Jordan - Tourism Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-1803-Jo REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE HASEEMITE KINGDOM OF JORDAN FOR A TOURISM PROJECT Mav 25, 1976 This document has a restricted distribution and may be usd by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  THE HASHEMITE KINGDOM OF JORDAN TOURISM PROJECT CURRENCY EQUIVALENTS Currency Unit - Jordan Dinars (JD) Fil 1 - JD 0.001 JD 0.33 - US$1.00 JD 1.00 - US$3.03 WEIGHTS AND MEASURES EQUIVALENTS 1 meter (m) - 3.28 feet 1 square meter (m2) - 10.76 square feet 1 cubic meter (m3) - 35.29 cubic feet 1 kilogram (kg) - 2.205 pounds 1 metric ton (m ton) - 2,205 pounds 1 hectare (ha) - 2.47 acres 1 kilometer (km) - 0.62 miles ACRONYMS AND ABBREVIATIONS HRC - Hotels and Resthouses Corporation IDB - Industrial Development Bank ILO - International Labour Office MTA - Ministry of Tourism and Antiquities OAPEC - Organization of Arab Petroleum Exporting Countries UNDP - United Nations Development Programme UNESCO - United Nations Educational, Scientific and Cultural Organization USAID - United States Agency for International Development FISCAL YEAR January 1 to December 31  FOR OMCIuL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE HASHEMITE KINGDOM OF JORDAN FOR A TOURISM PROJECT 1. I submit the following report and recommendation on a proposed cred- it in an amount in various currencies equivalent to US$6.0 million to the Hashemite Kingdom of Jordan on standard IDA terms, to help finance a tourism project. PART I - THE ECONOMY 2. An economic mission visited Jordan in February 1976, and a Special Economic Report (1144-JO) is being distributed concurrently to the Executive Directors. Country data sheets are attached as Annex I. 3. The last decade has been an exceptionally difficult period for Jordan. The 1967 war with Israel resulted in a severe dislocation of econo- mic activities with the occupation of the West Bank, which accounted for some 35-40 percent of domestic production, and in a large influx of displaced per- sons to the East Bank. The following years were marked by severe fighting with Israel in the Jordan Valley, the internal disturbances of 1970 and 1971, the closure of the Suez Canal for eight years, and of the Syrian and Iraqi borders for over a year, and four alternate years of drought. As a result, Jordan's (East Bank) per capita income in 1975, estimated at around US$590, is probably somewhat lower in real terms than it was in 1966, when more than a decade of sustained high levels of economic growth was disrupted by the war. Despite these serious constraints, the Government was able to prevent a sub- stantial decline in the standards of living of the population, now estimated at some 2 million in the East Bank, and to progressively restore the effec- tiveness of public economic policies, and of the use of foreign resources, especially since 1971. As a result, the economy gradually recovered its pre- vious vitality. 4. Before the 1967 war, Jordan's real income grew at about 8 percent per year. Price stability prevailed, and high levels of foreign assistance permitted a sustained surplus in the balance of payments. Economic policy was guided by the objective of phasing out budget support by the mid-1970's so that foreign aid could be channeled exclusively to development projects. On the eve of the war, firm budgetary control and resource mobilization ef- forts appeared to be yielding positive results. In the immediate post-war period, large budget support payments under the Khartoum Agreement encouraged a rapid rise in military expenditures and somewhat lessened the pressures for strict budgetary discipline. The emphasis of economic policy shifted to the short-run aim of revitalizing the economy through high government expenditures; government policy also stressed the support and encouragement of the private sector and the maintenance of price stability by absorbing excess purchasing I 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.  -2- power through easy access to imports. These policies shifted the burden of economic stability on to the balance of payments and profoundly altered the pattern of resource availability and use towards a greatly increased reliance on imports. By the early 1970's, the critical task of short-run economic management had been accomplished and, following the suspension of budget sup- port from Libya and Kuwait in 1971, the Government began to focus once again on medium and long--term economic policies. Late in 1971, the Jordan Devel- opment Board was replaced by the National Planning Council, which was charged with reactivating economic p:Lanning and drawing up a Three-Year Plan for Eco- nomic Development (1973-75). Recent Economic Events 5. As a result of particularly poor agricultural conditions, as well as slow growth in commerce and services in the wake of the October 1973 war, economic growth during the Three-Year Plan period (1973-75) averaged around 3 percent per year. Over the same period, the rate of inflation is thought to have exceeded 14 percent per year on average, compared to an average of about 5 percent per year during 1967-72, and under 2 percent per year for over a decade prior to that. With sustained high levels of public investment, which first exceeded private investment in 1974, the rate of capital formation in- creased from around 16 percent of GDP in 1966 to around 28 percent in 1975 (both at current prices). Public consumption expenditure has also grown faster than domestic production during this period. This has implied a very high reliance on imports, both to maintain the pace of aggregate expenditure growth and to curb inflationary pressures. As a result, the share of net imports in total available resources increased from 20 percent in 1966 to 30 percent in 1975. 