Mali - Office du Niger Technical Assistance - Engineering Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2387-MLI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR AN OFFICE DU NIGER TECHNICAL ASSISTANCE/ENGINEERING PROJECT September 2T, 1978 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Currency Equivalents Currency Unit - Mali Franc (MF) US$1 - MF 440 MF 1 - US$0.0022727 MF 1 million - US$2,273 Weights and Measures 1 hectare (ha) - 2.47 acres 1 metric ton (t) : - 2.205 lbs Fiscal Year Government: January 1 - December 31 Office du Niger: January 1 - December 31 Abbreviations GERDAT - Groupement d'Etudes et de Recherches pour le Developpement de I'Agronomie Tropicale IDA - International Development Association IER - Institut d'Economie Rurale IRAT - Institut de Recherches Agronomiques Tropicales OPAM - Office des Produits Agricoles du Mali PPF - Project Preparation Facility SCAER - Societe de Credit Agricole et d'Equipement Rural  FOR OFFICIAL USE ONLY MALI OFFICE DU NIGER - Technical Assistance/Engineering Credit Credit and Project Summary Borrower: Republic of Mali Beneficiary: Office du Niger Amount: US$4.5 million Terms: Standard Project Description: The project comprises a three-year program of technical assistance and a pilot program of rehabilitation works. Technical assistance would consist of 5 engineers and 1 management consultant to strengthen key services of the Office du Niger (i.e. Technical Studies, Works, and Accounting) and to prepare the plans required for the appraisal of a comprehensive infrastructure rehabilita- tion project within two years, as well as short-term consultancy services for special studies. The pilot program would carry out urgent repairs on the irrigation infrastructures; it would also aim at establishing the most cost-effective methods of on-farm works to be used in a subsequent large-scale rehabilitation project. Other project components include support for agricultural research and trial programs, an aerial photographic survey, a socio-economic study of the settler population, an audit of the Office du Niger accounts, and training scholarships for Malian engineers. US$20,000 provided under the Project Preparation Facility will be refinanced by the Credit. 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.  - ii - Estimated Costs: 1/ Us$1,000 7 Local Foreign Total Salaries, Allowances and Travel for Technical Assistants and Consultants 300 1,100 1,400 Civil Works Equipment 100 1,900 2,000 Spare Parts and Workshop Tools 5 110 115 Miscellaneous Instruments; Vehicles 5 110 115 Civil works operating costs (including Local Staff) 115 225 340 Farm Equipment Rice Research 5 70 75 Pilot Project Fodder Production 60 165 225 Aerial Photographic Survey 20 165 185 Socio-econ. Study of Settlers 35 40 75 Audit 5 45 50 Training Scholarships - 25 25 Proj. Prep. Facility (refinanced) - 20 20 Expected Price Increases 75 525 600 Total 725 4,500 5,225 Financing Plan: The proposed Credit of US$4.5 million would finance 86% of total project cost net of taxes, or the equivalent of 100% of estimated foreign exchange costs. The Govern- ment would contribute the equivalent of local costs. 1/ Project costs do not include taxes since Government has indicated its intention to exempt the project from all import duties and other taxes.  - iii - Estimated Disbursements: US$1,000 FY 79 FY80 FY81 FY82 Annual 2,000 1,500 600 400 Cumulative 2,000 3,500 4,100 4,500 Staff Project Given the pilot and technical assistance nature of the Report: activities to be undertaken under the proposed project, a separate staff project report was not prepared. Map: IBRD 13412.   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR AN OFFICE DU NIGER TECHNICAL ASSISTANCE/ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed credit for the equivalent of US$4.5 million on standard IDA terms to the Republic of Mali to help finance a proposed Office du Niger Technical Assistance/Engineering project. PART I: THE ECONOMY 2. A report entitled an "Economic Memorandum on Mali" (1134a-MLI) was distributed to the Executive Directors on January 5, 1978. Its conclusions are reflected in the following paragraphs. 3. With a population of about 6.3 million and a per capita GNP of $103 in 1976, Mali is one of the poorest countries of Africa and among the 29 least developed countries identified by the United Nations. It is handicapped by serious obstacles to development. The extreme variability of rainfall causes sharp fluctuations in crop and livestock production. Access to foreign markets is made difficult by its landlocked position and the long distances - more than 1000 km - to the nearest seaports, Abidijan and Dakar. Development is also constrained by the2substantial internal distances (the country covers an area of 1.24 million km ) and by the shortage of skilled manpower and the narrow domestic market for industrial products. About 90% of the population depends for a livelihood on crop farming, animal husbandry, forestry and fishing. Exports consist almost entirely of agricultural commodities and livestock. The relative contribution of the primary sector to GDP declined from 43% in 1972 to 37% in 1977. 4. Over the fifteen years following independence economic growth has barely kept ahead of the growth of population. During the 1960s GDP in real terms, increased at an average annual rate of 2.8%. During the drought of the early seventies, GDP declined and Mali's problems were further aggravated by international inflation, excessive credit expansion and growing budget and balance of payments deficits. The Government has initiated action to redress major financial imbalances through credit restraint, through some reduction of the subsidy element in the prices of essential consumer goods, fertilizers and agricultural equipment, and through improved tax collection. Good crop seasons in 1975, 1976 and 1977 facilitated the implementation of these measures. Though the country's growth potential is significant, serious structural problems remain. In particular, problems have been exacerbated by a poor harvest in 1977/78, brought about by a return of drought conditions in 1977.  -2- The Drought Years: 1972-1974 5. All economic sectors were in varying degrees affected by the drought of 1972-1974, and the recovery of these sectors is following different pat- terns. The full extent of loss of human life resulting from the drought is not known but it was particularly severe among nomadic groups and especially the young and elderly. The cattle population, estimated at 5.5 million head in 1971, declined by 15 to 20%. 