Cameroon - Second Technical Cooperation Project

mILE COpY Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3074-CM REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF CAMEROON FOR A SECOND TECHNICAL COOPERATION PROJECT June 4, 1981 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.  UNITED REPUBLIC OF CAMEROON SECOND TECHNICAL COOPERATION PROJECT CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1 = CFAF 235 1/ CFAF 1,000,000 = US$4,255 FISCAL YEAR July 1 to June 30 ABBREVIATIONS CDC Commonwealth Development Corporation DEP Directorate of Studies and Projects DI Directorate of Industry FONADER Fonds National de Developpetient Rural GTZ Deutsche Gesellschaft fur Technische Zusaimienarbeit MINAGRI Ministry of Agriculture MINAS Ministry of Social Affairs MINEP Ministry of Economy and Plan MINFI Ministry of Finance MINMEN Ministry of Mines and Energy MINTRANS Ministry of Transport MINUH Ministry of Urbanism and Housing SCM Societe Caimerounaise de Minoterie SNI Societe Nationale d-Investissement SODECOTON Societe de Developpement du Coton du Cameroun UNDP United Nations Development Program 1/ The CFA Franc (CFAF) is tied to the French Franc (FF) in the ratio of FF 1 to CFAF 50. The French Franc is currently floating.  FOR OFFICIAL USE ONLY UNITED REPUBLIC OF CAMEROON SECOND TECHNICAL COOPERATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: United Republic of Cameroon Amount: SDRs 8.2 million (US$10 million equivalent) Terms: Standard Project Description: The aim of the project would be to increase the Government's capacity to execute its Fifth Development Plan (1981-86). Its basic strategy would be to create this increased capacity on three levels, by: (a) improvements in the organization and operations of the existing national planning and external debt management systems; (b) better definition of policies and investment programs in four key sectors--agriculture, industry, energy and social development; and (c) generating sound projects and improving project management capacity in these sectors. The project would help to promote self-reliance in these areas by stressing training to increase Cameroonian staff skills and experience. The project would include the provision of 24 staff-years of expatriate resident specialists, 320 months of short-term consulting services and related vehicles, office equipment, local staff and operating costs. About one-fifth of Credit funds would finance activities to be identified in agreement with the Association during project implementation which serve project objectives. The principal risks associated with achieving the project's aim involve possible delays in provid- ing qualified expatriate resident specialists, difficulty in recruiting and retaining trained Cameroonian staff, and inadequate review and action by Government on the project's policy and program recommendations. The experience of the First Technical Assistance Project has helped the Government and Association to agree upon measures designed to mitigate these risks, including early recruitment of resident specialists, commitments in the provision of related Cameroonian staff and facilities, and regular reviews with concerned authorities of the progress of project implementation as well as the recom- mendations and results arising from specific activities. 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 authoriation.  - ii - Estimated Costs: (exempt of taxes and duties) US$ million Local Foreign Total Development planning, sector policies and programs 1.3 3.3 4.6 External debt management 0.1 0.3 0.4 Project generation and management 0.7 1.3 2.0 Cameroonian staff training 0.3 1.0 1.3 Activities to be identified 0.6 2.2 2.8 Total base costs 3.0 8.1 11.1 Physical and price contingencies 0.8 1.9 2.7 Total Project Costs 3.8 10.0 13.8 Financing Plan: US$ million Local Foreign Total IDA - 10.0 10.0 Government 3.8 - 3.8 Total 3.8 10.0 13.8 Estimated Disbursement: US$ million IDA Fiscal Year 82 83 84 85 Annual 1.5 3.4 3.0 2.1 Cumulative 1.5 4.9 7.9 10.0 Rate of Return: N.A. There is no separate Appraisal Report. Map: IBRD 12186 R2  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF CAMEROON FOR A SECOND TECHNICAL COOPERATION PROJECT 1. I submit the following report and recommendation on a proposed development Credit to the United Republic of Cameroon for SDRs 8.2 million (US$10 million equivalent) on standard IDA terms to help finance a Second Technical Cooperation Project. PART I - THE ECONOMY 2. A report entitled "United Republic of Cameroon Economic Memorandum" (No. 2977-CM), was distributed to the Executive Directors on April 30, 1980. Annex I provides basic country data. Background 3. Cameroon is one of Africa's most diversified countries with a wide range of ecological conditions, ethnic groups and cultures. Cameroon was a federation from the date of independence in 1960, until the United Republic, which unified the anglophone western and francophone eastern parts of the country, was established in 1972. The Government was concentrated on the establishment and maintenance of national unity between the eastern and relatively small western parts of the country and between the sahelian zone in the north with Muslim traditions and the southern tropical regions. 