Togo - The Economy : A Basic Econonomic Report (Vol. 2 of 3) : The Main Report

Document of o %nw The World Bank RL COPY FOR OFFICIAL USE ONLY CONFIDENTIAL Report No. 1310-TO F?ETURN TO REPORTs tDESK WITHIN ONE WEEK THE ECONOMY OF TOGO A BASIC ECONOMIC REPORT VOLUME II - MAIN REPORT April 1977 Western Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT 1. Currency unit: CFAF Franc (CFAF) 2. Fixed parity: 50 CFAF = 1 FF The CFAF floats against other currencies. 3. The following rates have been used in this report: 1 $ = CFAF 1976 and later 225 1975 214 1974 241 1973 223 1972 252 1971 278 1970 278 1969 260 1968 and earlier 247 WEIGHTS AND MEASURES 1 meter (m) = 3.28 feet 1 kilometer (km) = 0.62 miles 1 hectare (ha) = 2.47 acres 1 square 2 kilometer (km ) = 0.386 square miles 1 kilogram (kg) = 2.205 pounds I ton (t) = 2,205 pounds I liter (1) = 0.26 gallons Fiscal year of the Government = Calendar year Crop year = October 1 to September 30 FOR OFFICIAL USE ONLY CONFIDENTIAL This report is based on the findings of an IBRD mission which visited Togo in March/April 1976. The mission consisted of the following Bank staff: Rolf Glaeser Chief of Mission Chuong N. Phung General Economist Cynthia Miller General Economist Stephen Weed Agriculture Adhemar Byl Transport Baudoin du Parc (Consultant) Railway (Financial Analysis) Mathias Meyer Education Bocar Thiam Power Jozsef Buky Water Supply and Sewerage Abderraouf Benbrahim Tourism Michael Payson Industry, Mining W.F. Sheldrick Industry, Mining Helene Putz Administrative Assistant Cyprienne Atayi (Consultant) provided temporary research assistance. This report consists of three volumes: Volume I: Summary and Conclusions Volume II: Main Report Volume III: Statistical Appendix 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. VOLUME II TABLE OF CONTENTS Page SOCIAL INDICATORS SELECTED ECONOMIC TRENDS 1960-75 MAPS ABBREVIATIONS AND ACRONYMS 1. INTRODUCTION 1 2. SOCIO-ECONOMIC STRUCTURE AND HISTORICAL PERSPECTIVE 2.1 Geography and Natural Resources 2 2.2 Human Resources 1 2.3 Trade Development 10 2.4 Political Development 13 2.5 International Economic Policies 14 3. ECONOMIC DEVELOPMENT SINCE 1960 3.1 Introduction 15 3.2 Economic Setting 1960-65 16 3.3 Trends in Output 1966-75 19 3.4 Trends in Demand 1966-73 20 3.5 Developments in the External Sector 22 3.6 Recent Developments 1974-75 24 4. RESOURCE MDBILIZA ON 4.1. Domestic Resource Mobilization 25 4.2 Foreign Resource Mobilization 30 5. RESOURCE ALLOCATION 5.1 Resource Productivity 34 5.2 Price and Cost Structure 34 5.3 Investment Planning 1966-75 35 5.4 Sector Priorities of the First and Second Plans (1966-70 and 1971-75) 35 5.5 Investment Targets and Achievements 37 5.6 The Role of Parapublic Institutions 40 5.7 Summary: Past Record 42 Page 6. LONG-TERM DEVELOPMENT PERSPECTIVE 6.1 Mining and Mineral Processing 44 6.2 Rural Development 44 6.3 Human Resources 45 6.4 Economic Structure 46 7. OBJECTIVES AND PRIORITIES OF THE THIRD DEVELOPMENT PLAN 7.1 Third Plan Targets 48 7.2 Human Resources 49 7.3 Regional Development 50 7.4 International Regional Cooperation 50 8. PROSPECTS AND POLICIES FOR ECONOMIC DEVELOPMENT 8.1 Economic Growth 51 8.2 Investment and Finance 52 8.3 Public Finance 54 8.4 Debt Service 58 8.5 Policy Issues and Recommendations 59 ANNEXES Table of Contents Introduction ANNEX A: THE AGRICULTURE SECTOR ANNEX B: MANUFACTURING AND MINING ANNEX C: THE TOURISM SECTOR ANNEX D: ECONOMIC INFRASTRUCTURE ANNEX E: HUMAN RESOURCES ANNEX F: SUMMARY OF HISTORICAL DEVELOPMENTS ANNEX G: SELECTED BIBLIOGRAPHY LIST OF TEXT TABLES AND CHARTS Page 2.1 Health Indicators 5 2.2 Growth in Student Enrollment 6 2.3 Enrollment in Primary School by Region and Sex (1974-75) 7 2.4 Active Population 8 2.5 Historical Trends in Foreign Trade 11 3.1 Structure of Sources and Uses of GDP 17 3.2 Development of GDP and Principal Economic Sectors, 1960-74 18 3.3 Structure of Private Consumption, 1966-71 20 3.4 Share of Imports in Private Consumption, 1966-71 21 3.5 Origin of Inputs of the Major Manufacturing Industries 21 3.6 Balance of Payments Summary, 1966-73 22 3.7 Compositon of REcorded Merchandise Exports, 1950-75 23 3.8 Direction of Foreign Trade, 1956-74 24 4.1 Central Government Finances, 1956-75 26 4.2 Public and Para-Public Investment Financing, 1966-75 27 4.3 Investment and Savings, 1961-75 28 4.4 Monetary Developments, 1966-76 29 4.5 Sectoral Distribution of Credit by Financial Institutions 30 4.6 Loan and Grant Commitments, 1966-74 31 4.7 Debt Service Indicators, 1966-75 33 5.1 Sector Composition of Plan Investment Programs, 1966-75 36 5.2 Implementation Ratios of the First and Second Development Plans 38 5.3 Public Investment - Sector/Financing Matrix, 1966-75 39 5.4 OPAT Investment, 1966-75 41 6.1 Basic Economic Structure 1960-85 46 7.1 GDP Growth Objectives 1976-80 48 7.2 Planned Investment 1966-80 49 8.1 GDP and GDY Average Annual Growth Rates 51 8.2 GDP, 1960-85 (Summary) 52 8.3 Investment, Savings and Balance of Payments, 1966-80 53 8.4 Public Finance Profile, 1966-80 54 8.5 Estimated Public Revenues at Different Phosphate Production Levels and Prices 55 8.6 Public Finance Profile, 1956-80 57 8.7 Sources of Foreign Finance 57 8.8 Debt Service Ratios 58 8.9 Proposed Flexible Investment Program 61 тоао аос:.� :иоге.rом о.т• ансст �лиа ►Re► стноу кнЕl ................................................. ............... тоао нЕ►св[нс[ соиNт4к[е скvт0! иоат vсссит тотц �ь,е .оRкс: 2й,9 квьо tвто [еткн.тt твЕ сиsвгл с.и[Даои tvnur !овет.. ... ... .... .. ... ..... . ......... аи• .[а с..кт� �иаак �ёо,о� iëo.o aio.o lоо.о� 2оо.о� з�е.о� .................... +0•U�втI]r лио v п ц sf икатlсе ............................... •о•иL►т2он crto.rr. riLL2oи) !,s г.о г.г o.s ь.ь 5.и •о+иL►тlои D[�elтr К• aOU.p[ .", гь.е 3и.д 3v,o и1,0 1и.0 кь,0 •Са аа. 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Ь �� ..д . �; 7i h'� r�' � ..1 � F� • °.�°�,S Pi�.� v� й�'е' �� о' ,l'� � � � �'�q �� у�Е К ° ii , ь` : ,. � .�,.у ь �'� �Х 1 ,�' �И8 �:�r , •iА ���� �ii � R о � ; r ��Ф �р � � s ���"г�� �� �,,'� ,�" 'w � . ' SELECTED ECONOMIC TRENDS 1960-75 Annual Average Growth Rates M GDP (in current prices) a/ 10.9 Lome: African Consumer Price Index 4.3* Lome: European Consumer Price Index 4.8* International Price Index 4.7 Recorded Merchandise Exports (value) 14.3 Export Price Index (recorded exports) 4.5* Recorded Merchandise Imports (value) 11.9 Foreign Assets (net) 14.0* Exports of Cocoa (volume) 5.2 Exports of Cocoa (value) 11.6 Exports of Coffee (volume) 2.0 Exports of Coffee (value) 5.7 Exports of Phosphate (volume) 18.5* Exports of Phosphate (value) 28.8* Current Budget Revenues 14.3 Current Budget Expenditures 12.7 OPAT Trading Profits 22.7* Credit to the Private Sector 15.3 Money and Quasi-money 17.6* Debt Outstanding and Disbursed 13.6* Power Consumption 17.5 a/ Estimated average annual GDP growth rate of 6-7% in constant prices. Shorter-term average growth figure because of incomplete data for the entire 1960-75 period. 18RD 2238Rз APR1L 1977 U Р Р Е R V О L Т А i� �`. �� - _ _ / () у'� �' � � оАРАиGо 1� � i1 1S А V А N N А ( то�о ``. R Ео�оN � TRANSPORTATION `,1. i NETWORK и•�% 5AN5ANNE- � MANGO •� � --л � � '/ \� � �� � __;к А R А �•�.�. _ � ` �� кдиDЕ 1 � �R Е 1ОN� �' млмТо0ои� D ` ��� Ко�те° PAGOUDA 7 1СЕТАО z ("�•J �AMAKARA ,/ t•✓' %�.-...� \ � �°пд�в\1о^ \ KABOU �I D J N°rch°тпб°� �1 вnssлei `•` � �. г С Е N R А L 1.` `•1 50KODE ' .1 ( �✓J R Е G 1 О N к°л�ь°ie � � � 1 �i.� sоТоивоиА ' �. �. 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APRIL 1977 zz 1 REPUBLIC OF TOGO ECONOMIC RESOURCES ca ca o Cassava cotton J~. Corn Millet Palmt products K ALIME YCLINKER P LANT Phosphts mine (CIMAO) 0 20 40 so 00,on Ts.0 év The boundaries shown on this map do not \ Aneho imply endorsement or acceptance by the LOM9 World Bank and its affiliates. i B R D 2097R NOVEMBER 1976 \. u p p V0/ I Dopongo A F R I C A 1 *~Kond j.i' Lamo-KoroI j Bosso, a Nuo .7 Sokodé' *1 .7 z . . RAINFALL INmm out *Nua - INTERNATIONAL BOUNDARIES 6 Pa mý o aolioo ø 0 30 60 ' KILOMETERS Aneho L by .- . . WæhI&»k,,dmnLOMEofr o ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest BOAD Banque Ouest Africaine de Developpement BTD Banque Togolaise de Developpement CEAO Communaute Economique de l'Afrique de l'Ouest CEB Communaute Economique des Etats de l'Afrique de l'Ouest CEET Compagnie Energie Electrique du Togo CERFER Centre Regional de Formation pour Entretien Routier CFDT Chemins de Fer du Togo CIMAO Societe des Ciments de l'Afrique de l'Ouest CNCA Caisse Nationale du Credit Agricole CNE Caisse Nationale d'Epargne CNPPME Centre National pour la Promotion des Petites et Moyennes Entreprises CNSS Caisse Nationale de Securite Sociale CTMB Compagnie Togolaise des Mines du Benin DRS Debt Reporting System (IBRD) EC European Community FAC Fonds d'Aide et de Cooperation (France) FADP Fonds d'Amortissement de la Dette Publique FED Fonds Europeen de Developpement ffbs Fresh fruit bunches FGCET Fonds de Garantie des Credits aux Entreprises Togolaises FIDES Fonds d'Investissement et de Developpement Economique et Social FNI Fonds National d'Investissement IFCC Institut Francais pour le Cafe et le Cacao IPRA Institut Polyvalent de Recherche Agricole ITT Industrie Textile Togolaise OCAM Organisation Commune Africaine et Malgache OPAT Office des Produits Agricoles du Togo OTP Office Togolaise des Phosphates RPT Rassemblement du Peuple Togolais SAB Societe des Allumettes du Benin SCIA Societe Industrielle Chimique Africaine SMAG Salaire Minimum Agricole Garanti SMIG Salaire Minimum Interprofessionnel Garanti SNI Societe Nationale d'Investissement SOCITO Societe Industrielle Togolaise SODETO Societe des Detergents du Togo SONAPH Societe Nationale de Developpement de la Palmeraie et des Huileries SORAD Societe Regionale d'Amenagement et de Developpement SOTOCO Societe Togolaise du Coton SOTOMA Societe Togolaise de Marbre et des Materiaux SOTOMARIAUX - Societe Togolaise de Materiaux SRCC Societe Nationale pour la Renovation et le Developpement de la Cacaoyere et de la Cafeiere Togolaise STB Societe Togolaise des Boissons STOCO Societe Togolaise de Credit Automobile UDEAO Union Douaniere et Economique d'Afrique de l'Ouest UNDP United Nations Development Program UTB Union Togolaise de Banque WAEC West African Economic Community (CEAO) 1. INTRODUCTION 1.01 Togo's real income growth per capita of more than 4 percent per year since independence in 1960 has been one of the highest in Africa. 1/ GDP per capita has increased from about $70 by the late 1950s to $290 in 1975 despite development prospects which were considered quite limited at the time of independence. 1.02 The present basic economic report analyses Togo's historical perfor- mance and reviews the country's development constraints and growth potential. The timing of the review is appropriate for three main reasons. First, the initial Five-Year Development Plans (1966-70 and 1971-75) have been completed and Togo is now embarking on a Third Plan covering the period 1976-80. Second, the economy has experienced some important structural changes, especially in infrastructure, and the next five years will see further change in agriculture and industry. Finally, the Bank Group's lending activities in Togo have in- creased in volume and diversified among sectors 2/, so it is opportune to take a broader look at the evolving economic scene both to put the Bank's program in perspective and to intensify the Bank's policy dialogue with the Togolese Government. 1.03 This report begins with a brief description of the natural environ- ment and past historical, social and political developments (Chapter 2). The following chapter focuses on the post-independence years, including the 1966-75 period covered by the First and Second Five-Year Plans (Chapter 3). Chapter 4 presents trends and policies in the mobilization of domestic and for- eign financial resources for development. The discussion of resource alloca- tion (Chapter 5) throws light on past development priorities and the instru- ments used to achieve them. The next two chapters are devoted to Togo's development perspective in the long run (Chapter 6) and the objectives and priorities of the Third Development Plan.(Chapter 7). Chapter 8 concentrates on the Government's development strategy, economic and financial management, and the country's principal policy options. Issues and perspectives in the principal sectors of the Togolese economy are presented in Annexes A through E. The report's recommendations are not presented as firm prescriptions for future action, but rather as a basis for discussions with the Togolese authorities. I/ Togo's real per caKpita GNP growth rate over the 1960-74 period (4.4 percent) is the seiond highest among African nations of over one million inhabitants (following.Libya), exceeding, among others, the Ivory Coast (3.5 percent), Nigeria (2.9 percent) and Benin (0.7 percent). 2/ The World Bank Group financed its first project in Togo (road maintenance) in 1968, amounting to $3.7 million. Four projects, totalling $84.2 mil- lion, were approved during 1973-1976, including two agricultural projects and the multinational clinker project CIMAO ($60 million), located in Togo and sponsored jointly by Togo, Ghana and the Ivory Coast. - 2 - 2. SOCIO-ECONOMIC STRUCTURE AND HISTORICAL PERSPECTIVE 2.1 Geography and Natural Resources 2.01 Togo is a small country of 57,000 km2 with long borders extending inland from the Atlantic coast, located between Benin on the East and Ghana on the West. The country has a diversified geography and climate, with five identifiable regions which present a wide variety of ecological conditions and constraints for agriculture. I/ Average annual rainfall exceeds 1,000 mm, but varies considerably between the regions. Lome, for instance, receives only 800 mm of rainfall annually, whereas the mountainous areas to the north record between 1,500 and 1,700 mm of rain per year, sufficient for such tropical crops as cocoa and coffee. The rainy season extends from April to October, with a short dry period in August and a long dry period between November and March in the south and until May-June in the north. Limited availability of water has been an important development constraint, especially in the north where existing surface water resources have not been properly exploited. 2.02 Of the total land area, 11 percent is cultivated, mostly on small farms using traditional methods, and some 50 percent of the total area is cul- tivable but unused thus far. Variations in soil quality in combination with the irregular pattern of rainfall are serious obstacles to increased produc- tion of cash and food crops and have limited agricultural diversification and more balanced regional development. 2.03 Togo's mineral resources have not been fully explored. High-grade phosphate and limestone deposits in the south are the principal minerals exploited so far; the phosphate deposits are among the richest in the world. Phosphate mining started in 1961 and sizable limestone deposits will be exploited by a multinational clinker company (CIMAO) by the end of the 1970s. Further mineral prospecting is required to confirm the presence of rutile, bauxite, iron ore, manganese, petroleum, and clay in commercial quantities. Petroleum test drillings have not produced any promising results to date. 2.2 Human Resources 2.2.1 Population and Demographic Factors 2.04 Togo's population grew by 3 percent annually from 1960 to 1970, when the census counted almost 2.0 million people. Although most of this increase was due to natural population growth, 14 percent of the total increase was caused by immigration. 2/ The net inflow resulted from an improved economic situation and a more development-oriented administration following indepen- dence. At the same time, Togolese nationals were repatriated from neighboring countries which also gained independence. I/ See maps and Annex A, Table 1. 2/ For further details on migration, see Zachariah and Nair, Togo: External and Internal Migration, May 1976 (mimeographed draft). -3- 2.05 The overall population density - about 34 inhabitants/km2 - is fairly high compared to other West African countries such as Ivory Coast (16 inhabitants/km2) and there are large regional and inter-regional differences in population density. The Maritime Region has the highest density with 110 inhabitants/km2 (77/km2 excluding Lome). Population densities in the Kara Region average 54/km2 but reach about 300/km2 in some areas due to riverblind- ness in almost one-fourth of the Region. Similarly, the overall density of the Savannah Region (28/km2) is misleading since riverblindness in the Oti Valley causes population pressure in other areas up to 90/km2. While the Plateaux Region has about the same overall density as the Savannah, the population is spread rather evenly due to the Region's agricultural potential. The Centrale Region is the least populated with only 15 inhabitants/km2. 2.06 The overpopulation in some parts of the country may be alleviated by the opening up of new land to production. The international campaign against riverblindness, which will start vector control activities in northern Togo shortly, is aimed at clearing arable land for future resettlement. This will be especially important for the Savannah and Kara Regions where soil depletion and low rainfall hamper any intensification of agriculture. Given already high population densities in these regions, major relief can only be expected from resettlement schemes. Strikingly, the migration of people from higher-populated rural areas like the Kara Region to other lesspopulated sections has remained small even though the areas may be adjacent. This is largely due to tribal land rights based on traditional rivalry and lack of ethnic cohesion. Almost all tribes show considerable lack of interregional mobility. 2.07 There are many ethnic groups with different languages, religions, and social patterns in Togo. The most numerous tribe is the Ewe in the South, accounting for about 44 percent of Togo's population. They have maintained close social and economic links to the Ewe population in southern Ghana and Benin and traditionally have dominated politics in Togo. 2.08 In the North, the Kabres are the most important ethnic group - ap- proximately 23 percent of total population - living mostly in the mountainous areas of the Kara Region, which historically provided natural protection during periods of political turmoil. The Kabres show a high degree of social and political cohesion and are remarkable cultivators in the face of harsh living conditions. Nevertheless, due to high population density, uneven rainfall, and overexploitation, they tend to migrate to other less populated regions of the country, mainly in the Center where cultivable land is available and climatic conditions are more favorable. The Kabres have been successful settlers despite difficulties in migrating to other areas. 2.09 Land transactions between different ethnic groups occur only rarely; generally, it is difficult to acquire ownership of land to which other tribes have rights of tenure, even in nearby sparsely-settled areas. As a result, land holdings are fragmented in some overpopulated areas, while other areas have ample unused land. A land tenure law, adopted in 1974, stipulates among -4- other things, that non-cultivated land belongs to the "National Land Inherit- ance" ("Patrimoine Foncier National") and can no longer be claimed by private owners. This law seems to provide a basic precondition for resettlement schemes which in turn could offer rural development potential. 2.10 While interegional migration has remained rather low, rural-urban migration has accelerated in recent years. Urban population grew 5.4 percent during 1960-70, but the larger towns of Lome and Sokode grew by more than 6.2 percent per annum. Urban population, i.e. inhabitants of seven urban centers of more than 10,000 people, increased from 8 percent of total popula- tion in 1950 to about 15 percent in 1975 1/. Over three-fourths of the total rural/urban migration in the country has been directed towards Lome, which now has a population of about 150,000. 2.11 The exodus to Lome and other urban centers is caused by factors common to virtually all African countries: seasonal underemployment in the agricultural sector combined with regional overpopulation, the search for salaried employment, better social infrastructure and a higher standard of living. While none of these factors are dominant throughout the country, population pressure and the rural/urban drift are obviously strong from high density rural areas in the Kara and Maritime Regions. The most important economic activities - cash crop production, phosphate mining, commerce, construction, and government administration - are heavily concentrated in the south. Since these have been the fastest growing sectors, the tradi- tional income gap between north and south has probably widened. Average per capita income in the Plateaux and Maritime Regions is estimated to be twice as high as in the north. 2.12 Togo's age structure is typical of a fast growing population, with 50 percent of the population below the age of 15 years and a life expectancy of 41 years at birth. Togo's birth and mortality rates, estimated recently Death rates should continue to decline with the Government's proposed emphasis on preventive medicine. This decline, coupled with the large number of people entering their reproductive years, could result in a population growth rate of 3.0 percent by 1985. 2.13 Although Togo has no official family planning policy, there are some family planning activities in the country. A 1920 French law prohibiting abortion still exists, but contraceptives are available through private and State pharmacies. A private family planning clinic is operating in Lome. When a private family planning association was recently established, a building was provided free-of-charge and staffed by the Government for use by the Association. Moreover, the Government appears to be taking a more systematic approach to the issue. The Government has expressed interest in establishing a demographic analysis unit. On-going discussions with USAID may lead to the construction of a Family Health Center which would provide materials and 1/ Lome, Tsevie, and Anecho in the Maritime Region, Palime and Atakpame in the Plateaux Region, and Sokode and Bassar in the Central Region. - 5 - supervisory services to both urban and rural dispensaries. Among these ser- vices would be the promotion of the Government-supported.program of "spacing of births". However, explicit promotion of family planning services, as well as maternal and child care, would be necessary to realize a reduction of birth rates. 2.2.2 Health and Nutrition 2.14 The major health problems in Togo are still the infectious and para- sitical diseases. Riverblindness is the second highest debilitating disease following malaria, while cholera and smallpox have been virtually eliminated through large-scale vaccination programs. Great strides have been made in recent years to establish a basic health infrastructure as shown below: Table 2.1: Health Indicators 1961 1965 1973 Population (000s) 1507 1659 2090 of which Maritime Region (518) (566) (761) Population/doctor (000s) 49 32 22 of which Maritime Region (24) (15) (11) Population/hospital bed 735 717 702 of which Maritime Region (605) (585) (591) Number of doctors 31 52 95 a/ Number of hospital beds 2050 2315 2979 Number of dispensaries 141 147 226 a/ There are an estimated 50 Togolese physicians practicing in France. Source: Data from various Togolese publications. 2.15 Nutrition is another important factor for health and the quality of life. Although the current average caloric intake of the Togolese popula- tion (approximately 2,300 calories) I/ does not indicate a nationwide nutrition deficit, regional disparities are substantial and the seasonal availability of food variable. 1/ The 1964-65 Togolese Household Survey and its 1971 update provided caloric intake date of about 1,675 calories/day for low-income house- holds. Although ti-is is considerably less than the "recommended" 2300 calories, it appears that the caloric content of food used in the Togolese documents in less than that estimated by the FAO. As a result, the mission has in:reased the daily intake estimates to account for the differences. -6- 2.16 Two basic diets are found in Togo: the sudanian type in the north which contains mostly grains and legumes, and the guinean type in the south in which roots and corn predominate. The southern diets are the most balanced with consumption of corn, spinach, meat and fish. The highest consumption of meat occurs in the central regions due to its availability with other staples being corn, farine and yams. The northern areas consume mostly cassava, millet and sorghum. As a result of the low consumption of animal proteins (except in the central regions) and the reliance on cereals for proteins, diets are presumably deficient in essential amino acids. 2.17 Improvements in food crop production, marketing and storage, infra- structure and information on nutrition and hygiene are important Government objectives in achieving and maintaining an adequate nutrition level nationwide. The education system with its innovative emphasis on maternal and child care and hygiene classes could be an important vehicle for more widespread nutri- tional information. 2.2.3 Education 2.18 The structure of Togo's formal education system is similar to that of other West African countries formerly administered by France: 6 years of primary school starting at age 6, 4 years of lower secondary school, 3 years of upper secondary school and higher studies of varying duration. Many of the problems associated with the system - inadequate linkage be- tween education outputs and employment needs, high repeater and dropout rates, disparities in sex and regional enrollments - are to some extent shortcomings of an imported educational system. The Government is currently undertaking a major education reform which addresses these questions. 2.19 Since independence, there has been a considerable expansion of school enrollments (Table 2.2): Table 2.2: Growth in Student Enrollment (000s of students) Primary School Secondary School Male Female Total Male Female Total 1960/61 74.3 29.1 103.4 3.9 1.0 4.9 1965/66 109.7 46.2 155.9 9.0 2.3 11.3 1970/71 157.7 70.9 228.6 15.6 4.1 19.7 1974/75 218.6 110.9 329.5 34.3 10.0 44.3 Growth per 8% 10% 8.6% 16.8% 17.9% 17% annum Source: UNESCO Reforme de l'education en vue de 1'egalite des chances et du developpement economique, November 1975. - 7 - With an enrollment ratio of about 65 percent, Togo now belongs to the small group of West African countries like the Ivory Coast and Ghana where universal primary schooling appears feasible in the medium term. 2.20 However, the high general enrollment rates hide regional imbalances and inequities based on sex. Enrollments are highest in Lome and the coastal region, and decrease towards the north where incomes are lower and communica- tions more difficult. While the enrollment of boys is almost universal, less than half of the girls attend primary school. The following table details the situation in the 1974/75 school year: Table 2.3: Enrollment-/in Primary School by Region and by Sex (1974/75) Unadjusted enrollment ratio Net Enrollment % Girls in total Region Boys Girls Total ratio enrollment Maritime 1.45 0.75 1.10 0.76 34 Plateaux 1.30 0.73 1.01 0.70 36 Central 1.08 0.53 0.81 0.56 33 Kara 1.14 0.56 0.85 0.59 33 Savannah 0.61 0.16 0.39 0.27 21 All Togo 1.33 0.67 0.92 0.63 34 1/ Total enrollment, including students older than normal age of school attendance, as a percentage of the 6-11 year old population. Source: Ministry of Education, Education Statistics 1974/75. 2.21 As a result of primary school expansion, social demand for access to secondary education has greatly increased. In response, the Government has lowered standards for admission to secondary school. While the average annual increase of intake in the first grade of lower secondary had been 21 percent from school year 1969/70 to 1973/74, it soared by 90 percent in 1974/75. The 49,000 students enrolled in secondary education in 1974/75 represented 15 per- cent of the 13 to 19 years old. Of these, 90 percent were in general secondary school and 10 percent in technical education or vocational schools. Up to now, curricula resembled those in France since the Togolese baccalaureat gave direct access to French universities. However, the Government is considering a change in this status in order to bring curricula in line with economic needs. 2.22 Togo's university (Universite du Benin) is still small, but is expanding rapidly. Enrollments increased by 36 percent from school year 1973/74 to 1974/75 and by 52 percent from 1974/75 to 1975/76 to reach a level of about 1,900 students. The distribution of enrollments, however, is not in line with national development priorities. An excessive number of Togolese students are enrolled in language, economics and law studies, a minority in fields linked to natural science. - 8 - 2.23 After expanding formal primary education, the Government has given more weight in recent years to developing higher and secondary education. How- ever, for training of skilled manpower (middle and higher levels) the country still depends to a considerable extent on foreign institutions. The education system is geared towards employment in public administration and the modern private sector, but reaches this objective only with considerable inefficiency. There has been little emphasis so far on basic education for adults or training of young people for work in agriculture and the informal sectors, where a great majority of the labor force will continue to work in the future (see Annex E). 2.2.4 Employment 2.24 Togo's active population (those over 14 years old), was estimated at 892,000 in 1975 or 40 percent of the total population. Although the agricul- tural sector still claims about 75 percent of the total labor force, salaried employment in the modern sector more than doubled during the past decade, as shown below. Table 2.4: Active Population % of total Average Annual (000s) population Growth Rate (%) 1966 1975 1966 1975 1966-75 Total Population 1714 2225 100.0 100.0 2.9 Active Population 579 892 34.0 40.0 4.9 Non-Agriculture 130 200 7.0 9.0 4.9 Non-Salaried 102 150 6.0 6.7 4.4 Salaried 23 50 1.3 2.2 9.0 Public (15) (32) 0.9 1.4 8.8 Private (8) (18) 0.5 0.8 9.5 Source: Appendix Table 1.3 2.25 The growth in salaried employment, which accounted for 4 percent of the active population in 1966 and 6 percent in 1975, was due in almost equal measure to the public and private sectors. Estimates of private sector employment by branch of activity in 1973 (Appendix Table 1.4) show commerce, construction and services as the leading branches of activity. Employment of women equalled 4% of the total, that of expatriates 3%. 2.26 The public/parapublic sector, however, claimed the larger absolute increase in salaried workers. Government personnel almost trebled between 1966 and 1975, reaching 22,500 employees in the latter year (Appendix Table 5.6). The expansion of Government personnel, primarily in the social services, is due to several factors including (i) the need to hire more teachers for an increasing school population, (ii) the necessity to staff health and social - 9 - centers, and (iii) the "obligation" to employ university graduates who are overqualified for the middle-level management and manual jobs offered in the private sector. 2.27 About 17,000 jobs for skilled and unskilled workers were created between 1970 and 1975. The number of job-seeking dropouts (school leavers between the sixth grade of primary school and the upper secondary level), however, ranged from 20,000 to 45,000 during the same period. These young people had to compete for jobs with older unemployed workers and with graduates of vocational training schools. During 1974/75, 61 percent of the technical and vocational students were enrolled in commercial streams, 14 percent in industry, 10 percent in health and social services, 8 percent in home economics, 4 percent in primary teacher training, and 3 percent in agri- culture. In recent years, graduates of agricultural, health and teacher training schools have had no difficulty in finding jobs due to the shortage of trained manpower in these sectors. However, there has been an excess supply of graduates with commercial, social science and home economics speciali- zations. 2.28 Unemployment in the urban areas is estimated at about 10 percent. Official employment figures for skilled and unskilled workers show that in 1973 only 27 percent of total job applicants were placed. The rural exodus in search of salaried employment and higher living standards brings too many untrained workers to the urban centers. In the rural areas, there is seasonal unemployment due to planting and harvesting patterns, inclement weather, and other factors. Fortunately, the traditional extended family system in Togo seems to mitigate the adverse effects of underemployment and unemployment. 2.25 Togolese Women in Development 2.29 Women have traditionally played a dominant and unique role in Togo's domestic trade. The "Queens of the Market" are engaged in most consumer goods trades including foodstuffs. In 1960, almost 90 percent of all Togolese merchants were women and this percentage is probably still appropriate today. Although most of the "revendeuses" are illiterate, they have an intrinsic business sense in trading activities which has greatly added to family incomes and supplemented farm revenues. Togo's flourishing tertiary sector is partly the result of this extraordinary socio-economic phenomenon, whose origin is not well documented. Trade may have become popular as a female occupation because of the seasonal farm migration of men away from their homes.. It is known that women expanded their trading activities during World War II. 2.30 In the rural sector, women manage the household, care for the family, work the subsistence and cash crops with their husbands, and process food for family consumption or for sale in the markets. Inadequate work implements, means of transportation, and nearby supplies of water and fuel make their tasks arduous. In the urban centers, tradeswomen have considerable freedom of movement and relative economic independence. They sell subsistence - 10 - crops, processed food, crafts, and, in Lome, various imported consumer goods. Also in Lome, the tradeswomen may have other economic and financial interests as diversified as textiles, taxicabs or real estate. Formally trained profes- sional women in government service, education, medicine and law are a minority. Employment of women in the formal private sector equals 4 percent of total employment, in the parapublic sector 7 percent and in Government about 10 percent. 2.31 The access of women to education, while improving rapidly, is still quite limited, and there is a 90 percent illiteracy rate for all women in Togo. Girls account for only 34 percent of primary school students, 23 percent of general secondary students, 32 percent of technical students, and 13 percent of university students. The low percentage of school-age girls attending primary and secondary school means that large numbers of women are not acquir- ing the skills, let alone functional literacy, that they will need in Togo's expanding economy. 2.3 Trade Development 1/ 2.32 At independence in 1960 the general structure of the economy was little different from what it had been some thirty years earlier when tropical export crops were developed and the basic transport infrastructure (a wharf, 330 kilometers of railway, and a simple road system) completed. 1/ See Annex F for a brief summary of historical developments. - 11 - Table 2.5: Historical Trends in Foreign Trade A. Volume of Exports 1937-40 1941-45 1946-50 1951-55 1956-60 1961-65 1966-70 1971-4 (in '000 Metric Tons / en mliers de tonnes) Cocoa 7.7 2.8 2.7 8.9 6.5 12.7 19.6 22.0 Coffee 0.5 1.4 1.6 3.4 6.6 11.0 10.7 11.2 Catton Seeds + Fiber 3.4 3.4 3.3 3.7 4.7 4.7 5.4 5.1 Paln Products 8.4 9.1 6.6 8.9 10.6 12.8 15.1 10.0 Shelled Grounduta 1.9 2.0 2.8 2.9 2.0 2.5 4.4 1.8 Capra 2.9 1.8 2.2 5.2 4.0 2.9 0.9 0.2 Cassava Preducts 2.2 0.8 5.9 5.1 7.2 6.1 4.4 7.2 Phosphates - - . - - 459.5 1,214.4 2,095.9 Textiles - - . - - - 0.1 1.9 Other Producta 22.2 7.7 6.46.5 6.3 6.9 7.5 TOTAL 49.2 29.0 31.5 4,7.4 48.1 519.0 1 2,162.9 B. Value of Exports and Imports (billions of CFA Francs) Total imports 0.07 0.09 0.9 2.5 4.2 8.3 13.4 23.0 Total exports 0.07 0.11 0.81 3.13 3.12 5.50 10.59 21.30 Source: Annex Tables 3.3 and 3.4 Togolese agricultural exports still consist mainly of cocoa, palm products and cotton (introduced in the early twentieth century), and coffee (introduced in the 1930s and expanded steadily through 1960). The principal development dur- ing the period 1935-60 was the decline in official cocoa exports during World War II and their recovery to earlier levels during the 1950s. However, cocoa export data is not a good indicator of local production due to unofficial border trade (smuggling) with Chana. Coffee, copra and cassava products (mostly starches) showed some dynamism, but in general the impression is one of limited development in the preindependence era. This view is supported by qualitative statements and reports from a variety of sources. 