Guinea - Pineapple Development Project

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1623a-GUI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF GUINEA FOR A PINEAPPLE DEVELOPMENT PROJECT June 16, 1975 Tltis 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 It may not be published, quoted or cited without Bank Group authorization.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.  CULRR4CY EQUIVALENTS US$1 = 20.46 Syi SyJA 1 = us$o.o04 Syli 1 million = US$48,878 ABBREVIATIO'WS BNDA - Banque Nationale do Developpement Agricole IFAC - Institut Frangais de Recherches Fruitieres Outre-Mer INRAF - Institut National de Recherches Agronomiques de FoulJaya FISCAL YEAR October 1 - September 30  For consideration on June 26, 1975 IDA/R75-63/1 FROM: The Secretary June 18, 1975 GUINEA: Pineapple Development Project Corrigendum The following correction should be made in the President's Report and Recommendation on a proposed pineapple development project in Guinea distributed on June 16, 1975 (IDA/R75-63): In paragraph 43, delete item (iv), and renumber item (v) as item (iv) Distribution: Executive Directors and Alternates President Senior Vice President, Operations Executive Vice President and Vice President, IFC President's Council Directors and Department Heads, Bank and IFC   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 PINEAPPLE DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Guinea for the equivalent of US$7.0 million on standard IDA terms to help finance a project to develop the pine- apple industry and to provide technical assistance in the rice and livestock sub-sectors. Part of the proceeds of this credit will be on-lent to a State company, Daboya, responsible for pineapple production. 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, reflect- ing the different climatic conditions throughout the country, ranging from the sub-saharan north and sub-tropical mountain areas in the center to tropical forest in the south. The wide variety of agricultural 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 estimated population growth (2.8 percent p.a.). In 1972, GNP was estimated at US$450 million, population at 5.1 million, and per capita income at US$90. Latest estimates show the con- tinuing predominance of agriculture and related activities in the country's structure of production. Thus, in 1972 the rural sector contributed 49 per- cent of GDP, mining and manufacturing about 12 percent, public administration 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 1973 census indicate that GNP per capita might be on the order of US$55 in the rural sector and US$315 in the non- rural sectors.  5. Since Independence in 1958, 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 Government 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 organization 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. The Govern- ment has recently taken steps to abolish this unofficial system but it remains to be seen whether these attempts will succeed. Economic Objectives 6. The Government's economic objectives may be viewed in the context of its development plans, which have emphasised infrastructure, manufactur .g and mining. Over the last ten years, Ilan 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 tne past three yea-s, when implementatior, 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. 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  -3- 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 of most of them remained at low levels relative to capacity because of poor designs, lack of local raw material 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 pressure. 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. At the end of 1972, Guinea's public foreign debt, outstanding and disbursed, stood at an estimated 94 percent of GNP, with a total debt service ratio, including service due on debt deferred through rescheduling, approaching 60 percent. Actual debt service payments in 1972 were, however, 25 percent of export earnings (Annex I). 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 altered 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 sur- pluses 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 better public finance performance. Fourth, management of the foreign debt has become more efficient; the considerable short-term debt in the form of accumulated deficits of bila- teral trading accounts has been consolidated and the use of supplier credits has declined. As a result, authorities have regained some margin of maneuver with their foreign resources, 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 depressed. However, the situation is likely to improve substantially over 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. Guinea's situation is 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 Friguia's 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  - 4 - period are projected to rise by 75 percent. Looking farther ahead, prospects for continued growth in mining production and exports are excellent, and in- clude 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 Govern- ment 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 $60 million and $70 million respectively. The extent to which foreign exchange resource availabilities 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 migra- tion 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. With- in the rural sector, development of smallholder farming and livestock herding ought to receive primary attention although some plantation development also could be justified, particularly nucleus estates providing extension services to outgrowers. Such an investment strategy should not exclusively concentrate on directly productive investments, but also include improvement of the neces- sary transport infrastructure, rural education, and health. 