Burundi - Technical Assistance Project

FILE COPY Document of "> 9 3 I TO PT The World Bank FOR OFFICIAL USE ONLY Repor No. P-1757-BU REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF BURUNDI FOR A TECHNICAL ASSISTANCE PROJECT February 4, 1976 This dgcunMent hss a restricted distribufion and may be used by reciplents only In the performance of their ofkcial duties. Its contents may not otberwise be disclosed without World Bank autborization.  Currency Unit Franc Buruindi (FBu) US$1 FBu 78.35 FBu 100 US$ 1.28 FBu 1 million US$ 12,763 Fiscal Year: January 1 to December 31  FOR OFF1ICAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT v TO THE REPUBLIC OF BURUNDI FOR A TECHNICAL ASSISTANCE PROJECT 4 1. I submit the following report and recommendation on a proposed development credit to the Republic of Burundi for the equivalent of US$1 .5 million on standard IDA terms to help finance a technical assistance project. PART I - THE ECONOMY 2. The last economic report on Burundi (504a-BU) was distributed to the Executive Directors on January 14, 1975. This was followed by an economic memorandum (885a-BU) distributed on October 24, 1975. Country data are provided in Annex I. Burundi is one of the 25 least developed countries as defined by the United Nations. 3. Burundi remains one of the poorest of the least developed countries, with a per capita income estimated at $92 in 1974. Over the past five years GDP grew by no more than 2 percent annually in real terms. Of a population of 3.5 million only 115,000 are in wage employment; the remainder depend mainly on subsistence agriculture. The agriculture labor force is largely untrained, and the level of enrollment in formal education is one of the lowest in Africa. 4. The economy is dominated by the agricultural sector. Food crops account for over half of GDP and other crops, of which coffee remains by far the most important, account for a further 10 percent. In 1974 coffee production reached a record of about 28,000 tons, 35 percent higher than in the preceding year. The large harvest combined with a markedly higher pro- ducer price resulted in a 62 percent increase in farmer incomes derived from coffee, with consequent multiplier effects felt in both industry and services. 5. Burundi has become increasingly dependent on coffee for foreign exchange earnings; its share in total exports rose from 79 percent in 1965 to 84 percent in 1974. Owing to external marketing and transport delays, a quarter of the 1974 crop was exported only in early 1975. The value of imports on the other hand rose 36 percent in 1974, and, consequently, foreign exchange reserves fell sharply. The trend was reversed during the first four months of 1975 as delayed coffee payments were received, while at the same time imports fell to a level nearly 40 percent below that of the second half of 1974. By December, 1975 reserves stood at a level equivalent to eight months of merchandise imports. Rising import prices, combined with increased internal demand, caused a record 23 percent jump in the cost of living index for low income urban families during the year ended March 1975. This document has a restricted distribution and may be used by recipients only in the performance I of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  -2- 6. The level of investment has remained consistently low, averaging only 8 percent of GDP over the last five years. Domestic savings have amounted to only 5 percent of GDP over the same period, approximately equal to net capital inflows. Close to half of total gross capital formation was financed by external aid. 7. Due to high coffee prices, government revenues in 1974 were 14 percent above the level attained in 1973, while current expenditures grew at only 9 percent. Thus in 1974 the Government was able to finance a 70 percent increase in its investment budget. 8. Burundi faces a formidable set of disadvantages: excessive de- pendence on a single export (coffee) for foreign exchange, long and ineffi- cient transport links for external trade, rudimentary infrastructure and a largely untrained labor force. In the past, civil strife has disrupted development and diverted resources. Further, the terms of trade have deteriorated 40 percent since 1970. There are, however, some encouraging indications. Internal order has been restored and a new planning organiza- tion created. Improvements are being made in financial administration, and a number of promising agricultural projects are under preparation. Substan- tial nickel deposits have been found and may be brought into production over the next ten years. 9. At present the Government lacks a coherent overall development strategy. This is in part due to the low priority accorded planning in the past. As a first step in addressing this problem, the Government has trans- ferred responsibility for national planning to a new "Bureau Technique d'Etudes" (BTE). To make the new planning organization more effective, a substantial strengthening of its staffing is required. A strong planning capability would enable the Government to take the lead in initiating new projects and in coordinating external aid within the context of a well defined development plan. 10. The short term prospects for the economy have recently improved. Although coffee production in 1975 fell considerably from the record level achieved in 1974, prices have risen sharply owing to frost damage to Brazil's coffee trees. Coffee production is expected to recover in 1976. In the longer term, if the Government focuses on development and strengthens its administration, it may achieve slow growth instead of stagnation. If nickel mining proves feasible, the prospects over the next ten years would be transformed. Although such a development appears technically possible, the commercial viability of nickel mining has yet to be proved. 