1/ 1/ Samir Amin, L'Afrique de l'Ouest Bloquee, 1'Economie politique de la colonisation 1880-1970, Paris 1971. Robert Cornevin, Histoire du Togo, 3ieme Edition, Paris, 1969. Michael H. Payson, The Management of Economic Development in the Republic of Togo, in: Managing Economic Development in Africa, MIT Press, 1963. - 12 - 2.33 Official merchandise imports and exports were broadly in balance during 1935-55, implying that net capital flows were negligible during that period. In the latter half of the-1950s, however, a trade deficit emerged, which was financed by rising net inflows in the services and capital accounts. Public investment of about CFAF 1 billion per year during the 1950s was financed primarily by the French FIDES (Fonds d'Investissement pour 1'Equipe- ment Economique et Social). Still, investment outlays were small, accounting for no more than 5 percent of GDP by the end of 1950s, and annual average GDP growth was about 5 percent. Efforts were also made at this time to develop, human resources, and the primary school enrollment rate rose to about 45 percent by 1960 versus 10 percent in the late 1940s while health standards also improved. Malnutrition remained a problem, however, especially in the dry north. 2.34 At the end of the 1950s, over 80 percent of the Togolese population was employed in agriculture, which contributed about 60 percent of GDP. Food crops, mainly for local consumption, accounted for over 80 percent of agricul- tural output and were much more important to agricultural income than either coffee or cocoa, which represented the bulk of exports but accounted for less than 10 percent of agricultural output. 2.35 Next to agriculture, trade has been an important activity histori- cally, with a high degree of commercialization prevailing since the turn of the century. The tertiary sector (commerce, transport, and public administra- tion) accounted for approximately 30 percent of GDP in the late 1950s. Offi- cial external trade was restricted essentially to the southern part of the country where cash crops were grown and the transport network had been established. The direction of foreign trade was heavily concentrated, first on Germany and later on France. Smuggling, long a feature of Togo's open economy, has consisted primarily of African agricultural products and European consumer and intermediate goods such as farm inputs. The magnitude of such activities is difficult to estimate, although periodic fluctuations have occurred mainly in response to differences in producer prices and foreign exchange rates among neighboring countries, particularly on unofficial markets. 2.36 The secondary sector was embryonic before independence, comprising mainly food processing and artisan activity and accounting for an estimated 10 percent of GDP. Virtually all the value added of the secondary sector origi- nated from small local firms or craftsmen. The number of enterprises engaged in manufacturing or processing could be counted on one hand: a palm oil factory which had been established in the early colonial period, a cassava processing plant set up in the early 1950s which produced cassava starch for export, one or two small enterprises producing construction materials, and one or two enterprises which had evolved from the retail trade and were engaged in packaging and bottling (soft drinks, soap and perfumes). 2.37 By independence, Togo's GDP was about $100 million, or roughly $70 per capita. At that time Togo ranked slightly above the poorest francophone - 13 - countries. The country had also been relying on direct French budgetary support, which was a normal feature of the preindependence budget. The country's immediate economic outlook as an independent nation was considered rather bleak given its historical development and economic structure. 2.4 Political Development 2.38 Compared with other West African countries, Togo has enjoyed relative political stability since independence in April 1960. The first president, S. Olympio, was replaced following a military coup in January 1963 by M.N. Gounitzky. After a transitional period, the military took power formally, with General Eyadema becoming president in January 1967. In the same year, all political parties were abolished and the National Assembly was dissolved. 2.39 General Eyadema, who belongs to the Kabre tribe of the Kara region, is the first president from the north. His Government's aim has been to build a modern nation through the one-party system of the Rassemblement du Peuple Togolais (RPT) which was created in 1969. The country is well-managed compared with many African nations; the ministers are considered to be competent and the administration is generally adequately staffed and equipped. The civil service has been left basically intact since independence and reshufflings kept to a minimum. Some key cabinet posts are held by ministers from the north, but most ministers are non-political technicians and the composition of the Government generally reflects a careful balance of regional representation. There is, however, a concentration of economic decision-making at the Presi- dent's level and a lack of coordination among ministries and public agencies partly due to a proliferation of public institutions. 2.40 One of the Government's main socio-political objectives is to over- come the long-standing north-south rivalry and to achieve a high degree of unity among the various ethnic groups, especially between the Kabres and the traditionally dominant Ewes. Togo's mineral deposits and export crops are concentrated in the south, while the northern parts of the country are econom- ically backward with less development potential. Thus, Government policies aimed at mitigating regional disparities are not only in line with economic objectives and social equity, but also reflect efforts to achieve unity among the Togolese people. 2.41 The new Third Development Plan (1976-80) indicates that sustained growth, combin.ed with equity considerations, remains of prime concern. The Government's economic philosophy is principally liberal, favoring private initiative and relying on the free market mechanism. The Government normally intervenes directly only when, in its view, private investment is not suffi- ciently forthcoming. It has pursued an open door policy in international trade and maintained import tariffs below those of neighboring countries. - 14 - 2.5 International Economic Policies 2.42 Because it was under League of Nations mandate (after World War I) and subsequently UN trusteeship (following World War II), Togo could not in principle follow discriminatory trade practices. At the time of independence the Togolese "open door" was as much a result of historical precedent as an explicit policy aimed at benefitting from the country's geographic position and comparative advantage. In any case, a non-discriminatory tariff structure has distinguished Togo from many other West African countries and has influ- enced post-independence developments. Togo's past (first as a German colony and then under French administration) helps explain the diversified sources of foreign assistance which have been made available to the country, particularly German, French and UN funds and technical assistance. Aid from the European Community, the US, China and others has emerged more recently. 2.43 Because of the small size of the country and its long, virtually open borders, Togo's commercial and economic policies have inevitably been shaped by interregional considerations. The Government is well aware that the effects of its policies in such fields as producer prices and tariff levels are limited by its open borders, and it has therefore kept a close eye on developments in neighboring countries. Exposure to international trade over a long period has injected a substantial degree of pragmatism and flexibility into Togolese policies. 2.44 Togo has adopted a positive policy toward a number of important regional economic institutions in West Africa. For example, in 1963 Togo joined the West African Monetary Union (UMOA), which originally consisted of Benin, the Ivory Coast, Mauritania, Niger, Senegal and Upper Volta. The common central bank (BCEAO), free convertibility of the CFAF at a fixed parity with the French franc guaranteed by France, and free capital movements within the Region have helped develop Togo's external trade and facilitated international capital movements. Togo's link with the Franc Zone has helped maintain finan- cial stability and attract foreign capital even though the scope for indepen- dent economic policy making has been limited by Monetary Union rules governing interest and foreign exchange rates. Over the last few years reforms toward a larger degree of monetary autonomy for the members of the Monetary Union have become increasingly urgent. In 1973 the UMOA countries renegotiated the Cooperation Agreement with France and restructured the UMOA system to make it more responsive to their needs for economic development, integration and Africanization. Actively supported by Togo, a West African Regional Development Bank (BOAD) has recently been established within the framework of the Monetary Union. Headquartered in Lome, BOAD's principal objectives are to promote economic development and regional integration within the Monetary Union by funding priority national and regional projects. - 15 - 2.45 Togo is also a member of other regional African organizations such as the Conseil de l'Entente I/ and the OCAM 2/. Togo, together with Nigeria, was the chief promoter of the Economic Community of West African States (ECOWAS) 3/ which consists of 15 French, English and Portuguese speaking West African countries, formally established in May 1975. ECOWAS constitutes a new development in cooperation between essentially French and English speaking countries; it is the first formal union between the two communities and repre- sents a considerable achievement. At this initial stage it is not yet possible to evaluate in detail the benefits Togo may derive from its association with ECOWAS. However, it is obvious that the Nigerian and Ghanean markets will become increasingly important for the Togolese economy, and ECOWAS is the first regional grouping which provides the institutional framework for such multilateral cooperation. Togo did not join the smaller West African Economic Community (CEAO) 4/ or its predecessor organization, the West African Customs Union (UDEAO). These decisions indicate that the country evaluates the costs and benefits of each regional grouping and tries to achieve the following goals: (i) to overcome the constraints of the small domestic market; (ii) to preserve, at least in the short and medium term, the trade advantages of its liberal open door policy; and (iii) to expand potentially vital economic ties with the two neighboring anglophone countries, Ghana and Nigeria. Signifi- cantly, Togo has recently been an active participant in specific multinational ventures such as CIMAO (Societe des Ciments de l'Afrique de l'Ouest) in the industrial sector and CEB (Communante Electrique du Benin) in the power field (see Annexes B and D). Togo is actively pursuing further possibilities for international regional cooperation in other industrial sectors and in communications. 3. ECONOMIC DEVELOPMENT SINCE 1960 3.1 Introduction 3.01 From 1960 to 1975, real economic growth averaged some 6 percent per year. The sustained expansion in Togo's economy through 1970 was largely due 1/ Members: Benin, Ivory Coast, Niger, Togo and Upper Volta. 2/ Members: Central African Republic, Benin, Gabon, Ivory Coast, Malagasy Republic, Niger, Rwanda, Senegal, Togo, Upper Volta, Mauritius. 3/ Members: Benin, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo, Upper Volta. 4/ Members of the WAEC/CEAO are: Ivory Coast, Mali, Mauritania, Niger, Senegal, Upper Volta. Observers: Togo and Benin. - 16 - to a vigorous expansion of phosphate production and favourable market condi- tions for cocoa and coffee, complemented by continued development of Togo's role as a regional commercial entrepot. In the early 1970s, economic growth in the primary sector slowed somewhat due to adverse weather conditions and a reversal of market conditions for Togo's main exports. Recent years have been marked by a phosphate boom in 1974 (quadrupling phosphate prices) and a subsequent decline, bringing 1975 real GDP back to the 1973 level. The Government's expansionary demand management policies in 1974 and 1975, associ- ated with a rise in short and medium term foreign borrowing, has increased the overall level of debt and prospective debt service. However, a solid basis for future growth has been established. 3.2 Economic Setting 1960-65 3.02 The basis for a significant transformation in the structure of the Togolese economy was laid during 1960-65, spurred by the start up of phosphate production and the construction of a new deepwater port. Phosphates were not the only source of growth; the rise in capital outlays, financed primarily by foreign capital, stimulated economic activities in such subsectors as the con- struction industry, power, and commerce, which expanded more rapidly than GDP. Agricultural production as a whole grew only moderately and food crops probably barely kept pace with population growth, due to the lack of investment, inade- quate extension services, and insufficient technical assistance. The impact of the primary sector on the economy began to decline and its share of GDP fell from 60 percent in 1960 to less than 50 percent by the mid-1960s. 3.03 Mining dominated the rise of industry, but the government also began to promote certain import substitution manufacturing enterprises, even though the obstacles to industrialization were formidable. The domestic market suffered not only because the population was small and per capita income low, but also because the import distribution network enjoyed high profit margins and had little economic incentive to invest these profits in domestic process- ing facilities. Industrialization was also impeded by the historical orienta- tion of trade in raw materials toward Western Europe and the absence of adequate transportation and communication links with neighboring African countries. In addition to these domestic and foreign marketing problems there was no tradition of modern manufacturing among the Togolese people and no economic infrastructure to support industrial activity. Construction of the deepwater port, improvements in the road and rail networks, and plans to ex- pand electric power supplies and telecommunications were intended to overcome these constraints. 3.04 The Government relied primarily on private initiative and financing to establish new enterprises while limited public revenues were channeled to improvements in infrastructure. As in the case of other West African coun- tries, the principal instrument used to encourage private investment was an - 17 - investment code, the initial version of which provided for different categories of incentives, generally more favorable for larger investments. A number of new enterprises which were launched in the early 1960s are still covered by this legislation, although some tax exemptions have begun to expire. Table 3.1: Structure of Sources and Uses of GDP 1960-1975 A. Average Share of GDP (%) 1960 66-70 71-75 1. Agriculture 60 43 30 2. Industry 10 20 27 of which mining (0) (6) (12) 3. Tertiary Sector 30 37 43 Total 100 100 100 B. Structure of Resources and Uses 1. GDP 100 100 100 2. Imports (G&NFS) n.a. 26 29 3. Resources = Uses n.a 126 129 4. Consumption n.a 88 83 5. Investment n.a 13 19 6. Exports (G&NFS) n.a 25 27 Source: Statistical appendix and mission estimates. - 18 - Chart 3.2: Development of GDP and Principal Economic Sectors, 1960-75 GDPISector (CFAF bit) 140- GOP 120- 44% 100- 80- Tertiary 60- (service) Sector 29t 40 - Secondary (industrial) Sector 30% -20 27% Primary Wagricuitural) Sector 60% 01 1960 1965 1970 1975 Years World Bank- 16623 - 19 - 3.3 Trends in Output 1966-75 3.05 Mining, manufacturing and services continued to be the leading sectors of the economy during 1966-75 while agricultural production lagged behind (see Table 3.1 and Chart 3.2) 1/. In the industrial sector phosphate mining was the source of growth, as production capacity and output were expanded from I million tons in 1966 to 2.5 million tons by 1974. Phosphate mining not only contributed to the growth of output but also provided a substantial and fast expanding source of net foreign exchange earnings and public revenues, particularly towards the end of the period, which in turn permitted higher levels both of imports and government services. 3.06 Domestic value added in manufacturing doubled in constant prices between 1966 and 1975, but the net contribution to the economy was much less owing to capital charges and transfers abroad. In the last half of the 1960s, especially as a result of the completion of the new port in 1967, about ten new enterprises were set up in the Lome area, including a brewery and a cotton textile plant; another dozen factories were added in the first half of the 1970s. For a number of reasons (see Annex B), the financial and economic benefits of these new undertakings have to date been less than they could have been, though as a whole economic returns have been positive. On the other hand the national accounts attribute substantially higher value added to small scale and artisan establishments than to the new, medium scale companies. 3.07 The large and rising share of the service sector in GDP realisti- cally portrays a distinguishing feature of the small Togolese economy. There was a marked rise in public services expenditure in the 1970s as public reve- nues rose dramatically. However, growth in the output of services during the 1960s and 1970s is mainly attributable to the private sector (see Appendix Table 2.1), with Government's share of total services having been only about 20 percent. Value added in transportation and commerce is, of course, closely linked to the growth of exports and imports, including the important element of unrecorded trade. At the same time the acceleration in the rate of invest- ment has engendered a rise in the demand for a wide range of domestic services, and there has been a major expansion in hotel, restaurant and tourist facili- ties in the Lome area. 3.08 During 1966-75, growth in total agricultural output was modest, not- withstanding a jump in the volume of cash crop exports in 1970 and 1971. This disappointing result appears to have stemmed from a combination of internal policy and external factors. On the policy side, producer prices in Togo have been low. This disincentive could have been offset by investment, credit, and technical assistance programs, but institutional obstacles were difficult to 1/ National accounts somewhat overstate the growth in services and under- state the growth in agriculture because of the practice of attributing surpluses of the price stabilization and marketing agency (OPAT) to the service sector. Reallocating these surpluses to agriculture would change the relative shares by 1.5 to 2.0 percentage points. - 20 - overcome and resources were channeled to other sectors. Thus, during 1966-73 investment in agriculture represented only 12 percent of total public capital outlays. At the same time, export prices for agricultural products fluctuated widely, falling in the early 1970s, while drought struck the production of food crops in 1972-73 requiring an increase in food imports (see Annex A). 3.4 Trends in Demand 1966-73 3.09 Private consumption has grown at an average rate of 5.0 percent per year from 1966 to 1973, exhibiting an elasticity of 1.09 with respect to GDP. I/ Over this period, the structure of private consumption has changed only slightly (see Table 3.3). The major trend has been a substantial de- crease in the share of imported goods in total private consumption. This has resulted from the higher availability of domestic consumer goods, particularly textiles and footwear (see Table 3.4). Table 3.3: Structure of Private Consumption, 1966-71 a/ CFAF billion Percentages Changes 1966 1969 1971 1966 1969 1971 1966/71 Foodstuffs and beverages 27.2 34.5 37.8 65.7 63.0 59.6 -6.1 Consumer goods 5.5 7.2 9.4 13.3 13.2 14.8 1.5 Housing, Fuel and Electricity 5.0 6.4 8.0 12.1 11.7 12.6 0.5 Transport & Communications 1.8 3.3 4.3 4.3 6.0 6.8 2.5 Health 1.2 1.6 1.2 2.9 2.9 1.9 -1.0 Other Services 0.7 1.8 2.7 1.7 3.2 4.3 2.6 TOTAL 41.4 54.8 63.4 100.0 100.0 100.0 - a/ Includes purchases of cars classified under Transport & Communcations in the national accounts. Source: National Accounts. 1/ However, the share of total consumption in GDP declined on average in 1970-75 because of the exceptional developments in 1974-75. - 21 - Table 3.4: Share of Imports in Private Consumption, 1966-71 CFAF billion Percentages 1966 1969 1971 1966 1969 1971 Foodstuffs and beverages 27.2 34.5 37.8 100.0 100.0 100.0 of which imports (4.5) (5.7) (5.0) (16.5) (16.5) (13.2) Clothing and footwear 3.0 4.6 5.1 100.0 100.0 100.0 of which imports (2.8) (4.4) (0.7) (93.3) (95.7) (13.7) Other consumer goods 2.5 2.6 4.3 100.0 100.0 100.0 of which imports (2.1) (1.5) (2.8) (84.0) (57.7) (65.1) Fuel and lighting products 2.0 2.5 2.9 100.0 100.0 100.0 of which imports (1.1) (1.3) (1.9) (55.0) (52.0) (65.5) TOTAL 34.7 44.2 50.1 100.0 100.0 100.0 of which imports (10.5) (12.9) (10.4) (30.3) (29.2) (20.8) Note: Same source as Table 3.3 but excludes services, which are local. Table 3.5: Origin of Inputs Major Manufacturing Industries Total Invest- Production Origin of inputs ments end of in 1973 1973 Local Imports (CFAF billion) (CFAF billion) (Percentages) Industrie Textile Togolaise (ITT) 3.0 1.8 6 34 (China) 13 (W. Germany) 47 (Other) Brasserie du Benin (BB) 2.0 1.1 - 100 (Europe) Societe des Ciments du Togo (CINTOGO) 0.5 1.0 - 95 (Spain) Societe Togolaise des 5 (Other) Boissons 0.3 0.6 - 100 (France) BATA SA - Togolaise 0.1 0.3 - 80 (France) 10 (Italy) 5 (United Kingdom) 5 (Other) Source: Les industries du Togo, BCEAO, October 1973 and Direction de l'Industrie. Ministre du Commerce et de l'Industrie. Since most import substitution industries in Togo rely on imported raw mate- rials and semi-finished inputs, it is not clear whether the decrease in the share of imported goods in private consumption has resulted in any reduc- tion of the country's dependence on imports. There are indications that the - 22 - result has largely been a change in the composition of imports. The share of intermediate goods increased steadily from 16 percent of imports in 1966 to 20 percent in 1973, while that of consumer goods decreased, even during 1969-71, a period of booming transit trade. As incomes have increased, the demand for foodstuffs has grown at a slower rate than that for other consumer goods, the production of which has required increasing imports of intermediate goods. This type of industry-processing of imported inputs for domestic con- sumption is still at an early stage, and although there may be gains in employment and domestic value added, its development is not likely to result in any significant foreign exchange savings. The demand for equipment goods - and intermediate goods - has also been very strong over the period under re- view as a result of the steady increase in investments, particularly for infrastructure and construction. In real terms, imports of equipment goods grew at an average rate of 12 percent per year from 1966 to 1972. The decrease in 1973 was mostly due to a temporary slowdown of public investment. 3.5 Developments in the External Sector 3.10 Between 1966 and 1970 exports grew at an average annual rate of 12 percent in value mainly as a result of favorable prices for cocoa and coffee, increased cocoa production and exports, and higher earnings from unrecorded trade. Coffee and cocoa prices increased by 8% and 20% respectively. While coffee tonnage fluctuated markedly, the volume of cocoa exports almost doubled, due mostly to unrecorded border trade. Unrecorded trade with neighboring countries has been estimated at 32% of total export trade between 1966 and 1970, or 8% of total GDP during the period. It is largely composed of consumer goods and agricultural products, especially cocoa which is smuggled across the border to take advantage of price differentials. 3.11 Imports grew moderately, and net outflows of services remained fairly stable, producing an average current account deficit of less than 3 percent of GDP during 1966-70. The combination of these factors and growing inflows of foreign assistance resulted in temporary increases in foreign reserves, which were partly used up, however, during the economic downturn of the early 1970s. Table 3.6: Balance of Payments Summary, 1966-73 (in CFAF billions) 1966 1967 1968 1969 1970 1971 1972 1973 Trade Balance -0.9 0.2 1.5 1.7 -1.8 -2.9 -5.7 -4.5 Services Balance -1.6 -1.7 -2.2 -2.3 -1.7 -3.4 -4.7 -3.0 Transfers (Net) 2.4 2.4 2.8 4.7 4.3 5.3 6.2 6.0 Private Capital (Net) -0.1 -0.5 - -1.4 0.6 0.7 1.3 1.1 Public Capital (Net) 1.3 0.8 0.1 -0.2 -1.3 0.7 1.5 0.1 SDRs - - - - 0.5 0.4 0.4 - Errors and Omissions -0.6 -0.1 -1.8 1.3 -0.4 -1.0 -0.9 -1.3 Reserve Movements -0.5 -1.1 -0.4 -3.8 -0.2 0.2 1.9 1.6 (- = increase) Source: Appendix Table 3.1 - 23 - 3.12 In the early 1970s, the terms of trade deteriorated sharply because of falling cocoa prices in world markets. As a result of the rigidity in export supply - particularly of agricultural exports due to unfavorable weather conditions and declining border trade - Togo has not been able to compensate for this loss in purchasing power by increasing export volume. The resource gap widened and represented on the average more than 6 percent of GDP during 1971-73. However, foreign assistance in the form of grants and loans continued to increase in response to the growing needs of the country and the gradual expansion of the absorptive capacity. This, coupled with the drawing down of reserves accumulated during the past, helped maintain an investment level necessary for continued growth. 3.13 The composition of Togo's export trade has changed, particularly during the last ten years, largely due to the rising importance of phosphate sales which began in 1961. The country's export concentration, and thus its exposure to fluctuating world market conditions, has accelerated as a result (Table 3.7). Agricultural production has not kept pace with the growth of phosphate exports, and the share of agricultural products in total exports declined from 100 percent Table 3.7: Composition of Recorded Merchandise Exports, 1950-75 1950s 1961-65 1966-70 1971-75 1. Share of three most important export products in total exports (%) 72 73 80 89 2. Share of five most important export products 80 86 88 93 in total exports (%) 3. Share of agricultural products in total exports (%) 100 79 68 41 during the 1950s to about 40 percent in recent years. Despite substantial increases in phosphate exports - average annual growth rates of 19 percent in volume terms and 29 percent in value since 1961 -- Togo's world market share remains modest, accounting for approximately 6 percent of the world export market. 1/ 3.14 The direction of Togo's foreign trade has changed significantly during the past 10-20 years. The major change has been a shift of trade away from France toward other countries of the European Community and Japan (Table 3.8). I/ For cocoa and coffee, Togo's world market shares are about 2 percent and 1 percent respectively. - 24 - Table 3.8: Direction of Foreign Trade, 1956-74 (% of total exports or imports) 1956-60 1961-65 1966-70 1971-74 1. Selected destinations of exports - France 74 49 35 38 - Netherlands 5. 9 22 31 - Germany 1 5 13 9 - Other European countries 4 17 16 11 2. Selected origins of imports - France 48 33 31 35 - United Kingdom 7 9 11 9 - Japan - 10 10 4 - Germany 5 11 9 10 - Other European countries 8 11 14 16 These data are based on recorded merchandise trade only. Including estimates of unrecorded border trade, African countries together ranked second in Togo's total foreign trade. For Togo's principal export goods - phosphate, cocoa and coffee - European Community countries have been the traditional export markets. For coffee and cocoa, this geographic concentration may be beneficial in the framework of the EC Stabex arrangement 1/. Togo has recently made special efforts to diversify its export outlets, especially for phosphates, through sales to Canada, China, and some Middle East and Eastern European countries. Imports from France and Germany consist mainly of trans- port equipment, machinery and chemical products. In contrast, the United Kingdom's exports to Togo are oriented towards consumer needs: tobacco, liquor, printed cloth, as well as cement. More than 60 percent of imports from Japan consist of iron and steel products, transport equipment and printed cloth. 3.6 Recent Developments 1974-75 3.15 The years 1974 and 1975 saw extraordinary and abrupt changes in the world economy. These were characterized, on the one hand, by the quadrupling of the crude oil price and the intensification of worldwide inflation and, on the other hand, by the commodity boom. Many developing countries were hard hit by the resulting recession in the industrial countries as well as by the falling terms of trade. Togo, however, emerged as a "net gainer" from the 1/ In compensation for declining coffee exports to the EC, Togo received grant aid under the Stabex export revenue stabilization scheme amounting to 2.7 million units of account in 1976 (approximately $3.1 million, or 2.5 percent of Togo's 1975 merchandise export receipts). - 25 - overall price developments. For the period 1973-75, the increased oil bill accounted for about 1 percent of GDP, while improvements -in Togo's non-oil foreign trade averaged 6 percent of GDP, thus leaving a net gain of approxi- mately 5 percent of GDP. The balance of payments registered an unprecedented surplus of more than CFAF 20 billion in 1974. 3.16 The slump in phosphate exports in 1975 coupled with a step-up in imports generated by the 1974 boom resulted in a drawdown of reserves of CFAF 5.5 billion during 1975 but this only slightly eroded the gains from the overall price developments of these years. The country has been quick in adjusting to the change in its resources: wages and salaries in the urban sector were increased by 10 percent in January 1974 and again by 15-20 percent in January 1975. In the agricultural sector all producer prices have been raised, sometimes substantially as in the case of groundnuts which increased by 85 percent since the 1973/74 crop year. Investment outlays in 1974 and 1975 were almost 60 percent higher than in 1973, with a strong emphasis on infrastructure. Real increases in income, however, were lower in view of the accelerating worldwide inflation, which also affected price rises in Togo even though, as in the past, inflation rates in Togo tended to be lower than elsewhere. 4. RESOURCE MOBILIZATION 4.1 Domestic Resource Mobilization 4.01 During most of the period from 1960 through 1975, Togo enjoyed sub- stantial success in mobilizing both domestic and foreign financial resources, preserving adequate reserves and external credit (such as BCEAO, IMF, and EC Stabex facilities) to meet the swings in an open economy, and in the financing of public investment. Phosphate revenues were, of course, the major new element in the resource mobilization picture, but their greatest impact did not come until the 1970s, and Togolese policies and performance in raising and managing other revenues were also important in preserving financial stability. The public sector as a whole, including Central Government as well as para- fiscal agencies, tapped an increasing share of available resources throughout the period. 4.1.1 Savings and Investment 4.02 In the late 1950s equilibrium in the Central Government budget was maintained by current transfers from France. However, by the mid-1960s Togo had managed to achieve a small current surplus (Table 4.1). While savings were achieved through increased current revenues in the early 1960s, an austerity policy applied by the Government was the prime cause of budgetary - 26 - savings in the late 1960s. Current expenditures expanded in the early 1970s under a general relaxation of expenditure control, but the Government managed to keep expenditures well below current revenues. The success of public resource mobilization through both expansionary revenue and generally prudent expenditure policies has been a remarkable feature of Togo's fiscal policies. Table 4.1: Central Government Finances, 1956-75 a/ Average per year (CFAF billion) as a % of GDP 50-60 61-65 66-70 71-75 56-60 61-65 66-70 71-75 1. Current revenues 2.4 4.0 6.9 16.4 9.6 10.9 11.1 15.5 2. Current expenditures 2.7 4.0 5.6 13.1 10.8 10.9 9.0 12.4 (of which public debt)(..) (0.2) (0.4) (0.9) (..) (0.5) (0.6) (0.8) 3. Current balance -0.3 0 1.3 3.3 -1.2 0 2.1 3.1 (investable savings) 4. Investment expenditures .. 0.3 0.9 4.2 .. 0.8 1.5 4.0 (capital budget) b/ 5. Overall balance .. -0.3 0.4 -0.9 .. -0.8 0.6 -0.9 6. Budgetary savings (3 plus public debt) (-0.3) 0.2 1.7 4.2 (-1.2) 0.5 2.7 3.9 a/ Basically cash flow data of the Government's budgets, excluding OPAT and other public and para-fiscal institutions. b/ Excludes foreign-financed investments. Source: Data provided by the Togolese authorities and mission estimates. 4.03 Budgetary savings reached 4 percent of GDP during 1971-75 as new tax measures, a special export tax, modifications to make the tax system more progressive, and taxation of public enterprises strengthened revenues. It is not possible to isolate the effects of the new tax measures, but the tax system as a.whole has proved to be quite responsive to economic growth. While the average long-term revenue buoyancy 1/ of the tax system from 1960-70 was about 1.3, the average buoyancy for 1966-75 was markedly higher (1.7). 1/ Annual average revenue growth divided by annual average GDP growth. - 27 - 4.04 Savings from parapublic.enterprises - primarily the phosphate mining company (CTMB), in combination with the phosphate sales agency (OTP), and the agricultural price stabilization agency (OPAT) - have become increasingly im- portant following the commodity price hikes in the 1970s and CTMB's nationali- zation. Their combined savings nearly equalled average 1971-75 budgetary saving (Table 4.2) 1/ Table 4.2: Public and Parapublic Investment Financing, 1966-75 a/ as a % of public CFAF billion as a % of GDP investment 66-70 71-75 66-70 71-75 66-70 71-75 1. Budgetary savings 8.4 20.7 2.7 3.9 34 31 2. Other public savings 2.5 15.7 0.8 3.0 10 24 3. Total public savings 10.9 36.4 3.5 6.9 44 55 4. Debt service 1.9 4.3 0.6 0.8 8 7 5. Net public savings 9.0 32.1 2.9 6.1 37 48 6. Change in reserves, errors & omissions b/ -1.4 -0.5 -0.4 -0.1 -6 -1 7. Foreign financing 16.8 35.0 5.4 6.6 69 52 8. Total public and parapublic invest- ment a/ 24.4 66.6 7.9 12.6 100 100 a! Development Plan concept (i.e., includes public enterprises OPAT and CTMB). b/ Minus means increase in reserves; item 6 represents a residual item. Source: Data provided by the Togolese authorities and Mission estimates. I/ It is assumed that part of OTP profits realized during 1974-75 will be recorded in 1976 or later, which tends to underestimate the average 1971-75 savings performance. - 28 - 4.05 Comparing the five-year periods 1966-70 and 1971-75, public savings as a proportion of GDP doubled and the share of public savings in total public investment rose from 37 percent to 48 percent. Current revenue was 15.5 percent of GDP during 1971-75 (the usual measure of tax "effort"), and including parafiscal agencies, this ratio would be nearly 20 percent of GDP. Because of the increased importance of parapublic organization in resource mobilization and allocation, the Government should develop consolidated public sector accounts to monitor these extra-budgetary flows. 