Niger - Economic memorandum

Report No. 1109a-NIR FILE COPY Economic Memorandum Niger May 13, 1976 West Africa Region _ FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Before 1969: US$1.00 = CFAF 247 1969-1971: US$1.00 = CFAF 278 1972: US$1.00 = CFAF 252 1973: Us$1.00 = CFAF 222 1974: US$1.00 = CFAF 241 1975: US$1.00 = CFAF 214 FISCAL YEAR October 1 - September 30  FOR OFFICIAL USE ONLY PREFACE This memorandum is based on the findings of an economic mission, composed of Messrs. P. Bottelier (mission leader), Y.C. Park (economist), and B. Thiam (power engineer) which visited Niger from October 27 to November 25, 1975. Mr. L. de Azcarate (chief economist) and Mr. K.C. Zachariah (population expert) also participated in the mission. Part I deals with recent economic developments, Part II is concerned with short- and medium-term prospects (1976-80), and Part III outlines long- term development options for selected economic sectors. This document has a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World lank authorization.   TABLE OF CONTENTS Page No. Preface Summary and Conclusions i-iv PART ONE: RECENT ECONOMIC DEVELOPMENTS 1 A. BACKGROUND 1 B. GROWTH OF OUTPUT, 1971-1975 2 C. PRICES, MONEY AND CREDIT 7 D. PUBLIC FINANCE AND INVESTMENT 8 E. BALANCE OF PAYMENTS 10 PART TWO: SHORT AND MEDIUM TERM MACRO-ECONOMIC PROJECTIONS 13 PART THREE: LONG TERM DEVELOPMENT PROSPECTS: FACTS AND ISSUES 15 A. AGRICULTURE 16 B. LIVESTOCK 23 C. FORESTRY 25 D. MINERAL DEVELOPMENT 26 E. ENERGY 29 F. INDUSTRY 31 MAP STATISTICAL ANNEX   SUMMARY AND CONCLUSIONS 1. Niger's gross national income (1975) of about $500 million is shared among a population estimated at 4.5 million; average per capita income is therefore only marginally above $100. The country is one of the poorest in the world and to most outside observers its constraints on development are more obvious than its potential. About four fifths of the country is desert or semidesert and in the rest, where rainfed agriculture sustains 90% of the population, soil fertility is low and probably declining while rainfall is irregular or insufficient. Improvements in cultivation techniques and additional irrigation facilities are essential to sustain a population growing at about 2.7%. Yet possibilities for inexpensive gravity irrigation are very limited owing to a shortage of surface water and other topographical factors. The potential for fully controlled irrigation schemes based on pumping is greater (especially if the flow of the Niger river could be controlled) but investment and operating costs are very high. 2. The current economic picture is further clouded by the adverse effects on agriculture of insect attacks in several areas. Following the disastrous drought of 1972/73 and a more or less normal harvest in 1974, the 1975 grain (especially millet) harvest was again far below normal while groundnut pro- duction was decimated. There will be no groundnut exports in 1976, and the Government estimates emergency import requirements of cereals for 1976 at 180,000 tons (considerably more than the FAO estimate of 108,000 tons). As a result of the poor harvest, State enterprises engaged in the marketing of millet and groundnuts (particularly SONARA) are experiencing serious financial difficulties. By contrast, the 1975 cowpea (niebe) harvest was excellent (180,000 tons) but the domestic commercial market for this crop is small and the export potential at present limited to Northern Nigeria where production was also above normal. To offset some of its groundnut losses SONARA has been given the exclusive marketing rights for cowpeas and is trying to find new markets for this crop. 3. The contribution of the livestock sector--one of Niger's principal (at present underutilized) natural resources--will for some years remain below normal due to the severe, drought-induced herd losses of 1972/73. A well- conceived herd-reconstitution program, aimed at rebuilding the national herd to 65% of its predrought level and at redistributing the animals to destitute nomads, is slowly getting under way. Meanwhile, the cattle tax remains sus- pended and selective export restrictions are in force. The Government is in the process of formulating a long-term national livestock sector development strategy and several major projects are expected to be submitted for external funding during the next few years. 4. Despite the heavy losses sustained by SONARA and some other State enterprises, the financial position of the public sector as a whole remains strong. The international inflationary wave of 1974 and 1975 was not fully reflected in dom.estic wage and salary increases, which have been relatively modest, or in consumer subsidies, which have not generally been excessive.  The doubling of' the uranium export price in 1975, to $45 per kg (f.o.b. Cotonou) provided a windfall for the Government and helped make this new industry (pro- ducticn started in 1971) a highly profitable one both from a private and national economic point of view. Net foreign exchange earnings from, uranium in 1976 will more or less comTkensate for the loss of groundnut exports. Although ursnnii shortages have continued to push up prices quoted on the domestic U.S&. market very sharply, all projections in this Memorandum are based on the current Niger export price. 5. Uranium mining is growing in importance; Niger accounts for about four percent of known uranium reserves and production in non-centrally planned economies. A new state enterprise, UPANIGEP,, was formed in December 1974 to manage the Government's interest in uranium mining, prospecting and marketing. About $75 million has already been invested in the first uranium mine (SOMAIR) and about $200 million is being invested in the second mine (COMINAK). Negoti- ations for the establishment cf a third mine have reached an advanced stage and feasibility studies for two additional mines are being ccnducted. C. Since 67%C of the equity in SOMYAIR, plus nearly all the loan capital and production inputs, are supplied from abroad, the net ccntribution of uranium to Niger's national income is presently only about 25% of its gross export value. This contribution, mainly in the form of taxes and dividends payable to the Government, amounted to about $114 million in 1975/76, which represents about 11-% of Government income or 3% of GIP. The way this contribution is used will be one of the key development issues during the coming years. Uranium's contribution to Government revenues may increase to around 25% by 1983; its share of GNP may rise to around 7%, and its share in gross export earnings may reach 65%. Employment and interindustry linkage effects are likely to remain modest except in transport and, possibly, coal mining if a coal-based steam plant is established to generate electricity for the mines and the town of Agadez. A special company to own and operate the rmine and power plant has been formed (SONICh'AR) but project implementation is uncertain because external shareholders remain undecided in view of the extraordinary high capital invest- ment required (an estimated $35 million for 16 MW gross capacity). The SOMAIR mine and its township (Arlit), together with nearby construction activities related to the opening of the second mine in 1979, is having an important regional economic impact. Whilst it is evident that uranium production is making a positive and growing contribution to Niger's econcmy, there is no reason to expect that it is going to be the miracle sector that will change completely the country's development outlook. But it will be a big help. 7. The country's long-term development outlook and the well being of most of its people continue to depend primarily on its potential for rainfed and irrigated agriculture, livestock ard agro-industries. M'ission projections indicate that even under normnal rainfall conditions and optimistic assumptions concerning productivity increases in rainfed agriculture, the production of staple cereals (millet and sorghum) is likely to fall short of requirements by the middle of the next decade. Given the importance of self-sufficiency in basic foodstuffs, as a priority target, the muain agricultural policy issues appear to be:  - iii - A. Should the Government encourage a shift out of export crops (mainly cotton and groundnuts) into food crops? This would delay the occurrence of food deficits and also reduce the country's import capacity. B. Should the Government encourage the production for export of livestock and crops in which Niger has an international comparative advantage (cotton, groundnuts, and possibly cowpeas, plus certain fruits and vegetables)? This would increase the country's capacity to import food when needed and at the same time promote the monetization of rural areas. C. How much emphasis should be placed on the development of irrigation, especially for cereals other than rice? D. What should be the role of national grain reserves, how large should they be, and how should the storage be organized? 8. The mission concludes that the substitution of food crops for export crops is essentially unattractive as a policy option although it is recognized that some shifting is probably inevitable in drought years. Apart from uranium and some agricultural products, Niger has few known export possibilities. In view of the need for increasing non-food imports and to avoid excessive concentration of exports (in uranium) it is highly desirable to increase and diversify agricultural exports. Irrigation in Niger is expensive by any standard and the crops that can be produced economically by this method -- given existing agronomic knowledge -- are essentially limited to rice, some vegetables, sugar cane, animal feed, and nossibly wheat, Exports are unlikely because of the high costs of incremental produc- tion. Since few people in Niger can afford to eat rice, the production of rice by irrigation cannot be the only or even the principal answer to the threat of food deficits. More emphasis will have to be placed on the improvement of productivity in rainfed agriculture. In addition, this Memorandum urges the Government to under- take more research into the technical and economic feasibility of growing maize, wheat and sorghum under irrigation in rotation with rice. Since these crops require much less water than rice, such rotation would not only increase the irrigation potential of the Niger during the months when the river is low, but it might also enable the Government to protect a larger portion of total cereal production against drought in an economically acceptable manner. 9. The objectives of a national grain storage policy should be to dampen interseasonal price fluctuations and to provide a first line of defense in case of serious crop failure so that distribution to stricken areas can be maintained until such time as relief supplies from abroad can be delivered. In view of the recent elimination of private grain trading in Niger, the Government (through OPVN) intends to assume full responsibility for the operation of an interseasonal price stabilization scheme as well as a national grain emergency reserve. Though serving different purposes, the two kinds of stocks don't have to be physically separated. The emergency stock would have to be of the order of 20,000 tons while annual purchases by OPVN for price stabilization purposes in a normal crop year would have to amount to about 15 percent of the marketed crop, or about 17,000 tons.  - iv - USAID and other agencies are already engaged in a grain price stabilization project based on the strengthening of OFVN and the provision of a system of stores and related facilities. The finance required for the storage and maintenance of national emergency grain reserve has not yet been secured. 10. The construction of Kandadji dam could be an important key to the alleviation of several of Niger's longer term growth constraints. Pre- feasibility studies on this large multi-purpose infrastructure project have recently started. It would generate at least 150 MW, regularize the river flow (facilitating navigation and additional year-round run-of-the-river electricity generation downstream), while expanding the irrigation potential of the Niger River in Niger by a large margin. Because of its size, location near the border with Mali, and its environmental implications, the project would probably have to be considered in a regional rather than a national context. 