Niger - Supplemental credit to the Public Works and Employment Project

c -t '--- ' C- 7 --/// Documentof -- '// The World BaiAk FOR OFFICIAL USE ONLY Repot No. P-6283-NIR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMEN4TAL CREDIT IN THE AMOUNT EQUIVALENT TO SDR 6.9 NILLION TO THE REPUBLIC OF NIGER FOR A PUBLIC WORKS AND EMPLOYMENT PROJECT OCTOBER 7, 1994 MICROGR'APHICS Report No: P- 6283 NIR Type: MOP 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 Banik authori7ation.  CURRENCY EOUI'v ALENTS Currency Unit CFA Franc (CFAF) US $100 CFAF 592 (January 31, 1994) CFAF I million = US$ 1,687 (January 31, 1994) SYSTEM OF WEIGHTS AND MEASURES Metric System FISCAL YEAR January I - December 31 ABBREVIATIONS AND ACRONYMS CAS Country Assistance Strategy GDP Gross Domestic Product GON Government of Niger ICB International Competitive Bidding LCB Local Competitive Bidding NGO Non-Governmental Organization NIGETIP Agence Nigerienne de Travaux d'Interet Public pour 1'Emploi (Nigerien Public Works Executing Agency)  FOR OFFICIAL USE ONLY REPUBLIC OF NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT SUPPLEMENTAL CREDIT CREDIT AND PROJECT SUMMARY Borrower: Republic of Niger Beneficiary: Ministry of Plan Credit Amount: SDR 6.9 million (US$10.0 million equivalent) This supplemental Credit would increase the IDA assistance to the Projxct (Cr. 2209-NIR) to a total of SDR 20.8 million (US$ 30.0 million equivalent). Terms: Standard IDA terms, with the same repayment terms as the original Cr. 2209-NIR Financing Plan: Existing (Cr. 2209-NIR) Proposed Total Government: US$ 3.3 million US$ 1.0 million US$ 4.3 million IDA: US$ 20.0 million US$ 10.0 million US$ 30.0 million Cofinancing: US$ 10.0 million US$ 0.0 million US$ 10.0 million TOTAL US$ 33.3 million US$ 11.0 million US$ 44.3 million Rate of Return: Not applicable Original MOP: Report No. P-5387-NIR Staff Appraisal Report: Report No. 9032-NIR Poverty Category: The project's poverty reduction measures include an emphasis on labor- intensive construction practices in order to generate employment for unskilled workers; training for small local construction firms to build their capacity to respond to calls for bids and to better manager their businesses; and a community participation component to increase involvement of local groups in the maintenance of the urban infrastructure provided by the Project. This document has a restricted distribution and may be used by recipients only in the perfomance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED SUPPLEMENTAL CREDIT TO THE REPUBLIC OF NIGER FOR THE PUBLIC WORKS AND EMPLOYMENT PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed supplemental credit to the Republic of Niger for SDR 6.9 million, the equivalent of US$10 million, on standard IDA terms, to complement the Public Works and Employment Project (Cr. 2209-NIR). The proposed supplemental credit would consist of an addition of funds to the public works component. It complements the Economic Recovery Credit (Cr. 2581-NIR) that was approved by the Board on March 29, 1994. 2. The main objective of the original Project was to create employment in response to the serious levels of urban poverty in Niger's cities. The devaluation of the CFA franc resulted in a substantial short-term increase in urban poverty that can be expected to persist until the supply response to the de-aluation materializes (see para. 10). Thus there is an urgent need to create more short-term employment to alleviate the transitional effects of the devaluation. Fortunately, a reserve set of economically justified subprojects had already been identified in the context of the Project. The Government has shown strong commitment to the Project which the executing agency is implementing with remarkable diligence and efficiency (see paras. 4-5). However, due to short-term budget constraints, the Government is unable to mobilize external financing from other donors in a timely manner. Hence, it was decided to pursue the proposed supplemental credit as the most appropriate vehicle for the Bank to respond to the Government's request for assistance. Background: Public Works and Employment Project 3. Project Objectives and Description. The Public Works and Employment Project was approved on February 19, 1991 and became effective on December 9, 1991. Its objectives are: (a) to create, at least temporarily, substantial new employment in urban areas as rapidly as possible using the private sector; (b) to improve, through the execution of works financed by the Project, the individual skills of the workers employed and the corporate competitiveness of the firms carrying out works; (c) to demonstrate the feasibility of labor-intensive projects; and (d) to review existing