Burundi - Third Highway Project

Document of The World Bank FOR OFFICIAL USE ONLY C Report No. P-3005-BU REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BURUNDI FOR A THIRD HIGHWAY PROJECT April 1, 1981 This docunent has a restricted distribution and may be used by recipients only in the perfofmance of their oficial duties. Its contents may not otherwise be disclosed without World Bank autborizion.  CURRENCY EQUIVALENTS Currency Unit - Burundi Franc (FBu) US$ 1.00 - FBu 90 FBu 1 - US$0.011 ABBREVIATIONS DGR - Direction Generale des Routes (Directorate General of Roads) INTRACO - International Transport Company MTP - Ministere des Travaux Publics, de 1'Equipement et du Logement (Ministry of Public Works) MTPT - Ministere des Transports, Postes et Telecommunications (Ministry of Transport and Communications) OTRABU - Office des Transports du Burundi (Transport Office of Burundi) FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY BURUNDI THIRD HIGHWAY PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Burundi Amount: SDR 20.5 million "-Q Y_5. million) Terms: Standard IDA Terms Beneficiary: Ministry of Public Works Pro___t (i) Objectives: (a) to continue to assist the Government in Description: improving the road network; (b) to improve an alternative land connection to the port of Dar-es-Salaam; (c) to strengthen the road improvement and maintenance capability of the Ministry of Public Works (MTP); and (d) to strength- en the planning capability of the Ministry of Transport and Communications (MTPT), and of the MTP. (ii) Components: (a) construction to paved standards of a 39.4 km section of the Ngozi-Kobero road; (b) improvement to low gravel standards of 360 km of secondary and tertiary roads; (c) procurement of equipment for two mechanized maintenance brigades and acquisition of tools, vehicles and camp equipment for the ongoing manual maintenance program; (d) consultant services to supervise the road construction program and technical assistance services for the road improvement component, the manual and mechanized maintenance programs, the training of staff, and to conduct a study to define a five-year paved road rehabilitation and maintenance program; and (e) technical assistance to tlhe rnep Pl.anning TTnits of the MTP and MTPT. N Benefits: (a) improve communications between Bujumbura, the provinces of Ngozi and Muyinga and the Indian Ocean, and reduce vehicle operating costs; (b) help develop the areas served by the improved roads; (c) strengthen the road improvement capability of the MTP; (d) help build up a local civil works contracting industry; (e) keep the road network passable all year round through better maintenance; and (f) ensure a more efficient allocation of scarce resources through better planning and programming. 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 IFC authorization.  - ii - (iv) Risks: (a) shortages of materials resulting from delays in transport through neighbouring countries. To minimize these risks, tender documents would provide for sufficient stocks of materials; (b) possibility that some of the Burundian counterparts might resign to join the private sector, which would delay the departure and therefore increase the cost of technical assistance. To minimize this risk, three Burundian counterparts would be assigned to each technical assistance exDert and each counterpart would be required to remain in the service of MTP or MTPT for at least three years from the date of his/her appointment as counterDart. Estimated Costs (US$ Million) T,oral -rp coron To in. I Road Construction 3.6 8.4 12.0 Improvement of Road Network - Construction 1.6 1.9 3.5 - Equipment 0.3 2.7 3.0 Manual Maintenance Program 0.1 1.1 1.2 (handtools, vehicles and camp equipment) Consultant Services 1/ 1.3 5.0 6.3 Total 6.9 19.1 26.0 Contingencies - Physical (10%) --3 7 1.9 2.6 - Price 1.5 4.9 6.4 Total 2.2 6.8 9.0 Total Project Cost 9.1 25.9 35.0 Total (excluding taxes and import duties) 6.2 25.9 32.1 1/ Include US$1 million financed under the Project Preparation Facility.  Financing Plan: (fTS$ Million) Local Foreign Total Government 6.2 - 6.2 IDA 2.9 22.1 25.0 Japan 2.0 2.0 France 0.3 0.3 Belgium 1.0 1.0 UINDP 0.5 0.5 9.1 25.9 35.0 Estimated Disbursement: (US$ Million) IDA FY 1982 1983 1984 1985 Annual 3.0 16.0 5.0 1.0 Cumulative 3.0 19.0 24.0 25.0 Economic 'ate of Return: 19 percent on 79 percent of Project costs for which benefits have been quantified. Appraisal Report: Report "To. 3228-BU, dated April 1, 1981. .lap: IMID 15267 and IBRD 15268   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BURUNDI FOR A THIRD HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Burundi for the equivalent of SDR 20.5 million (US$25 million) on standard IDA terms to help finance a Third Highway Project. The Project would be cofinanced, on a parallel basis, by a grant of US$1.0 million from Belgium, a grant of US$2.0 million from Japan, a grant of US$0.3 million from France and a UNDP grant of US$0.5 million. PART I - THE ECONOMY 2. A Country Economic Memorandum was distributed to the Executive Directors in March 1981. Updated country data are provided below and in Annex I. 3. Background. With an average GNP per capita of about US$180 in 1979, Burundi is one of the poorest countries in the world and is designated as "least developed" by the United Nations. Of a population of about four million, only 90,000 are wage earners; the remainder depend mainly on subsis- tence agriculture. The Government is facing several critical problems in its efforts to develop the economy: the capability to prepare and manage programs and projects is weak; the agricultural labor force is largely untrained; and population growth keeps straining Burundi's productive resources, particularly in agriculture. Despite a stated policy of "spaced births", the problems of population pressure cannot be solved in the immediate future. A major effort must therefore be made to increase agricultural productivity. During the past decade, agricultural production per capita declined steadily. The search for more arable land has caused large-scale deforestation, resulting in a severe lack of firewood in the rural areas and forcing the development of alternative energy sources. 4. Improvements to the internal transport system need to be complemented by more reliable external links. Shipments of imports and exports through the principal outlets via Tanzania have traditionally encountered frequent delays due to bottlenecks in the port of Dar-es-Salaam, underinvestment in the railway link between Tabora and Kigoma on Lake Tanganyika, and losses because of theft. However, action is being taken to improve the situation (see para. 28). The link via Rwanda and Uganda to the port of Mombasa (Kenya) is becoming increasingly attractive with the continuing improvement in national highways between Bujumbura and Mombasa.  