Senegal - Municipal and Housing Development Project

Document of The World Bank FOR OFFICIAL USE ONLY CAZ 1X4L Report No. P-4738-SE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 32.5 MILLION TO THE REPUBLIC OF SENEGAL FOR A MUNICIPAL AND HOUSING DEVELOPMENT PROJECT FEBRUARY 24, 1988 This document has a restricted distribution and mav be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY AND EQUIVALENT UNITS US $1.00 = CFAF 300 Senegal CFAF 1 mil.ion = US $3.333 WEIGHTS AND MEASURES 1 hectare (ha) = 100 ares = 10,000 m2 = 2.47 acres 1 square kilometer (km2) - 100 ha = 0.386 square mile (sq. m.) 1 metric ton (m t) = 1,000 kg = 2,204 pounds (lb.) ABBREVIATIONS BCEAO - Central Bank of Western Africa States!Banque Centrale des Etats de l'Afrique de l'Ouest BHS - National Housing BanklBanque de l'Habitat du Senegal CUD - Greater Dakar Intermunicipal Organization/Communaute Urbaine de Dakar FECL - Grant System for Local GovernientslFonds d'Equipement des Collectivites Locales CIDA - Canadian International Development Agency FISCAL YEAR Central and Local Governments - July 1 to June 30 Banque de l'Habitat du Senegal - October 1 to September 30  FOR OMFCIAL USE ONLY SENEGAL MUNICIPAL AND HOUSING DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Senegal Beneficiaries: Ministry of Plan and Cooperation Ministry of Economy and Finance Ministry of Urban Planning and Housing Ministry of Equipment Ministry of Interior Communaute Urbaine de Dakar (CUD) Banque de l'Habitat du Senegal (BHS) Amount: SDR 32.5 million (US $46 million) Terms: Standard, with 40 years maturity Onlending Terms: (a) Twenty-five years, including a ten year grace period at BCEAO's Privileged Discount Rate (currently 62 per annum) for the housing component; (b) twenty years, including a ten year grace period at BCEAO's Regular Discount Rate (currently 8.52 per annum) for the Municipal Credit Fund; and (c) grant for the rest of the municipal component Financing Plan: Government US $21.3 million BHS US $ 8.3 million CIDA US $ 2.7 million IDA US $46.0 million Total US $78.3 million Economic Rate of Return: 28Z for the rehabilitation of CUD's roads Staff Appraisal Report: Report No. 6984-SE Maps: IBRD No. 21021 IBRD No. 21022 This document has a restricted distribution and may be used by recipients only in ;uss per. rmance of their official duties Its contents may not otherwise be disctosed without World L'ank auth irization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SENEGAL FOR A MUNICIPAL AND HOUSING DEVELOPMENT PROJECT 1. The following memorandum and recommendation on 8 proposed development credit to the Republic of Senegal for SDR 32.5 million (US $46 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity to help finance a municipal and housing development project. The project would be co- financed by the Canadian International Development Agency (CIDA) for US $2.7 million equivalent. 2. Background. High natural growth rates and an extremely mobile population are significant features of Senegal's urbanization process. In 1985, the urban population represented more than one-third of the total population (6.5 million). Approximately 1.5 million of the estimated 2.2 million urban residents reside in the Dakar metropolitan area, with the remainder distributed among 15 cities and concentrated in six regional centers. The overall urban growth rate is 3.8% (4.7% in Dakar), compared to a national growth rate of 2.8%. By the end of the century, Senegal's urban population is expected to reach 5.2 million, representing 50% if the tota' population of 10.3 million. Almost a quarter (22%) of Senegal's papulation is concentrated in less than 0.3% of the country's area, greater Dakar, where 70% of modern employment and 90% of industrial firms are located (58% of GNP). Overconcentration of population in metropolitan Dakar would be counterproductive in the medium and long term and measures need to be taken to foster a more balanced distribution of urban population throughout the country. However, Dakar is clearly one of the country's major assets for development, as its potential to become a modern international service center surpasses most other regional capitals. Therefore, the urban strategy should aim at improving Dakar's efficiency while mitigating its relative attractiveness for new residents. As the Government's strategy emphasizes the promotion and diversification of agricultural and export- oriented activities, the central Government is eager to gradually withdraw, at least partially, from direct support to urban services, urban infrastructure development and provision of shelter. These functions thus require to be taken over, to the extent possible, by the local governments and the private sector. 