Chad - Emergency Cotton Program

Domment of The World Bank FOR OFFICIAL USE ONLY Report No. P-4340-CD REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 12.8 MILLION TO THE REPUBLIC OF CHAD FOR AN EMERGENCY COTTON PROGRAM June 3, 1986 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENTS Currency Unit CFA Franc (CFAF) I/ US$1.00 CFAF 360 CFAF 1.00 : US$ .0028 FISCAL YEAR Government January 1 - December 31 Cotontchad November 1 - October 31 MEASURES 1 Meter (m) = 3.28 feet (ft) 1 Kilometer (km) = 0.62 miles (mi) 1 metric ton (mt) = 2,205 pounds (lb) 1 hectare (ha) = 2.47 acres (a) ABBREVIATIONS AND ACRONYMS BIAT Banque Internationale pour l'Afrique au Tchad BTCD Banque Tchadienne de Crédit et de Dépôts CAA Caisse Autonome d'Amortissement CCCE Caisse Centrale de Coopération Economique CEC Commission of European Communities CFDT Compagnie Française de Développement des Textiles CFPA Centre de Formation à la Production Agricole CSPC Caisse de Stabilisation des Prix du Coton EDF European Development Fund FAC Fonds d'Aide et de Coopération IRAT Institut de Recherche sur l'Agriculture Tropicale IRCT Institut de Recherche sur le Coton et les Textiles Exotiques NGO Non-Governmental Organization ONDR Office National de Développement Rural SIMAT Société Industrielle de Matériel Agricole SONASUT Société Nationale Sucrière du Tchad STABEX Fonds de Stabilisation des Exportations STAR Société Tchadienne d'Assurances et de Réassurances STEE Société Tchadienne d'Energie Electrique STT Société Textile du Tchad UNDP United Nations Development Program l/ The CFA Franc (CFAF) is tied to the French Franc (FF) at a rate of FF1 to CFAF 50. FOR OFFICIAL USE ONLY REPUBLIC OF CHAD EMERGENCY COTTON PROGRAM CREDIT AND EMERGENCY PROGRAM SUMMARY Borrower: Republic of Chad Beneficiary: Cotontchad Amount: SDR 12.8 million (US$15 million equivalent) Terms: Standard IDA terms Onlending Terms: Proceeds of the Credit would be passed on by the Government to Cotontchad as equity. Cofinanciers: France (FAC and CCCE), European Development Fund (EDF), and the Netherlands. Program Description: The proposed Credit would support the first emergency phase of a program aiming to reestablish Cotontchad on a sound financial basis and avoid the collapse of Chad's dominant cotton sector as a result of exceptionally low world prices. In the past years, the cotton sector has accounted for 80 percent of export earnings and 25 percent of government revenue. This first phase consists of a set of remedial measures that would permit Cotontchad to continue operations pending the preparation of a comprehensive rehabilitation program, to be based on an indepth UNDP-financed study currently being undertaken, with IDA as Executing Agency, which would be complemented by the studies under the proposed project, . The proposed program would cover two years, beginning July 1, 1986, and would finance: (i) Cotontchad's inputs program; (ii) the improvement of Cotontchad's management and financial control through the provision of an external audit and technical assistance services, training, and studies; and (iii) support for continued operations and reorganization of key institutions in the cotton sector, particularly extension services (ONDR) and research activities (IRCT). IDA would also be preparing an agricultural sector project over the next 18 months which would support a medium-term restructuring of Cotonchad, as well as help diversify Chad's agricultural base. This, document has a restricted distribution and may be used by recipients only in the performance of their oicial dute Its contents may not otherwise be disclosed without World Baik authorization.. . (ii) Benefits: The program would yield the following benefits. First, for the economy, it would enable Chad to survive an abrupt and unexpected drop in its export earnings and Government revenues thereby helping to avert a nation-wid-! crisis with severe macroeconomic implications. I collapse of cotton production would also throttle industrial growth, in general, and bankrupt the domestic banking system. Pending the recovery of the cotton price, the proposed program would help avoid economic turmoil and the consequential political unrest. Second, for Cotontchad, it would help finance operations through a difficult adjustment period and stimulate the company's medium-term transformation into once again, a viable enterprise. Third, for producers, it would maintain and improve field services and allow continued processing of their dominant cash crop, thereby preventing the abandonment of cotton production which is virtually their sole source of money income. Risks: Given the fragile state of the Chadian economy and the uncertainties concerning the world cotton market, the project faces a number of risks: (a) At the production level, there is a risk that small-holders will react adversely to the planned reduction of their margins (by the freezing of producer prices and the elimination of input subsidies). However, this is not a high risk because of the lack of alternative cash crops and the fact that intensive cotton cultivation will continue to be more profitable than alternative crops. (b) At the national level, there are political risks, but these are acceptable because of the remarkable progress made by President Hissein Babrf since 1983 in establishing an effective and stable administration and the growing support which he has received from the population. (c) At the cotton marketing level, there is the risk that world prices will recover more slowly than currently projected, although this is unlikely because the price forecasts adopted are quite prudent. (d) There is also a risk that Cotontchad's restructuring will not result in a viable institution; this will be countered by the provision of qualified advisors, careful progress monitoring, and the revision of the adjustment program as studies proceed. However, the risks inherent in not implementing this project are very serious. Without the proposed joint financing effort, Cotontchad would go bankrupt and the cotton sector would be destroyed. Given the absence of alternative income sources (there are no other cash crops available which the farmer could turn to in place of cotton), this would cause the collapse of Chad's fragile modern economy and relegate the country to a subsistence economy with little hope for progress and high risk of renewed political unrest. * Estimated Project Costs 1/ Local Foreign Total --- US$ Million -- 1. Inputs Program 3.2 26.3 29.5 2. Audit, Studies, and T.A. 0.1 0.9 1.0 3. Operating Costs 1.3 7.4 8.7 4. Support to ONDR and IRCT 2.6 1.3 3.9 5. Price Contingencies 0.7 3.6 4.3 Total 7.9 39.5 47.4 Financing Plan Local Foreign Total - US$ Million IDA 1.6 13.4 15.0 CCCE 4.-1 11.5 15.6 EDF 1.5 12.2 13.7 The Netherlands 0.3 2.0 2.3 FAC 0.4 0.4 0.8 Total 7.9 39.5 47.4 Estimated Disbursements: The proceeds of the proposed credit would be disbursed in two tranches as follows: (a) a first tranche of US$10 million from the IDA Credit would be available immediately upon effectiveness of the Credit (expected in August/September 1986); (b) a second tranche of US$5 million, representing the balance of the IDA credit, would be made available 1/ Net of taxes and duties. UV~) around June 1987 after a review of performance under the program, provided the cdnditions stipulated in Annex III have been fulfilled. Disbursements IDA Fiscal Year -US$ Million- 1987 1988 Annual 10 5 Cumulative 10 15 Economic Rate of Return: n.a. Map: IBRD 19729. There is no separate staff appraisal report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF CHAD FOR AN EMERGENCY COTTON PROGRAM 1. I submit the following report and recommendation on a proposed Development Credit to the Republic of Chad for SDR 12.8 million (US$15 million equivalent) to help finance an Emergency Cotton Program. The Credit would be on standard IDA terms. Additional financing will be provided through two loans from Caisse Centrale de Coop&ration Economique (!or a total of US$15.6 million equivalent); a grant from the European Development Fund (US$13.7 million equivalent); a grant from FAC (US$0.8 million equivalent); and a grant from The Netherlands (US$2.3 million equivalent). PART I. THE ECONOMY 2. The last economic report on Chad (Report No. 1340-CD) was distributed to the Board on June 30, 1977. Bank activities, including economic and sector work, resumed in May 1985 after several years of interruption due to civil war. Country data are given in Annex I. Background 3. Chad is a landlocked, sahelian country with an area of 1,284,000 km2 and three climatic zones. In the northern saharan zone, where rainfall is less than 300 am per annum, the dompiant activity is nomadic and transhumant livestock herding. Agricuitural production is undertaken infrequently and is only possible in cases and in lowlands during periodic flooding. In the middle sahelian zone, one finds transhumant and sedentary livestock herding as well as extensive rainfed cultivation centered on of millet and sorghum. Because of the dependence on rainfed cropping, this zone is particularly vulnerable to climatic variability. The southern sudanian zone makes up a quarter of the country's area. The region receives rainfall from 600 am to 1,200 m per year, allowing the production of cotton as a cash crop and cereals, tubers, and groundnuts as major food crops. 4. The population of Chad was estimated at approximately 5 million in 1985, with about 40% in the southern sudanian zone, 57% in the middle sahelian zone, and only 3% in the northern saharan zone. Approximately 80% of the population lives in rural areas, although the urban population has been growing at an annual rate more than three times greater than that of the total population (6.4% compared to 2.1%). The capital city, Ndjamena, is estimated to have about 400,000 inhabitants. Economic Constraints and Potential 5. With an estimated per capita income of about US$130 in 1985, Chad is one of the poorest and least developed countries in the world. It ranks -2- at or near the bottom of the low-income economies with respect to life expectancy, literacy and health-related indicators. Moreover, in recent years, political conflict has disrupted economic activities and social services and has discouraged investment. Development is constrained by: (i) the country's landlocked position, which creates high commercial transportation costs; (ii) internal distances, which hinder political and economic integration; and (iii) climatic variability, which leads to fluctuations in agricultural production. Chad does have, however, a number of factors in its favor. The economic system is liberal and has produced a dynamic informal sector. The country is also blessed with considerable agricultural potential, thanks to its extensive areas of arable land in the South, two perennial rivers (Logone and Chari) and low population density. There is considerable potential for irrigation, and in years of normal rainfall, agricultural production already reaches self-sufficiency levels. In this respect, Chad is among the better-off countries of the Sahel. In addition, Chad has significant but under-exploited livestock resources. On-going petroleum exploration has revealed significant oil reserves in Chad, although it is too early to assess when and under what conditions they can be efficiently exploited. There are also indications of mineral reserves which have not yet been carefully evaluated. Structure of the Economy 6. Agriculture, broadly defined to include livestock, forestry and fishing, dominates the Chadian economy, providing the livelihood for the majority of the population and generating 44% of GDP. Food crops are the principal output in terms of value and, in 1985, contributed 23Z of GDP, while cash crops other than food (mostly cotton) accounted for 4%, and livestock and fishing, together, for 171. The sector, on the whole, is extremely vulnerable to climatic fluctuations. The "secondary" sector, comprising industry and energy, is relatively weak and accounted for only about 20% of GDP in 1985. Production derives mainly from six enterprises: MCT (cigarettes), SONASUT (sugar), Brasseries du Logone (beer), STT (textiles), Cotontchad (cotton lint, oil and soap), and STEE (electricity and water). Small- and medium-scale enterprises (SMEs) are still quite underdeveloped. The "services" sector, consisting largely of formal and informal commercial activities, generated about 35% of GDP in 1985. 7. The Chadian economy has two predominant features. The first is the dynamic nature of the informal sector which helped assure the survival of the country throughout the war period. However, the extensive use of informal channels today deprives the State of an important source of revenue. The second feature is the dominance of the cotton sector in the non-subsistence economy, accounting for approximately 80% of export earnings, 25% of government revenues and 13% of the value of agricultural production (crops only). The cotton sector is a source of income for two-fifths of Chad's population and absorbs more than 50% of domestic credit. Sector activities are organized by Cotontchad, a majority-government-owned company which is solely responsible for purchasing, processing and marketing Chad's cotton. -3- The Civil War (1979-82) 8. The Chadian economy reached its peak production level in 1977, just prior to a devastating three-year civil war. GDP attained CFAF 162 billion (US$157 per capita) that year, fueled by a record cotton crop of 174,000 m6tric tons in 1975/76. At the time, Chad had four domestic banks, some large-scale domestic manufacturing industries, an estimated 80-100 small and medium scale enterprises, and an active informal sector. 9. Little reliable data exist from the civil war period, but one can hardly overestimate the war's negative effects, which included widespread destruction of property and considerable human loss. Economic activity was seriously disrupted, leading to a reduction of at least 30Z in aggregate output. Formal, modern sector activities were the hardest hit, with most industries severely reducing or totally suspending operations. The expatriate sector, always quite limited in Chad, withdrew completely. The banking sector shut down entirely, as did the Central Bank for a two-year period. Only the cotton industry continued to operate, overcoming great logistical difficulties, although production of cotton seed averaged only 80,000 tons per annum (65% of the average production during 1973-77). More than half the known SMEs were destroyed or temporarily shut down. The population of Ndjamena fell to less than a third of its pre-war level of 300,000, and the city was largely destroyed. Political administration at all levels ceased to function, and public utilities and government services were abandoned. Much infrastructure and physical capital were destroyed, disappeared or simply deteriorated from neglect. The road network, in particular, deteriorated severely, crippling internal trade and producing economic fragmentation. Post-War Developments 10. Hissein Habri, now President of the Republic, took control of Ndjamena in June 1982. His government has since gained effective control of the territory south of the 16th parallel, which contains 97% of the country's population. In 1983, opposition forces with foreign support occupied a large part of the northern zone. The continued occupation of this barren zone has no significant direct impact on Chad's economic situation, but it represents a constant political threat which discourages potential investment in the country. Recent rebel incursions below the 16th parallel have been reversed by Government forces. In the remainder of the country, the Government launched a program of national reconciliation in 1983 in a successful effort to rally exiled political opponents and former southern combatants to the Habri regime. In January 1986, the last remaining rebel leader in the south rallied to the HabrA Government, raising hopes of lasting political stability in the sudanian zone. 11. Since 1982, the Habri Government has worked quickly and effectively to reconstitute key ministries and develop municipal administrations, and has been successful in establishing a core government. With the restoration of relative political stability, the economy began a period of recovery, with real GDP growing by 5.5Z in 1983, to reach 78Z of the 1977 level. Considerable reconstruction ensued, and the population of Ndjamena rose rapidly to regain its pre-war peak. Economic recovery was stalled, however, by the unprecedented drought of 1984-85, and is now -4- further threatened by a crisis affecting the cotton sector, as explained below. 12. The Drought. The 1984-85 drought had immediate, severe and widespread effects. It caused Lake Chad to shrink to one-tenth of its normal size and dried up segments of the Chari River. Food production dropped from an average of over 600,000 tons per year in the 1975-80 period to only 310,000 tons, leading to a deficit of about 300,000 tons, or half of total requirements. The northern sahelian zone was particularly affected, creating an influx of refugees to the south. A well-coordinated international relief effort, led by the UNDP and carried out with full cooperation from the Government, averted widespread famine and avoided the establishment of refugee ramps through the skillful relocation and resettlement of displaced populations in productive agricultural zones. Economic recovery ground to a halt, however, with a 4.5% drop in real GDP in 1984. Good rainfall in 1985 allowed food production to recover significantly, approaching self-sufficiency levels. The situation remains fragile, nevertheless, because of: (i) the continued threat of drought; (ii) the risk of a premature return of the nomadic population to traditional but ecologically unstable areas in the northern Sahel region; (iii) the dilapidated road network, which continues to frustrate commercial activity; (iv) the lack of resources for agricultural support services; and (v) the potentially disruptive effect of the past season's massive food distribution and of the remaining food aid stocks on normal production patterns and local market operations. 13. The Cotton Sector Crisis. A severe disequilibrium in the world cotton market caused the world price of this commodity, in dollar terms, to drop by 40% between mid-1984 and mid-1985. In conjunction with the depreciation of the dollar, this fall has brought about a drop in the CFAF price of Chad's cotton exports from nearly CFAF800/kg (F.O.B. Douala) to less than CFAF400/kg. The hitherto profitable Cotontchad company is now operating at a loss, with annual operating deficits of CFAF 18.1 billion (US$40.0 million) in 1984/85 and CFAF 19.2 billion (US$53.3 million ) in 1985/86. 1/ These deficits surpass estimated Government revenues for 1985 and 1986 and are, therefore, beyond the ability of the company or the Government to support or correct, given market prospects: owing to the high level of world stocks, little price recovery is expected before 1992 (Annex VI). The sector, the focus and its implications are the focus of Part III. Progress Towards Recovery 14. Despite the negative impact of drought, and continued political difficulties, the Chadian Government and people have made progress towards economic recovery. Reconstruction and resumption of economic activities were facilitated by exceptionally good cotton production and exports in 1/ All 1984/85 crop year figures are converted at the average 1985 exchange rate, and so on. Unless otherwise indicated, all 1986 CFAF figures have been converted into US dollars at the exchange rate of 360 CFAF/US$ - the average for the first trimester of 1986. -5- 1983/84. These, together with favorable world market conditions, helped to replenish foreign exchange reserves and boost government revenues. 15. Reestablishment of the administration and the growth of revenues have allowed the resumption of government services on a limited scale. In the education sector, schools have reopened, teachers are being trained, and enrollments, in absolute terms, are higher than pre-war levels. The average elementary school enrollment ratio remains low, however -- an estimated 30% -- a figure which masks wide variations by gender and by region. The health sector has benefitted considerably from foreign assistance. The number of public health facilities has surpassed pre-war levels, although the quality of facilities varies greatly. In 1982, the National School of Public Health reopened, and a village-level basic health care program was launched. Despite considerable progress, health status in Chad is quite low, with an estimated infant mortality rate of 184 per 1,000 births and a life expectancy of only 43 years. Both the education and health sectors face severe financial constraints and suffer from a lack of personnel, training programs, equipment and supplies. 16. In general, with the exception of the drought year, Chad's economy has recovered rapidly since 1982. Given a good harvest, particularly for food crops, real GDP in 1986 is expected to surpass its 1977 peak. Because of population growth, however, real per capita income will remain below its 1977 level. Modern sector activities have largely recovered. The Central Bank reopened in 1983, and two banks, BIAT (Banque International pour 1'Afrique au Tchad) and BTCD (Banque Tchadienne de Crfdit et de Dip-ts), have resumed operations. Recovery in the subsistence sector and in small-scale entrepreneurial activities has also been impressive, despite the often complete lack of public services and domestic credit. 17. The resurgence of economic activity and the resulting growth in GDP allowed the Government to more than double revenues between 1983 and 1985: from CFAF9 billion to CFAF21 billion. New tax measures and improved tax collection should permit the Government to maintain revenues at this level, despite the loss in cotton export tax proceeds. Although expenditures continue to outstrip revenues, the size of the fiscal deficit relative to revenues fell from 48% in 1983 to 22% in 1984 and 1985. Public expenditures remain relatively low compared to current needs, thanks to the restraint exercised by the Chadian authorities, particularly regarding the size of the civil service. Despite a recent pay increase, civil servants are still receiving only 60% of their 1977 wages in nominal terms. 