Report and Recommendations of the President to the Executive Directors on a Proposed Loan to the Republic of Gabon for A Road Project

f E COY RESTRICTED Report No. P-385 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF GABON FOR A ROAD PROJECT July 1, 1964 INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOIMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN FROM THE BANK TO THE REPUBLIC OF GABON FOR A ROAD PROJECT 1. I submit the following report and recommendations on a pro- posed loan to the Republic of Gabon, in an amount in various currencies equivalent to $12 million, to assist in financing a road construction and maintenance program. PART I - HISTORICAL 2. The proposed loan would be the Bank's first operation in Gabon since its independence in August 1960. Teo country joined the Bank in Septerber 1963. In July 1959, the Bank made a loan of $35 mil- lion for the COMILOG manganese project, guaranteed by France and the Congo (Brazzaville) as well as by Gabon. 3. In rece%mber 1963, the Government of Gabon asked the Bank to help in financing the construction or improvement of about 990 km. of roads. An appraisal mission visited Gabon in February 1964 and agree- ment was subsequently reached with the Government on a smaller and more realistic project based on the construction or ir provnment of three roads totalling 185 km and feasibility studies of a further 230 km. Formal negotiations for the proposed loan were completed in Washington on June 12, 1964. The Government was represented by a delegation headed by the Minister of National Economy, Planning and Mines. PART II - DESCRIPTION OF THE PROPOSED LOAN 4. The proposed loan would have the following characteristics: Borrower: The Republic of Gabon. Loan Amount: Equivalent in various currencies to $12 million. Purpose: To assist in financing construc- tion or improvement of three all -2 - weather roads totalling 135 klm3 the procurement of maintenance equipment; feasibility studies and preliminary engineering for additional roads and river load- ing facilities. Amortization: In 33 semi-annual payments be- ginning November 1, 1968 and ending November 1, 1984. Interest Rate: 5-1/2% per annum. Commitment Charge: 3/8 of 1% per annum. PART III - APPRAISAL OF THE PROPOSED LOAN 5. An Appraisal Report (TO-427)is attached (No. 1). The project is directly connected with opening up untapped forest regions for commer- cial purposes. Economically useful timber in the presently accessible forest areas along the coast and near navigable rivers is being gradually exhausted and, despite replanting operations, new areas have to be made accessible if a serious fall in tirber production is to be avoided. The proposed project provides for the design, construction and improvement of three roads, totalling 185 km., leading into the so-called second forest zone, in which timber companies are ready to operate as soon as the way is open. 6. Construction of the project will be supervised by consult- ants. The road maintenance organization will be strengthened by additions to the technical staff of the Directorate of Public Works and the procure- ment of road maintenance equipment, spare parts and repair shop facilities for a pilot maintenance division. This division ill also serve as a training center for Gabonese labor in general, foremen, mechanics and technicians. The Government has undertaken to allocate adequate funds for the maintenance of the project roads on their completion. 7. During the construction period, consultants will carry out feasibility studies and preliminary engineering for some 280 kn. of addi- tional roads, as well as for improved loading facilities at the river port of N'djole, which will become an important trans-shipment point for timber. 8. The total cost of the project is estimated at $13.7 million. Because of the very small local contribution, whether in the way of equipment and materials or of skilled labor, the foreign exchange compo- nent is estimated to be as much as $12 million. The proposed loan would thus be about 87% of the total project cost. However, in addition to the project roads, there are currently under construction other roads - 3 - related to them, for which less foreign finance has been available. This being so, the local contribution to all roads in the project area taken together will in fact be somewhat over one-third. Furthermore, Gabon has been financing about half of its total public investment pro- gram out of domestic resources. 9. The project would be carried out over a period of three years, 1964-67, and the Directorate of Public Works will be the executing agency. Contracts for work to be performed in 1965 and 1966 and those for purchase of maintenance equipment will be awarded through broad inter- national competitive bidding. Works to be accomplished in 1964 will be executed by pre-qualified firms selected after calling for international tenders in Gabon and in the neighboring countries. PART IV - LEGL INSTRTMENTS AND LEGAL AUTHORITY 10. Attached are a draft of the Loan Agreement between the Borrower and the Bank (No. 2) and a draft Supplementary Letter from the Borrower to the Bank re Section 5.0h of the Loan Agreement (No. 3). 11. The Agreement is substantially in the form used by the Bank for projects of this type. The following provisions are of special interest: (a) The negative pledge clause (Section 5.04) does not apply to the assets of the "Banque Centrale des Etats d'Afrique Equatoriale et du Cameroun", i which fulfills the functions of a central bank for several African countries including Gabon. However its statutes provide that the Banque can not pledge any part of its assets and the Gabon has under- taken not to assent to any change of the statutes in this respect without prior approval of the Bank (see No. 3). (b) Section 5.09 provides that the Borrower will undertake a training program to improve the skill of Gabonese per- sonnpl for road works. 12. Also attached is the report of the Committee, provided for in Article III, Section h (iii) of the Articles of Agreement of the Bank (No.h). PART V - TIE GABONESE ECONOMY 13. A report on the economy of Gabon (AF-24) is attached (No. 5). Gabon is one of the smallest yet most prosperous countries of Equatorial Africa. Thick tropical forest and broken terrain make for difficult commu- nications and offer generally adverse environient for a very sparsely scattered population. On the other hand natural resources are considerable and under the stimulus of heavy foreign investment in petroleum, mining and timber, GNP has grown extremely rapidly in recent years (an estimated 23% a year between 1956 and 1960). Nevertheless the bulk of the population is still engaged essentially in subsistence agriculture, where the rate of progress remains extremely slow. 1. Timber produces about 60% of Government income and foreign exchange earnings. Gabon is virtually the sole producer of okouM6, a tropical hardwood with excellent properties for plywood manufacture; market prospects appear to be distinctly favorable. In 1959, the Gov- ernment undertook a regular program of okoume' planting and has recently initiated measures to check the depletion of the country's forest re- scurces. 15. In recent years, crude petroleum, uranium and manganese ores have been making a rapidly growing contribution to the economy. Gabon has very large deposits of iron ore and a study of the transport problems connected iith the exploitation is being financed by the UN Special Fund with the Bank acting as Executing Agency. 16. Government income is highly dependent on custom duties and thus sensitive to fluctuations of the economy. The current budget has consistently shown a surplus which is allocated to financing public in- vestment and has diminished the need for public borrowing. At the end of 1963, Gabon's public external debt was not more than $13 million much of it on soft terms and debt service represented less than 1% of export proceeds. Public savings may well decline in coming years as current expenditures, particularly of a social character, initially increase. To meet the needs of a growing economy the volume of public investment will have to increase. Consequently, Gabon can be expected to borrow more extensively abroad than in the past. However, given the prospects for the economy and the small edsting debt, there is a substantial margin for borrowing on conventional terms. PART VI - COMPLIANCE WITH ARTICLES OF AGREEENT 17. I am: satisfied that the proposed loan would comply with the Articles of Agreenent of the Bank. PART VII - RECO21ENDATIONS 13. I reconmend that the Bank make a loan to the Republic of Gabon in various currencies equivalent to $12 million for a terra of 20 years, at an interest rate of 5-1/2% per annum and on such other terms as are specified in the attached draft Loan Agreement and that the Executive Directors of the Bank adopt a Resolution to that effect in the form attached (No.6). George D. Toods President W.ashington, D.C. July 1, 1964