975 and November 20, 1975 with a delegation led by M. Mohamed Lamine Toure, Minister of Public Works, Mining and Geology. A credit and project summary is attached as Annex III. The Appraisal Report (No. 882a-GUI) is being circulated sepa- rately to the Executive Directors. Description of the Project 29. The deterioration of the road network during the last few years has increasingly hindered Government's attempts to revitalize the rural sector and expand the exploitation of forestry resources. While a complete program of road rehabilitation and maintenance will require between 8-10 years to implement, the proposed project is aimed at preventing further deteriora- tion of the system and providing the basis for improving Government's mainte- nance capacity. Accordingly, the three year project would consist of: (a) rehabilitation as needed of 2491 km of high priority roads and initiation of proper maintenance of these roads; (b) repair of existing equipment and plant and rehabilitation of workshops; (c) purchase of (i) highway equipment and spare parts, (ii) workshop equipment and tools, (iii) parts for repair of existing equipment and plant, (iv) engineering and laboratory equipment and training materials, and (v) radio equipment; (d) purchase of materials and supplies for project operations; and (e) technical assistance to the Ministry of Public Works, Mining and Geology for the implementation of the project, the training of mechanics and equipment operators, and the preparation of a second phase of the rehabilitation and maintenance program to be executed over 1978/79-1980/81.  - 10 - Rehabilitation and Maintenance of Roads 30. Rehabilitation of much of the system is a prerequisite to regular maintenance operations. Agreement has been reached concerning the roads to be included in this project (Annex A to Schedule 2 of the draft Credit Agree- ment). These roads are designated on Map IBRD 11698R which is attached. Of the roads included, 1046 km are paved (nearly the whole of the country's present paved system) and 1445 km are gravel and earth. The rehabilitation works included in the program are those required to return the selected roads to standards as originally designed or as subsequently improved. 31. A number of road crews will be created to carry out the required operations with separate crews for paved roads, gravel and earth roads, production of selected materials, bridges, and routine maintenance. The personnel for all of these crews will be drawn from among the existing employees of the DPC. 32. The benefits from improved maintenance will be lost unless steps are taken to control the weight of loads transported on the roads during the rainy season. The Government has recently issued a Decree reducing the maxi- mum axle load to 5 tons for vehicles using unpaved roads during the rainy season and has agreed to take the necessary measures to enforce this new regulation (Section 4.03 of the draft Credit Agreement). Rehabilitation of Workshops and Repair of Existing Equipment 33. The low priority given to maintenance operations in the past is reflected in the poor condition of the various workshops throughout the country, the deterioration of equipment and plant, and the lack of spare parts; little equipment is left worth repairing. DPC has been cleaning up and leveling workshop yards, in anticipation of the arrival of new plant and equipment, and has been redesigning some for on expanded role. Training 34. A major component of the project is the training of mechanics and equipment operators. The main training center will be in Conakry where facilities already exist, to avoid trainees going through prolonged absences from home, a second, smaller training center will be opened in N'Zerekore. The proposed training courses will produce sufficient mechanics and equipment operators to cover DPC's most urgent needs. However, this should be con- sidered as only the beginning of personnel training. Skilled labor is in short supply in Guinea, and DPC will find it necessary to continue to develop skilled mechanics and operators starting with partially trained personnel, and in many cases, with totally unskilled laborers. Continuation and expansion of this training effort wilL be a key component of the second phase of the rehabilitation and maintenance program to be prepared during the execution of this project.  