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 four times through 1977, particularly owing 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 increased current 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 high level of 15 percent of GDP in 1977, which would offer scope for more intensive development efforts. 14. Through 1977 the balance of payments is likely to remain under pres- sure, in particular if the gains from bauxite mining are not used for short gestation period projects. This is due to transfer payments associated with the recently established mining enterprises, imports in association with expected new mining investments and to the expected and much-needed rise in  -5- imports of intermediate and consumer goods. During 1972-80, imports are pro- jected to rise by 20 percent annually in current prices and 8 percent in con- stant terms. Throughout the period, import demand, debt service and transfer 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 nearly US$14 per capita. Until 1970, about 60 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. However, with the jump in bauxite revenues, the debt service ratio, which amounted to about 25 percent in 1972 in actual payments, may decrease to well below 20 percent in the late seventies. 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 creditworthiness 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. 17. An economic mission to re-evaluate the country's situation and prospects is planned for the next fiscal year. PART II: BANK GROUP OPERATIONS IN GUINEA 18. In the past, Bank Group lending to Guinea has included three loans in the mining sector, all associated with the Boke bauxite mining project. In 1966 the Bank made a US$1.7 million loan (Sl-GUI) for engineering studies for infrastructure related to the Boke mine. This loan was absorbed by the 1968 US$64.5 miUlion construction loan (577-GUI) for the mining town-site and for port and railway facilities to provide a transportation system for exporting the bauxite. The 1971 US$9.0 million Boke extension loan (766-GUI) increased project capacity when the mine's annual production at full development was expanded from the originally planned 6.6 million tons annually to 9.2 million  -6- tons. The Bank's project has been completed satisfactorily about a year be- hind schedule despite an accident in July 1974 which damaged two locomotives and a large section of track and hampered full utilization of the railroad. The mine financed by a consortium of private sponsors with Government par- ticipation is also complete, although harder than anticipated bauxite has necessitated substantial modifications, which are still going on, in the crushing machinery and a slower than anticipated build-up in bauxite produc- tion. An estimated 4.5 million tons of bauxite will be exported this year up from 700,000 tons last year when the mine was completed and began operations. De6spite 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. Annex II contains a summary statement of the Bank loans to Guinea as of May 31, 1975. 19. The Bank Group's involvement in Guinea has been limited to the Boke project, as the country was not considered creditworthy for Bank lending other than for enclave projects of that type. The problems Guinea has had in sus- taining an effective development plan and in managing its economic affairs, together with its lack of emphasis on the rural sector, have made it diffi- cult until now to envisage IDA lending and to agree on the exact nature of projects submitted to the Bank for financing. Now, however, there is some evidence (para. 8) of improvement in fiscal and monetary management, and of opportunities for development afforded by the increased financial resources expected during the next few years from mining operations. In addition, Government is exploring ways of developing the rural economy. We believe that these signs of improvement in Government's policies and priorities provide grounds for Bank Group assistance in sectors other than enclave mining, initially on a modest scale. In the light of Guinea's poverty and low per capita income and the size of its prospective debt service obligations, this assistance should be on IDA terms. 20. Our strategy for our future lending to Guinea is to improve condi- tions in the rural sector. To accomplish this we will continue to encourage the involvement of private sources of finance in the mining sector, with our participation if necessary, while working with Government to facilitate the transfer of benefits accruing from mining operations to rural areas. The major constraints impeding rural development which must be overcome are poor sector planning and a concomitant inability to properly prepare projects, weak insti- tutions and a general lack of technical expertise to implement projects, and a manifest lack of real assistance to and incentives for producers. We are seeking to develop projects, such as the proposed one, to demonstrate that farmer incentives are basic to agricultural development. 