Cameroon - Education Project

RESTRICTED Report No P-737 FILE COPY 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 The report may not be published nor may it be quoted as representing their views.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 DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE FEDERAL REPUBLIC OF CAMEROON FOR AN EDUCATION PROJECT August 19, 1969  BASIC DATA (based on exchange rate prior to August 8, 1969 of COAF 247 per US$ 1.0) Area: 183,524 square miles; 475,450 square kilometers Po;plLtion (1968): 5,449,000 (of 'hich about 15,000 non-Africans) Rate of growtb: 2.1% Density: 30 per square mile Political Status: East Cameroon - independent January 1, 1960; West Cameroon - independent Octoter 1, 1961; Federation - October 20, 1961. Member of the Banque Centrale des Etats de I'Afrivue EqjuatoriLle et du Cameroon (3CEAEK) and the Union Doueniere des Etats de 1'Afrique Centrale (UDEAC); Associated Member of the European Community. Gross Domestic Product (Est. 1967/68): $860 million (subsistence 20%) Per capita: $157 Primary sector 37% Secondary sector 16% Transport, Trade, Services 47% Rate of grovth, 1962/63 - 1966/67 7.3% (at current prices) t.7% (at constant prices) Percent of GDP at Market Prices 1962/63 - 1963/64 1964/65 - 1966/67 Gross investment 10.8 14.9 Gross savings 9.8 12.8 Net import of goods and services 1.0 2.1 Balance of payments current account surplus o.6 -0.5 Investment income payments net 1.4 1.2 Government taxation revenue (Federation) 15.1 16.4  -2- Average Annual Increase Money, Credit and Prices (CFAF billion) December 1968 1964 - 1968 Total money supply 31.44 8.4% Quasi-money 3.21 9.5% Commercial bank credit to private sector 35.71 6.o% Rate of change in prices 2.5% Public Sector Operations (CFAF billion) 1966/67 1967/68 (revised estimate) Government current receipts 31.9 36.9 Government current expenditures 30.6 32.8 Surplus/Deficit +1.3 +4.1 Government capital expenditures 3.8 3.6 Public investment expenditures 10.5 10.5 External Public Debt (US$ million) Total debt (including undisbursed) at December 31, 1968 142.8 Total debt service (1969) 6.6 Debt service ratio 3.5% of exports Balance of Payments (US$ million) Average Annual Increase 1967 1964 - 1967 Total exports 154 2.3% Total imports 186 12.3% Current account deficit -45 1/ Foreign aid disbursements 31 9.1% Commodity concentration of exports 1968 1964 Coffee, Cocoa, Aluminum 26%; 22%; 10% 27%; 20%; 15% Gross foreign exchange reserves 1968 1964 US$ million (end of year) 46.8 45 IMF Position 31 Dec. 1968 Quota $17.4 million Drawings none 1/ Current account in 1964 vas in surplus. August 19, 1969.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE FEDERAL REPUBLIC OF CAMEROON FOR AN EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed cre- dit in an amount in various currencies equivalent to US$ 10.5 million to the Federal Republic of Cameroon to assist in financing an education project. PART I - HISTORICAL 2. The Government of Cameroon has requested the Association's assistance for a project to expand and improve teacher training schools and industrial, agricultural and general secondary education facilities, and for related technical assistance. The project was identified by a Bank/UNESCO/FAO mission in May 1968 and UNESCO assisted the Government in preparing the project in November, 1968. It was appraised by a mission which visited Cameroon from January 26 to February 21, 1969. Negotiations with a delegation from the Government of the Federal Republic of Cameroon led by Mr. Joseph N. Owono, Ambassador of Cameroon in Washington, were completed in Washington on June 30, 1969. 3. The following is a summary statement of Bank loans and IDA credits to Cameroon as of July 31, 1969: Amount ($ million) Loan or Credit Undis- Number Year Borrower Purpose Bank IDA bursed 100 CM 1967 Cameroon CAMDEV - 11.0 7.6 490 CM 1967 CAMDEV CAMDEV 7.0 - 6.9 S3 CM 1968 Cameroon Roads - o.6 0.2 593 CM 1969 SOPAME Oil Palm 7.9 - 7.9 604 CM * 1969 SNEC Water Supply 5.0 - 5.0 Total now held by Bank and IDA 2 11.6 Z=3 Total undisbursed 19.8 7.8 27.6 * Not yet effective.  - 2 -- 4. The slow disbursement of the IDA credit and the Bank loan for the CAMDEV project in 1967 is due mainly to the fact that this project is to be carried out over an eight-year period, and that the IDA credit is to be dis- bursed before the Bank loan. The detailed engineering of the Ngaoundere - Garoua and Tiko - Victoria roads financed under the US$ 0.55 million engineer- ing credit approved in 1968 is now being completed. The project was appraised in March 1969 and is expected to be presented to the Executive Directors later in 1969/70. The cost of the project is presently estimated to be about US$ 20 million. The Bank and IDA also have under consideration a tea project and a rice project which should both be ready for appraisal during 1969/70. PART II - DESCRIPTION OF THE PROPOSED CREDIT 5. Borrower: Federal Republic of Cameroon Amount: US$ 10.5 million equivalent in various currencies Purpose: To assist in financing the development and improve- ment; of facilities for teacher training, and indus- trial, agricultural, and general secondary education facilities, and related technical assistance Amortization: In 50 years including a 1LO-year period of grace, through semi-annual installments of one half of one percent from December 15, 1979 through June 15, 1989 and one and one half percent from December 15, 1989 through June 15, 2019 Service Charge: 3/4 of one percent PART III - THE PROJECT 6. A report on the proposed project entitled "Appraisal of an Education Project in Cameroon' (PE-5a) is attached. The educational system in Cameroon is well developed compared with those of many other African countries, par- ticularly for primary education, which is the financial and administrative responsibility of the two State Governments. Effective enrollment ratios of about 75 percent of the primary school age population have been achieved in both East and West Cameroon. 7. Enrollment in secondary education amounts to under 7 percent of the school age population. Failure rates are high and output is so low that the University of Cameroon does not obtain the required intake and the economy of Cameroon does not receive an adequate supply of educated and trained middle- and high-level workers.  8. Secondary education is to receive greater emphasis: the proposed project represents most of the expansion and improvement programs to be car- ried out during the next three to four years which will: - increase the output of the secondary system as a whole to correspond more closely to the manpower requirements of the economy; - place greater emphasis on technical and agricultural education in secondary schools; and - substantially reduce the dependence of general secondary education on expatriates by increasing the output of trained Cameroonian teachers. 9. The project would consist of the construction or expansion, and equipment of three primary school teacher training colleges, a secondary school teacher training college, fifteen general secondary schools, four technical schools, and a post-secondary agricultural college. The project would also include technical assistance to provide experts to reinforce the Ministry of Education's planning services and specialist teachers in such subjects as engineering and farm management. The project would be carried out by a Project Unit within the Ministry of Education. The Chief of the Unit and the Project Architect have already been appointed by the Government and are acceptable to the Association. The Government has undertaken to make available promptly all lands required for the project. 10. The cost of the project was estimated by the Appraisal Mission to be US$ 14 million including contingencies. In view of the recent devaluation of the French and CFA francs, the cost of the project may be slightly less, but it is not possible to estimate the effects of the devaluation with any accuracy until its effect on the price level can be seen. A proposed credit of US$ 10.5 million was agreed during negotiations on the basis of the exist- ing cost estimate. This amount would finance the then estimated foreign cost of US$ 9.3 million and about US$ 1.2 million of the local costs. Initially the result of the devaluation will be for the percentage foreign exchange component to rise slightly and for the total cost expressed in dollars to be reduced, but in view of the uncer-tain and relatively minor nature of the changes that would be involved, I propose that the project should be financed on the basis of the pre-devaluation cost estimate. 11. Local cost financing is, in general, justified in view of Cameroon's need for external capital as described in paragraph 19 below. This assistance is particularly necessary at a time when a large part of Cameroon's budgetary savings will be absorbed by the Government's existing commitments to a few large high priority projects, notably for railways, roads and telecommuni- cations. 