Surinam - Basic report on the economy

DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. CA-21a BASIC REPORT ON THE ECONOMY OF SURINAM November 2, 1972 America and Caribbean Region This report was prepared for official use only by the Bank Group. It may not be publithed, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY EQUIVALENTS Until December 31, 1971 1 Surinam Guilder (Sur. f.) = US$o.53 1 U.S.$ = 1.89 Sarinam Guilder (Sur. f.) From January 1, 1972 1 Surinam Guilder (Sur. f.) = US$o.56 1 U.S.$ = 1.79 Surinam Guilder (Sur. f.)  TABLF OF CONTENTS Page No. BASIC DATA i - iv MAP SLMIARY AND CONCLUSIONS ............................. i - iii I. SOME BACKGRDUND FEATURES. 1 II. DEVELOPMENT TRENDS AND TARGETS. 4 Introduction. 4 The Sources of Economic Growth. 4 Money, Prices, and Wages. 8 Planning and Economic Management .... ................ 10 III. SECTORAL ISSUES AND POLICIES ........................ 15 M!ining ............................................ 15 Agriculture .......................................... 18 Forestry ............................................ 26 Manufacturing and Construction ...... ................ 27 Tourism ............................................ 29 Transport ........................................... 30 Social Services . ..................................... 33 IV. PUBLIC FINANCES . ..................................... 36 Central Government Fiscal Operations ............ ..... 37 Public Investment ............. .................. ... 39 External Financing . .................................. 41 V. EXTERNAL TRADE AND PAYMENTS ....... .................. 45 External Debt Management ........ .................... 48 This report is based on the findings of an economic mission which visited Surinam during the period October/November 1971. The mission was composed of: Sidney E. Chernick, Chief of Mission; J. U. Richter, W. Struben, I. Sakura (Economists); H. van Helden (Consultant, Transport Engineer); Miss Maryke de Weers, Secretary. Mr. Pedro-Pablo Kuczynski visited Surinam in September 1972 in order to discuss the draft report with the authorities and incorporate more recent developments into the report.   BASIC DATA I. SIZE Area (square kilometers) 163,800 Population (1971 mid-year) 380,650 Annual growth rate (%) 1921-50: 1.73 1951-63: 4.34 1964-71: 2.30 Density 2.3 persons/Km2 Estimated II. ECONOMIC INDICATORS 1960_ 1965 1970 1971 GNP at Factor Cost Total (current $ million) 81.8 128.1 240.2 260.4 Per capita (current $) 282 371 6441 684 (1960 prices $) 282 351 43ii/ 435 Real GNP Growth Rate (market prices) 1954-60: 3.7 percent p.a. 1961-64: 6.o 1965-67: 15.7 1968-70: 1 .4 Industrial Origin of GDP (percentage composition at current factor cost) Agriculture, fisheries 11.3 10,7 9.5 10.2 Forestry,processing 3.8 4.3 3.2 1.6 Mining, processing 32.4 28.0 30.6 30.3 Manufacturing, construction 8.5 10.0 13.3 15.6 Conmwrce, transport 16.5 18.3 17.1) Housing 4.7 4.1 3.3) 42.3 Government, other services 22.8 24.6 22.9 Total 100.0 100.0 100.0 100.0 Percent of GDP at Market Prices Consumption: Private ) 53.9 54.2 ) Government 76.2) 25.9 22.4 )76.3 Gross domestic investment 31.6 42.4 18.4 19.0 Net exports -7.8 -22.2 5.o 4.7 Net investment income payments 13.3 9.3 12.5 12.4 National savings 1o.5 10.9 10.8 11.2 1/ The forthcoming World Bank Atlas 1972 shows a real GNP per capita in 1970 of $530 for Surinam, with the preceding six years as a moving base, and adjusting upward for the implicit GNP deflator for the United States.  - ii - Annual Estimated Change 1965 1970 1971 1 965-71 Central. Government Finances (Sur. f. million) Government current revenue 83.6 1314.9 1'49.2 Government current expenditure 77.5 125.8 139.6 12K? Capital expenditure 27.9 43.3 46.5 financed by: Current surplus 6.1 9.1 76 . Capital- revenue and internal borrowing 2.6 -2.4 -0.9 External grants and borrowing 22.8 38.7 40.8 10.2 Treasury balances, etc. -3.7 -5.4 -3.0 Monev and Cr,edit Annual (end of year, Sur. f. million) Chan-e 1960 1965 1970, 196o-70 Money 39.0 56.2 90.8 '? Quasi -money 9.6 24.3 60.5 20.2 Total means of payment 48.6 80.5 151.3 12.1 Net foreign assets 34.2 54.0 76.9 8.4 Credit to private sector 30.5 43.7 88.8 11.3 Credit to public sector 4.6 5.4 8.3 6.1 Net capital and reserves -20.7 -22.6 -22.7 ".9 Liquidy ratio of comrnmercial banks (percent) 26.3 26.14 33.14 2.14 Balance of Payments Estimated ($ million) 1960 1965 1970 1971 Merchandise exports (f.o.b.) 144.4 59.3 136.5 163.1 Merchandise imports (c.i.f.) 54.1 94.0 114.5 119.5 Net non-factor services 1.0 -1.4 -6.6 -7.5 Balance of goods and non-factor services -8.6 -36.1 15.4 36.1 Net investment income -14.7 -15.1 -34.5 -45.2 Balance on current account -23.4 -51.3 -23.2 -9.1 Private capital (net) 9.7 35.0 -5.1 -6.2 Official capital and transfers (net) 7.0 13.7 23.8 16.9 Other and errors and omissions 4.4 5.5 10.8 0.f Total capital and erros and omissions 21.1 54.2 2tK.5 10.1 Changes in reserves (- increase) 2.1 -3.0 -6.3 -1.0  -iii- Composition of Ecports C mil: ion) 1960 i%? 195 (,) 1970 (%) Bauxite 35.1 (80.3) 42.7 (72.8) 40.4 (29.9) Alumina - 3.3 ( 5.6) 56.4 (41.7) Aluminium - 0.5 ( 0.8) 25.8 (19.1) Total mining products 35.1 (80.3) 46.5 (79.2) 122.6 (90.8) Agricultural. products 4.0 ( 9.2) 5.1 ( 8.7) 5.7 ( 4.2) Forestry products 3.4 ( 7.8) 4.4 ( 7-5) 4.3 ( 3.2) Total exports 43.7 (100.0) 58.7 (100.0) 134.9 (100.0) External Public Debt ($ million) 1966 1970 Government debt outstanding (as of year-ernd) 52.9 80.4 Debt service 1.1 0.8 Net debt service ratio (percent) 1.2 0.7 Consumer Price Index (Paramaribo, 3rd quarter 1953 = 100) 1961 1965 1969 Domestic products 132 154 198 of which, foods 144 184 259 Foreign products 106 117 130 of which, foods 109 121 135 Total 119 137 170 Iplicit GNP Deflator 122 129 146 International Relations Associate member of EEC  - iv - Estimates III. SOCIAL INDICATORS 1960 1965 1 9tate Employment Unemployment rate (in % of labor force) 9. Health Population per hospital bed 314 n.a. 283 Physicians per 10,000 population 5.1 4.o 4- Nurses per 10,000 population 24.3 21.0 Transportation Population per automobilp L7 i/ 1964 data. 8 Including taxis.  GIANA\N COIOMSIA& t''tgk.GWFA 4 ~~~~~~~~t I a n t i c O c e a n \PERUti < / -6- A FRGLGMVA~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~N mt !\'A A~~~~~~~~~~~~~~~~~~~~~~~~~~ --Ije- VOLiVA)t.Ie Gee I&I > ~ B_O Rs Weng C OR D t. V ... ,+1--X,.-'',\1 < i k L~~~~~~~~~~~W t /~~~~~~~~~~ ARGENTINA A Zarlderij C /M A C C 08' ~ ~ ' Mmose A R BA E (D~~~~~~~ I C "" " < SQt> wq.^ , X 4* t > w. t+' ' " >-<si-~ ' s--x_4 0 SURINAM 2 _____Main road (]E.Istieg doo. ________ Secondary oad -( ,.j Projected dam and lake _______ Projecied road BGuxite mine Ex sfing roitread B auxite findings ---Projected railroad 0 Oil palm ----- District boundary Inter-ational airport International boundary .. Airfield or airstrip 0 Zc 40 60 60 20 0 2Z0 40 610 Tre br,-rdL,, rh.4.,, dnh, , ep r reply erdo,nr ,rrnr or acP,,,,ree h , 'he Wr5 rd Wodd rB,r dlr,k fh-d ate, 56' 54- JANUARY 1972 IBRD-3718   SUNMARY AND CONCLUSIONS 1. The rate of growth of output and income in Surinam in recent years has been among the highest of all the developing countries. This .has been combined with a relatively high degree of evenness in personal income distribution among the urban population, which accounts for 70 percent of the total population. Large-scale expansion in power and bauxite processing were the main sources of growth during the 1960's, when output increased at 8 to 9 percent per year. After 1967, however, the investment boom tapered off, and growth fell sharply to a real rate which hardly kept up with the increase in population. The reasons for the sharpness of this decline in growth per- formance are not fully explicable, but there are signs that growth is resum- ing a more normal trend. 2. The small size of Surinam's population (384,900 at the end of 1971), the importance of the mining sector, and the close cultural, institutional and financial ties to the Netherlands, including a high degree of labor mobility from Surinam to the Netherlands, all contribute to differentiate Surinam's development problems and prospects from those of the majority of developing countries, although there are a number of common features with other economies of the Caribbean area. There is the possibility that Surinam will opt for full independence within the foreseeable future. Although this eventuality affects various considerations in this report, its impact in the next few years would be small. 3. Surinam has a Ten-Year Development Plan, the second part of which covers the period 1972-76. It foresees an annual increase in national income of the order of 8.3 percent, a reduction by half in the number of unemployed, and an improvement in personal and regional income distribution. The Plan seers to be based on the optimistic view of the economy which prevailed until 1968. Even if development policies prove to be reasonably successful, it seems unrealistic to expect an aggregate growth rate during the period much above 5 percent per year. It will therefore be difficult to achieve some re- duction in unemployment. Perhaps the most useful part of the Plan is the list of projects which will play an important part in determining the amount of external assistance Surinam can expect to receive in the next five years. The list of projects will only acquire an operational significance, however, if the Surinam authorities work out the phasing of the different projects over the five-year period. A strengthening of planning will require an expansion of the Planning Bureau's professional staff and improved coordina- tion between the Bureau and the agencies in charge of fiscal, monetary, and regulatory policies. 4. Mining will continue to dominate the economy during the next five years. Although the projected growth rate of output is comparatively modest because of a slack in the aluminum market, a major expansion in capacity is likely to bring about a 50 percent increase within the next ten years. The expansion is concentrated in West Surinam and will require complementary investments in power, rail, and port facilities. In the longer run, the West Surinam development can also be expected to include forestry and agri- cultural exploitation.  - ii - 5. Although agriculture contributes far less than mining to national output, the sector is an important source of employment. Prospects in agri- culture are favorable, but it is unlikely that the verv rapid growth of export-oriented commercial agriculture in the last decade can be maintained at the same pace in the foreseeable future, due to market constraints in rice and in bananas. There is considerable scope for import-substitution in meat products, provided areas other than the coastal plain are opened up for livestock activities. Surinam's fisheries potential is good, particularly in shrimp, but Brazil's extension of territorial limits to 200 miles off- shore may hold back the development of Surinam's fishing industry. Although long-term forestry prospects are good, output is not expected to increase much during the Second Five-Year Plan period. Manufacturing industry, because of the reduced size of the domestic market, cannot be expected to continue to develop as rapidly as in the past because the scope for further substitution of consumer imports is limited. Rapid economic growth has gone hand in hand with a relative neglect of the social sectors. In spite of recent efforts in education and public health, there is a clear need during the Second Five-Year Plan period to allocate a larger share of development expenditures than in the past to health and education. Ever. though there is of course the danger that better education may lead to an ex- pansion of the emigration of skilled people to the Netherlands, the benefits to the economy of a substantial improvement in education outweigh these pos- sible costs, especially if higher-level training is directed towards skills which are scarce in Surinam. 