11. Disbursements of official development assistance amounted to US$24.8 million in 1974. Belgium contributed about 26 percent, and UN agen- cies, IDA and the European Development Fund another 42 percent. Technical assistance accounted for about US$12 million, while the aid contribution to public sector projects reached about US$11 million in addition to Dvoeram aid of some US$2 million. In the 1970-74 period, total foreign capital inflows amounted to about US$109 million, of which US$105 million were in  grant form. On December 31, 1974, Burundi's external medium and long-term debt amounted to about US$8 million excluding undisbursed amounts. Of this the Bank and IDA together hold 57 percent. Debt service averaged 2.9 percent of export earnings during 1972/74, with the Bank Group receiving 41 percent of service payments. By 1980 the Bank Group will probably continue to hold a high proportion of debt and debt service if most other aid continues to be given on grant terms. Notwithstanding the low debt service ratio, the country is not able to finance any borrowing on commercial terms, as its absolute capacity to service external debt is limited by the size and fluctuations (due to dependence on coffee) of its export earnings. External aid should finance a high proportion of total project costs, including a portior of local expenditures, and should be on grant or near grant terms. PART II - BANK GROUP LENDING OPERATIONS IN BURUNDI 12. In 1957, the Bank lent US$4.8 million to the Belgian Trust Territory of Ruanda-Urundi for the improvement of the Bujumbura-Muramvya road and the expansion of the lake port of Bujumbura. The loan, guaranteed by Belgium, was fully disbursed at independence in 1962 and is being repaid by Burundi with Belgian assistance. The last payment is due in 1977. 13. Since independence, five credits have been made to Burundi, total- ing US$13.2 million. The first credit for US$1.1 million, was made in March 1966 for the rehabilitation and extension of Bujumbura's water supply system. A credit of US$1.8 million was made in April, 1969 for the improvement of coffee production by smallholders followed by a second credit of US$5.2 million approved in November, 1975. A credit of US$380,000, made in June 1970, helped finance the detailed engineering of the Bujumbura-Nyanza Lac road and a highway maintenance study. This study led to the fourth credit, of US$5 million, for a highway maintenance project signed in March 1974. No Bank loans have been made since independence. 14. The Water Supply Project (Credit 85-BU) was completed in March 1973. While the project did not meet all objectives, Bujumbura was pro- vided with an ample and safe water supply. Implementation of the first Coffee Improvement Project (Credit 147-BU) was hampered by frequent delays in the delivery of construction materials, the civil disturbances in 1972 and management problems. The first coffee washing station started operating in 1973 and the remaining three only in 1975. The project is now virtually completed. The second coffee project (Credit 593-BU) will provide 110,000 smallholder coffee farmers with instruction in better cultivation techniques and with inputs such as fertilizers, insecticides, and tools. The project will also expand the facilities for processing coffee. Since the project is a continuation of the previous project, staff are mostly already in post and a good start had been made. The Highway Maintenance Project (Credit 467-BU) has commenced satisfactorily. The project consultants took up their duties in Burundi at the end of 1974, orders have been placed for the maintenance equip- ment and a survey of training needs has been completed. Annex II contains a summary statement of IDA credits as of December 31, 1975 and notes on the execu- tion of ongoing projects.  -4- '145. The future lending program will be aimed primarily at increasing agricultural productivity, thereby improving the nutrition and living stand- ards of the impoverished rural population. A project to support development of the traditional fisheries sector has been appraised and is expected to be presented in the current fiscal year. Consistent with the Government's emphasis on rural development, a comprehensive reform of the education system has been initiated. A basic education project in support of this reform has been prepared with assistance from UNESCO and will be appraised shortly. We also intend to continue assistance for expanding and improving the road network, a prerequisite for rural development. Because Burundi lacks the administrative capacity to plan and carry out development, we intend to make a special effort to assist in improving planning, project preparation and project implementation. In this respect, a special economic mission visited Burundi in April of this year to advise on planning. Also, we will continue to include project manage- ment and technical expertise in project lending. PART III - THE NEED FOR TECHNICAL ASSISTANCE 16. Since independence, Burundi has been beset by internal struggles. Outbreaks of civil strife, particularly in 1972, have disrupted the develop- ment program and government efforts have been diverted to deal with the security problem. However, internal order has now been restored and there are encouraging indications that the Government is determined to seek national reconciliation through sustained economic developments which will benefit the mass of the population. 