Senegal - Senegal River Polders Project

DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1157-SE REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF SENEGAL FOR A RIVER POLDERS PROJECT December 7, 1972 This report was prepared for ofricial use only by the Bank Group. It may not bc published, quoted or cited without Bank Group authorization. The bank Group does not accept responsibility for the accuracy or completencss of the report.  RATE OF EXCHANGE Currency Unit CFAF Francs (CFAF) US$1 ' CFAF 255.79 CFAF 1 = US$ 0.0039 CFAF 1,000 = US$3.91 CFAF 1,000,000 US$3,910  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF ME PRESIDENT 1'O THE ElXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SENEGAL FOR A RIVER POLDERS PROJECT 1. I su-bmit the following report and recommendation on a proposed c-edit to the Republic of Senegal for the equivalent of US$4.5 million on standard IDA terms to help finance a River Polders Project. PART I: THE ECONOMY 2. A report on the current economic position and prospects of Senegal was distributed to the Executive Directors on June 10, 1970 (Report A'-15a). A Bank economic mission visited Senegal in March to assess the current economic situation and prospects. The following paragraphs reflect the findings of that mission. Country data are given in Annex I. Economic Potential 3. Endowed with few natural resources, Senegal has only limited possi- bilities for economic development. Ecological conditions are generally poor (paragraph 21), particularly in the northern groundnut basin where the bulk of the population lives. The south and southeast offer better prospects for developmaent of a variety of other agricultural products, but Senegal can still be called a one crop economy, as groundnuts account for the cash income of most of the rural population and for nearly half the country's export earnings. 4. Apart from agriculture, the main possibilities for economic develop- ment are fisheries, tourism and manufacturing. Thanks to rich resources off the coast, fish production has been growing rapidly. International tourism to Senegal has started to develop only in recent years, but prospects for further expansion of this sector are promising. Senegal developed its -ndustrial sectors earlier than other West African countries and its industrial labor force is one of the best in Africa. However, although there are certain definite possibilities for development of new crops and new sectors, diversification will take a long time. The economy will for some time continue to be affected by the vagaries of the weather and by fluctuations in the world market price of groundnuts. Past Development 5. During the early 1960's, Senegal's economy remained stagnant. The growth of GDP in real terms was minimal (1 percent a year) and per capita income may have declined though at about US$250 is higher than in most other African countries. Two factors were primarily responsible for this  - 2 - slow growth. First, independence caused Senegal to lose its pr.vileged posi- tion as the center of French West Africa. This resulted in the loss of export markets for manufactures as domestic industries developed in other West African countries. At the same time, departure of most of the Frenc. civilian and military personnel resulted in declining demand for serv%c_s and locally produced goods. Second, the Government was slow in aztac.Uing the country's difficult adjustment problems. The heavy administrativ.? apparatus inherited from colonial times could not respond quickly to t.- new situation and government policies stressed administration rather than development. The First Development Plan (1961-64) concentrated oa investn;, - for social and transport infrastructure, including housing, urban water s ply and administrative buildings; investments in rural sectors accoua d for less than 20 percent of total development outlays. 6. The second half of the 1960's saw more energetic development policies by the Government. There was a considerable increase -n the pub-ic investment program, made possible by substantial improvements in absorp.ivc capacity of the public sector. The program became more directly deve1o;me.- oriented with the share of investments in productive sectors increasing to 45 percent during the Second P:Lan. Rural investments improved in quality, and tripled between the First and the Third Plan. Rural diversification, mainly for cotton, rice and tomatoes, was successfully started. 7. The change in the Government's development policy, however, came too late to have a significant impact on tne economy in the late 1960's, when a combination of bad weather and falling export prices led to a 50 percent decline of groundnut production, and when even production of millet and other major food crops remained insufficient to cover local demand. In the modern sector, however, the Government did succeed in stimulating import substitution, and this partly coffset the loss of export markets. In an otherwise static economy, annual growth of manufacturing output amounted to 6 to 7 percent. 