6. Because of the rapid growth in income and government revenues and because of ready access to external finance from the Netherlands on concessionary terms, the fiscal situation of the Government has been reason- able comfortable. However, this has only been so because of the concessional assietance from outside. Public savings have remained low. The Government is aware of a need for a major effort to generate additional revenues and public savings in the years ahead, in view of rising capital and current ex- penditures foreseen for the Second Five-Year Plan period, and is planning to introduce measures expected to meet these requirements. In the longer run, the proposed investment in mining is e:-nected to generate new revenues in the late 1970's, which will further help maintain a sound financial situation. Surinam's balance of payments prospects are also favorable, eve-n though the current account deficit is expected to widen substantiallv in the next few years as mining investments take piace. The volume of external official as- sistance already committed is well in excess of the import content of the public sector investment program for the next six years. At the end of 1970 Surinam's outstanding external public debt amounted to $80 million or half of 1970 exports of goods and services. Because of the highly concessionary average terms, the debt service ratio is less than one percent and is not expected to increase much beyond the 1-2 percent range during the 1970's. 7. The Netherlands has financed the major share of public sector development expenditure and provided budgetary support and grants for social and cultural activities. It also supports a sizeable technical assistance program. Commitments for the Plan period 1972-76 suggest that aid policies  - iii - have not altered much although the amounts involved have increased. A review of the proposed deployment of aid funds, in relation to the economy's re- quirements, supports the view that too much emphasis is given to physical capital and not enough to human resource development. Similarly the present pattern of professional skills provided under one or other of the technical assistance programs should be shifted from resource surveying and engineer- ing to the strengthening of the capacity in the public administration to formulate and implement rational economic policies. Urgently required are skills in socio-economic data comnilation, sectoral and manpower planning, project analysis, fiscal policy and budgeting, and social policy formulation and administration. 3. The past thrust of development expenditure in favor of physical capital and natural resource engineering raises two related issues. First, how far should the Government go in establishing the extent of the country's natural resources, and how much effort in this direction should be left to the private sector? A review of Surinam's policy in this regard leaves the impression that the Government may have gone further than need be, thereby possibly subsidizing private exploration. 9. The second, and perhaps the more important issue directly affecting public investment programming, is the assumed cost of capital. The Surinam authorities are inclined to assign an economic value to capital, equivalent to the average terms on which concessionary external financial resources are made available to them. In rough terms this means a rate in the neigh- borhood of 3 or 4 percent. The use of such a rate of return as a basis for evaluating projects would create distortions and encourage the excessive use of capital-intensive techniques. In fact, the mission believes that a few road and irrigation projects shown in the Plan could be omitted for the time being and substituted by additional investment in public health and edlucation, where higher standards should be aimed at during the 1970's. 10. Looking beyond the planning period that has been considered here, the course of economic development will largely hinge upon the issue of independence. Political independence would present a challenge if it were accompanied by a higher degree of economic self-reliance. Economic viability and self-reliance would require fundamental changes in attitudes towards development and economic management. Furthermore, independence would probably imply a loosening of the ties binding the Surinam economy to the Netherlands, reducing the opening for Surinamese migrants. Independence is likely to be associated with closer economic relations with its neighbors, Guyana and Brazil, and the Caribbean countries and their regional institutions. 11. The economy of Surinam does not face unmanageable financial con- straints in the foreseeable future. The available external assistance should be used not onlv for the continuation of basic physical infrastructure invest- ment, but also for a concerted effort in training and in the development of human resources. Only in this way will the economy in the long-run be able to exhibit a greater degree of selfreliance, a necessity whether the country be- comes politically independent or not in the foreseeable future.   I. SOME BACKGROUND FPATURES 1. Surinam, formerly known as Dutch Guiana, is on the northeast coast of South America. It borders Guyana on the west, Brazil on the south, and French Guiana on the east. Surinam's economic history has many features in common with its neighbors as well as some of the Caribbean islands. Although the early Spanish explorers had visited the area, the British first colonized the territory in 1650, followed by the Dutch some 15 years later. The rivalry for Surinam was engendered by its capacity to produce a range of tropical agricultural products much in demand in Europe. At the end of the Napoleonic Wars, Dutch sovereignty was established by treaty. Good soil and climatic conditions, combined with African slave labor, led to the establishment of the plantation system on the coast and along the banks of the major rivers. In their heyday, there were about 1,000 plantations producing such products as coffee, cocoa, sugar, and cotton. The highly profitable operations resulted in a sizeable transfer of resources to Holland. The plantation system was undermined in the second half of the nineteenth century, when slavery was abolished and the opening of the Suez Canal enabled products from Asia to compete effectively with those from the New World. With the decline of plantation agriculture, the Surinam economy stagnated, and the transfer of resources was reversed; large budgetary and trade deficits had to be covered by funds from the Netherlands. When bauxite deposits came under exploitation in the 1920's, the Surinam economy entered into a new period of growth but financial assistance from Holland has continued to this day. 2. Surinam has retained extremely close ties with the Netherlands. It is one of the three self-governing states (the others being the Netherlands and the Netherlands Antilles) comprising the Kingdom of the Netherlands. Since 1954 Surinam has been responsible for all internal affairs and, through a representative on the Ministerial Council in The Hague, participates in decisions affecting the Kingdom's defense and foreign relations. Of the three states in the Kingdom, Surinam is the poorest, 1/ in spite of a consider- able flow of highly concessionary financial and technical assistance from the Netherlands. Moreover, Dutch influence is strongly evident in culture, educntion and training, consumption habits and standards of public services, engineering and construction. As citizens of the Kingdom, Surinamese are free to take up residence in the Netherlands where they share the rights and obligations of Dutch citizens. 3. Surinam covers an area of 163,820 sq. km. 2/ or almost five times the size of the Netherlands. Vast areas of the country are still to be 1/ The World Bank Atlas 1971, shows that, as of 1969, GNP per capita was $1,760 in the Netherlands, $1,260 in the Netherlands Antilles, and $560 in Surinam. 2/ Including an area of some 18,000 sq. km. (7,000 sq. miles) disputed with Guyana. In the past year or so, both Governments have taken steps to defuse the issue and relations between the two countries have improved markedly.  -2- prospected, but from what is already known, Surinam's natural resource endowment is reasonably good. It has sizeable and fairly accessible deposits of high-grade bauxite; some of the seven major rivers flowing from the interior of the country to the Atlantic coast provide natural transport facilities and sources of hydroelectric power. Fertile clay soils are found within a narrow low-lying coastal plain which supports the production of a wide range of tropical agricultural products. Further south, the coastal plain gives way to a narrow strip of savannahs with sandy soils running the width of the country. Forest stands consisting largely of mixed tropical hardwoods are found in both the coastal and savannah regions. Beyond the savannahs, the terrain slopes gradually upwards towards the Brazilian border. Most of this area is covered by a dense and inaccessible tropical forest. One of the world's best shrimp grounds is found off the northeast South America coast. Other sea and inland fish resources have also been identified. 4. The small absolute size of the population numbering 414,000 as of 1971 has widespread economic ramifications. The labor force is roughly estimated at 100,000. Population density (2.5 persons per sq. km.) is extremely low. About 66 percent of the population is concentrated in and around Paramaribo, the capital city, and another 20 percent in a narrow ribbon of farms or small rural settlements along the coast. The remaining 10 per- cent, comprising Amerindians and Bushnegroes, live in tribal communities in the interior; the former mostly inhabit the savannah region, while the latter are located in riverside villages in eastern and southeastern Surinam. The low density and pattern of settlement have led to a wide disparity in the provision of public services and infrastructure as between the Paramaribo area and the rural areas. 5. The political and social organization in Surinam mirrors the multi- racial features of the economy. The old colonial plantation system brought slaves from Africa and, later, indentured laborers from China, India, and Indonesia. Despite some mixing of racial groups and the apparent harmony among them, political parties are largely organized along ethnic lines, and views on political issues are largely influenced by ethnic origin. The Ministerial Council represents a coalition among representatives of the racial groupings. Since certain districts (provinces) and branches of economic activity are dominated by one or the other of the ethnic groups, the formulation of economic policies tends to assign a heavy weight to their im- pact on the various racial groupings. 6. The question of independence is a controversial issue in Surinam. The official government view is that no change in Surinam's present status is contemplated. Nevertheless, the small countries making up the Kingdom of The Netherlands have recently established a tripartite commission in order to work out possible alternatives to the basic "Statement" of the Kingdom, including some form of independence. Independence for Surinam is therefore a matter of time. Until this constitutional issue is settled, it will be difficult to arrive at a consensus on social and economic goals for Surinam. The balance of pressures would seem to favor the assumption that, within the foreseeable future, Surinam will opt for full independence. Although this  - 3 - eventuality affects the assessment of Surinam's development prospects con- tained in this report, it is not likely to take place in time to materially affect the planning period 1972-77 being considered here.  - 4 - II. DEVELOPMENT TRENDS AND TARGETS Introduction 7. The pattern of development cf Surinarm shares a number of features with other medium- and small-sized economies in the Caribbean. The table on the next page includes a number of these countries for illustrative purposes; Puerto Rico has been included in the table because it shows that some of the basic features are retained even at much hither income levels. Among these features are a very high dependence on foreign trade, in most cases a large resource gap covered by substantial volumes of external assistance and a distinct reduction in natural population growth rates. Although emigration reduced the net increase in pcpulation significantly in all countries, it has probably also contributed to the high level of open unemployment, as higher levels of skills are important among emigrants. Partly because of this factor, unemployment has not appreciably declined in most countries of the area, despite declining rates of population growth and the relatively rapid growth of national production. The latter has in turn, in most countries shown in the table, depended for its dynamism upon foreign-owned, capital- intensive enterprises in the export sector, especially in mining and petrol- eum. This pattern of development has in general been associated with high wage levels in a limited sector of the economy, creating expectations and actual increases of wages in sectors wghich have found it increasingly diffi- cult to operate at prevailing prices, especially the rate of exchange. The result has been the stagnation of agriculture in much of the area; a by-product has been that the development of manufacturing for export (since domestic markets are too small for large-scale economic import substitution) has been held back. In the long run, despite its many special features, a more di- versified and rapid growth probably depends on the development of processing and manufacturing for export. While Surinam does not share all the features noted above, the particular problems of its economy have many points in common with those of the rest of the Caribbean area. The Sources of Economic Growth 8. The rate of growth of output and income in Surinam in recent years has been among the highest of all the developing countries. Between 1953 and 1970, real output as measured by GDP at factor cost increased at an annual average rate of 6.7 percent although two-thirds of the growth of out- put was concentrated in the period 1960-68. The population also grew rapidly over this period so that real per capita output advanced at a rate of 3.3 percent. By 1971 the level of per capita income was around $530. 