4. Cameroon has a population of 8.3 million (1979) and covers an area of 475,000 km2. The main opportunities for development lie in the expansion of agricultural production, including forestry, oil, gas, mineral and hydro- electric development, and the processing of agricultural, forestry and mineral products for export. Soils and climatic conditions permit cultivation of a wide range of crops, and the southeast contains large untapped timber re- sources. The north holds potential for livestock development. Cameroon became an oil producer and exported 645,000 tons of crude petroleum in 1978. Crude oil exports reached 1.6 million tons in 1979 and are estimated at about 3 million tons in 1980. Trade, transportation and transit services are other important economic activities. Cameroon-s main economic centers are separated by large areas of low population density; furthermore, the country's transport facilities also serve landlocked Chad and the Central African Republic. A large port and adequate inland transportation infrastructure are therefore essential for promoting agriculture, forestry and industry, and for streng- thening Cameroon's role as a regional trade center.  -2- Past Performance 5. GDP growth was about 4.5 percent per year during both the Second five-year Plan (1966-71) and the Third Plan (1971-76), and accelerated to 7.3 percent during 1976/79, the first three years of the Fourth Plan. Popu- lation growth is estimated at about 1.8 percent a year in the 1960s, about 1.9 percent until the mid-1970s and about 2.3 percent from 1975 to 1980. Per capita GNP reached about US$560 in 1979. 6. Most agricultural crops, livestock, fishing and forestry experienced high growth rates during 1966-71 thanks to favorable supply and demand condi- tions including high producer prices, high domestic income growth and rapid economic expansion abroad. Lower agricultural growth during 1971-76 was due in part to decreases in the output of two major commercial crops, cocoa and arabica coffee. Important factors contributing to this trend were declines in producer prices compared with food cash crop prices and the termination of the foreign supported fertilizer subsidy program for arabica coffee. The decline in cocoa and arabica. coffee output was not fully offset by growth in other important commercial crops, including cotton, rubber, and oil palm. Growth in forestry production dropped during 1971-76 because of reduced Western European demand and some transportation bottlenecks. 7. Manufacturing and mining grew at about 10 percent a year during 1966-71 mainly on account of the rapid development of import substitution industries, particularly those manufacturing consumer goods. The lower manufacturing growth experienced during 1971-76 was due to the slowdown in new import substitution activities and to slower income growth resulting from deteriorating terms of trade. 8. Since 1976, Cameroon has experienced rapid growth in most major sectors. Agricultural growth was helped by recovery in cocoa and robusta coffee production, as farmers responded to higher producer prices, and in forestry production. The construction industry grew by 14 percent a year during 1976-79 as large investments were undertaken for the implementation of the Fourth Plan. The rapid increase in incomes and the high growth rate of economic activities has led to substantial growth in most other sectors, particularly food crops, trade, transport and other services. Investment and Savings 9. During the Second Plan period (1966-71), the investment rate, including increases in stocks, exceeded 16 percent of GDP, and gross domestic savings and gross national savings were 13.4 and 12.6 percent of GDP respec- tively. Foreign resources financed about 33 percent of investment during this period. During the Third Plan period (1971-76), despite slow income growth, the investment rate increased to 18.1 percent of GDP. Gross domestic savings rose to 16.4 percent of GDP, but gross national savings rose only to 13.9 percent of GDP and debt service increased by 60 percent from a small base. External resources therefore continued to finance about one-third of total investment during this period. The higher savings rate in a period of slow  - 3 - output growth was made possible by a considerable reduction in the real growth of consumption, particularly private consumption, to less than 3 percent per annum. One of the prices paid for the substantial improvement in savings during the Third Plan was, however, a limitation on farmers earnings in tree crops and the provision of inadequate incentives for them to maintain and expand production capacity