Project Implementation 35. The project will be executed by the Directorate of Bridges and Roads (DPC) within the Ministry of Public Works, Mining and Geology (MPW). However, successful execution, including the training of mechanics and equipment operators, will require technical assistance. Government has agreed to secure the services of an international consulting firm selected on terms and condi- tions acceptable to the Association (Section 3.02 of the draft Credit Agreement) and has already taken the initial steps to hire such a firm. 36. Because Government has given priority to road construction in the past, there is a risk that project inputs, such as equipment, material and personnel, could be diverted to purposes not included in the project des- cription. This issue was thoroughly discussed during negotiations and assurances were given by the Government (Sections 3.03(b) and (c) of the draft Credit Agreement) that the program of works would be carried out as agreed. In addition, special efforts will be made to monitor project imple- mentation closely, including establishing a detailed system for reporting progress against the agreed work program. Costs and Financing 37. The total cost of the project (net of taxes) is estimated at US$18.6 million with a foreign exchange component of US$14.0 million (76 percent of the total cost). The project is expected to be completed in three years. Details of cost estimates are shown in Annex III. 38. The proposed IDA credit of US$14.0 million would finance all of the foreign exchange costs of the project. The remainder of the costs, US$4.6 million, mostly local wages and salaries of personnel who are presently employed by Government but also including the local cost of the consultants' housing, would be met by Government. Procurement and Disbursement 39. Equipment, spare parts for new equipment, supplies, and materials amounting to about US$8 million will be procured on the basis of international competitive bidding in accordance with Bank Group guidelines. The following items will be procured on the basis of quotations from local suppliers: (i) fuel in the amount of about US$2 million, (ii) spare part for existing equipment amounting to some US$600,000; and (iii) equipment or groups of the same items of equipment with a value less than US$20,000 but in the aggregate not ex- ceeding US$100,000. In evaluating bids for equipment purchase, the availabi- lity of after-sales service and spare parts will be important considerations. 40. Credit proceeds will be disbursed on the following basis: (i) 100% of the c.i.f. costs of equipment and other imported supplies and materials, and 85% of the cost of imported items purchsed locally; and (ii) 100% of foreign expenditures for technical assistance.  - 12 - Economic Benefits and Rate of Return 41. The success of Government's efforts to revitalize the agricultural sector will depend partly on the availability of an efficient and reliable transport system linking the widely dispersed population centers and productive areas, and between these centers and the port of Conakry. As roads provide the predominant means of transport, the highest priority requirement of the trans- port sector consists of the preservation, by rehabilitation and subsequent regular maintenance, of the road network. 42. In defining the scope and content of the proposed program, considera- tion has been given to the length of the roads which most urgently need reha- bilitation and maintenance, their traffic, the economic potential in the road's influence area, the necessity for geographic coordination in execution of works, and the capacity of DPC to implement the works. The proposed program will ensure greater transport reliability, expand the seasonal use of the most important unpaved roads, and reduce transport costs. Other benefits in- clude those associated with the training of DPC staff, especially mechanics and operators, as well as avoidance of the need for costly reconstruction of extensive sections of the network which, at the current rate of deterioration, would be inevitable within a few years. Finally, the placing of an experienced team of consultants within the MPW is expected to afford opportunity for demonstration of basic organizational techniques and for realistic evaluation of the country's highway needs. 