8. A number of factors combined to bring about a sizable growth of GDP in the last four years after about seven years of virtual stagnation. Between 1968 and 1971, GDP increased by over 8 percent a year (at current prices). First, the Government's agricultural diversification efforts started yielding important benefits. In addition, at the beginning of 1971, effective measures were taken to stimulate groundnut output. Sharp in- creases in world market prices after 1968 uade possible a 25 percent increase in producer prices, and this, combined with favorable weather conditions, nelped restore the level of groundnut production. Finally, the modern secto. of che economy continued to expand. There was a marked increase in exports of manufactured products, averaging 14 nercent a year and reflecting Senegal's ;mproving competitive position. At independence, the country had been plagued with a high cost structure which seriously hampered economic growth. Since then, however, Government policies have been aimed at curtailing price and salary increases, which in turn allowed local industries (e.g., manufac- turing of textiles and shoes) to start competing successfully in export markezs.  - 3- Public Finance and Foreign Aid 9. The public finances reflect these overall trends. There was a deterioration throughout most of the 1960's. By 1968/69, public savings had declined slowly but continuously to virtually zero. Revenues stag- nazed because of the decline in imports, the most important element of the tax base. Thus, keeping the tax ratio at roughly 20 percent of GDP was quite an achievement. But current expenditures grew, albeit moderately, at some 3 to 4 percent annually thus eroding the current account surplus. 10. After 1968/69, a recovery of public savings was made possible because of better tax collection, increased tax rates and substantial sur- pluses of the groundnut stabilization fund following the rise in groundnut export prices. In 1970/71, public savings represented some 7 percent of cur- rent revenues. Yet locally-financed public investment continued to exceed savings by a wide margin, as it had throughout the 1960's, and this resulted in a steady decline in Treasury deposits. 11. Senegal has been benefiting from a large inflow of foreign aid, mostly on concessionary terms. Between 1966 and 1970, foreign aid financed about 65 percent of the public capital program and averaged US$30 million per year. This corresponds to US$8.0 per capita annually, mainly financed by the European Economic Community (40 percent) and France (30 percent). The World Bank Group and Germany contributed, respectively, 13 and 10 per- cent of the total. Foreign aid programs concentrated on infrastructure and on directly productive projects in the rural sector. Of importance also was the technical assistance, mainly in education, which amounted to US$29 mil- lion annually, and which was mostly financed by the French Government. Prospects 12. In coming years the economy will probably grow faster than in the past decade, largely as a result of on-going efforts to diversify agricul- tural output and to expand fisheries, tourism and industrial exports. Medium term prospects would be more favorable, were it not for the fact that ground- nut prices are expected to fall from their present level of over E100/long ton to t80/long ton by 1975. 13. In view of the prospective fall in groundnut prices which is ex- pected to erase the surplus of the stabilization fund within two or three years, some acceleration of economic growth will be essential to help improve the public finances. The government is determined to keep the expansion of current expenditures to a minimum and to improve the financial performance of public enterprises. However, since tax rates are already relatively high, the urgently needed revenue increases will have to come from a combination of better collection and overall economic growth.  -4 - 14. Considering the need to diversify the economy, it appears essential that public investment be increased from US$60 million annually during the Third Plan (1969/73) to US$80 million durir.g the Fourth Plan. However, wnile such a program is in line with the recent improvement in the government s capacity to prepare and implement projects, the slow increase in public savings, together with the limited possibilities of deficit financing wit'.- out endangering the difficult foreign exchange situation or restrictria-. credit to the private sector, rake financing of the Fourth Plan difficult. To offset the expected shortfall in local resources associated with the deterioration of terms of trade, foreign lenders will have to increase their share in the financing of the Fourth Plan to about 85 percent of total development expenditures. Foreign ald is expected to continue to expand rapidly, based on the prograLs of the European Communities (Thirc FED Program), bilateral aid donors (Canada, Italy, Belgium, and o--l produc- ing countries in the Arab world) and the World Bank Group. In view of Senegal improved economic performance and absorptive capacity, increased external assistance is warranted. 15. External aid will have to continue to be on relatively soft terms if it is not to create serious debt service problems. The proportion of grant aid has declined from 85 percent in 1964-66 to 55 percent in 1969-71 and is likely to drop to about 40 percent of total foreign financial aid during the period of the Fourth Plan. Although the foreign debt service ratio is still low at 3-4 percent, financing of the remainder of foreign aid on conventional terms would soon lead to unmanageable balance of pay- ments and budgetary difficulties. Projections indicate that at least half of non-grant aid should be extended on concessionary terms if an excessive increase in the debt service ratio is to be avoided. Budget constraints are even more serious, as debt service charges are already projected to absorb one-half of gross public savings by 1980. Any substantial harden- ing of the blend could result in negative public savings. PART II: BANK GROUP OPERATIONS 16. The Bank Group has had eleven operations in Senegal to date. Total lending amounts to US$56.0 million (net of cancellations), including seven IDA credits, three Bank loans and one blend of Bank and IDA funds. The Bank Group is now Senegal's third largest aid donor (after France and the European Economic Communities) providing about 13 percent of Senegal's external capi- zal assistance. IFC has invested US$3.25 million in two projects in Senegal. Annex IIcontains a summary statement of Bank loans, IDA credits and IFC in- vestments as of October 31, 197:2, and notes on the execution of on-going projects. 