3. Rationale for IDA Involvement. The Government has requested IDA's assistance to tackle the various Issues related to the gradual shift from the central Government's administered urban and housing policy to a more decentralized and private sector-oriented policy. The current dialogue between the Government and the Bank Group emphasizes reshaping the role of the Government toward less direct involvement in economic activities and improved administrative efficiency. This is expected to improve the use of scarce public resources and to contribute to solve Senegal's current financial crisis. In this context, urban  policy is a particularly sensitive issue as it is crucial for f4ture development to foster efficient urban centers, whereas the Government cannot afford to keep providing massive financial support to housing, urban infrastructure development and maintenance, and urban service delivery. The proposed project would help implement the necessary new urban policy and alleviate the strain of urban development on public resources. The proposed project !ollows up on the lines of previous IDA endeavors and specifically the Technical Assistance Project for Urban Management and Rehabilitation (Cr. 1458 SE/SF 13-SE) that provided the studies and recommendations on which the proposed project is based, and the Sites and Services Project (Cr. 336 SE) whlich already focussed on a pilot program of housing policy reform. 4. Project Obiectives. The proposed project has two major objectives: (a) strengthening local governments (particularly in metropolitan Dakar) to improve policy-making, service delivery, urban investment and resource mobilization; and (b) expanding the economic impact and efficiency of the housing sector by: (i) removing financial and institutional constraints to the National Housing Bank (Banque de 1'Habitat du Senigal (BHS) ); and (ii) improving the operation of the urban land market through annual supply of a significant number of serviced and titled plots, while promoting progressive privatization of the delivery of housing. 5. Project Description. The proposed project includes: (a) a municipal management component which would include: (i) the creation of a Municipal Credit Fund (MCF) administered by BHS for medium-term lending on commercial terms, for municipal income generating projects such as market rehabilitation and construction; initial financing of this fund will be provided by IDA and by a share of the Government financed 'Fonds d'Equipement des Collectivites Locales" (FECL); (ii) equipment and training of the municipal technical department to follow-up efforts started under the Technical Assistance Project for Uroan Management and Rehabilitation; funds for rehabilitation and equipment of selected community facilities would be made available; (iii) ongoing technical assistance and complementary support to the Traffic Bureau (Bureau de la Circulation); rehabilitation and improvement of selected sections of the urban road network to improve public transport operation particularly in the Pikine area and implementation of a traffic management plan (plan de circulation) for central Dakar (plateau); and (iv) improved collection of municipal taxes through implementation of a fiscal cadastre in the Dakar metropolitan area; this would support initial efforts by the Tax Administration and Treasury to improve tax billing and collection and would focus on expanding the existing tax base by organizing and unifying property and business registry and valuation.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SENEGAL FOR A MUNICIPAL AND HOUSING DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Republic of Senegal for SDR 32.5 million (US $46 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms with 40 years maturity to help finance a municipal and housing development project. The project would be co- financed by the Canadian International Development Agency (CIDA) for US $2.7 million equivalent. 