4.06 Overall, the country's savings performance has been very favorable, with an increase in national savings as a proportion of GDP from about 9 per- cent in the early 1960s to 17 percent in 1971-75 (see Table 4.3). Gross private savings have exceeded public savings, though the latter have grown more rapidly in recent years. The estimates seem also to indicate that, on average, total private savings have exceeded real private investment, which suggests, in Togo's case, they have been transformed through the banking system into increases in domestic or foreign financial assets rather than net credit expansion to finance public investment. Table 4.3: Investment and Savings, 1961-75 Average per year (CFAF billion) as a % of GDP 61-65 66-70 71-75 61-65 66-70 71-75 1. Gross fixed investment 4.5 8.5 19.6 12.3 13.6 18.5 of which: public a/ 2.5 4.0 10.9 6.8 6.4 10.3 private a/ 2.0 4.5 8.7 5.5 7.2 8.2 2. Stocks 1.4 -0.1 0.5 3.8 -0.2 0.5 3. Gross investment 5.9 8.4 20.1 16.1 13.4 19.0 4. Current account balance -2.7 -1.7 -3.1 -7.4 -2.8 -3.0 5. Gross national savings, of which: 3.2 6.7 17.0 8.7 10.6 16.0 public b/ n.a. 1.8 6.4 n.a. 2.9 6.1 private n.a 4.9 10.6 n.a. 7.7 9.9 a/ National accounts concept (i.e., part of "public investment", so classified in development plans, is treated as "private" investment). b/ Net public savings. Source: Mission estimates. - 29 - 4.1.2 Financial Institutions 4.07 Monetization of the economy (money plus quasi-money) has developed rapidly from 12 percent of GDP in the early 1960s to about 20 percent during 1971-75. The recent growth of quasi-money (see Table 4.4) was mainly due to increased deposits of public enterprises following the boom in phosphate exports 1/. It is not possible to establish a link between the growth of financial instruments and resource mobilization per se, although it is known that expansion in credit to the private sector was mainly short-term and mainly to finance trade stocks, business inventories and agricultural opera- tions. Until late 1975, the Government had not borrowed from the banking system at all, reflecting the favorable revenue trends mentioned above. How- ever, beginning in the fourth quarter of 1975, the Government has accumulated debit balances with the Central Bank (BCEAO), reaching CFAF 2 billion on a net basis by the third quarter of 1976. Table 4.4: Monetary Developments, 1966-76 As a % of GDP 1961-65 a/ 1966-70 1971-75 1. Foreign assets (Net) 7.1 11.8 9.5 2. Credit to Government -5.2 -4.6 -1.6 3. Credit to Private Sector 10.4 9.3 13.7 4. Net Credit position (2+3) 5.2 4.5 12.0 5. Total assets (1+4) 12.3 16.3 21.5 6. Money 11.8 12.8 15.5 7. Quasi-money 0.3 1.8 4.0 8. Other liabilities 0.2 1.7 2.0 9. Total liabilities (6+7+8) 12.3 16.3 21.5 a/ Partly 1962-65. Source: Data provided by Togolese authorities and Mission estimates. 4.08 The sectoral allocation of bank credit is heavily concentrated on commerce and other service activities and on industry, including construction and mining (Table 4.5). Agriculture, on the other hand, has consistently received only a small fraction of total credit extended to the economy. How- ever, several development finance institutions have been created recently to help allocate credit according to Government sectoral priorities, including a Caisse Nationale du Credit Agricole (see Chapter 5). Also, available statis- tics tend to underestimate agricultural credit because seasonal lending is partly recorded elsewhere, and because bank statistics do not take into account OPAT co-financing or agricultural lending by traders in the unofficial money market. 1/ Some of the increase in quasi-money is the result of revised recording. In 1973 certain savings deposits (epargne-livret and epargne logement) that were previously included in demand deposit were reclassified under quasi-money. - 30 - Table 4.5: Sectoral Distribution of Credit by Financial Institutions, 1966-75 a! 1966 1970 1973 1975 Agriculture 0.5 0.4 0.5 0.2 Industry, incl. construction 6.7 17.8 24.0 20.7 Mining 46.1 13.7 4.1 19.0 Transportation 0.8 2.1 2.6 0.4 Commerce b/ 40.5 48.1 46.9 26.0 Other c/ 5.4 17.9 21.9 33.7 TOTAL 100.0 100.0 100.0 100.0 a/ End of period; in percentages. b/ Includes marketing and storage of export crops, as well as imported goods. c/ Credits of less than CFAF 3 million and credits to other sectors. Source: Data provided by Togolese authorities and BCEAO. 4.09 The recent restructuring of the West African Monetary Union provides the Central Bank with new policy instruments and facilitates the financing of priority sectors in the development plans of member countries. The reform measures, however, are still in an early stage of implementation, and their impact on development funding and resource utilization (such as a shift toward greater credit for agriculture or higher interest rates) can not yet be determined. 4.2 Foreign Resource Mobilization 4.2.1. Dependence on Foreign Financial Aid 4.10 While domestic resources available for public investment more than tripled between 1966-70 and 1971-75, foreign financing doubled, thus reducing the average foreign share of total public investment from nearly 70 percent during the First Plan period to close to 50 percent in 1971-75. FED, Germany - 31 - and France provided more than 75 percent of total capital aid disbursements, which averaged between 5 and 7 percent of GDP during the past 10 years. 4.11 The transfer of financial resources was not the only benefit to Togo from foreign funding; the technical assistance which accompanied it was an important complementary element in project preparation and implementation. Expenditures for technical assistance averaged 2 percent of GDP during both 1966-70 and 1971-75. Technical assistance, in support of expanded efforts by the Government to prepare projects, has helped increase the rather modest level of past foreign aid commitments. 1/ Foreign financing more than doubled in current terms during the 1971-75 period versus the previous five-year period (Table 4.6). Discounting these figures for worldwide inflation, the increase in external funding between the two periods was about 50 percent. Table 4.6: Loan and Grant Commitments, 1966-74 1966-70 1971-74 1. Loans ($ millions) 14 100 2. Grants ($ millions) 76 98 3. Total commitments ($ millions) 90 198 (as a % of GDP) (7.2) (11.5) 4. Average annual grant element of loans (%) 54 34 a/ 5. Average annual grant element of loans and grants (%) 93 67 6. Average annual loan amount per capita Cs) 1.5 13.2 7. Average annual grant amount per capita ($) 8.0 12.6 8. Total average annual loan and grant amount per capita ($) 9.5 25.8 b/ 9. Average annual grant equivalent per capita of loans ($) 0.8 4.5 10. Average annual grant equivalent per capita of loans and grants ($) 8.8 17.2 c/ a/ Average grant element of debt outstanding as of December 31, 1975, amounted to 39.4 percent (Annex Table 4.6). b/ $16.7 for bilateral and multilateral aid only. c/ Approximately $15 for bilateral and multilateral aid only. Source: IBRD mission estimates. 1/ Togo's average annual official development assistance of $9.1 per capita during 1969-71 compares with $15.2 for Senegal and $13.1 for the Ivory Coast. - 32 - 4.2.2 Sources and Terms of Foreign Funds 4.12 The Government's ability to attract increasing amounts of foreign capital is due to several factors. First, Togo has continued to maintain friendly relations with France, Germany, and the FED, and has obtained nearly three-fourths of its new aid commitments from them. Second, the Government has managed to diversify foreign financing by tapping new sources, such as the African Development Bank (which made its first loan recently) and the People's Republic of China (which has provided a line of credit of about CFAF 12 billion). A third and new element has been the availability of private bank and suppliers' credits, which accounted for more than half of the loan commit- ments during 1971-74 and was mainly contracted for the oil refinery. 4.13 This trend towards larger and more diversified foreign funding has important implications for the cost of financing, for the country's debt position and for its future capacity to borrow abroad. Disbursements of aid in recent years have remained highly concessionary because of the terms of the original commitments, which had an average grant element of about 75 percent. Hence debt service has not imposed a heavy burden on the Government in the past (see Table 4.7). However, loans have grown much more sharply than grants in recent years, and the total foreign financing program has hardened as expressed by rapidly declining grant elements. Debt service will therefore rise substantially in the future. - 33 - Table 4.7: Debt Service Indicators, 1966-75 For Comparison Average Average middle-income low-income Average Average countries, countries, 1966-70 1971-75 1973 b/ 1973 c/ Debt Service Payments: as % of exports a/ 2.2 4.3 8.9 12.1 as % of budget revenues 5.4 5.2 as % of GDP 0.6 1.2 2.4 1.1 a/ Exports of goods and non-factor services. b/ Middle income: GNP per capita $300-375 (1973). c/ Low income: GNP per capita <$200 (1973). Togo's per capita income was in 1973, according to the World Bank Atlas. Source: Mission computations and World Debt Table (Vol. I, EC-167/75, p. xxvii). 4.2.3 Investment Climate 4.14 While Togo's policy orientation and investment legislation are favor- able to private domestic and foreign investment, the small-size of the domestic market has always constituted a serious constraint for prospective private investors. Foreign private funding did not become significant until the early 1960s when CTMB's phosphate mining and processing facilities were established with foreign majority participation. In 1974, Togo nationalized CTMB, but entered immediately into compensation negotiations with the former (French and US) shareholders, and concluded compensation payments during 1974/75. 4.15 Togo has attracted private foreign capital in such sectors as food processing (brewery, soft drinks), textiles, banking, public works and tourism. Most recently the country secured foreign funds for equity participation in the CIMAO clinker factory and the oil refinery from the Governments of Ghana and the Ivory Coast (CIMAO) and Libya (oil refinery). Such innovative public/ private sector arrangements can help to overcome the limitations imposed by the size of Togo's domestic market through regional cooperation. The Govern- ment has participated in a number of joint ventures with private foreign - 34 - investors, because of a lack of indigenous investors and in order to lower the risk for private partners by assuring public support-for the investment. In recent years, there has been some tendency for direct Government participa- tion to accelerate not only in new but also in existing industrial enterprises. 5 . RESOURCE ALLOCATION 5.1 Resource Productivity 5.01 The pattern of resource allocation over the past 15 years has re- sulted in a very satisfactory level of capital productivity, represented by an average incremental capital/output ratio on the order of 2.5. This perform- ance results largely from investment in phosphate mining, with all its direct and indirect effects on Togo's small economy. Although the phosphate output value has been substantial, the net value added to the economy, after deducting remittances abroad, was substantially less than the gross. Even so, the low. incremental capital/output ratio in Togo is somewhat remarkable since invest- ment was largely allocated to infrastructure rather than agriculture. The growth of private and later of public services and the secondary sector, which was only partly related to the volume and composition of investment, helps to explain the favorable capital productivity. 5.2 Price and Cost Structure 5.02 The impact of tariff and tax measures, agricultural price policies, minimum wage laws, and interest rates upon resource allocation has been significant. First, with an estimated average tariff level of 28 percent 1/ on imports, nominal protection is quite high and effective protection is even higher due to preferences under the investment code. Since agricultural investments per se have rarely received such treatment, the system tends to favor industrial expansion. Second, the protective effects of tariffs have been lessened to the extent that the exchange rate has been favorable to im- porters. 2/ Third, average export tariffs of 8 percent are lower than in such export-oriented economies as the Ivory Coast, but this favorable effect on 1/ Estimated as the proportion of actual import tax revenues to the value of merchandise imports. Import duties were historically the major source of revenue and non-preferential among sources of imports. The estimated average tariff level for capital goods was 25%, for consumer goods 30%, during the 1966-74 period. 2/ Since Togo is a member of the West African Monetary Union adjustment of the exchange rate is precluded as an independent policy measure. - 35 - agricultural incentives has been offset by low producer prices and farmers' margins for export crops. Fourth, estimates suggest that for the country as a whole the minimum wage is above the opportunity cost of labor, which could hinder the development of labor-intensive activities in some areas. On the other hand, incomes to urban workers at the minimum wage are estimated to be near the absolute poverty level. Minimum wages appear to have been adjusted upward at about the same rate as the African consumer price index, so that there has been little if any gain in real income for workers at the minimum levels and as a practical matter little scope to keep minimum wages down. Finally, as in other West African countries, low official interest rates have favored capital-intensive activities, though interest rates were raised in 1975. 5.3 Investment Planning 1966-75 5.03 The present composition of investment has been determined less by the effects of price policy than by the availability of exploitable natural resources and the Government's objectives for economic and social development. In 1966 the Government set out its long-term socio-economic goals in a 20-year perspective plan, providing an indicative view of the Government's ultimate objectives. Five-year plans were to serve as intermediate tools and were con- ceived as a broad framework for economic and financial planning and management. As such they provided general yet flexible guidelines for the Administration, and a system of periodic plan reviews was adopted to adjust plan implementation as closely as possible to prevailing economic conditions. Subsidiary para- fiscal bodies, such as OPAT and the development banks, were expected to support the Government's development priorities. Public investment decisions were generally prudent, but towards the end of the Second Plan when the boom in phosphate prices made additional resources available, there was evidence of a relaxation of standards in some areas of expenditure. 5.4 Sector Priorities of the First and Second Plans (1966-70 and 1971-75) 5.04 The Government's sector priorities.during the past ten years present, broadly speaking, a fairly uniform picture of both targets and results. Top priority was consistently given to infrastructure (on the average 50-60 percent of total investment), followed by the secondary sector (15-25 percent), human resource development (10-15 percent), the agricultural sector (10-15 percent) and public administration (2-5 percent). - 36 - Table 5.1: Sector Composition of Plan Investment Programs, 1966-75 (% of total iniestment) Tarceted Composition (%) Actual ComDosition (%) Tota! rublic Public Total revised Total Public Public Total Total Invest. Invest. Invest. Invst. Invest. Invest. Invest. Invest. Invest. 66-70 71-75 60-70 66-70 71-75 66-70 71-75 66-70 71-75 1. Infrastructure 50 60 52 66 50 56 51 58 48 (of which urban development, e.g., water, housing, power, tourism) (9) (14) (16) (16) (15) (..) (..) (20) (19) 2. Human resources 12 14 10 8 11 8 17 7 14 (social services, e.g. health, education) 3. Primary sector 26 13 21 13 15 18 7 14 6 4. Secondary/Tertiary sectors 7 8 13 10 20 11 23 16 30 (industry, mining, tride, informal sector) 5. Administration 5 5 4 3 4 7 2 5 2 TOTAL INVESTMENT (%) 100 100 100 1CO 100 100 100 10O 100 SOURCE: Data provided by Togolese authorities and Mission estimates. - 37 - The emphasis on infrastructure was necessary to provide roads and a deepwater port for domestic regional development and international -regional cooperation, Feasible project proposals were available for infrastructure investments, whereas the project preparation and implementation capacity was generally more limited in other sectors. Recently, investment in human resources has concen- trated on establishing Lome University, to the exclusion of other, possibly more relevant, programs. Health expenditures have fallen short of planned expenditures. 5.05 The neglect of agriculture has been an unfavorable feature of Togo's investment policy for a long time. Investment in the secondary sector has always exceeded plan targets, while agriculture investment has consistently fallen short of plan objectives, dropping from 14 percent of 1966-70 investment to only 6 percent during 1971-75, even though the original targets of 21 per- cent and 15 percent of total investment respectively were already modest. 1/. The low level of investment in agriculture has reflected the Government's emphasis on indirect assistance to the primary sector through improved infra- structure. Little effort was made to identify and prepare feasible opportuni- ties for direct investment in agriculture. There has also been an emphasis on diversification of export crops which has limited the attention given to existing major crops. Only recently has the Government begun serious direct efforts to improve agricultural production through newly-created institutions. 5.5 Investment Targets and Achievements 5.06 As a whole, Togo's execution of investment plans has been fairly good, judging by implementation ratios (Table 5.2). I/ Budgetary appropriations for current expenditures in agriculture have also been limited in the past. Additional funding for both current and capital outlays, however, has been provided by OPAT, even though a significant part of available funds had been earmarked for non-agricul- tural purposes. - 38 - Table 5.2: Implementation Ratios of the First and Second Development Plans a/ First Plan (1966-70) Second Plan (1971-75) Original Plan Revised Public Private Total Total Public Private Total Inv. Inv. Inv. Inv. Inv. Inv-. Inv. 1. Infrastructure 1 121 63 83 2. Urban Development 147 102 135 3. Human Resources 80 75 79 72 138 (0) 132 4. Primary Sector 85 - 75 85 65 (0) 43 5. Secondary/ 186 121 145 145 350 81 154 Tertiary Sectors 6. Admiristrarion 160 - 160 123 48 - 48 7. TOTAL Investment 122 99 155 82 116 67 103 8. Domestic Financing 223 .. .. 86 158 89 134 (revised Plan) (95) 9. External Financing 101 .. .. 80 93 45 84 (revised Plan) (79) 10. TOTAL Financing 122 .. 82 116 67 103 (revised Plan) (83) a/ Actual results versus targeted figure (%). - 39 - Total investment in the First Plan exceeded original target expenditures by 55 percent, and total investment targets of the Second Plan were slightly exceeded. Actual public investment was consistently higher than planned, with shortfalls occurring largely in private investment. Financing targets were also surpassed by a considerable margin. However, the effects of inflation can be misleading in a five-year plan; for instance, on the basis of revised targets, investment fell 18 percent short during the First Plan period. 5.07. These overall results disguise, however, considerable disparities among the different sectors and within individual sectors (Appendix Table 2.5). Shortfalls were significant in agriculture (First and Second Plans), human resources (First Plan), and urban water supply. On the other hand, better-than-projected results were achieved in the secondary sector and for overall urban development during both plan periods. 5.08 The relative priority given to particular sectors of the economy by the Government and by foreign capital sources can be seen in a sector/financing matrix showing actual public investment during the First and Second Plans (Table 5.3). Table 5.3: Public Investment-Sector/Financing Matrix, 1966-75 (Percent of Total Public Investment) FIRST PLAN SECOND PLAN I I 1. Infrastructure 57 11 46 13I 5'19 6 3 1 23 28 13 4 8 2 1 2.Hum0anjResources 8 3 5 1 2 - - 17 10 '7 2 3 1 - 3. PrimarySector 18 2 16 513 - 317 3 4 3 1 - - - 4. Secondary/ .-a/ Tertiary Sectors 10 8 2 - 1 1 - - 23 11 12 - 2 - - 10 5. Administration 7 7 - - - - -2 2 - - - - - - a! Less than 1% Source: 'Mission estimates. - 40 - These data highlight the following features: (i) the increased foreign priority given during the Second Plan period to secondary/tertiary sectors, while domestic invest- ment expenditures for the primary sector remained at an ex- tremely low level; (ii) the upsurge of infrastructure investment financed domestically, concomitant with a proportionate decline in the financing by foreign donors; and (iii) the higher priority attached to human resource development by the Government during the Second Plan. 5.6 The Role of Parapublic Institutions 5.09 The investment decisions of parapublic organizations have principally been determined by the Government. Among these institutions, the role of OPAT, the agricultural price stabilization agency, has been particularly important because of its scope of activity in the agricultural sector. The activities of public development finance institutions and the social security agency have been more limited in terms of parapublic resource allocation, partly for statutory reasons. The Government's influence over the newly-established phosphate sales agency (OTP) and the phosphate processing company, CTM, is such that these entities are considered part of the Central Government for analytical purposes in this report. 5.6.1 OPAT 5.10 OPAT's total trading profits for the 1966-75 period amounted to about CFAF 14 billion (Appendix Table 7.7). Together with investment income and profit tax payments (since 1970 at the maximum tax rate of 37 percent), cumulative profits before taxation may have reached CFAF 18 billion, or on the average approximately 2 percent of GDP for the period as a whole. Cocoa and coffee accounted for 96 percent of total net trading revenues. Half of these profits were obtained during the two recent crop years 1973/74 and 1974/75 due to exceptionally high world market prices, particularly for cocoa. 5.11 OPAT's available funds for current and capital expenditures amounted to around CFAF 11 billion during the period 1966-75. An estimated CFAF 3 billion was spent on current expenditures for rural development and small projects of public agencies such as the SORADs 1/ or product-oriented public 1/ The SORADs (Societes Regionales d'Amenagement et de Developpement) were created in 1965 to direct agricultural development in each of the five regions of the country. - 41 - enterprises. The remaining CFAF 8 billion was allocated for investment, either directly by OPAT or indirectly through loans to the Government or equity participation with the Government (Table 5.4). Table 5.4: OPAT Investment, 1966-75 CFAF billion % Agriculture 0.9 12 Infrastructure 2.3 28 Tourism 1.5 20 Industry and Trade 2.0 26 Social Services 1.1 a/ 14 7.6 b/ 100 a/ Of which CFAF 1 billion for the Convention Hall. b/ The table is based on the Plan documents and therefore (i) excludes OPAT's contribution to the financing of the Equipment budget, and (ii) includes OPAT's investment in storage facilities and building construction. On the other hand, OPAT's investment as stated in the balance sheet includes (i) but excludes (ii), the latter being recorded as an increase in net fixed assets. Source: Data provided by Togolese authorities. 5.12 The agency's investment policy - basically determined by the Govern- ment - has heavily favored funding of nonagricultural outlays. Examples in- clude projects such as construction of the Lome harbor, a CTMB equity in- crease, tourism development, and construction of the party's convention hall. Even classifying certain infrastructure projects, such as feeder roads, under rural development, only about half of OPAT's spendable net income - after deducting financial assets for possible stabilization operations 1/ - was allocated to rural development. 1/ The level of OPAT's financial reserves seems to be on the high side. However, depending on a less conservative producer price policy and less favorable price developments on world markets, financial claims for stabilization operations may become more important in the future than they were in the past. - 42 - 5.6.2 Development Finance Institutions 5.13 The Banque Togolaise de Developpement (BTD) has increased its lending operations from CFAF 0.3 billion in 1966-67 to CFAF 1.3 billion in 1974-75. BTD mainly finances housing construction and purchases of home equipment and small machinery. Lack of well-prepared projects has been a limiting factor in BTD's modest contribution to the industry and handicrafts sectors. Recently, BTD - with financial aid from German and US sources - has stepped up efforts to promote small-scale enterprises. BTD's limited past role in resource allo- cation can be expanded by making increased use of technical assistance for project preparation and implementation in order to increase absorptive capa- city, especially in the informal and small enterprises sector. 5.14 The Caisse Nationale du Credit Agricole (CNCA) has concentrated so far on short-term lending for crop marketing or purchases of inputs such as fertilizers and seeds. CNCA's credit to the agriculture sector amounted to an extremely low CFAF 1.2 billion as of December 1975. Moreover, CNCA's collec- tion performance has been poor, partly due to arrears from the SORADs which acted as onlenders to farmers. Ongoing improvements in CNCA's staffing, funding, and organization may lead to a more active role for CNCA in providing agricultural credit. 5.15 The Societe Nationale d'Investissement (SNI) was established in 1971 to mobilize domestic savings and foreign funds and accelerate the investment process through a combined quasi-taxation/reinvestment incentive system. SNI also administers public funds such as the Guarantee Fund for credits to small and.medium-sized enterprises and a public debt fund. All these activities are still in a relatively early stage of operation, and SNI's impact on resource allocation (as well as mobilization) has been modest in the past. The same is true for the Public Social Security Fund (CNSS), except in the field of higher cost housing which has been CNSS's principal area of investment. 5.7 Summary: Past Record 5.16 Economic development prior to independence was limited, and in 1960 the country ranked among the poorest LDCs with an estimated per capita income of some $70. Over the last 15 years, however, the economy has expanded rapidly, largely due to phosphate mining, a rising level of investment, and increased service sector activities including continued transit trade in consumer and agricultural goods, notably cocoa, with neighboring countries. While the mining and trade sectors have stimulated growth, overall agricul- tural production has lagged. 5.17 Economic growth, moderate price increases, and expanding domestic resource mobilization - primarily through growing public and parafiscal savings - account for Togo's favorable economic performance. The Government has pursued basically prudent financial policies and has kept debt service at manageable levels, though foreign borrowing rose in 1974/75. A rising inflow of foreign funds from diversified public and private sources has - 43 - financed the balance of payments resource gap and has permitted an adequate level of foreign reserves. 5.18 While the Government has actively stimulated expansion of the sec- ondary and tertiary sectors, it has largely neglected the agricultural sector. Foreign and domestic investment has been biased in favor of non-agricultural projects, and current expenditures and producer prices have not provided sufficient incentive for farmers to increase production. A lack of suit- able project opportunities, inadequate project preparation and technical assistance, inefficient institutions, and drought in recent years, have all contributed to low agricultural growth. 5.19 The relative neglect of the agricultural sector has been recognized by the Government, which recently stepped up actions to promote rural develop- ment and stimulate both food and cash crop production. Agriculture has ben- efited considerably from efforts to improve the country's absorptive capacity, both in terms of infrastructure investment and institution building. These structural improvements have helped promote trade and transport, adding significantly to rural incomes, and have now laid the basis for accelerated agricultural investment and production. - 44 - 6. LONG-TERM DEVELOPMENT PERSPECTIVE 6.01 Togo's overall development perspective points toward sustained and more balanced growth, combined with increased equity. This perspective is based upon favorable long-term prospects for mining and mineral processing, increased emphasis upon the rural sector, further development of human re- sources, and a high level of investment associated with substantial capi- tal imports. Some broadening of the economic base should decrease Togo's dependence upon fluctuating world market conditions for a narrow range of traditional exports. Fostering of international regional cooperation to overcome diseconomies of scale in the small domestic market will also be important. Careful macroeconomic management will be required since a few important investment and policy decisions can profoundly alter the course of Togo's future development. 6.1 Mining and Mineral Processing 6.02 Though phosphate prices have declined sharply from 1975 peak lev- els, there are good possibilities for lowering costs and raising the volume of production. The Government is now studying proposals for production of phosphate-based fertilizer in the 1980s. Togo's limestone deposits are to be processed into cement clinker, beginning around 1980, under a joint project with Ghana and the Ivory Coast. Based on the market outlook for clinker in the three countries, further capacity expansion in the 1980s may be feasible. Past management of phosphate mining has been efficient and profitable, so these projects should result in strong future contributions to net foreign exchange earnings and Government revenues in the long-run. However, mining and mineral processing, while providing valuable resources, cannot by them- selves resolve the country's fundamental economic and social problems. 6.2 Rural Development 6.03 The Government's objectives call for a broader development pat- tern, and there is evidence of increased Government efforts to revitalize agricultural production through nationwide and regional rural development projects 1/. Such programs are aimed at improving the standard of living of farm families, providing additional rural employment and cash income and would also include important infrastructure elements such as health and training facilities and better communication and storage facilities. 1/ The World Bank Group (IDA) is financing the Maritime Region Rural Development Project and preparing a larger-scale cotton and food crop project which would improve the economic conditions of about one-fourth of Togo's total farm population. Further projects under consideration for Bank Group involvement are a rural development project in the north and follow-up projects in this region after successful completion of the riverblindness eradication program. -45 - The opening up of fertile land through the riverblindness eradication program, combined with settlement schemes, should mitigate regional poverty problems in the north. Recurrent adjustment of producer prices and provision of water and electricity in rural areas can also help to reduce food imports - which have been moderate in the past - and may lead to food self-sufficiency except during periods of prolonged drought. Even in case of a temporary food crop shortage, Togo should continue to be able to finance necessary food imports without difficulty if it continues to maintain a long-term favorable balance of payments position. 6.3 Human Resources 6.04 With an assumed average population growth rate of about 2.8 per- cent per year, Togo's population will reach 3.5 million persons by 1990 and a population density of 62 inhabitants/km2 - high by present African standards but still lower than Nigeria's current density of 74. By 1990, the urban population is estimated to be about 19 percent of total population, or roughly half of the anticipated rate in Senegal. Thus, the pressure for urban development expenditures is probably lower than elsewhere, and therefore more funds could be channeled into rural development. The country's agricul- tural potential, if fully exploited, is sufficient to meet the rising future demand from Togo's growing population. 6.05 The troublesome outlook for employment, especially in salaried activities, underlines the need for programs and policies to improve incomes and services in the rural economy; to encourage small-scale enterprise in the trade and service sectors; to make the educational system more respon- sive to the needs of the labor market; and to promote the application of labor-intensive methods. About 17,000 jobs were created during 1970-75, bringing salaried employment to 50,000 persons out of an active non-agri- cultural population of 200,000. 1/ Assuming that all planned projects are implemented, an estimated 23,000 job opportunities will become available between 1975 and 1980, and projected output of the formal educational sys- tem implies a large excess supply of unskilled workers, some surplus of high-level manpower, and deficits in middle-level and skilled workers. Financial resources and policies will need to be concentrated on the crea- tion of productive employment opportunities to improve this situation over the long-run. I/ The active agricultural population was about 700,000 persons in 1975; the agricultural sector is expected to continue to absorb 70-80% of Togo's active population during the 1976-80 period. - 46 - 6.4 Economic Structure 6.06 Fundamental structural changes are expected in Togo's economy and social environment to the extent that the Government concentrates on stated high-priority development objectives. Mineral exploitation and processing will continue while Togo's neglected agricultural sector is rehabilitated through higher investments and more progressive producer price policies. Relatively stable projected terms of trade should encourage exports and con- tribute to sustained GDP growth. Past efforts to expand the country's absorp- tive capacity will permit a more balanced resource allocation with substan- tially more emphasis given to rural development, basic social infrastructure, and promotion of informal sector activities. Increased food production will help stimulate growth and improve the living conditions of large segments of the population. 6.07 Past and projected structural features of Togo's economy are sum- marized in Table 6.1 below. These estimates indicate the continued rapid growth of industry and mining; the gradual fruition of currently-planned agricultural projects, slowing the past decline of the primary sector in the 1980s; and the continuing important role of the services sector. Nec- essary prerequisites to the above scenario of uninterrupted but more wide- spread long-term development, however, are an effective reorientation of the development strategy toward the rural sector and efficient economic policies including refined demand management and prudent fiscal measures aimed at maintaining financial stability. Table 6.1: Basic Economic Structure, 1960-85 (Sectoral Composition of GDP) a/ 1960 1975 1980 1985 Agriculture 60 30 26 24 Industry 10 27 30 35 Services 30 43 44 41 GDP 100 100 100 100 a/ Average share of GDP (%). Source: Mission estimates. - 47 - 7. OBJECTIVES AND PRIORITIES OF THE THIRD DEVELOPMENT PLAN 7.01 At the time of the mission's visit, the Government had prepared a draft Third Development Plan (1976-80), subsequently adopted in May 1976, but sector analyses and technical annexes were not available. Due to the recent extraordinary swings and the structural changes expected in the econ- omy, forward planning has become even more complex, and certain financial and conceptual adjustments now seem necessary. However, the Plan remains indicative, and in its present form serves as a general framework for eco- nomic management and constitutes a basis for implementing the country's development strategy. The Plan covers the overall economy, including fore- casts of macroeconomic trends and estimates for the private sector. It is thus much more than a public sector investment program although the public part of it is the most operational. Yet, apart from the priorities implied by the phasing of projects, the Plan does not specify the criteria which were applied in the choice of investments and which would permit the selec- tion of alternatives in the event of either cost underestimates or revenue overestimates. 