Senegal - Highway Project

RESTRICTED Report No. P-836 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 The report may not be published nor may it be quoted as representing their views.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 REPUBLIC OF SENEGAL FOR A HIGHWAY PROJECT June 4, 1970  INTrIRMATIONAL DEVELOPIPENT ASSOCIATION REPORT A1ND RECOilYZNDATION OF THE PRESIDENT TO TIIE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SKEGAL FOR A HIGIIAY PROJECT 1. I submit the following report and recommendation on a pro- posed credit, in an amount in various currencies equivalent to US$2.1 million-to the Republic of Senegal, to assist in financing a Highway Project. PART I - HISTORICAL 2. The Government of Senegal has asked the Association to help finance a highway project, which would be the third Bank Group opera- tion in the transport sector in Senegal. 3. The basis for the present project was laid by a mission from the Bankts Permanent Mission to Western Africa (PT4IA), which visited Senegal in 1965 and identified a need for improved feeder roads in groundnut producing areas. Subsequently, a Senegalese consulting firm, ORGATEC, carried out feasibility studies for a number of feeder roads followed by additional economic work which showed at completion in 1969 that for four road sections, economic benefits were sufficient to justify new construction. For the remaining groundnut roads in the Sine Saloum region, improvement works rather than construction appeared adequate. The inclusion in the proposed project of a road maintenance and improvement study, together with the purchase of urgently needed maintenance equipment, would provide the basis for a much broader four- year improvement and maintenance program, for which further Bank Group assistance is likely to be requested. 4. Although an appraisal mission went out in iNay 1969, the project was delayed by the need to-solve various outstanding matters on the 1966 railiwTy project (para. 7). Negotiation of the proposed credit was completed on hay 6 wfith a delegation led by Iir. Adama Diallo, Secretary of State for Planning. 5. The followring is a summary statement of Bank loans and IDA credits to Senegal as of April 30, 1970: Loan or Credit Amount (US$ million) Humber Year Borrower Purpose Bank IDA Undisbursed 96 SE 1966 Senegal Railway 9.0 2.8  -2- 493 SE 1967 Port of Port 4.0 2.5 Dakar 140 SE 1969 Senegal Agricultural 6.0 4.7 Credit 584 SE 1969 Senegal Agricultural 3.5 3.5 Credit Total now outstanding 7.5 15.0 Amount sold .4 Total now held by Bank and IDA 7.1 15.0 Total undisbursed 6.0 7.5 13.5 6. Prior to independence, a Bank loan was made (Loan 100-FR, 1954) for US$7.5 million to the Caisse Centrale des Chemins de Fer d' Outre Mer for dieselization, part of which went to the then Dakar-Niger Railway. This loan has been fully repaid. 7. Progress on the railway project has not been satisfactory. The project is about two years behind schedule due to delays in bidding procedures, weakness in the management of the railway and a delay on the part of the Government in providing the railway with adequate funds. Satisfactory action is notr bein-g talmn by both Government and railway on these issues. Execution of the port project has been delayed because of difficulties in preparing and awarding a dredging contract. Progress on the agricultural credit project is slow. Unfavorable climatic conditions and institutional problems, mainly regarding marketing and extension services, have led to disappointing groundnut crops which, in turn, reduced demand for agricultural inputs. The Government is making a considerable effort to remedy the situation and to improve incentives to farmers. 8. In August 1968, IFC made an equity investment of US$1.0 million in, and a long-term loan of US$2.46 million to Soci6te Industrielle des Engrais du Sen6gal (SIES), a Senegalese company which operates a fertilizer plant near Dakar. The above-mentioned events in the agricultural sector have also affected the company which, from the time it began production, has been faced with a considerable decrease in local fertilizer consumption. As a result, the company has had to invoke the clauses in its agreement with the Government which entitle it to receive a payment from the Government in such circumstances. 9. No further proposals for IDA credits are expected to be presented to the Executive Directors before late this year. Preparatory work for a resettlement project, a rice development project and an education project is well underway.  -3- PART II - DI CRIPTIOH OF THE PROPOSED CREDIT 10. Borrower: The Republic of Senegal. Amount: In various currencies equivalent to US$2.1 million. Purpose: Construction of four feeder roads; purchase of road maintenance equipment and vehicles; consultants' services for a road improve- ment and maintenance study. 