through efficient use of existing trees and new plantings; this situation may have serious implications for the longer term future of these crops. The maintenance of a high investment rate during this period was offset by a decline in the efficiency of investment. Some reduc- tion in capital productivity was attributable to the undertaking of projects, such as oil exploration and transport infrastructure, leading to production increases only a number of years later, and to social infrastructure invest- ments, improving welfare but having a limited immediate impact on output. During 1976-79, the investment rate reached an average of 23.8 percent of GDP. Due largely to the record cocoa and coffee export prices, gross domestic savings and gross national savings increased further to 20.8 and 18.6 percent respectively of GDP. As a result, external resources were required to finance only about 30 percent of total investment during these three years.. Public Finance and Balance of Payments 10. Budgetary revenue amounted to about 15 percent of GDP during each of the past two plan periods, and increased slightly in 1976-79. Public savings after debt service as a percentage of total public investment declined from about 39 percent in 1966-71 to about 36 percent in 1971-76. During 1976-79, this ratio reached 55 percent thanks to the public savings mobilized by the Stabilization Funds. The balance of payments did not become a problem until 1974-76, when agricultural exports declined, particularly exports of cocoa and timber, resulting in sizeable current account deficits. The bulk of the current account deficits was financed by net capital inflows but a substantial drawdown of international reserves also took place in 1975. Therefore, net official international reserves decreased from more than two months of imports in 1974 to less than one month in 1975. In 1977-80, exports rose substantially (at an average annual rate of 26 percent) but imports also increased (at an average annual rate of 20 percent) because of rapid economic growth and expanded investment. Gross official international reserves were rebuilt in 1976-80, in part by the use of IMF credits, but net official international reserves were about one month of imports at mid-1979. This was a low level by international standards but still acceptable considering Cameroon's membership in the Central African Monetary Union. Provisional estimates indicate exchange reserves as rising again in 1980 to a level equivalent to about two months of imports. Development Issues and Prospects 11. A major part of Cameroon s medium- and long-term potential lies largely in the development of a diversified agricultural sector providing export crop production to help generate foreign exchange and domestic food crop production to meet the needs of a growing urban population. Realizing this potential depends upon an appropriate mix of public intervention and  - 4 - policy measures aiming at stimulating private initiative. Factors that complicate the agricultural development effort in Cameroon are the disper- sion of the main economic and population centers, regional and institu- tional diversity, the competition between export and cash food crops for the dwindling agricultural labor in some parts of the country, the dependence of a substantial part of public revenue and savings on cocoa and coffee, and the limited availability of skilled agricultural agents and administrators. Through technical assistance and education projects and through normal project work, the Bank is supporting Cameroon's effort in manpower training and development in agricultural services, and in other sectors. In industry the Government has moved to channel more financial resources for investment directly through the public sector, in addition to the indirect support provided by tax incentives and other measures, which have been in existence for many years. The Government has actively participated in a Bank study of the manufacturing sector which will help to identify opportunities to develop existing as well as new industrial activities, and enhance the efficiency and competitiveness of Cameroonian enterprises. 12. The outlook for agricultural and industrial growth during 1980-86 is quite favorable. Agricultural growth expectations are based on some increase in cocoa output above 110,000 tons; recovery of robusta coffee; continuing expansion for arabica coffee; increased production of most other commercial and food crops, as well as of livestock; and expansion of commercial forestry production. Growth of industrial and mining production is expected to result from existing and expanded manufacturing facilities (particularly for food, beverages and construction materials), some new industrial projects and from crude oil and new mining ventures. Given the stepped-up production and investment activities, a high growth rate is also expected for construction and services. 