18. Bank credit has expanded rapidly in the last three years, with credit to the public sector declining to the point where it represented only 5% of total domestic credit outstanding by the end of 1985. The expansion of credit, along with a balance of payments surplus (discussed below), led to a 60% increase in money and quasi-money in 1984. However, the cotton crisis and the recent deterioration of the balance of payments caused the growth in money supply to slow to an estimated 11Z in 1985. No consumer price index has been compiled in Chad since 1979. On the basis of limited information available on selected commodities, the average annual inflation rate over the 1979-85 period was on the order of 8-10%. -6- 19. Chad's balance of payments, like most economic indicators, has varied with the fortunes of cotton. The large increase in cotton exports and the high level of external financial assistance extended in 1983 and 1984 produced surpluses in both the current account and the overall balance in those years. In 1985, a relatively small cotton crop led to a lower volume of cotton exports which, at a lower world price, severely reduced export earnings. At the same time, continued economic growth induced an expansion in imports and contributed to bringing about a current account deficit of approximately CFAF40 billion (US$89 million), equal to 13% of GDP. The deficit was financed by a combination of increased capital inflows for oil exploration and larger drawings on medium and long-term loans. The overall balance moved into deficit for the first time in several years. In recent years, even during periods of reserve build-up, Chad continued to accumulate external arrears because of the budgetary difficulties experienced and the statutory limit on the outstanding credit available to the Government from the Central Bank for Central African States. 20. The Chad Government is committed to resuming debt service payments and has worked with its major creditors to reconstruct its debt records, settle arrears with multilateral organizations, and begin repayment on a limited basis of arrears and current debt-service obligations. The reconstructed records show an end-1985 stock of debt outstanding and disb-irsed of US$136 million (not including US$17 million in interest arrears), or a debt-to-GDP ratio of only 21% - among the lowest in Africa. Debt service was US$7.8 million in 1985, implying a debt-service ratio of just 14%. The Chadian Government earmarks revenues for a Debt Amortization Fund (CAA), about one-third of which have come from Cotontchad's cotton production and exports. Despite the loss of an estimated CFAF 520 million (US$1.4 million) in earmarked cotton revenues, CAA's total resources are'expected to rise from CFAF 1.3 billion in 1985 to over CFAF 1.8 billion CFAF (US$5 million) in 1986, thanks to new tax measures and increased rates on other goods (e.g., beer, cigarettes). This level of resources, however, will permit Chad to pay only two-thirds of its estimated 1986 debt service of US$7.5 million. The Government intends, therefore, to seek Paris Club negotiations to reduce its 1986 debt service obligations to the level of CAA's available resources. In addition, the Government and its creditors must develop a plan to begin settling arrears, estimated in late 1985 at US$61 million (US$44 million in principal, US$17 million in interest), a portion of which can be addressed at the Paris Club negotiations. Government Objectives 21. With the restoration of relative political stability and the alleviation of last year's drought situation, Chad is ready to begin the transition from ad hoc emergency operations to longer-term development planning. Last year, the Government prepared, with UNDP assistance, an Interim Plan for 1986-88, which was presented to the donors at a UNDP-sponsored Round Table Conference held in December 1985. In that document, the Government identified the following broad objectives: achieving sustainable food security; resettling the population displaced by the drought; reconstituting the livestock herd; improving rural water supply and combatting desertification; rehabilitating the transport system; -7- rebuilding the industry sector and exploiting the country's petroleum resources; intensifying and diversifying export production; rehabilitating the commercial and financial structures; and providing basic health care services. In pursuing these objectives, the Government aims to follow two basic principles: (i) engaging in limited public sector intervention, and (ii) encouraging private, mostly small-scale and traditionally-rooted initiatives. 22. The Interim Plan included a list of nearly 200 project outlines which require further study. The Government's goal this year is to work with the donors to define appropriate sector strategies and to transform this list of projects into a realistic pliblic investment program - one which takes into account Chad's financial constraints (which are heightened by the cotton crisis) and limited administrative capacity. Chad has not produced an investment budget since 1975; it will use this 1986 exercise as a learning process, leading to more systematic investment programming in subsequeut years. At the Round Table Conference, the donor community pledged to help build the Government's capacity for development planning and investment programming. PART II. BANK GROUP OPERATIONS IN CHAD Evolution of External Assistance and IDA Operations 23. Before the civil war, Chad received a significant, although not exceptional, amount of external assistance. From 1971 to 1975, aid disbursements averaged US$57 million per annum, with the yearly total rising from about US$11 per capita to over US$20 over the five-year period. An estimated 30% of this consisted of technical assistance and approximately 80% was grant aid. Although the absolute annual amount of grant aid more than doubled over this period, the share of grants fell from 86% in 1972 to 77% in 1975 as a result of increased borrowing. Nevertheless, Chad's external indebtedness has remained fairly low and on favorable terms. By the end of 1975, IDA lending amounted to about 20% of Chad's borrowing from official sources. 24. Since 1968, Chad has received 16 IDA credits totaling US$79 million. Ten of these (amounting to US$30 million) have been fully disbursed; four (amounting to another US$30 million) are still disbursing; and two, totaling US$19 million, were cancelled due to the. disrupticn caused by the civil w4r. Of the 14 disbursed or disbursing credits, six were for agricultural or rural development, five for education, two for highways, and one for livestock development. All Bank Group operations in Chad were officially suspended in July 1979 because of accumulated arrears on IDA credits, although escalating hostilities had already halted project activities and led to considerable damage to project assets. The status of present Bank Group operations in Chad is given in Annex II. Most official donors and non-governmental organizations (NG0s) also withdrew from Chad during the war, although many returned in 1982 and 1983, soon after President Hissein Habri gained control of N'Djamena. -8- 25. The donor community has since been quite active, contributing an average of US$117 million per annum in the 1983-85 period, 2/ 90% of which was grant aid. More than half of the total (US$61 million per annum) took the form of emergency assistance, including large amounts of food aid; US$11'million per annum consisted of budget support (mostly from France and the US) and US$45 million per annum was project-related development assistance, comprising the entirety of Chad's development budget. Key areas of intervention have been: reestablishment of the administration (France); technical assistance to ministries (France, UN); road rehabilitation (France, EDF, US, Italy); non-cotton agricultural development (US, EDF, France, UN, Switzerland); cotton production (France, EDF); livestock development (France, EDF); health planning and care (US, France, EDF, UN); and drought relief (US,UN). NGs: have also been very active in Chad's relief and development efforts through small, independent projects. In addition official donors have channeled iunds through NGOs during periods when, or in areas where, Chad's own administrative capacity was particularly weak. The proliferation of donor and NGO activities following the war has accentuated thp need for improved aid coordination -- a problem which was raised at the Donors' Round Table Conference late last year. Relations with the IMF 26. In September 1985, Chad purchased SDR 7.0 million under the compensatory financing facility in respect of a merchandise export shortfall. This 3hortfall was largely due to the serious drought in 1983/84 which adversely affected cotton production. In 1985, Chad also began discussions with the Fund on a possible adjustment program that could be supported by the Fund. In February 1986, a Fund mission conducted Article IV consultation discussions with Chad and continued discussions on a possible Fund supported program. At this time, the dialogue on an adjustment program is still actively continuing. An appropriate program could be supported with the resources of the Structural Adjustment Facility. Under this Facility, Chad would be able to make drawings of 20%, 13.5%, and 13.5% of its quota over the next three years (Chad's quota in the Fund is SDR 30.6 million). During the last two years, Chad has also received several technical assistance missions from the Fund. These include a resident general fiscal advisor, who has been in pla,e: since June 1985, for a two-year period, and a resident advisor in the area of domestic and external debt for one year from August 1985. Bank Group Strategy and Future Operations 27. Bank efforts to resume IDA activities in 1982 and 1983 were foiled by renewed hostilities, although periodic supervision missions were undertaken. In 1983, the suspended projects were redesigned to fund priority activities in agriculture, education and institution building. Disbursements on these redesigned projects did not resume until September 1984, when Chad made its first payment on a plan to settle US$1.9 million 2/ Using the 1984 average exchange rate of 437 CFAF/US$. -9- in IDA arrears. By May 1985, the arrears situation was settled, paving the way for new IDA lending. An identification mission in October 1985 began to outline the Bank's strategy in Chad and also recognized the severity of the impending financial crisis in the cotton sector. 28. The Bank's current strategy supports the objectives of Chad's Interim Plan (para. 21), and focuses on helping to coordinate activities within the Government's priority program related to: (i) achieving sustainable food security; (ii) overcoming the cotton crisis; (iii) rehabilitating and ioproving essential infrastructure, especially reconstruction and maintcrance of the road network; (iv) diversifying production, especially by increasing offtake in the livestock sector and exploiting oil resources; and (v) strengthening administrative, economic management, and policy analysis capabilities through institution building. These goals will be pursued through policy dialogue, lending, and economic and sector work in the transport, agriculture, petroleum, and education sectors, as well as through intervention in the critical cotton subsector. In addition, the Bank has agreed to take the lead in coordinating major donor assistance for transport, petroleum and cotton. Missions in February and March 1986 appraised projects in transport, agricultural rehabilitation and the one proposed here, while petroleum and education activities are in the process of identification. The operations proposed for these sectors are intended to fit into "sectoral action programs" which have been defined to take into account Chad's priority needs as well as constraints. These action programs (except the cotton program, which is covered in Part IV) are briefly described below. 29. The Road Transport Sector Action Program. As part of a five-year comprehensive transport program, the Bank will coordinate donor efforts to rehabilitate existing roads and eliminate key bottlenecks in the road network; lay the foundation for routine and periodic road maintenance, to be financed increasingly from domestic resources; help finance maintenance operations over an extended period; assist in establishing an efficient, competitive transport industry; and strengthen the Government's institutional capacity for planning, maintenance, and supervision in the transport sector. A proposed emergency Highway Maintenance Project scheduled to begin in FY86 will complement and coordinate efforts undertaken by other donors and will include: (i) equipment and recurrent cost financing for maintenance of 2,000 km of roads over a two-year period; (ii) rehabilitation of several critical road links; (iii) provision of ferries and reconstruction of access ramps; (iv) technical assistance to transport institutions; and (v) resources for follow-up studies on road rehabilitation, civil aviation, and the transport industry. 30. The Agricultural Sector Action Program. An agricultural rehabilitation project is planned for FY87 primarily consisting of: (i) technical assistance to help define development policies and implementation strategies in areas such as research and seed production, extension and training, and rural-engineering and agricultural planning; (ii) pilot schemes for small-holder crop production using supplementary irrigation (i.e., natural vadis and appropriate riverside sites with pumped water); (iii) a national scheme for organizing locally-autonomous maintenance of rural water points; and (iv) important subsector studies of crop diversification potential, rice production strategies, irrigation potential - 10 - and national water licensing authority, livestock processing and marketing, soil conservation and afforestation, and rural credit needs. Together these actions would lead to a sector study in 1987 and an Agricultural Sector Project in FY 1988. 31. The Petroleum Development Action Program. The Bank is currently revising and updating a 1983 study of petroleum potential in Chad to analyze the costs and benefits of alternative options for petroleum development and identify a project suitable for Bank Group financing. The draft final report has been received in May 1986 and is being reviewed. The project components will be specified following Bank's review of the report. Any eventual petroleum project would require a large amount of cofinancing, the active participation 6f the private sector, and technical assistance to strengthen the Government's management of the sector. 32. The Education/Training Sector Action Program. The program for this sector has three components: (i) to mount (possibly under UNDP financing) a training program aimed at increasing efficiency in the Ministry of Education and possibly in the Human Resources Division of the Ministry of Planning; (ii) to provide operational training in the sectors identified as top priority for the reconstruction of the country; and (iii) to prepare, on the basis of sector work to be conducted in FY87, a project aimed at restoring the basic education system and developing flexible training formulae in order to respond speedily to emerging employment needs, especially in the productive sectors. PART III. THE COTTON SECTOR A. Background 33. Cotton is produced throughout the sudanian zone in Chad, particularly in the western districts (see map). Production was introduced in 1928 by mandate of the colonial authorities, which obliged all farmers in the south to cultivate about 1/2 ha. In 1958-60, a cotton production intensification program was undertaken by the Government with assistance from FAC, and this was supplemented in 1965/66 with assistance from EDF. The cooperation among these three parties led to the implementation of a "cotton plan" during 1972-77 which, in turn, gave way to the on-going long-term program for the integrated agricultural development of the southern region. Despite its broad title, the program focused primarily on improving the efficiency of cotton production, although since 1982 some efforts have been made to improve food production. 34. As previously noted (para. 7), cotton plays a dominant role in Chad in terms of its contribution to the market economy, export earnings and government revenue. Furthermore, nearly 650,000 people are actively engaged in cotton production, from which each derives about CFAF15,000 (US$42) per year. The activities associated with cotton production, such as ginning, and to a lesser extent oil extraction and textile mnufacturing, account for more than one-third of national industrial production. Last but not least, the cotton sector has been a major source of funding for the Debt Amortization Fund (CAA). For example, in 1985, the CAA received 42% of its revenues from this source, consisting of: (i) a - 11 - special levy on cotton exports; (ii) special taxes on oil and soap; and (iii) guarantee fees paid by Cotontchad. 35. Chad's cotton is of the "medium staple" variety and good in quality. Normally, Chad accounts for less than 1% of world output and, as a small exporter, is a price taker on the world market. 36. There is a paucity of agricultural statistics in Chad. Although information on cotton is better than for the sector as a whole, the sector-wide deficiencies hinder the analysis of cotton itself - its place in the sector, its competition with other crops, etc. The collection of agricultural statistics is the responsibility of the national extension service (ONDR, para. 53), whose agents are primarily concerned with cotton; this task was adversely affected by the civil war. Correcting this situation by strengthening ONDR's statistical unit is among the priorities of the Government. Until this is achieved and produces results, all agricultural statistics should be interpreted with caution. B. Production Environment Area and Yields 37. The cotton producing area in Chad has diminished since independence: from 1962 to 1975 it varied around 300,000 ha, and since then it has been reduced to an estimated 148,000 ha. This reduction is attributable to: (i) technical advances affecting yields; (ii) relative stagnation in the producer price (raised from 80 CFAF/kg to 100 CFAP/kg since 1983), which made traditional methods of cultivation only marginally profitable; and (iii) a conscious decision by Cotontchad to limit the production area starting in 1980. About two-thirds of cotton production is based on intensive production techniques, involving the use of insecticides, chemical fertilizers and, in some instances, animal traction. Producers receive these chemical inputs on credit, depending on their expected area of intensive cultivation. They repay the credits when their cotton is marketed, based on a "per hectare formula" which covers the combined costs of the insecticides and fertilizers, minus subsidies. The sibsidization rate of these inputs in recent years has been approximately 50%. 38. Intensive cultivation expanded steadily after the introduction of chemical inputs in 1960 up until 1979, when it reached 100,000 ha, or 56% of the total area devoted to cotton. It then dropped significantly as a result of political instability and hostilities in the sudanian zone, recovering only after 1982. An estimated 95,000 ha were under intensive cultivation in 1985/86, representing 64% of the area planted to cotton. 39. The adoption of intensive production techniques has substantially raised cotton yields. In the 1975-81 period, seed cotton yields averaged about 500 kg/ha. This output level was surpassed in 1982 and 1983 when yields rose to 741 kg/ha and 902 kg/ha, respectively, levels which were similar to those of other West African countries. Chad's estimated yield for 1985/86 is around 700 kg/ha, which is lower than the average yield for West Africa in 1984/85 of 1,080 kg/ha. Increasing use of modern inputs has unquestionably raised the productivity ol cotton cultivation in Chad. - 12 - Nevertheless, the level of fertilizer application has been reexamined in light of the current financial crisis in the sector, and the level proposed for the 1986/87 season is lower than in recent years. The optinum use of inputs will be reviewed for subsequent seasons on the basis of the findings of the Bank-cotton sector study and the experience of the 1986/87 season. 40. Increased yields have been largely offset by shrinking acreage. Total production has been erratic, with a record high of 174,000 tons in 1975/76 and a second peak of 158,000 tons in 1983/84. Due to cutbacks in the production area and lower yields, production in the 1985/86 crop year was only 99,000 tons. Excluding the abnormally low production levels of the war years and the peaks cited, the overall trend in production has been slightly upward. There have been two recent developments concerning cotton production: (i) research to improve yields for food crops grown in rotation with cotton; and (ii) consolidation of cotton cultivation in the ecologically most favorable zones, which permitted Cotontchad to make an initial reduction in the number of ginneries from 22 to 17, with a concomitant reduction in production costs. Subsequent re-examination reduced this to 13 and, with the opening of a modern ginnery, to five for 1986/87. These operations are being reviewed under the cotton sector study in progress. Production Assistance and Incentives 41. The intensive production program financed by Cotontchad, the FAC and the EDF, is important for continued high levels of cotton output in Chad. Fertilizer application involves inorganic compounds and urea. For pest management, cotton seed is treated before distribution and the fields are sprayed during cultivation. ULV sprayers were introduced in 1973 and, by 1985, had totally replaced traditional methods. Use of animal traction has declined as a result of the war. Equipment for animal traction was available at subsidized prices until 1980, when SIMAT, the supplying parastatal, was forced to close down, reopening only last year. 42. There are few other Government actions which support cotton production. Agricultural credit is not formally organized and, with the exception of the credit extended under the intensive production program, farmers must rely on traditional, informal credit sources. Extension services deteriorated severely during the hostilities, with all training and follow-up activities suspended entirely for nearly four years. The ONDR is now operating, but is comparatively weak due to caliber of staff, lack of training, and inadequate remuneration and support. 