public works programs and recast them with the intent of speeding up their implementation and overall performance. The Project's five components consist of: (a) a program of public facility and infrastructure rehabilitation and maintenance in urban areas; (b) a package of services related to work organization, management, and labor force training; (c) a supervision and monitoring component in order to closely monitor the Project; (d) a selective audit of pubic works programs to identify bottlenecks and design system improvements; and (e) a package of consultant services related to a training program for beneficiaries and engineering firms, and a program aimed at increasing community participation in urban infrastructure maintenance. 4. Implementation Experience. The Project is being implemented by an executing agency called "NIGETIP" or Agence Nigerienne de Travaux d'7ntgr&t Public pour l'Emploi, which was created to provide urban infrastructure rehabilitation through "delegated contract management" on behalf of municipalities and Government. Delegated contract management has enabled NIGETIP to efficiently manage a large number of small contracts, thus avoiding any increase in civil service employment. Competitive bidding, even for small contracts, ensured the efficient use of resources (construction  - 2 - costs were often lower than budgeted). During the two years of implementation, NIGETIP has executed works for approximately US$10 million per year (at tne exchange rate prevailing at that time). As of February 28, 1994, NIGETIP had committed all the resources allocated for the civil works component and had disbursed approximately 83 % of the Credit proceeds. 5. NIGETIP's performance has been outstanding at all levels: two years after effectiveness, 200 sub-projects have been or are being executed by 60 small contractors for a total cost of CFAF 5 billion, in the eight departments of the Republic of Niger. Total wages distributed by the 107 subprojects already completed represent CFAF 796,662,314 or an average of CFAF 44,775 per job created. The wage bill represents 29% of total investment costs. a higher proportion than expected. The execution of the sub-projects led to the creation of 800,687 person-days of temporary work, i.e., 17,793 persons were employed in jobs for an average duration of 45 days. Finally, with an overhead cost of less than 5%, NIGETIP has proved to be very efficient in managing small contracts (approximately 250 per year, half for works and half for consulting services) and has been able to pay contractors and consultants within a week. Audits are routinely on time and unqualified. Counterpart funding had been problematic but Government is currently in compliance with all major covenants. Rationale for IDA Involvement 6. Changing Country Economic Background/Rationalefor Project Expansion. Niger's economy remains relatively undiversified with only one major export commodity, uranium, and limited natural resources. Since the downturn of its uranium prices in 1981, the economy of Niger has suffered continual setbacks, mainly as a result of the deterioration in its terms of trade, the continual depreciation of the naira of Nigeria since 1986, poor economic management, as well as recurrent droughts. Over the period 1985-92, real GDP growth has remained very low, on average 0.25%. Per capita income has declined by 3.4% per year since 1980 and as a result, Niger's fast growing population (3.2%) is becoming one of the poorest of the world. 7. In the period 1985-89, GON, with the support of IDA and the IMF, implemented reforms to improve public finance and debt management, liberalize the economy and foreign trade, reduce constrains on pricing and mnarketing in agriculture, strengthen the programming and implementation of public investment, restructure the public enterprise sector, rehabilitate the banking system and improve financial intermediation. Significant progress was achieved in these areas, however economic conditions continued to deteriorate and the underlying decreasing competitiveness was compounded by adverse shocks. In parallel, the political situation evolved and the long transition period until the installation of a democratic government in April 1993 caused the structural adjustment program to derail. 8. In 1992 and 1993, the fiscal position worsened and substantial domestic and external payments arrears accumulated. In order to curb this deterioration, the authorities adopted a strengthened internal adjustment program in August 1993 and took key measures in September, including a decrease in public sector wages as well as piecemeal protection measures against fraudulent imports. Despite these measures, the fiscal imbalances continued. External debt servicing fell to a minimum, and counterpart funds for foreign financed projects declined, resulting in excessively low levels of public investment. The balance of payments current account deficit,  -3 - excluding official transfers remained at 7.5% of GDP in 1993, as in the previous two years. 