Liberia - Forestry Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Repor No. P-2362-LBR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF LIBERIA FOR A FORESTRY DEVELOPMENT PROJECT June 27, 1978 This documet has a restied distibutim and may be used by recipiets only in the performace of their official dutie. Its contents my set 1wrwie be discosed without World Dank authruzatiom.  CURRENCY EQUIVALENT US$1.00 - Lib $1.00 The official monetary unit is the Liberian dollar, with a par value equal to that of the US dollar. Apart from the Liberian dollar, the US dollar is a legal tender in Liberia. GOVERNMENT OF LIBERIA AND FDA - FISCAL YEAR July 1 - June 30 GLOSSARY OF ABBREVIATIONS ADB African Development Bank FAO Food and Agriculture Organization FDA Forestry Development Authority GTZ German Agency for Technical Cooperation LBDI Ligerian Bank for Development and Investment USAID United States Agency for International Development (r) roundwood  FOR OFFICIAL USE ONLY FORESTRY DEVELOPMENT PROJECT Credit and Project Summary Borrower: Republic of Liberia Beneficiary: Forestry Development Authority Amount: US$6.0 million equivalent Term: Standard Project The primary objectives of the project are to strengthen Description: the newly created government Forestry Development Authority (FDA), introduce a proper framework for forestry development and management and train Liberians in the forestry sector to ensure that: (a) Liberia improves its benefits from the exploitation of one of its principal natural resources; and (b) Liberians participate more fully in the development of the forestry industry. The project would provide FDA with increased staff, buildings, vehicles, equipment, and staff training as well as technical assistance required to under- take various policy studies. The project would also establish a 1,600 ha industrial trial plantation of fast-growing commercial species. The principal benefits of the project would be increased Government revenue from forest taxes and improved Government capability to formulate and implement rational forest policies and investment programs. The trial plantation under the project may lead to development of a large-scale industrial plantation and possibly the establish- ment of a pulp industry in Liberia. The project faces no unusual risks, but the success of the institution building under the project would require continuous commitment on the part of the Government and FDA. Estimated Costs: ------ US$ Million ------ Local Foreign Total FDA 3.4 3.7 7.1 Industrial Trial Plantation 2.0 1.3 3.3 Technical Assistance, Training and Studies - 3.9 3.9 Baseline Costs 5.4 8.9 14.3 Contingencies 1.2 2.0 3.2 TOTAL PROJECT COST 6.6 10.9 17.5 Net of Taxes 6.3 10.9 17.2 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 - Financing Plan: ------ US$ Million ------ Local Foreign Total IDA 1.9 4.1 6.0 ADB - 5.0 5.0 GTZ - 1.8 1.8 Government 4.7 - 4.7 Estimated Disbursements: ------------ US$ million ----------- IDA FY 1979 1980 1981 1982 1983 Annual 1.7 2.1 0.8 0.8 0.6 Cumulative 1.7 3.8 4.6 5.4 6.0 Appraisal Report: Report No. 1954-LBR dated June 27, 1978. Maps: IBRD 13427 IBRD 13428  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF LIBERIA FOR A FORESTRY DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Liberia for the equivalent of US$6.0 million on standard IDA terms to help finance a forestry development project. The credit would be made available to the Forest Development Authority (FDA) in the form of equity. The German Agency for Technical Cooperation (GTZ) and the African Development Bank (ADB) would co-finance the project on a parallel basis with a technical assistance grant equivalent to US$1.8 million and a loan equivalent to US$5.0 million respectively. The ADB loan would have a repayment term of 20 years including 5 years of grace with interest at 8 percent per annum. 1/ PART I - THE ECONOMY 2. A basic economic report "Liberia: Growth with Development - A Basic Economic Report" (No. 426a-LBR dated March 1, 1975) was distributed to the Executive Directors. An economic mission visited Liberia in November/December 1976 and its report on the "Current Economic Position and Prospects of Liberia" (No. 1642a-LBR) dated February 28, 1978 has also been distributed to the Executive Directors. Structural Characteristics 3. The growth of Liberia's economy remains heavily dependent on the performance of the enclave sector consisting mainly of: (a) iron ore mines, (b) rubber plantations, and (c) forestry concessions. These enclaves are the main source of export earnings. Iron ore mining is by far the largest single activity in the enclave sector, accounting for about one third of gross domestic product at factor cost. There are only limited linkages be- tween the enclaves and the rest of the economy; as a result, the benefits of economic growth have been unevenly distributed. 4. Another dimension of structural imbalance ia the disparity between traditional agriculture and the (monetized) modern sector. Traditional agri- culture has minimal interaction with the rest of the economy; however, it supports the majority of the population - as much as 60 percent - who live at or near subsistence level. With a population of about 1.6 million, average per capita GNP in 1976 was US$450. While the enclave sector yields a per capita GDP of about US$2,500 compared to US$550 for the rest of the monetized 1/ The amount and terms of GTZ and ADB contributions, which have been agreed in principle, remain subject to confirmation by their authorities.  - 2 - economy, the great majority of the population who live in the traditional non- monetized sector have a per capita income of about US$100 per annum. To help redress these imbalances the Government is trying to increase its earnings from the concessions and use the resources to diversify the economy with increased participation by Liberians. Development Plan 5. The Government has prepared a Four-Year Development Plan covering the period July 1, 1976 to June 30, 1980. In preparing the Plan the Govern- ment was assisted by a planning team financed jointly by the Bank, the United Nations Development Program (UNDP), the United States Agency for International Development (USAID) and the Government (Reference: President's Memorandum to the Executive Directors, No. R74-61 dated March 25, 1974). The Plan identi- fies the basic, long-term objectives of Liberia's socio-economic development as: (a) diversification of production; (b) dispersion of sustainable socio- economic activities throughout the country; (c) greater involvement of Liberians in development activities; and (d) equitable distribution of the benefits of economic growth so as to ensure an acceptable standard of living for the people throughout the country. The average annual growth of real GDP during the Plan period is envisaged at around 6.8 percent. However, because of delays in the implementation of expected investments in iron ore mining and some slackening in demand for the country's main exports, the Bank eco- nomic mission has estimated that real growth during the four-year period is unlikely to exceed 3-4 percent. Total development expenditure is projected at US$415 million, of which US$251 million would be financed from foreign sources and US$164 million domestically. Firm commitments accounted at the start of the Plan for almost 60 percent of the expected foreign financing. However, the Plan is currently being revised to take account of developments during the first two years. This review is not yet complete but it is clear that the cost of the public investment program will increase substantially largely to reflect increased costs but also the inclusion of additional projects. Actual development expenditures over the first two years of the Plan are estimated at about $200 million. Given the financial, manpower and institutional constraints it is likely that the implementation of a number of the projects, as revised, will be delayed beyond the Plan period. 6. The Development Plan attaches high priority to the development of agriculture and basic infrastructure. The objective is to diversify and modernize agricultural production, increase productivity, improve associated rural economic activities such as marketing and processing, and provide social and physical infrastructure to promote income distribution and improve the quality of life in the rural as well as urban areas. The Government has already embarked on two important agricultural development projects in the Bong and Lofa Counties which are being assisted by the Bank Group and USAID. The rubber development project, recently approved by the Executive Directors, and the proposed forestry project will help promote export earnings and will lead to greater participation of Liberians in the development of the country's principal agricultural resources. At the same time the Government plans to expand water supply and electric power utilities in both urban and rural areas and to improve the road network, the inadequacy of which presently constitutes  -3- a constraint to growth. However, the shortage of adequately trained manpower at all levels is likely to prove the most important constraint to the Govern- ment's efforts to develop and diversify the economy. The Government is keenly aware of this and has adopted a number of policy measures, supported by the three Bank Group financed education projects, to tackle the problem, However, by their very nature, these policies are likely to bear fruit only in the long term; over the short and medium terms, the Government will have to rely heavily on foreign technical assistance. Recent Economic Developments 7. During 1973-1975 Liberia, like most other developing countries, was hit by higher import prices and international inflation. While strong world demand for Liberia's major export, iron ore, brought large gains in export prices in 1974, the 1975 recession in the industrialized countries signifi- cantly reduced the demand for the country's most important export commodi- ties -- iron ore, rubber and timber. With growth performance continuing to be largely a function of enclave activities, growth of real GDP -- which averaged about 6.4% a year in the 1967-1970 period has slowed down significantly and is estimated to be about 3.0% in 1976. Preliminary estimates indicate that GDP growth may have declined further during 1977. 