6. In an effort to keep essential supplies at a sufficient level and retail prices for basic goods low, especially in urban centers, the government resorted to large imports of cereals, only partly financed by external aid, and to consumption subsidies. Thus cereal imports shot up from 64,000 tons in 1972 to 235,000 tons in 1974, and the resource gap widened to nearly one-third of GDP in 1974. To finance losses incurred by state enterprises in charge of imports and sales of subsidized goods, growing amounts of bank credit were used. The GDP deflator, reflecting subsidization through offi- cially controlled prices, increased at an annual rate of only around 5-6% between 1970 and 1974, although prices in the open market had risen more steeply after the onset of the drought. Because supplies of exports were affected by the drought, export receipts did not increase as much as the favorable world prices would have permitted and the policy of price contain- ment and subsidization translated into very large external deficits. These years, apart from imposing appalling human suffering on important segments of the Malian population, left an unfortunate legacy on Mali's public finances. Uneven Recovery: 1975-1977 7. Normal rainfall resumed in 1975 and primary production--cereals, as well as cotton and groundnuts--increased by more than 22% and total real GDP by an estimated 12.7%. Recovery of physical production, however, was accompanied by a sharp rise in the GDP deflator of about 18% in 1975 owing to a substantial reduction in Government subsidies and increases in the official producer prices of the major crops - ranging from 33 to 60%. While the resource gap was reduced it remained high, representing about 20% of GDP and foreign assets declined further to minus MF 88 billion (US$184 million). Public dissaving continued to increase as growth of revenues lagged behind rapidly rising expenditures, particularly expenditure on personnel. The wage bill increased rapidly because of cost of living adjustments and the policy of government to serve as employer of last resort of nationals who complete secondary or higher education. Current revenues did increase significantly as a result of efforts to improve tax collection, but not enough to keep pace with rapidly growing expenditures. The current budget deficit widened from 5.1 billion MF in 1972 to 10.5 billion MF in 1975, or about 36% of total current revenues. 8. In 1976, real growth of GDP continued though at the more moderate pace of about 5%. In 1977 the situation continued to improve, largely as a result of a good harvest, and because of continued growth in the secondary  - 3 - sectors, so that GDP grew by about 7% in that year. However, a drought- induced downturn in agricultural production in 1978 may mean a zero or nega- tive growth rate in that year. 9. Credit expansion was reduced sharply from 1975 levels, with an overall increase in outstanding indebtedness of the economy to deposit banks amounting to about 20% in 1976, as compared with 47% growth rate in 1975. However, it must be recognized that much of what is included under "credit to the economy" in effect finances operating losses of public enterprises. (When substantial improvements have taken place, such as in 1976/77, they have largely been attributable to the export earnings of SOMIEX, the state export monopoly.) At the beginning of 1975 the Central Bank discount rate was raised from 3.5 to 6.0% with corresponding increases in the whole set of borrowing and lending rates of deposit banks. And a new banking law, provid- ing for legal minimum cash reserve and liquidity ratios has recently been promulgated. This took place within the framework of a new monetary agreement with France in mid-1977. This agreement aims at bringing about the conditions requisite for Mali's membership in the West Africa Monetary Union by 1981, imposing a very restrictive credit policy on the operations of the Central Bank, notably in establishing more stringent conditions on rediscount facili- ties, thereby precluding the financing of operating losses of state enter- prises, one of the most persistent drains on Mali's economy. 10. The balance of payments deficit in 1976 is provisionally estimated to have declined by US$21 million to US$33.6 million. As in the past much of the deficit was largely financed through the "Operations Account" with the French Treasury. The improvement in the balance of payments is attributable essentially to higher volume and prices of cash crop exports, exports of foodgrains, some debt rescheduling and larger capital inflows and higher transfer receipts. Despite this, Mali's net foreign assets have somewhat further decreased, and at the end of 1976 were practically minus MF 98 billion (US$205 million). The overall budget deficit for 1976 and 1977 was still uncomfortably large (MF 10 billion in 1976, MF 9 billion in 1977); for 1978 a MF 5 billion is aimed at by the Government. Given particularly that export earnings are likely to fall in 1978, this improvement does not appear likely. Foreign capital and debt 11. Public investment is mainly financed by foreign aid. During most of the sixties the USSR and the People's Republic of China were the most important aid donors. At the end of 1975, they held in roughly equal propor- tions nearly 57% of Mali's external public debt disbursed and outstanding. Gross disbursements (grants and loans) from DAC sources increased from US$24 million in 1969 to US$108 million in 1974. Roughly 60% came from bilateral sources (mainly France, United States, Germany and Canada). Since the early seventies the amount of public aid received by Mali has increased very rapidly and grants account for most of the increase. The average annual gross inflow of aid was less than US$20 million in early 1970-71, reached US$50 million  - 4 - during the first years of the droiught (1972-73), peaked at US$112 million in 1974 and has decreased only marginally since then. Four-fifths of total aid since 1970 has been in the form of grants. 12. Mali's external public debt outstanding at the end of 1975 (ex- cluding drawings on the Operations Account) was US$471.0 million, including an undisbursed amount of US$144.0 million. IDA's share in the total amount disbursed and outstanding was 18.6%. Repayments of principal and interest due in 1975 would have claimed more than a quarter of foreign exchange earnings, but actual debt service payments have been small (2.8% in 1974, 3.1% in 1975) owing to the rescheduling since 1970 of Chinese, Russian and some other debts. However, projections indicate that the actual debt service ratio may go up to about 19% by 1980 unless some further rescheduling of debt takes place. Mali received five stand-by credits from the IMF between 1964 and 1971 which have been repaid. Apart from the stand-by credits Mali drew SDR 5.0 million under the 1974 oil facility and obtained another credit of SDR 3.99 million (in March 1976) under the 1975 oil facility. In addition, Mali borrowed $4.6 million from the IMF trust fund facility in January 1978. Development prospects 13. The return of more normal weather conditions in 1975 strengthened the economy's short run position, at least through 1977. However, the poor harvest of 1977/78 may represent a set-back in Mali's development prospects (especially if the drought continues during the current year) and may retard necessary improvements in Mali's economic management. In particular, over the medium and long term, the government must address two sets of interrelated objectives. The first is to correct the profound financial imbalances that have developed over the years, especially since the early seventies; the second is to accelerate the pace of economic growth against a background of minimal improvement in per capita income since 1960. 