6. Fiscal performance has been characterized in recent years by rapidly growing domestic revenues combined with sharp increases in current expenditures and capital outlays. The buoyancy in domestic revenues, which rose from about 16 percent of GDP prior to the 1967 war to over 25 percent in 1975, reflects increases in both tax and non-tax revenues (particularly receipts from phos- phate export royalties). The relative share of direct taxes has increased in recent years (though still less than 16 percent of total tax receipts and only 10 percent of domestic revenues) primarily due to the expansion of the cor- porate tax base and greater collection efforts by the authorities. The rapid rise in current expenditures since 1971 has, to a significant extent, resulted from the pay increases granted to Government employees to compensate for the erosion in their real incomes due to the high inflation experienced in the last few years. The growth of non-defense current expenditures, which com- prised about 55 percent of current expenditures in 1975 compared to 36 percent in 1970-71, has in recent years been higher than that of defense expenditures. The current domestic deficit has remained fairly stable at about US$125 mil- lion in the last four years, while the overall deficit has grown substantial- ly. Increasing inflows of external grants (mostly from Arab countries) have mitigated the need for increased reliance on domestic borrowings.  -3- 7. Despite growing export receipts, expansionary fiscal policies aimed at reviving the postwar economy and liberal trade policies coupled with peri- odic supply shortfalls due to a poor harvest led to a gradual widening of the trade deficit from a stable average level of around US$125 million prior to the 1967 war and immediately thereafter to over US$570 million in 1975. Exports of goods and non-factor services almost tripled during 1973-1975. Commodities leading this growth are phosphate and fruits. Tourism became again a major foreign exchange earner, accounting for 28 percent of exports of goods and non-factor services in 1975. On the other hand, imports of goods and non-factor services grew more than three times during the same period. The increase in capital goods imports was in particular significant as a result of the Three Year Plan investments. However, due to the sharp increase in budget support from Saudi Arabia and other Arab governments in the wake of the Rabat Conference and rising levels of workers' remittances, which exceeded commodity export receipts in 1975, the balance of payments was in surplus in 1975 (over US$150 million) for the fourth successive year. 8. On December 31, 1975, Jordan's external public debt amounted to US$560 million, of which US$330 million was disbursed (for comparison, 1975 GNP was US$1,100 million). The bulk of the debt is on extremely conces- sionary terms, with debt contracted during 1970-75 at 2.4 percent annual in- terest, and 25 years maturity with 6 years grace, on average. The ratio of debt service payments to exports of goods and non-factor services was 5.0 percent in 1975 and is expected to rise gradually but not exceed 10 percent by 1980. External reserves at end 1975 amounted to US$530 million gross, or US$486 million net, in comparison to merchandise imports of US$590 million in 1975. Development Planning 9. The Three-Year Plan was the first Jordanian Plan to be executed without revision or interruption. The first eighteen months of the Plan, however, were spent on project formulation and preparation. Implementation, which did not get started until the middle of the Plan period, suffered from lack of adequate preparation, monitoring and follow-up, shortage of skilled and managerial manpower, as well as delays in equipment deliveries and ris- ing costs, which necessitated updating of feasibility studies and reappraisal of project proposals. Consequently, the physical rate of implementation of the Plan projects was low, even though financial disbursements on projects were high. Nevertheless, the last few years saw the strong re-emergence of longer-term considerations of economic development in public policies, and with the considerable experience gained during this period, the stage was set for the promulgation of the Five Year Plan (1976-80). 10. The Five Year Plan has been drawn around a comprehensive list of investment projects which have been the subject of discussion in Jordan for a decade or more. Significantly, for the first time in Jordan, executing ministries were formally involved in the preparation of the plan; and a high- level ministerial committee deliberated on the setting of priorities. The  - 4 - fundamental objectives and strategy of the Plan are much the same as those prior to 1967, and are appropriate for Jordan. The long-term general devel- opment objective is to phase out the reliance of the economy on budget sup- port, to concentrate investment on economically justifiable projects that can contribute to the growth of national income, and to allow increased taxation and exports. The Plan adopts annual average growth targets for GDP of 12 per- cent (agriculture, 7 percent; mining and manufacturing, 26.2 percent); mer- chandise exports, 24.2 percent; with imports curtailed to 7.3 percent (elas- ticity of 0.6 with respect to GNP). Total investments under the Plan are en- visaged at JD 765 million(US$2.3 billion), equivalent to an estimated JD 650 million (US$2.0 billion) at constant 1975 prices, of which 65 percent is al- located to the public sector (including public investment in the mixed sector). On these assumptions and with the budget support payments envisaged at JD 60 million per year (US$180 million), the Plan estimates gross foreign borrow- ing requirements at JD 334 million (US$1.0 billion), of which JD 267 million (US$810 million) represents public borrowing, while most of the remaining JD 67 million (US$200 million) for the private sector is to be covered by loans and equity from foreign Arab investors. 