5. Government Development Strategy. Since 1977 the Government has designed a new strategy to achieve social justice, ethnic reconciliation and improved living conditions in the rural areas. The poll tax, which was levied on all males, was replaced by compulsory deposits which can be withdrawn after three years. In addition, the traditional obligation for small farmers to provide services to landowners in exchange for the right to cultivate land was abolished. Likewise, land which was obtained in an irregular manner for speculative purposes was returned to the State or to the farmers who cultivated it. Other aspects of the new policies, which are embodied in the Third Five-Year Plan (1978-82), are: (a) to emphasize agricultural production to meet the increasing needs for food supplies of the rapidly-growing population; (b) to increase the rate of economic growth substantially in order to provide greater employment opportuni- ties and more income to the poorest segments of the population; (c) to raise the investment rate significantly; (d) to give the Government a more active role in mobilizing financial and manpower resources and in participa- ting in mixed enterprises in the commercial and productive sectors; and (e) to foster decentralization of economic and social activity away from the capital city through the creation of development poles, voluntary settle- ment of the peasant population in villages, and migration from densely populated areas. To facilitate the implementation of its strategy, the Government strengthened the role of planning by elevating the planning organization to the rank of Ministry and by giving it a key role in the allocation and monitoring of public investment. 6. Recent Economic Developments. The period 1977-79 constitutes an important phase in Burundi's economic history, as it has witnessed an acceleration of economic growth as well as a major effort by the Government to raise the country's investment, traditionally among the lowest in the developing world. During this relatively short period, the volume of invest- ment grew by about 75 percent, and the investment rate rose to more than 12 percent of GDP. This effort was led and implemented by the public sector, with important repercussions on the country's pattern of domestic demand, on domestic inflation, and on the mobilization of domestic and external financial resources. 7. The growth of domestic demand in Burundi accelerated in the last few years owing mainly to high producer prices for coffee during 1976 and 1977, and to the rapid growth of public sector expenditures during 1978 and 1979. Public consumption and investment expanded at a rate almost triple that of the private sector during the period 1976-79. Government's expenditures more than doubled in current terms and increased from about 16 percent of GDP in 1976 to 21 percent in 1979. Capital expenditures, particularly for infrastructure and financing public enterprises, contributed most to this growth. The government overall deficit increased from about 3.3 percent of GDP in 1976 to 7.3 percent in 1979. The expansion of domestic demand led to a rapid increase in the volume of imports. 8. Rising import prices and energy costs have contributed to raising domestic inflation as well as the demand for domestic banking credit. Owing mainly to external transportation costs, import prices increased by 33 percent in 1979, more than twice the international inflation rate. The recent surge in domestic prices was also related to the growth of the government deficit resulting from the rapid increase of government expenditures  -3- in real terms. In spite of continued high inflationary pressures from abroad, preliminary estimates suggest that domestic inflation slowed down significantly to between 15 and 20 percent in 1980. 9. Burundi's external current account registered a surplus in 1976 and 1977 but showed a deficit in 1978. In 1979, the deficit was about US$57 million, equivalent to 7 percent of GDP. Underlying this shift was an adverse movement in the country's terms of trade as well as an unpre- cedented increase (55 percent) in the volume of imports. Owing mainly to a 30 percent fall in the terms of trade, Burundi's current account deficit widened to US$100 million in 1980, equivalent to 11 percent of GDP. By December 31, 1980, however, Burundi's international reserves still stood at the comfortable level of US$95 million, equivalent to five months of imports, a legacy of the 1976-77 coffee-boom years. The country's growing deficit has been financed mainly with project-related aid to the Government and parastatals from multilateral and bilateral agencies. During 1979- 80, these flows averaged US$72 million per annum (or 36 percent of Burundi's 1979-80 imports), compared to US$18 million in 1976. 10. External Assistance, Major Issues and Prospects. Because of the unfavourable outlook for world coffee prices, the medium-term prospects of the economy are not good. According to current forecasts, the price for coffee could fall by as much as one-third in real terms between 1979 and 1984. The impact of this decline in Burundi would have to be absorbed by the small farmers (through lower producer prices in real terms) and by the Government (through lower coffee taxes in real terms). Even with a policy of demand restraint designed to cut by one half the rate of growth of import volume, it will be difficult for Burundi to reduce its current account deficit. 11. Burundi's future external capital requirements are likely to be much higher than in the recent past. Based on a macroeconomic scenario, medium and long term external capital requirements are expected to double to about US$155 milion p.a. during the period 1981-84. Although Burundi has been remarkably successful in mobilizing external resources, recently a few high priority agricultural projects have not obtained sufficient financing. The composition of aid flows also would have to be changed since external resources would have to finance a much greater share of project costs, and since direct balance of payments support (and/or commodity assistance for essential imports) would have to be provided to a greater extent than in recent years. 12. Restraining the growth of domestic demand would help Burundi obtain needed external resources. This implies close coordination of policies on several fronts, government expenditures, the taxation of consumer goods and imports, as well as price policies. In particular, the pricing strategy needs to be reviewed. Together with the government's investment program, pricing strategy should constitute the cornerstone of a policy to expand domestic production. In recent months, the Government has taken important steps in this area by raising significantly electricity and water tariffs, domestic transport fares, gasoline retail prices, and lifting selectively rent controls.  -4 - 13. If the growth of consumption were to slow down from an average of over 5 percent p.a. in real terms during the period 1976-79 to about 3 percent p.a. during the period 1980-84, the expected decline in the terms of trade would still lead to a significant fall in Burundi's domestic savings rate. Public savings play a most important role with respect to the latter. Reversing the erosion in the Government's financial situation, will require restraint on current expenditure policy and a wide-ranging rationalization of government's programs. 14. The financial constraints discussed above will require reductions in the Government's investment targets as defined in the Third Five-Year Plan (1978-82). The Government has already taken preliminary steps in this direction. The volume of investment during the period 1980-84 will be limited by financial availabilities to a maximum of about one-half the volume envisaged in the Plan, which would also be in line with the implementa- tion capability during the period 1978-80. This implies halving the past rate of growth of investment. Despite this slowdown, the investment rate would continue to rise. 15. Another important issue is whether the Government will attain its objective of increasing the allocation of investment to the directly productive sectors, particularly agriculture. Population pressure on available land and its adverse effects on soil fertility, foodcrop production and nutrition underlines the urgency of accelerating rural development. The Government recently launched a number of integrated rural development projects, which, over the next few years, are expected to benefit an increasing number of small farmers. However, a number of integrated rural development projects have been hindered by limited knowledge of intensified cultural practices, and of the unwillingness of small farmers to adopt them. The first major projects, scheduled to begin implementation in 1981, in many respects, will remain experimental, and will have to be complemented with adaptive research. 16. Government policy is to establish public regional development companies (SRDs) to promote integrated rural development, appropriate technology, village-level organizations and decentralization of government services. To this effect, they will manage all agricultural, forestry and veterinary government staff working in the proposed project areas. These integrated rural development schemes cut across the functions of various ministerial departments. The Government expects SRDs to eventually cover with their own earnings part, if not all, of their expenditures, although opportunities to make commercial profits will develop only slowly. Therefore, for a number of years, SRDs will probably depend on government budgetary allocations. In spite of this financial dependence, and subject to government-approved annual work programs, the Government intends to endow SRDs with full manage- ment autonomy. 17. Despite certain successes, however, some parastatals have been affected by inadequate coordination with the Central Government, management problems, financial weaknesses and, in the case of agricultural parastatals, lack of small-farmer participation. With IDA assistance, the Government is assessing the situation of the parastatal sector with the intention of providing it with the resources, autonomy and flexibility it requires, while retaining a monitoring function based on rewarding only satisfactory economic and financial performance. Although increasing the efficiency of the parastatal sector constitutes a top Government priority, this can  - 5 - of the parastatal sector constitutes a top Government priority, this can be achieved only gradually, and might take several years. 18. To complement the efforts conducted by SRDs, it is also necessary to promote rural development more actively through greater participation of small and decentralized organizational set-ups such as government-sponsored and private cooperatives, communal efforts under the UPRONA party, as well as private secular and religious groups already operating in the rural areas. The scope and efficiency of the activities of communes (the basic administrative unit) could be greatly improved by providing more resources to local authorities. The limited evidence available suggests that these organizations can play a key role as "transmission belts" between the small farmers and the rest of the economy. Rural development projects now face the difficult challenge of combining the vertical integration needed for increasing the production and quality of coffee with the more participatory arrangements necessary for increasing foodcrop production and meeting other basic needs. This conciliation is critical since the satlsfaction of basic nutritional needs guides to a large extent the socioeconomic behaviour of the farm family. The scarcity of land is already such that in a number of regions farmers face a choice between continuing coffee cultivation and gradually shifting to foodcrop production. 19. If the Government continues to focus on development, pursue improve- ments in policies, and strengthens its administration, it may achieve a steady, albeit slow, improvement in per capita incomes. If mining of Burundi's nickel resources proves feasible, the prospects over the next ten years would be much better. However, the commercial viability of exploiting these deposits has yet to be established. Regional development in Central Africa will also be important to Burundi's economy. In September 1976, Burundi, Rwanda and Zaire signed a convention establishing the "Economic Community of the Countries of the Great Lakes". The Community, which has its seat in Gisenyi, Rwanda, aims inter alia at stimulating and intensifying intra-regional trade and cooperation in a wide range of activities. A major objective of the Community is the electrification of the Great Lakes region. The three countries have also agreed to set up a joint development bank, to exploit methane deposits around Lake Kivu, and to develop a fishing industry around Lake Tanganyika. They have also instructed the Secretariat to investigate ways of improving the transport system around the lakes in order to ease the transport bottlenecks in Burundi and Rwanda. 