43. The orice of cotton is a major determinant of production, although this was not adequately recognized in past policy-making. Several studies provide evidence that relative prices influence to a considerable extent the level of cotton production vis A vis the main competing crops (groundnuts, cereals, and tubers). Yet, whereas all cotton is purchased by Cotontchad at prices fixed at the beginning of the season, the prices of food crops fluctuate with the market. There is also evidence that cotton producers are responsive to changes in absolute prices; yet producer prices were kept unchanged for extended periods. The nominal price of seed cotton improved by 20% between 1981 and 1985, but the financial margin remained low in real terms. Although this has influenced the adoption rate for - 13 - intensive technology, cotton has nonetheless been generally more profitable than the main competing crops. The margin varies considerably, as food crop prices have fluctuated over the years. According to a study in 1985/86, net returns per man day of comparable crops were as follows: CFAF Cotton, traditional method 324 Cotton, intensive method 550 Sorghum 314 Rice, traditional method 240 Groundnuts (marketed locally) 503 Although at the micro level food crops are sometimes competitive with cotton, severe marketing constraints (particularly, Chad's isolation, limited neighboring markets, and poor transportation infrastructure) make large-scale production of food crops for cash untenable. The importance of cotton as a guaranteed source of small-farmer income can be demonstrated by: (i) the rate of adoption of intensive technology despite restricted financial margin; and (ii) continued intensive production throughout five years of disruptive civil war and drought. Marketing and Processing 44. Seed cotton is processed in ginneries belonging to and operated by Cotontchad. The recent ginning yields range from 36 to 38%, slightly below the West and Central African average. The cotton seed by-product is either burned as fuel or crushed to produce oil. The existing oil mill also processes groundnuts and has a total crushing capacity of 60,000 tons. Most of the cotton lint is exported. About 1,500 tons, equaling 4% of the total output, are sold to Chad's only textile mill, STT, at a preferential price. Principal export customers are Portugal (which, in 1984/85, imported nearly 40Z of Chad's exports), Germany, Spain and France. 45. Chad's landlocked nature obviously reduces its competitiveness on export markets. Its main export routes all cover over 2,000 km to the sea, and include: (i) via Cameroon, i.e., from Chad to Ngaound6ri by road, and from Ngaoundirg to Douala by rail. The carrying capacity of this route is about 90,000 tons, although limited storage space at Douala is a major disadvantage; (ii) the transequatorial route, i.e., from Chad to Bangui by road, from Bangui to Brazzaville by river, and from Brazzaville to Pointe-Noire by rail. Although the longest route, this route is also the most economical. Its carrying capacity, however, is only 20,000 tons and serious bottlenecks occur at Pointe-Noire; (iii) via Nigeria, i.e., from Chad to Maiduguri by road, and then to Lagos or Port Harcourt by rail. This route is the shortest, but it is no longer used due to prolonged closings of the Chad/Nigeria border and serious backlogs at Nigerian ports. C. Main Institutions 46. In addition to Cotontchad, the main institutions involved in the cotton sector are: the Cotton Stabilization Fund (CSPC); the Rural Development Agency (ONDR); the Cotton Research Center (IRCT-Tchad); and the French Cotton Development Company (CFDT). The activities of these key - 14 - institutions and their interrelationships are briefly reviewed below are summarized in a chart in Annex IV. Cotontchad 47. Cotontchad is a majority-government-owned company, established in 1971. As of March 31, 1986, the company's capital amounted to CFAF 3.8 billion (about US$11 million), shared as follows: CSPC 392, Central Government 362, CFDT 17%, the French Caisse Centrale de Coopfration Economique 2Z, and the local commercial banks 62 (BTCD 3.0%, BICIT 1.5%, BIAT 1.5%). Cotontchad serves as the Government's main instrument in the cotton sector. The company currently employs about 2,000 people, of which 200 are located at the head office in Ndjamena. There are four branch offices: one in Moundou, which is the center for technical operations, one in Paris, and two smaller ones in Bangui and Pointe Noire. A detailed organizational chart of Cotontchad is provided in Annex V. 48. A recent agreement between the Government and Cotontchad (November 1, 1985) defines the company's obligations for the next ten years. According to that agreement, Cotontchad is responsible for purchasing, processing and marketing cotton produced in Chad. The producer price of seed cotton is set by the Government on a yearly basis (no later than the planting period in June), after consultations with CSPC. Cotontchad is authorized to retain 20% of its operating profits; the remaining 802 are credited to CSPC. Operating losses are, in principle, covered by CSPC. Cotontchad pays taxes on exported cotton lint (CFAF 76,770 per ton), indirect taxes, and taxes on profits; in addition, it pays levies to ONDR and contributes to the Debt Amortization Fund (CAA). 49. Cotontchad performs a variety of specialized services, including supplying production inputs, coordinating extension services, purchasing cotton seed, processing seed into lint and marketing the outputs locally and internationally. In addition, it has also been the executing agency for feeder road construction and maintenance in the sudanian zone. It supplies modern inputs at subsidized rates (about 50% at present) to farmers as interest-free loans, although Cotontchad pays interest to local banks for these credits. A "standard package per hectare"; is supplied, with the cost of the subsidy borne by CSPC and Cotontchad. Recently, it was agreed that full cost-recovery on inputs would be reached by the 1987/88 crop season (para. 74). Since 1979, Cotontchad has also been processing cotton seed into oil and soap, marketing these products along with other by-products. According to its statutes, Cotontchad can engage in other production activities in the cotton zone. It is now processing groundnuts into oil, but at an insignificant level compared to cotton lint processing and marketing. 50. Prior to 1984, Cotontchad had operating surpluses except during the civil war years of 1978/79 and 1979/80. Until 1984, Chad's production costs for cotton were generally below the average for West Africa, despite the disadvantages of Chad's landlocked situation and poor road network, which inflated transport costs. (Transport costs are approximately 202 of production costs and are more than double the transport costs of other West African cotton exporters.) In 1984/85, Chad's production costs rose sharply, to among the highest in West Africa, and remained high in 1985/86. - 15 - This cost inflation was largelyinfluenced by: i) increased taxation by Central Government with total taxes rising by 270% between 1982/83 and 1984/85 (with no provisions for price stabilization); ii) increased levels of financing by Cotontchad for fertilizers and pest;icides (with subsidies maintained at 50% and no contribution from Government); iii) extended debt burden (with no support from Government); iv) expanded investments (frequently imprudent and with influence exogenous to Cotontchad's management); v) outmoded management controls; and vi) delayed reorganization of Cotontchad (number of ginneries, operating zones, and personnel reduction). These influences were compounded by declining production caused by the drought situation in 1983/84 leaving.Cotontchad with no reserves to counter the sharp decline in world cotton prices in 1985. CSPC 51. CSPC, the Cotton Stabilization Fund, is a public agency, established in 1968 under the control of the Ministry of Finance. Its Board of Directors has nine members, with the Minister of Economy and Trade as President and the Director General of Cotontchad as a member. CSPC's financial resources come from Cotontchad, which automatically transfers 80% of any operating surplus to the fund. CSPC's main objectives are: (i) to guarantee producer prices by funding any operating loss incurred by Cotontchad; and (ii) to support actions aimed, directly or indirectly, at promoting and developing cotton cultivation (e.g. input and equipment supply and subsidization). 52. The CSPC has had weak management, and a portion of the funds received from Cotontchad have been diverted to Government activities unrelated to cotton. Between 1971/72 and 1983/84, Cotontchad transferred a cumulative CFAF 20.8 billion (US$60 million) to CSPC. Yet CSPC was unable to cover Cotontchad's operating losses in any of the fiscal years 1978/79 (CFAF 0.9 billion), 1979/80 (CFAF 4.6 billion) and 1984/85 (CFAF 18.1 billion). CSPC has devoted its resources, rather, to: subsidizing the activities of ONDR, IRCT and the intensification program; investing in local companies such as SONASUT, Cotontchad, STAR, and SIMAT; and financing its day-to-day activities (CFAF 105 million in 1985). During the war, because of the closing of CSPC's office in Ndjamena, Cotontchad took effective control of the CSPC account, not only crediting it, but also allocating expenditures. Despite the reopening of CSPC's Ndjamena office, Cotontchad continues to exercise these functions, highlighting the need to re-examine the significance of CSPC's role in the cotton sector. ONDR 53. The Office National du Dfveloppement Rural (ONDR) is a parastatal organization responsible for national extension services, including training, production supervision, input distribution, credit operations, agricultural statistics and implementation of several development projects. The ONDR is attached to the Ministry of Agriculture and works in liaison with the research, extension, and training departments through regional directorates in the sudanian and sahelian zones. ONDR has a staff of about 1,700 of which 1,300 are stationed in the sudanian zone, working predominantly on cotton production. Cotontchad provides considerable - 16 - financial assistance, inputs and organizational back-up, and, extension services in the sudanian zone are more effective than in the sahelian zone. Nonetheless, due to inadequate planning, coordination, and supervision, ONDR's impact is weaker than it need be. 54. ONDR has traditionally been financed primarily through a levy .of CFAF 12/kg on exported cotton lint. This has been supplemented by grant aid from FAC and EDF (totaling CFAF 140 million in 1985/86, or 151 of total resources), in addition to FAC funds for technical assistance equalling about CFAF 430 million per annum. The current fiscal crisis is forcing ONDR to reexamine its policy and operating strategy. Personnel is to be substantially reduced and an operating plan adopted to focus extension work on priority developments. The Bank is assisting with the evaluation of existing ONDR personnel, and technical assistance would be included in the Bank's Agricultural Rehabilitation Project (FY87) for redefining the policy and strategy of national extension services. Meanwhile, the immediate financing needs will be included in the cotton sector restructuring program. CFDT 55. CFDT is the French international cotton promotion company, partially controlled by the French Ministry for Cooperation and Development. CFDT is a minority shareholder of Cotontchad (para. 47) and its main role is to provide technical assistance personnel and export services. Under the new agreement, signed in September 198J, the assistance covers the industrial, accounting, administrative, and marketing fields. At present, 14 CFDT agents are employed by Cotontchad, in addition to 20 consultants. CFDT also provides financial support to Cotontchad in special circumstances, e.g., during the war, when the local banking system was not functioning; and, more recently, by financing unsold cotton lint inventories and by providing a CFAF 1 billion, interest-free advance. Although in technical fields the performance of CFDT agents has been satisfactory, its impact on management efficiency has been marginal because the staff seconded to Cotonchad has no control over-expenditures. IRCT-Tchad 56. Cotton research is carried out by IRCT-Tchad under the supervision of the Ministry of Agriculture. The IRCT program has focused on breeding trials which centered at Bebedjia, near Moundou, and seeds multiplication which was done on Cotontchad's farm at Bikamba. IRCT employs 11 researchers, including seven expatriates (paid by FAC); its budget of CFAF 295 million is currently financed by French and Chadian subsidies (CPAF 190 million and 105 million, respectively). The Chadian contribution is channeled from Cotontchad to IRCT through CSPC. IRCT's recent work has focused on high-yielding varieties which will allow higher ginning output ratios (40% compared with the current performance of 36% to 39%). The focus of IRCT's work for the past 30 years has over-emphasized variety improvement to the exclusion of production technology, crop rotations and applied research. Since 1982 this fault has been partially corrected by the initiation of food crop trials on rice, millet, soybean and maize. - 17 - D. External Assistance in the Cotton Zone 57. A number of projects are in progress in the sudanian zone. In addition to FAC/IRCT support for research, field extension services are financed by the FAC as part of an integrated rural development project which focuses on the reinforcement of DNDR in the sudanian zone. Although the emphasis is on cotton, this project also provides extension services for rice cultivation, cereals, and groundnuts. The CCCE provides credit to Cotontchad for its investments and is financing the rehabilitation of SIMAT, the semi-public company that produces small agricultural equipment in the sudanian zone. The EDF has recently reoriented its interventions in the sudanian zone from cotton production to the rehabilitation of the food-crop subsector mainly by providing assistance to ONDR's extension services. An EDF project supporting cotton fertilizers and pesticides is scheduled to end in 1985/86 with the financing of inputs for 10,000 ha of cotton production. The World Bank's sole operation in the cotton sector involves financing the ongoing rehabilitation of access roads in the cotton zone through the Rural Projects Fund Project (Cr. 664-CD, approved in 1976), with Cotontchad executing the sub-project. The Swiss cooperation agency finances small rural projects in tha cotton zone mainly involving farmer training in the Centre de Formation A la Production Agricole (CFPA). A number of NGOs are also implementing small-scale projects in the region. In the aggregate, the above projects have had a measurable positive impact on cotton production in the sudanian zone. Until recently, however, little has been done to improve food-crop production. E. Chad's Cotton Crisis The Collapse of Prices 58. The problem of the present world cotton surplus was precipitated in 1985, but resulted from a series of events that stemmed from previous years. The largest build-up of cotton stocks has occurred in China, and is traceable to agricultural reforms in the late 1970s; notably, the procurement prices for cotton were increased in 1979, 1980 and 1983, and the use of high-yielding varieties expanded. Chinese farmers' response to the package of incentives exceeded official expectations and, in 1984/85, production reached 6.2 million tons, having more than doubled in three years. As a result, China switched from being a net importer of cotton to being in a position to be a substantial exporter. However, because of a weak infrastructure and market limitations, China was able to export only 260,000 tons in 1984/85, consequently increasing its stocks to 4.3 million tons, equivalent to 14 months' domestic supply. 59. Events in 1983/84 also set the stage for increased cotton stocks in other exporting countries in 1984/85. In the U.S., cotton growers reduced their cotton acreage sharply in 1983 in response to government incentives; yields also declined due to unfavorable growing conditions. Yields were also lower in other major producing countries, which contributed to very favorable cotton prices before the 1984/85 sowing season. In 1984/85, US policy restraints were eased, and cotton growers in other countries responded to the higher prices received in 1983/84. World cotton acreage increased by an unprecedented 9%; average cotton yields improved by 18% to a record 556 kg per hectare; and cotton lint production - 18 - reached 19.0 million tons while consumption was only 15.1 million tons. These high levels of production will create world cotton stocks estimated at more than 10 million tons by mid-1986, equal to nearly 8 months of world consumption. Nearly 42% of these stocks will be held by China. This build-up has depressed cotton prices to the lowest level in a decade. At the same time, the depreciation of the US dollar accentuated the decline of cotton prices in CPA Francs. The following indices illustrate the drastic changes: 1984 1985 1986 Jan June Jan June Jan* Index of cotton price in US$ 100 97 82 73 59 Index of CFAF/US$ exchange rate (100) (98) (113) (109) (87) Index of cotton price in CFAF 100 97 93 73 51 * Since January 1986 prices have varied erratically because of speculation caused by the expansion of cotton stocks; they improved somewhat in March, but fell back in April. Cotontchad's Management and Financial Problems 60. The events of 1985 underlined the inherent weaknesses in Cotontchad's management, especially with regard to accounting and financial management controls. These problems were exacerbated by the political/military environment in which the company operated from 1979 to 1982, when it was obliged to provide logistic and other support to the military forces controlling the region. Although management functions were severely curtailed, Cotontchad's operations were not interrupted, even at the peak of the hostilities. An initial study, urgently completed in March 1986 and supported by the CCCE with the participation of CFDT, has identified the following management problems: (i) inadequate accounting and financial supervision; (ii) inadequate management of inventories of spare parts, rolling stock and motor vehicles; and (iii) overall weakness of the monitoring and control systems. Cotontchad's production costs increased by 70% in nominal terms between 1982/83 and 1984/85 -- crop seasons with very similar levels of production. The total cost of consumable goods rose by 166%, reflecting poor budgeting procedures, improper procurement, and unnecessary purchases. Financial obligations (debt service and other fees) rose by nearly 800%, although short-term debt could have been substantially reduced if Cotontchad had managed its 1983/84 cotton revenues wisely. Lastly, the wage bill increased by 45%, without justification. Cost accounting, in general, has been very weak. Most recently, a 1984/85 balance sheet was prepared by Cotontchad, with assistance from the CCCE and the CFDT; it was analyzed in the latest study of Cotontchad's financial management, produced by the EDF in April 1986. The last complete audit was also funded by the EDF and carried out by the - 19 - Sociit6 Europeenne d'Audit in 1984. New external audits by independent auditors acceptable to IDA will be carried out as part of the Government's program (paras. 99 and 104 (c)). 61. The collapse of world cotton prices and the management weaknesses of Cotontchad have plunged the company into a severe financial crisis which threatens the whole Chadian economy. The fundamental problem is that the sale price of cotton (FOB) is now well below average production costs. This situation was compounded by Cotonchad's lax management. In 1984/85, Cotoutchad's average expenditures for cotton lint, as calculated from recent balance sheets, were about CFAF 1,055/kg - 42% higher than estimated production costs (CFAF 742/kg). This divergence can be largely attributed to uncontrolled, unnecessary expenditures and generally poor financial accounting. Even if expenditures had only covered actual production costs, they would have far exceeded the selling price for cotton, which averaged only CFAF 430/kg in 1985. The resulting loss to Cotontehad produced an operating deficit of CFAF 18.1 billion (US$40 million) in 1984/85, and is expected to generate a deficit estimated at CFAF 19.2 billion in 1985/86. 