11. The agricultural strategy proposed in the Five-Year Plan is based on a reassessment of the agricultural potential of the economy, and aims pri- marily at stabilizing agricultural production and raising productivity, by major investments in irrigation. It attaches primary emphasis to export- oriented production, particularly for the growing Middle Eastern markets, of high-value fruits and vegetables, where Jordan's comparative advantage lies. 12. The Plan's industrial strategy is to exploit the country's phos- phate resources, as rapidly as possible, while encouraging exploration for other minerals; develop with active Government participation, an export- oriented mineral-based industrial sector (particularly fertilizer and cement); expand oil refining; and provide strong incentives to the private sector to develop manufacturing towards import-substitution in the short-run, and ex- ports in the medium-term. To do this, the Government has committed a large part of the Five-Year Plan investment (around 30 percent) to the mining and manufacturing sector, and almost half the increase in domestic output proj- ected in the Plan is expected from this sector. In encouraging industrial growth, the Government is conscious of promoting efficiency in resource al- location, and industrial incentives are being reviewed to eliminate exces- sive protection. In view of the emigration of Jordanian labor, the pressure on domestic wages, and the absence of a clear comparative advantage in labor-intensive production, the Government is increasingly adopting a cau- tious strategy of higher capital-intensity in industrial production. Prospects for Economic Growth 13. With the Government's serious concern with development issues, and a purposeful effort to restore the momentum of economic growth prevailing in Jordan prior to the 1967 war, as evidenced in the preparation and adoption  of the Five Year Plan and in efforts to strengthen planning institutions, there are good prospects for rapid economic growth in the medium-term, bar- ring adverse political developments. There is considerable Government con- cern about the provision of an appropriate policy framework for the success- ful implementation of Plan objectives and strategy. Even though the size of the investment program envisaged may tax the physical, human, administrative and financial resources of Jordan, the relative sectoral emphasis of the in- vestment program seems well-placed and the bulk of the projects appear to be at an advanced state of preparation and of high priority. 14. While the JD 765 million is a target level of investment, the Government is aware that actual investment may be lower, for a variety of reasons. With low labor force participation rates, in addition to the high emigration rate of Jordanian labor to neighboring Arab countries in response to large wage differentials, the availability of manpower at all levels is likely to be a major constraint. Rapidly rising government expenditures, due to the size of the investment program, would exacerbate the already sub- stantial inflationary pressures. To implement its investment program, Jordan would require substantial financial assistance. In this connection, a meeting of major donor countries has been called to present the objectives and require- ments of the next Development Plan and will take place in Amman at the end of May 1976. Assuming that the borrowing includes a substantial portion of concessional aid as well as conventional loans, the debt service would not represent an excessive burden on the balance of payments. PART II - BANK GROUP OPERATIONS 15. Jordan has received twelve IDA credits totalling US$59.8 million (net of cancellations). Four credits were made before 1967 - two for agri- cultural credit and two for water supply - and are fully disbursed. Subse- quently, war and local disturbances (see paragraph 3 above) adversely af- fected the pace of economic activity and Bank Group lending only resumed in mid-1971. IDA credits concentrated mainly on the financing of infrastruc- ture projects such as education, highways, water supply, power and irriga- tion. Performance under these projects is generally satisfactory. An en- gineering credit of US$1.0 million to prepare a potash project was also pro- vided in 1975. A first DFC project is being prepared for presentation to the Board of Directors before the end of the current fiscal year. IFC has made two investments in Jordan consisting of a US$244,000 equity participa- tion and a US$1.6 million loan to Jordan Ceramic Industries Limited (JCI) in 1974, and also a US$3.1 million equity participation in the promotion of a phosphatic fertilizer project in 1975. Annex II contains a summary statement of IDA credits and IFC investments as of April 30, 1976, and notes on the execution of on-going projects.  -6- 16. At the Government's request the Bank Group assisted since 1974 in formulating and mobilizing multilateral financing for a package of develop- ment projects in the Jordan Valley which have since been included in the cur- rent Five Year Plan (1976-1980). A large phosphate mining and integrated transport project is under preparation for Bank Group financing and is ex- pected to be presented to the Executive Directors in the second half of 1976. Other large scale projects contemplated include projects in phosphate fertil- izer and potash, as well as further development of the water resources in the Jordan Valley. Further Bank projects together with the establishment of in- dustrial zones and supporting services for light manufacturing aim at reduc- ing the concentration of economic activity in the Amman-Zerka area which is already suffering f-rom overtaxing of its industrial infrastructure and severe pollution. Preparatory studies are also underway for projects in rainfed areas which would expand cereal and livestock production and reduce the country's dependence on agricultural imports. 