Cameroon - Feeder Roads Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-2132-CM REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT AND LOAN TO THE UNrTED REPUBLIC OF CAKEROON FOR A FEEDER ROADS PROJECT Novemher 29 1977 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.  CAMEROON FEEDER ROADS PROJECT CURRENCY EQUIVALENTS CURRENCY UNIT = CFA Franc (CFAF) US$1 = CFAF 245 1/ CFAF 19000 = US$40082 CFAF 1,000,000 US$49082 1/ Floating exchange rate. ABBREVIATIONS SATA - Swiss Aid for Technical Assistance SODEPA - Societe de Developpement et d'Exploitation des Productions Animales ZAPI - Zones d'Actions Prioritaires Integrees FISCAL YEAR July 1 to June 30  FOR OFFICIAL USE ONLY CAMEROON FEEDER ROADS PROJECT LOAN AND CREDIT AND PROJECT SUMMARY Borrower: United Republic of Cameroon Amount: US$6.5 million IDA Credit US$4.6 million IBRD Loan Terms: Credit: Standard Loan: 20 years including 5 years of grace at annual interest rate of 7.9 percent. Project Description: The proposed project is designed to help esta- blish an efficient institutional framework for planning, developing, and maintaining feeder roads to support high priority agricultural/ rural development projects. It consists of (a) a four-year program for the construction, and improvement of about 2,200 km of feeder roads; (b) technical assistance to establish a Feeder Roads Unit within the Department of Roads, to implement the above program and train local staff; and (c) a study of a follow-up feeder road program and resources for feeder road maintenance. The proposed project would have an important institution-building effect. The feeder roads to be included are indispensable for rural development in the project areas; four high priority rural development projects to be served by the roads are expected to improve the condition of some 100,000 low-income farm families. The risk that some of these projects should not materialize as and when expected is small, since they are already at an advanced state of processing and, in fact, even in their absence the economic benefits of the proposed project would remain high. Estimated Cost: The total cost of the project is estimated at US$21.1 million including US$4.0 million equiv- alent of taxes and duties. Project costs, net of taxes aind duties, are estimated at US$17.1 million, of which about US$11.1 million is for- eign exchange. Contingencies total US$4.4 mil- lion, with price contingencies 25 percent and physical contingencies 10 percent of base cost: This document has a restricted distribution and may be used by recipients only in the performance I  % of Local Foreign Total Project ------- (US$ thousand) -- Costs Construction and Maintenance 3,800 7,395 11,195 65 Institution Building 497 796 1,293 8 Studies 24 139 163 1 Contingencies 1,686 2.743 4.429 26 Total Project Cost 6,007 11.073 17,080 100 Rounded 6,000 11,100 17,100 Financing Plan Local Foreign Total Z (US$ million) IBRD/IDA - 11.1 11.1 65 Government 6.0 - 6.0 35 Total 6.0 11.1 17.1 Estimated Disbursement of IDA Credit and Bank Loan: (Amounts in US$ thousand) Bank/IDA Fiscal Year 1978 1979 1980 1981 1982 1983 Annual 600 3,700 1,600 2,300 1,900 1,000 Cumulative 600 4,300 5,900 8,200 10,100 11,100 Rate of Return: The feeder roads would have an estimated economic return of 14 percent with benefits based on road user savings, reduced spoilage and modest induced increases in agricultural production. Appraisal Report: Report No. 1668-CM dated November 15, 1977.  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE UNITED REPUBLIC OF CAMEROON FOR A FEEDER ROADS PROJECT 1. I submit the following report and recommendation on a proposEd loan for the equivalent of US$4.6 million and a development credit for the equivalent of US$6.5 million to the United Republic of Cameroon to help finance a feeder road construction and improvement project. The loan would have a term of 20 years, including 5 years of grace, with interest at 7.9 percent per annum; the development credit would be on standard IDA terms. The grant element in the proposed Bank/IDA financing is 53 percent. PART I - THE ECONOMY 1/ 2. A report, "Proposals for a Medium-Term Public Development Program, A Special Study, Cameroon" (No. 1097a-CM), was distributed to the Executive Directors on May 11, 1976. In October and November 1976, an economic mission visited Cameroon and its findings are incorporated below; a report is in preparation. Economic Potential 3. Cameroon hal a population of about 7.6 million (1976) and covers an area of 475,000 km . The country's natural resources are varied, but not always easily accessible. Soils and climatic conditions permit culti- vation of a wider range of crops thar, is commonly found in West Africa, and the forest areas of the southeast contain large untapped timber resources. The north holds promising potential for livestock development. 4. The main opportunities for development in Cameroon lie in the expansion of agricultural production, including forestry, and the processing of agricultural and forestry products for export. A bauxite project is in the early stages of preparation, and offshore oil and gas exploration is also being carried out and has yielded some promising results. 5. Commerce, transportation and transit services are other important economic activities. Cameroon's main economic centers are separated by vast underpopulated areas. The country moreover serves as a main export route for landlocked Chad. As a result, large investments in port and inland transport infrastructure are essential to promoting agriculture, forestry and industry, and strengthening Cameroon's role as a regional trade center. 1/ Parts I and II are substantially unchanged from the corresponding Parts of the President's Report for the Rural Development Fund Project, dated June 20, 1977 (R77 - P-2052-CM).  -2- Past Performance 6. During the first decade of independence (1960-1970), the Govern- ment's primary objective was to unify the nation and to ease serious internal political and social tensions. Output of agriculture and industry grew rapidly and, along with high world prices for cocoa and coffee, resulted in a 7 percent per annum real growth rate. Gross investment averaged about 14 percent of GDP, slightly over half in the public sector with the largest part devoted to the transportation network, the most immediate development con- straint. A major effort was also directed at expanding education and diver- sifying agriculture. Significant increases in fiscal revenues combined with stringent expenditure controls produced sizeable budget surpluses that made it possible to accumulate reserves and to finance a large part (up to 40 percent) of public investment out of local revenues. However, this policy also imposed excessive restraint on much needed current expenditure in such areas as road maintenance, public health, and education. 7. During the period 1971-1976, growth of real GDP slowed to about 3 percent per annum. This was caused by factors largely outside Cameroon's control such as: (i) low export prices for cocoa and coffee during 1971 and 1972; (ii) several years of drought in the north; (iii) a decline in domestic and foreign private investment, triggered primarily by the relative stagnation of the agricultural sector and by the completion of the first wave of import substitution projects during the preceding decade; (iv) a drop in 1975 in world demand for both cocoa and timber; and finally (v) rapidly rising import prices. 8. The Government reacted to these developments by stepping up public investment, which increased by 50 percent to reach annual averages of about US$190 million in constant 1974 dollars during the Third Development Plan (1972-1976). At the same time, greater emphasis has been placed on agri- cultural output. Within a public investment program averaging 9 percent of GDP, rural development has comprised about 18 percent, transport and communi- cations 42 percent, energy 6 percent, and education 9 percent. Since nearly 75 percent of public investment has been in sectors where its contribution to domestic output is both indirect and delayed, the impact of this substantial investment effort on economic growth was limited during the Third Plan period. In addition, physical realizations have been in many cases less than projected due largely to substantial cost increases and the subsequent need to either reduce the scope of projects or defer them. 9. The balance of payments has not been a major constraint until re- cent years. However, imports increased rapidly in 1974 and 1975 as a result of worldwide inflation and heavy public development expenditure, especially in capital goods. At the same time agricultural exports declined, particu- larly exports of timber, causing a sizeable current account deficit in 1975. Together with a decline in private capital inflows this resulted in a fall in reserves from a level equal to nearly three months of import requirerments in 1970 to one-half month at the end of 1975. Thanks mainly to considerably improved export demand and higher prices, especially for coffee and timber, by  - 3 - May 1976 gross reserves had recovered to the level of 1972 and 1973. How- ever, because of continuing international inflation, Cameroon's official gross international reserves, in mid-1977, still covered less than one month of import requirements, a low level by usual international standards but still acceptable considering Cameroon's membership in the Central African monetary union. Prospects and Development Strategy 10. Cameroon's development effort over the next five years will be carried out under the Fourth Plan (1977-1981). A Bank economic mission discussed its recommendations on the level and composition of public invest- ment with the Government in November 1975 and agreed on overall priorities. It is anticipated that short- and medium-term growth of GDP will be 5 to 6 percent per annum in real terms, slightly lower than achieved during the 1960s. However, if the Government can maintain a high volume of public investment and further expand and diversify the country's production base, higher rates.of growth can be attained in the early 1980s. With this goal in mind, the new Five-Year Plan has set a very ambitious public investment target of over US$2.0 billion in constant 1974 dollars or more than two times that achieved during the preceding plan period. The Plan gives in- creasing emphasis to the development of directly productive sectors, par- ticularly agriculture. The share of transport infrastructure investments will decline somewhat but remains high in absolute figures, while invest- ments in electric energy will increase. These changes in sectoral priorities are very much in line with the recommendations of the 1975 economic mission. 11. To ensure that appropriate priorities will in fact be achieved, the Government will need to strengthen its ability to choose, prepare, and implement projects, particularly in the rural and transport sectors. Progress is being made in this direction. Special planning units are gradually being established within the technical ministries. A Government-owned consulting firm, the "Societe d'Etudes pour le Developpement de l'Afrique", has been created under the Ministry of Economy and Planning to accelerate project preparation. Commercially-oriented public corporations are also serving to strengthen the project implementation capacity of the public sector. Never- theless, further improvemients are needed, particularly in the management of public corporations and in strengthening and coordinating rural development institutions. A recently approved Technical Assistance Credit will assist efforts undertaken by the Government in these fields by providing technical assistance experts, training local staff, and financing high priority studies and project preparation in key economic sectors. 