7.02 Although the Plan does not set specific priorities, the Govern- ment has taken a number of steps to improve the monitoring and control of the Third Plan execution. One step is the preparation of annual "develop- ment budgets" which include all projects financed from budgetary and for- eign sources. These development budgets, prepared by the Ministry of Planning in close collaboration with the Ministry of Finance and Economics, constitute "tranches annuelles" of the investment plan. A second measure is the periodic review of Plan implementation to assist in Plan revision, and the Government already intends to refine and update the quantitative analysis of the Third Plan during forthcoming reviews. Finally, the Gov- ernment has decided to establish a forecasting department in the Ministry of Finance and Economics to follow more closely short-term fiscal and bal- ance of payments indicators. This would permit the authorities to make ex- penditure and other adjustments more quickly and improve the link between short-term eGonomic and financial management and longer-term planning. These steps should help make the plan an aid to economic management, al- though a clearer specification of decision criteria would facilitate the annual budgeting process and lessen the risks and costs of ad hoc decisions. 7.03 The Third Plan candidly reviews the principal results of the two previous planning exercises. Among achievements, the Plan includes the establishment of basic infrastructure; development of mining and industry; and establishment of product-oriented agricultural organizations. These efforts contributed to an average annual real GDP growth of 5-6 percent over the 1966-75 period. On the other hand, shortcomings and bottlenecks are identified as well: the stagnation of agricultural output; lack of water; rural underemployment and urban unemployment; and the lack of co- ordination between technical ministries. - 48- 7.1 Third Plan Targets 7.04 This evaluation altered the emphasis and policies of the Third Plan, especially with respect to agriculture, regional programs, human resources and water resources, which the mission supports. The Third Plan targets are influenced by an earlier 20-year perspective plan (1965-85), and by projects in the pipeline or already negotiated. The 8 percent annual target rate of real growth is based mainly on anticipated faster growth in agriculture, industry and mining (see Table 7.1). The total planned investment rate is more than 25% of GDP (CFAF 251 billion for the period 1976-81), substantially above the 19% investment rate achieved during 1971-75, but investment in the CIMAO project will account for about one-third of the total. Public invest- ment and savings are both projected to rise. Qualitatively, the Plan main- tains the objectives of internal and external financial stability, increased national autonomy, more balanced regional development and the promotion of human resources. Table 7.1: GDP Growth Objectives 1976-80 Estimated Actual Plan Growth Targets Growth Rates 1976-80 (Annual 1966/68 - 1973/75 (% p.a.) Average Rate, %) in constant prices Primary Sector 5.2 2.3 Secondary Sector 9.6 5.1 Tertiary Sector 9.0 8.6 Total GDP 8.0 5.4 Sources: Third Plan and mission estimates. 7.05 The composition of Third Plan investment given below (Table 7.2), together with qualitative statements on development strategies, indicate the Government's sector priorities. First, the priority given to infrastructure remains high but is much less than in the past. Subsectors include high- ways (8 percent of total) and tourism (7 percent of total). Second, in- creased emphasis is given to directly productive sectors, especially in- dustry and mining. CIMAO accounts for more than half of the industrial sector allocation for 1976-80. Agricultural development ranks high on the Government's priority list, especially food crop development (8 percent of total). Fourth, the bulk of allocations for the development of human re- sources will be devoted to education (6 percent of total) and health (1 per- cent). Finally, administrative investments are inflated by defense equip- ment outlays (4 percent of total) which--in economic terms--are considered as consumption. - 49 - Table 7.2: Planned Investment 1966-80 1976-80 1971-75 1966-70 CFAF % of % of total % of total billion Total actual (planned) actual (planned) Infrastructure 81.3 33 48 (50) 58 (66) Primary Sector 56.2 22 6 (15) 14 (13) Secondary/Tertiary 75.1 30 30 (20) 16 (10) Sectors Human Resources 21.2 8 14 (11) 7 (8) Administration 16.8 7 2 (4) 5 (3) 250.6 100 100 100 100 100 Source: Third Plan. 7.06 Relatively large amounts have been allocated for studies, research and experimentation in agriculture and industry to help expand the country's absorptive capacity. These include agricultural studies to be carried out by the IPRA (Institut Polyvalent de Recherche Agricoles); studies for a phosphate-based fertilizer factory; and prospecting for further mineral deposits. Transportation investments are intended to lay the basis for further directly productive investments and to support the Government's efforts to improve international regional links, especially with the land- locked Sahelian countries. Planned outlays for the development and exploi- tation of water resources are reflected in various subsector programs such as rural development, electrification, power, and water supply/sewerage. 7.2 Human Resources 7.07 Togolese development programs have traditionally promoted human well-being through education, health, employment and Togolization, but these fields have been given more emphasis in the preparation of the new Plan. The Plan incorporates recommendations of the Basic Education Reform prepared over the last few years. This far-reaching reform program is a long-term under- taking, to be implemented starting with the Third Plan. Improvements in health conditions are planned through a variety of direct and indirect meas- ures which include increased outlays for preventive medicine, control of riverblindness, and improvement of nationwide nutrition levels through rural development and food crop promotion. The Plan also attacks a variety of socio-economic problems created by the imbalances in the labor market and the exodus from rural areas. It will attempt to solve these difficul- ties through the reorientation of the education system towards economic needs, promotion of labor-intensive programs, and actions to achieve more balanced regional development. The Plan foresees the establishment of a - 50 - special public maintenance organization ("brigade speciale d'amenagement et d'entretien") to increase employment opportunities and to test labor-inten- sive technology in sectors such as water and sewerage. Finally, a stronger participation of nationals in economic life is a stated objective. However, expatriates have not had as persuasive an influence on the overall economy as in other African nations, and Togolization is already a reality in most important areas of decision making. 7.3 Regional Development 7.08 As noted above, the Third Plan gives added emphasis to regional development. The Government favors more balanced development throughout the country and is making special efforts to develop less privileged areas, especially in the north. Many plan projects and programs have a regional orientation, such as feeder roads, storage facilities, rural development, water supply and rural electrification. Regional development programs are intended to distribute the benefits of economic growth more widely among the population, to integrate the nation and reduce the rural exodus. The Plan contains some large projects, especially in agro-industry, intended to im- prove regional balance, but these will need careful study to ensure that they are suited to the proposed locations. Changes in producer price pol- icy could also improve both incentives and income distribution. 7.4 International Regional Cooperation 7.09 Togo intends to pursue its policy of multinational regional coop- eration in various fields. Opportunities at the project level include a second stage expansion of CIMAO and possible extension of the interconnect- ing power grid now linking Ghana, Togo and Benin. The riverblindness cam- paign extends beyond Togo and is supported by the Government especially to improve conditions in the poor northern parts of the country. The Govern- ment has also participated in studies and discussions concerning intra- regional transport links. - 51 - 8. PROSPECTS AND POLICIES FOR ECONOMIC DEVELOPMENT 8.1 Economic Growth 8.01 The outlook for real growth of the Togolese economy is favorable through the first half of the 1980s in virtually all sectors. Improved agricultural production is critically important, and 5 percent annual growth in output is a realistic possibility if presently planned cash and food crop projects can be executed on schedule. Moreover, the outlook for export crop prices has improved, and corresponding increases in producer prices could help achieve higher real growth in the sector. Mining and manufacturing are estimated to increase output by about 9 percent annually. Phosphate mining will recover to annual production levels of over 2.5 million tons during the next five years, and prices, though below the 1975 peak, will support profit- able operations. In manufacturing, projected growth in domestic demand and the application of policies specified in the Third Plan should permit improved utilization of existing manufacturing capacity and the expansion of smaller enterprises. Real growth in services should continue to be rapid, stimulated by the investment boom associated with CIMAO and other ongoing projects. Growth in tourism could also be high, in line with increases in general commerce. 8.02 For the economy as a whole, the mission estimates that average annual growth in GDP of about 7 percent is achievable over the next ten years, similar to the past record (see Table 8.1). Short-term factors will cause fluctuations around this trend, and, in fact, financial problems are likely to constitute an obstacle to rapid real growth in the beginning of the period. Furthermore, because of the steep decline in the terms of trade from 1975 to 1976 (reflecting lower phosphate prices), the mission's projec- tion of gross domestic income (GDY) of less than 5 percent annually from 1975 to 1980 is considerably below the Third Plan growth target of 8 percent per annum. This difference implies a wider gap between investment and sav- ings, requiring more reliance on foreign capital to accomplish the Plan's objectives. Table 8.1: GDP and GDY Average Annual Growth Rates (%) 1960-75 1975-80 1981-85 GDP 6.7 7.2 7.5 GDY n.a. 4.7 7.8 1975 1980 1985 Terms of Trade Index (1970 = 1CO) 154 111 114 Source: Projections are mission estimates; past data from Togolese Authorities. - 52 - 8.03 The mission's projections of Togo's economic structure are sum- marized below (Table 8.2). Export revenues - based on phosphate, oil prod- ucts, cocoa, coffee, cotton, and clinker - are estimated to rise by an aver- age of over 20 percent per year through 1980. Investment shows a sharp increase due largely to CIMAO. Imports will also rise significantly as a result of large investment outlays and general economic growth. Togo's exposure to foreign trade will increase. Table 8.2: GDP, 1960-1985 (Summary) Average Share of GDP (%) Sector 1966-70 1971-75 1976-80 1985 (current prices) (constant prices) Agriculture 43 30 26 24 Industry 20 27 30 35 Services 37 43 44 41 Component Average Share of GDP in Current-Prices (%) Consumption- 88 83 85 Investment 13 19 25 Exports (G+NFS) 25 27 30 -Imports (G+NFS) -26 -29 -40 Source: Projections are mission estimates; past data from Togolese authorities. 8.2 Investment and Finance 8.04 Third Plan total investment of CFAF 250 billion forecast by Togolese authorities is based principally on project proposals, public and private, for which the planners had or could develop cost estimates. However, costs of several ongoing projects are already known to be higher according to recent cost estimates. Also, private investment in the Plan was underestimated since it omitted household investment and increases in stocks. The mission estimates that the cost of carrying out the Plan proposals would be 15 to 20 percent higher than the CFAF 250 billion Plan investment figure. This would raise the average investment rate to about 30 percent of projected GDP com- pared to 19 percent achieved over 1971-75 when Togo's savings were strengthened by the phosphate boom. 8.05 To evaluate the financial requirements during the Plan period, the mission assumed an average investment rate of 25 percent of GDP in current prices, implying a lower implementation of Plan proje-ts because of the cost underestimates referred to above. The assumed rate of 25 percent corres-ponds to an extrapolation of the 1971-75 investment rate plus the estimated invest- ment cost of CIMAO. Under prudent fiscal and monetary policies, and assuming that 1976 phosphate prices are maintained, this investment rate could be - 53 - achieved but would require substantial foreign capital inflows on favorable terms. If foreign aid disbursements are less or on harder terms than ex- pected, further reductions in public investments would be needed. Savings rates are projected to decline in 1976-80 due to the deteriorating terms of trade since 1975. 8.06 Togo's average resource and current account balances have been moderately negative in the past. On the assumptions given above, however, an average resource gap of about 10 percent of GDP would materialize, which would be filled by net capital inflows equivalent to 11 percent of GDP (see Table 8.3). The export projections assume an average phosphate price of $38 per ton over 1976-80 ($32 per ton in 1976 prices) and include the start-up of the oil refinery, which will require a comparable expansion of crude oil imports (see Annex B). CIMAO will not go into production until the end of the period, so that its main impact on the balance of payments will be the increase in imports of capital goods during the construction period. CIMAO's net long-term effect on Togo's balance of payments will, of course, be quite positive. Table 8.3: Investment, Savings and Balance of Payments, 1966-80 As % of GDP in current prices 1966-70 1971-75 1976-80 a/ Investment 13.4 19.0 25.0 b/ Gross domestic savings 12.3 16.8 14.5 Trade balance 0.2 -0.4 -9.8 Goods exports 24.6 24.5 26.7 Goods imports 24.4 24.9 36.5 Services balance -3.0 -2.6 -3.2 Resource balance (G+NFS) -1.1 -2.2 -10.5 Current account balance -2.8 -3.0 -13.0 Transfers (net) 5.3 6.7 5.0 Capital (net) -0.2 -3.4 c/ 11.0 -d/ Errors and omissions -0.6 -1.3 -2.5 e/ Monetary/SDR movements (increase: - ) -1.7 1.0 -0.5 a! Tentative mission estimates (assumed GDP growth of 13% p.a. in current prices). b/ Plan investment represents 21% of GDP. c/ Includes compensation payments for CTMB nationalization. d/ Of which CIMAO about 6-7% of GDP. e/ Includes outflow of 1.2% of GDP for debt service related to short-term debt. - 54 - 8.3 Public Finance 8.07 The mission estimates that current revenues will increase consider- ably over past levels, though they will not reach the 29 percent of GDP pro- jected in the Third Plan (see Table 8.4). This assumes that Government reve- nues will continue to grow significantly faster than national income. Taxes on international trade - traditionally the source of more than 50 percent of Government revenues - are projected conservatively since project-related capital goods imports and new exports such as refinery products and clinker will mainly be tax-exempt. The mission forecast also takes into consideration modest additional revenues generated by enterprises whose priority tax status under the Investment Code is due to expire in the next few years. Revenues from the agricultural marketing organization (OPAT) are unlikely to rise markedly if the Government wishes to improve producer prices. Table 8.4: Public Finance Profile, 1966-80 As % of GDP in current prices 1966-70 1971-75 1976-80 a/ Mission Plan Estimate Data 1. Current revenues, of which: 11.1 15.5 23.0 29.4 import/export taxes n.a. 8.5 11.0 12.0 direct taxes n.a. 2.1 4.0 4.0 other indirect taxes and revenues n.a. .4.9 8.0 13.4 2. Current expenditure, incl. debt service 9.0 12.4 20.0 21.4 3. Balance (investable savings) 2.1 3.1 3.0 8.0 4. Budgetary savings (3 + 7) 2.7 3.9 6.7 11.7 5. Other public savings 0.8 3.0 2.0 6.0 6. Total public savings (4 + 5) 3.5 6.9 8.7 17.7 7. Debt service 0.6 0.8 3.7 3.7 8. Net public savings (6 - 7) 2.9 6.1 5.0 14.0 a/ Assumed GDP growth rate of 13 percent in current prices. Source: Data provided by the Togolese authorities and mission estimates. 8.08 By far the most important source of potential variation in the Government's revenue is the phosphate sector. Public revenues are extremely sensitive to both phosphate volume and price fluctuations, as shown in the matrix below (Table 8.5). - 55 - Table 8.5: Estimated Public Revenues at Different Phosphate Production Levels and Prices (CFAF billion) Production Level (million tons per annum) 0.5 1.0 1.5 2.0 2.5 3.0 Price ($/ton) 15 -2.2 -1.0 0.1 1.3 2.4 4.2 20 -1.6 0.1 1.7 3.5 5.2 16.9 25 -1.1 1.2 3.4 5.7 7.9 10.2 30 -0.5 2.3 5.0 7.9 10.6 13.5 35 0 3.5 6.9 10.3 13.6 17.1 40 0.6 4.6 8.5 12.5 16.4 20.4 45 1.1- 5.7 10.1 14.7 19.1 23.7 50 1.7 6.8 11.8 16.9 21.9 27.0 55 2.2 7.9 13.4 19.1 24.6 30.3 60 2.8 9.1 15.2 21.5 27.7 33.9 a/ CTMB/OTP surplus, excluding export or other taxes. Source: Mission Estimates; 1976 cost structure. The Plan projects average annual budgetary surpluses (investable savings) of CFAF 16 billion during 1976-80, virtually all of which would have to come from phosphate revenues. At an average projected price of $38/ton over the 1976-80 period, annual phosphate revenues are estimated to range up to CFAF 15 billion, for production of 2.5 million tons, the current maximum capacity. Thus, phosphate revenues would provide at best about 90 percent of required budgetary savings, whereas consolidated CTMB/OTP profits accounted for about 130 percent of budgetary savings during 1974- 76. The mission has therefore assumed lower current revenues (23 percent of GDP versus 29 percent in the Plan) and correspondingly lower investable savings (3 percent versus 8 percent of GDP). Projected current expenditures of 20 percent of GDP are slightly below the Plan estimate (21 percent), based on the Government's intention to control spending closely and its improved procedures to do so. The projected share of current expenditure in GDP is still substantially higher than the historical rate and illustrates the rise in current spending which could be required to service investment projects and programs contemplated under the Third Plan. 8.09 Lower public savings imply greater dependence on foreign sources of finance in comparison with Plan estimates, and the mission projects for- eign capital inflows of about 16 percent of GDP in current prices (CFAF 160 billion) during the Third Plan period. This level of foreign capital is considerably higher, as a proportion of GDP, than in the past (see Table 8.6). -56- Table 8.6 PUBLIC FINANCE PROFILE, 1956 - 80 Average Per Year - CFAF Billions 1956-60 61-65 66-70 71-75 76-80a 76-80b 1. Current Revenues 2.4 4.0 6.9 16.4 45.6 58.3 2. Current Expenditure, incl. Debt Service 2.7 4.0 5.6 13.1 39.6 42.4 3. Balance (investable savings) -0.3 0.0 1.3 3.3 6.0 15.9 4. Budgetary Savings (3-7) (-0.3) 0.2 1.7 4.2 13.3 23.2 5. Other Public Savings -- -- 0.5 3.2 4.0 11.9 6. Total Public Savings (4+5) -- -- 2.2 7.4 17.5 35.1 7. Debt Service -- 0.2 0.4 0.9 7.3 7.3 8. Net Public Savings (6-7) -- -- 1.8 6.5 10.0 27.8 As a % of GDP in Current Prices 1956-60 61-65 66-70 71-75 76-80a 76-80b 1. Current Revenues 9.6 10.9 11.1 15.5 23.0 29.4 2. Current Expenditure, incl. Debt Service 10.8 10.9 9.0 12.4 20.0 21.4 3. Balance (investable savings) -1.2 0.0 2.1 3.1 3.0 8.0 4. Budgetary Savings (3-7) (-1.2) 0.5 2.7 3.9 6.7 11.7 5. Other Public Savings -- -- 0.8 3.0 2.0 6.0 6. Total Public Savings (4+5) - -- 3.5 6.9 8.7 17.7 7. Debt Service -- 0.5 0.6 0.8 3.7 3.7 8. Net Public Savings (6-7) -- -- 2.9 6.1 5.0 14.0 a Tentative mission estimates (assumed GDP growth rate of 13 percent in current prices). b Plan Data (assumed GDP growth rate of 13 percent in current prices). SOURCE: Data provided by the Togolese authorities and mission estimates. - 57 - However, almost 40 percent of this inflow ($260 million or 6-7 percent of GDP) is related to the CIMAO project. Excluding CIMAO, -the ratio of foreign to domestic financing of public and para-public investment would be about 2.0, similar to the pattern of 1966-70. These foreign inflows should be obtainable in light of Togo's growing absorptive capacity, and a tenative breakdown of aid sources is given below (Table 8.7). This projection assumes grant aid in an amount equal to loans (excluding CIMAO), following the 1971- 75 experience. Grants and non-CIMAO loans combined would account for about 10 percent of GDP over the Third Plan period, against about 11 percent in 1971-75. Table 8.7: Sources of Foreign Finance (US$ million) 1976-80 Projected Inflow Past Commitments, Current Prices Current Prices 1975 Prices 1971-75 a/ 1966-70 Grants 214 171 125 76 Loans, of which: 281 224 139 14 CILAO-related 70 56 0 0 Multilateral 62 50 25 n.a. Bilateral 83 66 23 n.a. Commercial banks 44 35 60 n.a. Suppliers' credits 22 17 31 n.a. Direct foreign investment 213 170 10 2 CIMAO-related 190 152 0 0 Total gross inflow 708 565 274 92 (CFAF billion) 159 127 62 21 (% of GDP) 16.1 16.1 12.5 7.4 a/ Based on 1971-74 actual commitments. Source: Data provided by Togolese authorities, IBRD, DAC, and mission estimates. - 58 - 8.4 Debt Service 8.10 Togo's short-term financial outlook is difficult. Low debt service in the past is projected to rise markedly due to increased borrowing on the one hand and overall hardening of terms on the other, including an increase in short-term debt. The debt service ratio is estimated to reach as much as 20 percent of export revenues during the 1976-78 period (see Table 8.8). In the immediate future, therefore, debt service will absorb a high proportion of public sector funds (either through decreased net income from parapublic enterprises or higher direct budgetary expenditure) and Government must be prepared to reduce items of public expenditure to preserve financial balance and future growth possibilities. This situation results from the sharply higher Government expenditures of 1975-76, which were partly financed by boom- ing phosphate revenues but also by heavy medium-term borrowing on commercial terms. With the deterioration in phosphate revenues in 1976, a large overall treasury deficit is expected, which will require the use of Government reserves and credit facilities. Preliminary data indicate that, for the first time, sizeable amounts of arrears have been accumulated by the Government. Budgetary equilibrium could be restored in 1977 if phosphate revenues of about CFAF 14 billion (i.e., 2.5 million tons at $35 per ton) materialized and expenditures were held at 1976 levels. Table 8.8: Debt Service Ratios 1966-70 71-75 1976 1978 1980 76-80 81-85 /a 1. Average Annual Debt Service Ratio (% of exports) 2.2 4.3 13.4 8.1 6.2 9.4 7.3 2. Additional Debt Ser- vice for short-term debt (% of exports) /b /c - - 5.9 4.1 2.1 3.9 - 3. Total Debt Service 2.2 4.3 19.3 12.2 8.3 13.3 7.3 (i) as % of budget revenues 5.4 5.2 - - - 16.8 11.4 4. Debt service with harder terms (% of exports) /d n.a. n.a. 19.3 14.6 11.9 15.3 13.3 /a Adjusted for CIMAO-related dividends and debt repayments attributable to the co-sponsoring foreign governments. /b Tentative estimates subject to verification of recent short-term borrow- ing. /c Goods + NFS. /d Assumes 50% of grants replaced by commercial loans. Source: Mission estimates. - 59 - 8.11 Fortunately, the medium- to long-term outlook for debt service is high but manageable, with debt service ratios falling below 10 percent by 1979 and declining through the early 1980s. However, sensitivity tests indi- cate that if either (a) phosphate prices were 15 percent lower than base pro- jections or (b) 50 percent of assumed grant financing were replaced by for- eign borrowing on commercial terms, debt service levels would exceed those prudent for a small open economy. This indicates the dangers of attempting to substitute short-term commercial borrowing for possible shortfalls in concessionary aid, although the long-term outlook provides some justifica- tion for limited foreign private borrowing. The variability of phosphate revenues and foreign aid underscores the need for responsive financial poli- cies, including maintenance of adequate reserves, better coordination of bor- rowing by public and parapublic agencies, and preparation of consolidated accounts. 8.5 Policy Issues and Recommendations 8.12 Togo has experienced rapid real growth in the past, characterized by generally prudent financial policies. Reserve and credit facilities have proved adequate, but the sharp rise and fall in the price of the country's principal export earner has revealed the vulnerability of the economy to world market fluctuations and the difficulty of adjusting to lower export earnings. Government has recently entered into several uncertain or costly ventures that have provoked heavy foreign borrowing and a financial squeeze which will limit future development unless immediate steps are taken to re- store budgetary equilibrium. During the next five years, demand management will assume increased importance because of the unprecedented expansion in investment, while the probability of short-term swings in export revenues will remain high. Still, longer-term perspectives appear favorable, and the Government seems determined to promote growth and greater social equity through regional programs. 8.13 The future pattern of development may be portrayed as one in which substantial revenues from a few mineral-based enterprises are superimposed upon a small open economy whose population is mainly engaged in agriculture. The two central long-term issues are the re-orientation of resources to the economic and social development of the rural areas and other high-employment sectors, and the preservation of the benefits from Togo's traditional trading vocation. Achievement of a broader pattern of development will require not only the direct allocation of public funds to productive projects, but also the adoption of price and monetary policies designed to improve agricultural productivity and incomes. Programs in education, health, and economic infra- structure should be geared to these objectives as well. Opportunities in new branches of industry and tourism should certainly be explored, but the Gov- ernment should give priority to increasing the competitivity and efficiency of existing capacity. 8.14 The Third Plan provides a comprehensive and well-balanced qualita- tive assessment of the country's development constraints and.potential for the rest of the decade. However, the public investment target in the Plan - 60 - is too high in real terms and will require postponement or reduction in lower-priority programs. Plan investment costs have been underestimated by 15 to 20 percent and current revenues have been overestimated (by about 6-7 percent of GDP) due to overly-optimistic phosphate revenue projections. If these adjustments are taken into account, the investment financing pat- tern over 1976-80 consists of about three-fourths foreign financing compared to the one-third share estimated in the Plan. Nevertheless, the mission's estimate of GDP growth of about 7 percent per annum is similar to the Plan projection. 8.15 In the next five years there will be an unprecedented expansion in investment, to be financed mainly through capital inflows. The mission's projections show long-term equilibrium in the balance of payments, but with a fixed exchange rate vis-a-vis the French franc within the West African Monetary Union, shortfalls in either exports or capital inflows would put considerable pressure on domestic prices and the banking system. Such shortfalls would force the Government to adjust the level of demand in order to restore financial stability. Moreover, under these circumstances, the banking system would need to monitor credit expansion of the private sector closely - a new situation in Togo where prudent past banking poli- cies have helped support financial equilibrium. 8.16 Stable financial policies will be needed to dampen the acceleration of price rises in the Lome area. These increases have potentially adverse effects on incomes in rural regions and on exports to neighboring countries which have traditionally provided stimulus to the urban informal sector. Rural/urban terms of trade can be improved through higher producer prices and/or lower input costs, but this policy would also limit public savings accruing to the agricultural marketing agency (OPAT). 8.17 In the short run, control of public expenditure is the principal in- strument available to influence the course of the economy. Growth in credit to the Government from the banking system is limited by mutual agreement with the Monetary Union; reserves accumulated during the phosphate boom have been virtually exhausted; and short-term credit facilities can provide only tem- porary relief. New public development projects will exert pressures to in- crease current expenditure to maintain new facilities. To the extent that recurrent costs associated with these projects have been underestimated, the Government must reduce other items of expenditure. This problem does not yet seem to have reached serious proportions, but could well arise if the Government were to attempt to execute the full development program laid out in the Third Plan. The mission recommends that recurrent costs of major projects in the Third Plan be evaluated thoroughly before proceeding with project execution. 8.18 Because of the limits on domestic resources, foreign capital re- mains the sole practical means of financing larger development programs. A considerable responsibility is placed on foreign sources of finance to adjust terms and conditions to Togolese circumstances. Due to the country's favor- able development prospects and expanding absorptive capacity, Togo should - 61 - be able to attract increasing amounts of foreign capital, which should be tailored to project cash flow. At the same time, short-term financial and debt service problems must be resolved before Togo can risk further borrow- ing on commercial terms to supplement scarce concessional aid. Adequate external funding can only be assured if the country mobilizes sufficient domestic resources to participate in priority projects that justify the use of scarce resources. 8.19 The choice of projects and sector programs is, finally, the over- riding issue in the Third Plan. To assist in matching capital expenditures with fluctuating resources, the mission proposes the establishment of a more flexible investment program. Such a program should take into account up-to- date cost estimates and accurately reflect the Plan's stated socio-economic priorities. The outline of a revised program which reflects the mission's assessment of financial resources is given below (Table 8.9). Table 8.9: Proposed Flexible Investment Program 1976-80 (CFAF billions) Third Plan, Flexible Program, original cost basis revised cost basis Total Plan investment 250 /a 290 Estimated revised investment 190 210 /b program Estimated hard-core program 160 /c 180 /d (noyau garanti), approx. 85% of revised program Contingency program 30 30 (tranche optionnelle) /a Plan document. lb Mission estimate. Ic Of which CIMAO about CFAF 50 billion. /d Of which CIMAO about CFAF 65 billion. Using a coherent set of investment criteria, top-priority projects should be selected to constitute the "hard-core" program, while lower-priority projects would be retained in the contingency program (tranche optionelle) to provide flexibility in case of shortfalls in financial resources. - 62 - 8.20 The mission's views on project priorities are set out in the sector annexes to this report. In general, emphasis should be placed on improving productivity and employment prospects in the poorer regions of the country, but the difficult financial situation over the next several years requires that close attention be paid to recurrent costs. This approach would favor programs to expand output and incomes in agriculture, while continuing the regional orientation of industrial development. Major agro-industrial schemes and large-scale hotel expansions need to be carefully evaluated to assure that employment and output effects justify the planned investments. The high prior- ity attached to the water and power sectors is justified, and alternatives in the latter sector are now being studied. A major upcoming decision in the industrial sector concerns the possible production of phosphatic inter- mediates. Togo appears to enjoy comparative advantage in this field, and further phosphate and clinker expansion may also be desirable by the mid- 1980s. If these projects prove to be viable, high investment inflows would continue to be an important feature of Togo's economy for many years to come. ANNEXES TABLE OF CONTENTS Page No. ANNEX INTRODUCTION ...........................***************. 1 A. THE AGRICULTURE SECTOR .................... .... . ... 1 Summary Conclusions ...........................***** 8 B. MANUFACTURING AND MINING ....................... ........ 1 Established Manufacturing Enterprises ... . .......... 3 Small-Scale Enterprises .........................*** 4 Large-Scale Industrial Projects .................... 7 Conclusions ........... ... .... **** * * *... 20 C. THE TOURISM SECTOR .................................... . 1 Recent Developments ....... 1 Impact on the Economy .............................. 2 Development Constraints ... .........****. 2 Prospects and Issues ............................... 3 D. ECONOMIC INFRASTRUCTURE ................................ 1 Transport ........ 0.....*.............** ** *** ** ** 1 Power .. . .................... **********************.. 4 Water Supply and Sewerage .......................... 7 E. HUMAN RESOURCES ....................****...** ...*..*.* 1 Demography .............. 0........................... 1 Realth ............. . 0 . ....... ....****** ***** **** . 1 Education .......................................... 2 Employment ...................*********...*...*.* 8 Togolese Women in Development ...................... 12 F. BRIEF SUMMARY OF HISTORICAL DEVELOPMENTS ................ I G. SELECTED BIBLIOGRAPHY ..................... . ......... 1 INTRODUCTION Annexes A through E present issues and recommendations for the principal sectors of the Togolese economy. In agriculture, issues of in- vestment, institution-building and pricing policy are raised. The industry and mining annex focuses upon the outlook for certain large-scale mineral processing activities (phosphates, clinker and oil). In tourism, the need to improve the utilization and profitability of existing facilities is stressed. Among the economic infrastructure sectors, project alternatives are raised as well as issues of intra-regional transport planning, power policy, and water development. Finally, the health and education sectors are discussed along with the general aspects of employment and women's role in development. ANNEX A Page 1 THE AGRICULTURE SECTOR 1. Growth in agricultural production of about 4 percent per annum between 1966-70 was higher than the modest long-term trend and was triggered primarily by export crops. Over the following five-year period 1971-75, agri- cultural output growth slowed to about 1 percent annually as export crop pro- duction fell. Marketed production of cocoa declined by about half during the 1971-75 period, mainly due to reduced border trade; coffee and palm ker- nels were also down by about 50 percent and groundnuts by over 90 percent. Among major cash crops, only cotton production increased during the 1970s. Food crop production, which accounts for an estimated 75 percent of agri- cultural output, has barely kept pace with population growth since the mid- 1960s, despite the relatively slow rate of urbanization. During periods of drought in the early 1970s, increased food imports were necessary to compen- sate for shortfalls in domestic production (Appendix Table 3.11). Prospects for future improvement in this precarious balance between domestic supply and demand for foodstuffs are good provided higher investment targets and other promotional measures planned for the agricultural sector are imple- mented. 