43. A high proportion of the project's benefits, as savings both to the Government Agency Office National Rail-Route (ONRR) and MPW, will accrue to the Government. Private car and truck owners will also benefit directly from a decrease in vehicle operating costs. Although a large part of private trans- porters' operating costs is expected to be retained by them, part of these savings may be passed on to consumers and passengers in the form of lower tariffs, since some competition exists in the private sector of the transport industry. 44. For the purpose of analyzing the justification for the project, the cost of the proposed program has been taken to include the cost of equipment, spare parts, tools, materials, technical assistance and labor. To reflect the difference between official domestic prices and market prices, local cost components were shadow priced at one sixth of their actual market values at the official exchange rate. The quantifiable benefits included in the analysis are (i) the reduction in vehicle operating costs and avoidance of future increases; and (ii) the savings in delaying the need for road recon- struction. The economic life of the project has been estimated to be 10 years, reflecting the estimated economic life of the rehabilitation works. The eco- nomic return of the project is high, mostly due to the savings in roads cons- truction costs. On the basis of the above inputs, the project has a benefit/ cost ratio of 4.6 with the stream of costs discounted at 12%; this corresponds to an economic return which exceeds 100% and indicates that the project is long overdue. In view of the uncertainty which exists about the assumptions used for the above economic analysis, the sensitivity of the estimated return to variations in these assumptions has been tested. Even under very pessimistic assumptions, the proposed project is still well justifie(l.  - 13 - PART V: LEGAL INSTRUMENTS AND AUTHORITY 45. The draft Development Credit Agreement between the Republic of Guinea and the Association, the Recommendation of the Committee provided for in Article V, Section I(d) of the Articles of Agreement of the Association and the text of a draft resolution approving the proposed credit are being distributed separately to the Executive Directors. 46. The features of the draft Credit Agreement of special interest are described in paragraphs 31, 36 and 37 of this report. 47. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI: RECOMMENDATION 48. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments Washington, D. C. December 11, 1975.   ANNEX I Page 1 ONUNTRY DATA - GUJINEA hal ~~~~~~~~~~~~~~PPTYAIONIIJ DNSITY 27', 95 7 Im 2 5.~~~~~1 tan- (mid-1972) Per k.tof arablc land SOCIAL INDICATORS Reference Countries Wuinea. Zaire Kega Yuo siesta. GN? PER CAPITA US$ (ATLAS BASIS) /1 90 Li 100 I. 170 /2 810 L. DEMOGRAPHIC Cudea nirnt rate (Per thouand) 62 5. 57/ 54 L 48 18.0 Crude death rate (per thousand) 50L ca 25/d 23/ 18 d 8.7/2 Infant mortality rate (per thoueand live birthe) 156 55 43eL Life expectancy at birth (years) 27 /b 39 /dh /d 58 /d 69a Gross reproduction rate /2 3.1 /4 2.8 3.1. 1.3 Population growth rate 52 .8 2.8 /22.6 3.2& te0 Population growth rate - urban ..5 7A?taj 3 I Age struootr (percent) 0- lb/ 53/a 2/2 1/ 281 1-6h 59/ 55255/ 82 6 65 and over7/ L Econcc1c dependency,PA . /5 : 1.1 1:1 1.5 0.9 /_2 Urban population aso percent of total 24/. 10'L Fosily planning I No. of ace ptors conlatire (thuse. ..2 ai 1 o 35 /I No. of users (% of carried amn) TMPotalN lbrfce(thousands) 1,500 /2 1,900/ 7,900 5,100 or 8,900o Percentage employed in agriculture 88 /c U n 78 9 2 5i -oontege unemployed .3 3.s.. INCOME DISTRIBUTION Percent of national jocose received by highest 5% ... .. 5 / Percent ofnationol jooercie yhghs 0 .. .. 