12. Even assuming these improvements continue, absorptive capacity is likely to limit the rate of investment in the high priority sectors. With respect to the overall investment level, financial considerations also suggest that public investment during the Fourth Plan is unlikely to exceed US$1.3 billion in constant 1974 dollars, or some US$400 million per year  in current dollars. Budgetary revenues have reached about 17 percent of GDP and cannot be expected to increase much faster than the economy as a whole. Current expenditures, on the contrary, will expand more rapidly as a result of recent increases in public investment in transport, education, and health. Furthermore, public debt charges will grow rapidly, particularly those of public enterprises, and will absorb an increasing share of public savings. Consequently, in the next five years, public savings after debt service will probably not exceed US$100 million per year, or some 25 percent of total public investment, as compared with about 40 percent over the past few years. Cameroon will thus have to rely on external financing for the bulk of its public investment. 13. An increasing reliance on foreign borrowing during a period of relatively slow economic growth, will require careful foreign debt manage- ment. However, on the reasonable assumption that at least 50 percent of foreign public capital inflow will be on concessionary terms, the foreign debt service ratio could be maintained below 10 percent by 1980. Cameroon's proven ability to make effective use of external resources, and the Govern- ment's dedication to development are reasons for added external support. To avoid further rapid buildup of debt service, lenders, including the Bank Group, should provide a large part of their assistance on concessionary terms. Furthermore, local resources including local borrowing are only expected to cover 30 percent of all Plan outlays after debt service and many projects will not attract any foreign funds. Under these circum- stances, foreign lenders should be prepared to finance a high proportion of total project costs, including local costs, in appropriate cases. PART II - BANK GROUP OPERATIONS IN CAMEROON 14. The Bank Group's commitments in Cameroon now amount to US$283.5 million and cover twenty-two projects: nine in agriculture, seven in trans- portation, three in education, one in public utilities, one small- and medium- scale enterprise project, and one technical assistance project. Transporta- tion represents the largest share (48 percent) of our past commitments fol- lowed by agriculture (35 percent). Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of September 30, 1977 and includes notes on ongoing projects. Although delays and setbacks have been occasionally encountered in the execution of projects, the Government has consistently shown willingness to collaborate with the Bank in finding solu- tions to such problems. 15. For the future, the Bank Group's strategy is to support the Govern- ment in its effort to increase agricultural production, including export- oriented crops, and in the process create productive employment in rural areas; to upgrade and improve the operation and maintenance of the country's infrastructure; to stimulate investment by local entrepreneurs and increase employment in urban areas; and to increase the efficiency of Cameroon's in- stitutions.  -5 - 16. Bank Group assistance to Cameroon supports the priority the Gov- errment rightly attaches to the regional distribution of agricultural devel- opment and to a sound balance between improving conditions in the traditional sector and promoting plantation agriculture, including smallholder schemes. Thus we have helped the Government create an effective and well-managed plantation sector by financing oil palm and rubber plantations in the east and west. At the same time, we have helped promote smallholder rice irriga- tion and livestock in the north. The ongoing cocoa project is helping to modernize cocoa growing by smallholders and to raise rural productivity in areas south and west of the capital. The rubber project approved in June 1975 is helping develop the southwest coastal region. Rural development projects in populated but poor regions are being established with the assis- tance of the Bank. The Plaine des M'Bo Rural Development Project, which was approved by the Board in February 1977, will help finance studies and three- year trial activities required before a full-scale rural development program can be launched. The recently approved Rural Development Fund Project is designed to help the Government establish the machinery for processing and implementing small-scale rural development schemes. The Second SOCAPALM Project approved in March 1977 is a follow-up to a successful oil palm project (SOCAPALM I), which has been completed, and is a first step in promoting smallholder oil palm plantations in Cameroon. Field appraisals for the ZAPI-East Rural Development Project and for the Western Highlands Rural Development Project have recently been completed and the projects are scheduled to be presented to the Board during FY78. Also scheduled for pre- sentation to the Board in FY78 is a tree crop estate and smallholder devel- opment project in the west, a follow-up of the Bank Group financed CAMDEV project, and a rice production project as a follow-up to the highly success- ful SEMRY I project. Besides promoting much needed foodstuffs production, increased Bank Group lending for agriculture will support the Government's effort to focus on rural development in order to improve income distribution and to achieve a better balance in regional development. 