62. Cotontchad's recent operating losses have made it impossible for the company to service its debt. The company's outstanding debt as of end April 1986 equals CFAF 49.7 billion (US$138 million), consisting of CFAF 2.6 billion in foreign debt (mainly the CCCE), CFAF 2.1 billion to various public sector agencies, and CFAF 45.0 billion to the domestic banking system, split equally between the two banks, BIAT and BTCD. This debt to local commercial banks represents over 50% of domestic credit outstanding to the private sector in Chad, making Cotontchad's ability to service its debt critical for the survival of the banking system. Of the CFAF 45.0 billion owed to this system, CFAF 12.4 billion consists of loans extended prior to 1980 which were placed under moratorium for repayment between 1984 and 1994. The remaining CFAF 32.6 billion is short-term credits for the 1984/85 and 1985/86 crop seasons (CFAF 26.5 billion), and for 1985/86 and 1986/87 input purchases (CFAF 6.1 billion). In light of Cotontchad's financial difficulties, the Central Bank has already temporarily suspended repayment of principal on short-term domestic loans. Cotontchad's debt service due in FY 1985/86, therefore, consists of CFAF 2.5 billion in interest on these short-term credits, CFAF 1.4 billion In interest and principal on medium- to long-term domestic debt (loan under moratorium), and CFAF 0.3 billion in interest and principal on medium- to long-term external debt. These obligations total CFAF 4.2 billion (US$11.7 million), a sum which Cotontcbad is in no position to pay. At this point, Cotontchad will not be able to finance the upcoming crop season, nor cover its payroll for 1986. F. Outlook for Recovery in the Cotton Sector 63. The donor community adopted a two-phased approach to studying the situation in the cotton sector. Initial studies, already completed by the CCCE/CFDT and the EDF, focused on the immediate, emergency adjustment measures needed to reduce Cotontchad's production costs and improve its management and accounting. A 3econd-phase study, financed by UNDP and executed by the Bank, was launched in April 1986 to assess the options for medium-term restructuring of the sector. This latter study includes: (i) a - 20 - comprehensive financial and technical audit of Cotontchad; (ii) an in-depth review of all aspects of the cotton sector (agricultural production, transport, storage, ginning, price and incentive policies, and ongoing and planned investments); and (iii) possibilities for agricultural diversification. The in-depth review will also analyze the overall macroeconomic framework in which Cotontchad operates and assess the short- and medium-term financial needs in the sector to reestablish the viability of Cotontchad. The initial studies concluded that Cotontchad's profitability can be restored in the medium-term, beginning with breaking even by about 1992/93. This conclusion is based on two factors which are further explained below: (i) the outlook for improvement in the world cotton price in the medium-term; and (ii) the potential for achieving real reductions in Cotontchad's production costs and improvements in its operating efficiency. The conclusions and recommendations of the CCCE/CFDT report were adopted by the Government and were formally discussed with the donors in Ndjamena on March 12, 1986. The donors agreed with the f -ings and expressed support for the adjustment program adopted by the Government. World Price for Cotton 1/ 64. The excess of world cotton stocks will be the major constraint to Cotontchad's recovery in the next two years. This surplus must be reduced substantially in order for the world price to recover significantly. Given the size of world stocks and the present imbalance between production and consumption, the expected growth of world consumption will contribute only marginally to the liquidation of the surplus stocks. Price recovery depends, therefore, predominantly on significant reductions in world cotton production. 65. China seems to have reacted quite quickly to the serious decline in its food crop production in the past few years which has been associated with the increase in cotton production. It has begun to reorient its agricultural production through a significant reduction in incentives to cotton producers in 1985/86. Further reductions have been announced for 1986/87. 66. The US has the second largest volume of surplus stocks, with 1985/86 end-of-season stocks projected to reach over 2.0 million tons, or about 1.2 million tons above the normal target level. Legislation adopted in December 1985 introduced a policy of substantial, multi-year acreage reductions for cotton, combined with price provisions aimed at making US cotton competitive at world market prices. These price provisions will apply for the 1986/87 crop season and subsequent seasons through 1990. Based on this legislation, a progressive reduction in surplus US cotton is anticipated over the next few years. 67. Other cotton-producing countries reduced acreage by about 2.8% in 1985/86 in response to the 21% decline in the world price during the 1/ This section draws on Annex VI: World Cotton Market and Prospects. - 21 - previous season. Current world prices will lead to an estimated further reduction in cotton acreage of 3% or more in 1986/87. 68. The Bank's latest price projections for cotton (CIF North Europe, Middling 1-3/32 inch staple), which take the above production trends into account, are as follows: 1985 1986 1987 1988 1989 1990 1991 (actual) US$/kg current 1.32 1.06 1.10 1.21 1.48 1.66 1.74 constant 1/ 1.31 0.92 0.91 0.94 1.08 1.15 1.15 CFAF/kg current 593 398 385 399 488 548 574 constant 1/ 588 345 319 310 356 380 380 Memo item: FF/US$ 2/ - 8.98 7.50 7.00 6.60 6.60 6.60 6.60 Deflator 3/100.8 114.9 121.00 128.1 136.6 144.4 150.9 1/ In 1984 prices. 2/ The FF to CFAF exchange rate is fixed at FF I - CFAF 50. 3/ Index of the unit value of manufactured goods exported from industrialized countries to developing countries (1984 - 100). The.world price began to plummet in 1985, dropping from a four-year average (1981-84) of 1.77 US$/kg. Full recovery to that level, in current terms, is expected in the early 1990s, although the price in real terms will equal only two-thirds of the 1981-84 average. For projections to 1995, see Annex VI. Cotontchad's Production Costs 69. The CCCE/CFDT and EDF studies identified a number of adjustment measures which could significantly reduce Cotontchad's production costs. The CCCE and the CFDT are continuing to explore cost-reducing options, while the UNDP-financed Bank-executed study (para. 63) will focus on the definition of a medium-term program for restructuring the entire cotton sector. These studies will provide the basis for defining a detailed adjustment and restructuring program. In the meantime, Cotontchad's management is already tackling the urgent organizational problems already identified, and some measures have already been taken to significantly reduce costs. These measures, which are fully described in Part IV, are expected to produce the following reduction in production costs over the medium term, based on an annual output of 40,000 tons of cotton lint: - 22 - Production Costs 1/ 1986/87 1987/88 1988/89 1989/90 1990/91 . . . .............(CEAF/kg).o................. Production costs, (including depreciation and interest on debt) current 639 625 632 643 655 constant 2/ 530 488 461 444 432 Production costs (excluding depreciation and interest on debt) current 556 541 547 557 567 1/ Data refer to crop years (November-October) which closely approximate calendar years. 2/ In 1984 prices. 70. Cotontchad enjoyed a considerable surplus on cotton sales in 1983 and 1984. This situation reversed itself in 1985 as the world price of cotton began to slide towards its lowest point in over a decade, while production costs soared to unprecedented heights. The chart on the next page shows the rapid reversal and resulting deficit gap of 1985 and beyond. If the Government and Cotontchad successfully implement the proposed sector adjustment program, and if Cotontchad's debt burden is satisfactorily rescheduled, Cotontchad can be expected to show a surplus on current operations (not including depreciation and interest payments) as of 1991. World price is projected to reach CFAF 574/kg that year, while produ tion costs, not including depreciation and interest payments, will be reduced to an estimated CEAT 567/kg, generating a modest surplus of CFAF 7/kg. If the results of oil and soap production are included, the operating surplus appears in 1990. This situation is expected to improve in subsequent years, permitting Cotontchad to gradually resume payment of taxes, increase debt service payments, and undertake necessary investments. Reaching this point will require a sustained commitment by the Government and Cotontzhad to greater efficiency and improved management of the cotton sector, as well as financial and technical assistance from the donor community in support of the Government's sectoral adjustment program. - 23 - COTONTCHAD COTTON PRICE PROJECTIONS VS. ESTIMATED PRODUCTION COSTS, 1983-91 s- - Parc Cra) -- -- PGEUCT20NI COTS -. • P COS ~ lmETWIT DE=C 9 2«EEMT 7m- 4W- sae- 1 182 /83 63/84 134/85 el/e 6/7 S7/W ov/8" SJ/M wi,el YEAR - 24 - PART IV. THE GOVERNMENT'S COTTON SECTOR PROGRAM 71. The Chadian Government has reacted rapidly to the cotton crisis and is firmly committed to preparing and implementing, with assistance from the donors, a comprehensive action program to adjust to the crisis and restore the financial and economic viability of the cotton sector. The President and Director-General of Cotontchad have been replaced, and the introduction of improved financial monitoring has led to the arrest of a number of Division Chiefs. The Government has also placed agents in local markets to monitor Cotontchad's purchases of cotton. In September 1985, a financial controller, seconded from CFDT, was hired; he reports directly to the Chairman. Salary and expenditure reducing measures were adopted. A task force (Comiti de Reflexion sur le secteur coton) was created to bring together representatives of all concerned parties, including the primary banks, the Central Bank, relevant Ministries, and rural development institutions. This Comiti de Reflexion is charged with: (i) preparing and submitting for Government's approval a coherent adjustment program; (ii) -seeking donors' support for that program; and (iii) monitoring its implementation. The Government's action program involves two complementary phases: first, an Emergency Rehabilitation Program to cover 1986/87 and 1987/88; and, second, a Medium-term Restructuring/Diversification Program. Phase 1: Emergency Rehabilitation Program 72. The objective of this program is to implement a set of urgent measures aimed principally at reducing production costs and strengthening Cotontchad's management. This emergency program is based on the recommendations of the CCCE/CFDT study which was approved by the Government and endorsed by the donors on March 12, 1986. Another study, financed by the EDF and carried out in March 1986, came to similar conclusions and recommendations as the CCCE/CFDT study. 73. The emergency program, which is already being implemented, covers a broad range of measures affecting all levels of the cotton sector. The measures taken so far include: (i) tighter control over expenditures and improved spare-part stock management; (ii) firing of 450 excess permanent staff; (iii) freezing of salaries at their 1984/85 levels; (iv) discontinuation of year-end premiums and reduction in the number of the staff eligible for housing and cars; (v) tighter control over medical and pharmaceutical expenditures; (vi) closing down of the Pointe Noire agency and laying off of its staff; (vii) cancellation of plans to open an agency in Ngaound6re and build a residence in Garoua; (viii) freezing of all new investments, except the minimum essential investments needed in 1986 and 1987; (ix) agreement with the banking system on suspension of payment on arrears (both principal and interest arrears, previously under moratorium) amounting to CFAF 12.5 billion; and (x) transfer to the Government and CAA of a portion of Cotontchad's debt service obligation toward the CCCE amounting to CFAF 1.7 billion (in agreement with CCCE, the servicing of this debt has been temporarily suspended). 74. Following discussion of the CCCE/CFDT study, the Government agreed to undertake an additional set of measures to reduce production costs further and rationalize operations within the cotton sector. These - 25 - are detailed in Annex VII, together with the respective implementation schedules, the agencies responsible for implementation and monitoring, and the main objectives of these measures. A number of these measures are already underway. The main measures are the following: * At the producer level: (i) moving to full cost recovery on inputs from the 1987/88 season onward, with an intermediary step (75% cost recovery) in 1986/87, with no increase in the producer price of seed cotton which has been set at CFAF 100 CFAF/kg for the moment; and (ii) limiting seed cotton production to a level of around 100,000 tons through adjustment of the area under intensive cultivation. * At the Cotontchad level: (i) closing down of seven ginneries out of 12 in operation (the remaining five ginneries can handle the projected level of 100,000 tons of seed cotton per crop season) and adjustment of the personnel level accordingly; (ii) selling of non-essential or non-performing assets to the private sector (two aircraft, 80 trucks, 69 cars); (iii) closing down of the Bangui branch and laying off the staff; (iv) reducing the number of cotton-buying centers; and (v) reducing the staff at Cotontchad's headquarters; * At the Government level: (i) exempting Cotontchad from taxes (export tax) and other contributions (CAA, ONDR) until its accounts are balanced; (ii) redefining the role of CSPC and reducing its staff; (iii) reducing the staff of ONDR and reassessing its role and objectives. 75. The Government adopted a target production level of 100,000 tons of seed cotton for the first year of the emergency program because: (i) the optimal area recommended for intensive cultivation (75,000 ha), in conjunction with continued traditional cultivation, will yield approximately this volume; and, (ii) further reduction in intensive cultivation and a retrenchment towards traditional production would create the need for an extensive cropping rotation which would be difficult to impose. Lack of such a rotation could lead to over-exploitation of soil resources and reduce the agricultural sector to only low-yield, subsistence production. The technical production package (100 kg. of complex fertilizer plus six pesticide sprayings per hectare) recommended for this volume is considered the minimum needed to ensure intensive yields and maintain producers' interest in intensive cultivation (an interest which has been gradually heightened over the past 15 years). 76. For the 1986 production season, the Bank has accepted the Government's target to produce 100,000 tons of seed cotton. However, this production target will be reviewed by the on-going cotton sector study (para. 63) which is considering the technical, financial, and economic implications of Cotontchad's production policy, using a number of alternative scenarios, including the use of less intensive technology and development of alternative sources of foreign exchange. Similarly, although Chad's cotton producer price is in line with that of neighboring countries, a decrease of CFAF 10/kg seed cotton for a 100,000 ton crop would cut Cotontchad's expenses by US$2.7 million equivalent. In view of - 26 - Cotontchad's severe financial constraints, the feasibility of a producer price decrease must be seriously reconsidered. This is also being thoroughly examined in the study. It is, however, to be noted that the removal of input subsidies will already reduce significantly the average net return to the producers. 77. Cotontchad could generate additional savings by closing down its Paris branch and contracting its activities to CFDT (as is the case for several cotton companies in other countries) at lesser cost. Other cost saving measures might include discontinuing Cotontchad's contribution to IRCT-Tchad activities and mobilizing alternative financing (external grant, preferably) for key research activities. Urgent reorganization of Cotontchad's financial and accounting department, establishment of an internal control department (Contr8le financier), and adequate staffing of these departments are essential for carrying out these measures. These financial management aspects are also addressed in the Bank-executed study, which may lead to recommendations for additional measures, to be agreed with the Government at the first progress review in September 1986. Impact of the Emergency Program 78. Impact on Producers. Freezing of the producer price of cotton at its current level of 100 CFAF/kg, along with the phased elimination of input subsidies, will gradually reduce the profitability of "intensive" cotton cultivation. The Government decided to reduce Cotontchad's losses by increasing cost recovery on inputs, rather than by reducing the producer price for seed cotton in order to allow the farmer (at least for the time being) to decide on input use in the light of an awareness of the true costs of the inputs. Whereas intensive cultivation in recent years generally has shown returns per day 60-120% above traditional cotton cultivation and foodcrop production, the impact of the adjustment program may be to substantially reduce returns on intensive cultivation. However, these returns would still be more favorable than those obtained from traditional cultivation or from production of other crops. Data on returns per day must be improved in order to gain a better understanding of likely changes in the relative*profitability of agricultural products, as well as the impact of these changes on production. The ongoing Bank-executed study of the cotton sector will look into this question in order to determine (i) the optimal level of intensive cotton cultivation in the medium- and long-term; and (ii) appropriate relative prices for agricultural products, in general, and future modifications of the producer price of cotton, in particular. 79. Impact on the Balance of Payments. The impact of the cotton sector on Chad's balance of payments in the recent past and in the future can be summarized as follows: - 27 - (millions of US$) 1984 1985 1986 1987 1988 1989 1990 Total exports, FOB 111 58 49 53 62 77 85 of which: cotton 97 47 39 41 48 59 64 Cotton as a % of total 87 80 79 78 77 76 75 Imported inputs for cotton 32 39 33 25 26 28 29 Cotton trade balance (net) 65 8 6 16 22 31 35 Memo: CFAF/US$ 437 449 375 350 330 330 330 In recent years cotton has provided at least 80% of Chad's recorded export earnings, and as much as 90% in boom years such as 1984. However, excessive and unnecessary purchases of imported inputs undermined the net positive impact of cotton exports. The potential impact of the current cotton crisis in upcoming years is severe. If Cotontchad were to go bankrupt and cease cotton exporting, Chad would lose four-fifths of its anticipated export earnings, with no alternative sources available in the short-term. The impact on the trade balance would be mitigated by the drop in imported inputs, except possibly in 1986 because inputs have already been ordered for the 1986/87 crop season. If Cotontchad continues to export - which it must, given the magnitude of the reduction in export earnings otherwise entailed - the net positive impact will be small in the next few years, but will rise towards a more normal level as the world price for cotton recovers. The donor community can support Chad during this period of adjustment through capital transfers, particularly to finance imported inputs, which will permit Cotontchad to continue export operations while streamlining and restructuring the sector. External financing of imported inputs will also reduce Chad's import burden, thereby mitigating the impact of reduced export earnings on the balance of payments. 