2. The institutional structure in agriculture has long been a problem. The decision in 1975 to divide responsibility between the Ministries of Rural Development and Rural Equipment may complicate the problems of coordination and planning. The regional development organizations (SORADs) created in the mid-1960s have been hampered by the lack of clearly defined projects and programs and have not been able to achieve their goal of self-financed development. They have gradually been augmented by the creation of verti- cally integrated corporations designed to provide all the technical and financial support required for a specific crop. These corporations, such as SRCC for cocoa and coffee, SONAPH for oil palm and SOTOCO for cotton, have achieved a certain measure of success, but continued proliferation of such corporations would tend to increase coordination problems. The problem of overlapping geographical jurisdiction for extension services has already arisen between SOTOCO and the SORADs, which retain responsibility for food crops. For two regional projects, this problem has been resolved through a merging of extension services at the subsector level, with joint determi- nation of programs and objectives by the agencies concerned. It is expected that, based on practical experience in the course of ongoing projects, all extension activity may be brought directly under the Ministry of Rural De- velopment, with technical support and training for specific crops provided by the specialized corporations and infrastructure remaining the responsi- bility of the SORADs. Such a solution would promote greater coordination in project execution and facilitate comprehensive regional planning. 3. Agricultural research is carried out by a national research institu- tion with sizeable support from foreign, crop-specific organizations such as IFCC for coffee and cocoa, IRAT for food crops and IRCT for cotton. External financing for these organizations has been primarily through - and therefore ANNEX A Page 2 dependent upon - specific agricultural projects. One of the longer-term re- search problems in Togo has been that of Kaincope disease, which has destroyed a substantial portion of the country's coconut plantings. A program to test the resistance of various hybrids to this disease is being carried out under the Maritime Region Rural Development Project with support from IRHO. 4. Agricultural credit is supplied by the Caisse National de Credit Agricole (CNCA), although most CNCA funds have been onlent to farmers through the SORADs or specialized corporations. CNCA's past performance has been dis- appointing; superficial loan appraisal and weak loan recovery efforts have resulted in a high percentage of defaults and arrears, jeopardizing CNCA's financial position. The Government has taken steps to increase CNCA's capi- tal, and CNCA should also benefit from improved access to Central Bank re- discount facilities under the new BCEAO policy guidelines. New management and reorganization should improve operational control while direct lending to farmer groups, being tested under ongoing IDA projects, should increase the volume of credit to agriculture -which, for lack of institutional support, amounted to less than 3 percent of total short- and medium-term credit in 1975. 5. The vast majority of farmers, including those producing export crops, grow food crops to provide for their own subsistence. Limited sur- plus food crop production is generally marketed through private channels, although Togograin was recently established as a public enterprise to help support cereal prices. Togograin's limited activities in the purchase of maize, millet, sorghum and rice have had no apparent impact on prices thus far, but expanded future activities and the build-up of surpluses utilizing storage facilities, established with financial support from FED, could play an important role. Togograin's impact depends upon its efficiency in keeping down operating margins so that attractive prices can be offered while main- taining financial viability. At the same time, public buffer stock opera- tions can only be as successful as the long-term market trend and hence depend on the freedom with which other buyers continue to operate in the market. 6. OPAT has a monopoly on agricultural exports. Its main function is to guarantee stable prices for export crops to farmers. Moreover, it is also involved in the financing and overall supervision of the marketing of these crops and helps promote rural development through direct investments and execution of maintenance projects such as feeder roads. An important issue is the appropriate balance between the farm income stabilization func- tion and the quasi taxation/public savings role. The effective overall tax burden--including OPAT's price differential--for cocoa and coffee farmers in recent years is estimated at roughly 50 percent. OPAT's investment pol- icy, which like its producer price policy is principally determined by the Government, has mainly favored non-agricultural projects. However, OPAT's financial contributions to the rural sector during 1971-75 showed consider- able improvement over the 1966-70 period. ANNEX A Page 3 7. A conservative producer price policy has been partly responsible for past declines in the volume of agricultural exports by discouraging pro- duction of cocoa, coffee and cotton and encouraging a shift to the domestic market (groundnuts and oil palm products). Recent producer price increases (Appendix Tables 7.1 and 7.2) have begun to improve the situation for most crops although considerable discrepancies still exist. Calculations of the net farmgate value for cocoa show that, at present producer prices, the farmer could have expected 36 percent of that value in 1976 and about 60 percent by 1985. For the coffee farmer, the corresponding figures are 29 percent and 26 percent. When combined with the difference in incentive to the farmer, defined as the net return per man-day (CFAF 452 for cocoa and CFAF 314 for coffee), these figures appear to support an increase in the coffee producer price relative to that for cocoa. Similar calculations of net farmgate value at current producer prices and levels of input subsidies show farmers receiv- ing about 58 percent for cotton and 98 percent for groundnuts, while both palm kernels and copra are heavily subsidized. A comparison of producer incentives shows cotton farmers receiving about CFAF 300 per man-day against CFAF 400 for groundnuts and CFAF 320 for improved maize. This implies a need to increase the producer price for cotton. 8. The Government's principal objectives for agriculture in the Third Plan period are to restore the productivity of traditional export and food crops, to diversify into some new products, and to limit food imports, mainly required for temporary production shortfalls, with an eventual goal of exporting to neighboring countries. With a projected investment of CFAF 56 billion, more than 20 percent of total Plan investment, the agricultural sector is expected to expand at an annual average rate of about 5.2 percent within the overall growth objective of 8 percent. Achievement of the goals for cocoa and coffee are subject to successful implementation of the IDA-FAC co-financed project carried out by SRCC which provides for the planting of 4,400 ha each of high-yielding varieties of cocoa and coffee by 1980. How- ever, the viability of the long-term programs of 11,000 ha and 9,600 ha respectively depend upon world market conditions (although current quotas would appear to leave room for expansion) and, for cocoa, upon the willing- ness of farmers to uproot old trees to allow replanting as suitable new planting areas become exhausted. Production is expected to increase from 16,000 tons in 1975 to 18,000 tons by 1980 for cocoa and from 9,000 tons to 12,000 tons for coffee. 9. Increases in oil palm production, totalling 39,000 tons of ffbs (compared to base production of 230,000 tons from traditional trees), also seem assured from the 4,900 ha of hybrid trees planted with FED assistance during the Second Plan period. However, continuation of the planting pro- gram, which would add an additional 3,300 ha by 1980, and the planned expan- sion of oil mill capacity should be reviewed in light of increasingly mar- ginal ecological conditions and potential competition for adequate soil from food and other cash crops, such as coffee. ANNEX A Page 4 10. The Plan projects a cotton development program which would increase production from 12,000 to 42,000 tons in five years. However, preliminary results of an IDA appraisal of the program, which would be carried out by SOTOCO and provide the necessary services and infrastructure to obtain a doubling of cropped area and an increase of about 40 percent in yields, indicate that a goal of 32,000 tons by 1981 would be more realistic. In- creased cotton production in rotation with food crops is an important ele- ment of Togo's more widespread rural development program. 11. Possibilities for cash crop diversification, such as fruits, cashew nuts, tobacco, and sugar cane, face critical and as yet undetermined market conditions. Sugar cane development, which would probably require irrigation, would be initially aimed at import substitution, although the size of the domestic market (about 7,000 tons are imported annually) is likely to make local processing uneconomic; prospects for exports appear limited in view of already existing or forthcoming capacities in other West African countries. Because of exacting ecological requirements and limited production possibil- ities, the other crops are unlikely to make any quantitative impact on total production or exports and are thus potentially more important in the context of regional distribution than in that of crop diversification per se (para. 16). 12. Food crop production is expected to grow at about 3 percent per annum during the Third Plan period, or slightly faster than the population. Investment in food crop development at the small farm level is projected at almost 40 percent of total investment in the sector, and a significant amount of this investment is expected from the farmers themselves. However, two factors might limit future expansion of production: (i) market prospects are uncertain since data on urban income elasticities and expenditures for staple foods are lacking; aside from rice - domestic production of which is expected to triple during the period - import data indicate no trend toward increasing food requirements; and (ii) it is unclear as yet whether the necessary framework for a much higher level of investment will be avail- able. The necessary inputs and technical services will be provided in the Maritime Region and part of the Central Region through externally-financed projects, and food crops in rotation with cotton would benefit from the proposed SOTOCO project. However, non-cotton growing farmers in other regions are currently without significant support. 13. Livestock development has been hampered by disease problems (trypanosomiasis and paripneumonia), sociological constraints, and organi- zational difficulties. As a result, Togo will be unable to satisfy its meat requirements from domestic sources in the foreseeable future. Hence activities in the Third Plan period will concentrate on animal health im- provements and the creation of the necessary infrastructure for future developments. Integrated livestock programs proposed for the Plateaux, Central and Savannah Regions which would combine vaccination and veterinary services, improved husbandry and herd management, and animal traction appear promising, but plans for large-scale high-cost ranch operations should be approached with caution and only implemented if the justification is well established. ANNEX A Page 5 14. In 1975 domestic fisheries supplied only about 2,900 tons out of a total estimated consumption of 27,500 tons. The National Fisheries Office, which is responsible for development of this sub-sector, has so far concen- trated on the procurement and operation of a fleet of small fishing boats. Moreover, the recent opening of a fishing harbor has attracted some private boats of a similar size. Support for traditional fishing, which is nominally under the control of the Fisheries Service, could be increased and expanded to cover inland fish ponds and fish farming in Lake Togo. 15. Long-term requirements for wood products other than for heating are estimated at about 335,000 m per year, while maximum domestic 3roduc- tion from natural forests and existing plantations is about 8,000 m per year. Complete self-sufficiency would imply a long-term planting program of about 50,000 ha. Efforts in the Third Plan period will be concentrated on improving the management of existing plantations and replanting the clas- sified forests, for a total planting program of about 8,500 ha. The economic and financial implications of this program should be carefully studied, but the favorable potential ecological impact associated with reforestation should also be taken into account. 16. The technical and ecological conditions which have determined historical developments in the agriculture sector are reflected in the disparity in levels of development between the five economic regions (Table 1). The regional per capita agricultural incomes reflect the distribution of traditional cash crop production (coffee, cocoa, cotton), which is concen- trated in the Plateaux Region, and livestock production, concentrated in the Central and Savannah Regions. Differing ecological considerations will necessarily continue to be reflected in the selection of locations for the development of specific crops, but the distribution of expenditure can be influenced by the choice of products to be promoted. Third Plan proposals thus far do not seem to give adequate consideration to regional diversifica- tion of production; for example, specific crop programs in the Plan, includ- ing those for cotton which can be grown almost anywhere, are concentrated in the Central and Plateaux Regions. Greater efforts should be made to identify projects and programs contributing to regional diversification and development of Togo's poorest regions. 17. There are, however, important constraints to regional development which should not be ignored. High population density and resultant soil depletion are important problems in the Kara and Maritime Regions. The presence of onchocerciasis has limited the cultivation of parts of Kara and the Savannah, while a low water table makes human habitation difficult in large parts of the Central Region. The problem of water is serious in all regions, with major projects planned for the Sio-Haho, Mono and Oti Valleys. Evaluation of the technical and economic justifications of large- scale projects will have to take into account their potential multi-sector impact on irrigation, power generation, and urban and rural water supply; several feasibility studies are being prepared or planned (Annex D). How- ever, before costly water control efforts are undertaken, the potential for Table 1: Selected Agricultural and Regional Indicators Maritime Plateaux Central Kara Savana Total (1) Population (1000) 780 532 318 252 261 2,143 (2) Denity (persons/Km2) 128 30 16 56 31 38 (3) Area (1000 kn2) 6.1 17.5 20 4.5 8.5 56.5 (4) Ralotnall (tu) 850 - 1000 1200 - 1600 1200 - 1500 1400 1000 - 1100 (5) Av±rage croppod area por farn (ha) 1.40 1.70 2.20 0.81 4.00 1.71 (u) Zsrimated Rcal per Capita LO.1omes (CFAh 000) Agricultural 11 15 16 6 12 12 Non-Agricultural 13 9 13 8 3 10 1 ToZU.l 24 24 29 14 15 22 o (7) Main crop - manioc - cocoa - yam - millet - millet I - maize - coffee - sorghum - sorghum - sorghum - manioc - yam (8) Maj.r prablems - populction pressure - stagnation of cocoa, - insufficient water - overpopulation - irregular rainfall - declining soil coffee and cotton availability due - depletion of - possible food shortage fertility production to low water table hilly soils - irregular population - food supply density (i) potenrtal - fond crops, rice - cocoa-coffee-cotton - land available with - low agricultural - land available with - food crops good agricultural potential good potential, cottons potential, cotton lives tock, ani6al traction "ourca: Mission Estimates OQ Z ANNEX A Page 7 simpler, less expensive approaches such as the development of low-land areas or flood control for single-season irrigation (both being investigated under the Maritime Project) should be exploited. 18. Lack of an adequate feeder road network is another important con- straint to agricultural and regional development. Construction in the past has been financed by various sources such as OPAT and foreign donors on a crop-by-crop basis. However, there is no overall planning mechanism to coordinate the needs of various regional and sectoral production programs, and maintenance is virtually non-existent. To avoid further diffusion of responsibility and capacity in this field through ad hoc solutions in the context of specific agricultural projects, a comprehensive national program, with strong emphasis on adequate financing for maintenance, is required. 19. The relatively low level of utilization of cultivable land (para. 2.02) can be partly explained by the wide variation in population densities due to such factors as the presence of disease or the absence of groundwater. Thus, the option of extension of cultivated area, which apparently exists at the national level, is not necessarily relevant in the regional context. In the Kara Region and parts of the Savannah and Maritime Regions, for instance, reduction in agricultural underemployment and improve- ments in productivity must be achieved through intensification of production on existing farms through improved varieties and cultural practices and the use of modern inputs such as fertilizers and pesticides, with area expansion only possible through the settlement of neighboring areas after the solution of disease and water problems. 20. However, even in lightly settled areas, the average area per active agricultural worker is between 1/2 and 1 ha. Although the lack of regional market opportunities and the low level of monetization of the sector may be partly responsible for such a low level of land utilization, an additional factor could be a temporary shortage of labor related to seasonal peak demand and rainfall pattern. Thus in these areas, particularly parts of the Central Region, agricultural underemployment during a large part of the year might be related to an inability to provide sufficient labor at key points in the crop cycle, such as land preparation. Breaking these bottlenecks could be a key element to increasing rural productivity and income potential in these areas. In certain areas, the preferable solution to this problem would be through the use of animal traction. However, constraints caused by either shortage of grazing land, disease, or sociological aversion may make rapid advances in this field difficult. Therefore, experiments should be carried out with selective mechanization, avoiding the temptation to employ large tractors where plot sizes might make them inappropriate. One such experi- ment will be carried out using power tillers for low land rice cultivation in the context of the Maritime Project. ANNEX A Page 8 21. In the past, the use of modern agricultural inputs in Togo has been limited and heavily concentrated on cash crops, particularly cotton. For instance, total input applications in 1975 amounted to about 6,500 tons of fertilizer and 260,000 litres of insecticides. Farmers paid approximately 25 percent of total cost, leaving a subsidy to be borne by the Government of approximately CFAF 400 million. The Government believes that current levels of subsidy are necessary to introduce modern cultural practices to average Togolese farmers, of whom only about 20 percent now use fertilizers. While continued agricultural subsidization could become a financial burden in the future, subsidies on inputs are.at present more than offset by the taxation of export crops implicit in the relatively low producer prices offered. The balance between input subsidies and producer prices should be periodically reviewed by the Government to ensure that farmer incentives are maintained while at the same time moving toward the objective of efficiency prices. Summary Conclusions 22. In order to achieve the planned objectives of increasing agricul- tural production of both food and cash crops and of improving the regional distribution of development benefits in light of the sector's vital socio- economic role, some of the main issues which will need to be addressed are summarized as follows. First, differing ecological endowments place natural limitations on the extent to which particular crops can be developed in particular regions in order to improve regional income distribution. The Government's basic decision to restore the productivity of traditional export crops where the country enjoys comparative advantages and to put less emphasis on agricultural diversification where obvious limitations exist is principally sound. Still, it is possible to spread some crops over wider regions, espe- cially cotton and food crops, and the prospects for doing so should be fully utilized. Fiscal appropriations for the rural sector could also be better tailored to improve regional development. Relatively large-scale agro-indus- trial complexes, which are planned for each region and which may encounter organizational and infrastructure problems, should be carefuly evaluated since there is virtually no relevant experience in Togo. 23. A second important issue is the need to attack urgent institutional problems which are the outgrowth of a proliferation of agricultural organiza- tions. The achievement of production increases will require the strengthening of extension services. Coherent planning and policy formulation will depend on better coordination between the various agencies. Special attention should be given to enlarging the sector's absorptive capacity through improved proj- ect identification and preparation work (such as studies and technical assis- tance) and improved project design and implementation. At the planning stage, the Ministry of Rural Development must have the capacity to design projects which will integrate the programs of the specialized corporations into co- herent regional development programs. Particular efforts should be concen- trated on developing programs for those regions whose development has been slowed by adverse ecological endowments. In order to make widespread im- provements in rural incomes, preference should be given to programs promot- ing smallholder development over costly large-scale irrigation projects or agricultural estates. ANNEX A Page 9 24. Third, with expanded absorptive capacity, agricultural funding for both capital and current expenditures could be increased. Greater budgetary allocations should be made, especially for recurrent costs such as maintenance. Equally, agricultural credit facilities have to be improved; BCEAO reform measures seem to be moving in this direction. In the framework of tighter control over, and coordination among, public agencies and enter- prises, OPAT's financial and investment policies - together with its pro- ducer price strategy - should be better coordinated with other public sec- tor activities designed to support rural development. 25. Finally, periodic review of input subsidies and producer prices for specific crops is needed to help stimulate output through adequate in- centives, raise rural incomes, and mobilize savings. Prevailing elastici- ties seem to indicate that higher producer prices would not significantly limit OPAT's profit growth, i.e., that the volume effect of higher incen- tives would tend to overcompensate the price effect for the price stabili- zation agency, subject to longer-term world market limitations. Once a satisfactory level of farmer acceptance of modern inputs has been achieved, it may be possible to raise crop prices and lower the subsidization of fer- tilizer and insecticides, reflecting more closely their market values. ANNEX B Page 1 MANUFACTURING AND MINING 1. Agriculture will continue to be the prime economic activity for the majority of the Togolese people for many years to come. Be that as it may, the role of the secondary sector has been expanding fast in this small country, and because of large projects now underway the next few years will see further important changes in the nation's economy due to mining and industrial expansion. A full understanding of these changes requires that we enter into a substantial amount of detail at the micro-economic level. This annex reviews the important issues facing established modern medium- scale and traditional small-scale enterprises and then takes up a rather detailed discussion of the phosphate sector, a 1.2 million-ton clinker plant (CIMAO), and a 1 million-ton oil refinery. 2. At the end of 1975, the industrial sector in Togo comprised a 2.5 million-ton phosphate mine and beneficiation plant, some 35 medium-sized modern manufacturing plants located almost exclusively in Lome, and small- scale and artisan establishments situated in Lome and in secondary centers throughout the country. The manufacturing companies are engaged mainly in import substitution (construction materials, packaging, textiles, light con- sumer goods) and a few processed agricultural products for export (cotton textiles, palm oil, cassava), and some have recently been established in a free port area to process or assemble imports for re-export. The following table describes the product composition and market and supply orientation of the companies currently engaged in mining and manufacturing. ANNEX B Page 2 Table 1: Supply and Market Orientation of Operating Enterprises in 1976 Processing of Processing of Local Processing of Imports Processing of Local Resources Resources for Export for the Local Market Imports for Export for Local Markets Phosphate mining Beer and soda Clothing Salt Cassava starch Wheat milling Cotton textiles Marble and Palm oil Clothing Bricks Groundnut oil Shoes Quarries Cotton textiles Cement Groundnut oil Plastics Cotton textiles Paint Detergents Industrial gas Matches Tire recapping Cardboard boxes Metal furniture Nails, screws Luggage Bicycles 3. The issues facing Togo in the further development of manufacturing and small-scale enterprises are set out in the new development plan. I/ The problems of small markets and difficulties in supply and in organization and management are all important, but there is perhaps some conflict between the stated objective--which the mission supports--of giving high priority to im- proving the productivity and performance of established enterprises 2/ and the level of direct Government participation proposed in new industrial projects included in the public investment program. The environment for expansion of industry, especially small-scale undertakings, will improve as domestic demand picks up during construction and implementation of the huge CIMAO project which, along with other projects now being implemented, will absorb the bulk of Government financial and human resources available for industry. Under these circumstances the Government should adhere to its objective of encouraging new industrial investments to develop autonomously as projects and sources of finance take shape, and should concentrate on maintaining an appropriate policy framework. It should not exclude the initiation of studies by its own services or those of foreign donors or investors to identify potential investment opportunities. 1/ Third Economic Development Plan, pp. 29-32 and pp. 301-303. 2/ Third Economic Development Plan, pp.51, 315. ANNEX B Page 3 Established Manufacturing Enterprises 4. The principal pending issue with which the authorities must cope during the coming five years is the expiration of tax exemptions under the Investment Code and the adaptation of the manufacturing sector to a reduction in preferential treatment. Agreements covering some twenty enterprises--most of them import substitutors--are scheduled to end by 1980, resulting in a con- siderable reduction in the effective protection which now prevails. Since most of these agreements have been in effect for 10 years, the purposes they were intended to serve ought to have been achieved; if not it is unlikely that extension of the agreements would achieve them. Wisely, the Government has publicized the expiration dates to the firms concerned and can take a determined stance in negotiations, since the companies have sufficient time to adapt to a more competitive environment. This approach is particularly advisable in that, other things being equal, the removal of preferences on import substitution will enhance the relative attractiveness of production for export, which is a Plan objective. 5. At the same time, it must be recognized that a number of these enterprises have not in fact achieved financial viability, and that Togo's long borders and exchange rate differentials have already exposed some pro- ducers of consumer goods to competition in the market. Moreover, in many cases achievement of efficient operations and higher capacity utilization is not entirely a function of fiscal incentives or even of enterprise man- agement. Rather it is a matter of ensuring adequate sources of supply (es- pecially of agricultural raw materials), of reducing the cost of power, water and transportation, of improving the skills and productivity of the labor force, and of the relative availability of credit for and profitability of investment in real estate and inventories. To facilitate manufacturing enterprises, adaptation, to the removal of fiscal incentives, the Govern- ment will need to make further progress in the application of policies to expand markets, especially for exports, and to keep the costs of labor and domestically-produced inputs at reasonable levels. The new Plan emphasizes the importance of such policies, but should perhaps focus more sharply on a program of action to achieve them. Given the fact that only 35 or so enter- prises are involved, particular problems of supply, management and account- ability can indeed, as suggested in the Plan, be tackled on a case-by-case basis. However, because of the imminence of the expiration of incentive agreements, priority should be given to a systematic evaluation of the pro- tective effects of the existing tariff and duty structure on enterprises and products in order to judge whether revisions are possible that would (i) help to maintain prices of Togolese products at competitive levels, (ii) guide new investment into activities in which Togo has a comparative advantage, and (iii) minimize losses in revenues. In addition, as indicated in the Plan, the Government should continue to pursue vigorously the possi- bility of regional cooperation--perhaps on a product-by-product basis--as it has already successfully done with cement clinker and power. Regional groupings such as CEDEAO and CEAO could provide the framework for such mul- tinational efforts. ANNEX B Page 4 6. Geographic decentralization of industrial activity is also a Government objective. As already noted, there are very few manufacturing enterprises outside Lome (cotton textiles and cassava starch are the main exceptions), but if the industrial zone is extended much further beyond the immediate port area along Togo's short coast, there would be high ecological costs. Eventually such activity would preempt the possibility of tourism or residential development, which are likely to be more efficient uses of this zone. Concentration of new development along the railway in the northern outskirts of Lome, which is already taking place in Lome-Tokoin, would not seem disadvantageous from the viewpoint of transportation costs, would still provide access to employment for the urban population and would avoid pollu- tion of the coast. With respect to decentralization to other parts of the country, the policy measures recommended in the Plan are the granting of special incentives for investments made in priority areas outside the capital and the improvement of economic and urban infrastructure to "create develop- ment poles around centers which possess mining as well as agricultural devel- opment potential" 1/. This last qualification is important, since markets in the secondary centers are too small to support modern consumer-oriented manufacturing companies, and industrial development would therefore either have to be of the traditional small-scale variety or based on the processing of local raw materials for export. It is doubtful whether tax incentives alone would be adequate to stimulate these types of enterprises and, apart from large-scale mineral processing, whether the costs of major investments in infrastructure would be economically justified. Regional decentralization of industry is therefore primarily linked to measures to encourage the devel- opment of agriculture, export promotion and the growth of small-scale enter- prises. Small-Scale Enterprises 7. Ln 1971 a World Bank survey of the development of private enter- prise in nineteen African countries concluded: ".... it can be said that Togo is in the process of developing a more or less comprehensive program for the promotion of small- and medium-enterprise. Much still remains to be done in the detailed .... implementation of certain measures even though the steps taken or contemplated appear to be generally well conceived. Progress will, above all, depend on finding the right kind of personnel capable of giving practical advice and guidance to Togolese entrepreneurs". 2/ 1/ Plan, pp. 51 and 320. 2/ IBRD, The Development of African Private Enterprise, December 10, 1971, Volume II, Annex II, page 7. ANNEX B Page 5 The Government has designated the Togolese Development Bank and the National Center for the Promotion of Small and Medium Enterprises (CNPPME) as princi- pal agencies dealing with the promotion of small-scale enterprises. The CNPPME has established an industrial estate in the outskirts of Lome, 1/ the Government has created a guarantee fund for loans to small-scale firms, and a number of new activities have been identified that could be suitable for small-scale enterprise. There can thus be little doubt as to the high degree of Government concern for the development of this sector, while technical and financial support from international agencies and several bilateral donors has also been substantial. 8. Available information suggests that enterprises engaged in the informal trade and service sectors have grown rapidly, while those engaged in processing activities have not developed as fast. Operations of the BTD and the loan guarantee fund show a preponderance of credits to trade and services activities, but it should be noted that small-scale enterprises are often initially financed entirely out of private savings and by traditional money lenders. Statistical data on these self-financing and informal fund- ing operations are not available, but studies of the small-scale enterprise sector planned during the Third Plan period should provide some empirical evidence. The National Promotion Center has compiled information on some thirty small and medium-sized enterprises in Togo which have obtained assis- tance from the Center. These enterprises are mostly engaged in manufacturing or other secondary sector activities in Lome and its outskirts. Only a few of them are located in other regions, and there seems to be scope for expan- sion of the promotion program into the interior in the country. Small-scale enterprises established on the Lome industrial estate or promoted by the Center during the past few years invested roughly CFAF 1 billion (approxi- mately $4.5 million) and created more than 800 new jobs at an average cost of $5,500 per job. This compares, for instance, with an average cost of about $5,300 per job in the small-scale enterprise sector in the Ivory Coast during the period 1968-73. 