20. In the 1977-80 period, total long-term capital inflows amounted to about US$220 million, of which US$90 million (41 percent) was in the form of grants. Most of the assistance comes from the UN agencies, Belgium, the European Development Fund, IDA, the Federal Republic of Germany, and the People's Republic of China. On December 31, 1979, Burundi's external medium-and long-term debt amounted to about US$103 million (excluding undisbursed amounts), of which IDA held 25 percent. Debt service averaged 8.5 percent of export earnings. Due to the important proportion of grants in external assistance, IDA will probably continue to hold an important proportion of Burundi's outstanding debt. Notwithstanding the relatively low debt service ratio, Burundi is unable to absorb any borrowing on commercial terms, because of its poverty and the instability of its export earnings. External aid should therefore be on grant or very concessional terms and continue to include a substantial share of local cost financing.  - 6 - PART II - BANK GROUP OPERATIONS 21. Since IDA lending started in Burundi in 1966, fifteen credits have been made totalling US$92.9 million; one credit (US$1.1 million) helped improve water supply to Bujumbura; four credits (US$17.3 million) were for agriculture (two for coffee production, one for fishing and one for forestry); three credits (US$19.4 million, including an engineering credit of US$400,000) helped start a highway maintenance and improvement program (paras. 26-27); a US$10.0 million credit is supporting the improvement of primary education and a second one of US$15.0 million finances vocational and technical training; two credits (US$4.0 million) were made for technical assistance and the National Economic Development Bank received a credit of US$3.4 million. A US$15.0 million credit for an Urban Project aiming at improving the conditions of the poor in the city of Bujumbura, and a US$7.7 million credit for a Telecommunications Project became effective in October 1980 and January 1981, respectively. The Second Coffee Project and the Fisheries Project are being cofinanced by the Kuwait Fund for Arab Economic Development (US$1.0 million) and the Abu Dhabi Fund (US$1.2 million), respectively. The Second Highway Project is cofinanced by the Arab Bank for Economic Development in Africa (BADEA) in an amount of US$6.0 million. The Forestry Project is cofinanced with a credit of US$1.2 million equivalent made from the EEC Special Action Account. In August 1980, IFC appraised a glass container project. Annex II contains a summary statement of IDA credits and notes on the execution of projects and the status of disburse- ments as of January 31, 1981. 22. Project performance has been hampered by the shortage of local management capacity and technical skills which is likely to remain a major constraint to development for some time to come. This situation has particu- larly delayed the execution of the Fisheries and the Second Coffee Projects, although the implementation of the Second Coffee Project has recently improved. Problems encountered in the execution of IDA-financed projects were discussed with the Government during the Second Country Implementation Review held in Bujumbura in June 1980. Recommendations were made in particular regarding the training of local staff, accounting, audits and disbursement procedures. Given existing constraints, however, project performance is, on the whole, satisfactory. 23. Future IDA operations in Burundi will aim primarily at reversing the decline in agricultural productivity, improving the transport and communi- cation network, developing energy resources and strengthening absorptive capacity through training and technical assistance. Four projects have recently been appraised: a pilot project to assist the local construction industry, a nickel exploration project, a coffee improvement and rural development project and a second rural development project. The Second Technical Assistance Project is assisting the Government efforts in improving the planning process and the management of the public enterprise sector. A third technical assistance credit aiming principally at continuing these efforts and assisting in the restructuring of the public enterprise sector is to be appraised shortly. An assessment mission will visit Burundi in April 1981 to determine priority areas in the energy sector.  PART III. THE TRANSPORT SECTOR 24. Burundi is a small, rugged, landlocked country. It is strrou'ude- by Zaire to the west, Rwanda to the north and Tanzania to the east and south. The country is densely, although unevenly, populated. Its transport system has been molded by these topographical and demographic conditions. The country relies essentially on roads for domestic communication and transport. There are no railways or navigable rivers, and the country is too small (27,820 km2) to support an internal air transport system. The capital city has both an international airport and a port on Lake Tanganyika linking Bujumbura to ports in Zaire, Tanzania and Zambia. 25. Government Objectives. The objectives of the Government for the transport sector are to (a) improve the existing internal road network to support decentralization and diversification of the economy; and (b) improve alternative external connections to reduce the country's dependence on the lake/rail connection to Dar-es-Salaam. Under the current Five-Year Plan (1978-82), 25 percent of the public sector investment program was allocated for the improvement of road infrastructure, in particular, road paving, and an additional 8 percent was earmarked for road, lake and air transport operations. While it is estimated that less than fifty percent of the plan objectives have been met for the period 1978-80, investments in infrastructure, which are largely financed by foreign aid, are progressing faster than in other sectors. 26. Transport Policy and Planning. Three Ministries have responsibili- ties in the transport sector: (a) the Ministry of Public Works (MTP) for roads; the Ministry of Transport and Communications (MTPT) for the other modes and overall transport operations; and (b) the Ministry of Planning for the coordination of investments. Although the Government's transport coordination arrangements were largely adequate in the past, serious planning questions and policy issues are now arising with regard to external transport as well as the development of the domestic road network. In order to respond to this need, the proposed Project would provide technical assistance to help establish a planning capability with respect to external connections and for the overall transport sector within the MTPT, and for the highway subsector within the MTP. The Government has agreed that planning units would be set up in both these ministries by March 31, 1982 (section 4.04 of the Development Credit Agreement); to assist the start up of the work of these units, the Project would finance the services of two planning experts for two years. 