8. Liberia has had a long history of sound fiscal management, and public sector resources have not come under undue pressure during the past decade. A satisfactory growth in Government revenues averaging about 13.5% per year between 1970-1975 enabled the Government to finance increasing expenditures. Recurrent expenditures during this period grew by about 10% while development expenditures increased nearly fourfold. However, public sector finances have recently come under increased pressure which is likely to continue over the medium term mainly because of an anticipated acceleration in the rate of growth of government expenditur s coupled with a more moderate rate of growth in reve- nues. The rate of growth of Government revenues is likely to be moderate in view of the anticipated lower GDP growth rate as well as the continued slack in world demand for iron ore. There may be scope for an increased revenue effort on the part of Government as well as improvements in the efficiency and pricing policies of the public corporations so as to ease the pressure on central government finances. In this context, Government has recently enacted a new Revenue and Finance Law and is also negotiating with the iron ore companies regarding its share in profits and future dividend distribution policies. However, in view of the narrowness of the Government's resource base, the Government's resource mobilization effort would have only limited effect at least over the medium term. Thus some local cost financing by ex- ternal donors would be needed to help alleviate the Government's financial constraint. Balance of Payments 9. During the 1964-1972 period, merchandise exports grew by 10% and imports by 5.9% annually in current prices. Thereafter, from 1972 to 1974, mostly reflecting accelerated international inflation, imports rose by 29% annually, exceeding-the 22% annual export growth. Oil imports increased from US$12 million in 1972 to US$56 million in 1974. From 1975 onwards the decline in the volume of exports has been partly offset by favorable movement in the  - 4 - terms of trade but the trade surplus nevertheless declined from US$111 mil- lion in 1974 to US$58 million in 1976, while the current account deficit, reflecting the substantial remittances of capital and other factor income from enclave operations, widened to about US$81 million in 1975 and US$46 million in 1976 as compared with a surplus of US$55 million in 1973. The current account deficits have been financed mostly by private capital trans- actions. Creditworthiness 10. Liberia's external public debt outstanding and disbursed was esti- mated at about US$201 million as of December 1976. Debt service payments as a proportion of exports of goods and non-factor services were estimated at 4.3% in 1976 as compared to 5.7% and 7.7% for 1974 and 1972 respectively. Debt service payments as a percentage of Government revenues have also dec- lined from 24.3% in 1972 and 21.1% in 1974 to 13.4% in 1976. Based on the existing debt, both ratios are projected to increase gradually in the next few years as export earnings are expected to level off and public revenues grow more moderately. The Bank Group share of the public debt outstanding and disbursed is presently about 18%. Liberia's debt service ratio through the 1980s is expected to remain relatively modest (below 10%) unless there is an unexpected deterioration in external conditions. In this context, it should be noted that Liberia's exports are highly concentrated in a few commodities (mainly iron ore and rubber) with unstable world market prices. Given the country's satisfactory economic performance and its modest debt service ratio, Liberia should be regarded as creditworthy for a significant amount of Bank lending, blended with some assistance from IDA. PART II - BANK GROUP OPERATIONS IN LIBERIA 11. The Bank has made 16 loans (including one Third Window loan) for projects in Liberia totalling US$98.3 million; there have been 6 IDA credits totalling US$30 million and one technical assistance grant of US$200,000 for development planning. IFC has made two equity investments totalling US$555,000 in the share capital of the Liberian Bank for Development and Investment (LBDI). The Bank loans have been mainly for roads, port expan- sion, power and LBDI; IDA credits have been for education and agriculture. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of May 31, 1978 and notes on the execution of ongoing projects. 12. The objectives of Bank Group operations are: (a) to help Liberians take greater initiative in developing their own resources for the benefit of their own people; (b) to support policies and programs leading to broader sharing of the fruits of economic progress; (c) to help the Government in broadening the economic base and in overcoming infrastructural constraints to growth; and (d) to assist the Government in mobilizing development resources from other external agencies. In furthering these objectives particular attention is being paid to the need to expand the supply of trained manpower so as to relieve this potential constraint to development.  13. In line with the priorities established in the Government's Four- Year Development Plan, the Bank plans to give increasing emphasis in its lending program over the next few years to the agricultural and rural develop- ment. The Bank Group is currently co-financing with USAID two agricultural projects currently under implementation in Bong and Lofa Counties. These projects are designed to assist a total of about 17,000 subsistence peasant farmers to diversify their production base and to increase their productivity and income through the provision of an integrated package of support services and infrastructures. It is expected that other rural development projects aimed at increasing the incomes and standard of living of the rural poor will shortly be identified for Bank Group assistance. A rubber development project has recently been approved which would lead to expanded exports, increased productivity and incomes for small and medium size rubber farmers, strength- ened credit and extension services and greater Liberian participation in the development of this subsector. The proposed forestry project would strengthen the Government's forestry service, initiate an industrial plantation program and help Liberia to better manage and exploit its forestry resources. 