9. The Government has declared promotion of small and medium-sized indigenous enterprises a priority objective of its industrial policy in the Third Plan. It is expected that such a promotion program will help improve income distribution, foster Togolization of the economy, and provide jobs, especially in urban centers where unemployment tends to be high. Finally, given the high share of value added created in the informal sector, the contribution to growth would be substantial, particularly in relation to the size of invested funds. The establishment of a few larger industrial enterprises in the country will provide opportunities for the creation or expansion of smaller "satellite" industries in the informal sector. Through 1/ Advantages are (a) low rent for land; (b) advances for construction; (c) free preparation of plans and estimates; (d) relatively low-cost power; (e) centralized maintenance and telephone facilities. ANNEX B Page 6 these linkage effects the absorptive capacity of the small business sector could probably be greatly enhanced, and further "spill-over" effects could be anticipated in this sector in the interior of the country. 10. Traditionally, Togolese not engaged in agriculture or public administration have been active in trade, other service activities and real estate where profit rates have tended to be higher than in the informal sector of industry and handicraft. Moreover, due to existing trade and historical patterns of division of labor, the adequate supply of manufactured goods from overseas and neighboring countries has been a disincentive to domestic production. Established small-scale enterprises have suffered from a lack of working capital and access to investment funds because of the risks and administrative costs involved in lending to small entrepreneurs. Further- more, extension services and other assistance provided to the small-business community have been hampered by the lack of qualified manpower, scarcity of funds, and limited training facilities for management and staff of such enterprises. 11. Several issues emerge from a review of the promotion efforts in the past few years. First, the institutional and operational links between the organizations engaged in financial and technical assistance should be reinforced. Second, priority sub-sectors should be identified where Togolese entrepreneurs seem best suited to exploit natural opportunities. Prima facie, woodworking and furniture, garages and repair shops, and probably construc- tion appear good candidates for sub-projects. Togo has already begun reor- ienting the program towards specific sub-sectors, for instance garages. This approach offers particular advantages through specialization, simpli- .fication of procedures, and savings in terms of loan processing and control cost, related technical assistance inputs and reduced risks. Third, an important aspect of Togo's small enterprise sector is that CNPPME is one of the few national promotion agencies in West Africa that has created and operates an industrial estate. The Government should consider expansion of its promotion program in less advanced regions of the country with the help of a more regionalized banking network, but before doing so should reappraise the experience gained with the industrial zone and compare it with geograph- ically more diversified actions in the informal sector. A thorough stock- taking and restructuring of the promotion policies at the beginning of the Third Plan is particularly appropriate because (i) increased opportunities for small-scale enterprises are likely to develop in the environment of a growing economy; (ii) new BCEAO rules are aimed at providing specific sup- port for both the financing of new investment and re-purchase of foreign- owned enterprises by nationals, (iii) some practical experience has already been gained with individual projects such as the industrial estate and with US and German loans and technical assistance from bilateral and multilateral donors, and (iv) IBRD projects in other West African countries and the re- gional US/Entente project are now sufficiently advanced to provide results which may be of help in Togo's particular circumstances. ANNEX B Page 7 Large-Scale. Industrial Projects CTMB 12. Togo's phosphate mining and beneficiation enterprise, CTMB, is the largest industrial company currently in production and it has been a success- ful and well-managed export operation since its inception in 1961. The ini- tial installed capacity was equivalent to 750,000 tons of concentrates per year. In the 1960s capacity was doubled to 1.5 million t.p.a. and in the early 1970s to 2.5 million t.p.a. CTMB employs about 1,800 people of whom 95 percent are Togolese. The Togo deposits are of high quality but limited in size, with currently known reserves sufficient for thirty to forty years at present capacity rates of production. Beneficiated Togo rock is also of high quality, 80 percent BPL as against 75 percent BPL for high-grade Morocco, and because of this it has commanded a premium price of a few dollars/ton more than Morocco rock, which is usually the standard of reference in eval- uations of the world phosphate market. Originally CTMB was a mixed private French, American and Togolese Government venture. In 1974, CTMB was national- ized with a capital of 3,621 million CFAF, and compensation payments were concluded by the following year. The principal issues this ongoing public enterprise will need to address in the coming years are: (i) the maintenance of net revenues under rapidly changing world market conditions and (ii) the decision whether and when to move into the production of intermediate phos- phatic fertilizers. 13. The importance of net phosphate revenues to the Togolese economy is obvious from the size of the contribution of phosphate earnings to the Government budget. For the three years 1974-76, consolidated average CTMB/0TP 1/ pretax profits were equivalent to approximately 45 percent of total budgetary revenues. Compared with the past, however, phosphate rock prices during this period were exceptionally high. The following sum- mary table shows the effect of historical price and volume developments on certain structural coefficients and indicates both the economic importance and the practical difficulty of following an optimum production and sales strategy. Table 2: CTNB, Selected Indicators, 1970-75 Average Profit Phosphate Value Phosphate Value Phosphate Ex- Production Togolese Ratio Added as % of Added as % of ports as % of (Million Sales Price (% of GDP in Current GDP in Constant Total Recorded Year MT) ($/Ton) Sales) Prices Prices (1970) Goods Exports 1970 1.5 10.0 33 4.8 4.8 25 1971 1.7 10.6 31 4.8 4.8 35 1972 1.9 10.5 35 5.0 5.1 38 1973 2.3 13.5 41 5.9 6.0 46 1974 2.6 55.0 84 23.2 6.4 76 1975 1.1 67.3 74 12.9 2.6 65 1/ Togolese Phosphate Office, the Government marketing agency for CTMB. ANNEX B Page 8 In 1974 and 1975 unit values were 5 to 6 times the level of the early 1970s; margins on sales and the contribution of the phosphate industry to GDP and exports measured in current prices rose dramatically. However, in 1975 rapidly declining demand forced a 60 percent cutback in production, with a corresponding fall in the share of phosphate mining in real GDP. 14. Since the late 1960s more than half of Togolese phosphate exports have gone to France and most of the remainder to Belgium, the Netherlands and West Germany (Appendix Table 8.4). While 1975 was a poor year volume- wise for world phosphate exports as a whole, Togo generally suffered more than most other producers (Appendix Table 8.5). The main cause of the fall in demand in 1975 was initially resistance of importers to high prices, but there was also a greater understanding in certain high-use areas, especially Western Europe, that phosphate may have been overapplied and in any case could be used at reduced rates during a period of several years without pro- voking a significant reduction in agricultural yields. Moreover, domestic phosphate rock prices in some countries producing phosphatic intermediates (acid, DAP 1/) were lower than international rock prices, with the result that the price of phosphatic intermediates declined in relation to rock, and some fertilizer producers who had previously imported rock found it more advantageous to import intermediate products. It is not yet clear whether the regression in world phosphate demand experienced in 1975 will continue, but it is certain that unless demand picks up significantly there will be a large excess of rock mining capacity until 1980. 15. The scope of revenue maximization for CTMB has been analyzed by the mission on the basis of financial statements and production and sales data. The range is illustrated in the following table. It shows, for example, that at a sales price of $10 per ton CTMB would just about breakeven at an annual rate of production of 2.6 million tons, the present capacity limit. At a price of $35 any rate of production above 500,000 tons per year would yield positive returns, and at 2 million tons per year net earnings would approach CFAF 10 billion. 1/ Diammonium Phosphate. ANNEX B Page 9 Table 3: CTMB - Illustrative Break-even Points (1975 US dollars) Net revenues Break-even Capacity at 2 million Sales Price Production Level Utilization tons ($/t) (Million t) (%) (CFAF billions) 10 2.6 96 negative 15 1.4 52 1.3 20 0.9 33 3.5 25 0.7 26 5.7 35 0.5 19 10.3 Source: Mission estimates (Annex Chart 8.7). The estimates seem to confirm that Togo might consider discontinuing produc- tion at a sales price below $20, the breakeven point at the 1975 level of production of 1.1 million tons. On the other hand, at any price above $25 per ton CTMB could breakeven by operating at only 25 percent of capacity, and profits would be substantial at 2 million tons of output. 16. World Bank projections for rock prices during 1976-80 based on 75 percent BPL Morocco are on the order of $32 per ton in 1976 prices. 1/ There could be doubt as to whether prices can be maintained even at these levels, but it is believed that they will, as both Morocco and the USA (Florida), which dominate the export market, have indicated they would cut production rather than allow prices to fall further. It is nevertheless extremely unlikely that supplies will become tight again before 1980. As a small seller in the world market, Togo, of course, would not depress in- ternational prices; and at $30 per ton the country is justified in pursuing an aggressive marketing policy, particularly to find alternatives to the traditional European markets. Moreover, Togo rock is a high grade rock which should always find a strong position in the export market. Under these circumstances sales of Togo rock could recover to a level of about 2 million tons by 1977. However, the original CTMB plan to increase pro- duction to 3 million tons by that year is not likely to materialize, and it is doubtful if Togo could profitably sell this output until 1980 or there- after, based on present trends in the world phosphate market. 17. Assuming the market can be effectively exploited, CTMB also has an opportunity to increase output and efficiency at relatively low cost. At present about two tons of crude ore are required to obtain one ton of refined 1/ This corresponds to an average of $38 per ton for Togo in current prices during 1976-80. ANNEX B Page 10 rock. A process is now being developed which it is hoped will recover some- where between 10 percent and 30 percent of the rock which is currently lost. A pilot plant is being installed, but there are still a number of unknowns to be resolved such as the water required to remove chlorine. If the outcome is technically feasible, the project would be extremely attractive both eco- nomically and environmentally: economically because total equipment cost of less than US$5 million would increase the recovery of rock by at least some 200,000 tons, i.e. amortization within one year at a unit price of more than $25/ton. Moreover, the project could be attractive ecologically because the process will prevent pollution from the dumping of rock fines into the sea along Togo's narrow but picturesque coast. 18. The longer-term strategic issue with which the Togolese authorities are now grappling is the decision whether and when to move into the production of fertilizer intermediates. The project is not included in the Third Plan, except for studies, but proposals for a fertilizer factory were submitted by two foreign firms, and at the time of the mission's visit the Government was reviewing the conclusions of a comparative study undertaken by an inde- pendent firm to evaluate the proposals. 19. The anticipated production basis of the fertilizer plant was 1,000 tons of P205 per day, of which it was intended that 500 tons would be sold as wet process acid and the remainder would be converted into TSP, MAP and DAP. It was expected that the main product from the plant would be phosphoric acid and that the facilities to import ammonia and produce DAP might come as a second stage. Special consideration is now being given to marketing and long-term supply and financing arrangements. In this respect, the Govern- ment is looking towards the countries which would provide equipment, such as the Netherlands, France and Germany, to assist in the financing of the project and also to agree to some arrangement for the purchase of the plant's products. Eventually, however, it is expected that other principal market outlets for the products would be Africa, for example, Nigeria, Ghana and Togo, and Latin America, especially Brazil. The current investment estimates for the project would be about CFAF 70 billion and no arrangements would be made for financing until the results of the independent evaluation had been considered by the Government. 20. At present day values, it is intended to transfer rock to the fertilizer plant at $15/ton, although it is expected that by 1979 the transfer price would be $20/ton. It is also intended that the rock mining capacity be increased to about 3,500,000 tons of refined product per annum; 2,500,000 tons would be sold as rock and 1,000,000 would be required for the new fertilizer plant. Consideration has been given to a previous proposal to use a crude rock feed to the phosphoric acid plant (this is probably related to the current pilot plant work being carried out at the beneficia- tion plant), but it seems that preference is now being given to a phosphoric acid plant based on high grade rock. Although details of the project were not made available during the mission field work, the Bank is familiar with ANNEX B Page 11 the scope and approximate costs of such projects as a result of its involve- ment in projects in other parts of the world. It is estimated that facili- ties, including both plant and infrastructure, to produce about 1,000 tpd of P2 0 as phosphoric acid and convert it into diammonium phosphate would cost agout US$200-250 million. Certain trends referred to above make it important that special consideration be given to the longer-term marketing strategy. Both the USA (Florida) and Morocco, which are major producers of rock, are also beginning to export large quantities of phosphatic interme- diates. These intermediates, which are produced in large plants from rela- tively low grade rock, are being sold in traditional rock markets, where under certain conditions they offer a more attractive alternative than im- porting and processing rock. As the small super-phosphate and phosphoric acid plants in Europe and Japan and other importing countries become pro- gressively obsolete, it is likely that these plants will not be replaced with new large expensive plants but that the owners will impdrt phosphatic intermediates instead. 21. There is thus a strong possibility that the traditional phosphate market will decline and, in time, Togo may be forced to follow the trend into phosphatic intermediate production in order to secure adequate outlets for its products. No doubt this is one of the major points in favor of the current proposal. However, the advantage in producing intermediates in Togo is not so great as in those countries producing low grade rock which cannot otherwise easily be sold on the export market. Moreover, in view of Togo's limited reserves compared with those of the rest of the world, 1/ it is particularly important that Togo give careful consideration to the conser- vation and best use of its main natural resource. So long as the present rock/intermediate price structure holds, there would appear to be little advantage in Togo's entering the intermediate market by processing high- grade rock itself. An early entry into this market would only appear to be justified if Togo could use a lower-grade rock which could be costed into its phosphoric acid plant at less than $15/ton. (This is, for in- stance, the upper price limit of rock destined for phosphoric acid plants in Florida, USA). Special attention would therefore have to be given to an appropriate and economic feedstock for the new phosphoric acid project. In this respect, the project to improve the operation of the beneficiation plant which is described above is of particular interest. 1/ Appendix Table 8.6 shows world phosphate resources. Togo's currently- known deposits of 200 million tons of high-grade sedimentary would last for 40 years at present maximum capacity levels, or, for instance, for 20 years if production for rock exports and fertilizer production were doubled. As part of further mineral prospecting, the Government should include a systematic exploration of phosphate deposits in the country. ANNEX B Page 12 CIMAO 22. CILMAO, a regional enterprise formed to establish and manage the pro- duction of cement clinker, is similar to the existing phosphate mining enter- prise in that it will be large-scale and based on the exploitation and process- ing of mineral deposits located in Togo. However, the similarity ends there, for the project will be both export-oriented and import-substituting from the point of view of the Togolese economy and a pure import-substituting activity for the regional market which comprises the three countries (Togo, Ghana and the Ivory Coast) whose governments are partners in the undertaking. This distinction is important in evaluating the costs and benefits of the proj- ect to the Togolese economy and in appreciating the thrust of public policy, which is defined in practice by a treaty specifying the mutual obligations of the member governments in the enterprise. Thus, while the Government would be justified in the case of a pure export activity in following production, tax, and pricing policies that would maximize export earnings and public reve- nue, in the case of an import-substitution activity, policy should seek to ensure competitive prices to domestic consumers, particularly, as in the case of cement clinker, when the product is an intermediate good for construction and other industries of importance to the partner countries' future develop- ment. 23. CIMAO was originally established in 1968 by the governments of the Ivory Coast and Togo and a foreign private company to produce clinker from limestone deposits located in Togo, the only such deposits found to date in the area. The original limestone deposit on which the undertaking was based turned out to be of poor quality for commercial development, but in 1972 a commercial quality deposit was discovered about 80 kilometers northeast of Lome with reserves expected to last about 90 years at initial annual produc- tion capacity of 1.2 million tons of clinker. A French firm was chosen to provide technical and management services, and it took a minority sharehold- ing in CIMAO. In April, 1975, Ghana joined CIMAO as an equal partner with the other two governments, and a treaty formally establishing the regional cement complex was signed in December, 1975. The treaty specifies the rela- tionships among the partners and with the enterprise and in particular sets up a marketing arrangement whereby the three governments agree to take the company's total production at a uniform price at the ports of entry in Ghana and the Ivory Coast and at the existing grinding plant in Togo. According to the agreement the price of clinker will cover the full costs, including debt service and a fair return on capital (including capital invested in infrastructure) of the industrial complex. Since total production of the enterprise will be less than consumption in the three countries, the par- ties agreed to give CIMAO the exclusive right to purchase and sell imported clinker, thus establishing a common regional market for this product. The parties also agreed to mutually and severally guarantee the debt obligations of the company, apart from soft loans contracted to finance the infrastruc- ture which are underwritten by the Togolese Government. ANNEX B Page 13 24. The CIMAO plant is to be constructed during 1977-1980 and should attain full capacity of 1.2 million tons, which will cover from 50-60 per- cent of estimated consumption of the three countries concerned, in the early 1980s. The estimated total investment cost of $284 million in current prices covers two separate components: the industrial complex per se estimated at $220 million financed by equity contributions and long-term loans to CIMAO (15 years at an average interest rate of about 8 percent); and related infra- structure estimated at $64 million comprising port, railway, power and town- ship facilities financed by grants and concessionary loans to Togo (35 years, 1.3 percent). Total investment cost, including infrastructure, of $235 per capacity ton is high, but the per-ton investment cost of $185 for the indus- trial complex alone is in line with similar plants elsewhere. Moreover, the infrastructure is adequate to permit a 50 percent expansion tentatively planned for the mid-1980s and clearly feasible on the basis of current mar- ket projections. This added capacity would cut the total unit capital costs considerably. While the capital costs per unit of output are high, the di- rect labor input is low. Only about six hundred employees are estimated to be required to operate the industrial and additional infrastructure facili- ties, i.e., new investment (in current prices) will be almost $475,000 per job created. New employment during the construction phase will, however, be on the order of 2,500-3,000 persons, and the indirect effects on the Togolese economy during this stage will be substantial. 25. From the regional point of view the economic justification for this large-scale undertaking depends on transport costs, the availability of suit- able limestone deposits, and the production and marketing characteristics of the cement industry in the industrialized countries. In the first place clinker is a bulky commodity (currently valued at about $30 per ton c.i.f. West Africa) which--other things being equal--argues for the location of production facilities near the market. However, while limestone deposits are widespread throughout the world, none had been located in this part of West Africa until discovery of the Togolese deposits. Prior to and immedi- ately after independence, Togo and its partners purchased cement--generally in bags--from foreign suppliers. Not only was the price of bagged cement maintained at high levels compared with prices in the exporting countries, but there was considerable loss and waste both in transshipment and as a result of the humid tropical climate. To avoid these losses and benefit from the economies of bulk transport, clinker grinding plants, mainly af- filiated with European cement manufacturers, were set up in the port areas of the importing countries. This permitted the import of clinker in bulk and made possible substantial savings in transport costs. Nevertheless, 95 percent of the world's clinker is consumed in the industrialized cement producing countries; the availability and price of the exportable surplus depends on construction activity and the business cycle there, and with limited international competition producing companies have been in a strong position to set prices. I It is against this background that the three 1/ Evidence of this is provided by c.i.f. price comparisons between the three countries in 1975, which show a range of from $26-38 per ton. ANNEX B Page 14 governments sought a reliable regional source of clinker'supply, the unit costs of which could be kept competitive with European producers by estab- lishing a modern, large-scale plant to take advantage of demonstrated econ- omies of scale. 1/ Table 4: CIMAO - Production and Financial Profile (CFAF million - current terms) 1979 1980 1981 1982 1983 1984 1985 1986 Production (000 tons) 250 900 1,200 1,200 1,200 1,200/c 1,200/c 1,200/c Capacity Utiliza- tion (%) /a 33 75 100 100 100 100 100 100 Gross Sales 2,696 10,383 14,813 14,860 15,900 17,013 18,204 19,478 Net Sales 2,283 8,694 12,498 12,312 13,216 14,185 15,222 16,331 Gross Profit 624 4,621 7,255 6,608 7,185 7,743 8,340 8,979 Net Profit (Loss) (1,291)(1,416) 1,135 677 1,477 2,381 3,199 4,077 (as % of Gross Sales) (47.9)(13.6) 7.7 4.6 9.3 14.0 17.6 20.9 Cash Generation 293 1,752 4,303 3,845 4,645 5,549 6,367 7,245 Annual Surplus 495 781 2,212 1,163 1,773 2,574 3,267 3,451 Cumulative Surplus/b 495 1,276 3,488 4,651 6,424 8,998 12,265 15,716 Debt Service Ratio /b -- 1.3 1.6 1.2 1.4 1.6 1.7 1.9 Current Ratio/b 2.4 1.6 1.9 2.2 2.6 3.2 3.9 5.6 Debt/Equity Level/b 61/39 64/36 61/39 58/42 53/47 47/53 39/61 31/69 /a On a 300-day basis. Actually to be multiplied by 0.9 if a 300-day basis was used. /b Before payment of dividends. /c Infrastructure in place would permit expansion to 1.8 million tons in the mid-1980's. Source: IBRD Appraisal Report No. 1071-A, June 14, 1976. 1/ For project details see IBRD Report No. 1071-A, dated June 14, 1976. ANNEX B Page 15 26. From the viewpoint of the Togolese economy the project, though it is owned and managed by three governments with a small private participation, can best be treated as direct foreign investment financed on satisfactory terms. To put it another way, the reason equity, loan capital and technical assistance have been made available in such amounts to a project located in Togo is that two larger economies whose markets will be accessible to the enterprise are participating, an arrangement which is economically akin to participation by foreign private partners. This point is important because in a typical mineral scheme involving private partners, the net economic benefits to a country depend mainly on the terms (or concession agreement) negotiated to finance and exploit the mineral deposits. 1/ 27. In relation to Togo's economy, the sheer size of the undertaking is extraordinary and, when added to the traditional parameters of the economy, will dramatically change the balance of payments, investment rate and indus- trial value added. Planned investment in the project alone is equivalent in value to total cumulative public investment during the five years 1971-75 and is likely to represent about one-third of total public investment during 1976-80. Gross export earnings from goods and services will be increased some 30-40 percent; gross inflows of non-monetary capital due to the proj- ect will be about three times the annual average of the past five years; and during the construction period average annual imports will be equal to some 40 percent of the value of merchandise imported in recent years. The incremental capital output ratio of the project is unfavorably high, but because the population of Togo is small the annual per capita returns are substantial. Thus, value added directly attributable to the project will increase GDP at factor cost by 5 percent, or by about CFAF 2,500 per person per year in constant 1975 prices. Because of capital charges, the net direct benefits to the economy will, of course, be much less, even though loans have been contracted on favorable terms. The sum of potential direct Government revenues (equivalent to Togo's share of net income) and wage and salary pay- ments to Togolese workers will be only on the order of CFAF 1.5-1.7 billion. However, in addition to these direct financial returns the project will re- place clinker imports valued at from CFAF 2-3 billion per year during the 1980s. Moreover, payments by CIMAO for the services of the railroad and 1/ Under the terms of the agreement, the Togolese Government's direct obligations are as follows: (a) equity, CFAF 4 billion, (b) preferred shares, CFAF 1.9 billion financed by an IBRD loan, (c) infrastructure, CFAF 14.4 billion financed by concessional loans and grants. Total debt service due directly from Togo on the foregoing amounts to CFAF 250 million per year as of the mid-1980's. In addition, Togo is con- tingently liable, with its partners, for debt service due from CIMAO. Furthr, Togo foregoes tax and duty revenues through 1989, but has the right to CFAF 120 million per year in royalties (CFAF 100/ton), one- third of net income in dividends and a "fair return" on infrastructure services provided to CIMAO. ANNEX _B Page 16 port and for maintenance of the township add considerably to the net bene- fits to Togo and, in the case of the railroad, will reduce annual deficits historically incurred by this operation. Finally, indirect effects of the construction phase on the domestic economy (for example, increased demand for food and services of the informal sector), though unquantified, are likely to result in a major expansion of economic activity in the construc- tion area. It has been estimated that the economic return to the project for Togo is on the order of 15-20 percent, substantially higher than the return to the project as an entity on its own. Oil Refinery 28. While Togo has made pragmatic and financially justified decisions on phosphate mining and the development of cement clinker, the one-million ton oil refinery now being constructed for start up in 1977 is likely to require high consumer prices and/or Government subsidies for a number of years unless it gets preferential prices either for the import of crude oil or the export of its products. In brief, this is because the domestic mar- ket for refined products is small and, owing to economies of scale, unit production costs of large refineries (up to 6 million tons) now in opera- tion or being established in the main importing areas are much less than those of small refineries. The 60-70 percent of Togolese output which must be exported, at least until the early 1980s, will have to compete with the lower-cost products of these larger refineries unless purchasers of Togolese exports are ready to pay more than the market price. 29. The decision to establish the refinery appears to have been based on the Government's desire to be independent of foreign sources of refined products, on expectations of a very rapid rise in domestic consumption and on expected outlets for Togolese products in Africa. The mission also under- stands that a German importer has agreed to take 650,000 tons of Togolese products at prevailing spot prices in Rotterdam. However, the country will still be dependent on imports of crude oil, the opportunity cost of which is its world market price; the African market will be limited in the longer term, since most African countries in the region have plans to go ahead with their own refineries (see Appendix Table 8.12); and Togo's own consumption will not expand much above 150,000 tons per year until CIMAO reaches capacity in 1981, when it could rise to 250,000 tons. 30. Togolese consumption of petroleum products grew rapidly in the 1960s and early 1970s, reaching about 106,000 tons in 1973. At that time about one- fourth of Togolese consumption was gasoline for motor vehicle transportation, one-third diesel oil for electric power generation and one-third fuel oil for CTMB, the exact amount depending on the level of activity in phosphate mining. In 1973, however, Togo began to receive its first deliveries of hydro-elec- tric power through the CEB grid connected with the Volta River Dam. This had the favorable economic effect of reducing the diesel oil import demand for thermal power generation in a year when international diesel oil prices more ANNEX B Page 17 than doubled. However, it also shrank the domestic market for refined prod- ucts by some 15 percent, while the increased price of gasoline caused growth in the consumption of that product to level off. Thus, since 1972 the domes- tic market for refined products has been contracting rather than expanding. Table 5: Energy Imports, 1972-75 1972 1973 1974 1975 /a Petroleum products (MT thou) 105.6 102.9 94.0 90 Gasoline (21.1) (23.7) (22.6) (26) Fuel Oil (37.3) (44.5) (41.7) (30) Diesel, Gas oil, kerosene (47.2) (34.7) (29.7) (34) Coal 0.4 0.4 -- -- Hydroelectricity (Gwh) -- 51.1 67.0 77.7 /a Provisional. Source: Data provided by the Togolese authorities. 31. Compared with present demand of about 100,000 tons per year, the capacity of the refinery will be 850,000 tons per year of refined products, of which about 200,000 tons will be gasoline, 370,000 tons diesel, gas oil and kerosene, and 280,000 tons fuel oil. To breakeven economically, i.e. in terms of foreign exchange, the total product cost must be equal to or less than the sum of the value of imports replaced and export revenues earned. 32. The future level of product demand can be roughly estimated by evaluating the outlook for gasoline and diesel oil (used in transportation), fuel, diesel and gas oil (electric power generation), fuel oil (industrial furnaces--especially CTMB and CIMAO) and kerosene (household cooking, heat- ing and jet aviation). 33. The long-run rate of growth of demand for gasoline and diesel oil for motor vehicle transportation has been on the order of 8-10 percent per year, reflecting a rapid rise in the passenger car fleet and somewhat lower growth in the truck fleet. Use of diesel oil for railroad transportation has declined as freight traffic has gone down and passenger traffic levelled off. Demand for fuel for transportation can be expected to grow more rapidly than historical trends in the next ten years under the impact of CIMAO during both its construction and operation phases. Taking 1972-75 as a base period to smooth out the effects of price rises, an annual growth rate of 15 percent would increase gasoline consumption to about 50,000 tons in 1980 and 100,000 ANNEX B Page 18 tons in 1985, while a 10 percent p.a. growth in the use of diesel for trans- portation would result in about 40,000 and 70,000 tons consumed in those two years respectively. At most, it would appear that consumption of products for transportation would be on the order of 100,000 tons in 1980 and 175,000 tons in 1985, and these estimates could be on the high side. 34. Togolese energy consumption is projected to increase at a rapid rate, that is by more than 16 percent p.a. between 1976 and 1985, with 30 percent p.a. annual growth during the 1976-80 period if presently-planned projects are executed on time. However, the forecast of petroleum products required for the production of electricity depends not only on the total demand for electric power but on the amount which will be supplied from hydro-electric generation. Notwithstanding higher capital costs, the com- parative advantage of hydroelectic power over thermal generation became even greater following the 1973/74 oil price hikes. Without analyzing in detail the trade-offs among various alternative sources of supply, a recent consul- tants' study established the longer-term demand and supply pattern of Togo's energy sector, as summarized in Table 6. According to these preliminary estimates, most of this new demand will be met from hydro-electric sources. Table 6: Estimated Energy Supply and Demand, 1976-85 1976 1977 1978 1980 1983 1985 Energy Consumption (Gwh) Togo /a 88 125 266 408 502 542 CTMB /b 50 60 - - - - TOTAL 138 185 266 408 502 542 Energy Supply (Gwh) Hydro from Ghana 88 125 266 313 313 313 Hydro from Mono 65 130 Required Thermal 50 60 0 95 124 99 Fuel Oil Needed (MT 000) /c 12.5 15.0 0 23.8 31.0 24.8 /a Excluding CTMB up to 1977. /b Before linkage to CEB. /c Assumes 250 grams per kwh. Source: Electroconsult. ANNEX B Page 19 Thus, through 1980, even if energy use triples, the maximum annual demand for petroleum products would only be about 25,000 tons and only 30,000 tons in the following five-year period if the Mono project goes ahead as tentatively assumed here in line with the study. However, further studies are needed to justify individual investments, such as the Mono project, with potentially far-reaching multi-sectoral effects. The projections take account of power consumption by all proposed large industrial projects, except the possible fertilizer factory in the mid-1980s which would still only increase the demand for power by about 10,000 tons of fuel oil equivalent per year. 35. The other major use of petroleum products is residual fuel oil for industrial furnaces. CTMB apparently consumes between 25-40,000 tons per year, depending on the level of production, while CIMAO will use about 100,000 tons per year at full capacity, to increase by another 50 percent if the second stage expansion is undertaken. 