2. Background. High natural growth rates and an extremely mobile population are significant features of Senegal's urbanization process. In 1985, the urban population represented more than one-third of the total population (6.5 million). Approximately 1.5 million of Lhe estimated 2.2 milliov urban residents reside in the Dakar metropolitan area, with the rema. ier distributed among 15 cities and concentrated in six regional centers. The overall urban growth rate is 3.8% (4.7% ir. Dakar), compared to a national growth rate of 2.8%. By the end of the century, Senegal's urban population is expected to reach 5.2 million, representing 50% of the total population of 10.3 million. Almost a quarter (22%) of Senegal's population is concentrated in less than 0.3% of the country's area, greater Dakar, where 70% of modern employment and 90% of industrial firms are located (58% of GNP). Overconcentration of population in metropolitan Dakar would be counterproductive in the medium and long term and measures need to be taken to foster a more balanced distribution of urban population throughout the country. However, Dakar is clearly one of the country's major ar,ets for development, as its potential to become a modern international service center surpasses most other regional capitals. Therefore, the urban strategy should aim at improving Dakar's efficiency while mitigating its relative attractiveness for new residents. As the Government's strategy emphasizes the promotion and diversification of agricultural and export- oriented activities, the central Government is eager to gradually withdraw, at least partially, from direct support to urban services, urban infrastructure development and provision of shelter. These functions thus require to be taken over, to the extent possible, by the local governments and the private sector. 3. Rationale for IDA Involvement. The Government has requested IDA's assistance to tackle the various issues related to the gradual shift from the central Government's administered urban and housing policy to a more decentralized and private sector-oriented policy. The current dialogue between the Government and the Bank Group emphasizes reshaping the role of the Government toward less direct involvement in economic activities and improved administrative efficiency. This is expected to improve the use of scarce public resources and to contribute to solve Senegal's current financial crisis. In this context, urban  - 2 - policy is a pa.ticularly sensitive issue as it is crucial for future development to foster efficient urban centers, whereas the Government cannot afford to keep providing massive financial support to housing, urban infrastructure development and maintenance, and urban service delivery. The proposed project would help implement the necessary new urban policy and alleviate the strain of urban development on public resources. The proposed project follows up on the lines of previous IDA endeavors and specifically the Technical Assistance Project for Urban Management and Rehabilitation (Cr. 1458 SE/SF 13-SE) that provided the studies and recommendations on which the proposed project is based, and the Sites and Services Project (Cr. 336 SE) which already focussed on a pilot program of housing policy reform. 4. Proiect Obiectives. The proposed project has two major objectivess (a) strengthening local governmaents (particularly in metropolitan Dakar) to improve policy-making, service delivery, urban investment and resource mobilization; and (b) expanding the economic impact and efficiency of the housing sector by: (i) removing financial and institutional constraints to the National Housing Bank (Banque de l'Habitat du Senegal (BHS) ); ard (ii) improving the operation of the urban land market through annual supply of a significant number of serviced and titled plots, while promoting progressive privatization of the delivery of housing. 5. Project Description. The proposed project includes: (a) a municipal management component which would include: (i) the creation of a Municipal Credit Fund (MCF) administered by BHS for medium-term lending on commercial terms, for municipal income generating projects such as market rehabilitation and construction; initial financing of this fund will be provided by IDA and by a share of the Government financed 'Fonds d'Equipement des Collectivites Locales" (FECL); (ii) equipment and training of the mun! .ipal technical department to follow-up efforts started under the Technical Assistance Project for Urban Management and Rehabilitation; funds for rehabilitation and equipment of selected community facilities would be made available; (iii) ongoing technical assistance and complementary support to the Traffic Bureau (Bureau de la Circulation); rehabilitation and improvement of selected sections of the urban road network to improve public transport operation particularly in the Pikine area and implemente.tion of a traffic management plan (plan de circulation) for central Dakar (plateau); and (iv) improved collection of municipal taxes through implementation of a fiscal cadastre in the Dakar metropolitan area; this would support initial efforts by the Tax Administration and Treasury to improve tax billing and collection and would focus on expanding the existing tax base by organizing and unifying property and business registry and valuation.  - 3 - (b) v 1n'stsing component which would: (i) finance medium-term loans intermediated by BHS for land development activities and particularly for the land development corporation to be created with a majority of private shareholders as an intermediary for initiating the development of about 1,800 serviced plots annually (40% of the esrimated market); and (ii) finance a long-term loan from the Government to BHS to help remove bottlenecks preventing BHS from increasing its share of housing construction financing and particularly to foster more efficient schemes of saving mobilization. 6. The project to be carried out over six years provides funds for civil works, vehicles, equipment, training, technical assistance and incremental operating costs. The total cost of the project is estimated at US $78.3 million equivalent, with a foreign exchange component of US $29.0 million (37X). A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Senegal are given in Schedule C end D, respectively. Two maps are also attached. The Staff Appraisal Report, No. 6984-SE dated October 20, 1987, is also attached. 7. Agreed Actions. The following would be conditions of effectiveness: (a) effectiveness of co-financing arrangements with CIDA; (b) appointment of the staff of the Project Unit; (c) signature of a loan agreement between the Government and BHS under terms and conditions acceptable to IDA on the on-lending to BHS of the Credit proceeds related to the housing component; (d) the establishment of the Municipal Credit Fund under terms and conditions satisfactory to IDA; (e) the establishment of the land development corporation with its final charter and equity structure agreed upon by IDA; and (f) signature of a tripartite agreement between the Government, BHS and the land development corporation under terms and conditions acceptable to IDA on the implementation and financing of the corporation's 10-year activity program. 8. Conditions of disbursement are attached to the financing of MCF and housing loans; in both cases, IDA funds will be disbursed after: (a) agreement of a model loan contract including specific criteria of eligibility; and (b) during each fiscal year, financing of a minimum amount of loans out of other resources. In addition, the first three projects to be financed by MCF will be submitted to IDA for approval, and, for other MCF projects, IDA's authorization will be a prerequisite for the financing of any MCF loan out of the Credit proceeds. 9. Covenants agreed upon at negotiations are as follows: (a) an annual review of MCF's operation and performance would be carried out by IDA, the Ministry of Economy and Finance, the Secretariat of State for Decentralization, the Project Unit and BHS; (b) CUD will furnish IDA, no later than four months after the close of each fiscal year, with an activity report including all suitable justifications on the program of  - 4 - public facility rehabilitation and maintenance completed by the technical services during the year; (c) no later than June 30, 1992, IDA, the Ministry of Equipment and CUD will review issues involved in the transfer of the Traffic Bureau from the Ministry of Equipment to CUD; (d) in liaison with the implementation of the fiscal cadastre and no later than December 31, 1989, the Government will carry out a review to determine the fiscal revenue effect of the exemption set forth in Articles 246 and 247 of the General Tax Code (Law #87-10 of February 21, 1987) and exchange views with IDA on the results of such review; and (e) the Government commits itself to take all measures which might be necessary to increase actual local tax yield in the Dakar metroplitan area by at least 402 within two years of fiscal cadastre completion. 