14. The government began in 1975 to tackle some of its financial prob- lems and has been relatively successful in readjusting some key prices to more realistic levels:' Thus, incentives to agricultural production are stronger, consumer prices more closely reflect economic costs, the burden of subsidies has been somewhat alleviated and credit expansion has slowed down. Nonetheless much more remains to be done in this area, especially since official prices to producers and consumers have failed to keep pace with rising costs. Reform of public enterprises is being undertaken but is unavoidably a very gradual task and much remains to be done, particularly in the area of cereals marketing. The budget is still basically unbalanced but the government is now seriously reconsidering its employment policy with a view to make it more selective so as to check the growth of current expendi- ture; yet this is clearly a longer-term project. Any reconstitution of external reserves will take some time, and in the process the Government should progressively wean itself from using the French-financed operations account to finance current deficits.  - 5 - 15. Prospects for real long-term growth are probably better than in most other Sahelian countries. Agriculture has considerable potential for expansion both in the South where rainfed agriculture meets relatively favor- able conditions and in the vast inland delta of the Niger river. The river also offers much potential for power development, particularly for industry. Planned investment in new capacity for cotton seed oil extraction, cotton textiles for export, and in sugar production, together with increasing crop and livestock production, will eventually strengthen the balance of payments. Mineral resources (iron ore, phosphates) remain at present unexploited but may offer interesting longer term development possibilities. 16. The Five-Year Social and Economic Development Plan (1974-1978) gave high priority to agriculture, water and power development, industries process- ing agricultural materials, and road transport. The pattern of investment was well conceived, but the overall size of the investment program, most lately estimated at MF 826 billion (about US$1.8 billion), is proving to be over-ambitious. Although MF 427 billion of this total was expected to be realized during the plan period, at the end of 1976, total investments real- ized amounted to only MF 122 billion. The problem is more one of implementa- tion than financing; with continuing delays being encountered in project preparation and execution, particularly in the beginning. Thus it is likely that the overall implementation of the plan will be delayed for several years, although no new terminal date has been set by the Mali government. Project financing, on the other hand, is reasonably well advanced, with MF 359 billion having been received or firmly committed, and with preliminary agreements obtained on another MF 100 billion. With regard to investments being under- taken under the revised plan (revisions having been made in 1976 and 1977), priority is currently being given to food crops, while in the longer run, greater emphasis is expected to be placed on export crops, animal husbandry, minor irrigation works and more efficient manufacturing activities. 17. The prospects for the Malian economy have improved following the substantial increase in output over 1975-1977 and the stabilization measures taken by the Government. Nevertheless, sustained and viable growth in the longer run depends crucially on investments and policy measures that will strengthen the economy's export base, particularly in cash crops. Mali's capacity to finance new investment, however, is severely constrained by the limited savings potential resulting from the extremely low per capita income level, a situation reflected in the government's budget and further com- plicated by serious financial difficulties particularly in the public enter- prise sector. Borrowing on conventional terms would add considerably to the burden of servicing an already sizeable external debt. External aid, accord- ingly, should be on soft terms and should finance, besides foreign exchange outlays, a significant proportion of local currency costs. PART II - WORLD BANK GROUP OPERATIONS IN MALI 18. The proposed Credit would be the Association's sixteenth operation in Mali, which would bring total commitments of IDA funds to US$148.7 million.  - 6 - US$70.3 million had been disbursed as of July 31, 1978. Of the fifteen credits already approved, six have been directed to transport infrastructure, where inadequate facilities have hampered the country's development; six to agricul- ture; two to education and one to telecommunications. Agriculture represents the largest share (44%) of our past commitments followed by transportation (43%). With the exception of the Integrated Rural Development Project (Credit 491-MLI) and the Livestock Project (Credit 538-MLI), experience with ongoing operations has been satisfactory. A summary statement of these credits as well as notes on the execution of ongoing projects are set out in Annex II. 19. The Bank Group and other external agencies have financed some ten major agricultural development projects which geographically cover most of the country's cultivable area and benefit the majority of farm families, or about 90% of Mali's population. Initial Bank Group operations in this sector have assisted Mali in developing rice production for domestic con- sumption in the Niger flood plains. Subsequent projects financed by the Bank Group have helped to develop groundnuts, cotton, kenaf, rainfed cereals and livestock production, while at the same time to improve human health con- ditions, farmers' education and training of young farmers and rural artisans. In addition three of the six projects financed in the transportation sector are directly related to the rural sector. 