Mauritania - Third Highway Project

CCR/9- .Yi9u DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1505-MAU REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR A THIRD HIGHWAY PROJECT October 29, 1974 Western Africa Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or cumpleteness of the report.   CUPRRNCY EQUIVALENTS Currency Unit CFA Franc (CFAF) - until June 29, 1973 Ouguiya (UTM) - since June 29, 1973 EXCHANGE RAIS Currency Unit Official Floating (as of February 15, 1973) (as of Septembe: 15, 1974) UM 1 CFAF 5 CFAF 5 US$ 1 CFAF 230.21 CFAF 235.00 US$ 1 UM 46.o4 UM 47.00 CFAF 1,000 US$ 4.34 USS 4.25 CFAF 1,000,000 US$ 4,340 US$ 4,250 UM 1 US$ 0.02 US$ 0.0213 UM 1,000 US$ 21.72 US$ 21.30 UlNl 1,000,000 US? 21,721 US$ 21,300 The Ouguiya is officially valued at 0.016 gram of fine gold or tho oquivalent of FF 0.1 or CFAF 5.0. As the French franc and the CFAF are now floating relative to the US dollar, the US dollar/Ouguiya exchange rate is subject to change. The exchange rate retained for conversions made in this report is US$ 1 = CFAF 250. FISCAL YhAR January 1 - December 31  LNTEqNATIONA.-, DEVELOPMENT ASSOCIATION REPOaT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR A THIkD HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Islamic Republic of Mauritania for the equivalent of US$3.0 million on standard IDA terms to help finance a Third Highway Project. The Kuwait Fund for Arab Economic Development (KF) and the Govern- ment of Canada will provide co-finrincing for t.his project for the equivalent of US$3.8 mdlllon and U3$4.5 million respectively. PART I: THE FCONOMY 2. Based upon the findings of an economic mission to Mauritania in February/March 1973, a report entitled "The Cu-rent Economic Situation and Prospects of Mauritania" (243-MAD) was distributed to the Executive Directors on May 9, 1974. Country data sheets appear as Annex I. The Country 3. Mauritania is not an integrated economic unit. It consists of three isolated economic centers: the port of Nouadhibou that services the modern mining and fish processing industries in the northwest, the capital city of Nouakchott, and the population centers in the south where livestock and agricultural activities take place. This latter is one of the poorest regions in the world and forms, with the western part of Mali and the northeastern part of Senegal, an almost entirely closed economic system. Between the Nouadhibou region and the south, the capital city of Nouakchott, built since 1960 in a semi-desert region with no natural resources and no basic infrastructure, is only important as an administrative center and a port. 4. In the past, Mauritania's main political and economic links wer, with France and the French speaking African countries south of the Sahara. But recently it has established close relations with North Africa and the Arab League countries. In June 1972, it asked for the revision of the 1961 Cocperation Treaty with France in the economic, monetary, technical, cultural, and military fields, and a new agreement was reached in February 1973, except for monetary affairs. As a result, Mauritania left the West African Monetary Union and the franc zone and introduced its own currency, the ouguiya, in June of that year. However, it still wishes to keep and develop economic  - 2 - ties with all its West African neighbors and is a member of the West African Economic Community, which replaced the West African Customs Union (UDEAO) in Tanuary 1974. 5. The factors limiting economic growth in Mauritania are many. First, the country is one of the poorest in terms of natural resources, except for iron ore, copper and fish, and its climate is one of the most arid among the Sahelian countries, as even its most southern regions (about 7 percent of the country) only receive 400-600 mm. of rain per annum. Second, distances are great and transport to all but a few places is arduou. and costly; for ex- ample, freight schedules for the journey from Nouakchott (in the west) to Nema (in the east) allow nine days each way for a journey of less than 1,500 km. Under such circumstances, the exchange of food products between the surplus and deficit areas is limited and production incentives are considerably re- stricted. Third, adult literacy in the country is low, while primary school enrollment does not exceed 15 percent of the school-age population. Past Economic Performaace 6. Betw2en 1960 and 1968, the Mauritanian economy grew in real terms at 10-11 percent annually, mainly due to a rapid expansion in the enclave mining sector. Little of the value added generation in the modern sector spilled over into rural areas. Per capita i.ocome of the rural poor at con- stant prices has increased at about three percent annually during that period. From 1969 to 1972, overall economic growth slowed down to three to four per- cent per year as mining companies reached their capacity and as a result of a series of severe droughts, unprecedented in this century. 7. Mauritania was particularly affected by these droughts. Agricul- tural production decreased by about 60 percent in 1972, while the cattle herd was reduced by an estimated 40 percent between 1969 and 1973. This wiped out all the progress made in the rural sector in the early sixties and further widened the gap between per capita incomes in the traditional (US$70) and modern sectors (more than US$500). Although rainfall in 1974 was probably about normal, the consequences of earlier drought will be felt for many years in the form of: (i) lower output in the livestock sector; (ii) additional demands on the national budget for social and health services; (iii) social problems created by the concentration of refugees around the emergency food supply centers; (iv) malnutrition and starvation resulting in higher death rates among children and older people and causing a marked in- crease in the incidence of physical and mental deficiency among the surviving children. Strategy-for Economic Development and Public Investments 8. The Government's economic policy in the first decade of independence focused on