4mortization: In 50 years including a 10-year period of grace through semi-annual installments of 1/2 of 1% from September 1, 1980 through Mlarch 1, 1990 and 1-1/2< from September 1, 1990 through March 1, 2020. Service Charge: 3/4 of 1% per annum. Estimated Economic Road construction: 10-15% Return on Project: Equipment: 15-20% PART III - TIHZ PROJECT 11. A report entitled "Appraisal of a Highway Project - Senegal" (PMR-32b) is attached. 12. Groundnuts are the mainstay of the economy of Senegal and account for about tlhree quarters of exports. Despite long-range plans to diversify agriculture, groundnuts will remain the principal item in foreign exchange earnings within the foreseeable future. The Sine Saloum region where forty percent of the country's groundnuts are grown is particularly suited for their cultivation. In this area all-leather feeder roads are needed to replace uianLproved seasonal tracls over whic.i goods and passengers nou move unreliabl- and at high cost. 13. The project concentrates on the Sine Saloum rogioii and consists of: (a) construction of 78 km. of feeder roads, including supervision; (b) purchase of road maintenance equipment and vehicles for the most urgent needs; and (c) consultantst services for a road improvement and maintenance study with special emphasis on feeder roads.  -4- 14. Total capital expenditures for the project amount to US$2.5 million equivalent of wjhich US$2.1 million or about 8h4 of the total, representing the foreign exchange costs of the project, would be financed by the proposed IDA credit. 15. Procurement would be subject to international competitive bidding. Construction would be carried 6ut by a prequalified contractor and completed in one year. Consultants acceptable to the Associa- tion would be engaged by the Government. Disbursements would be on the basis of the estimated foreign exchange component (66%) for feeder roads construction, the CIF price for imported maintenance equipment and the actual foreign e:.change expenditures for construction super- vision and consultantst contracts. 16. The 11inistiy of Public 'Jorks, Urban Development and Transport will be responsible for execution of the project. In the construction work, it will be assisted by the T,aboratoire d Bgtiinent et des Travaux Publics ir Dakar W''IiiC' is responsible for materials testing. 17. Improved roads in groundnut production areas will facilitate the work of Governmentf agencies seeking to increase the output of this crop. The quantifiable benefits associated with the construction of- the feeder roads will yield economic rates of return of about 10-15%. The road improvement and maintenance study would lay the basis for a four-year improvement and maintenance program, to be carried out in the first half of the decade writh special emphasis on the feeder road network. The Government and the Association consider it desirable to review and study in a broad context all aspects of road improvement and maintenance work. One of the main items to be studied in the program will be the improvement work required, on most of the feeder road netwTork in the-Sine Saloum region. Pending completion and review of this study, US$1.0 million would be provided under the project to purchase the most urgently required maintenance equipment which rill be defined early in the-study and therefore be placed in operation with a minimum of delay. The improvement works to be executed and the equipment to be purchased under the program are also expected to yield high economic returns. PO?T IV - LEGAL DISTERU1IMITS AUD AUTHORITY 18. The draft Development Credit Agreement between the Government of Senegal and the Association, the recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agree- ment of the Association and the draft Resolution approving the pro- posed Credit are being distributed to the Executive Directors sep- arately.  19. The provisions of the draft Development Credit Agreement follow the usual pattern in similar projects. PART V - TIE ECOIVAY 20. A report on "Current Economic Position and Prospects of 3enegal" (AW-15) is bein& circulated separately to the Executive Directors. 