Niger - Agricultural Credit Project

RESTRICTED FILE CopY Report No. P-822 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 The report may not be published nor may it be quoted as representing their views.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 DEVELOPMENT CREDIT TO THE REPUBLIC OF NIGER FOR AN AGRICULTURAL CREDIT PROJECT May 21, 1970  E TERIUATIONAL DEVELOWPIiE'T ASSOCIATIOiN REPORT AiD RECOiiEIJDATIOiI OF TIlE PRESIDEUT TO T12 E,LECUTIVE DIRECTORS O' A PROPOSED CRSDIT TO THE REPUBLIC OF NIGME FOR AiET AGRICULTURAL CREDIT PROJECT 1. I submit the following report and recommendation on a proposed credit, in an amount in various currencies equivalent to US$584,ooo to the Republic of Niger. PART I - HISTORICAL 2. Following an IBRD/IDA identification mission in September 1966 and an FAO/IBRD preparation mission in ilovember, 1967, the Govern- ment of Eiger in June 1968 requested a $2.5 million IDA credit to permit the "Caisse Hationale de Credit Agricole" (CIUCA) to expand its short and medium term lending operations to farmers and rural cooperatives. Appraisal of the project in 0ovember 1968 showed that expected invest- ment in agricultural machinery and purchases of inputs had been over- estimated. This resulted in a reduction of the total cost of the project from $3.3 to $0.87 million. Negotiations started on July 22, 1969 uith a Government delegation led by lir. Abdoulaye Diallo, Commissioner General for Developinent; further discussions about interest rates on credits to farmers and cooperatives and about aeasures to strengthen CNCA's financial position were completed only recently. 3. This would be the Association's third credit to Xiger. The follow-ing is a summary statemtent of IDA credits to _iger as of April 30, 1970: Credit Year Borrower Purpose Amount (US$ mill.) o o. IDA Undisbursed 55-HIR. 1964 Republic of Niger Roads 1.5 128-,JIR 1968 Republic of Niger [lighuay maintenance 6.1 5.3 Total 7.6 Undisbursed - 5.3  - 2 - 4. Credit 55 helped finance the construction of a 30 km road and the improvement of 35 km of another road in the e stern part of the country. Execution was satisfactory and the credit has been fully dis- bursed. The road maintenance project financed under Credit 128 provides for the elimination of the backlog of deferred maintenance, the improve- ment of maintenance operations, the training of local personnel, the purchase of maintenance and shop equipment, and the extension of work- shops and stores. Execution is satisfactory; disbursements are only slightly behind schedule due to difficulties in recruiting personnel. 5. A third road project is expected to be presented to the Executive Directors during FY 1971. PART II - DESCRIPTION OF THE PROPOSED CREDIT 6. Borrower: Republic of Niger Purpose: To assist in financing (1) credit extended by CNCA to farmers for the purchase of seasonal inputs, of draft animals and animal-drawn farm implements, and to rural cooperatives for the purchase of scales; (Ji) an expanaBcn of extereicr. Servioesp and (iii) technical assistarce to CNCA. Amount: The equivalent in various currencies of US$584,Coo. Amortization: In 50 years including a 10- year period of grace, through semi-annual installments of 1/2 of l% from July 15, 1980 through January 15, 1990 and 1-1/2o from July 15, 1990 through January 15, 2020. Service Charge: 3/4 of lo per annum.  - 3 - PART III - THE PROJECT 7. An appraisal report entitled "Agricultural Credit Project - Niger" (PA-16a), dated May 15, 1970, is attached. 8. This would be the first Bank Group operation in agri- culture in Niger, 95 per cent of whose population lives on the land. About 90 per cent of the land is desert or semi-desert, and most of the soils are sandy and poor. Rainfall is adequate only in southern areas. In those relatively fertile areas which sustain the bulk of the population, the Government has undertaken a productivity program which has already succeeded in making groundnut and cotton production competitive on world markets, despite high transportation costs, without price sub- sidies. Groundnuts constitute the main cash crop and yield 66.5% of Niger's export earnings. Livestock and livestock products take second place among exports (14.5%). Cotton exports are small (3.2%), and no other crop seems to have good export prospects. 9. The objective of the proposed credit is to raise agricul- tural productivity in the southern part of the country. The amount of the credit would be applied as follows: Increase of capital of Caisse Nationale de Credit Agricole (CNCA) for relending to farmers and cooperatives $ 360,000 Financing of the services of a banking expert for CNCA 64,000 Financing of expanded extension services of Union Nigerienne de Cr6dit et de Cooperation (UNCC) 160,0o0 $ 584,000 10. CNCA is Niger's agricultural credit bank. It was established in 1967 with capital provided by the Government and is managed by a government-appointed administrative council. Its capital is CFAF 117.4 million. So far, its revenues have come only from credits to farmers and rural cooperatives and have not been sufficient to cover its costs. However, the Government has now decided to strengthen CNCA's position by transferring to it a share in the financing in the groundnut marketing operations of Societe Nig6rienne de Commercialisation de l'Arachide (SONARA), and for this purpose will increase CNCA's capital by CFAF 50 million. Of the proposed credit, $360,000 would be used by the Government to increase CNCA's capital by a further CFAF 100 million to CFAF 267 million.  - 4 - 11. Over the next few years CNCA plans to expand its lending to farmers for seasonal purchases of fertilizers, pesticides and seeds and for draft oxen and animal drawn farm implements and to cooperatives for the purchase of scales. The estimated amount of these purchases is CFAF 180 million ($650,000), of which the foreign exchange cost, estimated at $360,000 (CFAF 100 million), would be provided from the proposed credit. CNCA would, in addition, provide CFAF 60 million ($W15,COO) out of its other funds, the remaining CFAF 20 million being provided by the farmers and cooperatives themselves. The goods to be purchased by farmers and cooperatives out of the proceeds of the proposed credit would be imported and would be procured centrally by CNCA on the basis of international competitive bidding. The interest rate paid by farmers and cooperatives would be 9 per cent per annum on short-term credits and 8 per cent per annum on medium-term credits. 12. In addition to providing FNCA with more capital, the proposed credit would provide CUICA with a grant of $64,COO to pay for the foreign exchange cost of the eervices for two years of an exper- ienced banking expert who will assist in the training of local staff, 13. UNCC is a government organization formed in 1962 to provide the establishment of cooperatives and provide credit, but its credit activities were transferred to CNCA. in 1967, and its present functions are to prepare arrangements for procuring and distributing imports to farmers and cooperatives and provide extension services. The proposed credit would provide the equivalent of $160,000 to pay for the services of 100 additional extension workers, 50 on cotton and 50 on groundnuts. These are local expenditures, the inclusion of which I consider justified by the importance of this item for the success of the project and by the economic considerations set out in Para. 25 below. 1h. Successful project execution will depend upon close cooperation between CNCA, UNCC and the Government. To this end a Project Coordinating Committee would be set up consisting of repre- sentatives of the ministrias involved aud of CNCA aad UUJCC, For the time being, CNCA and UNCC have a common manager. 15. The project is expected to result in a sustained increase in the production of groundnuts, cotton and rice because of higher yields. Even if prices of groundnuts and cotton fall somewhat, net cash income of farmers coming under the project should be doubled, and government revenues should also benefit. The areas included in the project account for about 94 per cent of Niger's groundnut production and the whole of the cotton and rice production. Thus, despite its smallness, the project should provide an important stimulus to the development of the few cash crops on which Niger's foreign exchange earnings depend.  16. Improved fa.rming methods and greater use of fertilizers and insecticides can give a very high rate of return: this is, however, dependent on willingness of farmers to accept changes. Even with conservative assumptions on yields and timing, however, the rate of return should be of the order of 20 per cent. PART IV - LEGAL INSTRUIENTS AND AUTHORITY 17. The draft Development Credit Agreement between the Asso- ciation and the Republic of Niger, the draft Project Agreement among the Association, Caisse Nationale de Credit Agricole (CNCA) and Union Nigerienne de Credit et de Cooperation (UNCC), the recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement and the text of a Resolution approving the proposed Development Credit are being distributed to the Executive Directors separately. 18. The draft Development Credit Agreement and the draft Project Agreement follow the general pattern of similar agreements for agricultural projects. The execution and delivery of the Project Agreement, the establishment of a Project Coordinating Committee, and the appointment of auditors by CNCA are specified as conditions pre- cedent to effectiveness of the Development Credit Agreement (Section 6.01). The Association would have the right to suspend, cancel or premature the Credit if the instruments concerning CNCA's and UNCC's present structure and responsibilities were modified without the prior approval of the Association or if CNCA or UNCC failed to perform their respective obligations under the Project Agreement (Section 5."2). PART V - THE ECONOMY 19. A report entitled, "The Economy of Niger" (AF-77a) dated July 8, 1968 was distributed to the Executive Directors on July 19, 1968. An economic mission will be sent to Niger in November 1970. 