2 /. Percent ofnetional lnome recived by lowest 20% ..... 7 c Percont of netional jocose received by lowest 40% ......19 A DISTRIBUTION OF LAND )OIMENHIP Sowned by top 13% of owners... 5 ownd by smallest 10% of ownro ,.. NEALTH ADil NUTRITION Population per physIcian .. 9,750 30,050 7,830 42 1,010 Populati~on per nursing person .. 2,100 a 2,290 1,570 I. Lao PPoplotio per hompita1 bed 1,120 A 820 /u~ 320 770 180 Per capita calorie supply as 5 or reqoiresiente /688 / 88 92 101 12), Per capita prcteio supply, tota I(grams per da /6u5 33 71 92 Of ehich, enteal and pulse 29 i6 /Z 29 29 /c Death rats 1-5 years /7 2.*.5...75/ EDUCATION AdJuested /8 priery school enrollment ratio 20 33- Adjusteod ;_ seondary school enrollment ratio 2 13 Tears fcihoollng provided, first and second level 12 12- 12 Voca'tional eooflement as 5 of sac, school enrollment 27 5 7 Adult litersoy rote S ...-. 3i t.a i Ass- r .o esn prcoos (urban)- Perce. ov id cotN without piped ucter Accessto electrictv o or total Ppopnlooo-) ./au.. ~ ~ Porrot of Acro 'ff0 aNtLon c.nnectei to slrtazto 0 n recavr p- 200 population 13 71L~ /a2/4 -1 Pocroagor cats pe - 1)00 uopnilaoto, ~ ~~2 2 a i? Lb Zbvrtric peteri c-.e,,nptuon (kaIr p.c.) 52 0 t 7 - ' tocopirt c0: setic':p.c kg Jot year,.. i2~ a7~ t520L Note Figurer tofe - et the- to the oInors peri,do . to account or -sorirn oentol tsrtartoebody weights, and1 one utror prots~~e ie-t prillds rcele it principle to distribution by oge and nec, of national Pr.PU1ationa. tro Yon 96- rlpA7 _ h royuvor- I rti dtadrei,rqirena for all countries as asi-L ript- to -60 i-: 1 -70. liehe by LISDA E.cn-olo Feac.rob Ser-I-. prov,ide for a -utur be t:io; o.cPerrinicte ir rt Nr..rt L, cc- in ol1owa-- of 70 gran of total proteto per day, end 20 gra-n ous ther rho 196) , coiuulated by, toeco. c-o.cn,roi- animal and pa Lee pr teiur of which 13 grose should be urina echr toe tIc 197 I or:id Noori AUto,. proteic. These standard:. -ar auewhat lowe than thoso uf -v-r.o -ser of dtghtorn per tmu.a of -y oduitiv- gross f total pr,osic an,d 23 gram o f anionl protein as an ge . average for the o-dA, propoued by PAO in the Third World Fund /2 ipoE toig-n cortoc .rc for the enodor endi'ng in Survey - 360 od 1030. ~~~~~~~~~~~Ii Some studios hove n&gge:ted that orude death rates of childrsn /t Xxtii of rpria.ltion ocdo-r 15 and 65 and over~ to pepula- ages th,brogli S nay b e use as a firset approximation index vf iocn if agen 15-6). for age depeodency ratio and to labor eolnuOniti-o Corn of og~- 15-6h . r ecenocic dependency Mtoo Perosotge ocuis f coreponding population of schooi age /2 FAO - fe-oi standa,do repreaant pnysiologicAl ,M-O deIira.d for snob cc tory. quirev_nrs for oursa a-tivity and ...tILi, taking Io 1372; lb 1955; Ac Drte est-ntes Icr- ifricen population base.d onbirths and deaths during 12-cootbe period, recoof sa,mPle eurvey; Id 1965-70 U18 ostimate; /e 1973; / 17071;; /2l -72; /h 1958-72; i Fr', definitiun of urban eee PIN leengrunhin Yearbook 1972. p. 153; 1j962_69 Ak 2,000 or coair inhabitants; 71 Fordefinition of urban see )5NgpegrmphpcjYe~bok 15(2 p. 157; 1965 UN estimats; /2 ON estimste; /o 1969; Z trios cectere; /4 1959; rF Labo2fIorce age 15159; /s 197 1; /t Ratio of registered Job seebers to active population; In T968; / H ouseholds; Ia Number on the register, not all eorbtog in the country; I2 Goveronent h.onpitoi establTeshente;7s 1961; In tIL-66; /a, Iocludee n-erge students; lab Inoluding teacher-trainiog at third leo-el; Icac 15 years and over; /ad Definition unkrnown; /ee Percentage of doeilitge; laf Water piped inside. oYugoslavia han been seleoted on an objective country for Guinea eiocc it is nore advanced io Ion de-elupent and bee . coporble socio-ecoooaic ales. April 7, 1975  ANNEX I Page 2 ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1972-/ ANNUAL RATE OF GROWrH (%, constant prices) US$ Mln. 1966 -69 1969 -72 1973 GNP at Market Prices 452 100.0 2.5 2.5 3.0 Gross Domestic Investment 92 20.3 5.5 - 5.0 Gross National Saving -18 -4.0 17.5 negative Current Account Balance -110 -24.3 Exports of Goods, NFS 65 14.4 -3.5 6.5 15.4 Imports of Goods, NFS 145 32.1 -3.7 19.0 9.1 1, OUTPUT- LABOR FORCE AN,D PRODUCTIVITY IN 1972' Value Added Labor Force V. A. Per Worker US$ Mln. . Mln._% US $E Agriculture 202.5 49.1 Industry 76.9 18.6 .. . , Services 133.2 32.3 . Unallocated TOTAL/AVERAGE 412.6 100.0 .7. . 