17. The Bank was Executing Agency for a two-year UNDP Planning Assist- ance Project based in the National Planning Council which was completed in December 1975. The Bank is Executing Agency for a UNDP-financed study of the manufacturing industry and industrial estates in Jordan. The first phase, consisting of a study of the industrial sector, was completed in December 1975. The second phase, consisting of studies of specific industries and proposals for the establishment of industrial estates during the next Plan period, is expected to be completed by the second half of 1976. 18. At the end of 1975, the Bank Group's share in Jordan's external public debt was estimated at 13 percent, and its share in debt service was 1.4 percent. By 1980 the Bank Group's shares in debt outstanding and in debt service are expected to be about 3 percent and 4 percent respectively. PART III - THE TOURISM SECTOR 19. Jordan is rich in archaeological treasures and the traditions of ancient peoples and religions. Prior to the 1967 war, tourism development was centered almost exclusively around Jerusalem. However, since the occupa- tion of the West Bank, the focus of activity has shifted to the East Bank, including the capital city of Amman, which serves as a staging point for visits to the seaside resort of Aqaba, the ancient cities of Petra and Jerash, the Dead Sea area and the religious shrines of the West Bank. 20. While one immediate effect of the 1967 war was a general decline in the numbers of foreign visitors to the Middle East, Jordan was particularly hard hit because of' the loss of not only her best known tourist attractions but also of about 80 percent of her hotel accommodations. As a consequence, the number of foreign visitors declined by nearly 60 percent between 1966 and 1971 (from 617,000 to 257,000). Since 1971, however, there has been a sub- stantial increase in arrivals and it is estimated that about 750,000 people  -7- visited Jordan during 1975. By far the largest number of these visitors, nearly 80 percent, were on pilgrimages to Saudi Arabia or trips to religious shrines in the West Bank; they frequently stayed less then 24 hours in Jordan and while their numbers were large, their contribution to the economy in terms of foreign exchange revenues was relatively modest. Business and vacation travellers, who tended to stay longer and spend more, accounted for the remaining foreign visitors. 21. The country's hotel capacity has not kept pace with the growth of demand in spite of more than doubling since 1967 to 1,235 rooms. About 85 percent of the lodging establishments and two thirds of the total number of hotel rooms in Jordan are in private hands, while the remainder is either wholly or partially government-owned. To respond to the increased demand a number of hotels are under construction or being planned and it is estimated that by 1980 a total of over 3,600 rooms will exist, of which 3,500 will be located in either Amman or Aqaba. 22. Although the private sector carries primary responsibility for tourism facilities, the Government's Ministry of Tourism and Antiquities (MTA) plays an important role in overall planning and promotion of tourism sector growth by (a) development and implementation of tourism policies; (b) preparation of sector investment plans; (c) identification, protection and improvement of historical and archaeological assets; (d) advertising and promotional activities abroad; (e) planning and implementation of some infra- structure works in selected tourist areas; and (f) in conjunction with the Ministry of Education, development of training programs and facilities for workers engaged in tourism services. 23. The Government, in order to encourage private sector interest in tourism development, offers a number of investment incentives, including exemptions from customs duties and other customs levies, holidays on profits and property taxes, free transfer of profits, and repatriation of capital after two years from the date of commencement of operations. Investors also benefit from the availability of finance on attractive terms from both the Government's Industrial Development Bank (IDB), the most active institution in financing tourism projects, and private commercial banks. Interest rates range up to 9 percent for periods up to 12 years including 2 years of grace. 24. The Government may also invest directly in accommodation and cater- ing facilities through its own Hotels and Resthouses Corporation (HRC), estab- lished in order to centralize Government investments in hotels and restaurants which, however, are independently managed and operated. HRC now concentrates on relatively small projects, but the Government is planning to strengthen its operations with the assistance of the ILO, UNDP, and the Swiss Government. Further support for the tourism sector from the Government is derived from investments in the transportation and utilities sectors. 