14. In infrastructure, a water supply project is under consideration which would rehabilitate and expand the Monrovia water supply system, extend water distribution to lower income groups in the metropolitan area, and help strengthen the management and finances of the Liberia Water and Sewer- age Corporation. A fourth power project has recently been approved which would expand the Liberia Electricity Corporation's thermal power generating facilities to meet demand until a new hydro-electric generating facility has been constructed and made operational around 1985. A feeder road project has been appraised which would comprise a four year program for the construc- tion, improvement and maintenance of about 800 miles of feeder roads to support opening up of agricultural hinterlands of Liberia. In the social sector, three education projects have been financed by the Bank Group. The first two projects aimed at improving secondary education, education planning and management, as well as extending the educational system to rural areas through the provision of secondary schools and 100 village community schools. The third project emphasizes vocational and technical training. The Bank plans to undertake a study of the manpower needs of the economy and ways in which to augment the supply of trained personnel. PART III: THE AGRICULTURAL AND FORESTRY SECTOR Sector Characteristics 15. General agriculture including forestry is the second largest pro- ductive sector in the economy and provides one-quarter of gross domestic product. Agricultural output in 1976 totalled US$224 million of which US$94 million originated in the monetized sector including rubber (US$44 million), forestry (US$35 million), coffee, cocoa and palm products and US$130 million in the subsistence sector. About 54% of the total population of Liberia or about 150,000 households work in agriculture. With 14 persons per square kilometer, average population density is low, ranging from 5 to 20 in the various counties.  -6- 16. Liberian agriculture is characterized by small, traditional farms that comprise more than 90% of total agricultural holdings. The traditional sector is largely outside the monetized economy, located in areas with minimal infrastructure and composed of farms where less than 5 acres are cultivated each year, producing mostly subsistence crops such as rice and cassava and some cash crops such as coffee, cocoa and sugar cane. There is little or no adoption of modern innovation. The average income of the traditional small- holder is around US$100 per capita, compared with a national average of about US$450. Alongside the traditional agriculture there are large foreign- owned plantations, producing exclusively for export (rubber, timber), which are characterized by use of trained managerial and technical staff and ex- tensive capital outlay. Also in recent years Liberian-owned commercial farms have gained importance. These farms are primarily engaged in rubber production but are gradually expanding into cocoa, coffee, oil palm, and vege- tables, as well as some poultry and livestock. Management of these farms, with the exception of a few larger ones, is generally inefficient, and yields are poor. The Forestry Sector 17. Contribution to the Economy. In 1976 the forestry subsector accounted for about 4% of GDP. Exports of forestry products are significant and rank as the fourth largest export commodity after iron ore, rubber and diamonds. Forestry exports in the period 1972-76 averaged US$13 million a year and, in current dollar values, exceeded US$45 million in 1976, or about 4% of toial export value. The total3volume of logs removed increlsed from 48,000 m in 1967 to about 605,000 m in 1976, of which 315,00Q m , with an f.o.b. value of US$35 million, were exported. About 290,000 m of logs3were locally converted to sawn lumber, exports of which amounted to 49,000 m valued at about US$8 million. The Government derived about US$8 million in revenue in 1976 from its forests through stumpage fees, land rentals and reforestation fees. This should be compared with its expenditure in the forestry sector of about US$1 million. Direct employment provided by the sector is currently about 5,000 persons, of which 5% are expatriates occupy- ing principally the senior managerial positions. The contribution of forestry to countrywide wage employment is about 6%. 18. Resources and Industries. About half of Liberia's land area is cov- ered by forests. Some 2 million ha is closed tropical hardwood productive forest, all of which has been allocated to 46 concessionaires. The balance is described as open forest, which is subject to farming rights and shifting cultivation. Of the productive foress, the estimated "sustainable" supply of commercial timber is 1.8 million m (r) / per annum, compared with pres- ent annual removals of about 0.6 million m . This represents a substantial resource as the current supply of tropical hardwood from other countries is becoming exhausted. 1/ (r) = roundwood (logs).  19. Work on a forest resources inventory has been mainly carried out by a German Aid forest mission. More than 235 species of trees have been identified, of which 60 to 90 are considered to be potentially marketable. Presently, however, less than 15 species, accounting for about 20 percent of total standing volume, are well known on the world market. Exploitation of the concessions has therefore mainly been a "creaming" operatiuon which results in over-cutting of the more valuable species. Increased research into the utilization and marketing promotion of lesser-known species could help to prevent over-exploitation of established species and would make more effective use of Liberia's forest resources. 