17. Economic progress since independence has been slow. The first Five Year Plan was not published until 1971 and, as it covered the period 1968-72, was of little practical use. The second Five Year Plan covers the period 1973-77; it was published only in mid-1975. It is in many respects incomplete. Until a year ago planning was one of the many responsibilities of the Ministry of External Affairs, Cooperation and Planning. The Department of Planning was accorded relatively low status. The work of the miscellaneous groups of ex- patriates has been poorly controlled; bilateral agencies have dealt directly with individual ministries without there being effective coordination. The ministries responsible for economic and social development have had almost no planning capability of their own. 18. The Government has recognized these weaknesses. In September 1974, as part of a ministerial reorganization, President Micombero transferred responsibility for national planning to a new "Bureau Techniques d'Etudes" (BTE) under the direction of a Secretary General, carrying the rank of a minister. The Secretary General, Mr. D. Bihute, a former Executive Director of the Bank, reports directly to the President. The BTE has also been made responsible for the coordination of development financing (including external aid), the collection of statistics and the supervision and implementation of the development program.  19. The effectiveness of the new arrangements will partly depend on whether the BTE can secure adequate competent staff. Since there are no experienced Barundi planners, the BTE is seeking substantial technical assist- ance. The Government rightly intends to balance a strengthened central plan- ning organization by an increased planning capacity in the ministries respon- sible for implementing the development program. The development effort is more likely to succeed if the initiatives for project identification and preparation mostly originate in the executive ministries rather than in the BTE. To achieve full commitment to an investment program the ministries directly concerned with project implementation must be intimately involved in its conception and elaboration. Supervision of project implementation, too, should be the responsibility primarily of the executive ministries. Here again there is an urgent need for more qualified personnel which in the immediate future can only be provided through external technical assistance either in the form of consultancies or operational staff. 20. All the aid agencies active in Burundi have experienced similar problems in obtaining well formulated projects. There is no pipeline of well prepared projects awaiting financing. A shortage of project proposals, properly elaborated, is one of the reasons for the very low levels of investment achieved in recent years. Now that the Government appears determined to concentrate its efforts on development, the need for additional qualified staff is parti- cularly urgent. 21. Burundi entered independence with an acute shortage of trained nationals. High priority has been given to the expansion of education, which currently absorbs about 25 percent of the total ordinary budget. Neverthe- less, only 22 percent of the relevant age group is enrolled in primary schools and less than 2 percent in secondary schools. The total student enrollment in all types of higher education rose from around 300 in 1967 to 750 in 1973. However despite this rate of growth, there are less than a 1,000 post-secondary school students. Since it has no means of financing a rapid expansion, the Government is forced to concentrate on improving the efficiency of the educa- tional system within the existing financial limitations. A major reform is envisaged, aimed at making the education programs more directly relevant to Burundi's needs. Primary education will be provided in Kirundi, with major stress on practical basic education. At the secondary level the system will be restructured to give greater emphasis to vocational training. Higher education is to be consolidated in a restricted number of faculties within the University of Burundi, limited to providing training to meet priority needs. 22. Despite the relatively high expenditure on education, the absolute number of trained people being produced is small; it is totally insuffi- cient to meet the economy's demand for high-level personnel. In any event, since the period required to produce an experienced professional is consid- erable, the efforts of the past few years will only begin to make a marked impact on the supply of qualified Barundi in the early 1980s. Meanwhile, if an effective development effort is to be mounted, it is essential that Burundi should receive substantial external technical assistance to meet the shortfall.  