Guinea-Bissau - Technical Assistance Project

Document of The World Bank FOR OmCUL USE ONLY fepmt NPb P-3870-GB REPORT AND Cm OF THE PRESIDENT OF THE INTERNATIOIAL DE PMENT ASSOCIATION ON A EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREIT TO THE REPUBLIC OF GUINEA-BISSAU IN AN AMOUNT EQUIVALENT TO SDR 6.0 MILLION FOR A TECHNICAL ASSISTANCE PROJECT August 17, 1984 I Thk docuez has a resWldc distrhfm ad may be used by reiienly in She perfemamece of |mr e.ed duti. Us contents my net idhwlse be disdued withot lWldt Bak sulhrat.  CURHWCY EQUIVALEMS Currency Unit = Gainea-Bissau Peso (GP) US31.0 = GP 106.65 GP S million = ISS 9,376 FISCAL YEAR January t - December 31 ABBRSVIXTIONS AND CRONYIiS BIG = Banco lac-onal da G,i,n5-Bissau PAO = Food and Agriculture Organization PrAI = Mi:ste-rio da Administraao Interna, FurLao Piiblica e Trabalho lCT ~ U-= ?!irsterio de Comercio e Turismo PEPCI = Ministirio de Coordenago Zcon6mica, Plano, e Cooperaao Internacional KF = Ministerio das Finangas XOPCU = Ministerio de Obras Puiblicas, Construgio e Urbanismo PMNI = Kinisterio dos Recursos Naturais e Industria ?AIGC = Partido Africano para a independancia de Guine-Bissau e Cabo Verde SIDA = Swedish International Development Authority UNDP = United Nations Developaent Program UNESCO = United Nations Educational, Scientific and Cultural Organization  FOR OMCIAL USE ONLY REPUBLIC OF GTJN&-BIStSAU TECHNICAL ASSISTANCE PROJECT CREDIT AND P5OJBCT SUWKARY Borrower: Republic of Guines-Bissau Amount: SDR 6.0 milion (USS6.0 million equivalent) Terms: Standard IDA Project Description: The proposed project aims to assist the ;Government in strengthening the macro-economni management capabiLity of k'ey economic ministries, strengthening the operational ca- pac;ty of other --iitr-ies, and developing a sound institu- tional framework in newly-created ministries and agencies. It would thus assist the Gcverzment in the formulation and implementation of the economic recovery program for vhich IDA direct financial support may be requested. The project would provide for: a. senior advisors to the Office of the President, the PUnistry of Economic Coordination, Planning and Inter- national Cooperation (MEPCI), the Ministry of Finance (1(F), and the National Bank of Guinea-Bissau (BNG) - the principal authorities responsible for economic policy and management; b. consultants to other Government ministries in critical sectors: commerce, energy and industry, fisheries and .nternal administration; c. studies to assist in the definition and implementation of economic adjustment and financial stabilization measures; d. training of counterpart staff, including feIlowships for training locally and abroad; e. equipment, materials, vehicles and housing for use by project advisors and consultants. Benefits and Risks: Guinea-Bissau would benefit by increased governmental capa- city to conceive and implement sound, comprehensive and consistent macro-economic policies and to pursue adjustme-nt This docwent has a resticted distributon and may be used by recipients only in the performance of their ofiia duties. Its contents may not otherwise be disdosed without Vorld Bank authorization.  in the institutional capabilties of the key economic aLni-stries and of other important ministries and Government agencies through studies and recommendations for reform. The main risks of the project derive from the difficulties in attracting highly qualified foreign experts, given the _oring and liviLng conditions in Guinea-Bissau, and also the serious lack of needed couaterpart staff. The Govern- ment's awareness of the naed for effective technical assistance and for economic adjustment and financial stabi- lization is reflected in t;he firm measures it has taken in recent months in support of this objective. Est-mated Cost: --------JSS -thousands eouivalent----- (includi.ng taxes) Local Fore-gn Total Long-term advisers 180 1,540 1,720 Studies and short- term coasultants 50 q80 830 Training and fellow- ships 50 450 500 Project Management 50 350 400 Equipment, materials and vehicles 40 350 390 iousing & other cizil works 400 150 550 junior Economiists, Secre- tarial and Support Ser- -7ices t50 35 185 4ctivities to be identified during project implementation 15 985 1,000 Base Costs 935 4,640 5,575 ContLngencies - Physical 45 60 105 - Price t120 700 820 Total Project Costs 1,100 5,400 6,500 Financing Plan -US$ thousands equivalent- Local Foreign Total IDA 600 5,400 6,000 Government 500 - 500 Total 1,100 5,400 6,500  Estimated Disburs-ments ---- - --US thousands equivalent------ FT85 FY86 FY87 FY88 FY89 Annual 1,677 2,015 1,365 703 240 Iumulati ve 1,677 3,692 5,057 5,760 6,000 Estimated Completion Date: Dece,mber 1998 Staff Appraisal Report: none prepared Ia: I3BRD '5779R 1/ This schedule conforms broadly to the disbursement profile for technical assistance projects in the Easterr and Western Africa regions. However, the first fiscal year will include disbursements for activities financed under the PPF advance, actlivities that must be performed during the first year of project implementation - i.e., construction of housing, studies required in support of structural adjustment - and the financing of consultants already identified and/or recruited.  IJIEREATIOEAL DETIWNUT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF GUINEk-BISSAU FOR A TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed Devel- opment Credit to the Republic of Guinea-Bissau for an amount in various cur- rencies equivalent to Special Drawing Rights 6.0 million (USS6.0 million equi- valent) on standard IDA terms to help finance a Technical Assistance Project. PART I - THE ECONOMY 2. The latest economic report on Guinea-Bissau (3529-GUB), dated Kay 21, 1982, has been circulated to the Executive Directors. The following assessment of the current situation and prospects of the economy is based on the conclu- s.ons of that report and updated information obtained by subsequent economic missions and discussions with government officials. Country data appear in Annex I. The Setting 3. Guinea-Bissau is a small nation of about 500,000 inhabitants (1983) located on the Vest African coast between Senegal and Guinea. The country covers an area of 36,135 km , including the Archipelago of Bijagos. The terri- tory is generally flat with a few hills and a coastline interrupted by seven large estuaries which run far inland. The soils are mostly alluvial and fer- tile; rainfall is sufficient for a variety of crops, but the country is not immune from drought. The soc-iety is segmented, with several ethnic groups. Bissau is the national capital, the country's largest city, and its main port. 4. Guinea-Bissau became independent in 1974 and has since been governed by the sole political party (PAIGC) as a non-aligned centrally planned eco- nomy. For the most part, the Government controls the modern sector of the eco- nomy, with a smallholder sector prevalent in agriculture. Politically, Guinea- Bissau has been quite stable, despite a change in the party leadership in late 1980. In April 1984 regional representatives were elected to a National Assem- bly which in May approved the country'3 second constitution and elected a Pre- sident, Joao Bernardo Vieira, formerly President of the Revolutionary Council. President Vieira formed a new Government on July 16, 1984, which took, office on July 20, 1984. It consists of four ministers of state (including two Vice- Presidents), ten ministers and twelve secretaries of State.  -2- 5. Guinea-3issau's aeconomic sLtuation has been difficult. A war .or inde- pendence resalted in t-ie destruction of part of the limited economic infra- structure. The country's administrative capacity was further reduced with the exodus of the ?ortaguaese, and it has had to depend on international assistance for most essential supplies. To rehabilitate and develop the economy, the Governmeat relied on the growth of the public and parastatal sector, but lack of administrative experience and unwise investment decisions led the country into serious deficits and external indebtedness. Today, Guinea-Bissau is still among the poorest countries in the world. GDP per capita is around US$190 (1982), life expectancy at birth is 42 years, and 75% of the population as illiterate. Only one-tenth of the people, mainly in urban areas, have ac- cess co safe water. Waterborne diseases are rampant and mortality rates reach 20 percent arcag children. 