1/ Evidence suggests that there is a relatively high degree of equality in personal urban income distribution, but income disparities between urban and rural dwellers are quite marked. 1/ Following the methods employed in the World Bank Atlas, 1972.  SELECTED CARIBBEAN COUNTRIES: ECONOMIC INDICATORS British Honduras Netherlands Puerto Trinidad Barbados (Belize) Guyana Antilles Rico Surinan & Tobago Per capita GDP, 1969 ($) 500 530 340 1,260 1,410 56o 890 Average annual percent real change, 1960-69 3.2 2.3 0.7 -1.5 6.o 5.4 3.8 Savings ratio (percent of GDP) 1960 n.a. n.a. 20.2 .3j 3.9 23.8 n.a. 1970 n.a. 10.1 19.4 144 4.6 23.3 19.1 Resource Gap (percent of GDP) 1960 n.a. n.a. 5.0 41 19.7 7.8 2.8 (1965) 1970 31.8 20.0 1.7 26.8 -5.0 1.2 Merchandise imports (as percent of GDP) 2/ 1960 69 n.a. 50 440 - 54 49 35 (1965) 1970 80 45 50 60 (1969# 55 37 33 / Net official capital inflow per cap., 1970 ($ -1 58 15 75 97 57 nil Agriculture as per- cent of GDP, 1970 17 15. 21 2 5 10 7 Manufacturing as per- cent of GDP, 1970 10 16 12 32 (1965) 25 13 18 Commodity concentra- tion of exports,1970 (two main products as percent of total 58 68 81 97 21 94 72 Annual rate of natural population growth, 1960 2.4 3.6 2.0 2.8 2.6 3.6y, 3.1 1970 1.3(1969)3.4 2.1 1.6 1 .8 3:0w' 2.0 Net annual average emigration as per- cent of population 1960-70 0.8 0.8 0.2 1.1 0.9 n.a. 0o.4 Unemployment, per- cent, 1960 16 (1955) n.a. 11 n;a. 13 n.a. 14 1970 13 (1966) 15 (est.) n.a. 17 (1966) 11 12 12 j Average 1962-66 V Varies widely; about 2 percent in 1969, / Non-oil imports only recorded peak year. / Including oil refining Actual net population increase Source: IBRD, World Bank Atlas, 1971; Puerto Rico, Informe Economico del Gobernador, 1971; published material from statistical offices of countries shoin.  9. Towards the end of the 1950's, and following a period of slow or stagnant output growth, a large-scale expansion in power and bauxite processing contributed to a doubling of the level of output over a period of eight years between 1960 and 1968. During that period real output advanced at a rate of 9 percent a year, the effects of the boom in the mining and power sectors having spread to industry and construction, trans- port, commerce, and government services. The growth of output in mining and processing alone accounted for about one-third of the absolute increase in GDP during the 1960's. After 1967, a period of sluggish growth set in, with per capita income stagnating or declining slightly. This development may have led to the high rates of emigration in recent years. However, there are some signs that the economy may again be embarking on a somewhat faster growth path. SECTORAL ORIGIN OF OUTPUT (Percent) Average of Average of 1953-55 1958-60 1967 1968 Agriculture and Fishing 12.9 12.4 9.1 9.5 Forestry 4.8 3.9 3.4 3.2 Mining and Processing 33.5 31.1 34.0 30.6 Manufacturing and Construction 8.8 8.S 11.3 13.3 Commerce, Banking, and Transport 14.2 15.9 18.8 17.1 Housing 3.6 4.6 3.3 3.3 Government and other Services 22.2 23.6 20.1 22.9 TOTAL 100.0 100.0 100.0 100.0 Source: Tables 2.1 and 2.2. 10. The most striking feature in the use of resources is the growth of capital formation, both private and public, over the 17-year period 1953-70. The investment boom began with a steady rise in government capital expenditures and augmented, beginning in 1960, by large outlays in the private sector. In 1964, investment absorbed as much as 50 percent of the GDP. Since then, the ratio has declined so that by 1970 at the level of 18 percent it was roughly the same as in 1953. Public investment now accounts for about one-quarter of total capital formation as compared with 5 percent in 1953 (see Table 2.3).  - 7 - 11. The share of GDP going to consumption has remained fairly stable. Despite the sometimes sharp annual variations in domestic output and invest- ment the consumption ratio fluctuated around 75 percent. Investment has largely been financed from abroad. The investment boom, combined with a steady growth in the volume of consumption, was reflected in a sharp in- crease in the resource gap. External trade in goods and non-factor services, which was more or less balanced during the 1950's, started to show increasing deficits after 1960. The external gap amounted to 24.5 percent of GDP in 1964 and 22 percent in 1965. After the completion of a large bauxite pro- cessing and electric power complex, private investments declined sharply, a decline which was only partly offset by an increase in government investment. As a result, the foreign resource balance has again shown surpluses since 1967. 12. Factor income payments, including the reinvested profits of these companies, increased from less than 3 percent of GDP in 1953 to about 15 percent of GDP largely on account of foreign-owned mining and forestry operations. Looking ahead to 1977, it is likely that this high proportion of net factor income outflows will decline to about 10 percent of GDP as the new exports from the planned bauxite and alumina expansion begin to come on stream. 13. There are two population estimates, one by the Planning Bureau and the other by the Ministry of Health. Both are based on the population census results of 1953 and 1964, but the series prepared by the Ministry of Health has been estimated on the basis of vital statistics which are subject to high and irregular changes. The Planning Bureau's series is based on a study of the growth rate taking into account the age and sex composition of the population, thus producing a smoother growth path. The two series are not readily reconcilable. The Planning Bureau's data are used here. 14. According to the Bureau, there has been a noticeable decline in the rate of growth of Surinar.'s population since 1953. From an average an- nual growth rate of 4.3 percent in the period 1951-1963, it fell to 2.3 per- cent over the period 1963-71. An important contributing factor has been the net emigration of a relatively large number of Surinamese, particularly those of working age. There are no accurate counts of emigration; one estimate suggests that the average volume of net emigration between 1963 and 1971 was about 8,000 persons per year. Net emigration reached the level of 9,000 persons in 1969, of which about 25 percent were under 15 years of age and 6 percent over 55. Available data show that at the end of 1968 about 35,000 Surinamese were living in the Netherlands. Paramaribo, the largest city, has grown at a rate of at least 7 percent per year; about 66 percent of Surinam's population is clustered in and around Paramaribo. The incidence of the use of birth control is not known, but there are no strong religious or social restraints. The rate of population increase over the next five or six years is expected to remain in the neighborhood of 2 percent a year, if some emigration continues. 15. About 100,000 persons or one-quarter of the 1970 population were counted in the labor force. This low participation rate is due in part to  - 8 - the age composition of the population. Tn 1968 about half the population was under 15, and a high proportion of the population attended school. Another important influence is the preponderance of working age groups among the emigrants. Agriculture employed about 25 percent of the labor force in 1968 or less than one-half the 1953 share. Government and other services combined (but excluding commerce) accounted for 45 percent of the labor force. Although the exact number is not known, the government sector alone probably employed about 25,000 persons including about 2,000 on tempo- rary works. Only 7.6 percent were employed directly in mining and processing, the dominant sector in terms of output, investment, and exports. The rate of entrants into the labor force is expected to increase over the next 10-15 years until the impact of the declining population growth rate is felt, hence accentuating the need for employment creation during the next decade. 16. There are no reliable data on unemployment. An open unemployment rate of 15 percent is commonly quoted, but the real rate may well be lower, since the population data which emerged from the 1971 census were lower than earlier estimates. Basic work on employment and income distribution data is of high priority. However, visible forms of high unemployment characteristic of many countries are not apparent in Surinam. The Government's Erployment Exchange and Relief Works Service, which registers the unemployed in the Paramaribo district, channels unemployed workers into public relief works and also dispenses some practical training. About 2,000 workers were engaged in relief works as of mid-1970. Despite the existence of a pool of unemployed workers, a major complaint of the larger agricultural enterprises is the shortage of labor. Furthermore, the higher pay scales and attractive oppor- tunities in the mining and processing industry on the one hand and those thought to be available in the Netherlands on the other make it difficult for most industries to retain qualified personnel. To help meet the demand for skilled labor in the private sector, the Government has provided funds for an expanded program of technical education. It is doubtful, however, whether this program will reduce the brain drain. Money, Prices, and Wages 17. Surinam has a fairly developed banking svstem comprising the Central Bank, four commercial banks, three public credit institutions, and numerous financial intermediaries such as insurance companies and pension funds. The Central Bank is responsible for controlling the volume of credit and promoting the solvency of the banking svstem. Since 1968 the annual in- crease in commercial bank credit has been linked to the growth of time and savings deposits and an assumed trend rate of GDP growth. The Central Bank also encourages the commercial banks to direct credit to the productive sectors of the economy rather than to the fitnancing of consumer purchases and speculative investments. Although the Central Bank has the power to impose qualitative credit controls, these have not been introduced so far. The main objective of monetary policy has been the maintenance of a favor- able balance of payments position and an adequate volume of foreign reserves. Monetary management in recent years has succeeded in attaining this objective.  - 9 - 18. The commercial banks in Surinam tend to maintain highlv liquid positions. As of the end of 1970, their cash holdings, deposits with the Central Bank, and short-term foreign assets amounted to some 30 percent of their domestic liabilities. Sizeable financial resources are also mobilized by insurance companies and pension funds. A related phenomenon is the low average interest rates for borrowers; the Central Bank discount rate is 5 percent, prime bank rates range between 5 and 9 percent, and the mortgage rate is about 8 percent. The relatively low interest rates have encouraged some of the large foreign companies in Surinam to borrow from the domestic banking system. The focus of bank lending has been the short-term financing of trade and industrv; together these sectors account for almost two-thirds of bank credit extended in 1970. Agriculture received only 5 percent of the total (see Table 6.3). Financial intermediaries are attracted to investments in real estate and mortgages. Whether because of institutional constraints or the absence of sound investment opportunities, or both, only few of the available financial resources have been employed in the development of basic productive activities. 