20. Agriculture and livestock will continue to provide the main devel- opment possibilities for improving the economic situation of Mali's largely rural population; semi-autonomous state agencies ("Operations de Developpe- ment") are the main channel for external investment in these sectors. Because of the droughts in the 1968-74 period, these state agencies have broadened their activities to include food crops and livestock to permit farmers greater self-sufficiency. Increasingly, the Operations de Developpement are being used by the Government as vehicles for delivery of social services, spe- cifically functional literacy for adult farmers and preventive health care at the village level. 21. In the future the main objectives of Bank Group lending are: (a) to promote agricultural development so as to increase cash crop and livestock production, particularly for export, to increase and stabilize food crop production, to achieve a redistribution of income in favor of agricultural producers, to help the country attain some degree of food self-sufficiency as well as generate adequate supplies of agricultural materials for processing industries and exports; (b) to strengthen infrastructure facilities; and (c) to mobilize resources from other donors through co-financing. These overall objectives are in line with the priorities established in the Government's Five-Year Development Plan. We will also continue to advise Government on policy issues and options through our economic and sector work. The Govern- ment has recently asked that the Bank examine the activities of the Office of Price Stabilization and that the Bank provide assistance in formulating policies for employment generation. The Government has also requested Bank assistance in the health sector.  - 7 - 22. For the three fiscal years 1979-81, about half of IDA's lending to Mali will go to the rural sector. In addition to the proposed Technical Assistance/Engineering Project, preparation is under way for a second phase of the Integrated Rural Development Project (Credit 491-MLI) which would continue to assist in developing the production of groundnuts, Mali's second foreign exchange earner; a forestry project would aim at increasing the supply of fuel and building wood to Bamako and at making the first step towards pro- tecting the environment against the effects of deforestation; finally, the project proposed in this report is intended to lead to an Office du Niger Rehabilitation Project, which would aim at rehabilitation of the existing irrigation network, an intensification of rice production, further strengthen- ing of management, and preparation for longer term expansion and crop diversi- fication in the Office du Niger. 23. As for infrastructure, we plan to contribute to the financing of a Fourth Highway Project, which would include road reconstruction and contin- uation of the highway maintenance program initiated under earlier projects. A Fourth Railways Project and a Second Telecommunications Project are also possible candidates under consideration for this three-year program. Re- garding the industrial sector a Small/Medium Scale Enterprises and Artisans Project would provide for financial and technical assistance to small and medium size enterprises and to artisans and for a pilot program to re- habilitate a few public enterprises. Finally, an Urban Project under prep- aration for Bamako and three secondary towns (Gao, Kayes and Mopti) would aim at providing a basic package of urban services, improving the management of local Government services and laying the basis for longer term urban growth. PART III. THE RURAL SECTOR A. Production Base Land and Water 24. Close to 90% of Mali's population lives in rural areas, most of them in regions having a rainfall of more than 500-600 mm annually or along the Niger River, or as cattle-rearing nomads. Although less than a quarter of the country receives more than 500 mm of rain annually, because of Mali's size, the per capita endowment of land suitable for crop production or pasture is more favorable than for other Sahelian countries. 25. In addition, Mali has considerable irrigation potential along the Niger river. Flood rice is grown in the vast plains of the interior delta of the Niger, which is entirely located in Mali. Flood rice cultivation is a hybrid between rainfed and irrigated agriculture; it depends on adequate rainfall during the early phases of the growing cycle, and on timely and sufficient flooding during the second phase. It is a unique and low-cost  - 8 - production system, the development of which is being assisted through projects financed by the European Development Fund and the Association (First and Second Mopti Rice Projects, Credits 277-MLI and 753-MLI). The system's draw- back is the high degree of risk due to weather, which limits the scope for intensification. The Office du Niger (Section E below) is the only major irrigation scheme designed to ensure full water-control. Farming Systems 26. Some 2 million ha are estimated to be under cultivation in Mali of which more than 90% is in rainfed agriculture and close to 10% under irriga- tion or flooding. Of the 450,000 farmers, 80% have 5 ha or less. Differences in holdings are moderate and largely reflect traditional authority and family size. Land tenure still follows the traditional system whereby land is allocated by village chiefs for use, but without recognition of individual ownership rights. Food crops occupy close to 90% of the land under rainfed cultivation while the remainder is devoted to cotton and groundnuts. In most areas, land reserves are still sufficient to enable fields to lie fallow, thus ensuring restitution of soil fertility. Animal traction is more widespread in Mali than in any other Sahelian country. 27. Except for ploughs and oxen, farm equipment in rainfed farming is elementary, in particular among traditional farmers who are not covered by one or the other of the agricultural development projects; fertilizer use is increasing, mainly through the efforts of these projects, and focusses on cotton and groundnuts. Of the nearly 200,000 ha under some kind of irriga- tion, about half are cultivated traditionally while the remainder consists of controlled flooding schemes (para. 34) and the irrigation schemes managed by the Office du Niger. Transport Infrastructure 28. Mali is linked with the port of Dakar by rail (1,200 km), and with the port of Abidjan by road (1,200 km) as well as by a combined road and rail route. The internal road network is adequate in the center of the country (although in need of repair) but poor in the West and the East. Technical and organizational weaknesses of the transportation system cause delays in the supply of agricultural inputs and hamper the timely evacuation of exports to the ports. B. Institutions 29. Agriculture is the responsibility of the Ministry of Rural Develop- ment. Since 1969, the Ministry has delegated important functions to the Operations de Developpement, institutions in charge of agricultural develop- ment in specific regions and which enjoy a considerable amount of financial and managerial autonomy. They distribute inputs to farmers and provide exten- sion services, training and credit as well as marketing services for export crops and part of the food crops. These operations may be crop-specific, as  -- 9 - in the case of rice or cattle, or dezl with all major crops grown in a region. Several Operations de Developpement are concerned with irrigated crops, primarily rice, for instance the Operation Riz Segou (financed by the European Development Fund) and the Operation Riz Mopti (financed by IDA). The Office du Niger, which manages irrigation schemes in the Eastern part of the country, is a state enterprise which enjoys even larger degree of administrative and financial autonomy than the Operations de Developpement. 