21. Since it became independent in 1960 Senegal has experienced low economic growth rates, which are associated with severe problems of transition after independence and poor crop results in recent years for groundnuts on which the economy remains heavily dependent. Stagnating government revenues and slowly increasing expenditures have contributed to the erosion of public savings and treasury reserves have all but disappeared. Economic growth is expected to be higher in the coming years as Senegal has adjusted to some of the post-independence changes. Groundnut production is expected to be at a more normal level. Graoth trends in fisheries, cotton production, livestock and groundnut processing are favorable and project preparation in the rural sector, mainly aimed at agricultural diversification, has progressed considerably in recent years. It is therefore expected that the difficult public finance situation will gradually improve and that a slow increase in public savings can be achieved in the ccming years. 22. In recent years, the current account of thie balance of payments continued to be in deficit, mostly due to trade deficits and outflows of private investment income. Foreign aid disbursements, although substantial, were insufficient to cover the current account deficit; as a result external reserves dropped continuously, standing at $8 million by the end of January 1970. 3enegnal's etorra31 public debt is Atill smGll and tho dUbt corvico ratio lcxi, 1.8 percent t1. 1956. 23. In view of the substantial volume of investment needed to realize the country's growth potential and the modest rate at which public savings can be restored, a sizeable net capital inflow wqill be required for many years to come. Considering the country's limited debt servicing capacity, conventional borrowing should remain limited. Given its poverty, the obviously difficult development task still ahead, and the country's rea- sonably good performance in the face of great economic difficulties, Senegal is considered eligible for IDA assistance. PART VI - CCMIPANCE WITH ARTICLES OF AGREEINT 24. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association.  - 6 - PART VII - REC&I-EMIDATION 25. I recormuend that the Executive Directors approve the proposed Development Credit. Robert S. sicNamara President Attachment TKash:ington, D.C. June 4, 1970  SENEGAL ANNEX BASIC DATA Area: 76,100 square miles Population: (mid-1968 estimate) Total 3,667,ooo of which 47,ooo non_Africans Density 48 per square mile Rate of growth 2.2% per year School attendance 35% of school-age population (1969) Political status: Independent since 1960 Gross domestic product (market prices): 1969 1959 1964 1966 1967 1968 (prelim.) GDP at current prices (billion CFA francs) 154.0 187.4 201.0 201.7 208.8 207.0 Rate of growth (% per annum) L 4.0% p.a.__/ / 1.9% p.a. GDP per capita (CFA / 3.1% p.a.__ francs) 50,670 55,660 57,310 56,220 56,930 55,230 Rate of growth (% per annum) / 1.9% p.a._/ / -0.15% p.a. / ____________________71.1p p.a. / Price rise (% per annum) / 0.8% / Gross domestic product (market prices): GDP at current prices (million US$) 623.9 759.2 614.3 817.1 845.9 745.4-1/ GDP per capita (US$) 205 225 232 228 231 199 j Structure of GDP at--factor cost (average 1967-196b) Origin Uses % Agriculture (incl. livestock and Public consumption 19.4 forestry) 27.0 Private consumption 68.8 Fishing 3.3 Gross domestic investment 12.8 Mining 0.3 Net balance of-foreign) Utilities 2L4 trade and non-factor ) Manufacturing (incl. handicrafts) 13.3 services ) (-)1.2 Construction 3.4 Transport 6.o Commerce 18.2 Other services 7.2 Government 18.9 100.0 100.0 / Calculated at the exchange rate of CFAF 277.71 = US$ 1.00 prevailing after August 1969. If converted at the previous exchange rate of CFAF 246,85 = US$ 1.00 the 1969 GDP would have been $839 million and per capita GDP $224.  -2- Financing of gross domestic investment (in billion CFA francs) 1964 1966 1967 1968 Gross fixed capital formation 21.1 20.5 25.1 27.8 Gross national savings 12.9 18.5 19.1 20.14 Nlet capital infl.Mow and changes in forei--n assets o.2 2.0 6.0 7.4 (Gross domestic savings) (16.4) (22.5) (23.2) (24.7) Central Government Budget (in billion CFA francs) 1965/66 1966/67 1967/68 1968/69 Total current revenues 35.8 35.4 35.9 36.2 Total current expenditures 32.8 33.0 33.9 35.6 Unclassified budget operations +0.4 +0.2 -0.2 -0.5 Surplus of the current budget +3.4 27. 71.8 +0.1 Development expenditure 4.5 6.9 5.7 7.3 Amortization of Central Govt. delet. 0.25 0.25 0.33 0.56 Total deficit (-) 1.35 37 ( 4.2 ( -)7.76 financed from: (foreign sources) (1.60) (2.30) (2.10) (3.10) (local sources) (-0.25) (2.25) (2.13) (4.66") Money and Credit Relations to large monetary area: Member of the West African Monetary Union (U--40A) and of the Franc area. Money supply (end of period, 196h4 16)6 1967 1968 billion CFA francs) Total money supply 30.1 27.1 25.3 28.4 Credit to the private sector 34.5 30.8 27.1 32.6 Credit to the public sector -8.3 -8.8 -4.5 -2.4 Balance of payments (in billion CFA francs) 1964 1966 1967 1968 Imports 47.5 44.3 46.8 51.2 Exports 36.3 41.7 39.1 42.4 Trade balance -11.2 7.7 Net services 6.5 ? .6 i.8 5.7 Net factor income payments -3-5 -4