20. Niger is a landlocked country with extremely difficult natural conditions. Nevertheless, over-all economic growth since independence (1960) was relatively satisfactory until 1968. During these eight years, GDP increased by about 4.6% p.a. in real terms and by about 2% p.a. on a per capita basis. GDP per capita was about $87 in 1966. 21. Since 1968, however, Niger has been undergoing a period of economic difficulties due to droughts and to the civil war in Nigeria. Livestock owners in particular suffered heavy losses. The resulting decline in agricultural incomes and exports and the termination of French budgetary support contributed to financial difficulties in the public sector, which the Government attempted to solve by increasing income taxes, taking measures to reduce personnel expenditures and asking the French Government for renewed assistance. Recognizing Niger's dif- ficulties, the French Government tentatively agreed to resume its support for a period of four years (1970-73) in the amount of CFAF 1 billion (US$3.6 million) per year or close to 10% of the national budget.  - 6 - 22. With normal weather conditions and the end of the civil war in Nigeria, production and trade should again expand. Livestock and/or meat exports toward Ivory Coast and other countries of the Entente group should also increase if the recent decision to set up a common market for livestock and meat is effectively implemented. Public finance will be helped by the fiscal revenues to be derived from the mining of uranium in Arlit, when operations start shortly; such revenues are expected to reach $h.3 million in 1983, i.e. about 13% of the 1969 budget. They would be further boosted if ongoing oil exploration were to prove successful. 23. Unless important discoveries are made, however, Niger's development strategy cannot be based on the exploitation of mineral resources, nor is there much scope for industrial development, particular- ly in view of the serious handicap of transportation costs. The country, therefore, has no choice but to make the best of poor natural conditions in developing its agriculture and livestock. The main export possibilities remain groundnuts and livestock, but cotton also appears to hold some promise. At this stage, other projects in the agricul- tural sector can only be directed toward domestic consumption. 24. Given the severe constraints with which Iliger has to struggle, the country's performance has been creditable. However, due to its poverty and limited export possibilities, it cannot be considered eligible for Bank financing. 25. Niger's poverty sets rigorous limits to savings. In re- cent years only 16.5 per cent of public investment has been financed internally and the bulk has been raised abroad. The direct import content of investment projects, however, is much less than the external resources required. These exceptional circumstances justify action by foreign lenders in applying part of their funds to the financing of local expenditure. PART VII - RECOMNENDATION 26. I recommend that the Executive Directors approve the proposed Development Credit. Robert S. McNamara President by J. Burke Knapp Attachments Washington, D.C. May 20, 1970  -7 - BASIC DATA Area: 490,000 sq. miles; 1,189,000 sq. kms. Population (1969) 3,909,000 rate of growth: 2.5o to 2.8% p.a. school attendance - 1957: 4 1967: 10.5% Political Status: Independent since 1960 Gross Domestic Product: (billion CFA francs, current prices) 1960 1966 (est.) Total 50.1 77.0 Real growth p.a. 4.6 GD? per head (1966) approximately CFAF 21,400; US$87 Structure of GDP (1966) Origin % Uses % Agriculture 59.0 Private consumption 74.5 Secondary Sector 12.0 Public consumption 12.3 Tertiary sector 29.0 Gross investment 13.2 (incl. Government) Exports 16.5 Imports -16.5 100.0 100.0 Central Government Budget (billion CFA francs) 1960 9 1968/69 1. Current revenue 3.9 .4 9.9 2. Current expenditure 5.1 7.8 9.4 3. Balance -1.2 0.6 0.5 4. Investment expenditure -0.5 -1.2 -0.8 5. Total excess expenditure -1.7 -.6 -0.3 11bney and Credit: Niger is a member of the lWest African Monetary Union (UMOA) within the franc area.  billion of CFA francs (end of year) 1962 1967 1969 Money supply 4.9 7.9 8.5 Credit to economy 4.6 9.0 9.6 Credit to government -0.9 -0.9 -0.4 External reserves 1.6 -0.3 0.6 External Trade (Goods): billion of CFA francs 1964 1966 1968 Estimated exports f.o.b. 10.3 11.91 9.61 Estimated imports c.i.f. 10.2 11.56 9.10 0.1 +0.35 +0.5i (Note: estimates of exports and imports vary considerably) Commodity concentration of exports (1966-1969): One product (shelled groundnuts): 66.5% Two products (groundnuts and livestock): 81% Balance of Payments (rough estimates) bil-ion of CFA francs 1967/6d Balance on goods and services -3.88 Net transfer payments 4.79 Non-monetary capital -0.67 Balance +0.24 Change in reserves (decrease) -0.06 Errors and omissions -0.18 External Aid (1960-1968i: Commitments Disbursed billion of CFA francs Total 31.5 20.5 of which: French 15.3 12.4 EEC 13.3 7.3 External Debt (billion CFA francs) Outstanding as of Dec. 31, 1968 (including undisbursed) ('000 $) (million CFAF) 38.699 10.747 Debt Service Ratio (1969) 1.7%