17. Initially Bank Group lending in Senegal was limited to the trans- port and groundnut sectors. A railway project financed in 1966 (Credit 96- SE) was delayed and there were shortfalls in the railway's financial per- formance. However, the project eventually succeeded in strengthening the  railway authority which, with the assistance of a second project approved this year (Credit 314-SE and Loan 335-SE) should soon be showing an operating surplus. A loan for the Dakar port (Loan 493-SE) had more immediate success and helped improve Che finances and administration of the Port Authority. The Bank Group's first operation in agriculture (Loan 584-SE and Credit 140-SE) was a project to improve groundnut and millet cultivation. It suffered at first from a sharp fall in groundnut output (paragraph 7) which caused a drop in demand for credit and which led to the cancellation of the loan. In 1971, combination of the Government's strong action, and good weather conditions, iermitted the recovery of groundnut production; the credit is now expected to be fully disbursed by the end of 1972. A 1960 credit for construction and maintenance of feeder roads in the groundnut basin (Credit 198-SE) has been satisfactorily implemented. 18. The Government and the Bank both emphasize now the diversification of agricultural production and development of new productive sectors. Tne Casamance Rice project (Credit 252-SE) approved in 1971 (paragraph 26), the Terres Neuves project (Credit 254-SE), also of 1971, (paragraph 25), and the presently proposed River Polders project, all aim at developing new crops and opening up new agricultural regions. However, in view of Senegal's limited agricultural potential, we are actively exploring with the Government other avenues for diversification. Perhaps the most promising of these is tourism, for which Senegal's pleasant climate and attractive beaches are important assets. A Bank mission is currently in the field reviewing the prospects for Senegalese tourism within the context of the overall development of the sector in West Africa. The Dakar airport project approved in November will facilita.e tourism development. Other possibilities for diversification currently being examined by the Bank include fisheries and manufacturing. The Government has also asked the Bank to take the lead in assessing the viability of a large tanker repair project, and we are considering the possibility of an engineer- ing loan to prepare it. 19. Other areas in which the Bank is involved are urbanization, for which a Site and Services project (Credit 336-SE) was recently approved, and educa- tion, for which a general education project is being prepared following a credit in 1971 (Credit 253-SE) for technical and agricultural education. In- stitution-building and improvement in the performance of public enterprises and services will continue to be important themes in Bank Group lending in Senegal. Examples of these include the telecommunications project approved in November, a power project being prepared, and a highway rehabilitation project which has been appraised recently and which is expected to be submitted to the Executive Directors for approval this fiscal year. PART III: THE AGRICULTURAL SECTOR 20. Agriculture plays a central role in Senegal's economy; it employs over seventy percent of the total labor force, and contributes more than thirty percent to GDP. The agricultural sector is primarily dependent on a single crop, groundnuts, which produces about sixty percent of the total value added of the sector.  - 6 - 21. Agricultural development is severely restr:icted by ecojogical conditions and human problems. Soils are generally poor and light, and rainfall is low and limited to three or four months of the year. Mosz cf the population is centered in the North, where millet and groundnuts are about the only crops that can be grown without irrigation. Overpopulation in this region prescribes farms that are uneconomic in size; and undel-ut- a-1 tion of fertilizers has further impoverished soils. Rural poten-ial _o.- cultivation of rice, cotton and fruit is greater in the sparsely -opulated south and southeast, but develcipment is hampered by lack of feede-; roads and other infrastructure. 22. In the years immediately following independence, the gover:nmeie. assigned low priority to agricultural development in distributing public investment programs and current budget expenditures. At a time when inzroC.-c- tion of new crops and new techniques and development of new regions requirecI special efforts to provide adequate extension services and to improve transPcrc facilities and rural infrastructure, the efficiency of agricultural and o.;- government services concerned with the rural sector deteriorated seriously. 