19. The public investment credit institutions, designed to provide medium- and longer-term development funds, have had a limited impact on the economy. The National Development Bank was established in 1963 and funded under the development plan appropriations. Over the years it has gradually taken over the activities of the Surinam Reconstruction Bank (see Tables 6.4 and 6.5). By the end of 1970, the National Development Bank had about Sur. f. 3.5 million in loans outstanding, of which Sur. f. 1 million had been acquired from the Reconstruction Bank. On the average, the Development Bank lends at 7.5 percent and for a period of five to ten years. An Agri- cultural and Fisheries Credit Fund, established in 195F, within the Peoples' Credit Bank 1/ has extended credit to farmers for land clearing, house con- struction, purchase of inputs, and other expenses incurred in launching a farm operation. At the end of 1970, loans extended by the Fund amounted to Sur. f. 1.8 million, of which Sur. f. 1.2 million were in arrears. De- velopment financing in Surinam suffers from inadequate staff to evaluate projects and supervise credits. The National Development Bank is now undergoing a management review with the object of strengthening its capac- ity. Its capital will also be augmented from funds under the Second Five- Year Plan. A semi-public Agricultural Development Bank was recently estab- lished in cooperation with a Dutch bank. The agricultural sector, more than any other, could benefit from the provision of supervised medium- to long- term credit facilities. 20. Prices in Surinam are measured by a cost of living index. During the 1960's, the rate of advance in prices was close to 4 percent a year, the sharp rise in locally produced foodstuffs and beverages being the most im- portant contributing factor. In the last year or two, as income growth levelled off and local supply conditions improved, domestic pressures on prices were lessened; however, import prices have risen noticeably. Varia- tions in the cost of living index do not seem to be reflected in the implicit 1/ A small government-owned savings and consumer credit bank.  - 10 - CDP deflator, which rose at the rate of only 2.3 percent a year between 1953 and 1970 and at 2 percent during the 1960's. Regardless of the relative merits of these indices, the Surinam economy has obviously not been subject to serious price inflation. 21. A system of price controls, introduced during the Second World War, is still in effect, although the list of products subject to control has been significantly altered since then. The price control regime is admin- istered by the Ministry of Economic Affairs and covers such key consumer items as sugar and milk. In addition, the rice price is influenced by a guaranteed purchase price system operated by the Government. The administra- tion and surveillance of price controls are not very effective. A thorough- going critical review of the price control regime and its usefulness should be undertaken. 22. There are no official data on the structure and movement of wages. However, from a survey of collective bargaining agreements - which were in- troduced as a system of wage-setting in the mining industry in 1966 - it emerges that wage rates in the larger enterprises in Surinam have risen at an average rate approaching 8 percent a year over the past five years. The rate of increase has been generally higher for the lower wage groups, resulting in a narrowing of the wage differentials. Since wage rates in every year since 1966 have risen much more than the cost of living index, real wages in Surinam have increased substantially over the past six years. 23. The spread of trade unionism to most of the major enterprises in the economy has undoubtedly influenced wage levels. Strong leadership and inter-unionism rivalry have led to aggressive demands for higher wages and better working conditions. The relatively high standards set in the mining industry where the unskilled worker is paid about Sur. f. 11 for an eight- hour day have undoubtedly influenced the structure and level of wages. Another factor is the wage level in the Netherlands. Pressures on wages seem to have lessened in the past year, but the maintenance of wage stability in the future depends in part upon improving the domestic supply of key items in the con- sumer's budget. On the other hand, the far-reaching development plan for West Surinam and the large demand for labor that it entails could generate another round of rapid increases in wage costs throughout the economy. Planning and Economic Management 24. Established in 1951, the Planning Bureau first prepared a Ten-Year Development Plan for the period 1955-64. The last IBRD economic mission to Surinam in 1954 contributed to the formulation of that Plan. A Second Ten-Year Development Plan was prepared for the period 1967-75, in two 5-year tranches. The beginning of 1972 marks the start of the Second Five-Year Plan, which will in fact run to the end of 1976. 25. The First Ten-Year Plan was aimed at the attainment of a greater degree of economic independence, the promotion of effective domestic re- source exploration, and a higher standard of living. The latest Plan fore- sees an annual increase in real national income of 8.3 percent, a reduction  - 1 1 - of 50 percent in the number of unemployed, and an improvement in personal and regional income distribution. The economic framework of the latest Plan appears to be based on an excessively optimistic view of what can be achieved in the relatively short span of five years. 26. The mission has attempted to project the likely strncture of out- put groJth over the period 1970-77. The base year 1970 is used since it is the latest year for which sectoral output estimates are available. The terminal vear 1977 allows for a one-year slippage in the Plan; all previous plans in Surinam have had to be extended for at least one year. The mission's projections are set out in the following table and compared with those of the Second Five-Year Plan. The major difference concerns the date by which the additional investment in bauxite mining will yield exportable output. While the phasing of the West Surinam project is not entirely certain, it is unlikelv to contribute significantly to exports in the Plan period. This estimate, together with more modest expectations for the other sectors, would lead to a significantly lower growth rate than foreseen in the Plan. In fair- ness to the Plan, it must be said that it was conceived at a time when the economy was growing at a faster rate than at present. COMPARISON OF PROJECTED SECTORAL OUTPUT GROWTH Average Annual Percent of GCD Contri- Growth Rate bution by Sector /1 /22/ Plan- Mission- Plar- Mission/ Agriculture and Fishing 7.1 4.5 8.5 8.0 Forestry & Processing 5.6 2.0 1.0 0.4 Mining, Processing and Hydropower 10.4 4.0 39.3 22.4 Manufacturing and Construction 11.9 9.0 20.7 25.5 Other 5.6 5.3 27.2 43.3 Total 8.3 5.3 100.0 100.0 /1 Second Five-Year Plan 1972-76 /2 Mission projections, 1970-77 Source: Planning Bureau, Table 2.2, and mission estimates. 27. Another important point concerns the capital-output ratio assumed in the Plan. The projected absolute increase in GDP at market prices for  - 12 - 1972-76 is Sur. f. 390 million; for public and private investment, the increase is put at Sur. f. 72.5 million, or a ratio of 18.6. This is expected to yield a rate of growth of output of 8.3 percent and an incremental capital output ratio of 2.2. The past record shows that, excluding the years when investment and output growth were exceptionally high, the invest- ment ratio averaged about 25 percent and yielded a rate of growth in the neighborhood of 5 percent, the capital-output ratio being around five. Thus the Plan counts on an increase in national economic efficiency which is beyond any realistic expectation. Even if the public investment projects are fully executed and the private sector undertakes an active investment program, it is highly unlikely that the Plan's projected real growth rate of 8.3 per- cent at factor cost can be achieved with the proposed level of investment. 28. As in the early 1950's, Surinam is now poised on the brink of another big investment push. How soon the economy will move into this phase is difficult to judge. The mission's projections are based on the assumption that the big push will take place but that the major impact will fall beyond the end of the period under consideration. It is foreseen that during the next six years the investment ratio will rise to 27 percent of CDP from 18 percent in 1970; the current resource surplus will be converted into a sizeable resource gap; and the annual inflow of capital, both private and official, will finance almost one-half the volume of capital formation in 1977. At the same time, consumption is projected to'increase in line with GDP. 29. It is fair to say that the most important function of the various Plans has been the preparation of a public investment program including a list of projects. The capital expenditure projects originate in the various responsible Ministries and the Planning Bureau compiles the final list. The criteria employed in reviewing the project proposals are not always clenr, hut presumably, the availability of financial resources, the sectoral nndl g]obal.: targets and project feasibility, where these nre available, are taken inito account. The project list is importanlt since it is the basis upon whicth external assistance from the Netherlands and the EEC are negotiated. 30. Between 1955 and 1968 about Sur. f. 176 million of public capital expenditure was executed, of which about two-thirds was financed by the Netherlands. The Second Ten-Year Plan 1967-76 got off to a very slow start, the first disbursements having been made in mid-1968. By the end of 1971, the mid-point of the planning period, only Sur. f. 95 million or 75 percent of the projected expenditure for the first five years had been spent. For this period, Sur. f. 125 million had been committed by the Netherlands, 50 percent in the form of grants, 40 percent in soft loans, and 10 percent in loans at market prices. Surinam has also been eligible for development grants from the European Development Fund (EDF) since 1964, and up to the end of 1970 had obtained about Sur. f. 30 million from this source. Taken together, public investment projects included in the various Plans have counted heavily on external financing provided on concessionary terms. The external financ- ing already committed for the Second Five-Year Plan 1972-76. is proportionately somewhat larger than in the past, while the terms are softer. Of the planned  - 13 - development expenditure of Sur. f. 333 million for 1972-76, the Netherlands has com-itted Sur. f. 220 million plus Sur. f. 30 million carryover from the previous plan period, while the EDF is likely to provide another Sur. f. 29 million in grants. Aid from the Netherlands will be made available in the form of 60 percent in grants, 30 percent in soft loans at 2.5 percent inter- est, 30 years life and a grace period of eight years, and 10 percent in loans from the Netherlands Investment Bank at a subsidized rate of interest of 2.5 percent. 31. The capital expenditure programs set out in the successive plans have aimed at increasing, investment especially in the directly productive sectors of activitv. However, it has proved easier to prepare and execute infrastructural projects. The sectoral distribution of expenditure proposed in the Second Five--Year Plan 1972-76 points to a slight shift from the past pattern, as the accompanving table shows. Moreover, there is no obvious link between the sectoral distribution of the expenditure program and the sectoral otutput and employment targets that emerge from the economic frame- work of the Plan. By 1976, planned public investment is likely to account for almost 30 percent of gross domestic investment, or a share that can exert a significant influence on the pattern of output and employment growth. PLANNED PUBLIC CAPITAL DEVELOPMENT EXPENDITURE Actual Expndtur&e,2i 8-71 Second Five-Year Plan, 1972-76 Amount Percent Amount Percent (Sur. f. million) (Sur. f. million) Agriculture and Fisheries 75.9 21.4 51.7 15.4 Forestry 13.9 3.9 13.9 4.0 Mining and Power 28.2 8.0 62.5 18.6 Industry and Tourism 6.8 1.9 6.0 1.8 Directlv productive sectors 124.8 35.2 134.1 40.0 Transport and Public Wqorks 106.1 30.0 91.2 27.2 Education 15.5 4.4 31.8 9.5 Housing ) ) 15.6 4.6 Health ) 107.6 ) 30.4 24.9 7.4 Other Social Services ) ) 2.8 1.0 General Administration ) ) 34.6 10.3 Infrastructure and Administration 229.2 64.8 200.9 60.0 Total 354.0 100.0 335.0 100.0 Source: Planning Bureau.  - 14 - 32. The public investment program contained in the Second Five-Year Plan merely lists the projects along with their estimated cost. Since there is no planned schedule of the annual volume of expenditure, it could fluctu- ate sharply from year to year, with disruptive effects on the economy. The mission has attempted to phase planned expenditures for the years 1972 to 1977, taking into account ongoing projects from the previous period. This effort results in a projected peak level'of fixed investment in 1975 (see Table 5.3). It would be worthwhile for the Planning Bureau to atten.pt to phase the expenditure program on the basis of the superior information they now have at hand or could secure from the various Ministries which sUbTlmitted the projects originally. Moreover, it would be worth estimating the effects of the program on various sectors and on economic aggregates such as private consumption, private investment and the resource gap. Given the size of the Surinam economy, individual capital expenditure items can exert a noticeable influence on the economy. 