20. The present exploitable forest is likely to diminish because con- cessionaires, who are less interested in long-term utilization than in short- term exploitation of valuable species, are not doing enough to improve forest management procedures (e.g., replanting). There are also competing land use claims, mainly from shifting agriculture; the 80% of productive forest declared as National Forest is still being encroached upon by shifting culti- vators who follow concessionaires' logging operations. An immediate priority is therefore to demarcate and develop permanent forest estates which would be adequately protected and the full potential of which would be efficiently exploited through improved forest management practices. Improved forest management of natural tropical sorest could increase the mean annual incre- mental production from 1 to 2 m /ha/year. Furthermore, plantations with fast growing species can produce up to five times more wood annually than slow- growing natural forests. This approach would reduce land needed for forestry and release fertile forest lands for agriculture. Conversion of part of the forest areas to tree crop cultivation could therefore be considered. 21. Apart from Government's intention to provide continuous timber pro- duction from the indigenous forest through natural regeneration, Liberia is embarking on a modest reforestation program. The Government initiated a reforestation program in 1974, financed by fees levied from concessionaires on logs harvested. By the end of 1976, about 4,500 ha had been reforested under this program. Since the country is ecologically and climatically well-suited for fast-growing species for manufacturing timber, wood-pulp and wood-based panel products, the Government intends to embark on large-scale industrial forest plantations, provided they can be economically justified. At present, little is known of the performance on a commercial scale of fast-growing indigenous or exotic trees in plantations, or of the techniques and cost of establishment. A period of intensive commercial scale trials is therefore needed before a major program can be undertaken. 22. Forest exploitation grew in importance only from 1968 after a pre- liminary countrywide forest inventory was completed. Following this, more concessions were granted, covering most accessible forest areas. Because of lack of capital and technical knowhow, most concessionaires are foreign entrepreneurs with European marketing outlets. Although the timber industry in Liberia is still based on log e5ports, locally processed wood rose from 77,000 m (r) in 1970 to 290,000 m (r) in 1976 (i.e., about 48% of total log production). Local processing - which accelerated partly from the in- troduction of legislation in 1973 that aimed at 100% local processing of logs  - 8 - by 1977 - is mainly concentrated on sawmilling and simple furniture produc- tion. With few exceptions, however, local processing is unplanned and un- regulated. The larger expatriate-controlled logging companies have made little effort to develop local manufacturing capacity and many sawmills are small, inefficient and poorly managed. Government regards development of the mechanical wood processing industry as important since this will significantly increase the value added from the sector, and contribute to employment and industrialization opportunities. Institutions 23. The Forest Development Authority (FDA). Following an organizational study prepared by FAO/World Bank Cooperative Program, FDA was established as a corporate body under the Forest Act in early 1977. FDA, which is financed through government budgetary appropriations, is responsible for the adminis- tration, conservation and control of national forest areas; formulation of forest policies (including land use); investment proposals; forest inventory planning and control of concession licenses in conjunction with the Concession Secretariat in the Ministry of Finance; monitoring of private sector logging and sawmill operations, including marketing; collection of revenues; carrying out of forestry management programs; and research and forestry training. 24. The Concession Secretariat. The Concession Secretariat is the executing body of the Concession and Investment Commission. One of its tasks is to introduce uniformity among concession agreements, particularly invest- ment incentives and taxes. In 1973 the Secretariat introduced a standard agreement for forestry concessionaires, and intends to renegotiate those agreements that were made before 1973. Objectives. Strategies and Policies 25. The role played by the forestry sector in the Liberian economy is still comparatively small, but has considerable untapped potential. Thus, with the prospect of a long-term decline in the mining industry, which hitherto has led Liberian economic growth, and the desirability of moving away from over-dependence on non-renewable resources such as iron ore, the Govern- ment is anxious to develop the forestry sector as part of the strategy to diversify and strengthen Liberia's permanent resource base. 26. Liberia's long-term forestry development strategy would therefore be directed toward the building up of forest inventories; improvement of forest management and market information; promotion of viable industrial development (mechanical wood processing, industrial plantations) with greater Liberian equity participation; development of the present transport infra- structure, including port handling facilities; and introduction of forest legislation and improving enforcement. 