11. The completion of a 132 kV transmission line from Kainji dam in Nigeria to Niamey mid-1976 will enable the power company (NIGELEC) to satisfy growing local demand (mainly in Niamey) until the early eighties at significantly reduced costs. Demand could grow faster depending on the rate of implementa- tion of pumped irrigation schemes in the Niger valley following the construction of a new (63 kV) transmission line from Nliamey to Tillabery scheduled for completion in 1978. It is in any event necessary to plan now for an expansion of domestic generating capacity by the early 1980s. Among several other possibilities, the Mekrou dam project on the border with Benin seems to be the most attractive, provided that a politically acceptable arrangement can be wcrked out between the two countries. 13. The prospects for mineral development other than uranium mining remain uncertain. An earlier announced oil find near Lake Chad has turned out to be of no economic value. Several concession holders are continuing the search for oil. Large phosphate deposits have in recent years been discovered in the "W" park area and further geological research to determine their economic significance is ongoing. Rock phosphate exports are probably uneconomic because of high transport costs, but domestic use for direct application as grolnd phosphate rock or in phosphatic fertilizer manufacturing deserve further ir-est4gation. 1-. One of the main elements of the Goverrnment's strategy for the industrial sector should be to increase the efficiency of existing enterprises. Care should be taken to retain or create efficiency incentives and penalties for inefficiency at the individual firm level, especially in the public sector. Another important element of the strategy should be to give maximum support with credit and otherwise to small local industries and workshops. These usually create much more employment per dollar invested than large capital-intensive industries established with foreign capital and management. Furthermore, investment plans for certain types of primary processing industries, in particular groundnut oil milling, should be carefully reexamined. A recent study has demonstrated that the groundnut oil processing industry in the Sahel for export to overseas markets often causes net foreign exchange losses. In such cases, export of the product in unprccessed form may, for the time being at least, remain more advantageous.  PART ONE: RECENT ECONOMIC DEVELOPMENTS A. BACKGROUND 1. With a per capita GNP of about US$100 in 1974, Niger is one of the poorest countries in the world. The country faces a number of formidable constraints to development, among them poor soils, unfavorable climatic conditions, landlocked position, high energy costs, heavy dependence on foreign factors and low levels of education and technical ability. Real economic growth during the period 1960-71 was only about one percent annually and during the early 1970s, unfavorable weather, culminating in the catastrophic drought of 1973, further depressed the economy. Real GNP fell by an estimated 14 percent between 1971 and 1973, and in 1975 was still below the 1971 level. With population growth estimated at 2.7 percent p.a.,/l real GNP per capita has shown a downward trend. 2. In sharp contrast with this depressing picture of the real economy, the country's financial position has improved, especially since the late 1960s, thanks to the Government's austere spending policy and the rapidly growing inflow of foreign resources: the public sector (including State enterprises) has been able to generate substantial cash balances, adding up to CFAF 8.5 billion in October 1975, while net foreign assets continue to be comfortable with US$40 million in November 1975, equivalent to about four months of imports. 3. In view of the increasingly important contribution of uranium mining to GNP, Government revenue, and exports, there is a need for a fresh look at Niger's economic prospects. Tentative estimates suggest that in 1976 uranium mining will account for about three percent of GNP, 14 percent of Government revenue, and a little more than half of commodity exports. Important as this may be, the contribution of uranium mining should be understood within its inherent limits: it is by nature an enclave-type industry with very limited employment and inter-industry linkage effects in the Niger economy. 4. A new Government took over in April 1974, and the philosophy underlying its development strategy as becomes clear from Presidential statements is characterized by a strong emphasis on social justice, gradual elimination of prevailing regional and social inequalities, and "life-enhancing" economic growth. The Government appears to be placing increased reliance on direct economic controls and public sector involvement in the management of the economy. There also seems to be a tendency towards increased centralization of decision making power. This does entail the danger of overstretching the limited organizational and administrative capacity of central ministries. /1 No precise information is available on population growth rates in Niger. Estimates in various official and unofficial reports on Niger range from 2.2 to more than 3 percent p.a. A population census is in preparation and is scheduled to begin this year.  - 2 - There may be scope for giving greater emphasis to the positive contribution to be made by Niger's traditionally vibrant private enterpreneurial sector, especially in trade and small industry. Pending the formulation of a com- prehensive long-term development plan, the Government has recently completed a three-year interim Plan (1976-1978) which is essentially a summary of ongoing and some new projects. B. GROWTH OF OUTPUT, 1971-1975 5. Real GDP suffered a sharp decrease in 1973L-, mainly as a result of the drought-induced setback in agriculture and livestock. Production picked up again in 1974 but the 1975 level is probably still below that attained in 1971. Notable changes have occurred in the composition of gross output in recent years. Following a doubling of the export price for uranium concentrates, the relative contribution of uranium mining to GDP increased from less than one percent in 1971 to six percent in 1975, whilst that of agriculture and livestock together fell from 61 percent in 1971 to 42 percent in 1975. Measured in constant prices the share of uranium mining has, of course, risen less dramatically. Table 1: GROSS DOMESTIC PRODUCT, 1971-75 /2 (in 1972 constant factor costs and billions of CFAF) 1971 1972 1973 1974 1975 Primary Sector 61.6 59.5 42.6 50.2 48.5 of which: Agriculture (34.2) (32.7) (25.8) (32.0) (30.0) Livestock (20.0) (21.0) (11.0) (11.5) (12.0) Mining 1.2 2.4 2.7 3.0 3.3 Manufacturing and Construction 11.0 11.5 12.1 13.0 14.5 Services 34.5 34.1 35.5 37.0 39.0 of which: Government ( 6.0) ( 5-9) ( 6.1) ( 6.8) ( 8.0) Total GDP 108.3 107.5 92.9 1C3.2 105.3 Annual Change (-0.8) (-13.6) (+11.1) (+2.0) /2 Mission estimates. 6. Agriculture. As the principal economic activity, agriculture provides a livelihood for about 80 percent of the population and accounts for the bulk of non-uranium exports. Natural conditions, however, are generally hostile to sedentary cultivation. Average rainfall is only moderately favorable in limited /1 There are no official national accounts for Niger after 1969.  - 3 - southern regions north of Benin (800/900 mm); it is mediocre in most of the southern belt north of Nigeria (500 mm) and insufficient in the rest of the country which lies beyond the official so-called Northern Limit of Crops (NLC). Consequently, less than 10 percent of the area is more or less suitable for rainfed crops. Because of shifting cultivation and the need for long fallow periods given existing agricultural techniques only two percent is actually under cultivation at any given time. As far as rainfed agriculture is concerned there is not much arable land left unused. The erratic pattern of rainfall is an aggravating factor: rainfall varies considerably from year to year, within the rainy season, and from region to region. The year 1975--not typically a "drought" year--provides an illustration of this highly irregular pattern. 7. As is well known, the 1972-73 crop year was severely affected by drought. Relative to 1970-71, the production of millet and sorghum dropped by 40 percent to only 753,000 tons and the groundnut harvest by 60 percent to only 77,000 tons. With near-normal weather, 1973-74 crop production rose again. The 1974-75 harvest by contrast, was very disappointing due to a premature ending and a very uneven distribution of rainfall in many cultivation areas and to insect- borne disease problems in the case of groundnuts. The harvest of millet and sorghum is estimated to be at best just over one million tons, about 100,000 tons less than the year before, while the groundnut production, estimated at 30,000 tons represents only one-fourth of its year-earlier level. Table 2: PRODUCTION OF PRINCIPAL CROPS, 1971/72-1974/75 A (in '000 tons) 1970-71 1971/72 1972/73 1973/74 197/7 / (reference year) Food Crops Millet 957 919 627 883 634 Sorghum 267 208 126 218 377 Sub-total 1,224 1,127 753 1,101 1,011 Emergency cereal imports (116) (180) ( 75) Cowpeas 104 144 92 132 177 Rice (paddy) 27 32 46 30 28 Cash Crops. Groundnuts (unshelled) 257 260 77 129 30 Cotton (seed cotton) 9 6 4 8 10 Source: "Rapport Annuel", Direction du Service de l'Agriculture, Niger. /1 October 1 - September 30. /2 Preliminary.  - 4 - 8. Sizable emergency food imports (see table 2) in recent years helped to prevent famine. In view of the poor 1975 harvest shortages of staple food (mainly millet) have again developed in several parts of the country. The Government estimates cereal import requirements for 1976 at 180.000 tons. Several bilateral donors have been approached with a request for emergency food aid. The mission has not been able to make an independent assessment of the current food supply and demand situation in the country. A special FAO/OSRO commission calculated 1976 cereal import requirements at 108.000 tons which is considerably less than the Government's estimate but still represents a very large food deficit. 9. The catastrophic 1975 groundnut harvest underscores the vulnerability of Sahelian agriculture and the extreme dependence of a small economy like Niger on extraneous factors. Until a few years ago groundnuts were Niger's principal export accounting for 25-50% of non-uranium commodity exports. In 1974, for the first time in its history, Niger had to import US$10 million worth of groundnuts (about 25.000 tons) both for seed material and as an input for local oil mills to supply the domestic market. It is feared that 1976 import requirements may be as much as double the 1974 level. To prevent future disease related crop disasters the Government--with bilateral assistance--is rapidly improving its crop protection capability through an early warning system and increased aerial spraying capacity. 10. Secondary crops have done relatively well in recent years, thereby helping somewhat alleviate food shortages. Rice has maintained its average annual production level of around 20,000 tons (about two percent of total cereal production). Cowpeas, after a slow decline over the early 1970s, came back strongly in 1975 with a record-breaking harvest of almost 180,000 tons. This excellent result is partly attributable to Government promotion efforts and partly to the switch from millet to cowpeas in areas where irregular rainfall during the planting season had caused the destruction of one or more millet plantings. The unexpectedly large cowpea harvest presents rather serious problems of organizing internal marketing and finding foreign outlets. The most likely buyer of cowpeas--Northern Nigeria--also had a bumper crop in 1975. The Government is currently reviewing the production and demand potential of this important crop. If export markets can be established, it might offer interesting possibilities for agricultural diversification and drought proving. Cotton production which suffered from the drought mainly because of a growers' shift to food crops in the wake of acute food shortages, recovered in 1975 with an estimated crop of 10,000 tons (seed cotton). 11. Following soaring world market prices, and in line with rising producer prices in neighboring Nigeria, guaranteed producer prices were sharply raised late 1974. The groundnut price was more than doubled from CFAF 25/kg to CFAF 55/kg, and the price for seed cotton was increased from CFAF 37/kg to CFAF 47/kg. The producer price increase for groundnuts was announced when the world market price for that commodity had already began to fall. Conse- quently, SONARA, a public enterprise responsible for marketing and exporting groundnuts, was faced with a low margin to cover marketing costs in 1975.  - 5 - Groundnuts bought from farmers at CFAF 55/kg were exported at an average price for the year of CFAF 62/kg, which resulted in a substantial loss for SONARA. This situation was furtlher aggravated when, in accordance with the Government's policy of preferential treatment for domestic industries, SONARA had to sell groundnuts to local oil mills at CFAF 54/kg, lower than the producer price. At the end of the year SONARA, traditionally an important source of Government revenue, had accumulated a huge deficit of more than CFAF 2 billion. To help SONARA in overcoming these difficulties it was recently given the exclusive trading rights in cowpeas. 12. With regard to food crop pricing the Government still appears to be more strongly motivated by its desire to keep consumer prices low than by its objective to maintain or increase farmers's incomes. For example, the official 1974 sorghum producer price was CFAF 20/kg whereas local traders were paying the farmers double that price. The new Government has recently introduced very strict limitations on private trading in agricultural commodities and most such trade is now essentially illegal. 13. Livestock. Next to agriculture, livestock has traditionally been Niger's most important source of income, employment, and export earnings. Following the 1973 drought, however, the share of livestock in GDP has halved as a result of herd losses estimated at about 50 percent. Although emergency slaughtering has temporarily increased the cash income of many cattle owners, the drought has left some 76,000 pastoral families (half the country's total number) especially among nomadics and semi-nornadics, practically destitute. Partly as a result of a selective export ban aimed at herd reconstitution, recorded exportsof live cattle fell sharply in 1974 and 1975 despite soaring meat prices following acute shortages caused by the drought./l 14. To help alleviate human suffering and to redress the economic damage as quickly as possible, the Government has taken several measures. Refugees from drought-wrecked regions in the North (including many from Mali)--numbering about 22,000 in Niamey alone (in August 1974)--were assisted through emergency food operations with the help of the international community. At the same time, a five-year program was formulated aimed at rebuilding the national herd to 65 percent of its predrought size by the end of the program. This program consists of the establishment of six breeding centers designed to accelerate reproduction and to provide 76,000 pastoral families with the minimum number of animals judged necessary for them to regain their economic independence. The program would cost CFAF 14 billion over the five-year period. A number of donors are already assist- ing in the implementation of this program. The Maradi Rural Development Project (assisted by the International Development Association) has a credit component for animal purchases in the project area. /1 At the end of November 1974, the selective export ban was lifted under strict conditions.  - 6 - 15. Forests. The forestry sector accounts for about six percent of GDP, providing primarily firewood and construction material, but so far has not been given much priority in terms of budgetary appropriations: a modest one percent of the national budget (1975-76) is allocated to the "Service des Eaux et Forets". Yet, the 1973 drought has once again demonstrated hcw important forests are, not only as an essential component of "rural infrastructure," but also as protection against soil erosion and desert encroachment. Recently, some programs have been formulated to strengthen control services against unorganized tree cutting, to ensure a more adequate supply of firewood especially in urban centers, to protect forests from animal damage, and to develop green belts around the larger towns. A spectacular example of afforestation is provided by the recent operation Sahel Vert, which mobilized thousands of young people for tree planting around Niamey. The exact scope and effectiveness of this operation, however, still have to be observed. 16. Uranium mining. Since the first uranium was produced at Arlit (see map) on January 10, 1971, SOMAIR/l has rapidly become the largest productive enterprise in the country. In 1975, production reached 1,300 tons. SOMAIR's contribution to GDP and to GNP is currently running at about six percent and abc.ut three percent respectively, while its expected contribution to Government income in 1975-76 is estimated (by the mission) at CFAF 3.1 billion, or some l1 percent of recurrent revenue. The share of uranium in commodity exports is now more than half. Some important recent changes relating to Niger's uranium industry are: (i) the doubling of the uranium export price from CFAF 5,000 to CFAF 10,000 per kg of contained uranium f.o.b. Cotonou; (ii) the rise in Government's share in SOMAIR from 16.75 percent to 33.33 percent; and (iii) the establishment of URANIGER, a State-owned company to assume responsibility for the Government's interest in uranium mining, prospecting and rarketing. SOMAIR had invested about US$75 million by the end of 1974. COMINAK/2 is currently investing US$200 million in the development of a large undergrcuna mine near Arlit, which will have a capacity of 2,000 tons p.a. and which is due to start production in 1979. A third mine (at Imouraren, 100 km south of Arlit) is planned to start in 1981-82 and a fourth mine (at Djado) around 1985. If present expansion plans materialize, the contribution of uranium mining to GNP is estimated to go up to around seven percent by 1985 (cf. also paras. 64-66), assuming constant prices. Since the doubling of Niger's export price in 1975, domestic prices quoted in the U.S.A. have continued to rise very sharply and are currently nearly twice the Niger export price. /1 Soci6t6 des Mines de l'Air. Present shareholders in SOMAIR are: Government of Niger (33.33%); French Atomic Energy Commission (26.8%); Pechiney-Mokta (15.1%); Ccmpagnie francaise des minerais d'uranium (11.7%); Agip Nucleare (6.5%); Urangesellshaft (6.5%). Uranium concentrates are marketed by the French Atomic Energy Commissicn at a price mutually agreed with the Government of Niger. /2 Compagnie Miniere d'Akouta. The shareholders in Niger's second uranium mining company are: Government of Niger (32.5%); French Atomic Energy Commission (45%); OURD, Japan (22.5%).  -7 - C. PRICES, MONEY AND CREDIT 17. Prices. Niger's system of price control, effected through the Directo- rate of Prices under the Ministry of Economic Affairs, has gradually become more comprehensive and nearly all important domestic prices except for capital goods and imported industrial inputs are now set by the Government. New price control legislation (April 1975) gave substantial additional powers to the Directorate. The pricing system for industrial goods is linked to an import licensing system aimed at protecting local industries. Neither the pricing system nor the import control system is fully effective and a considerable amount of trade continues to take place outside official channels at unofficial prices. 18. One of the principal objectives of Government pricing policy with regard to consumer prices, especially food prices, is to protect the consumer against increases. Throughout the 1960s prices have been remarkably stable. Prices began to rise at more than marginal rates rather after 1971. The average annual increase in the "African consumer index" during the period 1972-75 was 9.3 percent while the "European consumer index" rose by six percent. Following the recent international inflationary boom which started around 1973, the Government's initial reaction was to absorb the price shock with subsidies. It soon abandoned this policy, at least for non-essential commodities, after COPRONIGER, a mixed enterprise with an import monopoly for most consumer goods, began to experience financial losses. However, some imported consumption goods such as sugar/l, milk and flour are still subsidized. The subsidy on agricultural inputs, as in most West African countries, is also important: about 80% for fertilizers and 65% for insecticides in 1975. Local prices for imported petro- leum products, capital goods, and industrial inputs fully reflect international price increases. Most ongoing construction projects are faced with very large cost-overruns. The cost of infrastructure projects has roughly doubled between 1973 and 1975. 19. Money and Credit. Between 1972 and 1975, money supply increased at an annual rate of 16.9 percent, far higher than in previous years. The most prominent feature of recent monetary developments is that expansions in money supply were not associated with increases in real production (GDP declined as a result of the drought) or changes in foreign assets but appear to have followed closely evolutions in domestic credit. In the past, variations in foreign assets had been m.ore important as a determinant of money supply. The rapid expansion of domestic credit after 1973 is explained mainly by short-term credit extended to SONARA (to finance its groundnut trading losses), to COPRONIGER (to finance import trading losses), to other trading companies, and to uranium com.panies SOMAIR and COMINAK (bridging finance). /1 In November 1975, sugar sold for CFAF 200/kg in Niamey, compared to CFAF 500/kg in Bamako and CFAF 400/kg in Cotonou.  - 8 - Table 3: MONETARY SURVEY, 1972-1975 (in billion CFAF, end of year figures) 1972 1973 1974 1975 /1 A. Assets 16.8 19.7 23.3 28.1 1. Foreign assets (net) 9.6 10.6 9.5 8.9 2. Domestic credit 7.2 9.1 13.8 19.2 2.1 Claims on the public sector (-3.5) (-3.4) (-7.2) (-8.8) 2.2 Claims on rest of economy (10.7) (12.5) (21.0) (28.0) B. Liabilities 16.8 19.7 23.3 28.1 1. Money 11.4 13.6 17.6 20.9 2. Quasi-money 1.5 1.9 2.7 2.3 3. Others 3.9 4.2 3.0 4.9 Source: International Financial Statistics. l Preliminary figures as of November 1975. 20. The public sector as a whole, including the Government itself, is still a s5`J s-a-tial ncr, dc.-osi.cz' of -'unds wit'< the banking system, in spite of the losses sus~a'r' b. r,, S2.U-i' a.~ somo othrer rublic sector enterprises. The stronF- licuidity position of the public sector as a whole is partly the result of the Government's traditionally conservative expenditure policy and partly of the Government's power (based on a Decree of November 1973) to require all Government agencies (including the Stabilization Fund) and public sector enterprises to place their liquid funds with the Treasury. By placing funds with either the central bank or other banks, the Government is in a position to either squeeze or relax the liquidity position of the commercial banks, thus regulating the amount of credit available to the rest of the economy. For example, in Decem.ber 1907, the Government placed more than two thirds of the Treasury funds with the commercial banks (CFAF 3.5 billion) thus enabling them to finance SONARA's groundnut marketing operations. D. PUBLIC FINANCE AID INVESTMENT 21. Public Finance. Over the past five years, the Government's financial position has been characterized by increasing budgetary savings on recurrent account. This has been made possible by the continuation of the long-held austerity policy on current spending. As in the past, this policy has taken the form of unusually low appropriations to important economic services, including agriculture and livestock, and may thus have contributed to a retardation of  - 9 - progress in productive sectors. The Ministry of Agriculture,for example, has received over the period 1972-1975 only five to six percent of total current budget appropriations, which is considerably less than in most developing countries. Capital spending has steadily increased, transforming current budgetary savings into overall budgetary deficits which have been financed by French budgetary grants and contributions by the Stabilization Fund. Table 4: CENTRAL GOVERNMENT ACCOUNTS 1971/72-1975/76 /1 (in billion CFAF) Actual Budget 1971/72 1972/73 1973/74 1974/75 1975/76 Revenue 12.13 12.89 12.99 14.10 24.21 Current expenditure 11.30 11.85 12.79 12.33 20.51 Current savings 0.83 1.04 0.20 1.77 3.80 Capital expenditure (FNI) 2.22 2.55 2.59 2.97 3.80 Budget Deficit -1.39 -1.41 -2.39 -1.20 0 External financing (France) 1.33 1.00 1.85 1.20 Receipts carried over from previous years 0.50 1.30 0.75 - Contributions of Stabilization Fund (CSPPN) 0.20 0.25 0.20 - Financing Total 2.03 2.55 2.80 1.20 Overall balance of the Treasury o.64 1.14 0.41 0 Q Source: IMF, Recent Economic Developments of Niger (1975); Ministry of Finance of Niger, Budget General 1975/76. 22. The 1975-76 budget shows a 72 percent increase in tax revenues and a 66 percent increase in recurrent expenditure appropriations over the 1974-75 budget. Most revenue increases are expected to derive from profits in industrial, commercial and mining enterprises and from import and export duties. Revenues from uranium mining alone are budgeted at about CFAF 4.0 billion (compared to less than  - 10 - CFAF 1 billion in 1974-75) while import and export duties are expected to increase from CFAF 6.8 billion in 1974-75 to CFAF 9.9 billion in 1975-76. On the expenditure side, most important increases relate to social services (education and health) and to appropriations to the Fonds National d'Investisse- ment (FNI). The increased appropriation for education (15 percent of total) reflects i.a. the Government's intention to pursue the TV education scheme introduced by the previous regime. 