22. External financing for technical assistance has risen steadily in recent years. In 1974 total disbursements are estimated approximately at US$12 million, US$7.6 million being provided under bilateral programs, US$4 million by United Nations organizations and US$0.4 million by other muitilateral agencies. There was a similar level of disbursements in 1975; disbursements in 1976 are expected to be comparable. Although these are relatively large sums, much of the funds is devoted to the manning of basic services and ongoing programs, especially in the education, agriculture and health sectors. Relatively few of the technical assistants are directly employed on the preparation of new projects. In 1974, there were some 600 P long-term expatriate technical assistants working in Burundi, divided between the different sectors approximately in the following proportions: Sector _% Education 54 Agriculture 17 Health 9 Other 20 100 Those employed in education were mostly teachers who were by far the largest single group. Most of the technical assistants employed in agriculture were involved either in research or the implementation of specific investments. When bilateral technical assistance is used for planning or project prepara- tion, it is usually related to projects of specific interest to the indivi- dual donor. The fact that bilateral aid is generally tied, with recruitment being undertaken by the donor, tends to detract from its usefulness, since the Burundi Government is left with little discretion in the choice of personnel. 24. The US$10 million UNDP program, covering the current indicative planning period (1972-76), is fully allocated and indeed may have to be reduced during 1976. Also fully committed are the additional US$2 million provided to Burundi under the UNDP-administered special funds for the least developed and most seriously affected countries. Proposals to commit funds available in the next UNDP indicative planning period (1977-81) are under consideration. However, it is already evident that a major portion of the funds will be absorbed on ongoing projects. The bilateral technical assistance programs for 1976 have mostly been negotiated and it has therefore been possible to identify outstanding needs. 25. It is intended to include in future IDA credits provision for technical assistance for sector related matters. This has already been done in the case of both the Highway Maintenance Project and the Second Coffee Project. For example, under the Highway Maintenance Project provision was made for the preparation of a master plan for road development. However, it is considered essential that the Government should have access to addi- tional discretionary and flexible resources for requirements which cannot be met adequately by technical assistance available from existing bilateral and multilateral sources.  - 7 - PART IV - THE PROJECT Summary 26. A Credit and Project Summary is provided in Annex III. Negotiations were held in Washington in January, 1976. The Burundi delegation was led by Mr. D. Bihute, Secretary-General in the Office of the President. The project would comprise: (a) About 10 man-years of long-term advisory services to strengthen planning, the statistical services and project preparation in the development ministries and the BTE, together with a limited amount of equipment and vehicles to support their work; and (b) About 150 man-months of short- and medium-term consultancies to (i) undertake preinvestment and feasibility studies and prepare projects for financing and (ii) conduct special studies related to project or economic policy implementation. It is intended that the Credit would be mostly committed during 1976 and that the project would be completed within three years. Long-Term Advisory Services 27. The report of the special economic mission which visited Burundi in April 1975 (855a-BU) identified an urgent need to strengthen planning and project preparation through the recruitment of a small number of key personnel. The report also placed emphasis on the need to establish the Government's statistical services on a sound basis. The Government acknowledges the need for technical assistance to strengthen its planning capacity and has approached various bilateral agencies to recruit the required staff. However, it is anticipated that these sources will not be able to fill some of the posts to the satisfaction of the Government. The proposed Credit will be used in such cases. In particular it is envisaged that the posts of senior economic adviser and senior statistician in the Bureau Techniques d'Etudes should be recruited under the project. 28. A particular matter of concern to the Ministry of Economy and Finance is the financial supervision of the expanding number of parastatal organizations. It is important that they be operated on a sound financial basis so that they do not become a drain on public funds which could otherwise be used for investment. It is also important that better management procedures be adopted. It is proposed to recruit a financial analyst who has had ex- tensive commercial experience to advise the Minister in this matter. The ex- pert, who would be provided under the project, would also scrutinize the activities of companies in which the Government has an equity participation in order to safeguard the interests of the State.  -8- 29. The Government attaches high priority to the development of the country's mineral resources, especially nickel, recently identified by a United Nations exploration team. The Minister responsible requires expert economic advice to evaluate the proposals being made by different private investors and generally to assist in the preparation of mining projects. The Department of Mines also needs strengthening; in particular it lacks the capacity to analyze mineral samples. The Credit would be used to recruit a irineral resources economist and a metallurgist. 30. Further details of the advisory services to be financed under the project are set out in Annex IV; however, it should be noted that the list is not exhaustive. It is also proposed to finance from the credit a small a-aount of equipment and materials to support the work of the advisers, such as desk calculators and two or three vehicles for duty travel. Short-term Consultancy Services 31. If the Government is to raise the level of investment and promote broad-based development, there is an urgent need to build up a pipeline of projects suitable for external financing. While the Government's staff assisted by long-term advisers can elaborate a national development plan, the detailed preparation of investment proposals will call for expertise which can best be provided by hiring consultants or specialists on a short- term basis. It is envisaged that the Credit will be used mainly to finance studies in the agricultural, industrial and mining sectors. Details of needs b:or consultants which have already been identified are given in Annex V. While it is expected that some of the studies will lead to projects suitable for financing by the Association, studies in connection with projects to be financed by other sources would not be excluded. 32. In September 1975, a Bank agricultural project identification mis- sion visited Burundi. As a result of discussions between the Government and the mission, a rural development project to be based on the creation of agri- cultural development centers has been tentatively identified. The main objec- tive would be to increase crop and livestock production through a concentration nf extension activities, supply of farm inputs and other services (animal lusbandry, veterinary, health, etc.) on three or four pre-selected areas of blgh agricultural potential. Two other projects involving livestock have been identified, one by a FED team and the other by FAO. Both require detailed preparation. The first is aimed at culling over-age animals and providing related processing facilities. The second is a small scheme for a dairy herd to supply milk to Bujumbura. In order for these projects to be prepared in a relatively short time, the Government requires the assistance of consultants. Also they give rise to a need for marketing studies for both meat and crops. Ae,other aspect of rural development requiring further study is reafforestation. Burundi's forest reserves are dwindling rapidly, causing great concern because of both the resultant soil erosion and the growing shortage of timber and firewood. A comprehensive national forestry survey is urgently required as a basis for planning the reafforestation components of rural development projects.  -9- 33. Industrial development has been very slow in recent years. To remedy this, a small UNIDO team has been recruited and is currently preparing feasibility studies of potential industrial projects with a view to interest- ing investors in the private sector. Given the variety of aspects which must be studied, the team needs to be supported by short-term consultants capable of undertaking specific highly specialized studies. For example, the assis- tance of a metallurgist and a production engineer is required for a study of a plant for recycling scrap metal. Also a specialist in flour milling is required to help prepare a project for a new flour mill which is under consi- deration. It is expected that these studies will lead to viable industrial projects to be financed by the National Development Bank, possibly with assistance from the Association. 34. Recent research undertaken by a UNDP mineral exploration team has revealed the presence of a large nickel deposit. The Government requires technical assistance both to undertake more detailed studies of the deposit and also to assist in negotiations with potential investors. The UNDP is expected to finance part of these requirements, but there will be a need for additional technical assistance to be financed by the proposed Credit. The exploration team is also pursuing other promising mineral prospects which will almost certainly give rise to other commercial possibilities requiring further investigation. Training 35. The Government is aware of the urgent need for training Barundi staff in the fields of planning, statistics, and project preparation. An important part of the training must be on-the-job, working as counterparts to foreign experts. During the implementation of the project particular care would be taken to ensure that suitable Barundi staff are assigned as counterparts to assist the long-term advisers and the short-term consultants (see Section 3.03(b) of the draft Development Credit Agreement). At the same time the terms of reference of the advisers and consultants would include a training aspect. 