25. One of the main difficulties to be overcome in the expansion of hotel accommodations in Jordan is the shortage of trained staff and experi- enced management personnel. The Government, with UNDP and ILO assistance, is  - 8 - beginning to provide training for hotel employees. A Hotel Training Center, partly financed by UNDP and providing mainly basic-level short courses, is scheduled to begin operations this year and a Hotel Management School, fi- nanced in part by the Association under the Second Education Project (Credit 534-JO), is scheduled to begin operations in 1979. Because intensive or- ganized training efforts are only just beginning, the major burden of train- ing employees will remain for the time being with hotel management. With some exceptions, this management is not well qualified to do the job properly and it is therefore probable that the lack of trained manpower will remain a limiting factor in tourism expansion for several years to come. 26. The economic importance of tourism results primarily from the level of net foreign exchange earnings generated by the sector. Since the 1967 war, gross foreign exchange receipts from tourism have grown from JD 4.6 million in 1968 to JD 32.2 million in 1975. This represented over 18 percent of total 1975 exports of goods and services, ranking second behind workers' remittances from abroad (30 percent) and ahead of phosphate exports (10 percent). Net for- eign exchange earnings, after deducting imported goods and services, are esti- mated to be about 65 percent of gross receipts. 27. The projected expansion of hotel rooms and related facilities over the next several years will add a significant number of new jobs. At present, there are an estimated 5,000 people employed directly in the sector, and per- haps another 4,000 people employed indirectly in meeting demand generated by foreign visitors. By 1985 these figures are expected to grow to 18,000 and 15,000 respectively. 28. Given the growing importance of tourism to the economy, the Five Year Plan for 1976-1980 accords high priority to this sector, with total in- vestment during the period projected at US$73.0 million, some 2/3 of which is expected to consist of private sector investments, mainly for hotel accommoda- tion. Tourism development activities will be primarily directed towards busi- ness and vacation travellers who are expected to increase by an average of 15 percent annually over the Plan period, reaching a total of 336,000 in 1980. The main objectives of the tourism sector, as set forth in the Plan, are: (a) to increase tourism foreign exchange earnings in real terms from JD 17.3 mil- lion in 1974 to JD 42.0 million in 1980; (b) to stimulate domestic tourism; (c) to preserve historical and cultural assets; and (d) to expand training facilities. PART IV - THE PROJECT 29. The most important of Jordan's tourist assets on the East Bank are located at Petra and Jerash and the proposed project would provide for the improvement and expansion of visitor facilities in each area and for the pre- servation of their historical assets. Petra, an ancient rockhewn city, was,  - 9 - from the fourth century B.C. until its fall to Rome in 106 A.D., the capital city of the Nabataeans, whose power extended at times as far north as Damascus. It is located 250 km south of Amman, in the heart of a surrounding mountain and approachable only through a long, narrow chasm. Jerash, 50 km north of Amman, contains the ruins of a Roman provincial city of the Eastern Empire, which enjoyed its most concentrated period of development between the first century B.C. and the third century A.D. 30. Both these sites have been the subject of detailed planning studies carried out by the US National Park Service in 1968, and both have been recom- mended by UNESCO as Jordan's prime historical and archaeological sites in a report prepared in 1974. During 1975 an IDA mission visited Jordan to discuss the development of the tourism sector and the Government requested the Asso- ciation to assist with the development of its highest priority areas, Petra and Jerash. Appraisal of the project, which would be the first Bank Group tourism project in Jordan, was completed in February 1976. Negotiations were held in Washington in April 1976. The Jordanian delegation was led by Mr. G. Abu Jaber, Director of Tourism in MTA. A report entitled "Appraisal of the Tourism Project" (1069a-JO) is being distributed to the Executive Directors separately. Annex III contains a credit and project summary. Project Description 31. The proposed project would support the Government's continuing ef- forts to develop the tourist attractions of the East Bank, while at the same time recognizing and taking into account the need to preserve and protect the antiquities which are currently endangered both by natural forces of erosion and by human activity. The project would consist of : (i) tourist accommo- dation, related superstructure facilities and supporting infrastructure works near the entrance to Petra; (ii) visitor facilities, infrastructure works and archaeological preservation in the Petra Basin, site of the major monuments of the city; also the resettlement of about 96 Bedouin families currently living in the Basin; (iii) visitor facilities (including a Sound and Light Program), infrastructure works and archaeological preservation at Jerash; and (iv) con- sultant services for a project unit, and on-the-job and overseas training for staff of the Antiquities Department of the MTA. 32. At the entrance to Petra, the accommodation facilities of the pre- sent 24-room hotel would be upgraded and an additional 76 new rooms con- structed along with expanded catering, shopping, reception and administrative facilities and staff quarters, camp grounds and stables. Modest infrastruc- ture works would be constructed consisting of water supply and sewerage sys- tems, solid waste disposal, electricitiy and lighting, telecommunications facilities, landscaping and watershed protection. With respect to the water supply system the Government, independently of the proposed project, is al- ready expanding the existing system in the nearby town of Wadi Musa and has agreed to complete this work by June 30, 1978 (Section 3.11 of-the draft Development Credit Agreement). The system would be extended, under the pro- posed project, to the Petra area. The electricity and telecommunications systems in Wadi Musa would be expanded and extended to serve the tourist facilities.  - 10 - 33. In order to control erosion and prevent dangerous flooding resulting from the rapid runoff of rain water within the Petra Entrance and Petra Basin and in the Siq, the narrow, winding link between the two areas along which visitors must pass, a number of velocity check-dams would be constructed. In addition the floor surface of the Siq would be cleared and a drainage channel constructed to ensure all-weather access to and from the Basin. 34. Within ithe Basin, the visitor facilities to be constructed would in- clude a visitors reception center and first aid station, restrooms, a refresh- ment bar, and a covered terrace for luncheon service. A small research facility for archaeological investigation would be provided and trails would be developed leading from the Siq to the various monuments in the Basin. The project would also provide a number of supporting infrastructure works, in- cluding improved water supply and sewerage systems, and electricity and tele- phone connections from the Entrance to the Basin. An existing unsightly visitors camp would be removed no later than January 1, 1979 to preserve the visual impact of ithe Basin (Section 3.10 of the draft Development Credit Agreement). 35. One important project component concerns the resettlement of approx- imately 96 Bedouin families now living within the Petra Basin. These families have walled up the entrances of tombs which they use for living quarters and have been engaged in excavating and selling artifacts. The Government decided some two years ago that in the interest of preserving the archaeological heritage of the Basin, it would be necessary to relocate these families. The project includes lprovision for housing and other community facilities on land near Wadi Musa to be provided by the Government which agreed to give the relocated families priority in the employment created by the project. The Government also agreed to undertake a program of occupational assistance for the Bedouins (Section 3.09 of the draft Development Credit Agreement). 36. In Jerash, the visitor facilities to be provided would cater pri- marily for the day traveller from Amman and would include improvements to the visitor center, a restaurant, a small museum located in vaults under the Temple of Artemis, and parking facilities. A Sound and Light Program would be developed in several languages together with outdoor seating capacity for about 500 visitors and various administrative facilities. Measures for the protection of the monuments would include the installation of fencing and gates and the construction of trails. The project would also provide for minor water supply installations and connections. 37. In addition to the project components designed to accommodate the expected increase in visitors, the proposed project sets forth a 4 year program of archaeological preservation in the Petra Basin and Jerash sites. Detailed regulations would be issued for the project sites under the Law of Antiquities enacted in January 1976 which provides an adequate framework for the protection of antiquities (Section 3.08 of the draft Development Credit Agreement).  - 11 - 38. Project administration costs and the costs of on-the-job and over- seas training amounting to 54 man-months for staff of the Antiquities Depart- ment of the MTA are also included in the proposed project. Project Implementation 39. Responsibility for implementation of the proposed project, with the exception of certain utilities components noted below, would rest with the MTA. To ensure proper implementation of the project including supervision of design and construction workwa Project Unit would be established within the MTA reporting directly to the Minister of Tourism and Antiquities. The Unit would be led by a Project Director who has been appointed and attended nego- tiations and would include an engineer, an architect, an accountant and a pro- curement officer; it would be assisted on a consulting basis by archaeological experts, specialists in park service management and a museologist. In order to coordinate the efforts of other Government departments and agencies in- volved, a Project Coordinating Committee would be established under the chair- manship of the Minister of Tourism. The MTA and the National Planning Council would be permanently represented while representatives of the other depart- ments and agencies would be members for such periods of time as their respec- tive departments or agencies are involved in project execution (Section 3.06 and Schedule 4 of the draft Development Credit Agreement). Appointment of members to the Project Unit would be a condition of effectiveness of the credit (Section 6.01 of the draft Development Credit Agreement). 40. At Petra, the telecommunications system would be installed and op- erated by the Telecommunications Corporation. The water supply works would be constructed by MTA with the assistance of the Municipality of Wadi Musa and the Public Water Supply Corporation, which already operates the Wadi Musa system and would incorporate this extension into its operations. The Minis- try of Municipalities and Rural Affairs would be responsible for the elec- tric power component (Section 3.01 of the draft Development Credit Agreement). 