23. The sharply increased allocation to the FNI in the 1975-76 budget reflects a growing emphasis on capital formation and also a change in budgetary procedures. Some capital expenditures and debt amortization payments that were previously financed from a current budget vote (Title IV), are now all included in FNI appropriations. As in the past, most Government sponsored development expenditures are financed with external assistance. These expenditures are not reflected in the budget. Contrary to previous years, the 1975-76 budget shows no French budgetary assistance. The relatively high level of expected current budget savings (CFAF 3.8 billion) is for the first time this decade sufficient to cover the entire appropria- tion to the FNI. Niger's improving revenue performance clearly reflects the Government's determination to mobilize domestic savings for development. 24. Public investment includes capital expenditures in the budget and foreign aid for public sector projects. No detailed information is available, but total public investment is estimated to have averaged between seven and nine percent of GNP over the period 1971-74. Budgeted capital expenditure alone has re- presented on average only about ten percent of total public investment. During the period 1971-74, an average of about CFAF 12.0 billion of foreign resources p.a., including CFAF 2.0 billion for technical assistance, has been mobilized for development projects. The total for 1974 was much higher than the average (about CFAF 17 billion) mainly because of the emergency drought relief assistance The real value of non-emergency external development assistance is believed to have declined somewhat in recent years because international inflation has outpaced the rate of new commitments. Yet, the availability of foreign capital assistance does not at present appear to be a key development constraint. The lack of well prepared projects, local skills and management capacity are probably more important factors, but the picture does, of course, differ from sector to sector. During the past five years investments in road infrastructure absorbed roughly 35 percent of public sector investment; agriculture, livestock and water supply together accounted for 20 percent, and education for 15 percent. The Government intends from now on to place greater emphasis on agriculture and education. These shifts are already reflected in the 1975-76 budget. E. BALANCE OF PAYMENTS 25. The overall balance of payments, which had been in surplus up to 1973, showed a small deficit in 1974. The deficit was smaller than anticipated thanks to large foreign capital inflows. In 1975, despite a huge current account deficit (estimated at 17 percent of GNP), the overall balance is expected to be in surplus again, mainly due to important foreign private  - 11 - (uranium) investments and to substantial increases in public grants. The dramatic fall of groundnut exports together with sharp price increases for most imports are chiefly responsible for the rapidly widening resource gap in 1974 and 1975. The net foreign assets continue to be re-e-^7ly comfort- able: US$40 million in November 1975, representing about four months worth of imports. Table 5: BALANCE OF PAYMENTS, 1972-75 (in billion CFAF) 1972 1973 1974 1975 l/ Exports (goods 2NFS) 19.8 23.7 25.8 28.7 Imports (goods 2NFS) 26.5 33.2 47.0 52.3 Resource gap -6.7 -9.5 -21.2 -23.6 Factor payment -0.4 -0.3 -0.4 -0.5 Private transfers -1.2 -2.2 -2.2 -2.3 Current balance -8.3 -12.0 -23.8 -26.4 Official transfers (net) 2/ 10.9 16.3 19.5 18.4 Capital inflow (net) 3.9 3.2 3.7 7.0 private investment (0.5) (0.5) (1.0) (3.0) public loans (3.4) (2.7) (2.7) (4.0) Other items i/ -4.1 -6.4 -0.7 Overall balance 2.4 1.1 -1.2 1.0 Foreign assets (net) 9.6 10.7 9.5 8.4 4/ 1/ Preliminary 2/ Including emergency food imports financed with grant aid. 3/ Including errors and omissions 4/ As of November, 1975 26. The structure of exports has recently undergone notable changes. Uranium concentrates replaced groundnuts as Niger's number one export item. The increased importance of uranium also explains why the trade deficit was less dramatic in 1975 than originally (before the doubling of the uranium export price in July) anticipated.  - 12 - Table 6: STRUCTURE OF EXPORTS, 1972/75 (in billion CFAF) 1972 1973 1974 1975 /t Uranium concentrates 2.37 5.43 6.32 12.60 Groundnuts 6.49 4.68 1.33 3.01 (Shelled) (4.60) (2.72) (-) (1.40) (Oil) (1.53) (1.60) (1.14) (1.35) (Cake) (0.36) (0.36) (0.19) (0.20) Livestock 2.62 2.60 2.21 2.20 (Animals) (2.51) (2.48) (2.09) (2.00) (Meat) (0.11) (0.12) (0.12) (0.20) Other 3.12 3. 50 4.10 3,0 Recorded total 14.60 16.21 13.96 20.61 Unrecorded total 1.70 1.59 4.84 1.10 Total Exports 16.30 17.80 18.80 21.71 In percent of recorded exports: Uranium concentrates 14.5 33.5 46.9 61.1 Groundnuts 39.8 28.9 9.8 14.6 LivestockL2 16.0 16.0 16.4 10.7 Source: Direction de la Statistique, Bulletin de Statistique; Data provided by the BCEAO, Niger; mission estimates. /1 Mission estimates in consultation with the BCEAO, Niger. /2 Officially recorded exports of livestock usually underestimate real exports by about 20 percent. 27, Between 1972 =nd 1975, the volume of imports (excluding emergency food imports) has remained *irtually unchanged, but the value of inmorts increased by no less than 70 percent. The oil import bill increased by 120 percent and now accounts for about 15 percent of total imports. Because Niger imports only refined petroleum products and because transport costs represent an unusually large proportion of total costs the relative impact on Niger's balance of payments of the crude oil price explosion of 1973-74 was comparatively modest. No important change has occurred in the composition of imports classified by end-use: about half the total falls into the category of intermediate goods, one third into capital goods, and the rest into final consumption.  - 13 - PART TWO: SHORT AND MEDIUM TERM MACRO-ECONOMIC PROJECTIONS 28. The short- and medium-term outlook (1976-80) is assessed below for GNP, public investment, public finance and balance of payments. Makirg pr- is unusually harzadous for an economy like Niger, where these parameters depend heavily on factors that are essentially unpredictable and outside the Govern- ment's control such as the weather, world market prices, and the availability of foreign resources. The purpose of a projection exercise is therefore not so much predicting any specific possible developments as clarifying certain issues, identifying major bottlenecks, and suggesting areas requiring special attention. 29. GNP. The main determinants of GNP growth over the next five years are likely to be: (i) the projected doubling of uranium production; (ii) the recovery of livestock herds to 65 percent of their predrought level; and (iii) productivity increases in rainfed-agriculture. When all conditions are favorable, which is probably an unrealistic assumption, real production increases outside the uranium sector could reach an estimated 4-4.5 percent growth per annum. However modest this "maximum" growth rate may be by standards of other developing countries, it would be four to five times as high as the growth rate achieved during the past decade. Thanks to the rapid expansion of uranium production anticipated for the next five years total GNP including uranium mining may be expected to grow on average about one half of one percentage point per annum faster than GNP excluding that enclave sector (cf. table 10 page 28). 30. Public investment. The Three-Year Program (1976-78) projects a total investment of CFAF 78.2 billion, with domestic budgetary resources accounting for CFAF 16.0 billion. Both projections (which are in constant 1975 prices) seem unrealistically high with regard to past performance (cf. para. 24) the likely availability of resources, and the absorptive capacity of the country. Annual public investments of CFAF 20.0 billion (of which CFAF 4.0 billion from domestic budgetary resources), would represent a more feasible target. With regard to sectoral priorities, the Program allocates 46 percent of total investment to infrastructure and power, 33 percent to agriculture (12 percent to irrigation), and 18 percent to the development of human resources. 31. Public finance. The mission estimates that between 1976 and 1980 uranium revenues will contribute between CFAF 3 and 4.5 billion in constant 1975 prices annually to budgetary resources which is about 15 percent of projected non-uranium revenues (cf. table 10 page 28). Clearly, the use of these additional resources raises important budget policy issues. Assuming that the Government will not depart from its traditional austerity policy with regard to non-development current expenditures, the extra revenues may well permit the financing of budgeted capital expenditures with only little or no foreign budgetary support. Alternatively, the Government could also use uranium revenues to increase and improve badly needed economic services, especially in the agricultural sector. A third possibility would be to use the additional resources as local counterpart funds for externally aided projects so as to mobilize additional capital assistance.  - 14 - 32. The balance of payments projection for 1976-80 serves to identify, within the limits of available data, the conditions for external equilibrium under given assumptions, including external aid requirements. Because of serious gaps in the information of national accounts (there is no official series after 1969) these capital requirements are projected on the basis of a single-gap model (external equilibrium). 33. The main assumptions underlying export projections are: (i) effective implementation of present uranium expansion plans (cf. table 10 page 28); (ii) recovery of groundnut exports to its historically normal level of 80-100,000 tons from 1977; and (iii) gradual revival of livestock sales, principally to Nigeria. All three assumptions may be termed 'optimistic.' In projecting overall imports, emergency food imports and capital goods imports related to uranium mining are excluded. Most mining development is expected to be financed directly by the mining companies involved. Included, however, are imports of current inputs for uranium mining. Other imports are assumed to increase by nine percent representing a volume increase of around three percent per annum. Price assumptions for imports and exports are in line with current World Bank price projections. In the case of uranium exports, however, a constant nominal price of CFAF 10,000 per kg has been used until 1980, which is probably a conservative price assumption. Net non-factor service payments are expected to increase slowly while net factor payments (mainly wage remittances of expatriate workers and debt servicing plus profit remittances of the uranium mining companies) may be expected to increase more rapidly (10 percent p.a.). Technical assistance is practically a self-financing item with a debit for non-factor service payments matched by a credit for public transfers; it has been excluded from this exercise because the mission's main purpose is to estimate future capital requirements. Private foreign investments outside uranium mining are projected to remain modest as they have been in the past. 34. The following conclusions thus emerge: Total capital requirements necessary to keep the country's external financial position in equilibrium would amount to a little over CFAF 80 billion (in current prices), averaging CFAF 16.4 billion annually, with marked acceleration in the later years. External capital inflows of this magnitude seem plausible in view of the past performance (annual average inflows were CFAF 12.0 billion over the period 1970-74 /`f. para 23 ), a growing interest of the traditional foreign donors to the Sahelian countries, and increasing involvement of Arab oil-producing countries in Niger in particular. Grant inflows are expected to grow more slowly than net capital requirements which means that the share of loan financing is likely to rise. This will eventually probably lead to higher debt service ratios, but during the projection period (assuming that all loans will be on concessionary terms) the relative debt service burden is expected to remain quite manageable. To achieve loan disbursements of the order of magnitude indicated in table 7 below, new loan commitments have to increase at a faster rate. Mission estimates suggest that new commitments required rise from about CFAF 8 billion in 1976 to CFAF 15 billion in 1980.  - 15 - Table 7: PROJECTED BALANCE OF PAYMENTS, 1976-80 (CFAF billion) 1976 1977 1978 1979 1980 Exports, goods Uranium concentrates (13.0) (14.0) (15.0) (19.0) (26.0) Groundnuts ( 2.1) ( 8.2) ( 9.8) (11.3) (12.5) Livestock ( 3.3) ( 3.5) ( 3.9) ( 4.5) ( 5.5) Cotton ( 0.5) ( 0.6) ( 0.8) ( 0.9) ( 1.1) Other and unrecorded C 3.8) ( 3.8) ( 4.3) ( 5.1) ( 6.6) 22.7 30.1 33.8 40.8 51.7 Imports, goods -35.9 -43.0 -47.2 -54.7 -65.9 Trade balance -12.3 -12.9 -13.4 -13.9 -14.2 NF services (net) - 0.6 - 0.7 - 0.8 - 0.9 - 1.0 Factor payments (net) - 2.2 - 2.4 - 2.7 - 3.0 - 3.6 Current account balance -15.1 -16.0 -16.9 -17.8 -17.8 Capital inflow 15.1 16.0 16.9 17.8 17.8 Public grants (10.2) (10.8) (11.2) (11.6) (11.1) Public loans (net) ( 4.9) ( 5.2) ( 5.7) (6.2) ( 6.7) Disbursements ( 6.7) ( 7.0) ( 7.7) (8.4) ( 9.3) Repayments ( 1.8) ( 1.8) ( 2.0) (2.2) ( 2.6) Debt service ratio (x) 7.9 6.0 5.9 5.4 5.0 PART THREE: LONG TERM DEVELOPMENT PROSPECTS: FACTS AND ISSUES 35. This part attempts to present some elements of a possible long-term development strategy in light of the Government's social objectives and the country's known resoure potential. The focus is on the potential and not on the constraints which have already been given ample attention in this and previous Bank economic reports on Niger. The perspective presented is inevitably somewhat speculative and not very exact. But it is in the opinion of the mission important to challenge the notion that Niger has no economic future except in millet, sorghum and groundnuts. Uranium mining and other mineral possibilities together with the potential for major energy sector developments and irrigation offer perspectives of a broader based and more diversified development pattern.  - 16 - 36. An integral approach to the simultaneous development of various sectors based on firm knowledge of their technical and economic interrelationship is required. As the private sector is very small (outside agriculture and mining) and the country's resource based very narrow, the public sector will have to take a leading part in the conception and implementation of a national develop- ment strategy. The formulation of an incentive framework that is consistent with the objectives of the strategy is important, especially with regard to industrial, agricultural and mineral development, but the emphasis in planning should be on the preparation of specific projects, including research projects. A. AGRICULTURE 37. Objectives and issues. In view of the recent drought which required large emergency food imports and relief operations putting great strain on the organizational capacity of the Government, it is hardly surprising that renewed emphasis has been placed on self-sufficiency in food as the primary target in agriculture. Although on a theoretical level one could argue that increased production of export crops (to finance i.a. food imports) may, under circumstances, be more attractive from an efficiency point of view than increased food production, the mission does not dispute that for all prac- tical purposes self-sufficiency in basic foodstuffs is a worthwhile target for Niger. The question is how to define the objective in practical terms and how to achieve it. What should be the role of a national grain storage policy in meeting interseasonal supply variations and in protecting the country against famine in the case of a bad harvest? Should the Government permit or encourage a shift out of export crops into food crops? What should be the role of irrigation? What is the scope for productivity increases in rainfed agriculture? Given the objective of self-sufficiency in basic foodstuffs as a priority target, what should be the degree of emphasis on production for export? Which export crops should be promoted and what is their external market potential? These are some of the key policy issues in the agricultural sector. 38. In economic analysis the concept of self-sufficiency can be used in many different ways. For the purpose of this Memorandum, self-sufficiency in food is crudely defined as a rough balance, on a year-by-year basis, between total domestic cereal (millet, sorghum, rice) production and total requirements for human consumption and seed for the next year. The term "requirements" in this definition is used in a technical rather than an economic sense; price and income elasticities of demand are not taken into consideration. A recent FAO/OSRO food balance study on Niger suggests that requirements per head of the population amount to about 192 kg per annum. Given seed requirements and standard weight losses related to transport, storage and processing, this is the equivalent of about 250 kg per head gross production in the field or about 1.2 million tons gross production (1976). 39. Traditionally, most grain storage in Niger has taken ulace on the farm or village level and has been the responsibility of individual farmers and small private traders. With the experience of the recent catastrophic drought fresh in mind, the Government is determined to establish a national emergency  - 17 - grain reserve. This reserve is to be managed by the Office des Produits Vivriers du Niger (OPVN). Several bilateral donors and international agencies are already assisting in the strengthening of OPVN as the official grain buying agency and in the provision of a system of stores and related facilities. 40. The Government recently expressed its intention to establish an emergency reserve of 20,000 tons of millet and sorghum. This is only just over two percent of total cereal production, but about 20% of the marketed output in a normal year. A stock of this magnitude would be sufficient to feed about 10 percent of the population over a period of three months. This may be regarded as an adequate first line of defense, so that in the event of harvest failure, food distribution to stricken areas can be maintained until such time as international relief supplies can be organized and delivered. A larger emergency stock is not recommended as it is generally less expensive for Niger to hold reserves in the form of foreign exchange than in the form of physical stocks of grain. An emergency stock of rice is not strictly necessary or could be kept very small because close to half of Niger's rice output is produced on virtually drought proof fully controlled irrigation schemes. 41. At 1975 prices it is estimated that the total capital cost of establishing an emergency reserve of bagged grain in the Sahel (including construction of storage, fencing and other civil works, ancillary equipment, purchase of grain and bags) would amount to US$282 per ton (US$5.64 million for 20,000 tons). About 55 percent of this is required for grain purchases. Annual operating costs, including 10 percent interest on capital tied-up in warehouses and grain stock, would amount to about US$45 per ton (US$900,000 for 20,000 tons). These costs are very substantial indeed and point to the necessity of keeping emergency grain reserves down to a minimum level as indicated above. 42. In addition to a permanent emergency grain reserve as security against harvest failure, it is desirable to have annual stocks to reduce interseasonal price fluctuations. Traditionally, the short-term price stabilization function has been performed by farmers and private traders. But the Government has recently taken steps to eliminate private cereal trading altogether and in so doing assigned the responsibility for interseasonal price stabilization to OPVN. It is estimated that annual purchases of round 15 percent of the total cereal crop (or about 17,000 tons in a normal year) should be adequate to perform this task. These stocks are, of course, self-liquidating every year. There is no reason for a physical separation of the two kinds of grain stocks (emergency and annual) to be operated by OPVN. In fact, physical integration of these stocks will facilitate the "rolling over" of emergency stocks and will thus contribute to reduce overall capital and operating costs. 43. Rainfed agriculture. The three main obstacles to the achievement and maintenance of self-sufficiency in food, given an estimated population growth of 2.7 percent p.a., are (i) a shortage of land in the zone with adequate rainfall; (ii) low and apparently declining productivity in traditional rainfed agriculture; and (iii) the limited potential and extremely high costs of irrigation in Niger. The general trend of food production (millet and sorghum) during the past decade, 1965-1975, suggests an alarming decline in yield per ha./l /1 See table 7.1, statistical appendix.  - 18 - Total production of the two staple cereals has fluctuated between a high of 1.3 million tons in 1969 to a low of 0.75 tons in 1973 (the worst drought year). Since the middle 1960s, the average 'normal' annual production seems to have hovered around 1.2 million tons without any perceptible trend increase in spite of an expansion of the area under cultivation by an estimated 20 percent. The implied decline in productivity per hectare is probably the result of shorter fallow periods and an expansion of cultivated areas north of the NCL. Both factors are related to increasing population pressure on the limited area of arable land with sufficient rainfall for sedentary cultivation. It is also possible that the NLC is slowly shifting south as a result of desertification. It is a widely held view that this is in fact happening. 44. Niger's basic food problem is the growing scarcity of arable land and the lack of a technical package for millet and sorghum (especially millet) that offers the prospect of significant yield improvements for those crops. Some yield improvements are undoubtedly possible on the basis of known techniques and some improved seed varieties, but these are modest compared to the significant improvements that have been achieved for other cereals (especially maize and rice) in other parts of the world. It is evident that a lot more agricultural research on millet and sorghum is urgently required to develop high yielding drought and disease-resistant varieties that can be grown under smallholder conditions. 45. Table 8 below presents food balance projections under two alternative supply assumptions. Assumption A is based on productivity increases projected by the Bank for the IDA-assisted Maradi integrated rural development project. This would mean that over the next 15 years about one third of all farmers would adopt improved techniques enabling them to increase yields by a modest 27 percent by 1985 (assuming 'normal' weather). Nationwide this would result in annual production increases of less than one percent (until 1985), much less than the rate of population increase but nevertheless a significant reversal of what appears to have been the trend during the past decade. No increase in cultivated area is foreseen. After 1985, further production increases would only be possible (barring major technological breakthroughs) if more farmers adopt improved techniques within the Maradi-type project areas. This would, above all, require additional extension efforts. Five Maradi-type rural development projects are presently ongoing or planned. Together they would cover about 90 percent of all rainfed agriculture in Niger. They are the Maradi project and similar "Op6rations de Productivite" for Dosso, Tahoua, Niamey, and Zinder. Under assumption B the maximum achievable average yield increase per ha is assumed to be 30 percent and this would be achieved very quickly, over the next five years by all farmers. This is the Government's own 'maximum' expectation. In light of past experience it must be considered highly unrealistic. On the demand side, table 8 assumes annual cereal requirements of 192/kg per person, which, as mentioned, is roughly the equivalent of 250 kg in the field (gross) allowing for seed requirements, and losses associated with transport, storage, and processing.  - 19 - Table 8: PROJECTED DEMAND AND SUPPLY OF FOOD, 1975-90 ('000) 1975 1976 1977 1978 1979 1980 1985 1990 Population ('000)/1 4,591 4,715 4,842 4,972 5,107 5,272 6,077 7,049 Cereal requirements (gross) (250 kg/head) 1,148 1,180 1,210 1,243 1,277 1,318 1,519 1,,6?- Production (millet and sorghum) Assumption A 1,178 1,186 1,196 1,207 1,218 1,225 1,268 1,268 Assumption B 1,178 1,241 1,3068 1,379 1,453 1,531 L,53U 1,531 Balance (millet and sorghum) Assumption A +30 + 6 -14 - 36 - 59 - 93 -251 -494 Assumption B +30 +61 +92 +136 +176 +213 + 12 -231 Production (paddy) Traditional 15 15 15 15 15 15 15 15 Modern /2 20 24 28 33 37 41 76 111 35 39 43 --78 52 F 91 1-26 Balance (food) Assumption A +65 +45 +29 +7 -7 -37 -160 -368 Assumption B +65 +100 +135 +185 +228 +269 +103 -105 /1 This Bank projection is somewhat lower than that of the Ministry of Agriculture, Niger in "Situation de l'Agriculture Nigerienne apres la Secheresse", 1975. 