27. External transport. The country's most important trading partners are the industrialized nations. For its vital imports and exports, Burundi now uses two main transport corridors. The northern route by road through Rwanda and Kampala (Uganda), and from there by road or rail to Mombasa (Kenya), is 1,740 km by road and 1,925 km by road/rail. The shorter (1,428 km), more economical and traditionally used route is the southern, lake/rail route via Tanzania: from Bujumbura by barge to the Tanzanian port of Kigoma and thence by rail to the Indian Ocean port of Dar-es-Salaam. As an alternative to the existing routes, another road/rail route connecting north-eastern Burundi to the railhead at Isaka in Tanzania is now being developed. The proposed Project would finance the construction of one section of the road link. The operations of the port of Bujumbura are now handled by a private company but are to be gradually transferred to public ownership. In view,  - 8 - however, of the present weaknesses of the public enterprises, and of the importance of the port of Bujumbura for Burundi's economy, it is expected that in the context of the ongoing efforts to restructure the public enterprise sector (see para. 17), the formulation of a suitable institutional and operational framework for the port will be addressed on a priority basis. Transport operations on Lake Tanganyika are handled by a private company in which the Government is an important shareholder. The maintenance and needed replacement of the existing fleet cannot be financed with revenues from the present low tariffs, which are set by the Government. One of the responsibilities of the planning expert to be recruited under the Project to assist the MTPT would be to develop a policy to promote efficient lake transport operations. 28. Because of the capacity problems and bottlenecks on the Tanzanian Railways and at the port of Dar-es-Salaam, the bulk of Burundi's oil imports now comes from Nairobi, and an increasing proportion of general cargo imports is also being routed through Mombasa. However, operations are hindered by cumbersome administrative procedures and political instability in the region. The very costly delays and interruptions in the transport flows in recent years have led the countries concerned and the donor agencies to address the question of the bottlenecks affecting the landlocked countries in central East Africa. In 1980, the Bank Group prepared a study on the external transport connections of Burundi and Rwanda. The conclusions of the study were that: (a) the two existing surface routes now serving Rwanda and Burundi offer these countries the least-cost access to Indian Ocean ports, at least in the medium term; and (b) the efficiency of these routes could be markedly improved by a number of measures (e.g., simplified customs and border regulations) and through improvement works already under way or planned. A more extensive study on the international transport connections of Rwanda, Burundi and Uganda and eastern Zaire, to be completed in 1981, is also being carried out by the United Nations Conference on Trade and Development (UNCTAD). These studies should assist the countries involved and the potential donor agencies to agree on a plan of action and priority investments for the medium and longer term. A conference is expected to be held in 1981 under the auspices of UNCTAD to follow-up on the recommendations of these studies. The Highway Subsector. 29. Road Network. Burundi has approximately 5,500 km of roads and tracks. The length of the network is adequate for the country's needs. Its condition, however, is unsatisfactory. The classified network totals about 3,000 km, of which 280 km (9.5%) are paved and 90 km are of low gravel standard; the rest are earth roads and tracks. In addition, there are about 2,500 km of unclassified earth tracks. Some 160 km of paved roads are under construction, and detailed engineering has been completed or is underway for another 400 km. Traffic volumes are light throughout the country: in 1976 only 10% of the network carried more than 50 vehicles per day. The highest traffic volumes were on the roads around Bujumbura. The vehicle fleet was estimated at 10,150 in 1978. 30. The MTP, through its Directorate General of Roads (DGR), is respons- ible for designing, building and maintaining classified roads. Local authori- 1/ A "Report on the International Transportation Bottlenecks affecting Rwanda and Burundi", December 1980, No. 3224 - EAF  - 9 - ties are responsible for building and maintaining the unclassified eartl tracks. While the highest professional positions in DGR are filled by experienced Burundian engineers and managers, there continues to be an acute shortage of qualified local mid-level technical and administrative staff. To fill this gap, technical assistance is being provided, under IDA financed projects and by French and Belgian aid; in addition, the Govern- ment is sending Burundian nationals abroad for training. 31. Until 1979 budgetary allocations for highway maintenance were consistently below requirement. Since 1979, however, the allocations have been adequate. To insure that the allocations continue to be adequate, the Government would provide the funds, facilities, services and other resources required for road maintenance during the execution of the Project (section 4.02 of the Development Credit Agreement). During the last quarter of each fiscal year of the Borrower during project implementation, consulta- tions would take place between the Government and the Association on the adequacy and allocation of the annual maintenance budget, which would not be less than the equivalent in real terms of US$3.0 million, the minimum estimated requirement for 1981. Road users contribute to Government revenues through import duties, taxes on vehicles, spare parts and lubricants, through registration and licensing fees, and a special surtax on fuel. It is estimated that total revenues collected in 1978 were slightly higher than road admi- nistration and maintenance expenditures. 32. Transport Industry. Burundi's road transport industry is charac- terized by a large number of private trader/truckers owning one vehicle. Entry into the road transport operations is relatively easy and transport routes are not regulated. It is expected that road upgrading will increase competition and thereby benefit both the producers and consumers who depend on the trader/truckers' services. Although uniform tariffs for the transport of goods are set by the Government, these tariffs are not fully enforced and actual prices can differ according to demand and road conditions. The Government is aware of this and is likely to replace the present system by a more appropriate system of maximum and minimum tariffs. One of the responsibilities of the planning expert to be recruited under the Project for the Planning Unit of the MTPT (see para. 26) would be to review this matter. In 1978, the Government created a semi-public International Transport Company (INTRACO), and a parastatal domestic transport company (OTRABU). The two agencies, however, have experienced severe financial problems. The Government recently decided to liquidate INTRACO and established a new international transport division within OTRABU which acquired part: of INTRACO's assets. 