41. Under the guidance of a special Government committee consisting of the Ministers of Tourism and Antiquities, Interior, and Municipalities and Rural Affairs, the Project Unit would carry out the Bedouin resettlement (Sec- tion 3.09 of the draft Development Credit Agreement). It would be assisted by the Jordan Housing Corporation in the preparation of a site study, design of the various houses and facilities to be provided and supervision of their execution. 42. Following development by MTA of the hotel complex at Petra Entrance and the restaurants in Petra Basin and Jerash, MTA would hire an experienced hotel management company to manage these facilities on terms and conditions acceptable to the Association (Section 4.03 of the draft Development Credit Agreement). 43. The appointment of consultants to prepare the design and supervise the execution of project facilities and related infrastructure of the Petra Entrance, Petra Basin and Jerash components would be a condition of effective- ness of the credit (Section 6.01 of the draft Development Credit Agreement).  - 12 - The Project Unit would prepare and periodically review a critical path chart, and would submit the results of such reviews to the Association (Section 3.07 of the draft Development Credit Agreement). The Project is expected to be implemented over a 4-year period with construction of most of the facilities completed in the first three years. Cost Estimates and Financing 44. The total cost of the project is estimated at US$12.1 million equi- valent with a foreign exchange component of US$6.5 million equivalent (54 per- cent). Cost estimates (including contingencies) and the financing plan for the proposed project are shown in Annex III and are summarized below: (US$ million equivalent) Financing Component Estimated Cost IDA Credit Government Petra Entrance and Hotel 5.826 2.859 2.967 Petra Basin 2.797 1.502 1.295 Jerash 2.530 1.244 1.286 Project Administration 0.270 - 0.270 Professional Services 0.534 0.250 0.284 Technical Assistance and Training 0.188 0.145 0.043 Totals 12.145 6.000 6.145 The estimated cost figures include physical contingencies of 15 percent for civil works and equipment,which is considered reasonable since most design work and specifications for equipment have already been prepared,and price contingencies averaging 15 percent p.a. during 1976 and 1977, and 10 percent p.a. thereafter. 45. The proposed IDA credit of US$6.0 million would cover approximately 50 percent of the total project costs and about 92 percent of the project's foreign exchange component. The balance of total project costs would be pro- vided by the Govermnent. The Government contribution and the proceeds of the IDA credit required for all project components including the power and tele- communications components would be made available as budgetary allocations to the appropriate Govesrnment agencies. Operating surpluses resulting from the collection of entry fees and other charges, and the revenues from the hotel and restaurant faciLities would be turned over to the Treasury. 46. Part of the expenditures for professional services, for the cost of final design and engineering for the Petra hotel complex and related infra- structure works and the Sound and Light facilities, would be financed retro- actively. This retroactive financing would cover expenditures incurred after March 1, 1976 up to a maximum of US$150,000 (Schedule 1, paragraph 4 of the draft Development Credit Agreement).  - 13 - Procurement and Disbursement 47. Major civil works and equipment contracts would be awarded on the basis of international competitive bidding, in accordance with the Bank Group's guidelines. Project items would be grouped to the extent possible, in order to encourage such competitive bidding, but bidders would also be able to bid on individual items. In evaluating international bids for equip- ment and furniture, local manufacturers would be allowed a preferential mar- gin of 15 percent of the c.i.f. price of competing imports or the prevailing level of customs duties, whichever is lower. Some furniture contracts are likely to be awarded to local manufacturers and most equipment contracts to foreign suppliers. Some civil works and furniture and equipment contracts (e.g. site museum, stables and camp grounds) would probably be too small to attract foreign bids. These contracts, each not to exceed US$65,000 in value, would be awarded according to local procedures acceptable to the Association. The total value of such contracts would not exceed US$400,000 equivalent. Since the switching equipment under the telecommunications component of the project should be compatible with the rest of Jordan's network in order to permit interconnections, procurement of this equipment, valued at US$200,000, would either be added to a current contract for the supply of such equipment or negotiated separately with suppliers of such equipment. 48. The MTA would carry out, on force account, certain works, such as the archaeological work in both areas and work too specialized for civil works contractors, and the development of trails, trail markers, fencing, and relatively minor landscaping, for which it would not be appropriate to pre- pare detailed designs for purposes of tender documents. The total value of work to be carried out on force account would not exceed US$900,000 equiva- lent. 49. The proposed credit of US$6.0 million would be disbursed to meet: (a) 35 percent of total expenditures for civil works; (b) 100 percent of the c.i.f. price of directly imported equipment and furniture or 100 percent of the ex-factory cost of locally manufactured equipment and furniture procured under international competitive bidding, or 40 percent of the total cost of locally procured items; and (c) 100 percent of the foreign exchange costs of professional services, technical assistance, specialists and overseas train- ing for the MTA staff members. Justification 50. It is expected that the development