Rwanda - Highway Project

RESTRICTED Report No. P-82 RLE 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 The report may not be published nor may it be quoted as representing their views.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 DEVELOPMENT CREDIT TO THE REPUBLIC OF RWANDA FOR A HIGHWAY PROJECT May 26, 1970  INTER1ATIO1\UL DEVELOPMENT ASSOCIATION REPORT AND RECO114ENDATION OF THE PRESIDENT TO TIE EXECUTIVE DLIECTORS ON A PROPOSED DEVELOPIENT CREDIT TO THE REPUBLIC OF I>IANDA FOR A HIGHNAY PROJECT 1. I submit the following report and recommendation on a pro- posed credit, in an amount in various currencies equivalent to US$9,300,000 to the Republic of Rwanda. PART I - HISTORICAL 2. The proposed credit would be the first Bank Group operation in Rwanda. Before independence in 1962, Rwanda, together with neigh- boring Burundi, formed part of the Belgian Trust Territory of Ruanda- Urundi. In 1957, the Bank made a loan of $4.8 million to Ruanda- Urundi, with the guarantee of Belgium, for a road and lake port project located in Burundi. While the dissolution of the Trust Territory and the simultaneous creation of two independent States did not affect the Belgian guarantee, it did raise a question as to the respective obli- gations under the loan of the former constituent parts of the Trust Territory. This succession problem has not yet been settled. However, pending such settlement, and without prejudice to the rights and obligations of the various parties concerned, interest on and principal of the loan are being paid by Burundi. The Bank's present holding of this loan is $1.4 million. 3. The proposed road construction project was identified in 1966 by staff of the Bankts Permanent Mission in Eastern Africa, and was appraised in December 1969 after completion of a feasibility and detailed engineering study financed by the European Development Fund (FED). Negotiations for the proposed credit took place in Washington from April 27 to May 1st. The delegation from Rwanda was led by the Ambassador of Rwanda in Washington, Mr. Nkundabagenzi. The other members were Mr. Rugigana, Secretary General of the Ministry of Finance, Mr. Katabarwa, Secretary General of the Ministry of Public Works and 1Mr. Mulindangabo, representing the Secretary of State for Planning. PART II - DESCRIPTION OF THE PROPOSED CREDIT 4. Borrower: Republic of Rwanda Amount: Various currencies equivalent to US$ 9,300,000 Purpose: To finance th:. foreign exchange cost of  - 2 - the construction, and maintenance for one year after completion, of a paved road between Kigali and Gatuna; the purchase of maintenance equipment; consulting services and supervision of construction. Amortization: In 50 years, including a 10-year period of grace, through semi-annual installments of 1/2 of 1 from July 1, 1980 through January 1, 1990 and of 1 1/2% from July 1, 1990 through January 1, 2020. Service Charge: 3/4 of 1% per annum. Rate of Return: 13% per annum. PART III - THE PROJECT 5. A report on the project "Appraisal of a Highway Projeet" (PTR-49-'a) is attached. Rwanda depends on neighboring countries for access to the sea. The northern parts of the country find their natural outlets through Uganda and Kenya. In 1967 and 1368, 92% of Rwiandese exports and 85F/; of imports r;-oved over the route to Kanpala (Uganda) and ilombasa (Kenya). The project, which has first priority in the Government's highway program, will provide a paved road to link IKigali, the capital of Rwanda, and the Uganda road system, replacing an existing earth track and reducing by 73 km the road distance to Kampala, the market center and transshipment point in Uganda for Rw^Jandese imports and exports. The project road would join up wTith a gravel road from Gatuna to Kabale, the irmprovement of which is scheduled for completion in 19>71 under Credit No. 164-UG. 6. The project is estimated to cost $10.9 million equivalent, including local taxes and duties. The proposed credit would cover the estimated foreign exchange cost, which is about 85`@ of the total cost. The Governmient of Rwanda is responsible for meeting the local costs estimated at $1.6 million, towards which the Belgian Government has confirmed its willingness to contribute $600,000 equivalent. 7. I.lith transport costs on imports and exports amounting to not less than one third of export receipts, any reduction offers immediate and tangible benefits to the economy. The reduction in route length and in vehicle operating costs per km would result in an internal rate of return for the project of over 13%, based on conservative estimates of traffic growth.  - 3 - 8. The project would be completed in about three and a half years, including preparation of bidding documents, construction of the road and maintenance by the construction contractor for one year after cornpletion. The construction contract would be a-warded on the basis of international competitive bidding. 9. The Government has already selected the consultants, to be financed under the proposed credit, for the preparation of bidding documents, including the completion of devailed engineering for bridges and paving, revision of design standards, and the supervision of construction. Signature of the contract with the consultants would be a condition of effectiveness of the proposed credit. 