80. Impact on the Central Government, Parastatals, and the National Research Institute. The central Government, CAA, ONDR, and IRCT-Tchad will have to forego their usual contributions from Cotontchad in 1986 and until the company again makes an operating surplus. These contributions total an estimated CFAF 3.7 billion (US$10.3 million) and consist of: (i) CFAF 2.8 billion in cotton export tax revenues for the central Government, including CFAF 2.6 billion for the general budget and CFAF 185 million for ONDR; (ii) about CFAF 260 million as direct contribution to ONDR; (iii) CFAF 225 million as direct contribution to CAA; (iv) CFAF 300 million in guarantee fees for CAA on credits to Cotontchad; and (v) CEAF 105 million as direct contribution to IRCT-Tchad. In addition, the reduction in Cotontchad's operations and, in particular, the laying off of personnel will have indirect effects on fiscal revenues through reduced income tax and sales taxes on other goods, although the magnitude of this loss is difficult to ascertain. - 28 - (a) Impact on the Central Government. The direct impact of the adjustment program on the Central Government, CFAF 2.8 billion in revenues foregone, is equivalent to 15% of the Government's 1986 estimated revenues of CFAF 18.9 billion. Current projections indicate that, despite the lost cotton revenues, the shortfall in total revenues from the budgeted level will amount to less than 3%. It is envisaged that more than three-fourths of the foregone revenues will be replaced by (i) the reintroduction of a poll tax (estimated yield CFAF 1.2 billion); (ii) improved customs diuties collection; and (iii) other measures under discussion with the IMF. Revenues in 1986 will, therefore, be only 7% lower than their 1985 level - a critical loss, nonetheless, given Chad's extremely severe fiscal constraints. Lower revenues, in conjunction with increased expenditures, will generate a much larger budget deficit, rising from an average of about CFAF 4.4 billion per annum in 1983/85 to nearly CFAF 7.0 billion (US$19.4 million) in 1986; (b) Impact on the CA. The CAM will forego an estimated CFAF 520 million in cotton revenues, equal to 22% of its 1986 provisional budget. Previously, cotton revenues provided between 40 and 45% of CAA's total revenues, but the Government recognized the need to develop alternate sources even before the impact of the cotton problem was fully realized. Increased tax rates on beer and cigarettes, as well as increased revenues on oil, soap, and sugar, will permit CAA's revenues to rise from CFAF 1.3 billion in 1985 to CFAF 1.8 billion in 1986, although this will still be insufficient to cover Chad's scheduled debt service this year (para. 20). (c) Impact on ONDR. In the absence of alternative sources of revenues, the ONDR would have to forego approximately CFAF 440 million in revenues from cotton, including CFAY 185 million channeled from Cotontchad through the Central Government and CFAF 260 million contributed directly by Cotoutchad. This represents a loss of over three-fourths of its anticipated financial resources for 1986 (para. 53). Given the magnitude of the loss and the importance of ONDR's role, compensatory financing is being sought in the proposed project. (d) Impact on IRCT-Tchad. The 1986 provisional budget for IRCT-Tchad was estimated at the 1985 level of CFAF 295 million. This year, however, IRCT-Tchad will have to forego approximately CFAF 105 million in cotton revenues contributed directly by Cotontchad. Compensation for this 36% loss in revenues is being sought from donors. Phase 2: Medium-Term Restructuring/Diversification Program 81. In addition to its major objective of economic support, through its institution restructuring, the Emergency Cotton Program Credit would - 29 - provide the foundation for accelerating the preparation and start-up of a medium-term restructuring/diversification program. The latter would be financed through the proposed Agricultural Sector Project (FY 88) and might include: (a) diversifying cotton production, reorienting cotton cultivation, introducing alternative industrial crops, and improving the efficiency of food cropping; (b) developing a strategy for applied research; (c) modernizing the planning, organization and supervision of field extension services (ONDR); (d) investing in facilities: buildings, processing and handling equipment for modernizing the cotton spinning and textile manufacture, research and extension services; and (e) strengthening the organization and financial management of Cotontchad (and other rural development agencies). The above two-phased approach provides a convincing basis for support by the donor community. Financial Projections 82. Analysis of Cotontchad's past financial statements and estimations of its future operations have permitted the development of a set of cash-flow projections, using 1986 as the base year, which indicate when and undei what conditions Cotontchad's profitability can be restored. These projections show that Cotontchad could have a surplus on current operations (i.e. before depreciation), including interest payments on outstanding debt, beginning in 1991/92. Without payment of interest, current operations will break even as of 1989/90. The main assumptions underlying these projections include: * Evolution of world cotton prices. The world price of cotton evolves throughout the projection period as indicated in Part III, para. 68 and Annex VI; * Level of production. Cotton production will be restricted to a maximum of 100,000 tons per annum in order to assure financial maintenance of the cotton sector; * Impact of the Government's adjustment program. The anticipated effects of the adjustment measures already adopted by the Government are incorporated into the cash-flow projections; * Cotontchad's debt service. For purposes of illustration only, The base scenario assumes payment of only interest on short-, medium- and long-term debt. Principal repayments are assumed to be suspended throughout the program implementation period. Interest is calculated using the rates originally applied to the loans (no late payment penalty rates are assumed). Since these assumptions involve uncertainty with regard to the world price, the production level, and the debt service, the projection scenario was the subject of sensitivity analyses as noted below. The following table summarizes the results (depreciation not included) of the base scenario cash-flow analysis: - 30 - (in billion of CFAF) 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92 1995 1. Total Income 19.6 20.2 23.9 26.4 27.4 30.4 41.5 2. Total Expenditures 28.3 27.9 28.1 28.5 29 29.4 33.7 3. (Deficit)/Surplus (8.7) (7.7) (4.2) (2.1) (1.6) 1.0 7.8 4. US$ million (24.9) (23.3) (12.7) (6.4) (4.8) 3.0 23.6 5. Deficit/Surplus without (5.5) (4.4) (0.9) 1.2 1.7 4.3 14.6 payment of interest on outstanding debt 6. US$ million (15.7) (13.3) (2.7) 3.6 5.1 13.0 44.2 1/ Includes only interest payments (no amortization of principal) on outstaAding debt; includes minimum and essential investments, assumed to be zer .. of 1988. The projections show that: (i) the total deficit for the next two years will be equivalent to US$29 million (line 6 above; this figure is lower than the one used in the program because it does not include contingencies); (ii) Cotontchad's operating account will yield a small surplus during the 1991/92 crop year (Annex VIII); and (iii) Cotontchad will be able to start repaying principal on out- standing loans after 1991 (Annex VIII). 83. The base scenario projects a break-even point in 1992. The sensitivity analyses on world price and production levels show, over the full range of scenarios, shifts in the break-even point of only one year. Even if world prices were as much as 20% above the base scenario, Cotontchad would break even only as of 1991. The sensitivity analysis of debt service highlights the need to find an appropriate solution to the debt situation, but this could be done in various possible ways, involving various combinations of moratorium, rescheduling, and renegotiation of interest rates. 84. These projections point to the need for a series of support actions from the donor community in order to help stabilize the Chadian economy and create a more solid basis for future development. These actions involve: (i) immediate financial support to maintain the cotton sector over the next two years while restructuring is initiated; - 31 - (ii) a feasibility study for a project to improve the productivity of the cotton sector; and (iii) subsector studies for diversification of agricultural production, emphasizing food production, import substitution and alternative exports. The first of these actions is the focus of this emergency program. The second is being addressed in the ongoing Bank-executed, UNDP-financed cotton sector study. The findings of the study will be discussed at the first review meeting to be held in September, leading to possible additional measures that would be incorporated in the Government's program (Annex VII, para 14 of the letter). The third action (diversification studies) will be initiated under this study and enlarged under the proposed IDA Agricultural Rehabilitation Project (FY87). The proposed follow-up IDA Agricultural Sector Project (FY88) will be an appropriate vehicle for financing the technical and organizational restructuring of the cotton sector, as well as for promoting agricultural diversification. PART V. THE EMERGENCY PROGRAM Background 85. The Government of Chad has set the rehabilitation of the cotton sector as its top economic priority. Acknowledging the size and complexity of the economic and financial problems facing Chad, President Habri appealed to the Bank in November 1985 to take the lead in assisting the Government to formulate an emergency rehabilitation program. The problems confronting the sector were examined in an initial study which identified a set of immediate measures that were discussed at a meeting held on March 12, 1986 in Ndjamena between the Government and the donors. A short appraisal mission followed that meeting. A survey financed by EDF confirmed the findings of the mission as well as the main conclusions and recommendations of the earlier study. This survey was discussed and was well received by the donors at a meeting held in Brussels on April 14, 1986. Cofinancing arrangements were finalized at a cofinancers' meeting in Washington on May 21 and 22, 1986. Negotiations were held in Washington on May 23, 24 and 25, 1986. The Government delegation was led by Mr. Ahmed Krim Togol, Secretary-General of the Presidency. Key events and special conditions are listed in Annex III. There is no separate Staff Appraisal Report. - 32 - Program Ob.Jectives 86. The program would provide substantial support to the first phase of thes Government's cotton sector program (para. 72 and ff.) and pave the way for preparing and financing a comprehensive medium-term restructuring project, including crop diversification. Program Design and Description 87. At this stage, there are no known alternatives to cotton as the principal cash crop and source of foreign exchange for Chad. Diversifi- cation possibilities and their development will be initiated under the ongoing Bank-executed study and deepened under the proposed Agricultural Rehabilitation Project (FY87). Before the diversification possibilities can be identified, studied and developed, and given Chad's absolute dependence on cotton, the rehabilitation of the cotton sector is paramount. Thus, the proposed sector program credit will support the Government's emergency rehabilitation efforts embodied in Phase 1 (Emergency Rehabilitation Program) of the Government's Cotton Sector Program . The details of the action program to which the Government is committed are set out in a Letter of Sector Policies from the Secretary-General of the Presidency to IDA dated May 21, 1986 (Annex VII). The Letter is an integral part of the conditionality under the program. The proposed program constitutes a first set of reforms to be undertaken while we deepen our knowledge of the sector and investigate restructuring and diversification possibilities for the second phase. Given the past experience, the program also gives priority to stengthening Cotontchad's management and establishing appropriate control procedures. 88. The timely implementation of the agreed cost reduction actions and management improvement measures, in conjunction with financial assistance from the donors and a steady improvement in the world market, is expected gradually to make Cotonchad's operations profitable. The financing provided by the proposed credit will permit Cotontchad to continue operations during an initial traroitional period and, in particular, to cover its inputs.program and to strengthen its management through a technical assistance program. The proposed program would cover two years, beginning July 1, 1986, and consist of the following components: (i) financing of Cotontchad's inputs program; (ii) financing of Cotontchad's:management improvement and financial control through provision of external audits and technical assistance services, training, and studies to help prepare a medium-term restructuring/diversification program; (iii) support for the continued qperation and reorganization of key institutions in the 'cotton sector, particularly extension services (ONDR) and research activities (IRCT). - 33 - Implementation 89. Cotontchad will be responsible for overall program implementation and monitoring, including preparation of annual budgets, quarterly and annual progress reports, and the medium-term restructuring program. The program components which support ONDR and IRCT would be implemented by the General Directorate in the Ministry of Rural Development. Close monitoring is essential for the successful implementation of the Emergency Rehabilitation,Program. Under the program, Cotontchad's monitoring capacity would be strengthened through: (a) reorganization of Cotontchad's financial and dccounting department, and (b) recruitment of a program coordinator/financial controler who would report directly to Cotontchad's Director General. The program coordinator, financed by IDA, would be recruited internationally. The implementation schedule is given in Annex IX. Overall Financing Needs 90. The financing needs for the cotton sector for the next two years (1986/87 and 1987/88) include: (a) a cash-flow deficit of US$32.4 million equivalent (Annex -VIII) and working capital requirements of US$9.5 million; (b) support to managment (technical assistance, audits, studies) for US$1.1 million; and (c) support to ONDR and IRCT-Tchad for US$4.3 million. In additon to the above which total US$47.4 million, taxes foregone for the Government as a result of the cotton crisis amount to US$15.6 million. Theseneeds do not include Catontchad's debt service (US$18.3 million.for interests, and US$102.7 million for principal). The Government is pursuing its dialogue with donors and the Central Bank with a view to finding a satisfactory solution to the debt service problem. In addition the United States and France have agreed to provide budgetary support to cover the Government's revenue shortfall. Proram Cost and Financing 91. The total costs of the emergency program, net of taxes and duties is, as noted above, about CFAF 17.1 billion (US$47.4 million), with a foreign exchange component of about US$39.4 equivalent. The costs are based on prices in Chad in March 1986. Estimated costs for each program component are given in the project summary and in Annex X which shows also the percentage of foreign exchange for each component. Price contingencies of 10% of total program base costs have been included. 92. The program is to be financed by an IDA Credit of SDR 12.8 million (US$15 million equivalent). Other donors would cofinance the program through parallel arrangements with the Government as follows: - 34 - (a) CCCE would make available to Cotontchad total financing of PF 112 million (US$15.6 million equivalent) through: (i) reallocating of FF 38 million under a 1985 loan; and (ii) special new loan of FF 74 million. The 1985 loan is over 15 years, including a 5 year grace period, with a fee of 0.5Z and at an interest rate of 0.5%. The special loan, scheduled for CCCE's Board approval in early July 1986, would be over 30 years, including a 10 year grace period, with a fee of 0.5% and at an interest rate of 1.5% during the grace period and 2% thereafter. CCCE's contribution would finance, in parallel, equipment, transportation, management support and training, and support to ONDR; (b) EDF would provide ECU 15 million (US$14.2 million equivalent) as a grant, including ECU 5 million under the EDF V and ECU 10 million under the Stabex for CY1986, to finance agricultural inputs, polypropylene packing material, and support to ONDR (farm implements and bicycles). The amount of Stabex funds for CY1986 (ECU 10 million) is a conservative estimate. The actual amount could be higher, possibly ECU 14 million. The difference (ECU 4 million) and the Stabex funds expected for CY1987 (ECU 8-19 million) would be made available to Cotontchad as a revolving fund for marketing of seed cotton; (c) The FAC would provide a grant of FF6 million (US$0.8 million equivalent) to finance support to ONDR and IRCT; and (d) The Netherlands would provide a grant of Florin 6 million (US$2.3 million equivalent) to finance fertilizers. Although technically (based on the decline in the world cotton price) Chad qualifies for a drawing under the IMF's Compensatory Financing Facility. the amount would be quite small and the terms unsuitable for the medium to long-term adjustment necessary. 93. The proposed IDA credit of US$15 million equivalent would be lent to Government under normal IDA conditions, including 10 years grace. The credit would finance 31.6% of the total cost of the program net of tax and duty (39.1% of foreign costs and 18.11 of local costs). The funds woula be used for purchasing inputs, spare parts, fuel and lubricants, audits, studies, and consulting services for Cotontchad. The credit would also finance office equipment and operating costs for the Program Coordination Unit. Of the total credit, up to about US$600,000 (SDR 500,000) would be available for retroactive financing to cover the costs of the audit of Cotonchad's 1984/85 accounts (initial audit) and the recruitment of the program coordinator. 94. Proceeds of the IDA 'credit would be passed on by the Government to Cotontchad as equity within arrangements, satisfactory to IDA. Farmers' repayments against short-term credit for inputs (insecticides, fertilizers, sprayers) and medium-term credit for equipment would be passed on by the Government to Cotontchad as equity. - 35 - Program Cost and Financing 1/ CFAF LCS$ billion million Ar financing of: EDF 4.9 13.7 Inputs, farm, implements, support to ONDR. CCCE 5.6 15.6 Operating costs support to ONDR, inputs. FAC 0.3 0.8 Support to IRCT. The Netherlands 0.9 2.3 Inputs. IDA 5.4 15.0 Inputs, audit, studies, TA. Total 17.1 47.4 1/ See Annex I for details. Management and Coordination 95. The Director General of Cotontehad would be responsible for implementing the program. A program coordinating unit (PCU) would be established in the Director General's office to provide management control for Cotontchad and to monitor the progress in implementing the program. A proven administrator and management control specialist would be appointed for two years to head the unit. Working with two Chadian counterparts, the program coordinator would advise the Director General on organizational * matters and monitor the physical and financial performance of Cotontchad relative to Government's emergency action plan supported by the donors. The PCU would provide weekly progress reports to the Director General and these, together with Cotontchad's balance sheet, would be sent as a monthly report to the donors, together with recommendations for amendments and further improvements (para. 99). The IDA program would finance the recruitment of the program controller, the provision of a vehicle and office equipment, and the financing of support staff and operating costs. At negotiations, assurances were obtained from Government regarding objectives, organization and operation'of the PCU. The establishment of the PCU and selection of a program coordinator would be a condition of disbursement for the first tranche of the IDA program credit. An IDA mission would visit Chad in July 1986 to supervise progress in implementing the program and to agree on the initial work program for the PCU. - 36 - Procurement and Disbursement 96. The proceeds of the Credit are estimated to be disbursed over 18 months. Procurement procedures have been designed to speed up use of funds while ensuring efficiency and economy in the process. To facilitate disbursement and procurement, a Special Account would be established in a commercial bank, the Banque Tchadienne de Crddit et de D6p6ts (BTCD) by the Government on behalf of the beneficiary, Cotontchad. The BTCD would be responsible for maintaining the accounts of this Special Account. After credit effectiveness, an initial deposit of CFAF 720 million, corresponding to US$2.0 million, would be made by IDA into the Special Account. This account would be replenished regularly up to the limit of the First Tranche (see below) on the basis of fully documented reimbursement applications for amounts in excess of US$0.5 million and on the basis of statements of expenditures under that amount. The minimum amount of replenishment applications would be US$500,000. The BTCD would indicate on the statements of expenditures the nature and origin of the goods and services, as well as the payment date, and would maintain all relevant supporting documentation (invoices, import certificates and evidence of payment) for review by supervision missions and audits. Provision has been made to allow retroactive financing of up to US$600,000 to cover the costs of the audit of Cotontchad's 1984/85 accounts, and the recruitment of the Program Coordinator. 97. The proceeds of the proposed credit would be disbursed in two tranches as follows: (a) a first tranche of US$10 million from the IDA credit would be available immediately upon effectiveness of the Credit (expected in August/September 1986); (b) a second tranche of US$5 m..'.ion, representing the balance of the IDA credit, would be made available around June 1987, after a review of performance under the program, provided that the conditions stipulated in Section III (b) of Annex III have been fulfilled. 98. All contracts over US$500,000 financed under the IDA Credit would be awarded after International Competitive Bidding (ICB) in accordance with Bank/IDA guidelines (audit and TA services, and fuel purchases excepted). Audits, studies, training programs, and TA services would be procured in accordance with Bank/IDA guidelines on the use of consultants. Fuel purchases would be awarded through Local Competitive Bidding (LCB) procedures which have been found satisfactory to IDA. Cotontchad would award the contract to the lowest evaluated bid after receiving quotations from the existing three international private petroleum marketing companies. Under this procedure, Cotontchad would benefit from the low price which can be obtained by these petroleum marketing companies which also serve neighboring countries. More important, the ?roducts would be stored by these companies and delivered to Cotontchad progressively. (Using ICB instead would not mean, in this case, necessarily cheaper unit prices, and would require purchasing large quantities at once, which implies that Cotontchad would have to increase its limited storage capacity - 37 - by building new facilities). To the greatest extent possible, purchases would be grouped for bidding. Bidding documents are now being prepared by Cotontchad for deliveries to start around September 1986 (except for fuel). Draft bidding documents and bid analyses would be submitted to IDA for approval before award of contracts. A procurement table is attached as Annex XI. Project Monitoring, Reviews and Audits 99. Cotontchad would establish separate accounts for the program. It would have its annual accounts, starting with the 1984/85 fiscal year, audited by external auditors acceptable to IDA, in accordance with appropriate auditing principles. Terms of reference for the audit of the 1984/85 accounts were agreed at negotiations. This audit will be completed by September 1986, in time for discussion at the first review meeting between the Government, Cotonchad, and the donors. This audit will include proposals for budgetary and control procedures to improve Cotontchad's operations. The auditors will also assist Cotontchad in establishing a monitoring mechanism for the financial aid package, including the preparation of monthly balance sheets and quarterly progress reports by Cotontchad for the Government and the donors concerned. In addition, Cotontchad would have semi-annual audits for the expenses under the Special Account (para. 96). The first such semi-annual audit would be due by March 1987. Biannual review meetings will be held between the Government, the donors' representatives and Cotontchad to assess progress in adjustment and restructuring, agree on budgets, and modify and/or adopt new measures as needed. The first such meeting will take place no later than September 1986 to (i) review the results of the audit report on Cotontchad's 1984/85 accounts; (ii) review the recommendations and conclusions of the IDA-executed study (para. 63) and agree on a complementary action program; and (iii) agree on a detailed budget for 1986/87. Within Cotontchad, progress reporting will be coordinated by the Program Coordinator/Financial Controller in the office of Cotontchad's Director General. Benefits 100. The program would yield the following benefits. First, for the economy, it would enable Chad to survive an abrupt and unexpected drop in its export earnings and Government revenues thereby helping to avert a nation-wide crisis with severe macroeconomic implications. The collapse of cotton production would also throttle industrial growth, in general, and bankrupt the domestic banking system. Pending the recovery of the cotton price, the proposed program would help avoid economic turmoil and the consequential political unrest. Second, for Cotontchad, it would help finance operations through a difficult adjustment period and stimulate the company's medium-term transformation into, once again, a viable enterprise. Third, for producers, it would maintain and improve field services and allow continued processing of their dominant cash crop, thereby preventing the abandonment of cotton production which is virtually their sole source of money income. 