of the tourist facilities at Petra and Jerash will begin to attract increasing numbers of visitors from 1979 on. Without the project, visitors to the two areas have been projected to increase annually at an average of 13.5 percent between 1975-85. With the project, visitors to Jerash are expected to increase by 15 percent annually over the same period and to Petra by 18 percent annually. Jerash, which is readily accessible from Amman for day trips is projected to receive 180,000 day visitors by 1980 and 337,000 by 1985, while Petra, located at a greater  - 14 - distance from Amman and therefore more limited in its appeal to short-stay visitors, is expected to receive 94,000 visitors in 1980 and 218,000 in 1985. Of importance is the expenditures of visitors who would come to Jordan even without the project but who, as a result of the project developments, would spend increased amounts. 51. On the basis of an estimated economic life of the project of 25 years, the economic rate of return would be 30.3 percent on investments of US$6.8 million in Petra and 16.9 percent on investments of US$2.1 million in Jerash yielding a combined rate of return of 20.1 percent on total project investments. The possibility of increased tension in the Middle East, which would reduce the flow of tourists to Jordan, is seen as the main risk affect- ing the project's economic viability. The project has been scaled to mini- mize the effects of the risk and yet permit viable operations. Thus, a 20 percent decrease in visitor arrivals, for example, is projected to reduce the overall rate of return to 15.1 percent. Hotels, restaurants and sound and light activities are expected to generate about 70 percent of the project's gross benefits and 50 percent of the net benefits; entrance fees 20 percent and 40 percent of the gross and net benefits respectively, and other activi- ties 10 percent of both gross and net benefits. 52. The project's revenues would be derived mainly by the MTA, through the introduction of entry and other fees for both sites and from the net in- come from the hotel and restaurant operations. With respect to the operation of services, MTA is expected to achieve a combined internal financial rate of return of 18.6 percent. With respect to its hotel and restaurants operations MTA is projected to earn a rate of return of 9.9 percent on the Petra opera- tions and 23.7 percent on the operations at Jerash. The Government agreed to establish and review periodically the rates and fees to be charged. These rates and fees would be set at levels that would maximize returns on the project's investments (Sections 4.02 and 4.03 of the draft Development Credit Agreement). 53. The proposed project is expected to increase annual net foreign ex- change receipts by about US$1.5 million in 1979 and by about US$4.8 million from 1988 onwards. The Government, as the owner and the operator of most of the facilities to be built under the project, is expected to capture about 85 percent of the project's net benefits; while about 5 percent would go to the hotel and restaurant management company and the rest to souvenir sellers and shop owners. Direct employment generated by the project facilities would amount to 560 jobs while indirect employment in agriculture, handicrafts, transportation and other services is expected to account for an additional 600 jobs.  - 15 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 54. The draft Development Credit Agreement between the Hashemite King- dom of Jordan and the Association, the Recommendation of the Committee pro- vided for in Article V, Section 1 (d) of the Articles of Agreement, and the text of a draft Resolution approving the proposed Credit are being distri- buted to the Executive Directors separately. 55. Features of the draft Development Credit Agreement of special in- terest are referred to in paragraphs 32, 34, 35, 37, 39 through 43, 46 and 52 of this Report. The establishment of the Project Unit, the appointment to it of the expert staff referred to in paragraph 39 of this Report and the ap- pointment of consultants referred to in paragraph 43 of this Report are speci- fied in Sections 6.01(a), (b) and (c) of the draft Development Credit Agree- ment as additional conditions of effectiveness of the proposed Credit. 56. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 57. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President by J. Burke Knapp Attachments Washington D.C. May 25, 1976  RaeI of 4 pow TAU.EU - UCIII. ZUKcAltOS DATA SWEET LANS 83(6 (TUSO (It) ~~ ~ ~ ~ ~ RrEcuE outiit ( * TOTAl. ~~~~~~~a.: MO~~Nst RECENT cmGO 411A9LE ..1900 1974 ESTIMATE ft?!8 P. TUNISIA LE" WN0N UMP PERt CAPItA CUSS) 19 0.0 328.0 344.0 f. 320.0 r00.4 POPIILATIO% AND VITAL STATISTICS PO,uAI.axu (141OVR. NILLtOU) 1.7 2.Z.1 14 .1 2.? OPUPILATIOU GCNSIIY 30 3. P'CR SQUAll KN. ARASLE LAJS .. .. 51. VITAL STATISTICS CRUCE 8iRTfN RATEC Pit THOUANO 41. a 490 4. 44:4 39. 41.4 cRuOc GeAYM RtiTE PER TISOUANO 10.0: 7" 1.8 It.4 I34 a. 13.0 WNANT M00TALITY RATE C/ThOU) .. .. 100.a 82.0 LIFE EXPECTAUC? T g1StIR (735) S2.A.j 0. S1.4 414 84 10.* GROSS RCPR0GDCTIOu RATE 3.4 3.1 3.5 z.a . 1. 9 OPOPULArtOX GROWTH RtATE (23 tOTAL 2.4 3.1 3.3 2.4 2.1 2.5 JoASA 5.4 ..3.2 1.4 2.4 .0. uhga. POPiL&riom C: of t0alLi 44. 4 .. 43.4 18.0 40.0 Li S8.0 AGE stRUCTURE (PERCENT) 0 TO 14 YEARS f*i.4 lb. ' 47.5 '2.41 40.4 'a 43.4 15 TO 04 1!ARS S1.0 49. 57b 49.5 53.0 104.3 'a 52.4 05 YEARS AUG OVER 4.4 .3. /b 1.0 5.0 .0. la S.0 AGE OEPrNOENCY RATtO 1.4 1.0 /b 1 .0 0.9 t.0 'a 0.9 ECOVOMIC OEPENGENCY RATtO Z.3 3.2 7c- 2.3 /a L31.8 ' L .8 FAMtLY PLANNING- ACCEPTORS (CUNJLAFtIVE THOU) t.. .. 08.0 8?.4 JSERtS (X Jf NARRICO WOMEN4) MO. . . 1. 14.0 Empi.Ot RENT TOTAL 1.A80* FORCE (tMtOUSAAO) 190.4 /b 380*.0 /4 3 40. a SZ.4a 1444.0