33. The Planning Bureau is assigned a number of tasks of great responsi- bility. Its staff, however, needs to increase its expertise to perform these tasks. The most urgent need is to augment the Bureau's professional staff so that it can evaluate the key sectors and formulate appropriate developmert policies. The Planning Bureau should know more about these sectors so tha it could program development expenditures and monitor the progress of projects. Apart from the question of staffing, planning could be much strengthened by extending the range of statistics now collected and reducing the time for compilation. In particular, the national accounts are readv for a thorough overhaul; population, manpower and social statistics should be made more readily available and on a consistent basis; and statistical information for transportation, construction and industry should be compiled to serve the purposes of the Bureau. In these respects, the Agricultural Census of 1969 and the Population Census of 1972 provide important basic data. 34. Development planning in Surinam is somewhat distorted by the fact that development funds are not scarce, because of the special ties with the Netherlands. Dutch assistance is extended largely on the grounds that Surinam is a backward region of the Kingdom and, therefore, merits help by that fact alone. The availability of external finance for all categories of development expenditure - capital and current, foreign exchange and local costs - renders less urgent the basic economic development issues of mobil- izing resources, deploying them in a way which yields maximum returns, and promoting private sector activity. 35. Apart from the attitude toward economic development which the close ties with the Netherlands has engendlered, the political system of checks and balances within Surinam has led to disjointed economic decision-making in the public sphere. The ministries responsible for development planning and expenditure, fiscal policy, and the regulation and promotion of production and trade, each pursue their own objectives: although they are formally coordi- nated through a Cabinet-level Economic Council, this mechanism has in practice not always been sufficient. An aggravating factor is the low average level of technical competence in the civil service. It has been difficult for the civil service to retain promising professionals in the face of superior work oppor- tunities in the Netherlands or in private industry in Surinam.  - 15 - III. SECTORAL ISSUES AND POLICIES 36. In contrast to the limited operational value of global or macro- economic planning in Surinam, some of the sectors of economic activity have benefitted from carefully prepared plans and explicit policies. These efforts have focused mainly on natural resource exploitation such as mining, forestry, agriculture and related activities in water management, and transportation. With the objective of attracting private initiative, the Government has made a major effort to evaluate the country's natural resources and provide the infrastructure required for their exploitation. Supported by financial and technical assistance from the Netherlands and the UNDP, and intensive program of natural resource stock-taking has been underway since the end of the Sec- ond World War. By now, large areas of the country have been geologically surveyed and mapped, parts of the forest belt have been inventoried and water levels and flows measured. Surinam's resource data bank must be one of the most advanced of all the developing countries. Over and above the resource studies, the country's infrastructure in power, transport and communications, and water control has been extended or improved. 37. In 1960 an incentive scheme for private investment was introduced and, more recently, the Government has announced that it is ready to enter into joint ventures with private enterprises. Partly in response to these efforts, a number of large-scale enterprises have already been started. _ning 38. Bauxite mining and processing is the dominant activity in Surinam. It comprises bauxite extraction and the processing of alumina and aluminum ingot. In 1970 mining accounted for 31 percent of GDP, 20 percent of gross private investment, 30 percent of government current revenue, and 91 percent of the value of commodity exports. Although the industry employs directly only about 7,000 persons or 6 to 7 percent of the labor force, it exerts a powerful influence on the movement and structure of wages in the economy. With the plans for exploiting the bauxite resources in West Surinam, mining will continue to be the economy's major growth element well into the 1980's and maybe beyond. Geological surveys and periodic explorations by private companies have shown the presence of other minerals such as nickel, iron and copper. It is not yet known whether the quantities are sufficient to en- courage commercial exploitation. 39. Bauxite mining in Surinam dates back to 1916 when the Surinam Bauxite Company, (later reorganized to become the Surinam Aluminum Co. or SUTRALCO), a subsidiary of the Aluminum Company of America, obtained a conces- sion in the Moengo area, in the northeastern region of the country. In the first year of operation about 2,200 metric tons of raw bauxite ore were mined and exported in schooners (see table). By 1970, the annual volume of output had risen to 6 million tons; at this level Surinam ranks as the world's third largest producer. In the intervening period, the industry underwent some far- reaching changes: the volume of output rose threefold during the Second World  - 16 - War when Surinam became one of the few accessible sources of bauxite; new min- ing areas at Paranam-Onverdacht were opened; the N.V. Billiton Maatschappij Suriname (BILLITON), a subsidiary of the Shell Oil Co., joined SURALCO in mining operations beginning in 1941; and the construction of an alumina plant and an aluminum smelter in the early 1960's sharply raised the value of pro- duction and exports. PRODUCTION AND EXPORTS OF BAUXITE AND RELATED PRODUCTS, 1922-71 ('000's of metric tons) Exports Production of Bauxite Bauxite Alumina Aluminum 1922 2 /1 2 1940 615 /1 615 1950 2,098 /1 2,098 1960 3,455 3,635 1965 4,360 4,369 59 2.2 1970 6,022 3,419 893 52.A 1971 6,800 3,450 1,080 44.C 1977 8,200 3,400 1,100 '65.0 Value of 1970 exports ($ million) 40.4 56.3 25.8 Average unit price 1970 ($ per metric ton) 12 63 515 /1 Production assumed equal to exports in that year. Source: General Bureau of Statistics, Central Bank of Surinam, And mission estimates. 40. The quality of bauxite now being mined in Surinam is comparatively high and a full range of grades is produced. As of the mid-1960's; proven bauxite reserves in Surinam were put at 200 million tons; the estimate for probable reserves was 350 million tons. At current extraction rates, prob- able reserves are sufficient to sustain operations for another 50 years. Ore bodies are found at an underground depth ranging from 10-100 ft. Extraction operations take place below sea-level and the costs involved in stripping the overburden are augmented by the special measures required for water control. As of 1970, roughly one-half of the output of raw bauxite was exported, large- ly in the form of metallurgical grade bauxite. Smaller quantities of calcined, chemical and refractory bauxite are also shipped abroad directly. The other one-half of the raw bauxite output is processed into alumina. About 88 per- cent of the alumina is exported as such and the remainder is converted into aluminum ingot, a process which requires a heavy input of electrical energy. 41. Beginning in 1965, the structure of mining production was signifi- cantly altered when second and third stage ore processing plants came into operation. These facilities were erected under the Brokopondo joint-venture  - 17 - agreement signed in 1958 between SURALCO and the Government, under which SURALCO financed and built a dam and hydropower plant with a capacity of at least 150 MW on the Surinam River to supply a 60,000 ton/year aluminum smelter. SURALCO also agreed to construct a 1 million ton/year capacity alumina plant, in which BILLITON subsequently purchased a 43 percent share. 42. The mining industry currently exports products valued at $123 mil- lion or 91 percent of the total value of commodity exports (Table 3.2). For 1970 it is estimated that retained foreign exchange earnings were between 45 and 50 percent of the total generated by the industry. There is limited scope for expanding wage and salary payments to Surinam residents since the expatriate staff employed by the industry are few in number. On the other hand, there are opportunities to expand local procurement through the devel- opment of local capacity in transport, construction, maintenance and repair services as well as the production of cassava flour to substitute for im- ported wheat flour, a flocculent used in processing alumina. 43. The transport requirements of the mining companies have been well adapted to the prevailing conditions. Three port facilities are owned and operated by the companies: Moengo on the Cottica River and Paranam and Smalkalden on the Surinam River. Although an outer bar at the entrance to the Surinam River restricts the available depth to 22 feet at high tides, ships with a draft of up to 25 feet can pass through the soft mud. Bauxite produced by BILLITON is shipped to destinations in the U.S. or South America in three flat-bottom vessels of 18,000 DWT. Alumina is shipped to the U.S. and Europe either in general cargo vessels or in vessels chartered by BILLI- TON's clients. SURALCO products are shipped via Trinidad in special flat- bottom shuttle ships of about 9,000 to 11,000 DWT, or in charter vessels with a capacity of up to 32,000 DWT. The latter take part loads from Paranam to Trinidad, where they are topped off before sailing on. Given the natural conditions of the waterways, the transportation pattern now employed is at or close to maximum efficiency. The consensus in the mining industry is that the costs of increasing the capacity of the Surinam River to carry larger vessels would exceed the benefits derived from lower unit transport costs. 44. The world market for aluminum weakened in the last 12-18 months as a result of the recession in the United States, the major consuming country, coupled with a rapid rise in world productive capacity. For Surinam, this was reflected in a drop in 1971 exports of aluminum; however, the shipments of bauxite and alumina held up fairly well. The longer term projections for world demand, however, are distinctly favorable as is the prospect for the industry in Surinam. The mission has projected a bauxite output expansion of about 5 percent annually until the new investments lead to a sharp increase of about 50 percent within the next ten years or so. 45. The large scale investment program is based on concession agreements signed in 1971 between Surinam and a partnership of Reynolds Surinam Mines Ltd. and N.V. Grasshopper Aluminum Co. (GRASSALCO). GRASSALCO is a government-owned company. The agreements assign exclusive prospecting rights to Reynolds over an area of about 1.7 million ha. in West Surinam. It is expected that Reynolds  - 18 - will concentrate its efforts on selecting a concession area of 20,000 ha. for exploitation in the Bakhuis Mountains although the company has options to exploit new areas near the coast. The agreements provide for staged invest- ments by Reynolds in opening mines and erecting an alumina plant with an initial capacity of at least 200,000 tons/year. GRASSALCO would participate to the extent of 50 percent in all operations up to the point where the alumi- na plant reaches 800,000 tons/year. The Government is obliged to build a rail- way from the mine site to a port at Apoera, provide the port facilities and adjacent urban infrastructure, and make the Corantijn River navigable for lighters between Apoera and the sea. As a further stage, Reynolds would build an aluminum smelter if studies show that a hydropower plant of at least 125 MW capacity can deliver energy at Apoera on the Corantijn River at an average cost of US 4 mills per KWh. The Government would be respon- sible for the power supply. In this respect, the IBRD has agreed to act as executing agency for a UNDP-financed study of the proposed power development project. 