12 With assumptions: 1975-80: irrigation of additional 600 ha/year with 7 tons of paddy/ha (two crops); this is the Government's present target. 1981-85: irrigation of additional 1,000 ha/year with 7 tons of paddy/ha (two crops). This is not yet a target but may be considered a possibility.  - 20 - 46. The principal conclusion emerging from the above projections is that, while Niger should be able to feed itself now (1976), given normal weather, a serious structural cereal deficit is likely to emerge during the next five or six years, unless something can be done to improve the productivity of rainfed agriculture (millet and sorghum) much beyond present expectations. The rapidly growing production of rice, which is in itself an optimistic assumption, improves the overall supply situation only marginally. Maize, a minor crop in Niger today (less than 3,000 tons annual production), has pro- bably little future unless it could be grown economically under irrigation (cf. para. 56). Wheat is a very minor crop at present (grown under irrigation) but the limits of its potential, especially if grown in rotation with rice, have not been established. 47. Given the projected imbalance between rainfed cereal production and re- quirements the temptation may be strong to encourage farmers to shift out of export crops (principally groundnuts and cotton) in order to produce more food for domestic consumption. To some extent this has already happened (it was certainly a typical farmer reaction during the drought) and may continue. The Government may not regard it as a serious development because growing uranium exports (net foreign exchange earnings) should soon be able to compensate for a (hypothetical) loss of all groundnut and cotton exports. Yet, it is in Niger's long-term economic interest to achieve and maintain self-sufficiency in food NOT at the expense of export crops. On the contrary, Niger should make every effort not to become too dependent on uranium exports and aim at the expansion and diversification of agricultural exports. 48. An important dimension of the choice between promoting food crops or cash (export) crops is the monetization of rural areas. Export crops promote the use of money in rural areas and thereby indirectly facilitate other developments; the production of food crops by smallholders in Niger does not do that to the same extent. This is an additional reason why the tempta- tion to encourage a shift out of export crops should be resisted. Another reason is related to the fact that for historical reasons technical packages (including extension services) for the improvement of smallholder productivity in export crops (mainly cotton and groundnuts) are better defined and more readily available than for the traditional food crops (millet and sorghum). Therefore, farmers who grow both export crops and food crops are more likely to develop an awareness of the possibility and need for technological improve- ments than farmers who produce food crops only. 49. Most of the yield improvements expected under ongoing rural development projects such as Maradi are associated with more and better extension (the present extension officer/farmer ratio is an extremely low 1:4,000) and the use of some improved seed varieties. Relatively little emphasis has been placed on the increased use of chemical fertilizers. (Present fertilizer consumption in Niger is very low, around 1-2,000 tons p.a.) A new fertilizer policy may provide the key to the solution of Niger's long-term food problem. It could at the same time be an important link between agricultural and mineral development. Most Sahelian soils are phosphor deficient and several crops, including millet and sorghum are known to respond well to the use of phosphatic fertilizers.  - 21 - 50. In the Tahoua area experiments have been conducted with the direct application of ground high grade phosphate rock, hand-sorted from small local deposits. The recent discovery of very large phosphate deposits in the "W" park area has renewed the Government's interest in establishing a local phosphate fertilizer industry. It is clearly too early to make specific recommendations on the optimal use of these and the Tahoua deposits for agricultural development in Niger. But in broad terms the following options seem to be emerging: (i) The Government could encourage the direct application of ground phosphate rock on a much wider scale than at present. Simple handsorting and mechanical crushing and grinding could probably produce around 30 percent P205 for less than $20 per ton ex- factory. The main disadvantage of this approach is that yield responses are generally not significant until after the third or fourth year of application which means that farmer acceptance is bound to remain low if he has to acquire the fertilizer on credit. Some new, imaginative approach would be required. Since social benefits are likely to be significant after some years, one possible approach might be to subsidize the free dis- tribution of ground rock for an initial period of three or four years. (ii) The Government could also consider the local manufacturing of phosphatic fertilizers. The main input required apart from phosphate rock is sulphur. Gypsum or pyrites could also be used to produce sulphuric acid but the process involved is more complicated and generally less desirable. There is no known sulphur deposit in Niger but SOMAIR is already importing large quantities of that mineral for the concentration of uranium ore at Arlit. To increase sulphur imports for local fertilizer production would be relatively easy. The production of single super-phosphate (SSP) is technically very simple and it can be done economically on a relatively small scale. The produc- tion of TSP is technically more complicated and generally more sensitive to economies of scale. Perhaps the best way to analyze and compare the relative merits of different possible uses of local phosphate deposits for the promotion of productivity in rainfed agriculture would be to form a special task force combining expertise in a phosphate mining and processing, phosphatic fertilizer manufacturing, extension work in Niger, and project appraisal. 51. Irrigated agriculture has an important role to play in the solution of Niger's long-term food problem, but only at the margin,at least for the foreseeable future. The potential for inexpensive gravity irrigation is small because of a lack of surface water and topographical factors. The cost of fully controlled irrigation schemes based on pumping is extremely high, partly because suitable project areas are small and also because the local engineering and construction capacity is very limited. The potential for irrigation in the Niger river valley would  _ 22 - increase significantly (more than double) after regularization of the river flow following completion of Kandadji dam near the Mali border. Pre-feasibility studies on this large multi-purpose river basin development project have only just started (cf. para. 77) and no decision on the project has so far been taken. Assuming studies lead to a decision to go ahead with the project, and financing has been arranged, implementation would probably take at least five years. 52. The total area under various types of irrigation in Niger at the present is around 18,000 ha, most of which is of the traditional flood recess type. About one third of the total is accounted for by various irrigation projects (amenagements) of which roughly half (or about 3,000 ha) is represented by fully controlled schemes along the Niger river based on pumping and double cropping. In view of the low level of the river in April, May and June, the remaining potential for such schemes (without Kandadji) is at most about 15,000 ha. The area potential would be larger if other cereals, such as maize, wheat and sorghum could be grown economically under irrigation in rotation with rice. This is not done in Niger at the present time and very little if any research has been conducted on this subject. One big advantage of such rotation patterns would be the much lower water requirements for irrigated maize, wheat and sorghum as compared to rice. The Government places high priority on the development of irrigation and favors fully controlled systems based on pumping in order to reduce dependency on the weather. The question is: what degree of emphasis should be given to the development of irrigated agriculture in relation to rainfed agriculture? 53. By far the most important crop grown under irrigation is rice. Average annual production of paddy is at present around 35,000 tons (23,000 tons of milled rice) about 80 percent of which is marketed. Practically all marketed produc- tion is locally consumed, mainly in urban areas. At present consumer prices for milled rice, domestic supply tends to exceed demand. The overall surplus in 1975 is estimated at 3,000 tons. Exports of rice on a substantial scale are unlikely because of the high costs of incremental production. 54. If market demand for rice grows at seven percent p.a. which is a plausible assumption, if there are no major price changes, total production would have to increase about 8.75 percent p.a. to meet both market demand and increased home consumption by rice farmers. This means a total production requirement by 1985 of around 55,000 tons which is about 83,000 tons in terms of paddy. Assuming an average yield of 7 tons of paddy per ha per year in pumped irrigation schemes, an additional total of 6,000 ha would have to be brought under irrigation, or about 600 ha p.a., to meet domestic requirements by 1985. 55. Actual paddy yields achieved on modern pumped irrigation schemes in Niger have so far been much below 7 tons per ha per year (just over 5 tons was the average for 1974). This is a matter of serious concern to the Government especially because low yields on existing schemes cast doubt about the economic justification for new schemes. In many cases low yields appear to be primarily caused by the fact that farmers are not yet accustomed to the discipline required for successful double cropping operations. This points at the need for better extension services and  - 23 - strong management especially during the early years of new irrigation projects. In light of the exceptionally high investment costs per ha for irrigation works in Niger (the latest FED financed Toula rice irrigation scheme represents an invest- ment of more than US $9,000 per ha in 1974 prices for construction alone), yield requirements to economically justify new investments are on the average at least 7 or 8 tons of paddy per ha on double cropping schemes. The precise numbers depend, of course, on project specific data including operating costs and inter- national rice price expectations. 56. The Government's desire to shield an increasing portion of total food production from the vagaries of the weather through fully controlled irrigation schemes is understandable in light of the country's drought experience. If rice is essentially the only cereal that can be grown economically under such conditions (as seems to be the common wisdom in Niger at the present time), it is evident that irrigation can only play a relatively minor role in protecting food production in Niger against drought. The country's resource position does not permit the permanent subsidization of rice or other cereals which would be necessary if the irrigated output of such cereals could not be sold domesti- cally at actual production costs. It is of utmost importance, however, to investigate if other cereals (especially maize, sorghum and wheat) can be grown economically on a rotation basis with rice. These other cereals require much less water than rice, and it is possible that -- if high yields can be achieved -- reduced operating costs will counterbalance their lower market value. Much research remains to be done on this subject. It may be the key to protecting a larger portion of cereal production against drought in an economically accept- able manner. B. LIVESTOCK 57. Livestock represents one of Niger's principal "natural resources" and the sector has great potential for increasing its contribution to the economy. The large drought-related livestock losses of 1972-73 are partly compensated for by the steep subsequent price increases for animals and meat. Ironically, the drought has created favorable conditions for the formulation of a national livestock development strategy. The national cattle herd is believed to have reduced in size by half which mean that the critical overgrazing problem in the Sahel no longer exists, at least for the time being. Also, because large numbers of nomad families are dependent on the Government to rebuild their herds, the Government is in a unique position to provide technical assistance and guidance aimed at improving the productivity of the livestock industry in the Sahelian zone. 58. Any national long-term livestock development strategy should be based on a recognition of the complementarity of different ecological zones. In the northern pastoral zone where cultivation is impossible because of insufficient rainfall, extensive grazing has traditionally been the main economic activity. However, as in many other parts of Africa, the combination of private cattle ownership and communal grazing land always tends to lead to overgrazing and therefore destruction of the very resource that sustains the population. An  important key to the long-term development of this zone lies therefore in the maintenance of a precious balance between grazing land, cattle population and watering points. 