33. IDA Operations in the Sector. Two IDA financed Highway projects in Burundi have assisted Government in training the MTP staff, in developing maintenance activities, and in improving the road network. The Highway Maintenance Project (US$5.0 million), signed in 1974, had its origin in the 1970 engineering credit which financed a study of Burundi's highway maintenance needs. The project, which was completed in September 1980, helped finance the preparation and implementation of a four-year maintenance program, including the establishment of a manual road maintenance organization and one mechanized maintenance brigade, as well as the provision of technical assistance for these activities and for the training of local staff. It also included studies for future highway development, which provided the  - 10 - basis for the Second Highway Project. The project, for which a completion report is being prepared, appears to have been successful in improving the manual road maintenance organization. 34. The ongoing Second Highway Project (US$14 million),signed in 1978, is financing the paving of a major national road, the start-up phase of an improvement program for selected secondary roads and bridges, the construction of a new central laboratory, the strengthening of the mechanized maintenance brigade and the provision of technical assistance and equipment for the ongoing maintenance program. The quality of the road construction works is good, but progress has been delayed by the disruption in transport through neighbouring countries in 1979; because of these interruptions and of higher than expected cost increases, final costs are expected to be 50% higher than estimated. The maintenance and technical assistance components are generally meeting their objectives; however, due to difficul- ties in recruiting and retaining counterparts, who often resigned to join the private sector, it has not been possible to reduce the level of technical assistance as expected. PART IV. THE PROJECT 35. The proposed Project was appraised in June 1980. Negotiations were held in Washington from March 9 to March 13, 1981. The Government delegation was led by Mr. Francois Nahigombeye, Director General of the MTP. A detailed description of the Project components can be found in the Staff Appraisal Report (No. 3228-BU), dated April 1, 1981, which is being distributed separately to the Executive Directors. The main features of the Project are highlighted in the Credit and Project Summary at the beginning of this report. Special conditions of the Credit are summarized in Annex III. Objectives and Description of the Project 36. The main objectives of the proposed Project would be: (a) to continue to assist the Government in improving the road network; (b) to improve an alternative external route to the port of Dar-es-Salaam (para. 27); (c) to strengthen the road improvement and maintenance capability of the MTP; and (d) to strengthen the planning capability of the MTP and MTPT. 37. The proposed Project would consist of the following: (a) construction to two-lane bituminous paved standard of the first 39.4 km section of the Ngozi-Kobero road (Ngozi-Junction RIG 14); (b) improvement of about 360 km of selected secondary and tertiary roads; (c) acquisition and replacement of equipment for the existing mechanized maintenance brigade, procurement of equipment for a second mechanized brigade which is to be established under  - 11 - the Project, and acquisition of tools, vehicles and camp equipment for the ongoing manual maintenance program; and (d) consultants and technical assistance services. 38. Main Road Construction: The existing Ngozi-Kobero road is in poor condition, with tortuous alignment, very poor earth surface and inadequate or non-existent drainage. Maintenance is difficult and costly due to the rugged terrain, occasional sections of unconsolidated rock, frequent heavy rains and distance to quarries. It was decided not to upgrade the road to gravel standards as maintenance costs would be excessively high and overall costs would not be less than for a paved road. The first section of the road (to be financed under the proposed Project) would be constructed, by contractor, to two-lane bituminous paved standards, and improvements in alignment would shorten it from 42.5 to 39.4 km. The second section will be financed by the African Development Fund and cofinancing is being sought for the third section. 39. Improvement of Secondary and Tertiary Roads. Approximately, 360 km of roads, which have been selected on the basis of economic criteria, would be upgraded to low gravel standard. Each year, the road improvement program would be agreed upon between the Government and the Association, not later than three months before the beginning of the Burundian fiscal year (section 3.07 of the Development Credit Agreement). The first year program was agreed during negotiations. Major works would be carried out by force account by the MTP. In addition, to encourage the development of a local road construction industry, minor works representing up to 30 percent of improvement works would be awarded to local contractors (see para. 47). Force account works, which are justified by the low capacity of the local construction industry and the scattered location of works, would be executed by two mechanized maintenance brigades, which would receive new equipment (para. 40). All works would entail a substantial use of labor-intensive techniques. 40. Mechanized and Manual Maintenance Program. In order to improve the capacity of the existing mechanized brigade and to establish a second brigade, the proposed Project would finance the replacement and acquisition of equipment. This would enable the two brigades to meet the country's mechanized road improvement and maintenance needs in the medium term. In addition, the proposed Project would continue assistance to manual mainte- nance operations by providing technical assistance to help supervise operations and by financing the purchase of hand tools, vehicles and camp equipment for the 3,000-man maintenance labor force of the MTP. 41. Consultant Services and Technical Assistance. Consultants would be engaged to supervise construction of the road. For the preparation and implementation of the road improvement works, the Government has requested that three French technical experts remain. As a part of their tasks, these experts, who would continue to be financed under French technical assistance, (para. 44), would identify the most appropriate technology for the execution of works carried out by force account and local contractors. In addition, when and if required, the experts would provide technical assistance to the local contractors.  - 12 - 42. Technical assistance would also be provided for the following: (a) continuing assistance begun under the two previous projects for the implementation of the manual and mechanical maintenance programs and for on the job training; (b) conducting a study to define a five-year (1982- 86) paved road rehabilitation and maintenance program; (c) continuing assistance to the Public Works School in Bujumbura, the Training Center in Gitega and the manual maintenance brigades; (d) supervising construction, under a USAID financed Project, of a tertiary road, including the management of labor-intensive operations and (e) providing assistance in establishing transport planning and programming capabilities in the MTP and MTPT (see para. 26). The qualifications, experience, terms and conditions of employment of consultants and technical assistants employed under the Project would be acceptable to the Association (section 3.02 of the Development Credit Agreement). In order to avoid the inefficiencies and additional costs caused by the loss of trained local staff (see para. 34), the Government would (i) assign three counterparts to each technical assistance expert financed under the Project, except for the Project manager for the maintenance program and the two economists employed in the Planning Units; and (ii) require counterparts to remain in the service of the MTP or of the MTPT for at least three years from the date of their appointment as counterparts (section 4.05 of the Development Credit Agreement). Project Cost and Financing 43. Total Project cost is estimated at US$35.0 million, with a foreign exchange component of US$25.9 million. US$2.9 million represents taxes and duties to be financed by Government. A contingency allowance of 10% has been included to cover increases in quantities. Price contingencies are based on estimates of inflation rates, both international and local, as follows: 1980 - international 12.5%, local 20%; 1981 - international 9.0%,local 15.0%; 1982 - international 8.5%, local 12%; 1983 - international 7.5%, local 12%, and 1984 - international 7.5%, local 12%. Supervision of road construction and preparation and supervision of road improvements would require about 130 man-months of consultants' services at about US$8,000 per man-month. Other technical assistance would require about 520 man- months of experts services at an average rate of US$10,000 per man-month including salary, social costs, firm's overhead, profit and overseas allowance, and international travel. The total cost of consultants and technical assistance services has been estimated at US$6.3 million, excluding contin- gencies. 44. The Project would be financed by an IDA Credit of SDR 20.5 million (US$25.0 million). Parallel financing would be provided through an agreed grant of US$1.0 million for maintenance equipment and tools from the Administra- tion Generale de la Cooperation au Developpement (AGCD, Belgium); an agreed grant of US$2.0 million from Japan to finance equipment for the maintenance brigades; an agreed grant of US$0.3 million from France for technical assist- ance to the MTP (para. 41); and an anticipated UNDP grant of US$0.5 million  - 13 - for technical assistance to the MTP and MTPT for planning and programming. External financing would cover 90% of the total Project cost net of taxes and duties (100% of the Project's foreign exchange cost and US$2.9 million in local costs). The remaining local costs, or US$3.3 million (US$6.2 million including taxes and duties), would be financed by the Government. imp lementat ion 45. The MTP would be responsible for the implementation of all Project components, with the exception of the technical assistance to the MTPT for planning and programming which would be under the MTPT. The detailed engineering for the road construction has been completed and preselection of contractors has started. Road construction would start in the fourth quarter of 1981 and take about 30 months to complete. Improvement of the road network would be spread over a three-year period starting in mid-1981. The Project is expected to be completed by mid-1984. Procurement 46. The contract for the main road construction (US$12.0 million, excluding contingencies) would be awarded on the basis of international competitive bidding, in accordance with the Bank Group guidelines. To minimize the risk of shortages of materials, due to delays in transportation through neighboring countries, tender documents would include provisions for adequate stocks of materials. 47. Most of the improvements to the road network (US$3.5 million, excluding contingencies) would be carried out by force account. Minor works would be awarded to local contractors, following local competitive bidding procedures satisfactory to the Association (Schedule 3(B) of the Development Credit Agreement). It is expected that up to 30% of works would be awarded to local contractors. As this would be the first involvement of local contractors in road works in Burundi, particular attention would be paid to the conditions of bidding. If required, local contractors would receive technical assistance (see para. 41). All equipment financed under the Credit (US$1.2 million excluding contingencies) would be procured through international competitive bidding in accordance with Bank Group guidelines. Disbursements 48. The proceeds of the Credit would be disbursed on the basis of: (a) 95% of total expenditures, net of taxes and duties, for main road construc- tion; (b) 70% of total expenditures, net of taxes and duties, for road improvement works; (c) 100% of foreign expenditures and 40% of local expendi- tures for road maintenance equipment; and (d) 100% of foreign expenditures and 60% of local expenditures for consulting and technical assistance services. All disbursements would be fully documented except for expenditures under force account for improvement works which would be made against certified statements of expenditure and of work progress. In order to ensure the completion of the improvement program by force account, the Association would be able to reduce the disbursement rate if, at any time during the execution of