the development of infrastructure in an effort to equip Mauritania with a modern capital and the facilities needed to run the country. The infrastructure development effort also aimed at decreasing the dependence of  Mauritania on Senegal for the transport of goods in and out of the country. Thus, about 80 percent of public investments between 1963 and 1972 were absorbed by projects in transport and urban infrastructure. Public invest- ments increased at about nine percent per annum in current prices during this period to reach an annual average of US$15 million in 1968-72, or 7.8 percent of GDP. Besides the general constraints on economic development mentioned in para 5, Plan implementation has suffered from the limited capa- city of government services to identify, prepare, and execute projects. The technical ministries and the Ministry of planning are understaffed and not adequately equipped to prepare investment projects. 9. Future growth in the modern sector is essential to improve the public finance situation and provide a substantial part of the revenues needed to finance investment and recurrent expenditures for the development of the rural sector. However, even if the contemplated substantial new investments for the Guelbs iron ore mines are undertaken (a continuation of the present MIFERMA operation), mining alone cannot provide employment for more than a very small fraction of Mauritania's active population and its indirect effects on the rest of the economy will continue to remain limited. Similarly, establishment of manufacturing industries -- so far strongly supported by the Government - cannot provide the answer to the question of raising the standard of living for the mass of the Mauritanian population, as high production and transport costs and srall local markets severely limit poasibilities. The Government's basic strategy therefore should be to develop the country's natural resources in livestock, agriculture, arabic gum and fisheries. Although details of the Government's investment program for the Third Plan period (1975-79) are not yet known, the number of projects presently under preparation indicates that a much larger share of public investments will be devoted to the rural sector than in the past. The development of irrigated agriculture in particular is expectcd to play an important role in ensuring that the consequences of a recurrence of the recent droughts would not be so drastic. One irrigation project totalling several thousand hectares is already underway. The Bank Croup is financing the detailed engineering studies for a second project located on the Gorgol River. Other irrigation programs are being considered ir the context of the development of the Senegal River Basin. Financing Public Investment 10. The public finance situation improved markedly in the 1960s. From a US$7 million deficit in 1960, budgetary savings reached a positive US$5 million in 1972 or about 15 pe-cent of Central Government revenues. Public savings (after debt amortization) financed about 20 percent of the public investment programs in the past three years, the rest being financed by foreign aid (US$12 million per annum). During 1970-72, the Bank Group has been the third largest aid donor (providing about 18 percent of Mauritania's external capital assistance), after France (21 percent) and the European Communities (19 percent). About 70 percent of foreign development assistancc financed transport and urban infrastructure. Also important was technical assistance, mainly in education, which amounted to US$5.2 million per annum in the past three years, mostly financed by French bilateral assistance and  - 4 - UNDP. Conditions of foreign aid have progressively hardened since the share of grant aid decreased from 100 percent in the early sixties to about 35 percent in 1970-72, bat average terms on borrowing have continued to be con- cessionary. Thus, the average interest rate was 3.8 percent on external debt outstanding as of December 1973 of US$50.0 million, and the debt service ratio remains low (3-4 percent). Prospects 11. Even assuming normal rainfall conditions, growth in the rural sector will probably not exceed an estimated 2-3 percent per annum for the rest of the decade. Therefore, the standard of living on a per capita basis in the rural sector cannot be expected to reach its 1968 level again before the early 1980s as the reconstitution of the herd will be a slow process and the effects of the investments planned in the agricultural sector will only he felt after a substantial lag. The moderr, sector rate of growth during the same period could reach about five percent, a small decline from the performance of the past four years. This is mainly due to the fact that mining production, which stagnated between 1969 and 1972, but increased again in the last two years, is expected to remain at its 1974 level until MIFERMA begins exploit- ing low grade iron ore deposits at Guelbs. As a result, economic growth for the countr7 as a whole could reach about four percent between 1971/72 and 1980, assuming that droughts of the past few years do not occur again during this period. 12. The combined effects of the drought, the sharp increase in world market commodity prices, and accelerating world inflation have led to a sharp increase in imports from about US$108 million in 1972, to an esti- mated average of US$162 million in the years 1973-74. Cereal imports alone increased from US$9 million in 1972 to an annual average of about US$30 mil- lion in 1973-74, whlle refined petroleum imports increased from US$5 million in 1972 to an estimated US$10 million in 1973-74. i3. However, this increase in the import bill was largely offset by favorable prices for Hauritania's main exports (iron ore, copp-r, fish pro- ducts and livestock) and a 30 percent increase in iron ore proiuction in the last two years. As a result, the current account deficit increased by US$6 million only, or from US$26 million in 1972 (entirely financed by public and private capital inflows) to an e-1m.ated US$32 m--'llion average in 1973-74. Although substantial, (20 percent of total export earnings), this gap is expected to be fully financed by additional foreign aid. 14. Assuming normal rainfall conditions, balance of payments prospects in Mauritania are favorable, as a result of an expected reduction in food imports and improvement in Mauritania's terms of trade. By 1980, the terms of trade index would reach about 120 (1972 = 100), if current projections of increased export prices of iron ore, copper, fish products and cattle are realized. 