101. While it is not feasible to calculate an economic rate of return for this credit, analysis of alternatives to the proposed emergency program - 38 - will be carried out as part of the diversification studies under the Agricultural Rehabilitation Project (FY88), taking into account the recommendations of the ongoing cotton sector study. Risks 102. Given the fragile state of the Chadian economy and the uncertainties concerning the world cotton market, the program faces a number of risks: (a) At the production level, there is a risk tat small-holders will react adversely to the freezing of producer prices and the elimination of input subsidies. This risk is acceptable for four reasons: (i) the lack of alternative crops to meet the farmer's need for reliable cash income (para. 43); (ii) the anticipated seed cotton yield (about 600 kg/ha) is realistic; (iii) the level of production intensity proposed for the next two seasons (para. 75) is lower than that achieved in previous seasons; and (iv) farmers continued intensive cotton production from 1980 to 1984 despite the adverse conditions imposed by civil war and drought. Furthermore, operating costs, already cut back, are now being carefully controlled, and could be further reduced if input use decline-. (b) At the national level, there are political risks, but these are acceptable because of the remarkable progress made by President Hissein Habr6 since 1983 in establishing an effective and stable administration, and the growing support which he has received from the population. (c) At the cotton marketing level, there is the risk that world prices will recover more slowly than currently projected, although this is unlikely because the price forecasts adopted are prudent. (d) There is also a risk that Cotontchad's restructuring will not result in a viable institution; this will be countered by the provision of highly qualified advisors, careful progress monitoring, and the biannual program review meetings to be held with Cotonchad and the donors. 103. On the other hand, the risks inherent in not implementing this program are extremely serious. Without the proposed financing plan, Cotontchad would go bankrupt and the cotton sector would be destroyed. Given the absence of alternative income sources (there are no other cash crops available which the farmer could turn to in place of cotton), this would cause the collapse of Chad's fragile market-oriented economy and - 39 - relegate the country to a subsistance economy with little hope for progress and high risk of renew-d political unrest. 104. Conditionality. The conditionality of the proposed credit is formulated in the Government's Letter of Sector Policies of May 21, 1986 attached as Annex VII. The key conditions are listed in Annex III: PART VI. RECONENDATION I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. I recommend that the Executive Directors approve the proposed Development Credit. A. W. Clausen President Washington, D.C. June 3, 1986 Attachments - 40 - TABLE OF CONTENTS: ANNEXES I. Country Data: Social and Economic Indicators II. Status of Bank Group Operations in Chad III. Supplementary Project Data Sheet IV. Institutional Organization of Cotton Production and Processing V. Organizational Chart of Cotontehad VI. World Cotton Market and Prospects VII. Letter of Cotton Sector Adjustment with matrix of emetgency measures VIII. Financial Projections: Base Scenario IX. Cotton Emergency Program: Implementation Schedule X. Cotton Emergency Program: Components and Financing XI. Procurement Table for IDA Financing AnnE :I -41- - Page 1 of -6 MsT (Mr k =T änTa~%)e RuCaNT LIm IME n~1C fmBE Ie I9BOU. 170vm ESTnATd-. aen c sara Arm" m. ur 9ma an moa *. m> TOTa 12.0 12%.0 126.0 ÅCRCU.TURa 680.0 679.u 411.6.. ce -<aEra (s) .. .. .. 2.. AcT wit wTtou mbna a (KCIMU OF OIL BQUIVALENT) u.0 16.0 22.0 62.3 541.5 ~~UET=0 a n916 ~taWCT9 0MIpAT10COiH-TtAt (TNumdS) 3064.0 365L0 4789.0 URDA PPILATIQN (z f TOTAL) 7.0 11.6 20.1 20.1 32.0 PPArTiUm nECTIONS POPUtATION In TCAR 2000 NihL) 7.3 STATTNART PmuTAIEn (IIL) 22.0 POPULATION INEMII 1.8 POPUILATION DMSITT PEm OJ. M. 2.6 2.8 3.7 33.2 65.& ER s0. Ml. Amt. LämS 6.4 7.6 9.7 112.4 126.8 POPUtATION SE STrCT~Z (2) 0-16 TaS ».8 61.3 60.2 46.0 45.6 5-64 TM 56.7 51.1 56.1 50.8 51. 63 ffl AmU 3.4 3.5 3.5 2.9 2.7 oPLATOU 00ouu ATE <2> • TOTAL 1.4 1.8 2.1 2.8 2.9 URBM 6.5 6.6 6.4 6.4 5.1 CIUD sim RAIE (Ma THUUm) 40.0 60.9 42.4 47.2 67.0 ca=B AlU RaTE (ra TUOGg) 26.5 24.6 20.6 17.8 15.0 GOSS RU ETIKU RäTt 2.5 .6 2.7 3.3 3. FAMLY PLUINGII ACCTOu. A:ImIL (TM) Us <2 OF Esa31n lgg) .. .. 1.0 le 33 6.6 -am im InE OF 00 P500. m t CAPITA (1969-71-100) 117.0 99.0 93.0 3.3 82.9 M CAPITA sUPL w CALOKES (Z or EQUR ns) 98.0 91.0 68.0 87.7 98.3 Pa0mla5 (Iom PE DAT) 76.0 69.0 51.0 51.9 5S.4 oF halC ANMÄL AIUD ML 22.0 19.0 18.0 ]c 18.7 16.5 CKILD (ACE 1-4) DEm RåTE 52.0 42.0 29.0 23.1 16.6 LIFE MP£C. AT MNT(E AS> 39.2 40.1 43.2 47.8 S2.0 WAT mIT. MAT (Cm TIDU) 196.5 172.5 142.0 119.5 104.5 ASS TO SAK «ATRå (PP) TOTAL .. 27.0 30.0 df A.1 42.4 URA .. 47.0 30.0 63.5 *7.3 RURAL, .. .0 3U.Uj 18.3 35.8 Acc855 TO UCUETA DISPOSAL (2 UF7 POFUUATtI>N TOTAL .. 1.0 .. 26.5 2&8 URSAU .. 7.0 .. 65.4 37.7 RURAL .. .. .. 20.8 20.7 POPULaTIWI PER PETSIClAN 72950.0 61900.0 47640.0 4 2701.7 11791.7 PoP. KR NURSING KR808 540.0 If 340.0 3840.01 3308.4 2650.5 POP. KR HOSPITAL - TOTAL 1430.0 740.0 1270.0 1273.6 81.2 UlmAN 220.0 ft 280.0 390.0 42.2 368.8 RAL 1320.0 7 870.0 1900.0 3292.5 6371.9 aDMiISSIIIS PM UOII TAL ED .. 17.1 .. .. 27.2 -Is AIERÅC fflg OF SOUSINOLD TOTAL .. UIN .. 6.Sja . .. uta .. s.6 tt .... A1E13GE 110. O0 KRUO/0al/1i TOTAL ... URBAN ........ L.URAL. .. ... . mERCtaE ou azss Uts ELE. TOTAL ..•••... URna ........ KRAL .. ••••• - 42 - Page 2of 6 CHAD - SOCIAL INOiCATOMS DATA SNEUT CHAD RePBREMC GOUPS END AVEMggEm L NoST (40sT lECmNT ESrNAla) /b b ECENT LOV INCONE AFICA KIDL9 T-CMM 1970. STINATE... sT oF saAA AICA 5. eP saAAs EDUCATI0 ADJUSTED ENROLLKENr RATIC - PIMART: TOTAL 17.0 35.0 35.0 /h 67.8 95.7 HAL& 29.0 52.0 31.0 h 77.6 100.0 PEKALt 4.0 17.0 19.0 71 54.9 83.2 SECONDAKT: TOTAL 0.4 2.0 3.0 /h 13.5 17.1 NALE 1.0 4.0 6.0 7 17.9 25.0 PENaI 0.1 0.3 t.0 7- 9.1 14.8 VOCATIOAL (E Or SKCONDART) 21.0 9 ' 3.3 lb 13.2 5.9 PUPIL-TACfER RATID PRINART 86.0 if 65.0 81.0 /b 44.9 41.1 SECNDAl T 21.0 24.0 .. 27.4 25.5 Inem PASSENCE CAMS/TOUSAND POP 0.6 1.1 .. 3.8 20.8 RADIO RECEIVERS/TOUSAND POm 2.0 16.4 25.6 55.8 107.8 TV RECEIVS/THOUSAND POP .. .. .. 2.6 20.8 NUSPAE ("DAIL.T GDENAL ITEES") CIRCLATION PER THOUSAND POPULATION 0.2 0.2 0.3 5.0 18.4 CINE~A AnNUAL ATTENDANCE/CAPITA 0.1 0.4 /1 5.8 le 0.5 0.4 LAWK r0 TOTAL LAm0R FOC (TDUS) 1197.0 1377.0 1805.0 FEKALC (PErCENT) 23.2 22.8 23.7 34.2 36.2 AGICULTUE (PERCENT) 95.0 90.0 85.0 /d 77.5 54.5 11DUSTRY (MECENT) 2.0 4.0 7.0 7 9.7 18.3 PARTICIPATION RaTE (PERIIT> TOTAL 39.1 37.7 37.7 39.3 36.8 HALK 6.4 59.3 58.6 50.9 47.1 FEALE 17.8 16.9 17.6 28.1 27.2 ECONOMIC DzEEDENCE R1T0 1.1 1.2 1.2 1.3 1.3 I DEUI• 00 PERCENT or PlIVAT IIMM RECEIVED BT aICHEST sE 07 aOUSeLD~ 21.5 .. MIGHEST 201 0P MOUOSO.DS 44.8 .. LOWEST 20E OF IMUSENOLD8 7.7 .. LOUEST 40E OP MOUSIROLDS 19.3 .. ESTIKATED AgeOLUT POvETT ICO LEL (USS Pa CAPITA) URAN .. .. 68.0 l8 165.5 590.7 mUR. .. .. 56.0 7é 95.0 275.3 ESTDAME EA POUE! Nwrm - LEEL (USS PE CAPITA) URSAM .. .. .. 113.1 545.6 RUKAL .. .. 48.0 l 67.6 201.1 ESTINAT POP. DELOU ASOLUTE rOVER= INCONE LEVEL (E) 0RAl .. .. 30.0 /e 36.6 URA. .. .. 56.0 7 61.8 . OT AAL.~.E N0T APPLI.A~LE NOT ES Th& group averag f c& each ludicator are populatwaa-~Mighted arithmlte ae.a. Covrag of commeriea ag the ltcato dcpeud « aonvaMaLla ty of data aud l e at w ~mre. /b Ule. othemwise noted, "Data for 1960" refor ta aW yaar betas 1959 ad 1961; "Data for 1970M batet~ 1969 and 1971; and data for "Nat kcet lbticl~" beteen 1981 ad 1983. / 1977; d 1980; a 1978; Lf 1962; å 1963; L 1976; IL 1968. JUNi. 1985 ANNEK I 43 - Page 3 of 6 ORnNrons OP SOCIAL INDICATOs Noes Although the data ame drawn from mouesm nerallyjudri the moat audhnifaive and reliable. it should also be noted that they my not be nmetstionally comparable baume of the lack of slaAidined dembinosa and concepts used by different countrmes in collectius the data. The data am nonetheless, useful to deemb. ads ofmagnitude indicntds, and characte certain major dFeree. between cousni. Tae referemops aa (I) the samecountry group of the saubebt country and (2) a country group With somewhat higher average mcome than lie country group of the subject coutry (esopt for "High locome Oi Exporters" roup where "Middit Income North Africa and Middle Ean" is chosen because oft anger socio-cultural alinitis). In the eflmee group data the averagas ae population weighted arithmetic means for each indicator and shown only when majority of the countries ain a group has data for that indicator. Siace de coverage ofcountri among the indicators depends on the avatitlality of data and is not uniform. caution must beeercised in rladug averagesof one indicator to anothe. These averages are only ueful in comparing the value o one indicator at a time among the country and reference groupa AREA (thousand sq.km.) Cra* BWt Ra (per rhoso-Number of live binhs in the year Teal--Total surface area comprising land area and inland waters per thousand of mid-year population 960 1970. and 193 data. 1960. 1970 and 1983 data. Crd Deanh Rat (per tkimad)-Number of deaths in the year Arkshml-Estimate of agricultural area used temporanly or per thousand of mid-year population; 1960. 970. and 193 data. permanently for crops, pastures. market and kitchen gardens or to Cram Reprodwealai Rite-Average number oftdaughters a woman lie fallow, 1960, 1970 and 1982 data. will bear in her normal reproductive period if she expi present ag-specific fertility rates; usually five-year averagsending GNP PER CAPITA (USS)-GNP per capita estimates at current in 1960, 1970. and 1933. market prices, calculated by same conversion method as World F Phsim-Actpfhr, Annual (thowsub)-Annual num- Bak Arlas (198143 basis); 1983 data. ber of acceptors of birth-iontrol devices tnder auspices of national ENERGY CONSUMPION PER CAPITA-Annual apparent famly planning program. consumption of commercial primary energy (coal and lignite. AlyPimselsi-Usm(percessiofmsie noe-Thepercn- petroleum, natural gas and hydro-. nuclear and geothermal elec- tap of married women of child-bearing age who ar practicing or tricity) in kilograms of oil equivalent per capita; 1960. 1970. and whose husbandsar practicingany form ofcontrcption. Women 1982 data. of child-bearing age are generally women aged 1549. although for some countries contraceptive usage is measured for other age POPUTATION AND VrAL STATISTICS groups. Tastl Papulaste. &d- Yew (themasuds)-As of July I; 1960.1970. FOOD AND NUTRION and 1983 data. Sp i (pere of r -Ratio of urban to totalfF ai rCp ( -71 )-dex of per population; dilferent de ofitions of urban areas toa capita annual production of all ood commodities. Production abilityo; dtafamong couintiens; 1960u1970 and 199 iata excludes animal feed and seed for agriculture. Food commodities abilityinclude primary comodities (e.g. sugarcane instead of sugar) -O&ao -f*& which are edible and contain nutrients (e.g. coffee and tea are Popuatio in year 2000-The projection of population for 2000. excluded); they comprise cereals. root crops. pulses. oil seeds. made for each economy separately. Starting with information on vegetables, fruits, nuts. sugarcane and sugar bn. livestock, and total population by age and sex, fertility rates. mortality rates, and livestock products. Aggregate production of each country is based international migration in the base year 1990. these parameters on national average producer price weights 196. 1970. and were projected at five-year intervals on the basis of generalized 1932 data. assumptions until the population became stationary. Per Capta Sq* efli (Peosafntaisesmar-Comput- Stationary poparuism-Is one in which age- and sex-specific mor- ed from calorie equivalent one food supplies available in country tality rates have not changed over a long period, while age-specific per capita per day. Available supplies comprise domestic produc- fertility rates have simultaneously remained at replacement level tion. imports less exports. and changes in stock. Net supplies (net reproduction rate - 1). In such a population, the birth rate is exclude animal feed, seeds for use in agriculture, quantities used in constant and equal to the death rate, the age structure is also food procesing and losses in distribution. Requirements we constant, and the growth rate a zero. The stationary population estimated by FAO based on physiological needs for normal activity size was estimated on the basis of the pirojected characteristics of and health considering environmental temperatt body weights, the population in the year 2000, and the rate of decline of fertility age and sex distribution ofpopuLation, and allowing 10 percet for rate to replacement level. wasteathouseholdkvel 1961, 1970 and 1982 dat Itppulion Mouta-Is the tendency for population growth to Aw Capt Sly of! isiel (grow par fty-4rotein content of continue beyond the time that replaic t-level fertility has percapita net supply offood perday. Net supply offood is defined achieved; that is, even after the net reproduction rate has reached as above Requirements for all countries established by USDA unity. The momentum of a population in the year t is mneasuredas provide for minimum allowances of 60 grams of total protein per a ratio of the ultimate stationary population to the population in day and 20 grams of animal and pulse protein, of which 10 gram the year t. given the assumption that fertility remains at tplace- should be animal protein. These standards.are lower than those of meat level from year i onward. 1985 data. 75 gram of total protein and 23 grai of animal proten as an -od* hat*Y average for the world proposed by FAO in the Third World Food hr .s.Ar-Mid-year population per square kilometer (100 hec- Supply, 1961. 1970 and 1992 data tares) of total area; 1960, 1970, and 1983 data. hr Cata Prte Sup &im AniadandPl,-Proteit supply Per sqkm. agriruralJ im-Computed as above for agricultural of food derived from animals and pulses in gram per day; 196145. land only. 1960, 1970. and 1982 data. 1970 and 1977 data. Apmatine Age Sasriner (pzcur)-Children (0-14 years), work- Clili (iWet 1-4) Death At (pa donsand-Number ofdeaths of ing age (15-64 years). and retied (65 years and ove) as percentage children aged 1-4 years per thousand children in the same age of mid-year population: 1960,1970, and 1983 data. group in a given year. For most developing countries data derived Apoffiih Growt Rate (pestr-ea Annual growth rates of from life tables 1960, 1970 and 1993 data. total mid-year population for 1950I60. 1960-70. and 1970-83. Apties Granh Rae (par)-arie-Annual growth rates Lift Expesay a Birt (yeas-Number of years a newborn of urban population for 1950-601960-70. and 1970483 datp. infant would live if prevailing patterns of mortality far all people - 44 - ANNEX I Page 4 of 6 at the time of of its birth were to stay the same throughout its life: P4pl-traer Ratio - primary, ad seondary-Total students en- 1960. 1970 and 1983 data. rolled in prinary and secondary leves divided by numbers or lafmn Martaky Rate (per tassandJ-Number of infants who die teachers in the corresponding Levels. before reaching one year of age per thousand live births in a given year. 1960, 1970 and 1983 data. CONSUMPTION Access to Sqo INw (Peer Of 10,6u1hm Ad Pastincer Cars (per housand papidmi-Passcriger cars corn- rwal--Number or people (total, urban. and rural) with reasonable prise motor cars seating less than eight persons: excludes ambul- access to safe water supply (includes treated surface waters or ances. hearses and military vehicles. untreated but uncontaminated water such as that from protected boreholes. springs and sanitary wells) as percentages of their resp- R Rirdast tonral i r u o pouaion: tive populations. In an urban area a public fountain or standpost excludes un-lic er tiesand in yeawhn located not more than 200 meter from a house may be considered exldsu-inedrcvrsncotisadinyrswn locaed ot oretha 200metrs roma huse ay e csidred registration of radio sets was in elfect; data for recent years may as being within reasonable access of that house. In rural areas not be comparable since most countries abolished licensing. reasonable access would imply that the housewife or members of the houselhold do not have to spend a disproportionate part of the day TVReceiver (ertousandopwist-TV receivers for broadcast in fetching the family's water needs. to general public per thousand population: excludes unlicensed TV receivers in countries and in years when registration of TV sets was Access to Exeres Disposal (percet of ptpdieo)-fort. wha. in efect. and ruaIL-Number of people (total. urban. and rural) served by excreta disposal as percentages of their respective populations. Wwspqw Creallkie thauapapdadi-Shows the aver- Excreta disposal may include the collection and disposal. with or age circulation of daily general interest newspaper defined as a without treatment. of human excreta and waste-water by water- periodical publication devoted primarily to recording general news. borne systems or the use of pit privies and similar installations. Itis considered to be daily" if it appears at least four times a week. Ppiter6m per Physki1an-lbpulation divided by number of prac- Cinema Amwd AnemAnce per Ca per Yew-Based on the tising physicians qualified from a medical school at university level. number of tickets sold during the year. including admissions to apsualo per Nrsing Perse-lpulation divided by number of drive-in cinemas and mobile units. practicing male and female graduate nurses. assistant nurses. practical nurses and nursing auxiliaries. pushion per Hospird B-tasCl, aes, ad r--ml-bpulation Total Labot,Pare (thas-Economically active persons, in- (total, urban. and rural) divided by their respective number of eluding armed forcs and unemployed but excuding housewives. hospital beds available in public and private. general and specialized vrus ct erno coparale 96 a 9 and1983idata. hospitals and rehabilitation centers. Hospitals are establishments permanently staffed by at least one physician. Establishments prov- Arawk (peret-Female labor force as percentage of total labor iding principally custodial care are not included. Rural hospitals. force. however, include health and medical centers not permanently staffed Aricukuw (percent)-Labor forc in farming. forestry. bunting by a physician (but by a medical assistant. nurse. midwife. etc.) and fishingaspercentage of total labor forc 1960. 197Oand 1980 which offer in-patient accommodation and provide a limited range data. of medical facilities. Iniustry (percent-labor force in mining, construction. manu- Adaduis per Hospital Bed-Total number of admissions to or facturingandelectncity. waterandgasas percentageof total labor discharges from hospitals divided by the number of beds. force: 1960. 1970 and 1980 data. P-tipoaate (pweark)-olaf. muak, asnjieolrd-Pacipation HOUSING or activity rates ar computed as total. male and female labor force Average Size of IfH-sehod (pana-n per ho.sehald rr, wham. as percentages of total, male and female population of all ages andrwf--A household consists of a group of individuals who share respectively; 1960. 