10. Road maintenance in Rwanda is unsatisfactory, but prior to negotiations with the Association on the proposed credit, the Govern- ment had entered into an agreement with the UNDP for an engineering and highway maintenance study for which the Bank is executing agency. When this study is completed, the Government will consult with the Association on its recommendations and in agreement with the Association will implement a program to improve highway maintenance. The proposed credit provides for the purchase of a small amount of road maintenance equipment which would be procured on the basis of competitive bidding in accordance with Bank/IDA Guidelines. Pending the reorganization of maintenance services, this equipment wTould be allocated to an existing mechanized maintenance unit that is operating satisfactorily with technical assistance from the Federal ReDublic of Germany. The Govern- ment has confirmed its intention to ensure efficient use of the equipment to be provided under the proposed credit by supplyirg adequate fuel, staff, servicing, and maintenance. PART IV - LEGAL INSTRUPIENT AND AUTHORITY 11. The draft Development Credit Agreement between the Republic of Rwanda and the Association, 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. 12. The draft Development Credit Agreement conforms generally to the pattern of agreements br projects of this type. PART V - ECONOIVI 13. A reoort on "The Economy of Rwanda" dated July 2, 1968 (l%o. AF-7&a) was distributed to the Executive Directors on July 12, 1968 (i68- 21).  - 4 - 14. Rwanda is one of the poorest countries in Africa. The coun- try is small and the population of 3.5 million is concentrated in the fertile areas where the population density is very high, sometimes reaching 200 per square kilometer. The growth of population has absorbed all the accessible land and more land can be brought into cultivation only at considerable expense. Most of the population are subsistence farmers, but coffee exports provide an importantnsource of cash income. 15. With so small an economic base, the Government of Rwanda has found it impossible to raise enough revenue to cover even modest ex- penditures on essential government services. It has had to cover its deficits by borrowing from the Central Bank and this has reduced its foreign exchange resources and led to balance of payments problems, which have been accentuated by fluctuations in earnings from coffee. Since 1966, the Government has entered into four stand-by agreements with the IN1F. It is clear that a basic improvement in Rwanda's situ- ation is likely to be slow and Rwanda will have to continue to depend on outside aid for some tinme. In recent years almost all public investment has been financed by foreign aid, mainly from Belgium and the European Development Fund. 16. Ewandats external debt is very small, but in view of its per capita income of only about $50 and its very low savings capacity, I consider that Rwanda is not creditwqorthy for loansfrom the Bank and is eligible for IDA assistance. 17. A basic data sheet is attached as an Annex. PART VI - RECOIEvIElATION 18. I recommend that the Executive Directors approve the proposed Development Credit. Attachment Robert S. McNamara President May 26, 1970  A N N E X BASIC DATA Area 23,640 kmi2 Total land suitable for cultivation and grazing 16,300 km2 Population: 1965 3,145,000 1969 (estimate) 3,500,000 (Average density: 148/kmn2) Population growth rate (1954-1965) 3.3% per year (approximate) Gross domestic product RF million (at 1959 prices) 1964 1 966 4,499 6,216 of which: foodcrops 64% 59% cash crops 6-1/2% 5-1/2% livestock 6-1/2% 5% mining 2-1/2% 2% manufacturing and construction 5% 1h4 services 6-1/2% 8% government 9% 7% GDP per capita (1968 at current prices) RF 5,000 (us$ 50) RF million 197 1968 1969 Government finance (Prelim.) Total budget revenue 1,251.3 1 ,322.6 1 ,338.0 Ordinary budget expenditure 1,375.3 1,507.1 1,700.0 Development budget expenditure 79.8 63.7 80.0 Total budgetary deficit 203.8 248.2 442.0 Over-all Treasury deficit 249.5 260.3 377.0 Money and credit Foreign assets (net) -78 -21 -312 Domestic credit (net) 1,111 1,1i54 1,439 Claims on Government (net) (936) (1,024) (1,251) Claims on Private Sector (173) (129) (188) Money supply 1,474 1 ,515 1,780  Balance of payments (In millions of U.S. dollar.s) (Jan-Sept.) Exports, f.o.b. 14.8 16.1 9.6 Imports, f.o.b. -15.0 -17.2 12.4 Balance of trade -0.2 -1.1 -2.9 Services and private transfers (net) -2.3 -4.4 -2.0 Other transfer payments and capital (net) 4.1 4.4 2.8 Net errors and omissions 0.1 0.7 -0.1 Surplus (-) or deficit -1.7 0.3 2.2 Relations with IIT Quota US$15.00 million Cumulative drawings $12.00 million Cumulative repurchases $6.00 million Fund holdings of Rwanda francs 133 percent of quota Allocation of Special Drawing Rights (January 1, 1970) Equivalent of $2.52 million External debt (December 31, 1968) Total debt US$2.43 million of which US$1 .90 million disbursed Debt service ratio in 1968 = 3.s Currency equivalents To April 1966, RF 50 = US$ 1 Since April 1966, RF 100 = US$ 1