46. The West Surinam mining development plan is still in the early stages of exploration. However, there are good chances that the project will be implemented more or less along the lines envisaged. For the period to 1977, a sizeable volume of public and private investment in bauxite mining and related infrastructure is likely. Included would be the opening of a mine in the Bakhuis Mbuntains, construction of a railway line about 80 km in length, port facilities and town services at Apoera, dredging the Corantijn River beyond Apoera and the start of construction of an alumina processing plant. Altogether, fixed capital expenditure in the amount of roughly Sur. f. 125 million is projected for the period 1972-77. Towards the end of the period it should be possible to produce and ship a relatively small volume of bauxite; large-scale increases in output can be expected to emerge towards the end of the decade and into the 1980's. 47. The Government is an active participant in the West Surinam Pro- ject. It is directly involved in the productive process through ownership of GRASSALCO and the proposed railway. The Government will also provide certain other facilities and begin the hydropower study. The financial re- sources required for the participation of the public sector are being pro- vided under the Dutch aid program for the Second Five-Year Plan; the sum of Sur. f. 90 million from the Netherlands has been designated for this purpose. From a longer-term perspective the exploitation of mineral resources in West Surinam is viewed as the beginning of a broader-based development program for that region. An especially attractive element of the visionary regional de- velopment plan for West Surinam is the creation of an urban center at Apoera, counterbalancing Paramaribo. Agriculture 48. Agriculture, including livestock and fisheries, contributed about Sur. f. 50 million or 9.5 percent of GDP in 1970. In that year, agricul- tural products made up about 5 percent of the total value of commodity ex- ports. Some 22,000 persons or about one-fifth of the labor force is engaged in the sector. Productivity is therefore on average much lower than in the  19 _ rest of the economv. Of the total land area of 16 million hectares, only 94,00lQ hectares or 0.6 percent is classified as cropland. Sixty percent of this area is c!even over to crops and pasture and the remainder is not uti- lized (TaMle 7.1). The major crop, by far, is rice; it is cultivated on about 4n,00O hectares. 49. According to the 1969 Agricultural Census, there were 16,078 farms or muc! the same number recorded by the previous census in 1959. M'ore than 80 percent of the farms are 5 hectares or less as showqn in the accompanying taBle, and the average size of farm has declined since 1959. NUMPEP OF FARMS BY SIZE, 1959 and 1969 Size of farm (in ha.) 1959 1969 ( 0.5 1,144 (7%) 1,461 (9%) 0.5 - 5.00 12,041 (74%) 11,901 (74%) 5.00-20.00 2,654 (16%) 2,365 (15%) >20.00 400 (2%) 351 (2%) Total 16,239 (100%) 16,078 (100%) Source: Agrictultural Census, 1969. The Census also reveals that since 1959, the average age of farmers has in- creased as has the numher of farmers whose output is not marketed. The agri- cultural labor force has declined by 16.7 percent over the period 1953-68. The trend in the rural sector is therefore one of increasing migration to urban areas and of growing importance for large-scale mechanized farms. The income differentials between self-ermployed small farmers and agricultural laborers, and between agricultural incomes and national average incomes help to explain these tendencies: Rough calculations suggest that a rice farmer harvesting 2.5 ha. with 1.5 crops a year can expect net receipts of Sur. f. 1,071 a year; a coconut planter on 2.5 ha. can expect about Sur. f. 1,200 in gross receipts for a year; while an agricultural laborer at the largest rice farn obtains Sur. f. 1,690 a year in wage income; and a laborer at the major banana plantation earns Sur. f. 1,864 annually in wages. Per capita GNP in 1970 was estimated at Sur. f. 1,272 or a family income of probably four times that level. 50. The record of agricultural production as a whole since the mid- 1950's has been outstanding. Because of the expansion of large-scale com- mercial agriculture in rice and bananas, real output advanced at an annual average rate of about 6.5 percent in the '50's and '60's. During the last  - 20 - six or seven years output growth accelerated to an annual rate of over 10 percent. The most important dynamic components were rice, bananas, and also shrimp and poultry. On the other hand, the output of traditional snallholder tree-crops such as copra, cocoa and coffee, declined. 51. Much of the impetus for the growtlh of agricultural output came fror. a few large-scale and export-oriented enterprises: the Sticliting NIachinale Landbouw (SML) in rice, the Surinam Agricultural Enterprises, Inc. (Surland) in bananas, and the Surinam American Industries, Ltd. (SAIL) in shrimping. AGRICULTURAL, FISHERIES, AND LIVESTOCK PRODUCTION AND EXPORTS Percentage share Percentage share Volume of output of gross value of agricultural 1963/64 = 100 of production exports 1953/54 1969/70 1968/1 1970 Rice 70 159 29.4 44.1 Bananas 64 1,055 6.7 26.3 Sugarcane 51 71 11.1 7.6 Vegetables 33 209 4.8 - Citrus 93 129 2.2 8.5 Coconuts 114 107 1.3 Cocoa 51 40 1.0 1.8 Coffee 119 55 Shrimp 23 183 11.6 8.5 Livestock and poultry 65 204 22.6 - o/w poultry (55) (209) (13.5) (-) Total 53 /2 150 /2 90.7 96.6 /1 Valued at producer's prices. /2 Mission estimate. Source: Ministry of Agriculture, Animal Husbandry and Fisheries, Central Bank, Planning Bureau, and mission estimates. These enterprises have applied modern capital-intensive techniques and have been oriented towards exports. Government investment in roads, irrigation and other facilities has assisted these enterprises. The banana enterprise is government-owned. An increasing share of crop production has corme fror- the larger farm units and plantations: by 1968, the latter were contributing 53 percent of the total value of crops as compared with 37 percenit in 1T . 52. The Second Five-Year Plan 1972-76, discusses the objectives for the agricultural sector and a related list of public investment projccts to be undertaken during the five-year period. Among the quantifiable objectives are: a real output growth in agricultural production of 7 percent a year; an  - 21 - anrrual volune of pulhlic anid private investment about twice as high as that acMieved during the past decade and one-half; a significant expansion in acre- age under crops or in pasture; and the creation of employment opportunities for an additional 5,fO0(C persons. In short, the expectation is that the agri- cultural sector can surpass its past record of performance in expanding output and productive capacitv and even reverse the historical trend of an absolute decline in agricultural employment. 53. While it is true that agriculture can contribute to a more diversi- fied and balanced pattern of growth, the plan assumes a pace of development in the sector which is optimistic. A review of the productive capacity of sore of the major agriculttural products and their market prospects both at home and abroa'4 suggests that a more realistic projection of output growth over the next five or six years would be an annual rate of 4-5 percent in real terms (see Table 7.14). Market constraints are a major factor in this projection. 54. There is not much doubt that, spearheaded by the highly mechanized operations of the Dutch-financed SNL at 1Wageningen, Surinam can easily ex- pand the production of rice. This major enterprise accounts for about 30 percent of total paddy production and has developed special strains of long- grain quality rice with yields averaging 3.5 metric tons per hectare per crop or 5.5 tons per hectare per year. The scientific rice-growing methods de- veloped at Wqageningen are being introduced successfully on medium-sized farms of around 25 hectares and more slowly on smaller farms of 5 hectares or less. Partlv because of deficiencies in extension and credit, the smaller farmers have found it difficult to adopt the new technology and their output has, in general, been inferior and difficult to market. The Government has therefore introduced a rice stabilization program under which it purchases some grades of paddy at fixed prices. However, although rice is a major item in the local diet (per capita consumption is about 115 kg. per year), the income elasticity of demand is less than 0.4 and an increasing preference for other grains especially wheat has become evident. Despite increasing domestic de- mand for rice for industrial purposes such as cattle feed and brewing, the main outlet will continue to be exports. The bulk of rice exports is destined for European Common Market countries, with a fixed EEC quota of some 25,000 metric tons increasing at a rate of 5 percent a year. Surinam rice, largely in the form of cargo or brown rice, enters the EEC at a reduced tariff. The Netherlands Antilles is the second most important market, but exports there are not expected to grow rapidly. Traditional markets in Martinique and Guadeloupe have been lost in recent years to Colombia, Nicaragua and Vene- zuela which have managed to undercut Surinam prices by as much as 25 percent. Despite the excess supply of rice on the world market, Surinam's high quality production and preferential access to European markets argue for continued expansion of exports at a rate of 4 to 5 percent a year. This projection assures, however, that average product quality is maintained, that transport costs do not rise excessively, and that parboiled rice will become a signi- ficant export item to European markets.  - 22 - 55. The spectacular growth of banana production and exports since the mid-1960's was based on modern technology adapted to local conditions. Owing to a massive planting program by government-ovned plantations, the harvested acreage was extended from 300 in 1965 to about 1,500 ha. at present and yields of high quality bananas rose from 13 to about 30 metric tons per ha. over a period of about six years. Small-scale planters produce a poorer quality product and obtain smaller yields. Surland sells the bulk of its output to the United Fruit Company which ships the bananas to Europe. Contracts with the United Fruit Company are negotiated annually. Surland plans to expand the planted area by about 1,000 ha. over the next three or four years to yield a rate of advance in output of almost 6 percent a year and an equivalent rate of growth in exports. The key assumption here, however, is that the United Fruit Company is prepared to absorb the increased output in the pre- sently weak world banana merket. 56. Citrus is cultivated on 23 plantations, five of which exceed 100 ha . and contribute over half of the output of oranges and most of the grapefruit. The rest is produced by numerous small-holder farms. Output growth has been modest despite preferential access to the Netherlands market. About one- third of the output volume is exported by the Citrus Growers' Cooperative, after being packed by the Surinam Citrus Central, an agency which is sub- sidized by the Government. The industry has had to contend with a range of obstacles including inadequate water control, wide variations in product quality, labor shortages, the lack of refrigerated storage, and relatively high transport costs for export (35-40 percent above f.o.b. Paramaribo prices). If some of the production and marketing problems can be resolved, the prospects for increased citrus production and exports, especially grape- fruit, are favorable. The projected increase of 10 percent per year in out- put and 12 percent in the volume of exports assumes that current prices and average quality will be maintained and that Surinam suppliers will increas- ingly take advantage of the seasonal shortages in European markets. 57. Of special interest is an experimental commercial citrus project in the interior. Currently, all the citrus plantations are in the coastal area, especially the Commewijne District, where soil conditions, problems of water management, and the limited possibility for mechanization, inhibit growth. These problems do not exist in the interior, but poorer soils will require artificial fertilizers. If the experiment in the interior succeeds, a large expansion of citrus production would become possible. 