12. Careful consideration has been given to the size of the Government's contribution, which would be US$ 3.5 million, without taking into account the cost of land acquisition. Some local cost financing is justified for this  - 4 - particular project because, while budgetary savings are expected to continue to rise, it is unwise for Government to pre-empt funds for this project to such an extent that the Government is unable to make an adequate contribution to future high priority projects such as the road project which is expected to come forward later this year. The proposed level of financing for this education project is consistent with this objective. 13. All construction contracts and procurement would be subject to international competitive bidding in accordance with the Guidelines; however, a 15 percent preference would be allowed for local manufacturers, who are likely to bid to supply furniture. Any savings made on the credit, when the project is completed, would be cancelled or used to finance minor extensions to the project, subject to the agreement of the Association. There is to be no retroactive financing. PART IV - LEGAL INSTRUMENTS AND AUTHORITY i4. The draft Credit Agreement between the Association and the Federal Republic of Cameroon, the Recommendation of the Committee provided for in Article V Section l(d) of the Articles of Agreement and a draft Resolution approving this credit are being distributed to the Executive Directors se- parately. 15. The provisions of the Credit Agreement generally conform to the pattern of Association education projects. It should be noted that Section 6.01 requires fulfillment of a condition of effectiveness in connection with the acquisition of land and property rights required for the construction of schools and colleges included in the Project. Schedule IV (Procurement Pro- cedures) provides for a 15 percent preference margin for local manufacturers of instructional equipment and this margin of preference may be extended to manufacturers located in other member states of the UDEAC customs union. PART V - THE ECONOMY 16. An economic report entitled "Current Economic Position and Prospects of the Federal Republic of Cameroon" (AF-79a) dated August 8, 1968, was circu- lated to the Executive Directors on September 4, 1968 (R 68-171). The con- clusions of this report remain valid. Basic data on the economy are attached. 17. Since 1959, real GDP has increased by about 5 percent per year. Agriculture, which still employs three-quarters of the working population, accounts for 37 percent of GDP, providing most of the country's foodstuff and 70 percent of exports. Manufacturing has progressed rapidly during the  -5- past few years, as has the service sector. The main bottlenecks to growth are the transportation system and the scarcity of trained manpower. 18. Government expenditures are divided between the Federal Government and the two State Government budgets. The Government's management of fiscal and economic affairs has been generally good, taking into account the diffi- culties arising from independence, the establishment of the federation be- tween two different regions, and the progressive elimination of preferences for Cameroon products in the French market. The financial situation has been fairly stable in recent years except for 1967 when credit to the private sec- tor expanded rapidly, resulting in a sudden increase in imports. The conse- quent decline in foreign exchange reserves was, however, reversed in early 1968. Good fiscal performance is reflected in consolidated Government savings amounting to about US$ 16 million in 1967/68, or 10 percent of current receipts. The Federal Government development budget for 1969/70 provides for expenditures amounting to about US$ 14 million compared with about US$ 9 million in 1968/69. 19. The second five-year development plan (1966/67 to 1970/71) des- cribes the government's long-term development strategy: gross domestic pro- duct is expected to double by 1980 as a result of increasing the rate of investment from 10 percent to 16 percent of GDP distributed equally between the private and public sectors. The sectoral allocation of investment is sound. The plan includes a substantial allocation for investment in transport, particularly for the completion of the Trans-Cameroon Railway. During the Plan period, Cameroon should be able to finance almost two-thirds of its gross domestic investment from its own resources. Public savings, however, which have increased greatly since the early sixties, are unlikely to contri- bute more than 25 to 30 percent over the next three years to the public invest- ments warranted by the country's increasing absorptive capacity. As a result, total external capital requirements will exceed the foreign exchange compo- nent of projects suitable for external financing; thus some degree of local cost financing is justified. 20. Cameroon's debt service burden is moderate, amounting to about 3