21. In the light of the above-mentioned constraints we propose a stra- tegy of financing a limited number of relatively small but carefully defined projects in various subsectors of rural Guinea (fruit, rice, livestock, high- way maintenance) which, if successfully executed, could provide the foundation for greater external assistance by the Bank Group and other donors outside of their traditional involvement in mining. At the same time, we intend to pursue our dialogue with the Government on measures to improve its management of economic affairs and to increase the allocation of resources to help the rural population increase its standard of living.  - 7 - 22. The Bank Group's share in Guinea's publicly guaranteed external debt outstanding and disbursed amounted to about 16 percent at the end of 1972 (the latest year for which we have detailed information on publicly guaranteed external debt). At that time, the Bank Group's share of debt service payments was nil as amortization of the Boke loans had not yet begun. 23. There have been no IFC operations in Guinea and none is being considered at this time. PART III: THE AGRICULTURAL SECTOR 24. Agriculture constitutes the way of life for most Guineans and an occupation for two-thirds of the country's labor force, although it accounts for slightly less than half of GDP, and only about 25 percent of exports. Per capita GDP in Guinea's rural sector was estimated at about US$55 in 1972, little more than half of the national average. Most landholdings consist of small individual plots cultivated for subsistence purposes but land is not in short supply as population pressure is not generally heavy in Guinea, except in the central part of Fouta Djalon (Middle Guinea). Estate agriculture is limited to about 5,000 ha of mostly privately-owned, quite small banana and pineapple operations and to two small Government owned tea and chinchona estates. Guinea's staple foods are rice, cassava, maize, millet and sweet potatoes; its main agricultural exports are pineapples, bananas, coffee, and palm kernels. Guinea has four principal eco-climatic zones which provide a relatively good and diversified agricultural potential. Lower Guinea com- prises mainly the humid low-lying coastal plain and is where pineapple and banana production is concentrated. Middle Guinea, with altitudes between 600 and 1,500 m, is the main center for food crop and livestock production. About 75 percent of the national cattle herd, estimated at between 1.5 and 2 million head, are in this region. Upper Guinea, a region of transition between the forest and the savannah, has a long dry season but an important potential for irrigated agriculture on the flood plains of the Niger River and its affluents. The Forest Region in the south and southeast of the country comprises tropical rain forest and produces most of the country's coffee crop. In spite of Guinea's high average annual rainfall, which varies from 1,500 to 3,500 mm depending on the region, the long dry season, usually four to six months, makes irrigation essential for more than single-cropping outside the Forest Region. 25. While accurate information on Guinea's rural sector is difficult to obtain, it appears that agriculture has not progressed significantly in the last 15 years. Exports of bananas, pineapples, coffee and palm kernels were valued at about US$17 million in 1957 and at the same level in 1966 but had fallen to only US$11 million in 1973. As agricultural exports have declined, food imports have increased, domestic food production being unable to meet demand, particularly demand in urban areas. Rice production, which had been increasing up to 1969, has since been holding steady at about 400,000 tons per year, necessitating growing rice imports which now amount to about 70,000 tons annually. Guinea was the first sub-Saharan African country to develop a major tropical fruit growing and exporting industry. Bananas were the main export  -8- crop prior to Independence. However, a number of problems have combined to drastically reduce the amounts exported since then. These include increases in costs for producers, difficulties in controlling crop disease, inability to obtain needed import materials for the production process due to a lack of foreign exchange, and the problem of attracting labor because of lack of incentives. Banana exports declined from 100,000 tons in 1955 to about 600 tons in 1973. Many banana growers switched from banana to pineapple produc- tion because the latter crop is less susceptible to disease and pests, requires less labor, and became financially more attractive following trade arrange- ments for pineapples made between Guinea and the USSR and East European countries and the setting of favorable producer prices. Pineapple exports grew from 50 tons in 1957 to 11,000 tons in 1972 but have since declined to an estimated 7,000 tons in 1973 because of Government's difficulties in effectively providing growers with adequate support services. 26. The main constraints on agricultural development in Guinea appear to be the lack of producer incentives, inefficient support services for farmers, and scarcity of foreign exchange needed to import essential agricultural inputs such as equipment and fertilizers. As far as incentives are concerned, offi- cial producer prices for agricultural products are generally too low and Gov- ernment's allocation of scarce consumer goods has not favored rural areas. Consequently, there have been few incentives for farmers to produce above the level necessary for their own subsistence. An important side effect of this situation has been migration to Conakry where such consumer goods as Guinea is able to import are available. 