23. During the Third Plan period (1969/70-1972/73), however, the gov- ernment undertook several programs to meet the nost urgent needs of the rurral sector; and the forthcoming Fourth Plan (1973/74-1976/77) aims at expanding and intensifying these efforts, with the help of the Bank Croup and other donors such as FED and FAC. The main aspects of the new government strategy for agricultural development is directed at: (i) increasing productivity of groundnut and millet; (ii) developing under-utilized land in the southeast; and (iii) diversifying agricultural production. 24. Production of groundnut and millet will continue to play a dominant role in Senegal's agriculture for some time and productivity increases are essential to maintain and expand present output levels in the face of the projected decline in export prices. A follow-up project to the first Bank/IDA groundnut/millet operation has just been appraised. It may be followed in a few years by another project which would involve introduction of sophisticated cultivation techniques in the more fertile southern end of the groundnut basin, and strengthening the role of cooperatives by management training and fi- nancing of equipment. 25. Tne first Bank Group Terres Neuves project is mainly a pilot scheme to test the most effective methods of facilitating settlement in the southi- east. The project involves construction of feeder roads, warehouses and wells, resettlement of 300 families and provision of extension services; i- also includes detailed studies on the human and technical problems of large- scale migration which will pave the way for a rizuch larger follow-up project. 26. Rice, cottoin and vegetables are the most promising crops for further agricultural diversification. D)omestic production of rice, depending on climatic conditions, has been around 100,000 tons while rice consumption has increased steadily reaching 300,000 tons in 1970, making Senegal West Africa's  -7- largest importer of rice at an annual foreign exchange cost of about US$25 million. About 80 percent of domestically produced rice is grown in the Casamance Region. Rice is the second most important food in Senegal. The relatively small Casamance project (FY71 is designed to develop suitable approaches to increase rice production in the South, and, if successful, will be followed by a larger operation. But the Casamance region alone cannot meet Senegal's projected rice demand, and additional production is required elsewhere, mainly along the Senegal river in the North, the location of the proposed River Polder project, where conditions for production are favorable and where population is relatively dense with few alternative opportunities for productive employment. PART IV: THE PROJECT 27. A report entitled "Appraisal of the Senegal River Polder Project" (29-SE) is being circulated separately to the Executive Directors. A Credit and Project Summary is provided in Annex III. 28. The Government of Senegal has asked the Bank to help finance further irrigation development in the Delta of the Senegal River. The project was identified by a FAO/IBRD Cooperative Program (CP) mission in June 1969 and was subsequently prepared by French consultants with the assistance of CP and PMWA. The project was appraised in March/April 1972. Negotiations took place from Nqovember 6 to 10 with a delegation headed by the Secretary of State for Planning, Mr. Ousmane Seck. 29. The project involves expansion of areas under irrigated rice cul- tivation with existing techniques, and development of a new approach for double-cropping of rice and vegetables under irrigation. The project covers the development period 1973-1976 and includes the following principal items: (a) constructing a new irrigation system at Dagana permitting the year-round cultivation of 2,730 ha; (b) improving water control in the Debi cuvette and increasing the area irrigated from 260 ha to 1,025 ha; and (c) improving water control in the seven cuvettes forming the Lanp_ar subproject and increasing the area irrigated from 880 ha to 1,080 ha. Complementary project activities would be as follows: (a) strengthening the Societe d'Amenagement et d'Exploitation des Terres du Delta (SAED) with staff, facilities, and equipment to carry out the project and to provide support for farmers who use land developed under the project;  - 0 - (b) constructing, equipping, and staffing a training cenzer at Dagana for SAkD personnel and fo- farmers; (c) carrying out, through collaboration with Institut de Recherches agronomiques tropicales (IRAT), a program. of applied research to support agricultural operations at Dagana; and (d) expanding the SAED farm machinery pool to permit of land preparation services to farmers using land developed under the project. 30. The project would be carried out by SAED, an autonomous agency responsible to the Ministry of Rural Development, SAED is charged with development of the Delta area through constructing and maintaining water control works and by providing extension, land cultivation, crecit and marketing services, and rice processing facilities. It supervises some 9,500 ha of irrigated land, and h-as developed and operated several pumping stations and a rice mill which has a capacity of 19,000 tons of paddy a year. Project construction at Debi and Dagana would start in 1973 and De completed in early 1974, with first crops grown in that year. W4ork at Lampsar would start in 1974, subject to a finding that there will be no adverse effect on the water supply for St Louis, and the first crops would be grown in 1975. All project works would be completed by January 1976. With the existing echnical assistance, SAED management is satisfactory. However replacement of expatriates by Senegalese has been scheduled and is expected to take place during project implementation. 