17. Recognizing the crucial importance of transportation to economic growth in Cameroon and in neighboring countries, the Government has devoted the largest portion of public investment to this sector. The Bank Group, together with bilateral institutions, has substantially aided development of adequate transport facilities. The Second Highway Project of 1973 was designed to help complete the country's basic trunk road system. The proj- ect has encountered severe cost overruns partly alleviated by a Supplemen- tary Credit approved in March 1976. The Second Railway Project of 1974 has focused on track improvement and expansion of the equipment needed to maintain and augment the railway's overall carrying capacity. Given pro- jected sharp traffic increases, and the backlog of required investments, substantial capital outlays are still necessary, particularly for the expan- sion of the port of Douala, which is being assisted by a Bank loan and IDA credit, and for some related facilities such as a railway station and mar- shalling yard to be built outside the port area. An engineering loan, approved in May 1976, will help complete the engineering of this station and marshalling yard. A study of the improvements required in the Douala- Yaounde transport corridor which was financed under a Bank project and  -6- designed to help determine an economically optimal investment strategy for this corridor, is in the process of completion. Future road investments should mainly be for road maintenance and for developing the network of feeder and farm access roads. Our future operations in the road sector have been planned accordingly. The proposed Third Highway Project, expected to be presented to the Board during FY78, will concentrate on road maintenance and rehabilitation. The feeder roads project proposed in this report would establish institutions for feeder roads administration and maintenance in addition to providing the necessary resources for a feeder road program to support high priority agricultural/ rural development projects. In other sectors, the Small- and Medium-Scale Enterprise Project, approved in 1975, focuses mainly on developing local entrepreneurship. A Third Education Project, approved in April 1976, places special emphasis on rural education and training. 18. In all our projects, we include, as needed, training, technical assistance, and other provisions necessary for strengthening institutions and improving sector policies. The Technical Assistance Project approved in June 1977, will help strengthen Government services in several key ministries involved in investment planning, policy analysis and project processing. In addition, through our economic work we will continue to advise the authori- ties, at their request, on development questions in general, and on particular matters such as economic management, problems of urban migration, and manpower development. To help achieve the Government's priorities and to support our future lending strategy will require continuing emphasis on strengthening the institutional framework, particularly concerning project planning preparation and implementation in transportation and rural and urban development. 19. During the second half of the sixties, overall disbursements to Cameroon amounted to about US$40-45 million a year. While at the beginning of this period 65 percent of aid funds were grants, the proportion of loans slowly increased. A major part of external assistance was provided by France and was concentrated in infrastructure and productive sectors. The European Development Fund and European Investment Bank directed their lending mainly to agriculture, with infrastructure in second place. Bank and IDA disbursements were small during this period. From 1972 to 1974 overall disbursements of foreign aid increased to about US$60 million with one-third as grants. The Bank and IDA share of these inflows amounted to about 25 percent. Our lend- ing to Cameroon has been closely coordinated with other donors; in eleven of our twenty-two projects, joint or parallel co-financing arrangements have been made. 20. Public debt outstanding and disbursed as of December 31, 1975 amounted to US$362 million and is projected to reach US$1.5 billion in 1981. Public debt service as a proportion of export earnings amounted to 5.4 per- cent in 1975 and is projected to reach 9.5 percent in 1981. At that time annual foreign aid disbursements may be over US$400 million with only 9 percent consisting of grants. At end-1975 IBRD debt accounted for 13.7 per- cent of Cameroon's public debt outstanding and disbursed, and 10.6 percent  of its public debt service. IDA credits accounted for 25 percent of public debt outstanding and 0.1 percent of public debt service. The Bank and IDA are expected to account for about 25 percent of total public debt and 14 per- cent of public debt service in 1980. 21. In October 1974, Cameroon became IFC's 100th member. IFC's first operation in Cameroon, a US$450,000 underwriting to bring domestic share- holders into a previously wholly foreign-owned shoe manufacturing company, was approved in May 1975. In September 1976, the IFC Board approved an equity investment of nearly US$900,000 in a foreign-owned rubber estate (SAFACAM). The investment will assist in the rehabilitation and diversi- fication of an existing estate, producing rubber for export and palm oil for the domestic market. The operation will also facilitate participation by domestic shareholders. PART III - THE SECTOR General 22. Cameroon's transport system consists of about 58,000 km of roads, about 1,170 km of railway, three seaports, a navigable waterway with a river port at Garoua, and five airports. The main transport system which is export- import oriented is focused on Douala, the commercial center, which has both a deep-water port and an international airport. Links to the rest of the country are provided along two principal corridors -- the Trans-Cameroon rail/road route and the north-south Douala-Bafoussam-Foumban axis. Emphasis on transport development to date has been on modernizing the main system, an objective which will be substantially achieved for the road elements with the completion of the Second Highway Project and for the railways after the ongoing realignment of sections between Douala and Yaounde. The rest of the transport system, especially feeder roads, have so far received little attention. 23. Transport Sector Management. The Ministry of Economy and Plan- ning, the Ministry of Equipment and Housing, and the Ministry of Transport, which are all concerned in varying degrees with planning and processing of transport projects, lack adequate staff to deal with Cameroon's pressing transport needs. Attempts to reinforce the organization and machinery for transport planning and policy-making and for project preparation and execu- tion had only limited success in the past. The Bank has had a continuing dialogue with the Government on the need for strengthening transport sector management. Partly as a result of this a Planning Unit is expected to be created within the Ministry of Transport and technical assistance experts have been recruited to strengthen the capabilities of the Ministries of Transport and Equipment and Housing and to provide on-the-job training for local staff. Further measures required for reinforcing transport planning and coordination and ensuring the integration of transport and other sec- toral planning are being discussed between the Government and the Bank.  -8- The Road Network 24. The road network in Cameroon totals about 58,000 km of which about 12,000 km are paved and laterite-surfaced roads, classified as national and provincial roads. The remaining 46,000 km are mostly dry-weather roads and tracks classified as feeder roads. Of the total, 28,000 km are classified for maintenance budgeting purposes. The most important roads, which are part of the Trans-Cameroon route and the Douala-Bafoussam-Foumban axis, have recently been or are being constructed to paved standards. The rest of the classified roads, although generally adequate in extent and distribution for the country's economic needs, are mostly in poor condition due to inadequate maintenance. The problem is even more acute for the unclassified roads, most of which are in an advanced state of deterioration due to the compound effect of low ini- tial construction standards, particularly of the drainage system, poor con- struction quality and practically non-existent maintenance. Traffic on the Feeder Roads Network 25. Traffic on the feeder roads network consists of (i) agricultural produce destined for local markets, villages, towns, district centers as well as cooperative collecting centers, (ii) small volumes of consumer goods and agricultural inputs, and (iii) passengers. There is a large variation in the traffic volumes of individual feeder roads, from about 5 to 50 vehicles per day depending on population density and level of economic activity. Traffic is highly seasonal, being over twice as much during the harvest period as during the off-season. 26. Transport on the feeder roads network is either by small private trucks or, in the case of some cash crops, by trucks of cooperatives, which often supplement their capacity with private carriers on contract. Supply is usually adequate for demand, the few instances of undersupply being due mostly to the poor state of roads. For the transport of passengers, con- sumer goods and foodcrops, competition among truckers is sufficiently strong to ensure that most of the savings in vehicle operating costs associated with road improvements will in general be passed on to the rural population. Feeder Roads Administration 27. Responsibility for the administration of the feeder roads network is, in practice, ill-defined as local authorities and several Government agencies, the Department of Roads, the Rural Engineering Service and the Department of Community Development, all have statutory responsibility. This proliferation is not necessarily a handicap since the wide variations, in terms of standards, functions and methods of construction and financing of these roads, necessitate diverse strategies not easily provided by any single organization. The missing element is the coordination of the activ- ities of the different groups to ensure (i) consistency with overall road development strategy, (ii) economically and technically reasonable design  -9 - standards and (iii) adequacy of construction and design quality. The Depart- ment of Roads, within the Ministry of Equipment and Housing, is best suited to perform this task. For this purpose and to assist in the execution of the proposed project activities, a Feeder Roads Unit (FRU) will be set up within the Department of Roads not later than March 31, 1978 (Section 3.06 (a) of the draft Loan Agreement). Feeder Roads Maintenance 28. Feeder road maintenance is the responsibility of the local authorities, and no central budgetary funds are allocated for feeder road maintenance. Although local authorities and communities have contributed some funds and, in some cases, labor and materials, these have only sufficed for routine maintenance. The best efforts have been made in western Cameroon where the Department of Community Development, with technical assistance from the Swiss Agency for Technical Assistance (SATA), has had a successful record of organizing and motivating local communities for feeder road improvement and maintenance. But the results of neglected maintenance are evident everywhere, roads and structures have deteriorated to a point where extensive rehabilita- tion has become imperative. 29. The country needs a program for (a) rehabilitation and improvement of high priority feeder roads, and (b) adequ-te maintenance of improved feeder roads including those recently coustructed or planned for construc- tion under various agricultural schemes. Such a program will have to be long-range partly because of the relatively large amount of work and funds that would be involved and partly because a parallel effort will also be required on the main and secondary networks. The proposed project is a start in this direction with emphasis on the selected rural areas. PART IV - THE PROJECT Introduction 30. A report entitled "Appraisal of a Feeder Roads Project, United Republic of Cameroon" (No. 1668-CM of November 15, 1977) is being circulated separately. The project is based on data-collected and analyzed by Cameroon Government staff with the assistance of consultants, and substantial inputs from the Bank Regional Mission in Western Africa (RMWA). The feeder roads in the northwestern portion of the Western Highlands were studied separately by a German Government-financed consultant. A Bank mission I/ appraised the project in January/February 1977. Negotiations were held in Washington, D.C. from September 19 to September 26, 1977 with a Cameroonian delegation which was led by Mr. Benoit Bindzi, Ambassador of the United Republic of Cameroon in Wv-;hington. 1/ In this report the term "Bank" generally also refers to IDA.  - 10 - Background 31. A study of feeder road needs was included under the Second Highway Project (Loan 935/Credit 429-CM) as part of a general road maintenance study. The Bank subsequently agreed with the Government in 1976 to study the feeder roads separately, due partly to delays in starting the maintenance study but mostly to the need to focus properly on the network's special requirements, establish close links with agriculture and rural development and permit more involvement of local staff and representatives in project design and prepa- ration. It was also agreed to start with a project concentrating on a few well-defined areas, since this was the Bank Group's first operation in the feeder road sub-sector in Cameroon and since the country lacked the absorp- tive capacity for a nationwide project. Purpose 32. The proposed feeder roads project is designed (a) to improve and maintain the feeder road networks to support the proposed Bank Group- financed ZAPI East Rural Development Project; the proposed Bank Group and FED/German Government-financed Western Highlands Agricultural Development projects; and the ongoing Bank Group-financed Livestock project (Loan 983-CM) in the Adamaoua area; and (b) to build the institutional framework for the development and adequate maintenance of the feeder road network. The project would be complementary to the proposed Third Highway Project which is expected to focus on maintenance and rehabilitation of the national and provincial road network. Project Description 33. The proposed project would consist of: (a) a four-year program of construction, improvement, rehabilitation, and maintenance, mainly by force account, of about 2,200 km of feeder roads including: (i) purchase and rental of equipment; (ii) purchase of spare parts, fuel, lubricants, and materials; and (iii) minor civil works by local contractors; (b) construction of, and provision of equipment and tools for a workshop, including office facilities, for the Department of Roads at Nguelemenduka; (c) technical assistance to establish and strengthen the Feeder Road Unit to be set up within the Department of Roads, to implement the program, and to train local staff of the Unit in planning,  - 11 - implementing and monitoring feeder road improvement and maintenance, and in maintaining and repairing road equipment; and (d) consultant services for: (i) studying the resources for feeder road main- tenance; and (ii) preparing a follow-up feeder road program. Project Implementation 34. The Ministry of Economy and Planning will have overall responsibil- ity for project execution. However, it would appoint as executing agencies for the construction/improvement and subsequent maintenance, the Ministry of Equipment and Housing (in particular its Department of Roads); the Ministry of Agriculture (in particular its Department of Community Development); the ZAPI East Organization; and the "Societe pour le Developpement et l'Exploitation des Productions Animales" (SODEPA). 35. The Department of Roads acting through the Feeder Roads Unit (FRU), will play an important role in the implementation of the proposed project. The Unit would coordinate and administer the planning and development of feeder roads throughout the country and, specifically for the execution of the proposed project, carry out procurement of equipment and some materials, advise on and control the technical standards of works, assist in the pre- paration of detailed annual feeder road programs, execute studies for a follow-up feeder roads project and for organizing resources (financial and in kind) for feeder road maintenance. The Government has agreed to set up the Feeder Roads Unit not later than March 31, 1978 (Section 3.06 (a) of the draft Loan Agreement). 36. The key staff would consist initially of a Cameroonian engineer who would head the Unit and a technical assistance expert (road engineer). The Government is taking steps to select the technical assistance expert and designate the Cameroonian engineer. 37. Physical execution is expected to start in September 1978 and be completed by September 1982. Road construction, improvement and mainten- ance would be carried out by force account. Force account road construction under the Bank-financed cocoa project and the USAID-financed Kumba-Manfe road has so far yielded very encouraging results. Local contractors lack the capability for carrying out major roadworks but they would be used for con- structing drainage structures and workshops and for supplying road-building materials. The roadworks under the project would be executed as follows: two special feeder road construction units would be formed by the Department of Roads, one in ZAPI East and the other in the Western Province to construct feeder roads with higher traffic. Each unit would be headed by a provincial  - 12 - feeder roads engineer who would depend, for technical matters, on the provin- cial delegate of the Ministry of Equipment and Housing. Feeder roads in the Northwest Province (about 300 km) would be built by a brigade from the Depart- ment of Community Development and the Swiss Agency for Technical Assistance (SATA) would provide technical assistance (a road technician and mechanic) to the brigade. The ZAPI East Organization would create a light brigade to build its farm access roads with technical assistance provided under the project. Access roads in the Adamaoua Zone would be built by SODEPA's own forces in one construction season. 