100.0 GOVEURNNT FINANCE Oeneral Government Central Governrent (US$ Mln. _ of GDP (-US$ Mln.) of ODP 1972 1972 196 -7 192 1972 196 -7 Current Receipts 107.9 22.8 .. 95.6 20.2 Current Expenditure 95.5 20.1 .. 95.5 22.1 Current Surplus .. Th2T -1.9 Capital EFpenditures 70.0-i 14.8 External Assistance (net) 77.0 16.2 MONEY. CREDIT and PRICES 1969 1970 1971 1972 19 (Billions ot Sy1is outstanding end period) Money and Quasi Money 5.96 6.51 6.84 6.89 7.03 Bank credit to Public Sector 7.29 7.73 8.80 8.62 9.14 Bank Credit to Private Sector 0.25 0.30 0.34 0.35 0.37 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 65.5 67.8 67.1 63.8 56.7 General Price Index (1972 - 100) 91.9 94.1 97.1 100.0 106.9 Annual percentage changes ins General Price Index 3.1 2.4 3.2 3.0 6.9 Bank credit to Public Sector .. 6.0 13.8 2.0 6.0 Bank credit to Private Sector . 20.0 13.0 3.0 6.0 NOTEt All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ Factor costs Estimated average for 1971/73 .. not available not applicable e/ IBRD estimates  ANNEX I Page 3 TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS U' MERCHANDISE EXPORTS 1970 1971 1972 1974" AVERAGE AVERAGE (Millions of US)) 1970 - 73 1974 US) Mln % US$ Mln % Exports of Goods, NFS 50.8 50.9 64.5 16.3 Mining (mainly aluminum & bauxite) 40.4 75.8 137.0 84.0 Imports of Goods, NFS 89.9 79.7 145.1 23.0 Agriculture (mainly pineapple Resource Gap (deficit = _ ) -39.1 -28.8 -80.6 -72.0 & coffee) 12.4 23.3 24.0 14.7 All other cosmodities 0.5 0.9 2.0 1.3 Interest Payments (net)_ __ _ Workers' Remittances -10.6 -10.9 - 8.4 - 4.2 Total 53.3 100.0 163.0 100.0 Other Factor Payments (net) Net Transfers -13.4 -17.0 -21.0 -10.0 EXTERNAL DEBT US$ Mlo S$ Mln Balance on Current Account -63.1 -56.7 -110.0 -86,2 Public debt, incl. guaranteed 425 755 " Non-guaranteed Private debt Private Longterm capital (net) .. .. 58.0 16.0 Total outstanding & Disbursed Net MLT Borrowing Disbursements .. .. 96.0 .. DEBT SERVICE RATIO 1/ Amortization . . . . -19.0 Sob-total G . .. 77.0 16.0 Public debt, incl guaranteed 25 - 32 thrCapital Grants.. . .0 ..Non-guaranteed Private debt Other C.pital (net) . . . . 1-.0 42.0 Total outstanding & disbursed . Other iters n.e... -9.0 32.0 Icrea- in Reserves (+) 7.0 7.0 3.8 Cross Reserves (end year) Net i-serves (end year) -25.0 F-el and Related Materials . .. . Imports of which. Petroleum . ..... Exports of which: Petroleum .. .-. RATE (F EXCHANGE Pre-October 1972 IBRD/IDA t. 1975) (Million $) US$1.0 GP 227 ____I ID Outstanding & Disbursed -9 'toler 1972-Decemtcr 1973 Since - December 1973 U.Odisbabred 100 10 syi USs 442. US$10i0 * Sylis 20.7 Outstanding including Undisbursed 69.5 7 1/ Ratio of Debt Service to Exports of Goods and Non-Factor Services e/ TBRD Estimates .. not available 2/ Tn 1972 First estimate fron Bank External Debt Mission to Guinea  ANNEX 1I THE STATUS OF BANK GROUP OPERATIONS IN GUINEA A. STAYPEPDNT OF BANK r1oANS AND IDA CREDITS (as of November 30, 1975): Amount, less cancellation (US$ Million) Loan or Credit Number Year Borrower 'urpose Bank IDA Undisbursed Two loans both fully disbursed 7-3.5 557 and 766 Cr. 569 1975 Republic Agriculture 7.0 7.0 of Guinea Total 73.5 of which has been repaid 5.1 Total now out;standing 68.4 Amount sold of which has been repaid Total now held by Bank and IDA 68.4 7.0 Total undisbursed 7.0 B. STATEMENT OF TFC 1iNVEST'MENTS (as of November 30, 1975): Guinea is not a member of IFC. C. PROJECTS IN EXECUTION: Cr, 560-GUTTT Pineapple Development Project US$7.0 million credit of July 2, 1975 Effective date October 22, 1975 Closing date: June 30, 1979. Part of the technical assistance team has been appointed. The technical consultancy contract with the Institut Fran,ais des Recherches Fruitieres Outre- Mer (IFAC) for this project has been finalized. An IFAC field -L. non went to Daboya to help start preparatory field work for the first-year planting on 40 ha, which is on schedule. Pre-selection of consultant.s for both the Rice and the Li- vestock studies has been completed by the Government with the assistance of Bank staff. The next supervision mission is planned for early January 1976.  