Senegal - Agricultural Sector Adjustment Loan

Report No. PIC1792 Project Name Senegal-Agricultural Sector Adjustment Loan Region Africa Sector Agriculture Project ID SNPA2356 Borrower Government of Senegal Implementing Agency Ministry of Agriculture H. E. Mr. Robert Sagna, Minister of the State, Minister of Agriculture Dakar, Senegal Date PID Prepared March 7, 1995 Projected Appraisal Date March 20, 1995 Projected Board Date June 6, 1995 Country and Sector Background 1. Senegal has a population of 7.8 million growing at 2.9 percent per year. It is located in the semi-arid Sahel where annual fluctuations in rainfall are considerable and agriculture is subject to recurrent periods of severe droughts. Its physical natural resource endowment is limited to mediocre agricultural land with significant irrigation possibilities and offshore fishing. Most people (60 percent) derive their income from agriculture, which, nevertheless, contributes only 20 percent to GDP. Per capita income amounted to US$707 in 1993. 2. After many years of uneven economic performance, the Government was faced with a deteriorating macroeconomic situation in the early 1990's. The economy was mired in a low-level equilibrium characterized by a sustained recession and underutilized capacity. Internal adjustment measures were insufficient to restore the competitiveness of the economy and its growth prospects, given the extent of the exchange rate overvaluation. The CFA devaluation in January 1994 offered Senegal a unique opportunity to break through to sustained growth. It is also proving to be a powerful impetus for reform and important long-stalled reforms have been undertaken. Project Objectives 3. The overall objective of the proposed project is to promote sustainable agricultural growth. To this end, the program supported by the AG-SECAL has four key elements : (i)liberalizing domestic marketing and pricing of rice at both producer and consumer levels and privatizing the processing of rice, thereby eliminating subsidies in local rice production; (ii)reforming agricultural trade regime through liberalizing external trade in those agricultural products still under Government control by eliminating all prior authorizations for the import and export of these crops (rice, vegetable oils, groundnut oil seeds, sugar, and wheat flour), determining appropriate protective tariffs for these key agricultural commodities, and (in the case of cotton and groundnuts) linking domestic producer prices to world prices; (iii) privatizing the production, processing and marketing of agricultural products in those subsectors still dominated by parastatals,  namely groundnuts and rice; and (iv) preparing a three-year rolling investment program for the agricultural sector which respects clear sectoral priorities established in consultation with donors. Project Description 4. The project is an adjustment operation in support of the objectives outlined above. The project will be released in two tranches. Project Financing 5. IDA proposes to support this project with a credit of US$45 million, representing roughly 4.5 percent of the projected residual external financing for the period 1994-98. The counterpart funds will assist Government in carrying out reforms which are expected to have a budgetary impact in excess of US$100 million. The other donors would provide a mixture of fast-disbursing aid and project support. Donors which have expressed interest in supporting this program of reforms are the French, the European Union and the Federal Republic of Germany. Separately, USAID has already provided US$31 million in support of reforms in the domestic and imported rice sector. Project Implementation 6. The Ministry of Agriculture would have overall responsibility for project execution, and its recently established Agricultural Policy Unit would be strengthened to carry out the long-term perspective study and monitor and expedite project implementation. It will continue to work closely with the Ministry of Economy and Finance. A working group has been established consisting of a representative of the Ministry of Agriculture, the Ministry of Economy and Finance and the Presidency to act as counterpart for supervision missions. Project Sustainability 7. Many of the reforms included in the proposed project have long been on the agenda in Senegal. The major risk is that what has not been done in the past will not be done again. Two developments have contributed to mitigate this risk. The first is the intense debate in Senegal in 1993 on the austerity measures proposed by the Government. Public opinion has been educated on the costs of monopolies and there is political pressure from below to put an end to such practices. Second, the changes in prices resulting from the devaluation have fundamentally altered Senegal's economic picture. The proposed reforms also have internal constituencies: (i) they are supported within the administration by a new generation of forward looking technicians; and (ii) they emanate from the private sector which is organizing itself to obtain a policy environment more conductive to the development of its activities 8. Poverty Category: Not Applicable 9. Environmental Aspects In conformity with IDA policies for adjustment operations, no environmental rating has been assigned. Under the AG-SECAL the Government proposes to prepare and implement a scheme for and to adapt existing - 2-  legislation to an integrated and participative natural resource management. The preparation of the scheme and the adaptation of existing legislation for natural resource management are expected to be completed in December 1995. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington D.C. 20433 Telephone No.: (202)458-5454 Fax No.: (202)522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. -3-