38. In order to provide the necessary flexibility in planning and executing the feeder roads program, only the first year's program (1978/79) has been defined. Roads included in the tentative programs for the subse- quent years would be selected annually, by the ZAPI East Organization for the East Province and the "Union des Cooperatives de Cafe Arabica de l'Ouest" (a union of farmers' cooperatives) for the West Province and the Bamenda Association of Cooperatives for the Northwest Province. These feeder road programs would be reviewed and approved by provincial interministerial committees to be established within the three provinces with provincial representatives from the Ministries of Economy and Planning, Finance, Equip- ment and Housing, Agriculture, Livestock, Transport as well as important cooperatives and agencies with direct interest in agricultural feeder roads; SODEPA will program its own feeder roads. The programs would be submitted to the Bank for approval three months before the works are scheduled to start in that year's program. Assurances to this effect have been obtained (Sec- tion 3.07 (b) and (d) of the draft Loan Agreement). Project Monitoring 39. The economic, social and engineering aspects would need to be monitored closely to determine both the extent to which they should be modi- fied for preparation of the follow-up project and the long-term impact of the project roads. Since the bulk of the socio-economic aspects concern the ZAPI East and Western Highlands rural development projects, monitoring of these elements would be integrated with the monitoring systems of these projects. Monitoring under the project would, therefore, be reduced to (a) the engineer- ing parameters, which would be done routinely with project execution; and (b) evaluation of traffic forecasts and of transport costs which can be done periodically by the provincial feeder road engineers to be appointed under the project. The Government has agreed to these arrangements (Section 4.04 of the draft Loan Agreement). Technical Assistance and Training 40. Seven experts, for about 133 man-months, would be financed under the project at an average cost of US$7,000 per man-month. Their primary functions would be to assist the Government to establish the Feeder Roads Unit and train Cameroonian staff; define the annual programs and prepare detailed plans for their execution; implement the feeder road program; and design and implement a program for the training of Department of Roads' staff.  - 13 - 41. The project provides for short-term consultants (a total of 20 man-months at an average cost of about US$8,000 per man-month) to assist the Government to prepare: i) by December 31, 1978, a study of the resources for feeder road maintenance which will be discussed with the Bank; and ii) by September 30, 1980, a study of a follow-up feeder roads project. The Govern- ment has initiated steps to recruit these technical assistance experts and has agreed to attach qualified local staff members on a full-time basis to these experts (Sections 3.11 and 3.12 of the draft Loan Agreement). 42. The seven experts and the short-term consultants would provide training to the Cameroonian technicians and transport economists associated with the project. The training specialist on the technical assistance team would propose an outline training program for each staff member assigned to the team and for the mechanics, foremen and equipment operators for review by the Government and the Bank by end February 1978. He would also train a Cameroonian to train others. The technical assistance would be phased out gradually and in the last year the program would be managed entirely by Cameroonians. The Government has agreed to these training arrangements and to take appropriate budgetary measures therefor (Section 3.10 of the draft Loan Agreement). Projects Costs and Financing 43. The total cost of the project, is estimated at US$21.1 million, in- cluding US$4.0 million equivalent in taxes and duties. Project costs net of taxes and duties, are estimated at US$17.1 million equivalent, with a foreign exchange cost of US$11.1 million (65 percent). A contingency allowance of about 10 percent on equipment and other items has been included in the cost estimates to allow for increases in quantities. Provision for future price increases has been calculated separately for the various items and amounts to about 25 percent of the total base cost which is in February 1977 prices. The proposed loan and credit of US$11.1 million would finance about 65 percent of total project costs net of taxes, i.e. all foreign costs. Government would provide the remaining local costs of US$6.0 million equivalent. Early engage- ment of the team leader (a highway engineer) for the technical assistance team and other project starting costs will necessitate use of the Project Prepara- tion Facility in the amount of US$100,000. Funding of Feeder Road Maintenance 44. Unless adequate funds are made available on a timely basis, the feeder roads recently being built or proposed to be built, including those under the project, would rapidly attain the poor state of the existing net- work. A general strategy needs to be adopted to ensure adequate maintenance of the other parts of the feeder road network as they are gradually rehabili- tated to a maintainable state. 45. During appraisal, discussions were held with Government on the establishment of a more systematic mechanism for funding of feeder road maintenance. The following approach has been adopted: First, the necessary resources would be mobilized under the project to maintain the project  - 14 - roads, after their construction and improvement, during the four-year project period. Second, the Government would additionally provide the Department of Roads the resources to maintain a significant and annually increasing number of specific feeder roads, which have been built recently or which have been programmed for improvement during the next four years. The long-term cost for this would be about US$400,000 per year. The initial maintenance of project roads during the 4 year project period would include minor betterment required by the low level of improvements inherent in this type of project. The proposed project would help set up the institutional and technical ar- rangements and training of staff required for carrying out adequate mainte- nance. Moreover, consultant services would be provided under the project for the study of resources for feeder road maintenance. Assurances to this effect have been given by the Government (Sections 4.03 and 3.11 (a) of the draft Loan Agreement). Procurement 46. Equipment, materials, spare parts and supplies amounting to about US$8.0 million would be procured on the basis of international competitive bidding in accordance with Bank Group guidelines. These items would be bulked to the extent possible to make them suitable for