9. Taking into account changes in the external environment as well as economic and financial development in Niger, the authorities recognized both the limitations of a purely internal adjustment and the need to strengthen the ongoing reform program. Therefore, the Government decided, together with the other countries of the CFA franc zone, to devalue the CFA franc by 50% in foreign currency terms, effective January 12, 1994. In addition, the authorities have set the following objectives for 1994-96: (a) accelerate real GDP growth to more than 3.9% a year; (b) limit inflation, as measured by GDP deflator, to approximately 3% by 1996 after a rapid increase in 1994 as a result of the currency adjustment; ; and (c) limit the worsening of the current account deficit of the balance of payments to 16% in 1994, and reduce it to 12% by 1996. 10. After 50 years with a fixed exchange rate regime, external adjustment is expected to have major short-term effects on the standard of living. Food producers have benefitted from the devaluation as witnessed by an increased demand for rice and livestock products in neighboring countries. However, the supply response to the shift of relative prices will take some time and the associated benefits will be fully visible only in the medium term. Meanwhile, some of the visible impacts will be negative, as indicated by an inflation rate of 29% (as compared to around 3% in previous years). Food prices in urban areas have been particularly affected. For example, the price of cereals has risen by 24%, sugar by 28%, oil by 31%, fish by 47%, salt by 52%. In addition, transportation costs have risen by about 34% and the prices of health- and hygiene-related products have risen by approximately 19%. These higher costs have further reduced the purchasing power of the poor thus threatening their food security situation and malnutrition levels. In an environment of increased poverty and unemployment caused by previous economic depression and unsuccessful internal adjustment, it may be politically and socially difficult to sustain the implementation of the new reform program. Unless a serious deterioration of the poverty levels is prevented, the benefits of the initial sacrifice will be at risk. 11. Therefore, the major challenge for IDA is to provide a quick and visible response to the perceived negative social impacts of the reforms, without jeopardizing the longer term objectives of effective and efficient use of scarce resources. A careful analysis of IDA's policy instruments reveals that the proposed supplemental credit is the best tool to ensure the two objectives of rapidity and visibility. Furthermore, making additional funds available under Project embraces two of the "two and a half legged stool" of IDA's strategy to deal with poverty issues: the rehabilitation and construction of urban infrastructure, using labor intensive techniques, will allow a greater population to benefit from basic services and, simultaneously, will generate employment and revenues. Thus, IDA is pleased with GON's willingness to use NIGETIP's services to launch a frontal attack on poverty. 12. The proposed supplemental credit would support GON's efforts to expand employment opportunities and increase incomes, especially in urban areas, to provide a rapid and effective response to the adverse ramifications of the devaluation. NIGETIP has proven over the past two years to be an excellent tool for creating employment through the efficient and economic provision of urban infrastructure. After only two years of implementation, all funds allocated for the civil works component have been committed. By enabling NIGETIP to maintain a high level of activity for one more year, the proposed supplemental credit should intensify the positive impacts of the project on  - 4 - urban households when they are most needed. 