36. In sum, the foregoing assumptions would result in the following illustrative pattern of demand, which shows that about 70 percent of re- finery output would have to be sold on the export market in 1980, decreas- ing to about 50 percent five years later. Table 7: Prospective Demand and Supply of Petroleum Products, 1980 ('000 tons) Domestic Consumption Refinery Actual Projected Available for Export Output 1972-75 1980 1985 1980 1985 Gasoline 200 23 50 100 150 100 Diesel, Gas oil 310 31 50 90 260 220 Fuel Oil 280 38 150 200 130 80 Kerosene 60 8 16 32 44 28 Total 850 100 266 422 584 428 37. While a detailed forecast of European spot market prices in 1980 and 1985 is not available, IBRD projections of crude oil prices do not fore- see any significant decline, and there is no systematic reason to believe that the margin between the cost of crude and the cost of refined products will widen. During the period June 1975-June 1976 the delivered costs of Nigerian and Libyan crudes, which are assumed to be the feedstock for the Togo refinery, were on the order of $95 per ton, which compares with average Rotterdam prices for the period of about $140 per ton for gasoline, $136 for kerosene, $105 for diesel and gas oil, and $70 per ton for residual. These values, applied to the composition of Togolese exports in 1980, would yield an average value per ton of $107, or a margin between the cost of crude and the c.i.f. value of exports of about $12 per ton. However, the capital costs of the Togolese refinery alone are on the order of $14 per ton, to which must be added transport costs of $2.00 and other operating costs of $5.00 per ton. ANNEX B Page 20 Losses on exports could thus be in the range of $9-10 per ton. Appendix Table 8.1 gives the price structure of Togolese petroleum product imports. Applying the same methodology as above, the margin between the cost of crude and the c.i.f. value of Togolese imports would still be about $12. The total annual subsidy required by the refinery in 1980 will thus be approximately $7 million, or CFAF 1.5 billion, and, unless the world price of refined products rises relative to that of crude, substantial subsidies will still be needed in 1985. If refinery losses were to be covered through higher domestic re- tail prices, average price increases on the order of 12 percent would be necessary. Conclusions 38. It may be helpful to conclude this annex with recommended policy options for the industrial sector. First, in the case of domestic resource- based export activities, it would seem an appropriate policy to seek to maxi- mize net export earnings and public revenues, the latter through fiscal meas- ures or proprietary interest. In a small country, successful application of this policy to large projects will earn high per capita returns. Togo's experience with phosphate mining provides evidence of this. Second, activi- ties which process imports for re-export should generally be left to the private sector; entrepreneurs take high risks in confronting world market prices both for import and re-export, and capturing economic and financial benefits under such circumstances requires specialized technical or market- ing skills. Laissez-faire, which has been Togo's approach in the location of some new enterprises in a free port zone, relieves the Government of the burden of risk and may contribute most to the economy through increased employment and incomes in the private sector. Third, pure import substi- tuting activities require careful economic evaluation, applying interna- tional prices to both inputs and outputs. There is considerable danger--in some cases already experienced in Togo--that the foreign exchange saved from reduced imports of final goods will be offset by foreign exchange spent on intermediate and capital goods. If domestic prices are permitted to rise to ensure financial profitability, the Togolese consumer bears the burden. Thus, in addition to careful economic appraisal, such import-substituting activities should, after an appropriate period, be exposed to competitive market forces. This implies the termination or reduction of special privi- leges now in effect to protect these activities. Finally, regarding small- scale enterprises, public institutions may appropriately consider some sub- sidization, particularly through training schemes, technical assistance, and initial credit endowments. A number of institutional and other issues remain to be resolved in the small enterprise field, but Togolese policy is moving in the right direction. ANNEX C Page 1 THE TOURISM SECTOR 1. Togo's physical resources and geographical location provide signi- ficant assets for the development of tourism. Climatic and scenic contrasts range from the relatively cool, verdant setting of the southwest to the dry, savanna conditions of the north. There are two game reserves in the interior of the country, one of which has been developed. These reserves, combined with the promotion of native craft centers and national cultural exhibits in Lome, offer tourists more than just a beach-based vacation. 2. Togo's size and proximity to Ghana and Benin make it possible for tourists to take short excursions at minimal cost to attractions in the in- terior and in neighboring countries. These excursions, often desired by tourists but costly elsewhere in Africa, give Togo a comparative advantage. This is further enhanced by the country's air transport policy which encour- ages charter operations. The promotion of charters, resulting in a reduc- tion of tour costs, is particularly advantageous since Togo is farther from Europe than other established tourism centers in West Africa. Recent Developments 3. The total number of visitors to Togo has increased 31 percent per annum from 25,000 in 1972 to 56,000 in 1975. About 80 percent of the vis- itors in 1975 were business-motivated, compared to 95 percent in 1972. The relative decline in business demand is attributable to a growth in beach- motivated traffic following the opening in December 1972 of the country's first vacation village--the 400-bed Tropicana complex. This change also led to an increase in average length of stay from 1.7 days in 1972 to 2.7 in 1975. As a result, the number of visitor bed-nights in the country more than tripled during this period. Business visitors include mostly Germans and French. Beach-motivated traffic comprises primarily Swiss and Germans, who pre-pay their package tours in Europe and arrive on chartered planes. Arrivals from African countries were estimated at 14 percent of total traf- fic in 1975. 4. The hotel industry has been developed primarily by the public sector, although several small hotels are privately owned. The investment climate in Togo has not attracted many private investors due to the lack of incentives and long-term hotel credit and the inherent risks of investing in an infant industry. Government efforts to promote tourism, however, have resulted in substantial public investment. Between 1971 and 1975, Government-sponsored investment in the sector amounted to CFAF 4.2 billion. About 45 percent of this investment (CFAF 1.9 billion) was financed from the general budget, and 36 percent (CFAF 1.5 billion) was financed from OPAT's budget. FAC provided about 10 percent and local banks the remaining 9 percent. Equity shares in Government-owned hotels are currently held by OPAT, ITS, the Ministry of Finance and Economics, and HCAT. ANNEX C Page 2 5. As a result of these investments, the hotel industry has expanded rapidly in recent years. The number of beds suitable for foreign visitors more than doubled since 1972, reaching nearly 2,000 in 1975. While the market response to the opening of the Tropicana has been favorable, the growth of business and other demand has not kept pace with the expansion of urban hotel facilities. In 1975, the year-round bed occupancy of the Tropicana averaged 58 percent (90 percent during the peak winter months), compared to less than 25 percent for hotels in Lome. Urban hotels in the interior of the country experienced lower occupancies, ranging from 10 to 20 percent. Impact on the Economy 6. Foreign exchange receipts from tourism have increased steadily in recent years. Gross foreign exchange earnings rose from CFAF 500 million in 1972 to CFAF 1,500 million in 1975. Thus, tourism has become the fourth largest source of gross foreign exchange earnings (preceded by phosphates, cocoa and coffee), equivalent to about 6 percent of recorded merchandise export earnings in 1975. 7. In general, the import component of tourism sector expenditures in Togo has remained lower than in other West African countries. Small hotels have low import requirements since they cater mostly to Africans who follow local consumption patterns. Outflow of foreign exchange from management fees is small since only the "Hotel de la Paix" is managed by an interna- tional chain. Moreover, dividend payments to foreign investors and inter- est charges on foreign loans are modest considering the dominance of the public sector in tourism investments. The mission estimates net foreign exchange earnings from tourism at more than two-thirds of gross receipts. 8. Employment creation is another important benefit generated by the tourism industry, which currently provides jobs for about 1,500 persons. Direct employment in restaurants and transportation services is estimated at 1,100. Assuming 1.5 indirect jobs are created in related sectors (handi- .crafts, agriculture, food processing, etc.) for every direct job, altogether about 6,500 people earn their living from tourism and associated activities. Development Constraints 9. The preservation of Togo's coastline for tourism development is threatened by erosion caused by the construction of the port of Lome. The erosion has already affected the Tropicana beach and has necessitated the relocation of the road linking the Tropicana with Aneho and the capi- tal. The only area unaffected by the erosion is Payeme, a protected site east of Aneho suitable for a second vacation village. This area, however, is being polluted with the effluent from a phosphate plant. The Government has already commissioned a study of ways to curb the erosion. It is also setting up a pilot plant to solve the pollution problem. I/ 1/ Annex D, para. 13, and Annex B, para. 17. ANNEX C Page 3 10. A diffusion of hotel ownership among various public agencies has impeded the formulation of an overall coherent development strategy and investment policy for the tourism sector. Although for practical pur- poses the HCAT has been entrusted with the formulation of policies and coordination of activities, its responsibilities and authority have not been decreed. Thus, HCAT currently has no authority to collect statistics from hotels or to effectively monitor the performance of some establish- ments under its supervision. The Interministerial Council is considering a decree which would give HCAT the needed authority and its promulgation appears imminent. 11. To exercise effective control over its investments and improve future sector planning, the Government should consider entrusting its tour- ism portfolio to HCAT. This could be done with the creation of a commit- tee which would be chaired by HCAT officials and include representatives of other agencies involved in the financing of tourism facilities. Also, further action is needed to improve HCAT's effectiveness in tourism promo- tion. HCAT's promotion budget of about CFAF 33.0 million in 1975, repre- senting only 2 percent of hotel tourism receipts, should be gradually in- creased to 5 percent over a three-year period. Prospects and Issues 12. The Third Plan foresees tourism investment of more than CFAF 20 billion, of which CFAF 17 billion is scheduled to be spent during the 1976-80 period. This investment would enable the construction of 1,700 additional beds by 1980: 400 for a vacation village in Payeme and the remainder in urban centers, principally Lome. Current plan targets, which would almost double existing capacity, appear high when viewed against the expected tourism demand. Related infrastructure programs could put a heavy strain on Togo's financial resources unless foreign financing on adequate terms can be obtained. Considerable investment, as well as hotel manage- ment skills, would have to be attracted from abroad by means of costly in- centives which could substantially lower the level of net foreign exchange earnings. Promotion activities and expenditures would have to be stepped up more than is possible in a relatively short period of time. Finally, the heavy concentration of new hotels in urban centers, where growth of demand--essentially business--has been slowest, may result in overcapacity. The largest investment (CFAF 16 billion, of which about CFAF 12 billion is scheduled .to be spent during the 1976-80 period) is planned for the construc- tion of an 800-bed hotel in Lome next to the Party Congress Hall. The invest- ment cost per bed of this hotel (CFAF 20.0 million) is more than four times the current cost per bed of a luxury hotel in West Africa. Even allowing for considerable contingencies because of future price escalation and other favorable assumptions, the mission believes, on the basis of available in- formation, that this project cannot be justified on financial and economic grounds. In light of the presently low hotel occupancy rates in Lome and the interior, the Government may wish to consider carefully a more appropri- ate phasing and funding of new hotel investments to ensure adequate returns. ANNEX C Page 4 13. The existing urban hotel capacity should be sufficient for the next few years to accommodate the expected steadily increasing numbers of visitors. Arrivals in Togo could increase to about 210,000 by 1978 without the need for additional capacity, and to 250,000 by 1980 if a 340-bed hotel of international category planned for Lome is constructed. These capacities would thus be sufficient to meet demand growth rates of 56 percent and 35 percent in 1978 and 1980 respectively. The existing hotel capacity in Lome-- the principal point of entry-is estimated to be sufficient to accommodate 90,000 arrivals in 1978 (37 percent above an estimated 35,000 in 1975) and 120,000 arrivals by 1980 (28 percent growth). In view of these market pros- pects, the mission recommends that the authorities reconsider plans for large capacity increases and consider postponement of urban hotel projects for at least two years. Such a phasing would allow a gradual testing of the market and reduce the risk of overcapacity. 14. While the mission believes the immediate prospects for urban hotel development are limited, the prospects are good for the expansion of beach-based capacity. Plans to build the vacation village in Payeme appear well-advised in light of the market success of the Tropicana. The planned construction should, however, be preceded by the elimination of the pollution from the phosphate plant. In the interim, the mission recommends that the Government undertake technical studies to ensure the environmental protec- tion of Payeme, which remains the only beach site unaffected by erosion. The studies would also serve to minimize the risk of haphazard development should there be merit in increasing the 400-bed capacity planned in this first phase. 15. In summary, efforts should be made to strengthen the organization of the sector and increase the profitability of existing facilities. More specifically, Government action in a number of fields should help achieve these objectives, including: (i) a review and possible revision of Plan targets in line with the absorptive capacity of the sector, especially for urban-based development; (ii) a centralized decision-making process for future in- vestments; (iii) a system of tourism data collection and processing within HCAT to improve monitoring and sector plan- ning; and (iv) an increase over a three-year period of the total promotional budget to 5 percent of current tourism receipts. ANNEX D Page 1 ECONOMIC INFRASTRUCTURE 1. During the decade 1966-75, infrastructure investments ranked high on the Government's priority list, accounting for about 50 percent of total Plan investments, or close to 7 percent of GDP. Outlays for transport--mainly roads and construction of the deep-water port of Lome--represented the bulk of infrastructure projects, predominantly funded by external sources. Nearly 60 percent of all foreign capital aid inflows over the last ten years were channeled into infrastructure. Transport 2. Togo's transport system, rudimentary in the early 1960s, has been considerably improved and expanded. It now consists of (i) 7,400 km of roads, (ii) 490 km of railway, (iii) the deep-water port of Lome, (iv) a phosphate wharf at Kpeme, and (v) a modern international airport at Lome. Of the pri- mary highway network, 1,100 km--three times the 1970 length--are paved. The approximate size of the vehicle fleet is 14,000 units, i.e. one vehicle per 150 inhabitants, with an average of about 2,000 new registrations annually, or a net growth rate of approximately 8 percent per year. The road transport industry, still at a preliminary stage of development, comprises a large num- ber of small enterprises, two foreign firms handling petroleum traffic, CFT's bus service, and a recently-created joint venture between the Government and foreign private investors (para. 12). The Public Works Department of the Ministry of Mines and Public Works, through its Roads Division, is in charge of planning, construction and maintenance of the primary and secondary road networks. The Ministry of the Interior is responsible for the 5,000 km of tertiary (feeder) roads through its 21 district offices (Circonscriptions). Several other public agencies are also engaged in construction and mainte- nance of part of the rural road network. 3. CFT's railway lines are in adequate physical condition, but traf- fic had been declining until the last few years when CFT handled consider- able rock transport for the Lome port extension, and the decline in passen- ger traffic has been reversed. The autonomous port of Lome is a modern free port (675 ha) with four berths and a capacity of about 800,000 tons of gen- eral merchandise. Port traffic increased by about 75 percent between 1970 and 1975, when total volume reached almost 600,000 tons, of which about 13 percent consisted of transit traffic mainly to and from Nigeria and another 13 percent was composed of supplies to ships held up because of the conges- tion of the Lagos harbor. The Lome airport is equipped with a modern land- ing system and has a 2,400-meter runway. Between 1970 and 1975 both passen- ger and freight traffic almost quadrupled, but the amount of freight is still less than 4,000 tons a year. 4. Transport investments have been declining in proportion to total public investment - from 38 percent during the First Plan to 28 percent during the Second Plan - and are likely to decrease further to less than ANNEX D Page 2 20 percent during the Third Plan period. Nearly 50 percent of planned trans- port investment will be allocated to the highway subsector. Principal Plan objectives for the transport sector include: (i) Port of Lome: Completion of the ongoing expansion and preparation of the industrial zones in the port area; (ii) Railroad: Construction and improvement of lines for industrial projects (clinker and fertilizer plants) and reinforcement of CFT's competitive position vis-a-vis other modes of transport; (iii) Road system: Creation of an efficient, comprehensive, and adequately maintained network capable of serving the whole country adequately and reorganization of the public Road Transport Service in order to achieve better coor- dination between road and other modes of transport and to reduce transport costs; (iv) Aviation: Improvement and adaptation of the Lome airport to rapidly growing traffic, improvement of five regional airports, and feasibility studies for the construction of a new airport near Lome and new regional airports. These objectives are basically sound and seem to correspond to the priorities of transport sector requirements, except (i) in aviation where the long-term airport expansion program in the interior of the country--for which prepara- tory studies are being conducted under the current Five-Year Plan - does not appear to be economically justified; and (ii) for feeder roads as discussed below. Besides national priorities, interstate traffic and regional interna- tional cooperation in the transport sector are likely to play an increasing role in determining Togo's longer-term transport requirements and policies (paras. 12 and 14). 5. Principal past transport investments included the construction and rehabilitation of the North-South Lome-to-Kande axis (nearly 40 percent of total transport sector investment), the construction and expansion of the Lome port (30 percent), and other road projects (20 percent). Foreign fund- ing dominated, with FED and Germany providing the bulk of external resources. Since 1975 IDA has become another major supplier of foreign funds for the transport sector. 6. During the Third Plan more than half of the transport investment is expected to be spent in the highway sector. One-third of highway outlays have been allocated for the completion of the North-South axis (Kande-Upper Volta border), to be primarily funded by the European Communities through national and possibly regional appropriations. Railway expansion for CIMAO and some railroad rehabilitation for the planned fertilizer factory are other ANNEX D Page 3 important areas of transport investment. External financing will continue to play a predominant role in the expansion and modernization of the transport system. 7. Highway maintenance expenditures, which increased by 18 percent per year during 1971-75, are mainly financed by the Government's general budget and are considered adequate for the primary and secondary road network. Main- tenance of the tertiary (feeder) road system is financed from the budgets of several public agencies and with foreign funds through road and agricultural projects. Estimated maintenance expenditures for the rural network appear insufficient as compared with more than $900/km annually for the primary and secondary highway system. 8. The Government has pursued a sound highway sector financing pol- icy, with road user charges equaling more than 100 percent of highway ex- penditures, except in 1975 when disbursements for investments increased by almost 40 percent and revenues covered only 96 percent of expenditures. The Government raised road user taxes twice in early 1976; it is therefore expected that revenues and expenditures will again be more than balanced in 1976, even allowing for major expenditure growth during that year. However, the high road user charges could have a considerable negative impact on rural transportation. This matter should therefore be looked into by the proposed transport planning and coordination unit. 9. Despite considerable achievements and generally sound sector poli- cies, the transport sector is still facing a number of issues which deserve close attention. First, the imbalance of road maintenance expenditures be- tween the rural and primary/secondary road networks needs to be corrected. The World Bank Group's planned feeder road project is aimed at improving and better maintaining the rural network through such measures as creation of an adequate institutional framework, purchase of equipment, training of mainte- nance personnel, and increased funding. 10. Second, CFT is overstaffed and its operating deficits will continue to require budgetary subsidies estimated to amount to about $1 million by 1980. There is therefore both scope and need for raising CFT's efficiency and profit- ability. Gradual staff reduction through attrition and retraining of existing staff for new assignments, such as CTMB- and CIMAO-related clinker and fuel transport, and permanently phasing out uneconomic lines would help lower manpower costs and operating losses and increase labor productivity. Any major rehabilitation or extension work should be preceded by a comprehensive feasibility study which would have to establish the economic and financial justification of such an expansion program. 11. A third important element in Togo's long-term transport develop- ment rests with its future role in regional traffic, especially with the land-locked Sahelian countries, Upper Volta, Niger and Mali. Regional studies are being prepared to determine a feasible strategy for the next two decades. The comparative advantage of the various outlets to the sea ANNEX D Page 4 and the potential of future transit traffic, e.g. from the multi-national Liptako-Gourma area north of Togo, need to be particularly evaluated. It would seem that, on the basis of existing transport capacities and expected growth of normal demand alone, a major expansion program for the purpose of intraregional transport needs can hardly be justified. 12. Fourth, the Government, anxious to develop transit traffic of goods through the port of Lome (to and from Mali, Upper Volta, Niger and Nigeria), negotiated agreements with neighboring states on the division of international road traffic. A freight office has been set up at the Lome harbor to enforce these agreements. To ensure that the Togolese trucking industry has enough equipment for international transport, the Government recently created a joint public-private transport company (Togo-Route). According to the char- ter, Togo-Route's purpose is to handle international transport passengers and cargoes of all kinds and national transport of passengers. So far, Togo-Route has limited its investments to US$2.5 million worth of tractor trailers which, if restricted to international traffic, are expected to be considerably underutilized. Already some specialized national traffic is done by Togo-Route trucks, and this trend is expected to increase. Togo- Route intends also to enter the fuel transport business in 1977 when the oil refinery begins operations. This will duplicate existing transport capacity of two private firms. An adequate organizational set-up for the proliferating trucking industry is therefore urgently needed. 13. A fifth issue facing the transport sector is the erosion of beach surfaces caused by the construction of the port of Lome. Erosion has washed away most of the country's beaches east of the port and west of Aneho at a rate of six meters per year. The road linking the capital with Aneho has been partly washed out and reconstructed, but some other sections are also being threatened. To preserve transport investments and Togo's valuable assets for tourism development, the Government has already commissioned a study of ways to curb the erosion and has foreseen CFAF 500 million in its development plan for rehabilitation. 14. Finally, transport planning and coordination will become more complex as the system develops and expands. Furthermore, better and more timely planning is necessary if the present project-by-project approach is to be replaced by an overall sector approach with potential program lending. Transport coordination, closely linked to global planning, previously has been given insufficient attention. Organizational improvements, including establishment of a planning and coordination unit, are therefore prerequisites for the formulation of a longer-term and more comprehensive sector strategy. Provision for technical assistance has been made and should continue to be made in Bank Group-financed projects. Power 15. Togo's investment in public power production capacity has been small, i.e., only 2.5 percent of total 1966-75 Plan investment, or 0.3 per- cent of GDP. Prima facie, this does not seem consistent with the fact that ANNEX D Page 5 Togo's growth in power consumption has been one of the highest in franco- phone West Africa, averaging nearly 20 percent per year since the early 1960s. At that time, however, consumption stood at a comparatively much lower level, while current per capita consumption is close to 60 kwh per year. There are two main causes for the low level of public power invest- ment. First, two industrial enterprises--CTMB and ITT-have installed sepa- rate, relatively large power generating capacity for their own production requirements, and these investments have been recorded as industrial outlays. Second, already recognizing in the 1960s the advantages of regional coopera- tion, Togo, together with Benin, opted for guaranteed power import arrange- ments with Ghana rather than for expanding high-cost domestic generating facilities. Therefore, Togo has been able to largely substitute domestically produced power with imported electricity at only 25 percent of the cost of locally-generated power. International regional cooperation in the power sector is therefore an important element of Togo's future energy policy. 16. Two corporations are in charge of the Togolese power sector: (i) Communaute Electrique du Benin (CEB), which was created in 1968 to sup- ply power to Togo and Benin and to large industrial customers and which became fully operative in 1973 after completion of the high voltage line linking Togo and Benin to the Akosombo dam in Ghana; and (ii) Compagnie d'Energie Electrique du Togo (CEET), which distributes power for residen- tial, commercial and small industrial uses. 17. No exploitable oil, coal or uranium deposits have been found in Togo so far. The small size and the flatness of the country explain the scarcity of large hydroelectric sites. More than 50 percent of primary energy consumption is still in the traditional form, such as charcoal and firewood. Up to 1972, i.e. before Togo imported hydroelectric power from Ghana, petroleum was the main commercial energy source. Since then, petro- leum imports have dropped, mainly due to the substitution of hydroelectric power and partly due to price increases. 18. CEET's power tariffs have been in force without change since 1967 and a basic review and revision is therefore necessary. The average sales price in 1974 was CFAF 18.4/kwh (US$.08/kwh, or about 10 percent less than in the late 1960s. By contrast, CTMB's power production cost in 1975 was somewhat lower, i.e. CFAF 13.8/kwh (US$.06/kwh), but CEB's 1974 "wholesale" rate to CEET was very low, only CFAF 3.7/kwh (US$.016/kwh). 19. Both normal and projected new demand for industrial projects such as the oil refinery and CLIAO will rapidly increase Togo's power requirements in the years to come. The Government, therefore, has already commissioned a study on power supply alternative that could satisfy Togo's demand, as well as that of Benin, within the interconnected system. Togo's estimated longer- term energy demand and supply pattern is summarized in Annex B, Table 6. For Togo alone, current demand is likely to quadruple by the mid-1980s. ANNEX D Page 6 20. Togo's power policy as outlined in the Third Plan has several in- portant dimensions. First, it is of a long-term nature, exceeding the five- year period 1976-80. For instance, estimated total cost of the planned invest- ment program is CFAF 23 billion, whereas only about one-third is allocated for the years 1976-80. Second, two hydro projects for the Kara and Mono rivers have been retained in the Plan with investment expected to start by 1979-80. If implemented, these projects would have, of course, an important impact on future power supply from domestic sources for both the national and regional networks. At the same time, they are expected to have considerable effects on agriculture and water resource development. Such a multi-purpose approach affecting various sectors will require detailed interdisciplinary planning and careful evaluation of the relevant benefit and cost elements. A third important aspect of Togo's power policy, from a socio-economic and regional point of view, is the high priority attached to improvement and extension of the regional electrification program in the interior of the country. Thermal stations have been installed in five urban areas and some small towns, and an extension to another nine urban centers is now being considered. 21. Togo's power policy is facing some crucial issues which are likely to have far-reaching effects on the country's future development. First, decisions have to be made soon on the necessary investment and/or long-term purchasing arrangements to satisfy growing future demand. National and international solutions such as permanent or temporary power imports and exports through an interconnected network with joint stand-by facilities have to be evaluated, as well as multi-sector effects on agriculture, the oil refinery, and water development and control. In view of the time-con- suming process of establishing new high-cost national or international gen- erating capacities and/or concluding international agreements on power sales and interconnecting facilities, timing and advance planning require partic- ular attention. A coherent timetable needs to be established to make sure that demand increases through new industrial and other projects will be met by adequate supply. Second, the tariff structure needs to be reviewed and revised since rates have been unchanged for nearly a decade. Such a tariff analysis should be linked to a management study of CEET covering staffing, organization, investment planning, financing and cost control. Cost and benefits of regional and rural electrification programs need to be evaluated and, in combination with the tariff review, the tolerable level of subsidiza- tion, if any, should be established. The uniform national power rates have indeed subsidized consumption in the interior of the country in the past, since generating costs there were twice as high as those in Lome. 22. A third crucial issue in the power sector is the need for studies to (i) define CEET's investment priorities, (ii) select justifiable invest- ments, (iii) evaluate recurrent cost, and (iv) set a nationwide electricity distribution plan. In this context, the justification of electrification programs in regional and urban centers and the planned link of CTMB's to CEB's grid needs to be evaluated in view of likely higher tariffs and import costs. Fourth, future investment requirements need to be determined. The recently commissioned prefeasibility study to determine Togo's (and Benin's) ANNEX D Page 7 medium- and long-term power requirements was a step in the right direction. Complete feasibility studies are needed to ascertain the economic and finan- cial implications of alternative solutions and make recommendations for in- dividual investment proposals such as the Mono River project. These addi- tional studies--which should include a detailed review of a project with potentially high savings linking Ghana, Togo, Benin and Nigeria--should be prepared soon to enable establishment of a definite investment program for the period up to the early 1980s. Water Supply and Sewerage 23. About 2 percent of past Plan investment was channeled into the water supply sector. Piped water supply is currently provided to an esti- mated 15 percent of the population in seven urban centers. The rest of the population relies on shallow wells, rivers and streams, most of which are polluted and are unreliable during the dry season. Virtually all existing municipal water supply systems seem to require improvement and/or extension because of the urban population growth and slow development of the sector in the past. 24. The Third Plan attaches high priority to water development and con- trol for multiple purposes such as urban and rural consumption, agriculture and power generation. The Plan's very general but basically sound policy guidelines for urban and rural water system development need to be inte- grated into a comprehensive multi-sector approach. For instance, the com- parative advantage of a regional versus a town-by-town approach should be further investigated, aiming to establish optimal resource allocation. Systematic sector planning should be based on a comprehensive inventory of Togo's water resources, which appear adequate, and on more coordinated and efficient sector organization. The responsibility for water supply is now divided among the Ministry of Public Works (planning), the National Water Corporation (urban operations) and the Ministry for Rural Equipment (rural supply). 