31. Project costs are estimated at US$7.4 million, including taxes of US$1.8 million. The foreign exchange component is estimated to be about US$3.0 million. The project would be financed by the proposed IDA credit of US$4.5 million (80 percent of project costs net of taxes) and the government. The proceeds of the IDA credit and the government's own contribution would be passed on to SAED as follows: US$4.3 million, to cover the cost of ir- rigation works and infrastructure, as a credit for a term of 35 years, in- cluding a grace period of five years, bearing interest of one percent per annum, and US$3.1 million as a grant, to cover the costs of project manage- ment and administration during the developrment period, research and train- ing. The terrms of the credit component are based on SAED's estimated repay- ment capacity; this in turn depends primarlily on the fees to be collected from farmers for services provided under the project. The fees to be paid by individual farmers and associations of farmers will vary according to size of holding and cropping pattern, but over all should enable SAED to recover operation and maintenance costs as well as investment costs charge- able to the project, including approximately one percent interest, over .he project's life of 35 years. 32. International competit-ve bidding would be used to let civil works contracts amounting to US$5.0 million, and to procure pumping station and  - 9 - hydraulic equipment, tractors, and tools costing about US$0.9 million. Corn- tracts for construction of houses and offices estimated to cost US$0.27 mil- lion would be let by local competitive bidding, as would be selected con- tracts for minor on-farm development works. Vehicles, motorcycles, furniture, offic- equipment, tools, and other small equipment, valued at a total of US$0.08 million, would also be procured by local competitive bidding. Civil works contracts would be broken into sizes small enough for local contractors to execute. Contractors, whether local or foreign, would be permitted to bid for all or any of the contracts. This arrangement should give optimum encouragement for foreign and local contractors to compete in the bidding. 33. The proposed credit would be disbursed against the c.i.f. cost of imported equipment, 65 percent of the cost of civil works and locally procured equipment and the full cost of engineering services. The cost of topographical surveys incurred after May 31, 1972 would be financed retroactively from the proposed credit within the limit of $100,000. 34. The principal immediate benefits of the project would be the in- creinental production of rice from the Lampsar and Debi Polders, and the new production of rice and other products following development of the Dagana Polder. The project would, at maturity, generate about US$1.2 million a year in import savings, mainly from replacing imports of rice and tomato paste. Per capita incomes of the same 10,000 people participating in the project are expected to increase from about CFAF 8,000 (or only about 1/3 of the national rural average) to CFAF 20,000 for those farmers in existing polders, and to CFAF 30,000 for those who would take up land in the new polders. Thus, the project would benefit a particularly poor segment of the population. The economic rate of return from investment in the project is estimated at 14-19 percent for improvements to existing polders, and at 14 percent for the new Dagana Polder. 35. The Dagana sub-project would be the first irrigation development in Senegal where farmers would participate in a technically sophisticated scheme involving double-cropping and cultivation of non-traditional crops, in this case, tomatoes. This experience should provide the basis for further devel- opment of irrigation projects in the Senegal river basin. 36. The Association has considered the international aspects of the Project and is satisfied that the relevant issues are covered by appropriate arrangements between the Borrower and the riparian states which are signi- ficantly involved, i.e. Mali and Mauritania.  - 10 - PART V: LEGAL INSTRUMENTS AND AUTHORITY 37. The draft Credit Agreement between the Association and the Republic of Senegal, the draft: Project Agreement between the Association and SAED, the report of the ccmmittee provided for in Article II, Section 4 (iii) of the Articles of Agreement, and the text of a resolution approv-ing the proposed credit are being distributed to the Executive Directors. 38. The draft Agreement conforms to the normal pattern for credit fo; agricultural projects. 39. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Association. PART VI: RECOMMENDATION 40. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments Washington, D.C. December 7, 1972  fs'eC I COUNTHY DATA - SENPOI lOPULATIOJ lJUflNITfT 3 0 * , ') 4. C ici (mid-19t72) k.cr o' 20 1a-e of hooth: 2.2 t (from 1965-1972) err oJ' -rne l,,d 34 1. \; ]t' 1 --T' i - HEALTIH I'll.o (19'O) Population per physician 15,jO (19(S) '. e (per 1 000) 02.,0 (1970) PopulatiOn Pcr l-I npt tal bed '(TI (09'r.L) 'all' (pei 1 000 live births) 156 (1938) I)TSTRIBl'TOI of I.AND OLPt