international competitive bidding. Goods manufactured in Cameroon would be allowed a preference equal to the lower of 15 percent of the c.i.f. price on imported goods, or the prevailing duties generally applied to non-exempt imports. Contracts for equipment, materials, and supplies costing under US$50,000 may be awarded on the basis of competitive bidding following local procedures acceptable to the Bank. The aggregate amount for such purchases would not exceed US$600,000. Contracts for the construction of workshops and drainage structures totalling about US$1.8 million would also follow local competitive bidding procedures acceptable to the Bank. Road construction, improvement and maintenance will be carried out by force account, which has yielded very satisfactory results in other projects. Consultants for technical assistance and for the feeder roads studies would be employed in agreement with, and under terms of reference and conditions satisfactory to the Bank. Disbursements 47. The proceeds of the proposed loan and credit of US$11.1 million would be disbursed as follows: (a) 100 percent of the foreign costs of highway equipment, construction materials, vehicles, spare parts, workshop tools, or 55 percent of the total costs of these items if purchased locally; (b) 55 percent of the total expenditures for fuel, lubricants and rented equipment; (c) 55 percent of total expenditures for civil works done by contractors; and  - 15 - (d) 70 percent of total expenditures for technical assistance experts and consultants. Benefits and Justification 48. The project would provide feeder roads for four high priority rural development and livestock projects: the ZAPI East and the Western Highlands rural development projects and the livestock project in the Adamaoua area. Specifically, the feeder road works would (a) provide the cheap, reliable and efficient transport indispensable for generating and marketing the in- creased agricultural and livestock production, (b) reduce produce spoilage, (c) provide improved access to health and other social services, and (d) reduce transport costs to passengers and other non-agricultural traffic. Evaluated as an integral part of these rural development projects, the pro- posed feeder road project yields significant economic benefits. The ZAPI East project is expected to yield an economic return of about 27 percent, the Western Highlands project about 20 percent and the livestock project about 18 percent. If the above-mentioned rural development projects were not to materialize, the proposed feeder roads project would have an esti- mated economic return of about 14 percent, based on road user savings and modest increases in agricultural production. 49. As a result of the proposed agricultural projects, and under pre- vailing conditions, approximately a third of the benefits from increased cash crop production, mostly cocoa and coffee, would accrue to farmers, about a third to the Price Stabilization Funds, about a sixth to Government as export tax and the remaining sixth to various cooperatives. However, the farmers would eventually recuperate some of the benefits to the latter beneficiaries through price subsidies and improved agricultural services. Farmers would capture most of the benefits from foodcrops by selling more and by enjoying a higher producer price; given the competitiveness of the trucking industry, transporters and exporters would share the rest. Benefits from reduced transport costs to passengers and non-agricultural traffic would be shared by the communities in the project area, the transporters and the traders. The project would also have an important institution building effect. Project Risks 50. The risk that some of the rural development projects to be served by the feeder roads would not materialize as and when expected is small, since they are already at an advanced stage of processing and, in fact, even in their absence the economic benefits of the proposed project would remain high. The risks associated with the proposed project include (a) possibility of diversion of project equipment and goods to non-project work, (b) selection of low priority roads for inclusion in the annual programs, and (c) significant modifications in or partial failure of the associated agricultural projects in reaching their targets; minor modifications can be easily accommodated within the annual program revisions. Diversion to non-project work may be a serious risk since the Ministry of Equipment, the expected recipient of the bulk of the project's equipment and supplies, has to date experienced dif- ficulty in satisfying its needs from the central equipment pool. The risk is reduced by the expected alleviation of the Ministry's equipment problem under the proposed Third liighway Project and the vigilance of the provincial  - 16 - interministerial committees and the various executing agencies of the agri- cultural programs. The risk of inappropriate selection of roads is alleviated by the guidelines agreed with Government for justifying roads included in the annual programs. PART V - LEGAL INSTRUMENTS AND AUTHORITY 51. The draft Loan and Development Credit Agreements between the United Republic of Cameroon and'the Bank and the Association, the Report of the Committee provided in Article III, Section 4 (iii) of the Articles of Agree- ment of the Bank and the Recommendation of the Committee provided for in Article V Section 1 (d) of the Articles of Agreement of the Association, and the texts of draft resolutions approving the proposed Loan and Development Credit are being distributed to the Executive Directors separately. 52. Special conditions of the project are listed in Section III of Annex III. 53. I am satisfied that the proposed loan and development credit would comply with the Articles of Agreement of the Bank and the Association. PART VI - RECOMMENDATION 54. I recommend that the Executive Directors approve the proposed loan and development credit. Robert S. McNamara President Attachments November 2, 1977  - 17 - ANNEX I TABLE 3A Page 1 of 4 pages CAMEROON - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ------------------------