30. Marketing of cereals is the responsibility of OPAM (Office des Produits Agricoles du Mali) which has a monopoly on domestic and foreign cereal trade. However, OPAM is not able to enforce its monopoly in the domestic market. Private traders are officially banned from wholesaling cereals but have been tolerated recently 'ke-ause attempts to eliminate them have failed. OPAM buys rice from the Office du Niger and the Operations according to price schedules established annually in a negotiation process between the rice producing entities and Government agencies. 31. Supply of farm inputs and farm equipment is the responsibility of SCAER (Societe de Credit Agricole et d'Equipement Rural). Both annual inputs and equipment are sold at subsidized prices, the subsidy being financed mainly from levies on cotton and groundnuts exports. As indicated by its name, SCAER also provides agricultural credit for the purchase of farm equipment, but only to farmers covered by the activities of Operations de Developpement. The steep rise in the price of farm implements over the last few years forced SCAER to end subsidization of most farm equipment in 1976 and to reduce subsidies on annual inputs such as fertilizer. Because of SCAER's difficulties in carrying out the frnrctions assigned to it, Govern- ment envisages transferring responsibility for the supply of inputs and farm equipment to the appropriate Operations de Developpment. 32. Agricultural research in Mali is coordinated by the Institut d'Economie Rurale (IER) of the Ministry of Rural Development. Most agri- cultural research is carried out by French research institutes which form the GERDAT. Rice research at the Kogoni station, within the Office du Niger area, is carried out competently. C. Agricultural Strategy 33. The Government of Mali has decided to give! increased attention to the promotion of food crops in order to achieve self-sufficiency not only in normal rainfall years but also in dry vyars. The current Five-Year Plan (1974-1978) reflects the Government's determination to prevent a recurrence of the food shortages experienced in 1972/73-1974/75. Food crops take first place in public investment. The emphasis on protect:ing producers and con- sumers against climatic hazards has resulted in a strong bias towards irrigated agriculture, i.e., rice production. Not less than 85% of total allocations for food production projects are set aside for rice. Other objectives of the current Five Year Plan are to increase production of agri- cultural raw materials for export and domestic processing and to reconstitute the livestock herd which suffered heavily during the drought years. 34. The Government agricultural development objectives in recent years have largely centered on the following activities:  - 10 - - production of paddy is being expanded within the framework of the Operations Riz at Segou and Mopti, the latter assisted by the Association (Credit 277-MLI); for both of these projects, based on controlled flooding, follow-up projects are underway with financing provided by the European Development Fund (Segou) and IDA (Credit 753-MLI); there is also some small scale development components in the IDA-financed Mali-Sud project and in the Gao area under the Drought Relief Fund project; - production of rainfed cereals is promoted through two new schemes in the Dogon area and the Kaarta region as well as within the framework of two integrated projects aiming at the simultaneous development of cotton and cereals (Mali-Sud - Credit 669-MLI) and groundnuts and cereals (Operation Arachides et Cultures Vivrieres - Credit 491- MLI); - the livestock subsector is supported by a number of proj- ects (including the IDA Credit 538-MlI), which principally emphasize range management; and - in the Office du Niger, a second sugar factory (15,000 t) was constructed with assistance from the People's Republic of China. A number of other projects listed in the present Five-Year Plan are not being carried out because of lack of finance or because preparation is not suffi- ciently advanced; among these are the Office du Niger's projects which aim at the consolidation and expansion of rice production and at crop diversification (see Section E below). D. Recent Trends in Crop Production 35. During the drought years of the early seventies (up to and includ- ing 1973/74), Mali suffered severe losses in agricultural production, in particular cereals (both coarse grains and paddy) and livestock. Crop produc- tion increased substantially in the following three years as a result of good rainfall and higher producer prices for both cash and food crops. Total rainfall was above average in 1974/75, average in 1975/76 and about average, but with an unfavorable distribution, in 1976/77. Production of cereals, including paddy, is estimated to have been 1.15 million tons in 1974/75 and 1.2 million in 1975/76 and 1976/77. Cotton and groundnut crops in 1975/76 reached the unprecedented level of 103,000 and 200,000 tons, respectively. Cotton production in 1976/77 maintained the preceding year's level in spite of less favorable weather conditions while groundnut production fell by some 15% as a consequence of the decreasing attractiveness of the official producer price. 36. Paddy production in particular has increased steeply in the post- drought years as the consequence of three factors:  - 11 - - some 55,000 ha of polders have been developed by the Operation Riz Segou and Operation Riz Mopti; these polders, vulnerable to low river water levels, came into full production for the first time in the post-drought year 1974/75; - the Office du Niger has become more efficient; - finally, the 1974 increase in the producer price of rice from MF 25/kg to MF 40/kg provided a strong incentive to produce for 2-3 years until this increase was eroded by general inflation and the particularly steep increase in prices of agricultural equipment. (The producer price of paddy was raised to MF45/kg in 1977 and to MF 50/kg in May 1978 but these increases only partially offset the increase in private market prices which was particularly steep in 1978.) In 1977/78, rainfall and flood levels were again unsatisfactory. This led to shortages of millet and sorghum and the paddy harvest is also well below the level of the last three years; only the Office du Niger has, as in the earlier drought years, remained untouched by these climatic influences and produced close to 90,000 tons of paddy. 