59. Three alternative approaches are being considered: (i) The introduction of additional large scale fenced ranches in the southern portion of the Sahelian zone. The advantages are strict control over grazing and favorable effects on the area's micro climate. Such ranches could also serve as cattle-buying points and veterinary service centers for the nomads. The disadvantages are high investment and high operating costs, especially when expatriate management should be required. In addition, when such ranches interfere with traditional grazing patterns, fences and ranch facilities may not be respected by the nomads. The experience with the only existing ranch of this kind in Niger, EKRAFANE, has been mixed. The effect of the ranch on the vegetation within its fences has been very good but its financial performance has been dubious. (ii) The introduction of a network of carefully spaced watering points to establish a better balance between grazing and water resources. This approach (which is favored by the French consultancy group SEDES) has certain advantages over the ranch approach because expensive fencing and ranch management are avoided but it requires a strong voluntary or compulsory discipline among the nomads to restrict herd sizes to the grazing and drink water potential. It will be difficult to enforce such discipline especially when there are migratory herds passing through the project area. The approach is nevertheless worth trying on a limited scale. To introduce grazing discipline in such areas it will probably be necessary to form commercial grazing associations among the nomads, preferably on a voluntary basis. (iii) The third approach (favored by USAID consultants) would be to introduce only marginal ecological changes (perhaps some watering points) and to place maximum reliance on improved herd and pasture management. This could be achieved by a careful analysis of the factors causing success or failure among nomads--using the nomads themselves as consultants--in order to spread the use of the best available traditional techniques combined with limited external technical assistance, especially in the field of breeding. This approach has the advantage of being inexpensive and low in risk. Moreover, it starts and ends with the nomads themselves who are the people who have most to gain from productivity improve- ments. An area in the triangle between Agadez, Tahoua, and Tanout has been set aside for experiments along these lines. In practice the USAID approach may not be very different from the SEDES approach and the two could eventually lead to very similar results.  - 25 - 60. There is also much scope for livestock productivity improvements in the cultivation zone further south through mixed farming and specialized fattening schemes aimed at slaughter for domestic consumption and meat exports. The more advanced farmers are already improving their living standard in this way but they are still a small minority. Technical assistance (including veteri- nary services) and credit (principally to buy cattle for fattening and, in the Niger river valley, also to buy boats to harvest river grasses for cattle feed) are probably the main ingredients required to stimulate this type of development. At certain times of the year, especially immediately following the cereal harvest, there is farm waste and an abundance of river grasses much of which remains at present unused. Increased commercialization of the nomadic cattle owners in the Sahelian zone further north could ensure a more steady supply of animals for fattening in the cultivation zone. 61. Finally, there may be good possibilities for specialized fattening schemes based on irrigated fodder on a limited scale. This proposition depends on the export market for fattened animals in Northern Nigeria or on the export market for fresh meat in coastal cities and the cost of transport by air. The latter is already a critical factor for meat exports to Abidjan by SONERAM (the state meat export company operating the EKRAFANE ranch) which is facing increased competition in coastal markets from Australian and South American meat exports using surface transport. The Northern Nigerian market will probably remain the principal market for Niger. Meat prices there have in recent years risen faster than at the coast. In view of the high cost of transport by air and the increased competition from overseas suppliers, it may be attractive for SONERAM to explore the possibility of exporting fattened animals (by truck) to Northern Nigeria and to de-emphasize fresh meat exports to the coast. C. FORESTRY 62. A long-term development strategy for forestry must be based on a recognition of the vital importance of trees and forests in protecting the country against desert encroachment and soil erosion and to provide building material and fire- wood which is probably still the country's most important source of energy. Unorganized and excessive tree cutting (usually associated with rapid urbaniza- tion) represents a very harmful form of disinvestment for which future genera- tions have to pay. The Government is aware of this and in an effort to control indiscriminate tree cutting is planning to train as forestry extension agents, young people who participated in the recent "Sahel Vert" operation (cf. para. 15). 63. Because of the omnipresence of goats in Niger and the long dry season, the establishment of new forests is very expensive. Although the responsible Government department (Eaux et Forets) has prepared a well-conceived nation- wide aforestation program, budgetary allocations for this program have been very limited. It may be an attractive proposition for foreign donors to assist in the financing of this long-term program aimed at strengthening this essential component of the country's rural infrastructure.  - 26 - D. MINERAL DEVELOPMENT 64. Uranium mining has improved Niger's growth potential by making available to the Government substantial additional resources in the form of tax and dividend revenues that can be used for the development of other sectors. Other- wise, uranium mining in Niger is largely an enclave type industry with a very limited employment effect and few direct input/output linkages with the rest of the economy except in the transport sector. The development of mining townships in the desert north of Agadez is also having a strong regional economic impact by providing a market for some local products, especially meat. Surplus ground water pumped to the surface from the mine pits could be used for some limited irrigation schemes. 65. Table 10 provides an illustration of the relative importance of uranium mining in Niger's economy. The figures for projected production are based on current plans and may change, of course. It is evident that uranium's con- tribution to gross export proceeds and GDP is far greater than its contribution to net foreign exchange earnings and GNP. Nearly all factors of production and industrial inputs are foreign supplied. At current uranium prices, the industry's net contribution to Niger's economy is undoubtedly strongly positive. Its projected future contribution is, of course, very much dependent on future uranium export prices. The table is based on the (conservative) assumption that the nominal uranium export price will remain unchanged (CFAF 10,000 kg f.o.b. Cotonou). 66. A rough composition of the present structure of financial costs of and taxes paid by the existing SOMAIR mine is presented below. This breakdown starts with an export price f.o.b. Cotonou of 100 representing the actual current sales price per ton of contained uranium and lists all major cost items indicating their magnitude expressed as a percentage of the sales price. Export Price f.o.b. Cotonou 100.0 Overland transport of uranium, port handling and insurance 5.8 -Export Price ex mine 94.2 Cost of imported inputs (fuel, sulphur, explosives, etc.) de- livered mine 29.3 (Of which overland transport costs from depots in Cotonou and Kano) (7.7) Total wages, salaries and bene- 7.8 fits (of which for expatriates) (3.0) Interest on loan capital 7.8  - 27 - Total operating costs 44.9 Depreciation charges i_. Total production costs 56.3 Distributable profits 37.3 Distribution of Profits Profit tax 14.5 Other taxes (royalty, statisti- cal tax, withholding tax) 5.3 Government share in dividends 3.8 Total Government take 23.6 (as percentage of distributable profits) (63.31) Remains for distribution to foreign shareholders 13.7 67. Two large projects that are being considered by the Government to strengthen the uranium industry are to improve the road between Tahoua and Arlit and to construct a 16 MW coal-fired steam plant near Agadez based on a local coal deposit. Some improvement of the road connection (route d'uranium) is clearly desirable. The main beneficiaries of the project would be the uranium companies but the Government could presumably change the distribution of mining company profits in favor of the budget through taxation in order to avoid that the major part of the benefits would accrue to foreign shareholders. Initially, only about 15-20 percent of the traffic (in terms of numbers of vehicles) would be non- mining traffic. Preliminary calculations of costs and benefits suggest that the project is economically viable. The benefits would mainly consist of transport cost savings and reduced maintenance costs. Other, more difficult to quantify benefits, would include greater security of supplies to the mines (reducing stocking requirements) and the possibility of eventually establishing a reliable road link between Niger and the trans-Sahara route in Algeria that is nearing completion. 68. The economic rate of return for paving the first section of the road (Tahoua-Agedez, 403 km) was provisionally calculated at 10-13 percent. For the construction of an improved earth road between Agadez and Arlit (243 km) the economic rate of return is estimated to be of the same order of magnitude. Total capital costs for the entire project (including contingencies and interest during construction, but excluding taxes) are estimated at CFAF 17 billion in 1975 prices (about $65 million at current exchange rates). Obviously a detailed  Table 10: URANIUM IN THE NATIONAL ECONOMY, 1975-1985 (in constant 1975 prices: in billion CFAF) 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Production of Uranium content (in m.t.) 1,300 1,300 1,400 1,500 1,900 2,600 4,100 5,100 5,400 5,600 5,600 Gross export value of Uranium content 13.0 13.0 14.0 15.0 19.0 26.0 41.0 51.0 54.0 56.0 56.o As % of total exports 1/ 60 57 47 44 47 50 60 64 64 64 62 Contribution to Government revenues in billion CFAF 3.1 3.1 3.3 3.6 4.o 4.5 7.1 8.3 11.5 11.9 12.3 As % of total Government revenues 14 13 13 13 14 14 20 22 26 26 25 GDP (in billion CFAF) 135.0 140.5 147.1 154.0 162.1 171.2 187.0 203.6 216.7 230.3 238.6 GDP growth rates (%) 2t n.a. 4.1 4.7 4.7 5.3 5.0 6.4 6.o 6.4 4.6 4.5 GNP (in billion CFAF) 127.0 133.5 139.9 146.3 154.1 161.8 172.2 182.5 194.2 203.1 212.2 GNP growth rates (%) n.a. 5.1 4.8 4.6 5.3 5.0 6.4 6.0 6.4 4.6 4.5 CC Contribution to GDP of Uranium in billion CFAF 8.6 8.4 9.0 9.7 11.1 13.0 19.9 27.2 31.5 36.1 36.1 As % of total GDP 6.2 6.o 6.1 6.3 6.9 7.6 10.6 13.4 14.5 15.7 15.1 Contribution to GNP of Uranium in billion CFAF 3/ 3.8 3.8 4.1 4.4 5.0 5.8 9.2 10.9 14.3 14.8 15.3 As % of total GNP 3.0 2.9 2.9 3.0 3.3 3.6 5.3 6.0 7.4 7.3 7.2 1/ Non-uranium exports as projected in Table 7 until 1980 and growing at 6% p.a. thereafter. 2/ Non-uranium GDP growing at 4.5% p.a. 3/ Contribution to local value added, mostly in the form of taxes and dividends part to Government plus wages and salaries minus transfers abroad.  - 29 - feasibility study would be required before a decision to go ahead with the project can be made. Since all or most of the capital would have to come from abroad, the net effect on Niger's balance of payments of this project depends strongly on financing terms. Supplier credit financing should in a.J event be avoided. 69. The Government has officially decided to go ahead with the construction of a coal-fired steam plant near Agadez (at Anou Araren) and formed a company for that purpose, SONICHAR. The financing of the project, however, is still uncertain. Private shareholders in the company remain undecided in light of the high investment costs, estimated at $35 million. The quality of the coal is not good but further geological research to find more and better coal is ongoing. The cost per unit of electricity delivered to the mines is estimated by consultants to be about the same as the present cost based on diesel genera- tion at the mines. There could be some foreign exchange savings associated with the project depending on financing terms and movements in the price of oil. Another benefit would probably be greater security of electricity supply to the mines. As in the case of the Tahoua-Arlit road project, it is very important from a balance of payments point of view that supplier credit financing for the SONICHAR project is avoided. 70. An earlier announded oil discovery north of Lake Chad has turned out to be of no economic significance. The search for oil by several concession holders (including ESSO, GLOBAL, PHIPPS, SUNOIL, and BISHOP) is continuing in several parts of the country but the expectation of a find was tempered when TEXACO decided recently to terminate its prospecting operations in Niger. Total oil exploration expenditures in Niger from 1970-1974 amounted to about $54 million. No exploitable oil or gas reserves have been identified so far. 71. The search for minerals other than uranium and oil is at present especially focussed on phosphates. Large deposits have in recent years been discovered in the "W" park area and further geological research is ongoing with French and Canadian technical assistance. At least 100 million tons averaging 23 percent P205 have been proven and there are indications of another 400 million tons. Although the deposits are located fairly close to the Niger river, export of rock phosphate by barge through Port Harcourt in Nigeria is almost certainly uneconomic even if the river were navigable on a year-round basis. There may be interesting possibilities for local use of these and the smaller Tahoua phosphate deposits, however, as has been discussed in the section dealing with rainfed agriculture. E. ENERGY 72. The cost of electric energy in Niger is among the highest in the world. The average price in 1975 was the equivalent of $0.13/kwh, and at this rate, the State power company NIGELEC was running at a loss. With the exception of some small groundnut shell-fired generators in Maradi and Zinder, all electric power generation in Niger is at present based on fuel oil. A major breakthrough in Niger's efforts to reduce energy costs, at least in the Niamey area, will be  - 30 - the completion, by mid-1976, of a 132 KV transmission line from Kainji dam in Nigeria. Firm power of 30 MW is guaranteed for a period of 20 years under a bilateral agreement between the two countries. The unit price payable by NIGELEC to its Nigerian counterpart (NEPA) is based on a fixed charge per month, and two variable components. The rates are subject to revision every five years. 73. Nigerian power will permit important cost savings in the Niamey area. The more energy is consumed, the lower the unit costs. At current consumption levels (representing about 40% of maximum available Kainji power) annual cost savings to Niger would be of the order of $2 million (almost 30% of the cost of locally generated power). At full utilization of Kainji power the annual cost savings to Niger would have been almost $7 million. If electric power consumption in the Niamey area continues to grow at its recent historical rate of 11-13 percent p.a. the 30 MW ceiling will be reached some time around 1984. In view of rapidly growing power consumption and limited hydro-power surplus in Nigeria an increase of the ceiling must be regarded as unlikely. 74. Consumption of electric power in the Niamey area could grow much faster than indicated in the previous paragraph depending on the use that will be made of a 63 KV transmission line from Niamey to Tillabery that will soon be constructed. This line would permit the use of electric pumps for irrigation in the Niger river valley for a total of around 7,000 ha. There would be some operating cost savings to irrigation works (assuming that NIGELEC will pass on cost reductions to its customers) but not enough to really change the economic outlook for pumped irrigation projects. At present, only about 3,000 ha in the Niger river valley are under pumped irrigation. 75. To meet growing power demand during the next decade (after 1984) Niger has two medium small hydro-project possibilities (in addition, of course, to diesel generation): Mekrou river dam and "W" region dam. The former appears, to be the most attractive one from many points of view but dam and storage lake would be situated on the Niger/Benin border requiring a political agree- ment between the two countries that has yet to be reached. The latter would be a second best solution (in the event a political settlement cannot be reached) but it would have the major drawback that power generation capacity would be much reduced during the 2-4 months of the year when the river is low. Because of topographical characteristics extensive water storage is not possible. 76. A third alternative would be the large Kandadji dam, but the energy potential of this project is of an entirely different order of magnitude and it would also have major economic implications (irrigation, navigation, fisheries) outside the power sector. Its size, location (the dam would be close to the Mali border and the storage lake would probably straddle the border) and its international ecological effects (storage lake, and regulari- zation of the river flow between Kandadji and Kainji) suggest moreover that Kandadji should be considered as a regional project involving Niger, Mali, Upper Volta, and Nigeria rather than a national project.  - 31 - 77. Two prefeasibility studies for the Kandadji project have recently been launched. One, sponsored by the French Government, looks at the project primarily from the point of view of its irrigation potential in Niger and its effect on the flow of the river. The second study, sponsorea by the Liptako- Gourma Organization (Mali, Niger and Upper Volta) with financial assistance from the African Development Bank, looks at Kandadji as a multi-purpose project (including power) serving the needs of all three countries. The power potential of Kandadji has hot been firmly established, but it would probably be of the order of 150-200 MW which is more than double the present need of Niger, Mali, and Upper Volta combined. Implementation of the project during the next decade-- which is the intention of the Niger Government--would therefore create a large power surplus that might be used--depending on generation costs--for export to Nigeria, irrigation works in the region, or industry. One power intensive industry that may be worth considering (provided Kandadji power is really cheap) would be the manufacturing of nitrogenous fertilizers (CAN and UREA) for local consumption and exports. 78. Kandadji is a multi-purpose project that would in some significant ways alter and hopefully improve the long-term development potential of Niger. Its direct and indirect economic benefits and costs are difficult to foresee and almost impossible to quantify at the present time. The challenge facing the Government is to come to grips with all its dimensions and to make it part of an integral long-term plan involving agricultural, industrial, mineral and transport sector development. There is clearly an urgent need for the formulation of a long-term energy sector development plan. A review of the rate structure for electric power is also necessary in view of the cheaper Nigerian power becoming available from the middle of 1976. 79. Nuclear power generation was considered by the Government as an energy development option but was rejected. Although small capacity nuclear reactors are now technically feasible (although not yet available) their unit production costs are excessive compared even to conventional fuel-oil based generators. 80. The use of solar energy has been actively researched in Niger since the creation of a special Government sponsored agency for that purpose (ONERSOL) in 1965. The practical results so far have been modest and the commercial use of solar energy is and is likely to remain for the time being a minor factor in the overall energy picture. Its economic use in Niger is essentially limited to house water heating. Several experimental solar powered ground water pumps are in operation but their use for irrigation purposes is clearly uneconomic. 81. Plans for the construction of a coal-fired steam plant near Agadez at Anou Araren to supply the uranium mines at Arlit (and Agadez town) were discussed in paragraph 69 above. F. INDUSTRY 82. The bulk of manufacturing in Niger consists of agro-industries and many of those are at present experiencing serious financial difficulties. Groundnut shelling declined following the sharp drop in groundnut production in recent years. The three existing groundnut oil mills are also suffering for the same  - 32 - reason. Their combined capacity (around 110,000 tons shelled weight) is around four times the entire 1975 groundnut production. There is also considerable surplus in rice milling capacity. The large new textile mill NITEX (financed with private French capital) continues to accumulate losses in spite of higher domestic selling prices and quantitative import restrictions. The cement factory in Malbaza, the largest non-agro industry in the country (apart from uranium) also continues to experience serious financial problems. 83. Although the main problem in agro-processing industries seems to be related to shortfalls in agricultural production (and ginnery quality control in the case of NITEX) there are also serious management problems in many manufacturing firms. Lack of certainty about the future of private enterprise in Niger appears to be another unsettling factor. Pervasive Government control over the output pricing of nearly all important enterprises also discourages private investment if the Government's administrative capacity to respond to rapidly changing prices for imported inputs is insufficient as appears to be the case. 84. One of the main elements of the Government's strategy for the sector should be to increase the efficiency of existing enterprises. Care should be taken to retain or create (through the implementation of the Investment Code) strong efficiency incentives and real penalties for inefficiency on the level of the individual firm, especially the public sector. Another important element of the strategy should be to give maximum support with credit and otherwise, to small local industries and workshops. Small local industries tend to create much more employment per dollar invested than the large capital intensive ones that are usually established with foreign capital and management. 85. The mission has not focussed on the Government's plans for new industrial investment but it is important to note that further investments in certain types of primary processing industries, in particular groundnut oil milling, are questionable from an economic point of view. The price margin between shelled groundnuts and crude groundnut oil on the world market has tradi- tionally been a very narrow one. An important recent study on this industry has demonstrated that even technically efficient oil extraction in the ground- nut producing areas in the Sahel for export to overseas markets may well cause net foreign exchange losses to the producing country./l In such cases export of the product in unprocessed form may, for the time being, remain more advantageous. /1 This is one of the principal conclusions of a special research group led by Bela Balassa that studied i.a. the economics of primary processing in four West African countries, including Mali, Senegal, Ghana, and Ivory Coast.  | M&rd,len Internotroral I B Y REPUBLIQUE DU NIGER- Li B Y E 6 Routes ADMINISTRATIVE -------Limite de departement ... ............. ..... Limite d'arrondissement 22'~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~2 * Capitale notionale 22' 3 Chef-lieu de departement * Chef-lieu d'arrondissement o Poste administratif o 100 200 300 ~~~~I IIIIII , . 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