6. Despite this grim situzation, the country has a potential for develop- ment in the longer term. With good soils and large uncultivated areas, agri- cultural output could adequately meet domestic demand for foodstuffs and in- crease export earnings. Tnere are promising indications that commercial de- velop -nt of petroleum, bauxite and phosphates will be possible. Identified resources in fisheries and forestry could generate substant.al foreign ex- change in the zedizm term and, with other raw materials and traditional skills, provide the basis for a small manufacturing sector. Structure of the Econory 7. Agriculture is the most important resource of Guilnea-Bissau. It ac- counts for about 50% of GDP, most of the country's employment, and 60% of ex- ports. The sector is basically subsistence-criented, producing rice (the a-in staple), sorghum and millet; agri:ulLural exports are mainly groundnuts, palm kernels and cashew nuts. Perfrrmance has been poor owing to lack of incen- tives, inadequate infrastructure, and unfavorable weather conditions. An overvalued exchange .ate (between 1978 and 1983, the Guinean peso was pegged to the SDR, while in the same period the main trading partners devalued by around 20-25%) and inadequate producer prices have contributed to smuggling of export crops and some food crops (e.g. rice). B. The fisherieL sector contributes only about 2% to GDP, but has shown considerable scope Eor development, based on joint ventures with the USSR (Estrela do Kar), Algeria (GUIALP). and Senegal and France (SEKAPESCA) to cap- ture and market fish products, and on provision of licenses for foreign boats to operate in Guinean territorial waters under bilateral agreements. Catches of foreign boats were estimated at about 140,000 tons in 1983, compared to an estimated potential of 250,000 tons. Domestic landings, however, are only about 1,OOOt per year, supplemented by about 4,000t from artisanal fishing. The Algerian joint venture has been shut down and its boats sold. Senegal has withdrawn from 3E.MAPESCA ani the EEC is providing 4 million ECUs to assist in rehabilitating the enterprise. The Government is taking steps to raise arti- sanal outpu' by providing fishermen with improved equipment and adequate mar- keting support. 9. With 65%o of its territory covered by forests, Gu-nea-Bissau has a good potential for forestry development. However, only 8,500 tons of timber are now produced annually of which 2,500 tons are exported. The sector is managed by a state-owned company (SOCOTRAM) which is receiving assistance from the  -3- Swedish International Development Authority (SIDA) to improve its management and diversify its activities. 10. The industrial sector is still underdeveloped (10% of GDP), and in- cludes a ship repair yard, some old plants for hulling rice and groundnuts, a few bakeries, some icemaking units, and several repair shops for transport equipment. Modern plants include a brewery, an assembly plant for Citroen cars, a groundnut processing plant, a SIDA-financed brick factory in Bafata which operates at 75p capacity, a mechanical workshop, a foundry, a wood- veneer producing plant (FOLBI), and several other units which were created during 1975-79. The sector was affected by the lack of planning and project evaluation capacity in the years immediately after independence and most in- dustrial units work at only a fraction of capacity, hampered by insufficient imported raw materials and spare parts, and lack of adequate management and trained workers. Of some 30 public and mixed enterprises, only one showed a profit in 1981. 11. The poor state of transport infrastructure has been a major constraint on development. The north is served by roads in need of repair and rehabtli- tation, a situation which was addressed by IDA's First Roads Project and which will receive further support from the Second Roads project. The south, the rice growing region, with the most promising agricultural potential for domes- tic consumption, is badly served. Inland ports and feeder roads are equally poor. The port of Bissau, which handles most of the country's foreign trade, has inadequate facilities. Assistance for rehabilitation of its commercial berth and of its navigation aid system is being provided by a US$16.0 million IDA Credit for the Bissau Port Project, approved on June 23, 1983. Recent Developments 12. Recent ecoaomic performance in Guinea-Bissau has been disappointing. After a modest growth of about 3.0% p.a. during 1975-79, real GDP declined by about 5% in 1980 and in 1981. In 1982 real GDP rose by 4.2% but declined again in 1983 by 5.1%O. A growth rate of about 3% is expected for 1984. Agri- cultural production was affected by droughts, and foreign exchange constraints induced supply shortages of imported goods, leading to a decline in industrial output. 13. The current difficult situation of Guinea-Bissau stems in part from policies followed after independence. Substantial international assistance, but inadequate aid management, led to a mushrooming of projects, many of them ill-conceived, and dispersion and overlapping of efforts. Investment financed from abroad was high (20-25