37. The drought years and, again, the disappointing results of the 1977/78 campaign have underlined the importance of strengthening the Office du Niger as a drought-proof production system capable of ensuring essential minimum requirements of cereals even in years of adverse weather conditions. It is true that production by controlled flooding in the Niger flood plains can be developed at much lower cost per ha, but this advantage is offset by the vulnerability of the system to rain and flood deficiencies. While irriga- tion with full water control is costly to develop, this disadvantage is much reduced in the Office du Niger by the fact that the basic irrigation infra- structure (dam, main canals) exists, which makes for much lower costs of additions to it. 38. The correct policy for Mali would be to aim at a balanced develop- ment of both irrigation systems: as drought-proof production increases, Mali can afford to also expand production in the flood plains; conversely, as the relative share of rice production in the flood plains increases, there is need for a parallel strengthening of the drought-proof production base. The system of controlled flooding having received considerably more emphasis over the last decade than full irrigation, a compensating effort appears to be warranted now on the side of the latter. E. The Office du Niger 39. The Office du Niger, which was created as early as 1932, is the largest productive enterprise in the country. Its irrigation system consists of a barrage on the Niger river which raises the water level by some 5 meters, a feeder (or headreach) canal upstream of the barrage and two main irrigation  - 12 - carnlC -1hichi w.rith their secondary and tertiary canals, serve 53,000 ha of cultivable land, of which about 42,000 ha are presently cultivated (39,000 ha under rice, 2,700 ha under sugarcane). Total permanent staff is 2,850; seasonal labor (sugarcane) about 4,000. There are about 4,500 farm families, most of them with ox-drawn equipment, cultivating on average some 8-9 ha. Gradual reduction of the size of holdings is underway and would be pursued more vigorously parallel to the envisaged rehabilitation of infrastructures. Paddy production was about 90,000 t in 1977/78, and sugar production 19,000 t, following the opening of the second Chinese-built sugar mill in Siribala. The Office du Niger operates 4 rice-mills (capacity 65,000 t of paddy), an alcohol distillery, and 2 cattle fattening stations. Gross sales are expected to be close to US$20 million in 1978. Except for Chinese technical assistance to the two sugar mills, the Office du Niger is run entirely by Malians who cope effectively with day to day operations but need to strengthen available mana- gerial and commercial skills. 40. The Office du Niger enjoys a considerable degree of managerial and financial independence. It obtains its revenue mainly from the sale of sugar, rice, and their respective by-products, all at prices negotiated with Govern- ment and other state agencies and laid down in the so-called baremes (price schedules); a further important revenue source is the levies paid by farmers for the use of irrigated land (400 kg of paddy/ha or US$40/ha at prevailing producer prices). Unlike most other state enterprises or parastatal agencies in Mali, the Office du Niger has been able to operate without Government subsidies. However, it has not published a balance sheet since the early sixties. Problems related to the valuation of assets after the transition of ownership from France to Mali are the main reason for this, but accounting staff is also inadequate. A balance sheet and a profit and loss account are scheduled to be prepared for 1978. Recent Developments 41. The Office du Niger initially produced rice and cotton; sugar pro- duction began in 1965. In 1970, cotton cultivation was abandoned, mainly for two reasons: - persistent drainage problems had led to low yields, high indebtedness of farmers and consequent widespread despondency among Office du Niger farmers; - Government's wish to regain self-sufficiency in rice led to the conversion of the cotton areas into rice fields. Between 1968/69 and 1977/78, the area under rice cultivation increased from less than 30,000 ha to nearly 40,000 ha; yields increased from 1.55 t/ha to 2.25 t/ha, and total paddy production doubled from 46,000 t to 90,000 t. The farming population of the Office du Niger, which had declined in the sixties, rose from less than 30,000 in 1968/69 to more than 50,000 in 1977/78.  - 13 - 42. The recovery of the Offic.e du Niger, in particular since 1971, can be attributed to the following factors: - the transfer of important areas previously cultivated directly by management ("en regie") to smallholders; the area under rice cultivated directly by the Office du Niger decreased from more than 10,000 ha in 1970 to a mere 600 ha; - termination of cotton production which hacL become unrewarding due to technical problems (para 41); - improvement of some perimeters through levelling operations; - the impact of the drought years of the early seventies, which brought an important inflow of new settlers; - the incentive provided by the producer price increase of 1974; and - better management. Development Objectives 43. The following are the Office du Niger's development objectives, as laid down in the Five-Year plan (1974-78), and which comprise consolidation and rehabilitation as well as an expansion in area: - the repair of the Markala barrage; - the realignment of the entrance to the headreach canal, the deepening of the headreach canal and of the two main irriga- tion canals (i.e. Canal du Sahel and Canal de Macina), and the reinforcement of the dikes of these canals; - the improvement of the secondary irrigation and drainage canal system; - the rehabilitation of some 15,000 ha, covered by the existing water supply system, which have been abandoned because of poor irrigation or drainage conditions; - the general improvement of some 35,000 ha of rice fields, in particular through land levelling; and - tye construction of a third main irrigation canal of 55 m /sec capacity, the Canal de Costes, which would open up a new area for rice and sugarcane cultivation and permit the replacement of pump irrigation in the sugar estates by gravity irrigation.  - 14 - 44. Due to lack of finance, none of these objectives had been achieved by the end of 1977. The People's Republic of China has agreed, however, to repair the Markala dam and the irrigation canals branching from the Macina canal, which serves about 20-25% of the cultivable area. These works were repeatedly delayed and are now scheduled to begin in late 1978. Development Priorities 45. The Office du Niger has made substantial progress in pulling itself out of the dismal situation which prevailed in the late sixties; however, there are many areas in which performance can be substantially improved. The overall paddy yields (2.25 t/ha) are still low for a system with full water- control. Until yields have been increased to a level of approximately 3.5 t/ha, it will be difficult to advocate and justify a major expansion of the network. Also, the basic irrigation infrastructure has been insufficiently maintained and needs to be overhauled. Therefore, it was agreed with Govern- ment that: (a) for a period of about 8 years, rehabilitation of infrastruc- ture and intensification of production should have priority in development; and that (b) these efforts should concentrate on rice production, which is the backbone of the system. 46. The above infrastructure Rehabilitation Program, which was defined in cooperation with Malian authorities, would consist of two main components: (a) rehabilitation of the entire irrigation and drainage network of the Canal du Sahel system (which serves 75-80% of the Office du Niger area); i.e. main canal, primary and secondary canals, and structures; (b) improvement of tertiary canals and on-farm development, in par- ticular land-levelling, on some 35,000 ha. In addition, the program would include a Master Plan study that would analyse (i) the various options for a subsequent expansion in area, (ii) the economic and technical aspects of crop diversification, agricultural research and trial activities that would prepare the ground for crop diversification, and (iii) development needs in the social sector (health, education, farmers' participation). Assistance Needs 47. Implementation of this Rehabilitation Program would require about 8 years. It could not be executed, however, without prior strengthening of key sections of the Office du Niger's organization and operations;  - 15 - - the Bureau of Technical Studies has been heavily understaffed since the early sixties when new developments were phased out; as a re- sult, few of the plans, designs, and cost estimates required for the appraisal and subsequent implementation of the Rehabilitation Project are presently available, nor could they be produced by this Bureau without substantial technical assistance; - the cost of the Rehabilitation Program depends on the methods to be employed, in particular for on-farm development; therefore, different methods and types of equipment should first be tested on a reduced scale; - finally, the general administration needs to be strengthened in order to enable management to control the Office du Niger's operations which are becomingly increasingly complex. Therefore, it has been agreed with Malian authorities that the Rehabilitation Program will be preceded by a Technical Assistance/Engineering Project, which would extend over 3 years and pave the way for a first Rehabilitation Project. The latter could be appraised about two years after the beginning of the Technical Assistance/Engineering Project. IV. THE PROJECT 48. The project was prepared by a mission which visited Mali in November/ December, 1977, and was finalized in discussions with Malian authorities in May 1978. Given the pilot and technical assistance nature of the activities to be undertaken under the proposed project, a separate staff project report was not prepared. Annex III contains supplementary project data. Negotiations were held in August 1978. The Malian delegation was led by Commandant Issa Ongoiba, Director-General of the Office du Niger. General Description 49. The proposed project is a preparatory step for the rehabilitation of the irrigation infrastructure of the Office du Niger. The infrastructure and some 35,000 ha of rice-fields are scheduled to be improved between 1981 and 1988, and the proposed project would serve: - to strengthen technical and administrative services of the Office du Niger; - to prepare plans, cost estimates and other documents required for implementation of the rehabilitation project; - to test the most cost-effective methods of carrying out the proposed rehabilitation works by means of experimental land levelling and other on-farm works over an area not exceeding 1,500 ha;  - 16 - to carrv out some urgent repairs of sections of canals and arains; and - to lay the basis for future crop diversification through support for agricultural research (including rice research) and pilot programs. The proposed project would begin in late 1978 and extend over three years. Its components are described below. Technical Assistance 50. The project would provide the services of the following technical assistants: - three engineers for the Bureau d'Etudes Generales, which is the Bureau of Technical Studies of the Office du Niger, for periods varying between 12 and 30 months (with a total of 60 man-months); they would prepare the plans and cost estimates for the rehabilitation project in cooperation with the three Malian engineers which the Government will second to this Bureau not later than October 31, 1978. (Section 3.02(b) of the draft Credit Agreement). - two engineers for the Works Department of the Office du Niger for 18 months each; one would assist in carrying out and monitoring a pilot program of on-farm development works; the other would act as technical inspector of the equipment to be provided under the project as well as of existing equip- ment; - a management consultant to be attached to the Office of the Director General for 24 months; who would design and implement improved accounting and management information systems. The technical assistants would be advisers of their respective heads of Department but would report directly to the Director General of the Office du Niger. All engineers would preferably be recruited through a single firm of consulting engineers and would have at least 10 years experience in their respective fields (Section 3.02(a) of the draft Credit Agreement). The management consultant would likewise be recruited through a major consult- ing firm. The main advantage would be that technical assistants in the field could (in the form of short-term consultancy assignments) draw on the specialized knowledge available in such firms. A total of 30 man-months of short-term consultancies in various fields of engineering, hydrology, pedology, agriculture, management, and training has been provided for under the project. Total technical assistance would amount to 156 man-months and would comprise salaries, allowances and travel expense. 