27. Under Liberia's Four-Year Development Plan, the Government is seeking to:  - 9 - (a) increase its share of the revenues from Liberia's forest exploitation; (b) increase output by developing efficient plantations, logging and mechanical wood processing facilities; and (c) improve forest management, planning and policy formulation. 28. Compared with other West African timber-producing countries, Liberia's forest exploitation is a relatively new industry and accordingly Liberia's forestry service is of recent origin and weak due to lack of experience, restricted funds and inadequate training programs. The Govern- ment recognizes that these objectives can only be attained through efficient Government forestry institutions. Therefore, the strengthening of the FDA and training of Liberians in the forestry sector is an important element of Liberia's strategy for forest development. PART IV - THE PROJECT 29. The proposed project was identified by the Government and prepared by a series of FAO/World Bank Cooperative Program missions which visited Liberia in the period 1974-1977. The proposed project was appraised in October-November 1977 and a Staff Appraisal Report entitled "Liberia: Forestry Project," No. 1954-LBR dated June 27, 1978 is being circulated separately to the Executive Directors. Negotiations took place in Washington from May 30 to June 2, 1978. The Liberian negotiating team was led by Mr. Jenkins Baker, Deputy Minister of Agriculture. Project ObJectives 30. The primary objectives of the project are to strengthen the newly created Government Forestry Development Authority, introduce a proper frame- work for forestry development and management, and train Liberians in the forestry sector to ensure that: (a) Liberia improves its benefits from the exploitation of one of its principal natural resources; and (b) Liberians participate more fully in the development of the forestry industry. 31. The project would help the Government to meet its forestry develop- ment plan objectives including protection of forests and improvement in forest management and planning, the introduction of trial industrial planta- tions with fast growing species, and the introduction of fiscal policies for development of forest industries. It would complement the commercial logging and sawmill training project being prepared by the German Agency for Technical Cooperation (GTZ) and the Third Education Project (Cr. 1417-LBR) under which a forestry training institute will be constructed at Bomi Hills.  - 10 - Project Content 32. The project, which would be implemented over the five-year period 1979 through 1983, would include: strengthening the Forestry Development Authority; establishing a 1,600 ha industrial trial plantation in Grand Cape Mount County; setting up staff training; and providing technical assistance and consultancy services to carry out high priority studies and surveys for the long term development of the sector. 33. Forest Development Authority. The project would assist FDA to introduce better forest management practices, to improve the present in- efficient forest revenue collection system and to control all forestry sector operations. Additional staff, offices for FDA headquarters in Monrovia and three regional headquarters covering 22 districts, staff housing and workshops in the field, vehicles and other equipment would be provided. During the project period, FDA forest management and revenue collecting staff would increase from 300 to 430. This would result in a ratio of staff to total forest area under concession of about 1:8000 ha, which is appropriate and in line with other timber producing countries in West Africa. 34. Trial Industrial Plantation. Under the project, FDA would estab- lish a 1,600 ha industrial trial plantation of fast-growing species in the national forest reserve in Grand Cape Mount County. The primary purposes of the trial plantation are to train Liberians in establishment of commercial scale plantations and to collect and evaluate technical and financial data necessary to determine the viability of a large scale industrial plantation for pulp, wood chips or sawlogs. 35. Technical Assistance, Training and Studies. -(a) The project would provide seven internationally recruited experts to assist FDA to develop and implement forestry and forest industry policies, improve forest management techniques and implement the trial industrial plantation. Two experts are already in post financed by an advance from the Project Preparation Facility of US$198,000 approved in February 1977. (b) The project would provide a total of 212 man-months of overseas training for selected Liberian staff of FDA, which will include 92 man-months in forest management, forest economics and planning; 30 man-months in industrial plantation techniques; and 30 man- months in hardwood timber marketing. In addition, all internationally re- cruited staff would provide in-service training of Liberian staff. (c) The project would include a total of 80 man-months of consultant services to provide specialist back-up services to FDA and to undertake studies relat- ing to forest policy proposals and future forestry industry projects. The consultant back-up services would include the establishment of an effective market information system, strengthening FDA's accounting system and finan- cial control, and assisting with the evaluation of plantation trial results. The studies would include a pre-industrial plantation survey which would investigate various end uses of the industrial plantation, including pulp and sawlogs; a feasibility study on the charcoal industry and a forest policy study. The average cost of consultants is estimated at US$6,000 per man- month.  - 11 - 36. Land Use Planning. The project would also include production and interpretation of LANDSAT imagery and infrared aerial photography for about two-thirds of Liberia to complete the land use classification exercises. This will provide a tool for planning agricultural and forestry development both at the national and regional levels. Project Cost and Financing 37. Total project cost is estimated at US$17.5 million, which includes an estimated US$0.3 million of indirect taxes but excludes all other identi- fiable taxes and import duties. Costs include physical contingencies of 5% and price contingencies ranging from 6% to 8% per annum. The foreign cost component is estimated at US$109. million or 62% of total project costs. 38. The proposed IDA credit of US$6.0 million would cover 34% of total project costs and would be used to finance US$4.1 million of foreign expend- iture costs and US$1.9 million of local costs. The IDA credit would be disbursed against buildings and housing for FDA and the trial industrial plantation, technical assistance, staff training and studies. Parallel financing would be provided by an ADB loan of US$5.0 million (29% of total project costs) which would be disbursed against the foreign costs of vehicles, equipment, incremental operating costs and aerial photography. The ADB loan would be for 20 years including 5 years of grace with interest at 8%. GTZ would provide a technical assistance grant equivalent to US$1.8 million (10% of total project cost) which would finance employment of five technical experts. The Government would finance the remaining US$4.7 million equivalent to 27% of total project costs. The signing of the ADB loan agreement and the GTZ technical assistance agreement would be a special condition of credit effectiveness (draft Development Credit Agreement, Section 5.01). The three cofinancing agencies together would cover 73 percent of total project costs. Project Implementation 39. All project components would be implemented by FDA over the five- year period 1979-1983. Construction of houses and other buildings would be completed within the first two years, and overseas training, consultant services and various studies within the first three years. The recruitment of additional FDA staff would be spread over four years and the trial indus- trial plantation would be established over five years. The FDA headquarters would be reorganized into five divisions: Planning and Research Division which would be responsible for formulating and monitoring all forest policies including the forest taxation and forest management policies; two Technical Services Divisions which would be responsible for enforcement and control of forest exploitation and fiscal policies as well as forest protection, refores- tation, plantations and training; and Finance and Administration Divisions which would be responsible for all financial and administrative matters of FDA respectively. The key positions of FDA (i.e., Managing Director, Assistant Managing Director and Divisional Heads) are currently filled by competent Liberians and it was agreed that these positions would continue to be manned by persons whose qualifications and experience are satisfactory to IDA (draft  - 12 - Project Agreement, Section 3.02). The establishment of the trial industrial plantation in Grand Cape Mount County would be carried out by FDA's Technical Services Division through its industrial plantation unit to be located at Bomi Hills. The unit would employ about 20 professional and technical staff to operate the plantation. In order to speed up implementation of this component, FDA has already constructed access roads and cleared land for nurseries and campsites. It is proposed that retroactive financing of up to US$250,000 be provided to cover expenditures incurred after January 1, 1978 to carry out the above start-up activities (draft Development Credit Agreement, Schedule 1, para. 4). Forest Policy Proposals 40. In view of their importance for the planning and development of the forestry industry, FDA will have to establish forest management, exploitation, reforestation and fiscal policies. Some of these are already under prepara- tion with technical assistance provided by GTZ. These policy proposals would be completed by FDA with the technical assistance provided under the project and FDA has agreed to submit these proposals to IDA before June 30, 1979, for review and consultation (draft Project Agreement, Section 2.06(b)). Large Scale Industrial Plantation Program 41. The trial plantation component of the project may lead eventually to the establishment over a 15-year period of a large scale industrial plan- tation of about 70,000 ha in Grand Cape Mount County which was declared a national forest reserve specifically for future industrial plantation devel- opment. Once fully developed, such a plantation could produce enough wood to sustail the production of a 250,000-ton pulp mill, 3or alternatively up to 250,000 m a year of sawn timber plus about 400,000 m of woodchips, which would increase substantially the value added of the sector to the economy. The results of the trial plantation in conjunction with the various studies proposed