27. Recently, Government has tried to put more emphasis on rural develop- ment. As a first step, a new super ministry was created in 1973 to encompass the entire rural sector and to pursue Government's stated goals of eliminating food imports, processing of agricultural products in Guinea, and stemming urban migration by improving rural life. A second innovation is the establish- ment of agricultural "brigades" for existing farmers and for school leavers. It is planned that these brigades, which would operate on a collective basis, should enter into sales contracts with Government for their production in return for which Government would advance the necessary farm inputs and services. The success of these brigades is uncertain in view of the problem of incentives that is common to the sector as a whole. Government has in- creased its expenditures in absolute terms for the rural sector in the Third Development Plan (1973-78) but they nevertheless represent only 9 percent of total Plan outlays (excluding those for the mining sector). 28. A Bank Group economic mission visited Guinea in 1974 and inter alia assisted Government in identifying various agricultural development options. These included rice, livestock and pineapple operations. The proposed project comprises investments to stimulate pineapple production and to assist the preparation of projects in the rice and livestock sub-sectors.  -9- PART IV: TIlE PROJECT 29. The Government of Guinea has asked the Association to help finance a pineapple development project and studies of the country's rice and live- stock sub-sectors. The project was identified by the Association in early 1973 and prepared by Government and the Regional Mission in Western Africa using Yugoslav and French consultants. The project was appraised in October 1974. Negotiations took place from May 21 to June 3, 1975 with a delegation headed by Mr. Louis Holie, le Ministre des Grands Amenagements et des Eaux et Forets. A credit and project summary is attached as Annex III. The appraisal report (No. 697a-GUI) is being circulated separately to the Executive Directors. Description of the Project 30. The project would establish an irrigated pineapple estate of about 420 ha (of which not less than 360 ha would be for the actual cultivation of pineapple) to be managed by Daboya, a new State enterprise; it would in addi- tion improve the road transportation and fruit handling service of Fruitex, the State fruit exporting company, supply technical assistance for project management, and conduct research on pineapple production, transportation, and marketing. The project would also provide pineapple growers near the Daboya estate with a package of support services to aid them in increasing their productivity. Studies of the rice and livestock sub-sectors would be included in the project and future projects in these sub-sectors would be identified and prepared. The Daboya Pineapple Estate 31. The estate would be established near Kindia in Lower Guinea where climatic conditions favor production of a high quality pineapple. Apart from production of pineapples for export (about 600-900 ha are so cultivated), agriculture in Kindia remains largely at the subsistence level. The Daboya estate would help to guarantee a supply of high quality fruit for export and to reverse the decline that has occurred in Guinea's pineapple exports over the last few years. The estate would also demonstrate an integrated approach to agricultural development which could be applied to other agricultural pro- duction activities and be replicated elsewhere in Guinea. In addition, the estate would serve as a center for extending modern farming practices in the region. The estate would develop basic cultivation techniques, engage in applied research, train personnel, and serve as a demonstration to individual pineapple growers in the area, the outgrowers; the estate would supply out- growers with the broad range of support services necessary to improve pine- apple cultivation. 32. Following detailed soil and topographic surveys needed to determine the exact layout of the irrigation system, an estate plan would be prepared to develop about 420 ha over a period of five years. The tenure rights for the estate land, which is presently being used for low productivity shifting cultivation, would be vested in Daboya by Government (Section 3.07(b) of the  - 10 - draft Credit Agreement). Present users of the land would be compensated for fixed assets and would be the most likely to benefit from the estate in terms of employment and the increase in economic activity from the project. Water for the estate would come from the already existing Kale reservoir. A sprinkler irrigation system would be constructed in three phases as the area un'der cultivation is expanded. Transport and Marketing 33. Because pineapples are susceptible to bruising and mechanical injury when being handled and shipped, the project would improve the pineapple trans- portation system for the export market. Daboya would build and operate its own packing station on the estate and use farm tractors and trailers to bring fruit from fields to the station, where Fruitex's vehicles would pick it up. Vehicles and spare parts for Fruitex's road transportation fleet, and additional and specialized equipment for the port of Conakry would also be purchased to upgrade the existing transportation facilities. Fruitex's work- shop would be rehabilitated. Trials would be conducted to determine the most efficient internal and external transportation systems for fresh pineapples and to seek out new export markets, particularly in Western European countries. Assistance to Outgrowers 34. The Daboya estate would provide a package of services to outgrowers, most of whom are organized in cooperatives. These services would include