51. Terms of reference for the technical assistants are satisfactory to the Association. Short lists of reputed and experienced consulting firms in the field of engineering and management have been drawn up by the Office  - 17 - du Niger and have been approved by the Association. These firms were invited in mid-June 1978 to submit proposals (Section 3.02(a) of the draft Credit Agreement). To ensure that technical studies and the pilot program of civil works can be started without delay, the Office du Niger has given assurances that certain topographical surveys will be executed by November 30, 1978 (Section 3.05 of the draft Credit Agreement). Civil Works 52. The project would include civil works for: - an experimental program of land-levelling and other on- farm works on an area not exceeding 1,500 ha in order to establish the most cost-effective methods and the most suitable equipment to be used in a subsequent large-scale rehabilitation project; and - the repair and strengthening of critical points of the irrigation infrastructures, pending their general over- haul in a subsequent rehabilitation project. Civil works equipment required for the execution of these civil works will be financed under the proposed project; specifications of equipment and tender documents have been prepared with the assistance of consultants financed under the Project Preparation Facility (US$20,000), and tenders were called in May 1978. (The advance provided under the Project Preparation Facility will be refinanced under the proposed Technical Assistance/Engineering Credit). The Office du Niger has given assurances that some of its own civil works equipment pool will be put at the disposal of the teams which will execute the works defined in this paragraph (Section 3.04 of the draft Credit Agreement). 53. For the civil works described in para. 52, the Government would also finance equipment operating costs including local staff, i.e. essentially fuel costs and equipment maintenance. 54. To make maximum use of existing equipment, a stock of spare parts as well as workshop tools would also be procured under the Credit. Some minor equipment and instruments would be needed for topographical works, hydrological measurements, etc. Vehicles would be provided for the technical assistants. Support for Agricultural Research and Pilot Programs 55. The project would provide finance for some agricultural equipment to strengthen the work of the rice research station at Kogoni, located in the Office du Niger. The project would also finance a pilot program of irrigated fodder production on 3 experimental plots of 20 ha each. Assistance would comprise land preparation including minor infrastructure (fences, sheds etc.), operating expenditure and supervision by the Station du Sahel, a livestock research station located in the Office du Niger. A study of comr mercial and organizational problems of the Office du Niger feedlots will be  - 18 - carried out in order to pave the way for an early reopening of these installa- tions, which were temporarily closed in 1977. Finally, a hydrological survey will be financed for the Mema area, where the Office du Niger hopes to resume irrigated cotton cultivation. The feedlot study and the hydrological survey have been included under the short-term consultancies mentioned in para 50. Other Components 56. In addition to these main components, the project would provide finance for: - an aerial photographic survey of the entire Office du Niger area, including evaluation of the photos; - a socio-economic study of the Office du Niger settler popula- tion; this study is to provide guidance to the Office du Niger management for the restructuring of farms which will accompany the improvement of infrastructure and rice-fields scheduled for the 1980s; - an audit of the Office du Niger accounts for the year 1978 by an international firm of auditors acceptable to the Associa- tion; since no accounts have been prepared for more than a decade, the services of the auditing firm would include as- sistance in setting up a system of accounts. Terms of refer- ence and a short list of auditing firms have been approved by the Association, and invitations to firms went out in June 1978. Training 57. The project would provide for short-term scholarships to Malian engineers of the Office du Niger staff to study other irrigation projects in Africa. In addition, the project would contain an important element of on-the-job training for the Malian engineers assigned by Government to the Bureau of Technical Studies (para. 50) and for the teams of the Works Depart- ment which will, with the technical assistance provided, carry out the experimental program of on-farm development. 58. The project would provide an opportunity to assess further training needs of Office du Niger staff in the fields of civil works, agricultural extension, administration and accounting. Some short-term consultancies would be used to draw up training programs. A subsequent rehabilitation project would address itself to satisfying any identified training needs. Costs and Financing 59. The total project cost is estimated at US$5.2 million (net of taxes), 1/ of which 86% is expected to be foreign exchange. Estimated cost I/ Project costs do not include taxes since Government has indicated its intention to exempt the project from all import duties and other taxes.  - 19 - per man-month of technical assistants and consultants, including allowances and travel, varies between US$7,600 and US$9,600, with an average of US$8,900 per month. No physical contingencies have been entered for civil works equipment, as the items to be purchased have already been determined in detail during preparation financed under the PPF (para. 52). Price contingencies amount to only 11% of project base cost because the time distribution of expenditure is heavily biased to the first year and contracts for equipment and technical assistance are scheduled to be passed as early as autumn 1978. The proposed Credit of US$4.5 million would finance 86% of total project cost, which corresponds to 100% of the estimated foreign exchange costs. Government will finance the equivalent of the local cost component. Retroactive Financing 60. Retroactive financing up to US$200,000 is proposed under the project to cover a 10 percent down payment for civil works equipment, spare parts and workshop tools, which is likely to be paid in early September. This is important to start work around September which is the beginning of the dry season. 61. The financing plan below shows the proposed contributions of the Association and of Government by expenditure:  - 20 - US$ 1,000