13. Cameroon s vast and still largely unexploited natural resources, particularly agricultural, forestry, hydroelectric and mineral resources, will continue to provide a fundamental basis for its growth and development in the next 20 years. With the revenue from oil production, which is expected to considerably exceed its current level of 3 million tons a year, in addition to resources accruing from traditional agricultural exports and external borrowing, the constraints on the pace of development in Cameroon in the 1980s and 1990s will be increasingly non-financial. The extent to which Cameroon succeeds in expanding and improving its manpower and institutional capacities will determine its degree of success in mounting an effective investment program to promote economic and social development. Fourth Development Plan (1976-81) 14. Cameroon is now completing the implementation of its Fourth Economic and Social Development Plan Private investment has been encouraged, under Government guidelines, to expand productive capacity in agriculture, forestry, mining, and manufacturing. Part of the financing of private investment activities, however, is pub:Licly guaranteed borrowing. Planned investment of some US$3.1 billion (in 1974/75 prices) was about 40 percent higher in real  - 5 - terms than the estimated level achieved during the Third Plan period and more than double previous Plan expenditures in nominal terms. Actual investment during the first three years of the Plan is estimated at about US$2.2 billion (in 1974/75 prices) for an annual rate about 60 percent higher in real terms than annual investment during the Third Plan. External Borrowing and Creditworthiness 15. Total public and publicly guaranteed debt outstanding and disbursed rose from US$515 million at the end of the Third Plan period to US$1.6 billion at the end of 1979, and is expected to exceed US$2 billion in 1981, the last year of the Fourth Plan. Debt service payments rose from US$39 million in 1976 to US$126 million in 1979, while exports of goods and services increased from US$715 million to more than US$1.3 billion during the same period. Not- withstanding a hardening of average terms since the early 1970s, Cameroon's debt service ratio was still less than 10 percent at the end of 1979, up from 5-1/2 percent in the mid-1970s. The debt service ratio is projected to peak at about 14 percent in 1982 and to stay in the 12 to 14 percent range through- out the remainder of the decade. This projection assumes that the amount of loans contracted during 1982-86 will be slightly above the average! annual amounts contracted in 1977-81, and that there will be no dramatic change in the assistance programs and project intentions of official donors. Borrowing on non-concessionary terms would account for about two-thirds of total new commmitments, and average terms would harden during the period. Because of higher debt service payments, projected average annual net disbursements would be less than during the preceding five-year period but, with Cameroon's favorable export and savings prospects, would be sufficient to allow an invest- ment rate of above 25 percent, as well as the restoration of a healthy foreign exchange reserve osition. Or the basis of these considerations and its ability to utilize productively the country's resources and favorable potential in further diversifying and strengthening the economy, Cameroon is judged to be creditworthy for Bank financing. However, taking into account certain inherent difficulties in forecasting future petroleum reserves, output and revenues, and in recognition of the fact that Cameroon remains, despite its improved prospects, a low middle income country, it is recommended that elements of concessionary financing be retained at least for the next year or two. PART II - BANK GROUP OPERATIONS IN CAMEROON 16. The Bank and IDA commitments in Cameroon now amount to US$590.9 million and cover 36 projects: 17 in agriculture, 11 in transportation, three in education, two in public utilities, two small- and mediulm-scale enterprises projects and one technical assistance project. Transport accounts for the largest share (45 percent) of these commitments, followed by agricul- ture (41 percent). Annex II contains a summary statement of Banr loans and IDA credits as of March 31, 1981, including notes on the execution of ongoing  - 6 - projects. Although delays and setbacks have occasionally been encountered in the implementation of projects, the Government has consistently shown willing- ness to collaborate with the Bank in finding solutions to such problems. 17. The Bank Group's strategy is to support the Government in its efforts to increase productivity in both export and food crop production and to alleviate rural poverty; to upgrade the operation and maintenance of the country's infrastructure; to foster the efficient allocation of resources, including investments in the new sectors; to stimulate investment by local entrepreneurs; and to increase the Government's ability to elaborate and execute its Fifth Development Plan (1981-86). 