technical assistance, the provision of inputs (irrigation and other agricul- tural equipment, fertilizers, insecticides., packing materials), and collection of fruit to be transported by Fruitex to the port. Banque Nationale de Developpement Agricole (BNDA) would provide outgrowers associated with the Daboya estate with credit at a minimum of 9% interest to pay for farm inputs and packing materials (Section 4.04 (b) of the draft Credit Agreement). By the end of the project implementation period assistance to outgrowers would cover about 50 percent of the land in the Kindia area presently under pine- apple cultivation. Research and Training 35. Research on pineapple cultivation is necessary to ensure fruit quality and to increase productivity. The Project would provide for a program of applied research in such high priority areas as reduction of the production cycle, plant nutrition, spacing of plants, optimum irrigation and fertiliza- tion levels, and plant diseases and reproduction. The research would be carried out by Daboya in cooperation with the Institut National de Recherches Agronomique de Foulaya (INRAF) which is responsible for pineapple research in Guinea. Government agreed during negotiations to have INRAF join with ex- perienced and qualified pineapple research experts in a cooperative program of applied research on pineapples (Section 3.08 of the draft Credit Agreement). Field trials would be carried out to determine if recent advances in pineapple cultivation in other countries can be duplicated on a large-scale under Guinean  conditions. The project would also provide Guineans with overseas fellowships in irrigation, pineapple marketing, and vehicle maintenance; this training would be an important step toward providing local management for the project. Technical Assistance 36. Funds will be provided under the Credit for consultant services to assist the Ministry of Rural Development in carrying out the rice growing and livestock production studies in Guinea and to recommend appropriate policies in these sub-sectors to the Government. These analyses and recommendations would form the bases for the consultants to prepare development programs and specific rice and livestock investment projects suitable for external financing. Management and Implementation 37. Daboya is a new state enterprise which was established by presidential decree just prior to negotiations specifically to run the project plantation and provide the package of services to outgrowers. Daboya is under the control of the Ministry of Agriculture which itself is responsible to the higher Ministry of Rural Development. Fruitex, a wholly-owned Government entity, was established in 1971 and is charged with buying fruit from local producers, arranging for its export, and conducting studies of potential foreign markets for Guinean fruit. Fruitex is under the control of the Ministry of External Trade which itself is responsible to an overall Ministry of Trade. The Director of Daboya would be the Project Manager of the pineapple production component of the IDA-financed project; the relationship between this enterprise and Fruitex will be formalized in a contract, the conclusion of which is a con- dition of credit effectiveness. The managers of the pineapple estate and of Fruitex's transport workshop plus two other field positions (estate engineer and research/extension officer) would be filled by internationally recruited personnel whose assistants would be Guinean (Sections 3.09 and 3.10 of the draft Credit Agreement). All positions associated with the project would be filled by Guineans by the end of the IDA credit disbursement period. The livestock and rice studies would be under the supervision of the Ministry of Rural Development and carried out with the assistance of consultants. Financial Results 38. Guinea's fiscal system is based on those employed by the centrally planned countries. One feature of it is that Government may, and frequently does, set prices for inputs and outputs that are not linked to international market prices. This is the situation in the case of pineapples where the producer price is very high when compared with those paid elsewhere. Another feature of the system is that for public enterprises, conventional financial criteria, such as the rate of return, are not considered appropriate and given the pricing controls employed, are frequently irrelevant. The latter would be so in the case of the pineapple estate. However, through budget control procedures involving the annual review by Government and IDA of detailed cost estimates and production targets, satisfactory levels of production efficiency  - 12 - and financial discipline would be ensured. Outgrowers would continue to be motivated by price, and during negotiations assurances were obtained from Government that it would guarantee, inter alia, that producer prices would be set so as to provide an incentive for outgrowers to produce pineapples. The Government would submit to the Association for its approval the procedures for establishing prices to be paid by Fruitex to Daboya and outgrowers for pineapple (Section 4.06 of the draft Credit Agreement). Credit would be provided to outgrowers at a minimum interest rate of 9% and outgrowers would be required to pay for the costs of advisory and other support services pro- vided to them. P_oposed Financing 39. The proposed IDA credit of US$7.0 million would finance the US$5.7 million foreign exchange costs of the project as well as the equivalent of US$1.3 million of local costs or 82 percent of the US$8.5 million total project costs net of taxes. The remainder of expected project costs would be met by outgrowers who would be required to provide the equivalent of US$0.2 million for incremental on-farm costs from their own resources; and by Government which would be required to provide the equivalent of US$1.3 million. 