13. Consistency with the Country Assistance Strategy (CAS). The current CAS statement was reviewed by the Board on May 31, 1994. It contains a full discussion of recent economic developments, and IDA's assistance program. The project is fully consistent with both current and future IDA strategies, which stress the need to focus on five key actions: (i) human resources development; (ii) slow down population growth and the status of women; (iii) provision of adequate infrastructure; (iv) environment, agriculture and natural resources management and (v) institutional development and capacity building. Description of the Proposed Supplemental Credit 14. The proposed supplemental credit will pursue all the objectives of the initial project, by providing US$10.0 million to extend NIGETIP's civil works activities to cover an additional portfolio of projects in the coming year. It will continue to finance the creation of useful infrastructure, to increase employment opportunities, to promote the private sector and to develop small enterprises. Moreover, in an effort to emphasize the social dimension of the additional works, a share of the extra allocation will be specifically oriented to sanitation related projects identified by the beneficiary populations (with the assistance of community groups or non-governmental organizations (NGOs)). Govermment's contribution for the subprojects and activities financed by the supplemental credit is US$1 million. 15. The budgeted US$10 million would finance civil works for a total cost of US$9.57 million. Sub-projects will be prepared, supervised and executed by the private sector. Maitres d'oeuvre (consulting engineers) will be contracted to prepare final designs and bidding documents and to supervise the execution of civil works. The cost of this preparation for accepted projects and their supervision will be limited to 5% of the total project cost for project design and 5 % for supervision, i.e., US$0.87 million. NIGETIP's administration fee will not exceed 5% of the program costs, i.e., US$0.43 million. 16. NIGETIP's estimated output of $10.57 million for the coming year constitutes a reasonable target given the following factors: (a) there are priority projects already identified, as the budget for the existing Project could finance only 20% of the portfolio of eligible sub-projects submitted by the municipalities and the central Government; (b) only 60 construction companies out of the 650 pre- qualified have obtained contracts, so just 10% of the absorptive capacity of the sector has been utilized until now; and (c) NIGETIP's annual output is worth US$10 million, which after the devaluation and with an estimate 50% increase in project costs in local currency, is the equivalent of US$7.5 million at the current exchange rate. The envisaged 16% output increase is conservative, given the high degree of flexibility and effectiveness of this type of agency. 17. Project Benefits. The economic benefits under the proposed supplemental credit are expected from the wider access of the poor and the disadvantaged to urban infrastructure and investment resources. The Project will better respond to the needs of the poor. Since the bulk of project-related expenditures will cover local costs, the Project is likely to have a greater multiplier effect on the local economy than other projects. It is expected that increases in incomes will translate into increases in spending, thus boosting the local economy and, therefore, improving the chances of  successful adjustment. At current wage rates, US$11 million expended on labor-intensive works would generate 4,400 person-years of work. 18. Program Objective Categories. The Project's continued emphasis on job creation and increased access to services is an important component in GON's anti-poverty strategy. In addition, the package of services offered to contractors, foremen and individual workers will further improve the overall capacity of the construction industiy and the indivieiual skill level of the average worker, thereby stimulating the overall labor market and improving workers' matketability. 19. Environmental Aspects. (Original project: Category B) The cumulative impact on the environment of works to be financed under this supplemental agreement is expected to be minor. Moreover, most of the proposed sub-proiects should have a net positive impact on the environment. Among the expected positive impacts are reduced water and air pollution, improved traffic circulation, reduced flooding due to improved drainage capacity, diminished risk of contaminated water and respiratory disease, reduction in diseases caused by stagnant water such as cholera, etc. Nevertheless, to ensure that subprojects will not have a negative impact on the environment, the Manual of Procedures stipulates that subprojects judged harmful to the environment will not be eligible for execution, and the annual technical audit will also include an environmental component. 