58. Sugar, one of Surinam's traditional export products, has met with serious problems in recent years. Since 1966, when a peak cane harvest of 250,000 metric tons was reached (or a sugar output of about 25,000 metric tons), both output and yields have declined steadily. In 1970, one of the last two remaining estates ceased operations and the harvest fell to 120,000 tons of cane (or 13,000 tons of sugar). Sug-ar production has been subject to rising labor costs. At the same time, local prices have been officiallv fixed since the early 1950's. Although1 Surinam receives an EEC quota at favorable prices, domestic producers must meet local needs first. Wqith the decline in produc- tion the export quota has gone unfilled, anc4 a small volume of imports is now required to satisfy domestic consumption. Toreover, it has become necessary  - 23 - to impcrt molasses to sustain rum production at the Dutch owned Marienburg plantation, which exports to the Netherlands and West Germany. The outlook for sunar in Surinam is rather bleak. Even with an increase in the domestic price, which has been kept stationary since 1957 the Marienburg sugar mill which closed in 1972 but will, it is hoped, be reopened would have to undergo a thorough rehabilitation and the modernization before it can hope to pay its wax. The projection to 1977 assumes, perhaps optimistically, that the 1970 output will be sustained, with declining exports. There is strong public pressure to keep the sugar enterprise in operation since it employs about 1,33 persons. Most recently, the Marienburg labor union has been consider- ing nlans to buy the plantation. 59. Among the remaining products, vegetables are the most important in terms of value of production. Since 1964, outpult has grown rapidly in line with higher income levels and an increasing degree of urbanization. However, averag,e prices fcr these items have risen sharply, contributing significantly to increases in the cost of living. Moreover, a disorderly marketing system and the absence of storage and processing has led to wide seasonal fluctuations in supplies and prices. A major project, the first stage of which was fi- nanced by the European Development Fund (EDF), is underway. Covering a 900 ha. area on a sand ridge in the Saramaca District, some 100 farmers will be supervised in the production of onions, tomatoes, cucumbers, beans, sor- ghum and corn. The project should expand the vegetable supply significantly and possibly allow for some small exports. 60. Coconut growing and processing into edible oils was once a major industry in Surinam. In recent years both the harvested acreage and yields have been declining with the neglect of most of the plantations. Plans call for a major program of rehabilitation and replanting with the Malayan Dwarf Palm, on an acreage of some 1,600 ha. At the same time, a major project in a joint venture between the Government and a Dutch firm has been launched to grow oil alm in the Brokopondo area, in the interior of the countrv. The mission's projections point to the production of about 6,000 tons of palm oil bv 1977, with one-half of the output being exported. 61. Livestock, which accounts for almost one-quarter of the value of agricultural production, has grown very rapidly since the mid-1950's. About 80 nercent of the increase in the value of livestock outpu-t over the 1960's was due to the advance in the production of poultry and related products. However, beef and dairy have not done well. The beef cattle herd has actually declined since 1966. A dairy herd larae enough to support a government-owned milk and butter processing plant had been established by 1966, but production inefficiencies and a government-fixed price spread between producers (Sur. f. 0.22 per liter) and consumers (Sur. f. 0.33 per liter) have brought the enterprise to the verge of closing. Surinam now imports Sur. f. 6 mil- lion in livestock products or about half the gross value of output of live- stock products. There is thus considerable scope for import-replacement. On the other hand, the industry cannot readily increase its contribution to the economy so long as it is confined to the coastal plain where the natural conditions for livestock, other than poultry, are not ideal. As in the case of other agricultural activities, experiments in the interior could in time improve the prospects for livestock development.  - 24 - 62. Fishing accounts for about one-sixth of the gross value of agricul- tural production; shrimping, in turn, accounts for three-quarters of the value of fish production. The waters off the northeastern coast of South America yield an estimated volume of 25 million lbs. of shrimp a year. In 1970 some 75 trawlers based at Paramaribo landed 7.7 million lbs. of shrimp or one--third of the total catch in the area. The shrimp are processed and prepared for export to the U.S.A. and Japan at a plant owned by U.S. interests. Given Surinam's favorable location in relation to the shrimping grounds which are now being fished at about 70 percent of capacity, some excess capacity at the existing plant, the removal of restrictions on the establishment of new plants, and buoyant demand in world markets, the prospects for the con- tinued rapid growth of shrimping in Surinam are highly favorable. However, the announcement by Brazil in March 1970 that it was defining its territorial limits to extend 200 miles from its coast, thus "nationalizing" about 60 per- cent of the lucrative shrimping grounds, could hamper the growth of shrirmping in Surinam unless some accomnodation is arrived at with Brazil. In the wake of the Brazilian announcement, about 30 trawlers have been withdrawn from Paramaribo. The possibility of establishing a shrimp farm is under con- sideration, but the chances of starting a commercial operation in the mcdi term are slim. Inland and sea fishing, other than for shrimp, is expecre( : advance only at a modest rate. This is because swamp fishinc is on the de- cline as more and more of these areas are reclaimed, equipment employed in the fishing industry is antiquated, and prospects in the industry are damp- ened by the lack of a fishing tradition. In these circurstances the mission's projections for fisheries output is an annual growth rate of about 2 to 3 percent to 1977. 63. The above review of prospects for the various agricultural commo- dities is based in part oni the composition of the planned public investment program. The Second Five-Year Development Plan, 1972-76, allocates about Sur. f. 52 million to agriculture or roughly 15 percent of the combined Dutch and EEC development aid likely to be available. The major thrust of the proposed investment program favors increasing the availabilitv of land for small-scale farming. The detailed considerations underlving the selec- tion of projects and their likely economic impact have not been published. Much of the largest share of capital expenditure is to be used in the expan- sion of the cultivable area in the coastal plain, especially that for srlall- scale rice production. 64. The goals of reducing unemployment and improving income distribu- tion figure prominently in the Second Five-Year Plan. To help attain these objectives, the Government seeks to provide attractive economic opportunities in rural areas. For the agricultural sector, the specific target of increas- ing the employed labor force from 22,000 in 1970 to 27,600 in 1976 has been set. Over the period 1953-68, as noted earlier, employment fell by 16.7 per- cent. Past government efforts to directly generate farm employment have not been entirely successful. Of some 10,000 ha. prepared for cultivaticn and distributed among farmers since 1955, onlv 63 percent was being utilized towvards the end of the 1960's.  - 25 - 65. Surinam will in all likelihood have to rely on the few large com- mercial enterprises in aariculture to sustain growth it the sector. Gradual- ly, increasing government investment in the areas away from the coast will be required to make the latter objective nossible. The interior offers pos- sibilities for drv crop and livestock farming that merit active exploration: if combined with adequate pricing policies, this effort could help stem the rapidly growing volume of imports of foodstuffs, which accounted for 11 per- cent of total imports in 1970. At the same time, more can be done through extension, education and credit to raise incomes of small farmers on the coast, although the goal of larger employment in agriculture is likely to be difficult to attain. 6i6. Tanv of the important policy issues identified by the mission are alreadv under study by the Covernment; in respect of some, their implementa- tion is under way. The specific areas in which the mission believes efforts should he concentrated are the following: a. establish a tax on the imputed rent from land so as to induce owners and lessees to bring unimproved and idle land into production: b. improve the maintenance and management of the water control system including levying and collecting water rates at a level which more adequately reflects the real cost of the resource; c. strengthen the extension and rural education services, if possible also making commercial farmers to pay for such ser- vices, and link them with a program of supervised agricul- tural credit; d. consider the establishment of a marketing board, with adequate storage facilities in order to eliminate the sharp fluctuation in the local market for agricultural products; e. encourage, through fiscal and financial incentives, the processing of local vegetables, fruit, dairy and meat products; f. intensify efforts to explore the potential of agriculture in the interior of the country, especiallv for dry farming and for livestock, g. seek a closer collaboration between the Planning Bureau and the Ministry of Agriculture in a putblic investment pro- gram for the sector; and h. upgrade the level of education and health services in the countryside relative to those provided in the Paramaribo area.  - 26 - Forestry 67. The relative importance of forestry, including wood processin-, in the Surinam economy has declined significantly since 1953. the earliest year for which comparable data are available, when the sector's share of GDP was 4.8 percent. By 1970 it had fallen to 2.9 percent as a result of a decline which began in 1966 in the volume of output and exports. Forestry has had to contend with a range of problems including increasing costs of extraction, diminishing supplies of some key species, and noor technolo5y. In recognition of the difficulties facing thlis sector of activity, thle Gov- ernment has launched a forestry management program in order to rehabilitate the industry. It will probably take most of this decade to reverse the past course of development. 68. In the post-war period, the production of timber for industrial purposes reached a peal of 282,700 cubic meters in 1966 and then declined fairly steadily to a volume of 199,100 cubic meters in 1970. Similarly, the volume of production and exports of lumber and processed wood declined, but higher prices for plywood and lumber helped maintain the value nf exports. Increased production costs, the greater availability and acceptance of sub- stitute construction materials, and stiffer barriers to entry in Caribbe.in markets have adversely affected exports. Of all the wood products now e- ported, lumber would seem to have the best prospects for the near future. 69. About 90 percent of the countr,y is forested, but of this area only 7 percent or about 1 million ha. contain presently accessible timber re- sources of commercial value. As it is, forest operations have already ex- ploited 80 percent of the Virola stancls (the species employed in making ply- wood), about half the marsh forest and about one-tlhird of the forest belt, a 10-40 km. wide zone of high tropical forest which traverses the country fror east to west. Furthermore, the reaeneration of species following extraction is extremely slow. It is estimated that the volume increment of commercial species cut from the high forests is no more than 0.2 cubic meters per ha./ year. The maintenance of present extraction rates, therefore, means that logging operations will have to extend further into less accessible areas with a consequent increase in production and transportation costs. The fact that it has become necessary to import Virola to sustiin plywood nroductirn is an indication of increasing difffculties on the side of sunplv. 70. Over 90 percent of the total tiriber output is cut on state-owned forests by private loggers operating under a svstern of concessions. There are numerous sr.all-scale operators with linited financial resources and technical training and who employ a primitive technology. As lo-ging opera- tions have moved further away from tihe river banks in search of marketable timber, a higher degree of mechanization has come to be required andi hence a larger average size of firm. At present ahout 15 medium-sized lo-ging enterprises are operating. The largest and one of the oldest enterprises is the Dutch-owned Bruvnzeel Company. An inteigrated timber complex. it holds extensive timber concessions under a 25-year contract, accounts for about 40 percent of total timber production, emplovs one-quarter of the industry's  - 27 - lahor force and is the major exporter of wood and wood products. Further- more, it ocerates the largest sawmill (50,000 n3/year roundwood capacity), a plVTrIood mill (19,000 m3/vear capacity) and a particle board plant (30,000 m3/vear capacity) and sets roundwood grading standards for thi- industry. Squeezed bv rising logging and milling costs, poorer quality timber, and increased sales competition both at home and abroad, Bruvnzeel has sought to diversify its production to include prefabricated wooden houses. It is experimenting with different models and price ranges with an eye on the Puerto Rican market and others in the Caribbean region. The economic future of the company depends, in part, on the successful marketing of this new product line. Equally important will he the terms under which Bruynzeel's logging concession, due to expire at the end of 1972, is renewed. 