ANNEX III Page 1 GUINEA FIRST HIGHWAY PROJECT Credit and Project Summary Borrower: Republic of Guinea Beneficiary: Ministry of Public of Works, Mining and Geology Amount: US$14.0 million equivalent Terms: Standard Project description: (a) rehabilitation as needed of 2,491 km of high priority roads and initiation of proper maintenance operations on these roads; (b) repair of existing equipment and plant and rehabilitation of workshops; (c) purchase of (i) highway equipment and spare parts, (ii) workshop equipment and tools, (iii) parts for repair of existing equipment and plant, (iv) engineering and laboratory equipment and training materials, and (v) radio equipment; (d) purchase of materials and supplies for project operations; and (e) technical assistance to the Ministry of Public Works, Mining and Geology for the implementation of the project, the training of mechanics and equipment operators, and the preparation of a second phase of the rehabilitation and maintenance program to be executed over 1978/79 - 1980/81.  ANNEX III Page 2 Estimated Costs: US$ Thousands (excluding taxes) Local Foreign Total 1. Highway equipment and spare parts (10 percent) - 5,086 5,086 2. Shop equipment and miscellaneous tools - 784 784 3. Parts for repair of existing equipment and plant - 560 560 4. Engineering and Laboratory equipment and training materials - 392 392 5. Radio equipment - 224 224 6. Materials and supplies 750 4,061 4,811 7. Labor (skilled & unskilled) 3,671 - 3,671 8. Technical Assistance 100 1,848 1,948 9. Contingencies 98 1,032 1,130 TOTALS 4,619 13,987 18,606 (Rounded) (4,600) (14,000) (18,600) Financing Plan: IDA 14,000 76 percent Government 4,600 24 percent 18,600 100 percent. Procurement Arrangements: Equipment, spare parts for new equipment, supplies, and materials amounting to about US$8 million will be procured on the basis of international competitive bidding in accordance with Bank Group guidelines. The following items will be procured on the basis of quotations from local suppliers: (i) fuel in the amount of about US$2 million (ii) spare parts for existing equipment amounting to some US$600,000 and (iii) equipment or groups of the same items of equipment with a value less than US$20,000 but in the aggregate not exceeding US$100,000. In evalua- ting bids for equipment purchase, the availability of after-sales service and spare parts will be important considerations. The above procurement procedures were agreed with the Government during negotiations.  ANNEX III Page 3 Estimated Disbursement: FY 1976 1977 1978 1979 (in US$ Thousands) Annual 905 10,945 1,860 290 Cumulative 905 11,850 13,710 14,000 Project Management: All components of the project will be administered within the Ministry of Public Works, Mining and Geology by the Directorate of Roads and Bridges with the assistance of consultants. Consultancy Services: An estimated 264 man-months are required for technical assistance to implement the project, including the training component. Rate of Return: Over 100 percent Estimated Project Completion date: December 31, 1978 Appraisal Report: No. 882a-GUI   IBRD 1169, SPatccO - -UJ|'sil.>t _, ,4 ,_._,ToDokort__, S E N E G L 10 S 'I974 ALGERIA LYA Youkounkoun M A L l Gox5 tAr5, . < Koubi5 ,0 1-wg -' / 0~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Kurmai 2 . e>Te. r KndorP I ATLANTBIC OF GUINE 2 vet ,' y F IRST HALI IGHWAYPROC - \ inn~~~~~~~~~~~~~Q' Ootro*s' ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ inur REHABILITATION AND MAINTENANCE e i IK uma . Project 'ArICAN REprv I 9 'Ma FG ekeo S I |I2el __-Prolect rads (grQveland earth) 0 | ilf / v , +Pntta / tT11 Siks. VItrtioatOIir . / o - - M. TNdirko ---~~~~~~~~~~~~~~~~Inteornahonlbudre J,)Cmuy 1A Forkariah~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~aKeres uo / | z v I! > ToM0nroviru jTo bidlon~erouan FIRST HIGHWAY PROJECT REHABILITATION AND MAINTENANCE el -Project roads (paved) Guedked/ ---Project rocads (grovel and earth) /Mcento Other first category roads I re ou