20. Risks. The risks foreseen in the staff appraisal report -- that the volume of employment created by the project may fall short of expectations and that NIGETIP may misuse its considerable independence -- have not materialized. Therefore, there are no substantial risks associated with the supplemental credit. Implementation of the Supplemental Credit 21. Institutional Arrangements. Arrangements for implementation of the supplemental credit are the same as those used for the original Project. The supplemental credit will be subject to the same monitoring and auditing reporting. Procurement and disbursement procedures would follow the procedures of the original credit. Given the recent experience under the Project, it is expected that the supplemental credit will be executed in about 12 months and fully disbursed in 18 months. This will require an extension of the closing date, currently December 31, 1994, by 12 months to December 31, 1995. It was agreed during negotiations that GON would request a one-year extension of the closing date. 22. Agreed Actions/Changes in the DCA. GON has requested a supplemental credit to provide additional funds for NIGETIP. It was a condition of Board presentation that GON submit to IDA a copy of a letter from NIGETIP to GON, acceptable to IDA, in which NIGETIP commits itself to, in accordance with the Convention and subject to the execution of the relevant amendment to the Development Credit Agreement dated April 5, 1991, executing additional public works with a value equivalent to the amount of the supplemental credit and in pirsuance of a program of proposed sub- projects to be submitted to IDA for approval not later than two months following the effectiveness date of the aforementioned amendment. Finally, as mentioned above, it was agreed during negotiations that GON would request a one-year extension of the closing date.  - 6 - 23. Recommendation. I am satisfied that the proposed supplemental credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Lewis T. Preston Attachments President Washington, D.C. October 7, 1994  -7 - Schedule A REPUBLIC OF NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT SUPPLEMENTAL CREDIT ESTIMATED COSTS AND FINANCING PLAN (US$ MILLION) Estimated Costs: COMPONENTS LOCAL FOREIGN TOTAL % FOREIGN 1. Sub-projects works-oriented) 7.22 3.35 10.57 37% 2. Operating Costs of the Agency 0.43 0.00 0.43 0% TOTAL Project Costs 7.65 3.35 11.00 31% Financing Plan: LOCAL FOREIGN TOTAL % OF TOTAL PROJECT COST Government of Niger 1.00 0.00 1.00 10% IDA 6.65 3.35 10.00 90% TOTAL PROJECT COST 7.65 3.35 11.00 ._ ,,  -8 - Schedule B REPUBLIC OF NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT SUPPLEMENTAL CREDIT SUMMARY OF PROPOSET) PROCIUREMENT ARRANGEMENTS (US$M) Project Element Procurement Method TOTAL ICB LCB OTHER 1. Sub-projects (works-oriented) 9.70 9.70 (8.70) (8.70) 2. Consultant Services 0.87 0.87 l ____________________________________ ________ (0.87) (0.87) 3. Operating Costs of the Agency 0.43 0.43 _______________________________________ (0.43) (0.43) TOTAL 0.00 9.70 1.30 11.00 __________________________________ (0.00) (8.70) (1.30) (10.00) Note: All procurement will be done in accordance with the Executing Agency's Procedures Manual (acceptable to IDA). Figures in parentheses represent amounts to be financed by IDA. DISBURSEMENTS CATEGORY AMOUNT PERCENTAGE (US$M) FINANCED 1. Sub-projects (works-oriented) 8.70 100 % of expenditures 2. Consulting services 0.87 100% of expenditures 3. Operating Costs of the Agency 0.43 100 % of expenditures TOTAL 10.00 . _-- Estimated Disbursements: FY95 FY96 Total 7.0 3.0 Cumulative 7.0 10.0  -9 - Schedule C REPUBLIC OF NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT SUPPLEMENTAL CREDIT Timetable of Key Project Processing Events: (a) 'rime taken to prepare: 9 months (b) Prepared by': Government with IDA assistance (c) Planned Date of Effectiveness November 1994 1 This supplement was prepared by Mr. Leslie Pean, Sr. Projects Officer, AF51N. Processing assistance was provided by Mrs. JoAnne Nic&erson, AF5IN. Mr. James Wright and Mr. Olivier Lafourcade are the managing Division Chief and Department Director respectively for the operation.  - 10- Schedule D Page I of 3 STATUS OF BANK GROUP OPERATONS IN REPUBLIC OF NIGER Amount in USS million (1038 cancelltions) Loan or VFiscal Undi- Closing Credit No. Yer Borrowr Purpose Bank IDA burned Dlos Credits 33 Credits(s) closed 401.69 C16680-ES 19.6 NIGER HEALTH 27 s0 6.38 06/30/95(R) C17480-B5 1987 NIGBR PRIM EWC DSv 18 40 4.39 12/31/94(R) C18380-BS, 1988 NIGER P.S.INST.DEVELOPMENT .510 .50 06/30/95(R) C18800-S. 1988 NIGSR ENERGY 31 .0 22 64 12/31/94 C18900-BS. 1988 NIGER SMALL RURAL OPsRAroC 9.30 2.47 06/30/96 C21220-gS. 1990 NIGER AGRIC. RESEARCH 19.90 17.33 12/31/95 C22090-:S. 1991 NIGER PU8LIC WKS ( a IMP 20.00 2.37 12/31/94 C23550-BS, 1992 NIGER AG. SERVICSS 18.00 14.17 06/30/98 C23600-:S. 1992 NIGER POPULATION 17.60 15.11 06/30/97 C26180- S. 1994 NIGER EDUCATION III - SECA 41.40 42.47 TOTAL number Credits - 10 209.10 128.22 TOTAL.' 610.78 of which repaid 11.64 TOTAL hold by Bank