40. The IDA credit for pineapple estate and outgrower components will be on-lent from Government through BNDA acting as its agent to Daboya at a rate of not less than 6 percent with a term of 25 years including six years of grace for principal and interest (Section 3.02(a) of the draft Credit Agree- ment); during negotiations, Government agreed to consult with IDA after one year on the interest rate to be charged for this loan with a view to possibly increasing it following a review of BNDA's lending policies. Government's own contribution as well as proceeds of the IDA credit employed for the other cowponents of the project would be passed on as grants. 41. Retroactive financing is required for equipment and fertilizers for the nucleus estate, erployment of key staff, and consultants. During nego- tiations it was agreed that retroactive financing would be provided up to a maximum of US$100,000 for expenditures incurred after June 1, 1975 (Schedule 1, paragraph 4 (a) of the draft Credit Agreement). Procurement and Disbursement 42. All contracts over US$50,000 for the procurement of vehicles, farm and irrigation equipment, electrical and mechanical plant, fertilizers and other farm inputs, and packing materials (totalling about US$2.8 million) would be through international competitive bidding in accordance with IDA guidelines. Domestically manufactured goods would be allowed a preference of 15% or the level of applicable import duty, whichever is lower when comparing domestic bids with those of foreign manufacturers. Procurement contracts for amounts of less than US$50,000 would be through competitive bidding advertised locally in accordance with Government procedures acceptable to IDA. Contracts for the installation of the irrigation system, land clearing and construction and rehabilitation of buildings (totalling about US$1.2 million) would be indi- vidually too small and too dispersed over time (5 years) to attract inter- national contractors and would therefore be awarded on the basis of competitive  - 13 - bidding advertised locally and in accordance with procedures to be agreed with IDA. Contracts with consultants (about US$300,000) for the rice and livestock studies, and those required under the pineapple component of the project for technical assistance, training of Guinean staff, and investi- gation of new markets (totalling about US$600,000) would be obtained under arrangements agreeable to IDA, as would be internationally recruited staff (about US$900,000). An estimated US$2.8 million would be expended on items such as local staff salaries, labor, personnel allowances, operating costs of vehicles and equipment and other general expenditures that would not lend themselves to competitive procurement. The foregoing estimated amounts are net of physical and price contingencies for which about US$2.5 million is provided. The difference of US$2.6 million between the sum of the procurement items and contingencies listed above, US$11.1 million, and total expected project costs, US$8.5 million, represents nucleus estate operating costs in the IDA credit disbursement period which would be financed by self-generated revenues, but which, for convenience, Government has indicated that it would procure in the same way as items financed by IDA. To avoid delay lp the implementation of the Project, the Government requested IDA to make suitable arrangements, on financial terms and conditions acceptable to Guinea, for the provision of pineapple experts' services to assist Daboya in the planta- tion development and for the recruitment by IDA of Daboya's expatriate staff, such experts and expatriate staff to be made available to Guinea under Second- ment Contracts from the Association. 43. The credit would be disbursed against: (i) 100 percent of foreign expenditures of the contract cost of consultant services and of the costs of overseas training fellowships; (ii) 80 percent of land clearing and develop- ment costs, of estate civil works costs and of building construction and furniture costs; (iii) 100 percent of foreign expenditures or 90 percent of local expenditures of the costs for the purchase of all vehicles, tractors, farm equipment, refrigerated containers and dock equipment, spares for the foregoing, and of the costs of farm inputs required in the investment phase of the estate and by outgrowers; (iv) 100 percent of foreign expenditures or 90 percent of local expenditures for equipment renewals, farm inputs and packing materials required for the operation of the estate during the IDA credit disbursement period; (v) 100 percent of salaries and allowances net of taxes of Daboya's and Fruitex's internationally recruited staff. US$2.0 million of the IDA credit would be unallocated to cover physical and price contingencies. Economic Benefits and Rate of Return 44. At full development, the project would produce an additional annual output of about 10,200 tons of pineapple from estate and outgrower production with a gross value of about US$3 million at world market prices. It is assumed that all project production would be marketed in the USSR and Eastern Europe. The economic return from the combined directly productive pineapple components (the Daboya estate and outgrower program) is estimated at about 18 percent: 15 percent for the estate alone and 38 percent for the outgrower program alone.  - 14 - 45. Although about 800 jobs would be created or sustained by the project, it would not lead to improvements in the living standards of large numbers of people in the rural area. Rather, the project would introduce to Guinea con- cepts and techniques of agricultural development, particularly in fruit produc- tion, which could in the longer term, benefit large segments of the rural population. Furthermore, should the studies of rice cultivation and livestock, which are part of the project, result in feasible projects as we anticipate, there would be further opportunity for stimulation of agricultural production and improvement of living standards among the smallholders comprising the bulk of the rural population. 46. An important justification for this project, beyond the immediate benefits it is expected to generate, lies in the opportunity it affords to demonstrate basic organizational and development techniques which must be adopted if progress is to be made in overcoming the many obstacles to develop- ment of the rural sector in Guinea. These obtacles represent the principal risks which the project will be facing; they fall under three major headings; (i) weak institutions, (ii) lack of foreign exchange, and (iii) absence of incentives for paid labor and private producers. In the context of fresh pineapple production and marketing, the project provides for institutional strengthening through technical assistance and training and financing of essential infrastructure for the state enterprises directly engaged plus a high degree of financial and administrative autonomy for their management; by integration of research, extension, input supply, credit and marketing services in the project, the institutions providing these services to the rural sector will also benefit from project experience. By assuring the availability of foreign exchange through the proceeds of the credit, the project will provide in a timely fashion the necessary farm inputs and equip- ment needed to increase pineapple yields on the plantation and on the farms of the associated outgrowers. During the implementation of the project, the Government has agreed to consult with the Association on the pricing struc- ture required to give adequate incentives to pineapple producers; the Govern- ment has further agreed to make available to paid labor working on the plantation a package of goods and food at reasonable prices so as to provide work incentives. The general absence of consumer goods in the rural areas, in part a result of foreign exchange constraints, will not, of course, be substantially affected by the project; the Government has, however, recognized this as a major constraint: to rural development which may jeopardize the success of this project. PART V: LEGAL INSTRUMENTS AND AUTHORITY 47. 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 to the Executive Directors separately.  - 15 - 48. Conditions of credit effectiveness would include: appointment of the director of Daboya and of the estate's manager; conclusion of arrangements between Daboya and qualified pineapple experts to help with the initial stages of plantation development (Section 3.03(a)(ii) of the draft Credit Agreement); signing of a Subsidiary Loan Agreement between BNDA (acting on behalf of the Government) and Daboya; and signing of a contract between Daboya and Fruitex for collection, transport, and marketing of Daboya's and outgrowers' produce (Section 4.07 of the draft Credit Agreement). A condition of disbursement of funds for Fruitex's transport service would be the appointment of a work- shop manager. 49. The features of the Draft Credit Agreement of special interest are described in paragraphs 32, 34, 35, 37, 38, 40, 41, 42 and 43 of this report. 50. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI: RECOMMENDATION 51. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President by B. Chadenet Attachments Washington, D.C. June 16, 1975   ANNEX I Page 1 OlUb7RT DATA - GlJiWf ARIA POPULATIONENSY 25,957 la2 521 ilion (mid-1972) Per inSet cable lnd SOCIAL DIDICATORS Ref'ercen Countries Ouane, Zaire Xonra Thgoalavia* I56C0 197D 9;0 59C 9 ON? FMlt CAPITA US$ (TLArS BasIs) - 90 100 170 8 710 /a M3WtiGFtP ate (Pan thcand) 62 b.c 7 d aht d I8 62 8 Grade death rate (par thoea.nd) Lo 72 d Infant ortality rate (per thousand live births) 156 ., 55 13 ' Life sapent-ny at birth (years) 27 b 39 lL Li L h8 A (f9 5f Ores. r-production rate L2 3.1 j 2.8 d 3.h i.3 Ppaatian groetb rate 6.e 2.8 3 2.6 ' 2 1.0 $ 5'opal.attuv growth rett - urban .. . 5 72 3 1 Age ninictorn (peronan) 15-61 :'94T SLha SILL l. 5 LI 65 and over 7 3 3 L fl Age dependency ratio /L 1 I 0o. 0.5 1. / . 0.7 Scooon;Cdeprocrooy rIleM /n 1.0 l l . 0 l h. Urban populatlon an pennant of total e p, . 21 I. S h o 35 L Family pIanning: No at acceptors catnalatlve (thou. . No. of asor (% of sarriad n) Tot41 labor force (thousands) 1,64 /n 1 9C0 /n 7.9C0 SiOC &,r e,900 Le Percentage seploynd in ngricaltore e e 8h h 78 90 &,r L S n Percentage anemploynd . .. ....is ; C__012 GIS.RIB1UTION eroont of national incoa. received by b0ioret 55 . l Percent of nationia tono"en received by highoet 20% .2 .-. Percent of national inco=e received by lowst 20% 7 Yu. Percent of netianai onsa- r-ceived by leeat 10. 19 MISTRIEUTIDN OF LAND OSCRINIP owned by top ` ot c cereera 9 n,ead by gemiest 10% of ownaes. WALTh A0i5 NULilTIoN Popu4tton per physician h9,7h0 /o 30,00 7,830 0S 1,010 Populatin per nuring person . 2,10 7 2,290 1,670 Z i10 Popu.ation par hospital bad 1,120 L 820 ^ 320 770 te0 Par capita calorie supply as S of requireente 8