1970, and 1983 data. Thes ar based on ILs living quarters and their main meals. A boarder or lodger may or partpation rates re-ctingage-sex structureof the population. and may not be included n the household for statistical purposes. long time trend. A few estimates ar from national sources. Average Nmber of Persnm per Roa e-tota, was, ad rwral- Ecamc Depea y Rate--Ratio of population under 15. and Average number of persons per room in aH urban. and rural 65 and over. to the working age population tthose aged 15-64). occupied conventional dwellings. respectively. Dwellings exclude non-permanent structures and unoccupied parts. INCOME DISTRIBUTION Percentage of Dueiags wirk Electricity-roral, wa, and rual- Percentag of Tot Dilposable lncome Mhrk in cash ad kudj- Conventional dwellings with electricity in living quarters as percen- Accruing ta percentile groups of households ranked by total house- tage of totaL urban. and rural dwellings respectively. hold income. EDUCATION POVERTY TARGET GROUPS Adasted Eurofiers Ratios The following estimates are very approximate measures of poverty Primary school - tota. male and female-Gross total, male and levels, and should be interpreted with considerable caution. female enrollment of all ages at the primary level as percentages of Emiimaed Ahm Poverty Income Level (1 per capie)-am respective primary school-ge populations. While many countries ad niral-Absolute poverty income level is that income level consider primary school age to be 6-ll years. others do not. The below which a minimal nutritionally adequate diet plus essential differences in country practices in the ages and duration of school non-food requirements is not affordable. are reflected in the ratios given. For some countries with universal EtsiaW Raisie Pery Imcome Leve (= Fe ceaj-wha education. gross enrollment may exceed 100 percent since some rial-Rural relative poverty income level is one-third of pupils are below or above the country's standard pnmary-school arage per capita personal income of the country. Urban level is age. from the rural level with adjustment for higher cost of Secondary school - total. male and female--Computed as above: 0ngin urban areas. secondary education requires at least four years of approved pri- timated Popoha aeb Absollwe Poverty Income Leve (per- mary instruction; provides general. vocational, or teacher training cem)-wrba ad rwal- Perce.t of population (urban and rural instructions for pupils usually of 12 to 17 years of age; correspond- who ar absolute poor ence courses are generally excluded. Vocational Eralmni (percent of secondary)-Vocational institu- Comparative Analysis and Data Division tions include technical. industriaL or other programs which operate Economic Analysis and Projections Department independently or as departments of secondary institutions. June 1985 . - 45 - Page 5 of 6 CHAD EIERGENCY COTTON PROGRAN ECONONIC INDICATORS * GROSS NATIONAL PRODUCT IN 1995 ANNUAL RATE OF GROWTH (1, constant 1977 prices) USS KlN. 1 1977-1982 1983-1904 1984-1985 GOP at Harket Prices 646 100 Currpnt Account Balance -86.7 -13 -4.8 0.4 19.9 Exports of Goods, IFS 57.8 9 Imports of Goods, IFS 124.0 19 OUTPUT IN 1985 GBOVERNHENT FINANCE Central Goverament Value Added CFAF h. 2 of GP US$ Hin. I 1985 1995 1975 Agriculture 294 44 Industry 136 21 Current Receipts 21.0 7.0 14.0 Services 226 35 Current Expenditures 26.0 9.4 16.0 - Current Balance -5.0 -1.7 -2.0 Total 646 100 HONEY AND CREDIT (billions of CFAF) 1982 1903 1994 1985 Honey and Quasi-oney 34.6 42.4 67.9 71.9 Bank Credit to Public Sector 11.8 11.0 10.5 3.6 Bank Credit to Private Sector 30.0 32.5 45.9 .65.0 Honey and Quasi-money as I GP 15.0 18.0 23.0 24.8 Annual percentage change in: Bank Credit to Public Sector -6.8 -4.5 -65.7 Bank Credit to Private Sector 8.3 41.2 41.6 * Figures for 1985 are preliminary estimates. Because of the disruptive effects of the civil war on Chad's statistical services, the figures in this annex are incomplete and should be interpreted with caution. -46 - mNNX Page 6 of 6 TRADE PAMENTS AND CAPITAL FLONS BALANCE OF PAYMENTS NERCHANDISE EXPORTS (AVERAGE 1962-151 1983 1984 1995 0S$ Kn. I (millions of US$1 Cotton 60.5 80 Exports of Goods, FS 73.1 111.7 57.5 Total Herchandise Exports 74.9 100 Imports of Goods, FS -115.7 -129.4 -124.0 Resource Sap (deficit = -) -42.6 -17.7 -66.5 EXTERNAL DEBT, DECEMBER 31, 1915 Interest Payments and US$ Kin. Other Factor Payments (net) -52.6 -62.4 -101.2 let Transfers 86.6 85.9 81.1 Public & Pub. Guaranteed Debt 136 - - - Non-guaranteed Private Debt n.a. Balance on Current Account -9.6 5.8 -86.7 -- Total Debt, Outstanding & Disbursed 136 Direct Foreign Investment -1.1 7.5 51.6 DEBT SERVICE RATIO for 1985 Net ILT Borrowing -1.8 -1.0 12.2 1 Short-term Capital, Errors and Omissions 20.1 2.6 -8.7 Public & Pub. guaranteed Debt 14 Exchange Guarantee 3.2 4.8 3.6 Non-guaranteed Private Debt n.a. Total Debt, Outstanding & Disbursed 14 Overall Balance 11.8 19.7 -29.0 I8RD/IDA LENDING, December 1985 (In. of US$) IOBD IDA RATE OF EXCHANGE 1983 1984 1985 Outstanding & Disbursed 0.0 39.9 Undisbursed 0.0 15.5 CFAFIUSS 391.06 436.96 449.26 - Outstanding, inc. Undisbursed 0.0 55.4 -47 - ANNEX II Page I of 1 THE STATUS OF BANK GROUP OPERATIONS IN CHAD A. Statement of Bank Loans and IDA Credits (as of March 31, L986) Amount (less cancellations) 1/ US$ Millions - Credit IDA Undisbursed Number Year Borrower Purpose Twelve credits fully disbursed 29.58 489-1 1976 Chad Irrigation 8.00 1.10 664 1976 Chad Rural Project Funds 12.00 5.54 739 1977 Chad Sahelian Zone 1.90 0.52 811 1978 Chad Third Education 8.30 7.70 TOTAL now held by IDA 59.78 14.86 of which has been repaid 4.49 Total now outstanding 55.29 Amount sold 3.3 of which has been repaid 3.3 Total now held by Bank and IDA 55.29 Total undisbursed 14.86 1/ Prior to exchange adjustments. -48- ANNEX III Page 1 of 2 CHAD COTTON EMERGENCY PROGRAM SUPPLEMENTARY PROGRAM DATA SHEET SECTION I - TIMETABLE OF KEY EVENTS (1) Time taken to prepare project 2 months (2) Project prepared by: Government, CCCE/CFDT, consultants and IBRD (3) Initial discussions with IDA: November 1986 (4) Appraisal mission: March 1986 (5) Negotiations: May 1986 (6) Planned date of effectiveness: July/August 1986 SECTION II - SPECIAL IDA IMPLEMENTATION ACTION Provision has been made for retroactive financing to cover the costs of the audit of Cotontchad's 1984/85 accounts, and the recruitment of a Program Coordinator (para. 96). SECTION III - SPECIAL CONDITIONS OF THE CREDIT The conditionality of the proposed credit is formulated in the Government's Letter of Sector Policies of May 21, 1986 attached as Annex VI. The key conditions are listed below: (a) the conditions of effectiveness of the Credit are: (i) selection, satisfactory to 1DA, of a Program Coordinator/Financial Controller who will report directly to Cotontchad's Director General; (ii) selection by Cotontchad of a Financial Director and a Chief Accountant approved by IDA. (b) Disbursement of the Second Tranche would be contingent upon the Government and Cotontchad making significant and satisfactory progress in implementing the Emergency Rehabilitation Program, as described in the Letter of Development Policies, notably in completing the following actions in a manner satisfactory to the Association and consistent with the objectives of the Rehabilitation Program: ANNEX III Page 2 of 2 (i) completion of an external audit of Cotontchad for FY 1985/86; (ii) enactment and diffusion of the Decree abolishing subsidies on farm inputs; (iii) actions to rationalize the number of cotton-ginneries; (iv) completion of the reorganization of Cotontchad's financial and accounting management; (v) satisfactory solution to the problem of arrears owed to the banking system. AREX IV - 50 - CUAØ ENKGENCY COTTON PROGRAM Organzation af Coton Productlon and Processing wholesalr WholesCur SwT leCanon M ReCeason and T. Cn e øank C h- - -IR.C. Con~n Søed O.N.R. Go"d Worl Sank-302=1 - 51 - CHAD ANNEX V Page 1 of 3 EMERGENCY COTTON PROGRAM Cotonchad Organization and Statutes 1. Cotton production in Chad began in 1928 with "Cotonfran", a pri- vate company of French-Belgian origin which was involved in the marketing and processing of cotton. It was replaced in 1971 by Cotonchad, a semi- public company managed with participation of French governmental agencies, French semi-public companies, Chadian banks and the Chadian Government. 2. Cotonchad's capital holdings now amount to CFAF 3.8 billion (US$11 million). Ownership of the company is shared as follows: Chadian Republic 36% CSPC 39Z CFDT 17% CCCE 2% BTCD 3% BIAT 1.6% BICIT 1.5% 3. The statutory goals of the company are broad: "Marketing of seed- cotton; ginning and marketing of cotton and cotton by-products; and parti- cipation in any agricultural development operation in Chad at the indus- trial and marketing levels, as well as at the production level". 4. The Board of Directors comprises eleven members: 8 representa- tives of the Chadian Government, 2 of CFDT and 1 of the local banks. The Board determines the general policy and objectives of the company in accor- dance with instruction received from the supervising ministry. The President is chosen by the Board from among its members. The Director General is chosen by the Board but cannot be a member of the Board. He is the one in charge of running the company. 5. The relationship between the Chadian Government and Cotonchad is set forth in a convention. The present convention, effective since November 1, 1985 covers ten years. It grants Cotonchad exclusive rights to market seed-cotton in Chad, and, consequently, also requires Cotonchad to purchase all seed-cotton that is produced in Chad. The convention also defines the relationship between the CSPC and Cotonchad. The processing and marketing of oil and soap is governed by two other conventions between the Government and Cotonchad. Cotonchad has also a convention entitled "Prestation de services" with CFDT, which deals with technical assistance and various other services required by Cotonchad and provided by CFDT. 6. Cotonchad has operational divisions for Production, Processing, Finance, Administration and Commercial Affairs. The Production Division is based in Moundou, while the others are based in N'Djamena. Cotonchad has a Control Department which was within the office of the Chairman. At negoti- ations, Government and Cotonchad have agreed to transfer the control department within the office of the Director General. The control depart- ment will be headed by the Program Coordinator firanced by IDA. It is divided into a) a general inspector's office in charge of management control and services inspection and b) a financial control office in charge of the financial control and internal auditing. COTONTCHAD ORGANIZATIONAL CHART Board of Director. Financial Controller 2/ Chairman of the Board 1/ Cabinet Financial Advice Financial Control Management Control Internal Audit Director General Production Marketing Financial Administrative Oil and Soap Division Division Division Division Processing Division (for cotton) Accounting, Personnel, Budgeting, General Affairs, Disbursements, Insurance Processing Technical Transport Tax Dispatching Subdivision Subdivision Subdivision Center / The position of Chairman of the Board/Director General was split into two separate positions in 1985 as part of the Government's reorganization of Cotontchad. 2/ The position of Financial Controller was created in 1985 to tighten control a over expenditures as part of the Government's reorganization of Cotontchad. Under the program, this position will be assumed by the Program Coordinator, within the office of the Director General. COTONTCHAD ORGANIZATIONAL CHART * as of May 1986 Board of Directors Chairman of the Board Cabinet Program Coordinator/ Director General, Financial Controller I I I I Production Marketing Financial Administrative Oil and Soap Division Division Division Division Processing Division (for cotton) Accounting, Personnel, Budgeting, General Affairs, Disbursements, Insurance Processing Technical Transport Tax Dispatching Subdivision Subdivision Subdivision Center * As agreed at negotiations, May 23, 24, and 25, 1986. - ANNEX VI CHAD8 EMERGENCY COTTON PROGRAM Page 1 of 8 World Cotton Market and Prospects 1. The price of medium staple cottons in international markets has fallen sharply over the last two years and in early April was 105.6 US cents per kilogram for middling 1-3/32 inch quality, c.i.f. north Euro,.., 45% below the 1983/84 season average. The serious imbalance that caused this price decline is being addressed by policy changes in the major producing countries that hold most of the surplus stocks. 2. World cotton production has greatly exceeded consumption since 1983/84, raising estimazed end-season stocks (July 31, 1986) to 10.2 million tons from 5.4 million tons two years earlier. This estimated stock level is equivalent to about 7.7 months of current consumption, compared to internationally agreed reckoning that cotton stocks equivalent to 4.5 to 5.0 months' consumption are desirable to accomodate trading'without exerting undue pressure on prices. Taking that as a guide, the liquidation of 3.6 to 4.3 million tons of cotton stocks from 1986/87 forward would appear to be an appropriate goal for the restoration of cotton supply/demand balance. 3. World cotton consumption increased at an average rate of 1.6% per annum from 1970 to 1984, representing an average volume growth of about 238,000 tons per year. If continued at this rate, consumption growth alone would not accomplish the needed removal of excess cotton stocks for many years (15-18 years), even if production was reduced to and maintained at the current consumption level. Cotton consumption during 1985/86 is benefitting from a special program in China to utilize 500,000 tons in non-spinning uses-- primarily padding--but this is a one-time event. The price declines since 1983/84 are encouraging greater use through the increased value to consumers and marginal increases in cotton's share of the fibers market due to improved competitiveness with substitute fibers. The weighted average response of consumption to price changes in the industrial and developing countries should raise world cotton use by around 400,000 tons over a two-year period. 4. The bulk of the worldos surplus cotton stocks is located in two countries, China and the United States. A massive increase in cotton production in China originated with agricultural reforms in the late 1970s and reached a peak of 6.2 million tons in 1984. As a result, cotton stocks in China increased by about 800% between 1980 and 1984. By the measure of stock adequacy discussed above, China-s end-season cotton stocks, estimated at 4.28 million tons, contains a surplus of around 2.8 million tons. The build-up in cotton stocks in the United States occurred largely during 1985/86 when world cotton prices fell below internal support levels, reducing estimated exports to 435,000 tons from 1.4 million tons in each of the two previous seasons. End-season stocks are estimated at 2.1 million tons, 1.2 million tons above the legislative stock target of 871,000 tons. 5. Chinese authorities took measures in 1985/86 to reduce cotton production, improve the quality of the cotton produced and to expand their - 55 - ANNEX VI Page 2 of 8 expor: capabi.litY. With cotton area estimated to have been reduced by 252 and yicldb by 111, production Is slightly lower than expected offtakc. Even so, stocks remain equivalent to one year's consunption plus exports. 6. Recent US Agricultural legislation addresses the need to restore cn-.petitive prices for US cotton and reduce production until the surplus is liquidated. The legislation provides for a multi-year (1986-1990) cotton acreage reduction program, lower rates for cotton entering the loan program and lower loan repayment rates to ake US cotton competitive with cotton from other countries. .7. Cotton acreage in other countries is estimated to have declined by about 3% in 1985/86 in response to the 21% decline in cotton prices in the previous season. Most of that acreage reduction occurred in the Latin American countries which have historically been the most responsive to price changes. The low responsiveness of aggregate cotton acreage to changes in cotton prices in these countries limits their expected contribution to the world stock reduction to marginal proportions. 8. The measures being taken by the largest cotton producing countries lend optimism that the cotton surplus will be liquidated, but the size of the excess stock indicates that it will be a task probably lasting several years. During the early years of this supply adjustment cotton prices will remain under downward pressure, in part due to the return of price competitiveness of US cotton and also the pressure from the market accomodation to Chinese cotton gaining a larger share of the export market. The interim period of low prices will encourage production adjustments in other countries. Depending on the scale of progress in reducing stocks, cotton prices could begin recovering in real terms by 1988. The full restoration of supply/demand balance, expected in the early 1990s will ease the downward pressure on cotton prices and they will resume their long-term trend. 1987 is expected to be the nadir of the present cotton price cycle measured in 1985 constant S with an average of 92 cents per kg. for middling 1-3/32 inch quality cif North Europe. By 1990, partial real price recovery is forecast to around 116 cents and full recovery by 1995 of 161 cents. The additional rise in the real price forecast for cotton between 1995 and 2000 reflects the increased cost of producing substitute synthetic fibers originating in the cost of petroleum, the source of the petrochemical feedstock for those fibers. EPDCS May 1, 1986 TABLE 1: COTTON - PRODUCTION BY MAIN COUNTRIES AND ECONOMIC REGIONS ('000 TONS) ACTUAL PR(U ECTrD AVERAGES COUNTRIES/ ECIIN0MIPVS 1969-71 1979-81 1984 1985 /A 1986 1987 1988 1990 200 TNDUSTRIA, 2,306 3,141 3,090 3,209 2,610 2,560 2,620 2,62% 3,Ian UNITED STATES 2,225 3,004 2,894 2,947 2,35n 2,300 2,350 2,33n 2"OL) CENTRAL.LY PLANNED 2,150 2,745 2,412 2,647 2,660 2,670 2,665 2,785 2.980 USSR 2,132 2,733 2,400 2,635 2,650 2,660 2,655 2,775 2,970 I DU.VELOPING 7,765 8,517 12,292 11,186 1n,505 10,470 10,510 1n.,911 11,2#0 AFRICA 1,119 1,168 1,229 1,292 1,175 1,220 1,260 1,tRnI 1,46l AMI'RICA 1,622 1,646 1,522 1,695 1,550 1,540 1,680 1,77t I,go ASIA 4,231 5,018 8,711 7,420 7,100 7,040 6,860 7, non 9,10a C1INA 2,154 2,627 6,077 4,160 4,250 4,200 4,000 4,.nin 61n1n SOUTIl.RN EUROPE 593 695 830 779 680 670 710 765 875 WORLD 12,221 14,403 17,794 17,042 15,775 15,700 15,795 16,325 19,400 /A ESTIMAT9. SOuRCES: FAO, PRODUCTION YEARBOOK TAPES (ACTUAL); WORLD HANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). 00 TABLE 2: COTTON - MILL CONSUMPTION BY MAIN REGIONS ('000 TONS) ACTUAL PROJECTED AVERAGES COUNTRIES/ ECONOMIES 1969-71 1979-81 1984 1985 /A 1986 1987 1988 1990 2nn)') I NDUSTR I AL. 3,824 3,029 2,945 2,970 3,025 2.960 2,960 2,865 2,571) NORTII A1KRICA 1,837 1,391 1,261 1,275 1,351 1,300 1,325 1,250 1,11 rEC-10 1,110 805 848 855 840 830 815 79n1 695 JAPAN 751 720 721 725 720 715 710 7nn 4y5 ClNTRALLY PLANNED 2,361 2,568 2,635 2,645 2,765 2,785 2,700 2,135 2,q15 DEVELOPING 5,658 8,574 9,594 9,835 10,0ln 10,455 10,700 11,135 1],Q1s AFRICA 404 616 648 690 711 715 725 7%n AMERICA 761 1,051 1,016 1,025 1,060 1,070 1,1(00 1,15 1,121 ASIA 4,052 6,221 7,088 7,240 7,380 7,755 7,950 R,.:n in,;t,n CHINA 1,882 3,346 3,912 4,020 4,120 4,110 4,350 4,725 5,611n) 14I1)IA 1,160 1,301 1,471 1,530 1,55) 1,570 1,590 1,4h:s 1,Ri SOUTHERN EUROPE 440 685 844 880 891) 915 925 95, 1,14*1 WORLD 11,844 14,171 15,174 15,450 15,800 16,200 16,360 16,915 19,0i /A F.STIMATE SOURCES: INTERNATIONAL COTTON ADVISORY COMMITTEE (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS 6 PROJECTIONS DEPARTMENT (PROJECTED) * aH co TABLE 3: COTTON - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS ('000 TONS) ACTUAL PROJECTED AVERAGES COUNTRIES/ gCnNOMIIES 1969-71 1979-81 1984 1985 /A 1986 1987 1988 1990 2mn(n INDUSTRIAL COUNTRIES 753 1,622 1,612 764 1,125 1,515 1,470 1,515 1,61 UNLTED STATES 719 1,540 1,497 500 1,000 1,400 1,350 1,400 I,5n i co CKNTRALLY 1LANNED 521 866 651 730 550 635 630 f10 76% DEVELOPING 2,673 1,998 1,968 2,649 2,550 2,450 2,480 2,555 2,655 AFRICA 914 621 687 748 600 580 600 645 RIn AMERICA 927 661 487 610 450 425 430 4610 575 ASIA 487 459 557 1,043 1,280 1,245 1,240 1,235 1,185 CHINA 22 8 196 261 435 490 500 520 5(11) PAKISTAN 174 210 80 435 500 450 440 460 525 SOUTHERN EUROPE 345 258 237 248 220 200 210 215 IRS WOR1 3,948 4,487 4,231 4,143 4,225 6,600 6,580 4,68n 5,11n /A ESTIMATE SOURCES: PAII, TRADE YEARBOOK TAPES (ACTUAL); WORLD HANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). TABLE 4: COTTON - GROSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC RF.GIONS ('000 TONS) ACTUAL PROJECTED C0INRE/AVERAGES COUINTRI 1S/ E(ONI KS 1969-71 1979-81 1984 1985 /A 1986 1987 1988 1990 ?1no INDUsTRIm 1,980 1,655 1,690 1,614 1,673 1,704 1,670 1,653 1,51 EFC-10 1,059 782 825 810 817 830 813 790 685 JAPAN 733 718 708 642 701 720 710 700 61) CI.N'TRAI.I.Y PI.ANNF.D 783 700 779 789 800 801 813 915 82n u1 so I1EVELOPING 1,161 2,314 1,966 1,822 1,952 2,090 2,107 2,212 2,75 7 AFRICA 59 70 150 167 173 179 185 198 28O AMERICA 79 88 104 95 96 10o 98 99 In7 ASIA 826 1,881 1,388 1,229 1,343 1,460 1,462 1,530 1.R,, S0UTIIERN EUROPE 196 275 325 331 340 351 362 35 515s WORLD 3,924 4,668 4,435 4,225 4,425 4,595 4,590 4,6810 5,131 /A .STIMATE. SOURCKS: FAn, TRADE YEARBOOK TAPES (ACTUAL); WORLD HANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). 00 oh co 0*-H Ms 0-ANNE VI Page 7of 8 TABLE 5: COTTON - BEGIN"s-ING-SEASON SToCKS /A ('OVI TONS) 1981 1982 1983 1984 1985 /E 1986 /F *CHINA 521 412 657 1,691 4,304 4,282 UNITED STATES 581 1,444 1,728 604 893 2,083 OTHERS 3,516 3,630 3,063 3,069 4,081 3,859 WORLD 4,618 5,486 5,448 5,364 9,278 10,224 WORLD STOCKS AS % OF CONSUMPTION 32 37 36 35 59 65 /A AUGUST 1 OF INDICATED YEAR. /E ESTIMATED. /F FORECAST SOURCE: FOREIGN AGRICULTURAL SERVICE, US DEPT. OF AGRICULTURE. - 61- ANNE VI 'Page 8 of 8 TABLE 6: CUTTO% PRCES /A 1979-198WACTUAL, 1986-2000 PROJECTED (I/KC) CURRENT s CONSTANT 1985 $ 1979 169 177 1980 205 196 1981 185 175 1982 160 154 19P.3 185 184 1981 179 180 1985 132 132 1986 106 93 1987 110 92 1988 121 95 1989 148 109 1990 166 116 1995 282 161 2000 352 166 /A COTTON OUTLOOK "A" INDEX FOR MIDDLING 1-3/32 INCH QUALITY, CIF NORTH EUROPE. - 62 - ANNEX VII Page 1 of 8 (Translation from original French) Washington, May 21, 1986 Mr. A. W. Clausen President, IDA Washington, DC LETTER ON ADJUSTMENT POLICIES IN THE COTTON SECTOR Mr. President: 1. I have the honor to submit to you this letter on sector policies for the cotton sector which has been approved by the Government of Chad. This letter describes the principal measures that the Government intends to take to rehabilitate Chad's cotton sector. 2. The decline in the world price of cotton, which has fallen by over 50% since 1984, has had very serious effects on Chad, threatening the viability of this sector which dominates the country's economy. Since 1985, Cotontchad's production costs have been higher than the sale price on the world market. Combined with internal management difficulties in 1984/85, this situation resulted in a deficit of CFAF 18.1 billion in 1984/85 and is expected to produce a deficit of CFAF 19.4 billion in 1985-86. 1/ 3. Chad cannot afford the disappearance of Cotontchad since that would deprive a large part of the country's population of a stable monetary income, threaten the entire banking sector with bankruptcy, accentuate the balance of payments disequilibrium, and plung Chad into a deep recession, with incalculable social and political consequences. 