the program, it estimates that, at the 70 percent disbursement rate, the remaining funds would be insufficient to cover the remaining works (schedule 1(7) of the Development Credit Agreement). An advance of US$1 million under the Project Preparation Facility was approved  - 14 - in 1980 to help finance the cost of technical assistance for the maintenance program and would be refunded under the Credit. Accounting and Auditing 49. Separate accounts would be maintained by the MTP for each Project component and would be audited annually by the Auditor General or other independent auditors acceptable to IDA. It was agreed during negotiations that all project accounts, including statements of expenditures, together with the auditor's report would be submitted annually to IDA, not later than six months after the end of the fiscal year of the Borrower. (section 4.01 (c) of the Development Credit Agreement). Benefits and Risks 50. The construction to paved standard of the first section of the Ngozi-Kobero road would improve communications and reduce transport costs between Bujumbura and the regions of Ngozi and Muyinga. It would also contribute to the creation of an improved transport connection to the Indian Ocean. The main benefits from this investment would be to reduce vehicle operating costs. The direct beneficiaries of the cost savings would be traders and truckers who, because of increased competition in transport operations, are expected to pass on the benefits to producers and consumers. This component, which would account for 46% of the Project cost excluding contingencies, is estimated to yield an economic return of 15%. 51. The road improvement component would stimulate the development of the areas served. Sections to be improved would be selected on the basis of their importance to the economy of the area. The main benefits derived from the improvement program would be savings in vehicle operating costs and the strengthening of the capability of the DGR to carry out road improvement works, through training of the DGR staff. Moreover, it is expected that the award of some of the works to local contractors would help build up a local construction industry. The benefits from the reduced operating costs would also be passed on to producers and consumers as a result of competition among traders/truckers. It is expected that this component, which would account for 25% of Project cost excluding contingencies, would have an average economic return of 27%. 52. Recurrent manual maintenance operations of the classified network, reorganized and supported under the two previous projects, have succeeded in keeping most of the network passable throughout the year. Continuation and strengthening of these operations are essential. As established under the previous projects, these recurrent maintenance operations would have a rate of return of 20% minimum. The average economic rate of return of the construction, improvement and maintenance components, representing 79 percent of Project costs, would be 19%. The costs of consultant services for supervision of road construction and road improvement components have been included in the costs used for the economic evaluation of the respective components. The funds earmarked for consultants engaged for training would have considerable benefits in terms of institution building. The cost of assistance for planning and programming would have a high return in terms of the introduction of planning procedures and maintenance and investment  - 15 - programs which will permit to improve allocation of scarce resources. The benefits to be derived from these two categories of consultant services, however, cannot be quantified accurately. 53. The experience of the past highway projects indicates that transport bottlenecks in neighboring countries may cause delays in shipment of imported materials, which could delay Project implementation. To minimize this risk, tender documents for the proposed Project would include provisions for adequate stocks of materials. The hazardous geological conditions of some areas which the main road traverses constitute another risk. These conditions have been adequately studied and will be monitored carefully during project implementation. Also, in past projects, the fact that many Burundian coun- terparts in the civil service resigned to join the private sector has been a major source of additional technical assistance costs and delays in insti- tution building. Under the proposed Project, three Burundian counterparts would be assigned to most technical assistance experts and each counterpart would commit himself to remain in the service of the MTP or the MTPT for at least three years, starting from the date of his appointment as counterpart. These measures are expected to reduce this risk considerably. PART V - LEGAL INSTRUMENTS AND AUTHORITY 54. The Development Credit Agreement between the Republic of Burundi and the Association, and the Recommendation of the Committee provided for in Article V, Section I (d) of the Articles of Agreement are being distributed to the Executive Directors separately. 55 Special conditions of the Project are listed in Section III of Annex III of this report. There are no additional conditions of effectiveness of the Proposed Credit. 56. I am satisfied that the Proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATIONS 57. I recommend that the Executive Directors approve the Proposed Credit. Robert S. McNamara President by Attachments Ernest Stern Washington, D.C. April 1, 1981  - 16 - ANNEX I TABLE 3A Page 1 of 5 BURUtDI - SOCIAL I!TDICATOPS DATA SHEET B1'RUNDI REFERENCE GROUPS O'EICHTEF AVTERAFS LAI; AREA (THOUSAND SO. KM.) - MOST PECEI'T ESTIMATE)- TCTAL 2 7. 8 AGRICULTURAL 1 7. 1 MOST RECENT LOI' INCOME MIDDLE IICOME 1960 /b 1970 /b ESTIMATE /b AFFICA SOUTH OF SAHARA AFPICA SOUTH OF SAHPAA GNP PER CAPITA (US$) 60.0 90.0 180.0 260.0 868.0 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 11.0/c 16.0 12.0 80.0 699.4 POPULATION AND VITAL STATISTICS POPULATION, NID-YEAR (MILLIONS) 2. 7 3.4 4 . 0 UREBA POPULATION (PERCENT OF TOTAL) 2.2 2.2 2.3 17.3 28.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 8.0 STATIONARY POPULATION (MILLIONS) 21.0 YEAR STATIONARY POPULATION IS REACHED 2160 POPULATION DENSITY PER SQ. KM. 95.0 121.0 142.0 27.4 61.7 PER SQ. KM. AGRICULTURAL LAND 168. 8 208.6 231.0 82. 6 126.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 42.5 42.5 43.9 44.9 45.5 15-64 YRS. 54.6 54. 7 53.1 52.2 51.6 65 YRS. AND ABOVE 2.9 2.8 3.0 2.8 2.8 POPULATION CGRWTH RATE (PERCENT) TOTAL 2.0 2.4 2.1 2.7 2.7 URBAN 1.9 2.4 3.2 6.8 4.9 CRUDE BIRTH RATE (PER THOUSAND) 48.0 47.0 47.0 47.4 46.8 CRUDE DEATH RATE (PER THOUSAND) 27.0 22.0 20.0 19.6 16.4 GROSS REPRODUCTION RATE 2.6