under the project would provide the basis for determining whether such a large scale industrial plantation is a viable enterprise. One of the most important studies is the pre-industrial plantation survey which would consider alternative end uses of the plantation timber, either for pulp or sawlogs integrated with chips. The survey would also carefully evaluate growth rate performance of the various on-going trial plantations. On the basis of these studies, FDA would by June 30, 1982 prepare in consultation with IDA, investment proposals for expanding the trial into a full industrial plantation development program (draft Project Agreement, Section 2.06(a)). Once the viability of the large scale industrial plantation has been estab- lished, project preparation for the first investment phase of plantation development would be undertaken by FDA. By 1983 FDA will be fully equipped to implement the first investment phase, following increased staffing, training and experience provided under the project.  - 13 - Procurement 42. Civil works contracts for buildings and houses would not be suit- able for international competitive bidding since they would be large in number and widely dispersed in location covering 22 forest districts throughout the country. Such contracts, valued at US$4.1 million, would be awarded on the basis of competitive bidding advertised locally in accordance with procedures satisfactory to IDA. Simple structures such as huts, small workshops and storage facilities would be constructed through FDA's force account up to an aggregate amount of US$600,000. Contracts for items to be financed by ADB (i.e., vehicles, equipment, operation and maintenance and aerial photography) would be awarded in accordance with procedures satisfactory to ADB. Interna- tional staff and consultants would be employed on terms and conditions and with qualifications and experience acceptable to IDA. Disbursements 43. The IDA credit of US$6.0 million would be disbursed over five years 1979-83 as follows: (a) 90% of total costs of civil works (US$4.1 million); (b) 100% of foreign expenditure for technical assistance, studies and staff training totalling US$1.3 million; and (d) an unallocated amount of US$0.6 million. On the effective date of the Credit Agreement funds disbursed under the Project Preparation Facility would be repaid from the credit account. Benefits and Justification 44. The project would have substantial, but largely unquantifiable, benefits resulting from strengthening FDA and implementing the forestry sector policies and programs. The project would: (a) enable Liberia to control effectively one of its principal resources thereby ensuring that Liberia obtains an equitable share of benefits from its exploitation; (b) promote greater participation of Liberians in development of the forestry industry; (c) increase the economic potential of the forestry sector through promotion of industrial plantations and wood-processing industry and more efficient utilization and management of forest resources. An immediate benefit of the project would be increased Government revenue resulting from more efficient collection of forest stumpage fees and other forest taxes. Presently it is estimated that about 15% to 20% of forest stumpage fees are not collected by FDA due to incorrect scaling of logs and marking of species and poor control of log exports at ports, together with insufficient knowledge to assess the economic value of raw and processed lumber. It is estimated that recovery of stumpage fees could be increased by at least 7.5%, which would represent an increase in revenues of about US$2-3 million per annum by 1982-83. The estimated financial rate of return from strengthening FDA, which accounts for 77% of total project costs, is 17.8% over 20 years, based on incremental costs and the benefits derived from increased forest revenue collection. The estab- lishment of a trial industrial plantation under the project would provide FDA with the technical and financial data, organization and trained staff which are needed before Liberia can embark on development of a large-scale indus- trial plantation. Preliminary calculations indicate that a large-scale industrial plantation such as the one being envisaged in Grand Cape Mount County would be economically viable where the plantation timber is used for manufacturing pulp or sawlogs integrated with woodchips.  - 14 - 45. The project faces no unusual risks which may jeopardize its imple- mentation or the achievement of its objectives. However, the success of the institution building effort would depend to a large degree on the ability of FDA to recruit and retain competent staff and the continuous commitment of the Government to develop FDA into a viable forestry institution. PART V - LEGAL INSTRUMENTS AND AUTHORITY 46. The draft Development Credit Agreement between the Republic of Liberia and the Association, the draft Project Agreement between the Associa- tion and FDA and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. 47. In addition to the features of the Development Credit and Project Agreements which are referred to in the text and listed in Section III of Annex III, additional conditions of effectiveness would be that the ADB loan agreement and GTZ technical assistance agreement have been signed. 48. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 49. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachment Washington, D.C. June 27, 1978  - 15 - TABLE 3A ANNEX I LIBERIA -SOCIAL INDICATORS DATA SHEET Page 1 of 4 pages LAND AREA (THOU KM2)