4. In view of the seriousness of the situation, the Chadian Govern- ment and Cotontchad immediately took a number of emergency measures, such as strengthening Cotontchad's management structures, setting up strict expenditure controls laying off 450 non-essential workers, freezing wages, eliminating bonuses and benefits in kind, suspending new investments, and closing the Pointe-Noire branch office. 5. In addition, in November 1985 the Chadian Government appealed to the World Bank for assistance with the rehabilitation of the cotton sector 1/ Excluding estimated input program deficit of CFAF 4 billion. -63- ANNEX VI Page 2 of 8 and requested that the Bank serve as coordinator of the overall donor effort. 6. Realizing that it was necessary to forge ahead rapidly with the adjustment measures in orde;r to reduce Cotontchad's production costs to the greatest extent possible, the Government appointed a task force (comiti de r6flexion sur la fili6re coton), comprising the principal actors in the cotton sector, to study the situation. Following the Committee's pro- posals, which were supported by CCCE, CFDT and the EEC, the Chad Government took a series of emergency measures that were announced to the donors at a meeting held in N'Djamena on March 12, 1986. These measures represent the basis of the emeigency program for the cotton sector. A number of additions and details were latek incorporated, following recommendations by the donors. 7. These measures, some of which have already been implemented, should make it possible to reduce Cotontchad's production costs while preserving the country's basic cotton production capacity. This is essential in the absence of any immediate possibilities for diversifi- cation, the aim being to achieve financial equilibrium as quickly as possible. On the basis of the World Bank's projections of world cotton prices, Cotontchad would break even between 1989 and 1991. 8. The program, adopted by the Government and shown in detail in the Annex, constitutes the first phase of the program of actions designed to save the cotton sector; this phase will cover the 1986/87 and 1987/88 seasons. Additional measures may be added to this program at the review meeting (reunion de supervision) to be held before September 30, 1986, in the light of the findings of the cotton sector study executed by the World Bank and financed by UNDP. The second phase, which will start in 1988, will incorporate new actions based on the result of this study and of other future studies and of the first phase program. 9. The Government undertakes to implement rapidly the measures included in the rehabilitation program at the level of all the parties concerned: producers, Cotontchad, CSPC, ONDR and IRCT. These measures, along with their implementing agencies and implementation schedules, are outlined in the Annex, which forms an integral part of this letter. The essential elements of the program at the various levels are as follows: (a) Producers: (i) Freezing of the producer price at its present level for' the 1986/87 and 1987/88 seasons. During this time, a method of fixing the producer price will be studied, to be introduced during the 1988/89 season. (ii) Elimination over two years (before the 1988/89 cotton season) of input subsidies. (iii) Restriction of areas under production to a maximum of 75,000 ha during the program period. - 64 - ANNEX VII Page 3 of 8 (b) Cotontchad; (i) Reduction of the number of operating ginneries to 5; (ii) Sale oi non-essential assets; (iii) Closing of the Bangui branch office; (iv) Reduction of personnel; (v) Reorganization of purchasing centers; and (vi) Improvement of internal controls. (c) Government and development and research institutions: (i) Exemption of Cotontchad from certain taxes and duties as indicated in the Annex to this letter; (ii) Reduction of the operating and self-financing costs of CSPC, without any levies on the cotton sector; (iii) Reduction of ONDR personnel and redefinition of its goals in the light of upcoming studies; (iv) Suspension of all payments made by Cotontchad for the account of CSPC, in particular for the operation of CSPC itself and of IRCT. 10. The Government undertakes to define with Cotontchad a monitoring plan for the implementation of these reforms, including quarterly progress reports and semi-annual meetings with the donors. 11. With respect to Cotontchad's exemption from cotton export taxes, the Government undertakes tc take official action by August 30, 1986 suspending the payment of this tax by the company. 12. The Gwiernment recognizes the necessity of finding a solution to the problem of Cotontchad's considerable debt to the local banking system, amounting to over CFAF 40 billion, of which CFAF 22.4 billion represents arrears. This situation is extremely serious in view of the uncertainty it involves regarding the financing of future crop seasons by the local banking syst-s. Therefore the Government intends to approach BEAC in June 1986 with a view to finding a solution to the problem. It must be borne in mind, however, that assistance from the donors, and from the IMF and under the SPA, will be essential in negotiating this solution. 13. All of these measures represent a major sacrifice for Chad. The loss of the national budget and the parastatals is estimated at close to CFAF 4 billion in 1986. For producers in the Sudanian zone using inputs, the elimination of subsidies represents a drop of 36% in their net cotton income. - 65 - ANNEX VII Page 4 of 8 14. Despite these major sacrifices, the program set forth in this letter will be scrupulously implemented. As soon as the results of the detailed studies in progress are avail.able, additional measures vill be considered in agreement with IDA and in consultation with the other donors. Very truly yours, Is/ H.E. Ahmed K6rim Togol S4cr6taire G6ndral A la Pr6sidence Republic of Chad CHAD GOVERNMENT EMERGENCY PROGRAM 1986/87 and 1987/88 I. Measures Adopted in March, 1986 Responsible Actions Timing Institutions Main Objectives A. PRODUCERS 1. Eliminate subsidies on fertilizers and Subsidies reduced to 255 Government Reduce losses on intensive pesticides, while freezing producer price for 1986/87 and reductions cotton cultivation, (savings of for seed cotton (grade 1) at 100 CFAF/kg. by April 30, 1986 and 1987. US$ 7,500,000) 2. Limit intensive cotton cultivation area to a Beginning with 1986/87 crop Cotontchad Reduce input costs and limit ceiling of 75,000 ha. For the 1986/87 and season. ONDR total seed cotton production to 1987/88 crop seasons. possible revisions in 100,000 tons in 1986/87 and subsequent years. 1987/88. 3. Limit intensive cultivation to formula F1 Beginning with 1986/87 crop Cotontchad Use inputs optimally while (100 kg/ha complex); beginning in the season. ONDR continuing to encourage 1986/87 crop season, eliminate formula P2 intensive cultivation. as the stock of urea is exhausted. B. COTONICHAD 4. Reorganize and rationalize network of Beginning with the crop Government Reduce primary costs for cotton-buying centers, starting in 1986/87 season. Cotontchad cotton. with a view towards reducing expenditures. 5. Discourage cotton production in marginal Beginning with 1986/87 crop Cotontchad Reduce Cotontebad's transport areas. season. ONDR costs by 10% in 1986/87. 6. Permanently close eight obsolete cotton By June 30, 1986 Cotontchad Reduce Cotontchad's production costs ginneries and suspend operations indefinitely by US$ 1,200,000 per annum. in five others, leaving five operating ginneries. CHAD GOVERNMENT EMERGENCY PROGRAM 1986/87 and 1987/88 I. Measures Adopted in March, 1986 Responsible Actions Timing Institutions Main Objectives 7. Begin operations at new Moundou II ginnery; By October 31, 1987 Cotontchad Improve resource use and transfer gins from Moundou I to Pala. increase efficiency of factory operations in order to reduce costs. 8. Develop and implement a plan, to reduce In progress; to be Cotontchad Reduce fixed costs by personnel costs in Cotontchad's workshops finalized by June 30, 1986. US$300,000 per annum. and garages. 9. Close Cotontchad's branch office in By June 30, 1986. Catontchad Reduce operating costs Banui, CAR. by US$250,000 per annum. 10. Sale of assets, including two aircraft, By October 31, 1986 (65 Cotontchad Reduce overhead costs by about about 80 trucks and about 69 light vehicles. trucks and 69 light US$250,000 per annuml reduce vehicles already sold). operating and overhead costs. 11. Develop and implement a plan to reduce In progress (personnel Cotontchad overhead costs at Cotontchad's operations reduced from 230 to 127 in headquarters to the minimum needed for Hay 1986; to be finalized adequate financial and administriative by October 31, 1986. management. 12. Increase selling price of cotton lint to the Increase to 386.7 CFAF/kg. Cotoutchad Increase operating revenues of local textile mill (STT) and examine the already adopted. Establish Cotontchad by US$600,000 in review for adjusting price. new review system by 1986. November 1, 1986. 'I 13. Stop Cotontchad's direct contributions to Beginning in 1986. Cotontchad Reduce financial obligations by ONDR and IRCT. about US$1,000,000 per annum. CHAD GOVERNMENT EHERGENCY PROGRAM 1986/87 and 1987/88 I. Measures Adopted in March, 1986 Responsible Actions Timing Institutions Main ObJectives C. GOVERNMENT 14. Suspend certain fiscal obligations of Government Reduce Cotontchad's costs by Cotontchad, including: about US$10,000,000 per annumi. ) cotton export tax (76.8 CFAF/kg. of Issue decree by August 30, lint exported) 1986. 11) special export levy for CAA (6.06 CFAP/kg. of lint exported) iii) guarantee fees on bank credits, to Cotontchld (1d of neb credits) D. ONDR 15. Reduce staff and improve its efficiency. In progress (421 employees ONDR lower OIIDR's operating costs by already laid off); to be US$700,000 per anumi. finalized by December 31, 1986. go IVWT-TCHAD 16. Introduce higher lint yielding varieties to As research permits. IRCT, ONDR Raise productivity of cotton Improve ginning ratio. lint production by increasing ginning ratio to 40 percent by D. ONDR 17. Reduce operating cost and ensure financial In progress( to be CPSC/Coton- Elimination of all levies on by Self-sufficiency (without contributions from finalized by December 31, tchad the cotton sector for CSPC. the Government or Cotontchad). 1986. Savings of US$300,000 per annpm. CHAD GOVERNMENT EMERGENCY PROGRAM 1986/87 and 1987/88 1. Measures Adopted in May 1986 (in agreement with IDA) Responsible Actions Timing Institutions Main Objectives A. COTONTCHAD 18. Improve Cotontchad's independent financial Beginning immediately; Cotontchad Rationalize internal control, accounting, and management. Carry 1984/85 audit to be cor- Government management. out 1984/85 and 1985/86 external audits. pleted by September 30, Encourage Government oversight, while 1986; 1985/86 audit to be reducing Government involvement in completed by June 30, 1987. day-to-day financial and administrative management.,' 19. Implement a monitoring plan and calendar Submit plan to IDA by Cotontchad Ensure implementation of for the execution of Cotontchad's emergency July 31, 1986 first review emergency measures rehabilitation measures, to be agreed upon meeting by September 15, with IDA, in consultation with the donors, 1986. and to include quarterly progress reports and semi-annual reviews of program implementation with donors. 20. Develop and implement, if necessary, a Additional measures to be Government Strengthen adjustment programt series of additional emergency measures, presented by the Government Cotontchad based on further study and based on the results of the Bank-executed at review meeting in preliminary results of initial study which will be completed by July 1986. September 1986. emergency measures. B. CSPC 1986. 21. Develop and implement a plan to redefine Submit plan to IDA by Government Create an efficient mechanism CSPC's functions and goals, revise its July 31, 1987; implement by for stabiliing producer 0 statutes, and reorganize the institution September 30, 1987. prices. 0 accordingly.M C. I.R.C.T.-TCHAD 22. Redefine research objective and program. By July 31, 1987. Goverment Improve efficiency of research. - 70 - CAD AMEX VIII Page I of 4 EIERGENCY COTTON PROBRAN FINANCIAL PROJECTIONS: BASE SCENARIO PROJECTED STATENENT OF CASH FLOE (CFAF in millions) Notes 19B6187 1987/89 1988/99 1999/90 1990/91 1991/92 1994/95 199912000 SOURCES OF FINDS Revenue fro Hain Operations Sales from cotton-export Anantity sold (000 tons) a/ 37.8 38.3 39.5 30.5 39.5 38.5 39.5 38.5 Sale price (CFAF'OO01 385 399 499 548 574 647 927.8 1172.1 Revenue from cotton-export sale 14553 15292 1878 21098 22099 24910 35720 45126 Sales from cotton-local Quantity sold 1'000 tons) 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Sale price (CFAF'OOO) 370 370 384 441 464 534 797.8 1017.1 Revenue fras cotton-local sale 555 555 576 662 696 801 1197 1526 Others 0 0 0 0 0 0 0 0 Subtotal 15109 15037 19364 21760 22795 25711 36917 46652 Revenue fro Subsidiary Sales from soap Quantity sold (000 tons) 4 4 4 4 4 4 4 4 Sale price ICFAF'000) 326 336 346 356 367 378 411 466 Revenue from soap sale 1304 1344 1384 1424 1468 1512 1644 1864 Sales from cotton oil 2597 2675 2755 298 2923 3011 3282 3774 Sales from ground not oil 200 207 213 219 226 233 254 292 Sales from seed cake 0 0 0 0 0 0 0 0 Subtotal 4101 4226 4352 4531 4617 4756 5190 5930 Total revenue from operations 19209 20063 23716 26291 27412 30467 42097 52582 Proceeds from lorroings Foreign b/ 0 0 0 0 0 0 0 0 Domestic 0 0 0 0 0 0 0 0 Grants 0 0 0 0 0 0 0 0 Subtotal 0 0 0 0 0 0 0 0 Pqa 2 of 4 Nutes 196/87 197/M 19N/8 199/90 1990/91 1991/92 1994/95 199912000 Extraordinary Ites Sales of sed vehicles & equipments 400 150 150 150 0 0 0 0 Other items 0 0 0 0 0 0 0 0 Subtotal 400 150 150 150 0 0 0 0 Other sources 760 300 0 0 0 0 0 0 TOTAL SOURCES 20369 20513 23166 26441 27412 30467 42097 52502 Contingency on cotton price (51) cl -728 0 0 0 0 0 0 0 TOTAL SOURCES IITH PRICE CONTINEIICY 19641 20513 2366 26441 27412 30467 42097 .52512 USES OF FUNDS Rain operation Investments: di Vehicles and equipments Stock Building Others Subtotal Investments 760 300 0 0 0 0 0 0 Production costs: Cotton research IRCT 385 397 406 421 433 464 500 560 ONOR training (T.A. included) e/ 840 965 891 919 945 973 1061 1220 Less: Charges to OlR 0 0 0 0 0 0 0 0 Operating costs CSPC 0 0 0 0 0 0 0 0 Crop production inputs f/ 3675 3785 3099 4016 4136 4260 4643 5340 Less: farmers'contribution -2675 -3521 -3626 -3735 -3946 -3962 -4318 -4966 Cotton seeds production/handling 330 340 350 361 371 392 416 479 Cotton processing 605 623 642 661 681 701 765 879 CDtontchad overhead 1675 1649 1644 1694 1745 1797 1959 2253 Recovery gen. expense by oil aill 0 0 0 0 0 0 0 0 Distribution expenses 345 355 366 377 38K 400 436 301 Annex operations Cotoutchad 120 124 127 131 135 139 152 174 Subtotal Production Costs 5300 4616 4701 4944 498 5154 5614 6440 Operating Costs: Purchase of seed cotton Quantity purchased 000 tons) 100 100 100 100 100 100 100 100 Purchase price (CFAFOOO) 99.2 98.2 98.2 98.2 99.2 98.2 98.2 90.2 Cost of seed cotton 9920 9820 9820 9820 9920 9820 9820 9820 -72- AIER VIII Page 3 of 4 Ntes 19M6/7 19171 19889 199190 1990/91 1991/92 1994/95 1999/2000 Purchasing expenses sied cotton Quantity purchased I000 toneo 100 100 100 100 100 100 100 100 Purchasing cost 3 3.1 3.2 3.3 3.4 3.5 3.8 4.3 Purchasing expenses of seed ctum 300 310 320 330 340 350 390 430 Collection costs for seed cottn Quantity purchased I'000 tons) 100 100 100 100 100 100 100 100 Collection cost 7 7.2 7.4 7.6 7.9 8.1 8.9 10.2 Collection costs of seed cotton 700 720 740 760 790 810 990 1020 Ginning/storagelhandling Quantity of cotto fiber (1000 tens) 39 39.5 40 40 . 40 40 40 40 Cost (per ton) 34.1 37.2 39.4 39.5 40.7 41.9 45.7 52.6 Total ginning/storage/hadling casts 1330 4169 1531 1510 1629 1676 1928 2104 Transportation Factory to STT Quantity of cotton fiber-local ('000 tons) 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Transportation cut (FAF'000) 3.5 3.6 3.7 3.9 3.9 4 4.4 5 Total transportation costs factory to STT 5 5 6 6 6 6 7 8 Fiber transportation froe factory to FOD Quantity of cotton fiber-export (*000 tons) 37.4 37.9 39.4 38.4 38.4 38.4 38.4 38.4 Fiber transportation cost (CAF*000) 81.5 83.9 86.5 89.1 91.7 94.4 103 118.4 Total transportation cuts factory to FOE 3046 3180 3322 3421 3521 3625 3955 4547 Export levies 0 0 0 0 0 0 0 0 Levies to CAA 0 0 0 0 0 0 0 0 Levies to ONDR 0 0 0 0 0 0 0 0 FOB to CIF (insurance, freight, etc.) Quantity of cotton filer-export ('000 tons) 37.4 37.9 3B.4 30.4 3B.4 38.4 39.4 39.4 CIF costs (CFAF*000) 31.1 32.1 33 34 35.1 36.2 39.4 45.3 Total costs FOB to CIF 1163 1217 1267 1306 1348 1390 1513 1740 Technical assistance 126 143 175 202 228 228 228 228 Interests an farers*credit g1 Quantity of fiber produced ('000 tons) 39 39.5 40 40 40 40 40 40 Interest charges per ton (CFAF'000) 17 17 17 17 17 17 17 17 Total interests on farsers'credit 663 672 680 68O 680 690 680 680 Subtotal Operating Costs 17155 17536 17811 18105 18361 18585 19301 20577 - - MIEN VIII * - 73 - - Page 4 of 4 Iote 1936187 1 7/l 19119 IM19 1990/91 £991192 1994/95 199912000 Subsidiary Production costs: Share of general expenses 0 0 0 0 0 0 0 0 Comm expenses DM 80 82 a 17 90 93 101 116 Common expenses oil ill 355 181 B8 907 934 962 1046 1206 Subtotal 935 963 966 994 1024 1055 1149 1322 Operating costs 1166 1201 1237 1274 1312 1351 1473 1694 Subtotal 1166 1201 1237 1274 1312 1351 1473 1694 Repayment of existing debt h Interest payments 3233 3239 3289 3239 329 3239 3289 3289 Subtotal 3233 329 3289 3239 3239 3239 3289 3209 Income taxes i/ 0 0 0 0 0 0 0 0 Dividends it 0 0 0 0 0 0 0 0 Others 0 0 0 0 0 0 0 0 TOTAL USES OF FUNDS 29549 27905 28059 2506 29974 29434 30626 33322 =i-23= 3=X= =M.--= 333 = 3= 32== 3= Contingency on physical expenditures (IM0 i/ 986 963 0 0 0 0 0 0 TOTAL USES OF FUNDS MITH CONTINGENCY 29535 28873 28059 2506 28974 29434 30926 33322 Increase (decrease) in cash -8190 -7392 -4193 -2065 -1562 1033 11271 19260 Cash balance: Beginning -37000 -45180 -52572 -56765 -58930 -60392 -59359 -48069 Ending -45180 -52572 -56765 -59830 -60392 -59359 -48089 -28828 Increase Idecrease) in cash, with contingencies -9994 -9360 -4193 -2065 -1562 1033 11271 19260 Increase (decrease) in cash, with contingencies and without interest payments -6661 -5071 -904 1224 1727 4322 14560 22549 Notes: al Quantities include target for improved ginning percentage. Prices as per orld Bank projections. b Calculations based on revenues from Cotootchad operations only, before financing receipts from Goverment or external reso c/ Contingency due to uncertainty in the world price of cotton in 1986/87. di Including only investment costs for store-to be financed by CCCE. Need for equipment and vehicle renewals to be carefully el Extension staff requirements for Sudanian zone only. f/ Assuming elimination of subsidies after 1987. g/ Seasonal credit (interest and principal) for purchasing inputs and buying seed cotton. hi Including interest payments on outstanding/cumlating medium and long term loans; excluding pricipal payments. if Assuming saiving of all taxes and levies on Cotoutchad until operating deficit is eliminated. ji Contingency on expenditures, excluding transportation, interest payments, investments, and seed cotton purchases. for the duration of the program. z z -- - - - . . 0 . . .. 0. o 2 2.2 ZC -7- . -3-- •- 2 2 - - q . .- - . . . . . . . . . . . . . . . . . . . . . . ..- - I . . . . . .. . . . . . . . . ... . . .| . . | . . I . .. . : . : . : ..... 7 i # # 2 . . * * i i 311 ii I B I I i i i | i i CI i e i , B i I IE S i 1 i i i i El 3 -- . . . ..... * -- i * I i i I i- SI .................. .............. ....................... X - I I Il i I i i i - ~ . . . . . . . . . . . i . . . . . . . e i . . . . . . . . . . . . o - I -- i i: o i i i - 75 - CHAD ANNEX X Page 1 of 2 EMERGENCY COTTON PROGRAM PROGRAM COMPONENTS AND COSTS -----CEAF billion----- ------------US$ uillion------------ t of Local Foreign Total Local Foreign Total Base Cost 1. Input Program 1.1 Agricultural inputs 0.59 5.31 5.90 1.64 14.75 16.39 38.0 1.2 Spare parts 0.03 0.47 0.50 0.08 1.30 1.39 3.2 1.3 Petroleum 0.24 2.16 2.40 0.66 6.00 6.67 15.5 1.4 Equipment ' 0.26 1.04 1.30 0.72 2.89 3.61 8.4 1.5 Polypropylene Packing 0.06 0.49 0.55 0.17 1.36 1.53 3.5 1.6 Contingencies 0.12 0.94 1.06 0.33 2.61 2.94 6.8 1.7 Total 1.30 10.41 11.71 3.60 28.91 32.52 75.4 2. Audit. Studies and Technical Assistance 2.1 Audit 0.01 0.08 0.09 0.03 0.22 0.25 0.6 2.2 Studies 0.02 0.16 0.18 0.06 0.44 0.50 1.2 2.3 Technical Assistance Project coordinator 0.01 0.08 0.09 0.03 0.22 0.25 0.6 Financial director - - - - - - - Chief accountant - - - - - - - 2.4 Contingencies 0.01 0.03 0.04 0.03 0.08 0.11 0.3 Total 0.05 0.35 0.40 0.14 0.97 1.11 2.6 3. Operating Costs 3.1 Transportation 0.24 2.16 2.40 0.67 6.00 6.67 15.5 3.2 Management Support Training 0.21 0.49 0.70 0.58 1.36 1.94 4.5 3.3 Contingencies 0.04 0.27 0.31 0.11 0.75 0.86 2.0 Total 0.49 2.92 3.41 1.36 8.11 9.47 22.0 4. Support to ONDR IRCT 4.1 ONDR 0.77 0.33 1.10 2.14 0.92 3.06 7.1 4.2 IRCT 0.15 0.15 0.30 0.42 0.42 0.84 1.9 4.3 Contingencies 0.09 0.05 0.14 0.25 0.14 0.39 0.9 Total 1.01 0.53 1.54 2.81 1.48 4.29 9.9 5. Total Base Cost 2.59 12.92 15.51 7.19 35.89 43.08 100.0 6. Total Contingencies 0.26 1.29 1.55 0.72 3.58 4.30 10.0 7. TOTAL PROJECT COST 2.85 14.21 17.06 7.91 39.47 47.38 110.0 - 76 - ANNEX X Page 2 of 2 PROGRAM COST AND FINANCING CPAF billion US$ million Financing Input program Agricultural Inputs 0.86 2.3 Netherlands Agricultural Inputs 1.80 5.0 IDA Agricultural Inputs 3.95 11.1 EDF Spare parts 0.55 1.5 IDA Petroleum 2.65 7.3 IDA Equipment 1.31 3.6 CCCE Polypropylene Packing 0.60 1.6 EDF Audit, Studies and Technical Assistance Audit 0.10 0.3 IDA Studies 0.20 0.6 IDA Technical assistance Project coordination 0.10 0.3 IDA Financial director - Cotontchad Cheif accountant - Cotontchad Operating costs Transportation 2.70 7.5 CCCE Management support 0.70 2.0 CCCE and training Support to ONDR and IRCT ONDR 0.35 1.0 EDF ONDR 0.90 2.5 CCCE IRCT 0.30 0.8 FAC Total project 17.06 47.4 CHAD EMERGENCY COTTON PROGRAM Procurement Table for IDA Credit Procurement Method Program Component ICB LCB Other Total ---------------- US Million ----------------- 1. Farm input program (fertilizers, 5.0 5.0 pesticides, small equipment) 2. Spare parts for machinery and vehicles 1.5 1.5 3. Petroleum products 7.3 7.3 4. Technical assistance, audits, studies, 1.2 1.2 and training Total 15.0 x ［노