18. The Government-s objectives in the agricultural and rural sector are: (a) to achieve balanced and integrated regional development; (b) to improve income distribution and to raise living standards in the rural areas; (c) to increase production of essential foodstuffs; and (d) to promote plan- tation agriculture, including smallholder schemes. The Bank has helped the Government develop agricultural resources in the southern and western parts of Cameroon, by financing three oil palm and rubber plantation projects. The Bank has financed two smallholder rice irrigation projects in the north, as well as a smallholder cocoa project which is modernizing cocoa farming and increasing rural productivity in the areas south and west of the capital city of Yaounde. The Second Livestock Project will benefit traditional herdsmen and farmers in central and western Cameroon. The Government's objectives have also been supported by four Bank-assisted rural development projects in populated but poor regions of Cameroon--Plaine des M'Bo on the western plain, ZAPI in the east, the Western Highland, and the Northern Province. These projects include studies, trial activities, agronomic and technological packages and infrastructure for improving agricultural productivity. The recently approved Northern Province Rural Development Project will provide SODECOTON and the Government: with financial and technical assistance for planning and coordination at: the provincial level and for strengthening agricultural research, thus enabling them to take a broader approach to rural development in the north, including crop diversification, reforestation, and improvement of rural infrastructure. The ongoing Rural Development Fund Project is designed to help the Government establish machinery for processing and implementing small-scale rural subprojects, initially in the north. The Bank is currently identifying an agricultural research project which would strengthen the newly created Delegation Generale de Recherche Scientifique et Technique and sub-sectoral research operations by providing facilities, training, extension and evaluation services. 19. In view of the crucial importance of transportation to the econo- mic growth of Cameroon and neighboring countries, the Government has devoted the largest portion of public investment to this sector. The Bank Group, together with other development institutions, has substantially aided the development of adequate transport facilities. The First, Second and Third Highway Projects were designed to help complete the country's basic trunk road system. A Feeder Roads Project approved in 1977 is establishing institu- tions for feeder road administration and maintenance in addition to providing  - 7 - the necessary resources for a feeder road program to support high priority agricultural/rural development projects. The Fourth Highway Project concen- trates on road maintenance and rehabilitation and included funds for feasi- bility studies for the construction of a two-lane heavy duty road between Yaounde and Douala. The latter is proposed under the Fifth Highway Project, now at an advanced stage of preparation, with proposed financing by the Bank and other co-financiers. The first three railway projects were designed to finance urgently needed infrastructure improvements and to prepare follow-up projects. The Fourth Railway Project is helping to finance the newr Douala marshalling yard, maintenance facilities at Yaounde, railway equipment, and technical assistance for improvements in operations, management and training. Given projected traffic increases, and the backlog of required investments in the transport sector, substantial capital outlays are still necessary-- particularly for the construction of the Douala-Yaounde road, the expansion of the Port of Douala, which is being assisted by a Bank loan and IDA credit, and for related facilities such as those being financed by the Fourth Railway Project. Future road investments could possibly include financing of strategic international routes, but should place greater emphasis on road maintenance and on developing the network of forestry, feeder and farm access roads. 20. In other sectors, the First Small- and Medium-Scale Enterprise (SME) Project, approved in 1975, focuses mainly on developing local entrepreneurship. The Second SME Project, approved in 1980, aims to further assist Cameroonian artisans and small- and medium-scale enterprises and strengthen BCD, a deve- lopment finance agency. A Third Education Project, approved in April 1976, places special emphasis on rural education and training. The Second Water Supply Project of December 1979 will provide water to 13 secondary centers, reinforce and expand water supply systems in Douala and Yaounde, and includes sewerage and drainage mastt