25. Water charges are low, favoring the large consumers, and since water is considered a "social service" the public Water Corporation is reluctant to increase rates or strictly enforce payment for supplies. The Government pays an annual lump sum for "public consumption" which is below the price of actual consumption. As a result of these tariff policies, some Government subsidies are necessary to pay operating deficits, although it is difficult to determine the effective net subsidization because of inadequate accounting. A review of the tariff, cost and financing structure is urgent and should be combined with a study of improvements in sector management and planning. 26. In summary, principal issues facing the water sector include (i) an assessment of Togo's water resources and long-term requirements for comprehensive multi-sector planning reflecting agricultural, indus- trial and power demands as well as private consumption; (ii) an analysis ANNEX D Page 8 of the sector's organization and management structure to define a more effective division of labor among the agencies concerned; (iii) a review of the tariff, investment and financing policies to improve supply and also provide water to the poorer segments of the population; and (iv) a training program to ensure an adequate supply of skilled and semi-skilled manpower for the satisfactory operation of water facilities. 27. The only municipal sewage disposal system in Togo serves the cen- tral administrative section of Lome. In view of the population densities in the country and existing private disposal systems, large and costly sewerage schemes in these areas have low development priority. Total plan appropria- tions are relatively small and foresee only the provision of limited sewerage facilities in Lome and some other urban centers. ANNEX E Page 1 HUMAN RESOURCES 1. While emphasizing the importance of directly productive investments, Togo's Third Plan does not neglect improvements in the quality of life. In order to fully realize returns on investments in any economic sector, a coun- try needs a healthy, motivated and educated population. While great advances have been made in health, education and employment opportunities over the past 10-15 years, the coming five-year period will provide even greater challenges to social sector planning. Demography 2. The demographic situation in Togo reveals several distinctive char- acteristics. Compared to other African countries, Togo has a high overall population density with wide variations among regions; high birth, death and infant mortality rates; a young population; increasing natural birth rates; and an expected continuous increase in urbanization. 3. With the Government's priority on health care, especially preven- tive medicine, mortality rates are likely to decrease steadily. Historical trends show a time lag between declining death rates and a corresponding decrease in birth rates. This lag, coupled with the high percentage of children under 15 years of age, will have serious socio-economic repercus- sions on health services, education facilities, and employment promotion during the coming decade. 4. The large-scale external migration experienced in earlier periods will probably be replaced by an increased pace of internal migration, espe- cially a rural-urban trend. Improvement of services in the secondary urban centers, if not accompanied by similar action in neighboring rural areas, will probably encourage migration to these secondary centers but would pro- vide disincentives to migration to Lome. For the time being, however, ur- banization problems related. to housing, electrification, water supply and sewerage, transport and education facilities remain less serious in Togo than in other African countries. Lome could be an exception, but basic facilities already exist and the Government intends to maintain and upgrade urban infrastruture there while gradually expanding municipal services in other urban centers. These population trends deserve careful examination in view of the Government's regional policies and the considerable financial implications involved for social urban and rural infrastructure investments. Health 5. The First Plan goal of establishing a basic health infrastructure-- regional hospitals, district health centers, rural dispensaries and access to transportation--has now been implemented. The Second Plan emphasized the decentralization of health services. The Maritime Region, which started with ANNEX E Page 2 a more developed health network due to its proximity to Lome, still has a dis- proportionate share of health services; with 36 percent of the total popula- tion, it has 76 percent of all doctors, 44 percent of total hospital beds and 63 percent of total medical personnel (Table 2.1). Thus, the continued decentralization of health services is one priority of the Third Plan. 6. Other priorities center on preventive medicine, maternal and child care, improved water supply, and the training of medical personnel. Large- scale vaccination programs will help reduce Togo's high infant mortality rate (121/1000), as will maternal and child-care programs which are integrated into a decentralized, community-oriented health care delivery system. More wells and urban water facilities are needed since only 18 percent of Togo's popula- tion have access to sanitary water supplies. 7. With a wider distribution of medical infrastructure and the need to ensure adequate provision of supplies, the Government will have to reach a better balance between personnel and material expenditures. Budgetary data show that more than 75 percent of the Ministry's budget during the past five years was allocated to personnel expenditures. The training of more para- medical, as opposed to highly-qualified, staff might encourage the relocation of trained personnel to the rural areas and, at the same time, hold down the wage bill in the sector. 8. In order to manage the necessary maintenance and other recurrent expenditures of the health network, the Government has stated in the Third Plan that curative medical infrastructure will be coordinated with the avail- ability of trained personnel and the provision of supplies. As the health network is expanded and improved, several foreseeable obstacles will have to be overcome. Delivery systems will have to be improved as supplies are sent to areas further from Lome; greater incentives will have to be given to staff in order to encourage relocation outside of Lome and other more developed towns; and improved health education will have to reach greater numbers of Togolese women through programs which emphasize preventive medi- cine, nutrition and child-spacing. Education 9. Togo has made great strides in increasing school enrollments. Pri- mary school enrollment almost doubled in the past ten years (from 156,000 students in 1965/66 to 330,000 in 1974/75). There was a quadrupling of students enrolled in secondary schools between 1965 and 1975, representing 15 percent of the 13-to-19-year old population in the latter year. Enroll- ments at the University of Benin increased by 36 percent in 1973 and 1974 and by 52 percent in 1974 and 1975. The introduction of health courses in the curriculum is an innovative feature of.the Togolese system which can have immediate, practical benefits. 10. The current problems of the education and training systems center on the still-high illiteracy rate of about 80 percent, uneven distribution of primary school enrollment (76 percent of the primary school age children ANNEX E Page 3 in the Maritime Region versus 27 percent in the Savannah.Region), low enroll- ment of women (44 percent of school age girls actually attend school), high repeater and drop-out rates, and an inadequate linkage between education and the labor market. 11. The Government, aware of these problems, is trying to correct the imbalances through a national education reform. In 1970, it created a National Council of Education which consists of representatives from ministries and citizens' groups. The Council examined ways in which the education system could better correspond to the nation's economic and social objectives. The Reform documents produced by the Council and adopted in 1975 contain the fol- lowing elements: (i) mandatory schooling for children ages 3 to 15 years; (ii) reduction of high repetition and dropout rates through increased promotion and elimination of entrance exams into lower secondary school; (iii) replacement of French as the teaching language with one of the two national languages (Ewe or Kabre) and the introduction of French as a foreign language; (iv) adaptation of the present system to the specific needs of both the modern urban and traditional rural sectors through curriculum reform; (v) introduction of a curriculum which reflects national cultural values; (vi) training and placement of better qualified teachers; (vii) assignment of responsibility for all formal education and vocational training to the Ministry of National Education; and (viii) creation of basic education and skill training centers for adults and out-of-school youth. The far-reaching qualitative changes contained in the Reform will take time to implement because more specific pedagogic objectives must be established, programs and teaching materials prepared and evaluated, and teachers trained in the new methods and programs. Therefore, the Government considers the Third Plan the first phase of a long-term program for introducing innova- tions in the education system. 12. The Ministry of Education intends to implement gradually, starting in the school-year 1976-77, a policy of greater access to and higher promo- tion rates in primary and lower secondary school. The new promotion rules ANNEX E Page 4 include the elimination of entrance exams to lower secondary school and of repetition of the first, third and fifth grades of primary school. The new rules will be applied to first graders in primary school in 1976/77 and then apply to this cohort and subsequent cohorts over the years, while enrollment in the first grade will increase gradually to include all 5 year olds by 1985. If, in addition, we assume that in future years repetition rates in grades for which repetition will be permitted correspond to average rates of recent years and dropout rates decrease gradually, expansion of enrollment will be relatively moderate until 1980 but very high in lower secondary school between 1981 and 1985 (Table 1). There are no specific targets for enrollment in kin- dergartens but the Government favors expansion of kindergarten teaching over the next few years. Table 1: Unadjusted Enrollment Ratios/a Resulting from the Implementation of the Education Reform 1974/75 1980/81 1985/86 Primary School 0.91 1.21 1.12 Lower Secondary School 0.20 0.26 1.23 /a Enrollment, including students older or younger than the normal age of school attendance, as a percentage of the age group (6-to-11 year old population for primary school, 12-to-15 year old population for lower secondary school). Source: Mission forecast (enrollment flow model). 13. While supporting the need for an Education Reform, the mission believes that the priority of each Reform objective should be carefully analyzed taking into account employment needs, the cost of the Reform pro- posals, and the pedagogical and administrative difficulties associated with the introduction of innovations in the education system. The objective of 12 years of universal education for children (ages 3 to 15) appears to be a social priority rather than an economic need. In 1973/74 there were 7,000 children enrolled in 103 kindergartens (jardins d'enfants), or about 6 percent of the total age group. The regional disparities were large: 60 percent of the kindergarten students were enrolled in the Maritime Region; 1 percent in the Savannah Region. Moreover, Togo has only one kindergarten teacher train- ing school. The social desire to enroll children at an early age must be weighed against the high cost of expanding kindergarten facilities, enlarging training schools, and increasing the number of teachers. ANNEX E Page 5 14. On the other hand, the expansion of educational opportunities at the primary level in less favored regions and for girls, with the goal of reaching universal primary education, appears as a high priority in view of Togo's policy of broad-based rural development. It is a necessary condition for more effective participation by the population in the social and poli- tical process and in productive life. As the Reform stresses, however, it will be essential to develop simultaneously curricula which are practically oriented, to make use of the two main national languages, and to teach basic skills adapted to Togolese realities. Both enrollment expansion and curri- culum reform will result in higher costs for the Government, as discussed below in paragraphs 18 and 19, and will have to be weighed against the devel- opment of other levels of education. 15. Regarding secondary education, the Education Reform aims both at expanding enrollments and adapting curricula to employment opportunities. While the policies for increasing job-related training in conformity with labor market demand will not significantly influence the supply of skilled manpower during the Third Plan, they should result in an adequate output in the 1980s. However, if total enrollments in lower secondary school increase, as planned in the Reform, the global excess supply of manpower for wage em- ployment will increase considerably. A vast majority of young graduates will have to return to the rural sector in informal urban jobs. The Reform document does not deal specifically with the conditions under which this absorption of youth into the traditional sector of the economy could take place. 16. Hence, the linkage between the education and training system and the labor market deserves a more detailed analysis by the Government. On the one hand, the linkage must be reviewed in the context of overall economic policies; the education system alone cannot ensure linkage. Government poli- cies on producer prices, public sector wages, and rural infrastructure in- vestments for example greatly determine both the demand for education and training and job opportunities for school leavers in the different economic sectors. General economic policies must support the targets of the educa- tion system. 17. However, curriculum reform focused more on vocational and techni- cal training is under the control of the education system. To avoid the creation, at a high social cost, of a rapidly increasing mass of unemployed educated youth, the Government should consider measures to determine voca- tional training needs, assign institutional and financial responsibility for vocational training, and create a new type of lower secondary education in accordance with the objectives of the Reform before planning a rapid ex- pansion of enrollment at the lower secondary level. The development of such a strategy for vocational education could comprise the following measures: (i) the creation of a manpower secretariat which would survey and analyze employment demand and training needs on a permanent basis both in the modern and informal urban sectors; ANNEX E Page 6 (ii) the determination of specific responsibilities for each level of technical and vocational education among employers, the Ministry of Education, tech- nical ministries and private schools concerning the financing and the content of training, the level of enrollments and the subsequent employment of graduates; (iii) the study and implementation on a limited scale of new curricula for lower secondary schools and tech- nical education at the higher secondary level; and (iv) the development of career guidance for students. 18. Mission forecasts, summed up in Table 2, indicate that the growing education system is likely to become a heavy financial burden to the Govern- ment in the coming years. Table 2: Future Recurrent Education Expenditures of the Central Government (in CFAF millions, 1974 prices) Increase Actual Forecast p.a. 1974 1980 1974-80 Primary Education 1,494.3 3,961.9 17.6 Secondary Education /b 862.1 1,866.4 13.7 Higher Education 555.6 1,802.2 21.7 Other 452.0 1,180.7 17.4 3,364.0 8,811.2 17.4 Global Central Government recurrent budget 14,744.6 26,055.3 Share of education expenditures in budget 22.8 33.8 /a Assuming continued parents' participation in education cost (see para. 20). /b Includes technical education, vocational training and teacher training. Source: Mission forecast based on information provided by Togolese authorities. ANNEX E Page 7 19. Much of the expected cost increase is related to the implementation of the Education Reform. The total number of teachers will increase substan- tially as a result of enrollment expansion in primary and lower secondary school. The Government's goal of improving the quality of teaching staff is likely to result in substantially higher average teachers' salaries. Main elements of this salary cost increase will be: (i) creation during the Third Plan period of several teacher training schools producing qualified and apprentice teachers; these will have higher initial salaries than most of the present teachers who had no formal teacher training before they were employed; (ii) institution of the common practice of promoting teach- ers to higher salary categories after short upgrading courses and the passage of professional exams; and (iii) recruitment of new primary school teachers at a higher educational level (lower secondary school diploma), and hence a higher salary category, than in past years (only 40 percent of the present teaching staff have lower sec- ondary school diplomas). The gradual replacement of expatriates, which represent now about 20 percent of teaching staff in general secondary education, and the need for more spe- cialized teaching materials, will also cause domestic expenditures to rise. Furthermore, it is probable that the recent enrollment expansion at the National University will continue. 20. In the above forecasts (Table 2) it is assumed that the present substantial participation of parents in the financing of public and private education will continue (except for private financing for primary teacher salaries). In 1974, parents contributed one-fifth of the recurrent costs of primary education and almost two-fifths of the recurrent costs of general sec- ondary education. Their contributions financed almost all recurrent costs except salaries at the primary level, and one-fourth of salary costs and four-fifths of non-salary costs at the secondary level. According to the Reform proposals, parents and local government will no longer pay for teach- ing materials or part of teacher salaries. They will be responsible for school construction at the primary and lower secondary school, while the Central Government will contribute construction materials. The Central Gov- ernment will finance all recurrent costs in most schools; autonomous public agencies and private enterprises will be expected to participate in the financing of vocational training. This policy is likely to raise the share of education expenditures above the forecast 34 percent of the Central Gov- ernment's recurrent budget by 1980. Furthermore, the policy could have an unfavorable impact on parents' commitment to their children's education and would increase demand for secondary education. On the other hand, the Gov- ernment's decision to stop the hiring of "moniteurs de village" and "moni- teurs de circonscription" could have a favorable impact on both equity and ANNEX E Page 8 quality of primary education since these teachers are generally financed by poor communities and their educational level is low. 21. Hence, the impact of the Education Reform on recurrent expenditures needs a more careful review by the Government, focusing particularly on the financial consequences of enrollment expansion at different levels of educa- tion and the policy towards upgrading of teaching staff. Employment 22. With the implementation of the Education Reform, the need for better career guidance based on more formalized manpower planning will become essen- tial. Increased educational opportunities may create the phenomenon of rising expectations concerning employment in the modern sector. This in turn will make it more difficult to integrate school-leavers into the informal urban and rural sectors. At the same time, extension of mandatory education through lower secondary school will further widen the gap between expectations of job- seekers and job opportunity levels. 23. As discussed in para. 2.28, about 17,000 jobs were created for skilled and unskilled workers between 1970 and 1975. However, the number of applicants on the job market probably reached about 45,000--a ratio of 1:2.5. Similar estimates for the 1976-80 period show employment creation at 23,000 jobs as compared to a total supply of 95,000 applicants--a ratio of 1:4.5. 24. - In supporting documents to the Development Plan, Togolese planners projected specific manpower demands based on recent surveys in the public and private sectors and on an analysis of employment creation resulting from the proposed industrial investments. These forecasts are compared in Tables 3-5 with the anticipated output of vocational schools and higher education based on recent trends. As with most manpower forecasts, these estimates must be interpreted cautiously since only a detailed analysis of each market could give firm indications of the training profiles on which employers assess employment needs. However, the forecasts give a general level of expected training deficits and surpluses. ANNEX E Page 9 /a Table 3: Supply and Demand for Employment in the Modern Sector, 1976-80 Supply Demand Balance High-level manpower 2,700 2,000 + 700 Middle-level manpower 2,300 2,900 - 600 Skilled blue- and white-collar workers 2,500 7,700 - 5,200 Unskilled workers 87,000 10,400 +76,600 Total 94,500 23,000 +71,500 /a Supply takes into account only the output of the formal education system. Apprenticeship centers linked to enterprises and in-service upgrading are not considered. An estimated 81,200 students will drop out prior to the fourth year of primary school. Source: Tables 4 and 5 and mission estimates. 25. Training of high-level manpower in Togo is increasing rapidly and a significant number of Togolese are studying abroad in foreign universities. Global demand should be met by this output during the coming years, includ- ing a gradual Togolization of jobs held by about 1,000 expatriates in both the public and private sectors. However, it is estimated that lawyers, econ- omists and public administrators will have difficulty finding jobs. While it appears there will be an excess of teachers, particularly language teach- ers, there is likely to be a lack of natural science teachers and vocational instructors. Similarly, the training of high-level engineers, physicians and para-medical professionals should be increased. ANNEX E Page 10 Table 4: Supply and Demand of High-Level Manpower, 1976-80 Field of training Supply Demand Balance Agronomy, Veterinary medicine 180 180 0 Engineering, Natural sciences 260 280 - 20 Law, Public Administration 560 110 + 450 Economics, Business Management 430 280 + 150 Medicine, Health Services 210 240 - 30 Teaching 1,060 920 + 140 Total 2,700 2,010 + 690 Source: Mission forecasts based on data and forecasts provided by the Togolese authorities. 26. Output of middle-level manpower and skilled workers will probably fall short of demand during the Plan period. Large deficits are forecast for teachers, health and social workers, and workers in industry and con- struction, while the output of white-collar workers appears too high. How- ever, these estimates, especially at the skilled worker level, must be qual- ified; to some extent, training and upgrading takes place outside the formal education system in training centers sponsored by enterprises and agencies. Thus, the estimated deficits may be somewhat lower than forecast. ANNEX E Page II Table 5: Supply and Demand of Middle-Level Technicians and Skilled Workers, 1976-80 Field of training Middle level Skilled workers Agriculture 0 - 230 Industry, Technical - 100 - 1,000 Clerical, Commercial + 440 + 400 Health, Social Work + 450 - 1,700 Teaching - 450 - 2,600 Total - 560 - 5,130 + = supply surplus, - supply deficit. Source: Mission forecasts based on data and forecasts provided by the Togolese authorities. 27. The expected creation of 23,000 jobs between 1976 and 1980 is broken down by source in the following table: Table 6: Employment Creation, 1976-80 Private Sector 9,000 jobs Expansion of existing enterprises 4,000 New enterprises 5,000 Public Sector 8,500 Subtotal (17,500) Togolization 500 Turnover 5,000 Grand Total 23,000 Source: Data provided by Togolese authorities. 28. The creation of 17,500 new jobs will be done almost equally by the public and private sectors. The addition of 8,500 jobs in the public sector is below recent trends in Government personnel growth. Between 1970 and 1975, about 12,000 employees were added to the Government payroll, as opposed to the ANNEX E Page 12 8,500 projected above. In contrast, the additional 9,000 jobs expected in the private sector represent an increase of 50 percent over the 1975 employ- ment figure of 18,000 (Table 7 below). Table 7: Active Population, 1975, 1980 (000s) 1975 1980 Total population 2,225 2,540 Active population 892 1,005 of which: Agriculture (670) (754) Non-agriculture (200) (226) Unemployed (22) (25) Non-agriculture 200 226 of which: Salaried (modern) (50) (67) Non-salaried (traditional) (150) (159) Salaried (modern) 50 67 of which: Public (28) (40) Armed Forces (4) - Private (18) (27) Source: Data provided by Togolese authorities. 29. As shown above, Togo's active population is expected to increase by 113,000 people during the period of the Third Plan. Almost 75 percent of these people will remain in the agricultural sector. Given Togo's skewed age structure towards the population under 15 years of age, increasing numbers of more highly educated young people will face limited access to employment in the modern sector. The Government's efforts to stimulate rural production, increase rural employment, and improve rural social infrastructure are nec- essary preconditions for reducing employment constraints. Togolese Women in Development 30. Several priorities in the Third Plan have direct relevance to the needs of women. The provision of health services, important to the produc- tivity of all, is especially important to women. Nutritional deficiencies, long hours, and strenuous work are further accentuated during pregnancy. Adequately staffed and supplied dispensaries, training in nutrition, access to fresh water and the promotion of "spacing of births" are vital Government objectives. 31. The Government's objective of mobilizing producers of food crops in order to attain self-sufficiency in food production should also have a large impact on women. In many parts of the country, women are responsible for the ANNEX E Page 13 production of food crops while men handle the cash crops. Access to training, extension services, and improved tools can greatly improve women's productiv- ity in this field. 32. With an illiteracy rate of 90 percent, the current percentage of women in formal education and their access to informal training remains-quite low. Since traditional family attitudes still prevent many women from enter- ing school, the goal of universal primary education should ensure women's fuller participation. 33. Outside of the Education Reform, but connected to it, is a national program of functional literacy for women. The principal aim of this project, currently under discussion, is to increase the productivity of women and young girls in the rural areas. The immediate objective of the program is the installation of 600 centers which would broaden the participants' educa- tion and improve skills in the following areas: (i) agricultural training for their role of subsistence pro- ducer, (ii) home economics for their role of household manager, and (iii) practical training in daily problem-solving techniques. 34. Togo has already initiated one objective of the International Women's Year. A National Commission (La Commission Nationale Permanente de la Condition de la Femme) was created in April 1975 to study the promotion and protection of women. Representatives from various governmental minis- tries, women's organizations (the National Union of Togolese Women), and church groups periodically meet to formulate more consistent planning of women's projects. Their specific tasks are to (i) consider the present and potential contributions of women to general development, (ii) orient governmental efforts towards the promotion of women, (iii) evaluate measures taken, and (iv) coordinate governmental and non-governmental actions in the field of women's programs. 35. Organizations such as the National Commission, given adequate staff and budgetary support, can provide needed technical assistance to project-preparation. This expertise is especially important to foreign- financed projects in which women's components can be most successfully identified and developed by Togolese counterparts who are more familiar with sub-regional needs and traditional attitudes. ANNEX F BRIEF SUMMARY OF HISTORICAL DEVELOPMENTS Precolonial Period 12th-14th centuries The Ewes moved into the southern area which is now Togo from the Uije River Valley; Northern Togo was settled by people from the savanna region. 15th century Portuguese explorers and traders reach the borders of present-day Togo. 16th-19th centuries Kingdoms of the Gulf of Benin. circa 1840 German missionaries and traders established the first foreign settlement. Pre-independence/Colonial Period, 1884-1960 1884 - 1914 German protectorate; development as a self- supporting colony. 1914 - 1919 Under Allied control. 1919 - 1946 Mandate under the League of Nations; Togoland (British administration) is governed together with the Gold Coast; Togo (French administra- tion) is governed as a distinct entity. 1946 - 1960 UN trusteeship. 1956 (Sept.) French Togo became a republic within the French Union (internal self-government); Prime Minister N. Grunitzky. Post-independence Period, from 1960 1960 (April) Independence; President Olympio. (Sept.) Member of the United Nations. 1962 Member of IMF, IBRD, IDA. 1963 (Jan.) President Grunitzky. (Nov.) Member of West African Monetary Union (UMOA). 1966 Member of the Conseil de l'Entente. 1967 (Jan.) President General Eyadema. 1969 Constitution of the RPT (Rassemblement du Peuple Togolais). ANNEX G Page 1 SELECTED BIBLIOGRAPHY Akakpo, Ahianyo, '"Maladjustment in the Creation of Employment in West Africa", (paper prepared for the IBRD Seminar on Income Distribution and Employment in Africa held in Abidjan, Oct. 1973). Akakpo, Ahianyo, "Les Problemes de 1'education dans la societe traditionelle africaine (Essai d'une typologie des institutions educatives traditionnelles)". Amir, Samin, "L'Afrique de l'Ouest bloquee", L'Economie politique de la Colonisation, 1880-1970; Paris 1971. Cornevin, Histoire du Togo, 3eme edition, Paris 1969. Houenassou, L. K., Dualisme de 1'education dans les pays de la Cote du Benin, janvier 1973, Lome. Payson, Michael, "The Management of Economic Development in the Republic of Togo", Managing Development in Africa, MIT Press, 1963 (edited by Warren H. Hausman). Zachariah, K.C., and K. Nair, Togo: External and Internal Migration (draft), IBRD, May 1976. BCEAO - L'Economie Ouest Africaine: Les Industries du Togo, No. 210, Oct. 1973. - Indicateurs economiques. - Other periodic documents. COMMISSION DES COMMUNAUTES EUROPEENNES - Les Conditions d'installation d'entreprises industrielles, Togo, December 1972, Vol. 7. - Other periodic documents. FAC - Donnees statistiques, Mai 1975. - Other documents. ANNEX G Page 2 GOVERNMENT OF TOGO Budget General, exercice 1976-74-73. Le Troisieme Plan quinquennal de Developpement economique et social, 1976-80, Direction generale du Plan et du developpement. Recueil fiscal de la Republique Togolaise, edite par la Chambre de Commerce, d'Agriculture et d'Industrie du Togo. Tarif officiel des Douanes, ler janvier 1971, Chambre de Commerce, d'Agricul- ture et d'Industrie du Togo. Enquete sur les Entreprises industrielles et commerciales du Togo, Novembre 1972, Direction de la Statistique. Code des Investissements du Togo. Budget de Developpement, 1974, 1975, Direction generale du Plan et du Developpement, Ministere du Plan. Bulletin mensuel de la Division des Etudes financieres, No. 76-01 janvier, Direction de l'Economie, Division des Etudes financieres. Budget d'Investissement Gestion, 1972, 1971, Direction des Etudes et du Plan, Ministeres des Finances et l'Economie et du Plan. Compte rendu d'Execution du Plan de Developpment economique et social, 1966-70, Situation au 31 decembre 1966, Haut commissariat du Plan. Enquete agricole, preparation du IIIeme Plan, Ministere de l'Economie rurale, Direction generale de l'Economie rurale, Service des enquetes et statistiques agricoles. Bilan Partiel (197-1) du Deuxieme Plan de Developpement economigue et social, 1971-75, Direction Generale du Plan et du Developpement, Togo. Plan de Developpement economique et social, 1976-80, projet, Direction generale du Plan et du Developpement. Reajustement au 30-3-73 du 2eme Plan quinquennal 1971-75, Direction generale du Plan et du Developpement, Togo. Bilan de la Premiere Moitie (janvier 1971-juin 1973) du Deuxieme Plan de Developpement economique et social, 1971-75, Direction generale du Plan et du Developpement. Les Perspectives de Croissance, 1971-75. Plan de Developpement economique et social, 1971-75, Ministere des Finances, de l'Economie et du Plan. ANNEX G Page 3 Les grandes Orientations du Troisieme Plan de Developpement economique et social, 1976-80, Ministere du Plan. Compte rendu d'Execution au 31 mars 1967, Plan de Developpement economique et social, 1966-70, Ministere du Commerce, de l'Industrie, du Tourisme et du Plan. Rapport d'Execution 1966-68, Plan de Developpement economique et social, 1966-70, Vol. I. Loi de Finances, Exercice 1971-69. Rapport Economique, social et financier, Budget General, 1971-72, Ministere des Finances et de l'Economie - Secretariat general, Direction de 1'Economie. Enquete sur les Agents de l'Etat et des collectivites locales et para- publiques, Juin 1973, Direction de la Statistique, Secretariat d'Etat a la Presidence charge du Commerce, de l'Industrie et du Plan. Annuaire Statistique du Togo, 1970, Mars 1972, Direction de la Statistique, Secretariat d'Etat a la Presidence charge du Commerce, de l'Industrie et du Plan. IBRD - The Economy of Togo, March 1963. - Present Economic Position and Prospects of Togo, March 1968 (3 vols.). - Current Economic Situation and Prospects of Togo, December 1972. - Current Economic Situation and Prospects of Togo, December 1974. - World Debt Tables (EC-167/75; 2 vols.), October 1975. - The Development of African Private Enterprise, December 1971 (2 vols). - Various other documents. IMF - International Financial Statistics - Other documents. OECD - Termes matrices. - Other periodic documents. OVERSEAS PRIVATE INVESTMENT CORPORATION - Ladd, W.C., and J. F. McClelland, A Report on Business Opportunities in Togo, February 1975. ANNEX G Page 4 SATEC - Enguete preliminaire sur la promotion des petites et moyennes entreprises en Republique Togolaise, decembre 1969. - Jousset, 0., Promotion des petites et moyennes entreprises dans les pays du Conseil de l'Entente, July 1973. UN/UNDP - Rapport annuels sur l'assistance au developpement. - Selected World Demographic Indicators by Country, 1950-2000. - Other periodic documents. UNESCO - Reforme de l'education en vue de l'egalite des chances et du developpement economique, novembre 1975. - Other documents. USAID - Development Assistance Program, FY 75, Togo, Dahomey and the Ivory Coast, March 1975. - Other documents.