71. Since its establishment in 1947, the Forest Service, with a rela- tivelv small complement of trained personnel, has been intensively engaged in efforts to inprove forest exploitation. Of major importance is a com- orehensive reforestation orogram inaugurated in 1968 and financed under the development aid program. Its aim is to convert part of the already exploited forest into a permanently productive forest estate producing fast-growing species of softwoods for industrial uses and hardwood timber for export in the form of lumber. The Forest Service has under way a road-building program designed essentiallv for logging but expected to serve other traffic needs as well. One of these roads will form a second east-west link across the width of the countrv and provide access to a utimber of areas in West Surinam: this road is probably over-designed in relation to the likely traffic on it. 72. The Second Five-Year Plan has allocated Sur. f. 13.9 million to support the continuation of these projects. At present, conversion losses at sawtmills are as high as 60-65 percent (3ruynzeel with a 40 percent loss is an exception). Forestry development in Surinam will be bolstered by a UNDP/FAO technical assistance project including a large-scale forest inven- torv, timber testing, fcrest industry feasibility and marketing studies, forest management practices and staff training at all levels. 73. As previously noted, these efforts are not likely to yield results in the verv near future. The expectation is that over the next five or six yeears, the outptut and export of forest products will increase only modestly. However, if a plant to produce chips from mixed hardwiood species is estab- lished in Surinam under the auspices of the Weyerhaeuser Corporation, a faster rate of growth could be expected in the second half of the decade. anufacturing and Construction 74. Manufacturing and construction have been the fastest growing sector in the economy. Value added in industrv and construction rose from 8.2 per- cent of CMP in 1953 to 13.4 percent in 1970, while employment in the sector rose from 14.3 percent to 17 percent of the labor force in the same period. In 1971 the value added in the sector exceeded that of agriculture and for- estrv combined, and 19,000 people were employed in industry and construction.  - 28 - The rapid advance in manufacturing, without including the processing of bauxite and wood products, reflects the establishment of manv small-scale plants, producing essentially for the small local market. The principal agro-industries include rice milling, sugar, molasses, rum and cattle feed. Other important industries produce textile, footwear, furniture, cement, paints, soap powder, telephone switching equipment, beer and soft drinks. Small quantities of textiles, footwear and furniture are sold abroad: al- together, the value of exported manufactures in 1970 was onlv aboult Sur. f. 1 million. A telephone switch gear assembly plant, under the auspices of the ITT, began production in 1971. Some 60 emplovees are engaged in assembling telephone system components, all the parts being imported. Construction, the other branch of the industrial sector, is fairly well developed. The capacity in that industrv was greatly expanded during the 1960's when a number of major public and Drivate construction projects were executed. 75. The rapid growth of manufacturing, in the past decade is due in part to a range of inducements provided by the Government. The Investment Ordi- nance of 1960 provided for five to ten-vear tax holidays or accelerated de- preciation allowances, and exemptions from import duties on cap-tal goods and raw materials to those firms which invest more than Sur. f. 25,000 an- nually and generate an annual wage bill of at least Sur. f. 10,000 for non- supervisory employees. Protective duties and, in a few instances, auantita- tive import restrictions have been imposed with the object of fostering local production. In comparative terms, however, the average level of protection in Surinam is low. This condition is due, in part, to Surinam's association with the EEC and in part to the preference of the authorities for an open trade policy. Apart from indirect inducements, the Government has also con- structed two industrial parks at Doorsteek and Bethesda, which presently accommodate a number of small manufacturing plants; the National Development Bank makes funds available for industrial development on terms that are some- what more favorable than those offered bv the private banking communitv. A special fund supported by the Dutch Government makes feasibility studies for industry and provides loan and equity funds. The availabilitv of suitable finance for industry does not appear to be a problem in Surinam. Recently the Government has enunciated a policy of participating in joint ventures with private enterprises. The agreement with Reynolds mentioned in para. 45 above is a case in point; another, recently concluded, involves the Overseas Gas and Electricity Company, a Dutch-owned firm which services Parameribc ancd its environs. In both instances, the Government acquired 50 percent of the equity but assigned management responsibilities to its partners. 76. Starting from a small base, the rate of industrial growth in Suri- nam has been very rapid. It is most unlikely that the past rate of advance can be maintained because of the small size of the domestic market. It limits the possibility of obtaining economies of scale in production. In addition, Surinam is at a disadvantage in terms of location and the average level of wage costs, alreadv relatively high, is lilkely to increase further as the degree of unionizatioC increases. However. laco r.3tes for s!;illed labor are not hiall enough to dissunade them from seekinc, stuperior worlk opportunities abroad, especially in the Netherlands, or with t!he mining enterprises at  - 29 - hore. It is esneciallv difficult to attract and retain professional person- nel with technical training or those with managerial and marketing skills. These difficulties have already contributed to the closing of some manufac- turing plants, notably a brick factory, a confectionary plant, and a meat processing enterprise. 77. The factors pointing to a moderation in the rate of growth of man- -i4acturing output are not applicable to construction, which is likely to lace a strong demand for its services arising from the ambitious public in- vestment program and the major private investment plans foreseen between now and 1977. The Second Five-Year Plan assigns Sur. f. 6 million for direct industrv support. For the industrial sector as a whole, the mission pro- jects an annual growth rate of 9 percent in real output or a considerably higther rate than for CDP as a whole. By 1977, the sector should account for 17 percent of CDP. Exports of manufactured products, however, are expected to increase more iModestlv. The best prospects are for shoes, furniture and mattresses: textile exports, in contrast., are likely to fall. 78. The above projections assume that the existing favorable corporate tax rates and incentive measures will not be altered. Moreover, it is anti- cipated that the Government will establish a single agency in which indus- trial promotion activities of the public sector will be centralized. The central promotion agency should be able, more than was the case in the past, to channel government support to activities with reasonably good prospects for efficient performance. Tourism 79. The tourism industry in Surinam is small. In 1970, an estimated 5,500 tourists were attracted to Surinam. They stayed an average of four days and contributed about Sur. f. 2.5 million in foreign exchange receipts. Off the beaten tourist track and lacking the prime resources of sand and sea, Surinam's major tourist asset is wilderness recreation, including visits to the primitive cultures of the Bushnegroes and the Amerindians. Given the re- source constraints, tourism cannot be expected to greatly increase its con- tribution to the GDP in the next five or six years. Nevertheless, little or no effort has been made so far to exploit the existing potential. The budget provides negligible funds for the tourism development agency and guidelines for private development of tourist facilities have still to be enunciated. Althouph existing and planned hotel space should be suifficient to accommodate the flow of tourists over the medium-term, facilities in the interior are mea-gre. Moreover, hotels find it difficult to retain trained service staff in the face of competition from similar establishments in the Netherlands. The Covernment has recently set aside areas or reserves for recreation and the protection of wildlife. As in the case of industrial development, there would seem to be a need for a studied tourism development strategy and the machinery, adequately funded, to implement it.  - 30 - Transport 80. The transportation system in Surinam is relatively well developed. Surinam is virtually an island, in terms of international communciations. Only negligible volumes of goods and people cross the river borders with Guyana in the west and French Guiana in the east, and no traffic crosses the Brazilian border in the south. Good access to the sea is, therefore, of prime economic importance. Access, however, is hampered by extensive shallow mud banks blocking the entrances to the main rivers. With a depth of 21-22 feet at high water, the Surinam River is the only water artery with a reason- ably deep channel. Since the mud at the outer bar is soft, vessels with a draft of up to 25 feet can pass at high tide. 81. As for internal transportation, the pattern of settlement results in low inland traffic densities. East-west road traffic across the width of the country is interrupted by six rivers now traversed by ferries. River transportation by self-propelled barges, speedhoats and motorized canoes, provides the only means of access to large parts of the interior. A network of eight small airfields built in 1960 for the "Grasshopper" e-ploration - and some 30 smaller airstrips for medical and missionarv purposes provioe _n air link among the more important centers of the interior. 82. Despite the difficult transport conditions, there is no evidence of serious bottlenecks impeding economic development. Indeed, in respect of some modes, there is excess capacity. Moreover, it is a fair estimate (transport services are not shown separately in the national accounts) that a sizeable share of national transport services are captive to mining, agri- cultural and forestry enterprises and are included in those sectors of the economy. In view of these considerations, therefore, the share of foreign development aid that is earmarked for transnortation projects appears to be inordinately large. The proposed allocation of Dutch loans totalling Sur. f. 160 million for 1972-76, at present subject to ratification by the Nether- lands Parliament, will probably lead to substantial financing for transport investments. In addition, the EEC is expected to provide Sur. f. 5 million for three transportation projects, while roughly one-half of the Sur. f. 90 million set aside for West Surinam, is destined for rail and river transport infrastructure. Moreover, the Forestry Department is building a 250 km. forest road between Zanderij and Avanavero at the western border, and numerous agricultural roads are includled in the expenditures of the Department of Agriculture. Related to the issue of volume of expenditure is the concern that the expansion of transport infrastructure is being undertaken without the benefit of a transport plan and without the machinerv to coordinate the execution of transport projects among the various responsible Ministries. 83. In principle, the responsibility for planning, design, execution and maintenance of public transportation projects other than in aviation is vested in the Ministry of Public Works and Transport. The Mlinistrv is also responsible for public works requirements of Paramairibo and its i7'mediate surroundings. Indeed, the planning department within the MIinistrxy is almost exclusively concerned with city nlanning: transport plannin