10. Benefits. The internal rate of return (IRR) of the land development sub-component is satisfactory (222) under conservative assumptions. The economic rate of return for civil works aiming at traffic improvements is high (282 on the basis of maintenance cost savings, i.e. without taking time savings into account). The proposed project is expected to boost private supply of housing through a more efficient financing system. Home ownership is a powerful motivation for household savings which are in turn the main source of domestic savings that can be invested in economic growth. The municipal component would have direct economic impact through improved efficiency of the public transport. Furthermore, improved efficiency of the municipal services is a key aspect of the strategy aiming at enhancing Dakar's role as a regional service center. 11. Risks. Main risks may arise from the involvement of many implementing agencies (five ministries, BHS, CUD and the land development corporation) and from the related difficult coordination. BHS will play a key role by intermediating most of the financing of the two major components; however, the related risk is minimal as this institution is sound and well managed. Another risk stems from the status of the land development corporation which will be controlled by the private shareholders, whose interest will not necessarily match the project objectives. Specific and general contractual arrangements between the Government and the corporation have been proposed for reducing this risk. 12. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber Conable President Attachments Washington, D.C. February 24, 1988  - Schedule A SENEGAL MUNICIPAL AND HOUSING DEVELOPMENT PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Costs La Local Foreign Total ------ (US $ million) Municipal Credit Fund 10.2 4.4 14.7 CUD's technical department 5.9 4.5 10.4 Transport and traffic 7.5 7.9 15.4 Resource mobilization 4.1 2.6 6.6 Land development 4.6 2.5 7.0 Housing finance 9.3 4.0 13.3 Project Unit 1.9 0.3 2.2 Base costs 43.5 26.2 69.6 Physical contingencies 2.7 1.9 4.6 Price contingencies 3.3 0.9 4.1 Total project costs 49.3 29.0 78.3 ia Inclusive of taxes and duties (US $8.1 million) Financing Plan Local Foreign Total ------ (US $ million) ----- Government 17.9 3.4 21.3 BHS 5.4 2.9 8.3 IDA 25.3 20.7 46.0 CIDA 0.7 2.0 2.7 Total project costs 49.3 29.0 78.3  - 6 - Schedule B SENE6AL MUNICIPAL AND HOUSING DEVELOPMENT PROJECT Procuroeent Methods and Disbursements Procurement Method Total ProJect Element ICB LCB Other N.A. Cost (US $ million) Clvi Works 18.06 3.82 21.88 (13.75) (3.58) (17.33) Vehicles. furnitures and equipment 7.52 2.30 0.15 9.97 (4.42) (1.68) (0.10) (6.20) Consultant Services 8.43 8.43 (4.10) (4.10) Owalng Costs 0.37 0.37 (0.37) (0.37) Refundiq PPF and Unallocated 133 133 (1.33) (1.33) Credit (MCF and Housing Loas) 36.33 36.33 (16.67) (16.67) Total 2558 2.30 13.74 36.71 78.32 (IDA Credt) (18.17) (1.68) (9.12) (17.03) (46.00) Note: Figures In paetheses are the respective nounts fnanced by the Association. Disburssments Catory Amount S (US $million) tMCFflnancing 3.33 100% of selected loan Housing Loans 13.33 100% Consultant Services for Cadastre (except TA) 1.22 100% of foreign and 80% of local OperaUng Costs (Cadastre) 2.15 100% of foreign and 80% of local Training (CUD Technical Department) 0.18 100% of foreign and 80% of local CivilWorks (facilities) 3.58 100% Civil Works (road rehab.) 13.75 100% of foreign and 80% of local Equpment 6.16 100% OseraUng Costs (Project Unit) 0.97 100% PPF and Urallocated 1.33 100% CMI Works (Land Developnent) 0.00 0% (BHS) Technicel Assistance 0.00 0% (Cofinancing) Total 46.00 Estimated IDA Disbursements IDA Fiscal Year FY 89 FY 90 FY 91 FY 92 FY 93 FY 94 FY 95 FY 96 Annual 9.9 8.8 7.8 6.2 4.9 4.0 3.5 0.9 CumulaUve 9.9 18.7 26.5 32.7 37.6 41.6 45.1 46.0  -7- Schedule C SENEGAL MUNICIPAL AND HOUSING DEVELOPMENT PROJECT Tlimetable of Key Project Processing Events (a) Time taken to prepare: One year (b) Prepared by: Government with IDA assistance (c) First IDA missions May 1986 (d) Appraisal mission departure: June 1987 (e) Negotia&;ions: January 1988 (f) Planned date of effectiveness: June 1988  -8- UMTAE 8OF1DA(1 MMIEU WATII U =MAL A IPTAsW ( DA l W ADM 318 bUsdDemcbr 31.1987) lam or a Oudi lb T. row s a piupm oakMA Ialmnuu 3Mw Los. dCr01s (AmPisshIND .1M 3M aC~UWMM) 17Iwo ad24 cawshewbom boyfntu wd I 10993 17461 In 1412 77 9sw3 PgVocOWbTatmn 8.00 0.32 In 1413 77 awp tW.CNWTsxuM 5h0 039 In 1973 81 swum 1nvsmsn Pru1on 6.50 O0 o991 80 s um Sm1R"OW Wtb ___ _ J 9.Om TOW ...130.03 .. ola",s dwhgtmbesnrq 377 _ 931 Tdd r Br 9A2SFf 17 AmmtAd 326