36. The financing of scholarships is not included under the proposed Credit as the existing bilateral and multilateral aid programs make ample provision for training. For example, FED has recently made available US$4 million for scholarships of various kinds. It is envisaged that some- of the more experienced planning staff will be nominated for appropriate EDI courses. The major problem in the past has been to find suitable candidates for over- seas training. With the expansion of higher education that has taken place in recent years, an increasing number of young economists are now graduating. This will enable the Government to accelerate training during the project period. The shortage of trained statistical staff at all levels is parti- cularly acute; in this regard, the National Institute for Administrative Techniques is planning to mount specialized courses financed by the UNDP.  - 10 - Project Management and Supporting Services 37, Project execution would be coordinated by the Bureau Techniques d'Etudes (BTE) (Section 3.05 (a) of the draft Development Credit Agreement). Individual experts or consultants would be under the supervision of either the BTE or the relevant ministry. The BTE would formulate specific proposals for technical assistance and would submit each proposal for the use of the Credit to the Association for approval. Contracts with consultants or indi- vidual experts would be prepared by the Government and would be subject to the agreement of the Association (Section 3.03 (a) of the draft Development Credit Agreement). The Association would assist the Government in the recruitment of advisers and in the hiring of consultants. In the case of individual experts the Government would be responsible for providing all necessary supporting services, such as office accommodation, secretarial assistance and other office expenses. Cost and Financing 38. The total project cost of US$1.8 million (net of taxes), of which US$1.4 million or approximately 80 percent is expected to be foreign exchange, s made up as follows: US$ Thousand Long-term advisers 720 Consultants 900 Equipment 80 Unallocated 70 1,770 It has been assumed that one expert-year will cost $60,000, and that one man- month of consultancy will cost $6,000. The total project cost includes an estimate of the cost of Government's support services (office accommodation, secretarial assistance, salaries of counterparts, etc.), calculated at 20 percent of the total emoluments of the advisers. The proposed Credit of US$1.5 million would finance 85 percent of total project costs. Procurement and Disbursement 39. The selection of consultants would be in accordance with the Association's normal procedures. Procurement of equipment and vehicles would be in accordance with the Borrower's normal procedures which are considered satisfactory. The Association will disburse 100 percent of the salaries and .moluments of advisers; in respect of the consultancy services and equipment and vehicles, the Association will disburse either 100 percent of foreign expenditures or 85 percent of total expenditures.  - 11 - Benefits and Risks 40. The technical expertise to be provided under the proposed project would help the Government in its efforts to formulate an effective and well planned development program and to identify and prepare specific investment projects. It would help strengthen the Government's planning machinery by alleviating the critical shortage of experienced economists and statisticians. The project does, however, have risks. Difficulties may be experienced in recruiting suitably qualified experts and investment projects prepared by consultants may not always lead to viable projects. To minimize these risks, as explained above (para 37), the Association would help recruit suitable advisers, and all contracts would be subject to the approval of the Association. PART V - LEGAL INSTRUMENTS AND AUTHORITY 41. The draft Development Credit Agreement between the Republic of Burundi and the Association, the recommendation of the Committee referred to in Article V, Section 1 (d) of the Articles of Agreement of the Association and the draft resolution approving the proposed Credit are being distributed to the Executive Directors separately. The draft Development Credit Agreement follows the form previously used for this type of project. Features of the draft Development Credit Agreement of special interest are referred to in paragraphs 35 and 37. 42. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 43. I recommend that the Executive Directors approve the proposed Development Credit. Robert S. McNamara President * Washington, D.C. February 4, 1976   ANNEX I Paes 1 of 3 pages ODUNTRT DATA- BURUNDI AREA P0PUATION KISITY I27 b7 2 4ki2n (eid-1972) Per 102of arable land SOCIAL INDICATORS UOP PER CAPITA US$ (ATlAS BASIS) t 50 70 a 100 L 190 L 760 La DZRIAPRIC Crude ltrth rate (per thousand) 46 41 c Sh , 45 L 21 L Crude death rate (par thousand) 25 20 28 L 23 10f s IDi~~~~~~~nant mortality rate (psrt 1housand Ul. births) 10 2! 138 ki 12 Z 8 j 0 Life expectancy at birth (years) 37 41 c 39 41 70h Dross reproduction rate 2 2.6 /, 2.8 c 3.2 l 2 9/h Population growth rate L 1.6 2 0 2 6 22 1 37 Population growth rate - urban 0 76 2 Age structure (percent) 15-6 4 P 52 k 52