Zambia - Livestock Development Project

RESTRICTED Report No. P-713 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 The report may not be published nor may it be quoted as representing their views.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 BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PR ESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ZAMBIA FOR A LIVESTOCK DEVELOPMENT PROJECT June 4, 1969  INTERNATIONAL BANK FOR RECONSTRUCTTON AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF ZAIBIA FOR A LIVESTOCK DEVELOPIMENT PROJECT 1. I submit the folloaing report and recommendation on a proposed loan in an amount in various currencies equivalent to US$2.5 million for a livestock development project in the Republic of Zambia. PART I - HISTORICAL 2. In Mlarch 1968, the Government of Zambia applied for a Bank loan to help finance a livestock development project. The application was based on a report prepared for the Government by the staff of the Bank's Agricul- tural Development Service (ADS). The proposed project was appraised in October-November 1968. 3. Formal negotiations took place in Washington in May 1969. The Borrower was represented by a delegation led by Mr. E.A. Kashita, Permanent Secretary of the Minstry of Rural Development. The Zambia Cattle Develop- ment Limited (ZCDL) was represented by Mr. T.L. Martin, General Manager. Mr. A. Tweedy attended the negotiations on behalf of Barclays Banlc DCO (Zambia) which is to participate in financing the proposed project. 4. The first lending by the Bank in independent Zambia was a road loan (h69-ZA) made in 1966, which was followed in 1968 by a forestry loan (562-ZA) and a second road loan (563-ZA), and in April 1969 by an education loan (592-ZA). Previously, the Bank made two loans for railways in Northern Rhodesia (now Zambia) and Southern Rhodesia, and twqo loans for power to the Central African Power Corporation, jointly owned by Zambia and Southern Rhodesia. Zambia has since assumed responsibility for its share of these loans. Each of the pre-independence loans is guaranteed by the United Kingdom. There have been no IDA operations in Zambia. The following is a summary statement of Bank loans in Zambia as of April 30, 1969: (Amount (US$ million) Loan No. Year Borrover Purpose Bank Undisbursed 74-NR 1953 Zambia Railways 1h.o - 145-RN 1956 Central African Electric power 40.0 2/ - Power Corp. 1/ 197-RN 1958 Zambia 1/ - Railways 9.5 - 392-RNS 1964 Central African Power Corp. Electric power 3.85 2/ - 469-ZA 1966 Zambia Roads 17.5 8.6 I/ As a result of Loan Assumption Agreements entered into in connection Jith the dissolution of the Federation of Rhodesia and Nyasaland at the erd ofl1'.'3'. 2/ Amoi-unt-guaranteed by Zambia, i.e. cr.ne-half of loan.  (Amount (US$ million) Loan No. Year Borrower Purpose Bank Undisbursed <62-ZA 1968 Zambia Forestry 5.3 5.3 503-ZA 1968 Zambia Roads 10.7 5.9 592-ZA 1969 Zambia Education 17.4 17.4 Total (less cancellations) 116.2 of which has been repaid to Bank and others 23.4 Total now outstanding 94.8 Amount sold: 37.6 of which has been repaid 19.0 18.6 Total now held by Bank 76.2 Total undisbursed 37.2 r Disbursements on outs-tanding loans are proceeding normally. Since .'ne 1, 1966, the Central African Power Corporation has been unable to obtain +the foreign exchange from the Governments of Southern Rhodesia and Zambia for payments under the 1956 and 1964 loans. Zambia and the United Kingdom have each made one-half of these payments as guarantor. 6. Proposals for the financing of a tobacco development project, of a third highway project, of the expansion of the University of Zambia, and of an extension to the power installations at Kariba which were financed by Loan 145-RN of 1956, may be ready for your consideration in FY 1970. PART II - DESCRIPTION OF THE PROPOSED LOAN 7. Borrower: Republic of Zambia. Beneficiary: Zambia Cattle Development Limited (ZCDL). Purpose: To finance the foreign exchange costs of the development of twelve beef ranches and five dairy farms, including provision for technical services.  Amount: Various currencies equiva'lent to US$2.5 million. Amortization: In 15 years including a five-year period of grace, through semi-annual installments beginning December 15, 1974 and ending June 15, 1984. Interest Rate: 6-1/2 percent per annum. Commitment Charge: 3/4 of 1% per annum. Relending Terms: The Borrower will relend the proceeds of the loan to ZCDL on the sane terms and conditions as the Bank loan. Estimated Economic Rate of Return: 16 percent. PART III - THE PROJECT 8. An appraisal report entitled "Livestock Development Project - Zambia" (pA-lOa, dated Mtay 2,rl 1969) is attached. The project would be the first stage of Zambia's long-term livestock development program and consists of the development of twelve beef ranches and five dairy farms, and the pro- vision of technical services. Ten of the ranches and one of the dairy farms have been selected and sites for the two remaining ranches totalling approxi- mately 110,000 acres and for four dairy farms are currently being selected from a number of sites tentatively identified. Detailed plans for the development of these ranches and farms will be submitted to the Bank for its approval. Under the proposed project, finance would be made available for such investmenits as on-ranch roads, firebreaks, fencing, water supplies, ranch buildings, stock handling and animal health control facilities, tractor3, vehicles, and livestock. Funds would also be allocated for technical servrices, including an artificial insemination program and pasture improvement schemes. 9. The ranches and dairy farms will be developed and operated by ZCDL, which is a fully-owned subsidiary of the Government's Agricultural Development Cornoration, with an authorized capital of $5.6 million equivalent. ZCDL's main activity is beef ranching. The Company is building up a dairy operation which diould contribute to its overall cash flow and profitability in the early years of beef ranch development. ZCDL's Chief Executive Officer is the General Manager who wiould be responsible, subject to general direction by the Board of ZCDL, for carrying out the company's functions. Agreement was reached with ZCDL during negotiations that any appointment to the posi- tion of ZCDL's General Mlanager should be made only after agreement with the Bank, and the terms, conditions and qualifications for such position should be determined in agreement with the Bank. A senior dairy manager auwd  a senior beef ranch manager are also to be appointed in consultation with the Bank, in view of the importance of competent management for successful execution of the project. The Board of ZCDL is being reorganized and strengthened with financial and livestock expertise. 'O. The project is estimated to cost $5.8 million of which $5.2 million would be for ranch and farm development, $0.2 million for technical services and $0.4 million for working capital, the latter financed entirely from local sources. The proposed Bank loan of $2.5 million would represent the estimated foreign exchange component and would provide 43 percent of the total project rost. The balance would be met by the Government (26 percent), the Barclays Bank DCO in Zambia (21 percent) and ZCDL (10 percent). The proposed Barclays Bank DCO's loan of $0.8 million equivalent for development expenditures would be for 15 years including a grace period of 5 years; the interest rate on each uithdrawal would be 1