15. The recent commodity price increasej and accelerating world infla- tion could raise the cost of public investments by about 50 percent during  the Third Plan (1975-79) compared -ith estimates made a year ago. Thus, they could reach an annual average of about US$41 million in 1975-79 as com- pared to US$15 -million in 1970-72. This level of investment appears justified by presently foreseen opportunities and the need to broaden the base of economic development. Local firancing is expected to remain limited. Assuming tight budgetary policies, coubined with a needed substantial increase in current expenditures in productive sectors, public savings could perhaps reach 10-15 percent of Central Government revenues or an annual average of US$12 million over th2 Third Plan period. However, public debt amortization will probably absorb about 50 percent of public savings. On that basis, public savings could not finance more than 13-15 percent of the public investment program. 16. On these assumptions, the implementation of the public investment program ir. the coming years would require a trebling of foreign aid capital inflows from an annual average of US$12 million in 1970-72 to US$33-35 mil- lion in the Third Plan period. This appears to be a feasible target with the European Community, several Arab countries, France, the People's Republic of China and the Bank Group expected to be the main donors. Mauritania should be able to continue to obtain the needed foreign aid on soft terms. The public debt serv'.e ratio is therefore projected to remain around 5 per- cent in coming years. PART II: BANK GROUP OPERATIONS IN MAURITANIA 17. The Bank Group has had 8 operations in Mauritania to date. Total lending amounts to US$107.3 million, including one Bank loan of US$66 millior, for the MIFERMA iron ore mining operation in 1960, six IDA credits, totalling US$21.3 million, and one IFC operation of US$20.0 million for the development of copper mining in 1968. Two credits were for projectr in the transport sector (US$6.7 million in FY 1964 for the road Nouakchott-Rosso and US$3.0 million in FY 1969 for a four-year road improvement and maintenance program), three in the rural sector (US$4.2 million for livestock development in FY 1972, US$2.5 million for a Drought Relief Fund Project in FY 1974 and US$1.1 million for an Irrigation Engineering Project in FY 1974), and one for education (US$3.8 million, also in FY 1974). Annex II contains a summary statement of Bank loans, IDA credits, and IFC investments as of September 30, 1974, and notes on the execution of on-going projects. 18. The Iron Ore Mining and the 1964 Road Construction projects have been fully disbursed. The First Road Maintenance Project (FY 1969) is pro- gressing satisfactorily. All equipment is in operation and the funds for training are almost entirely disbursed. With respect to the Livestock Devel- opment Project (FY 1972), the implementation of the vacciration and firebreak components, which was delayed by about one year following the recent drought, has now started and bids for the well component are being studied by the Government and the Association. Hovever project implementation is expected to remain slow, mostly as a result of Government staff constraints. This prob- lem is presently being discussed with the Government. The Drought Relief Fund  - 6 - Project, is progressing satisfactorily: bidding documents have been issued with IDA approval for the subprojects dealing with vegetable production and small irrigation schemes, wbile the feasibility study for the cattle produc- tion center is well underway. Effectiveness of the Education Project was delayed by the difficulty of finding a deputy-director for the project with the required qualifications. This problem has now been solved and effeclive- ness is expected in the very near future. The credit for the Irrigation Engi- neering Project, signed on June 12, 1974, is expected to become effective soon. 19. In line with the development strategy outlined in paragraph 9, the primary objectives of the Bank Group operations in Mauritania are-to help the Government ti) build a baae for economic development outside the mining sector, particularly by developing the potential of the rural sector and decreasing its vulnerability to drought; and (ii) increase the country's absorptive capacity, one of the major constraints to Mauritania's develop- ment, by developing its education/training system and making it more relevant to the country's needs. These objectives will be pursued while continuing to support, first, the development of mining activities which are essential to strengthen the fiscal and balance of payments positions of the country and, second, the development of transport infrastructure which is a prerequisite to promoting agricultural development in remo~ie rural areas. Due to the extreme poverty of the country, its very difficult climate, large distances, an insufficient transport network, and a lack of trained personnel at all levels, project preparation and implementation particularly in the rural sector has proved much more time cons!ning than anticipated. However, the efforts made by the Bank Group are startLing to bear fruit, as indicated by the fact that it has been posslble to present two projects to the Board in FY 74 (besides the Drought Relief Project) and that we hope to present two projects to the Board in FY 1975, the present Third Highway Project and the Nouadhibou Port Extension Project. The latter will substantially increase the participation of Mauritania in the exploitation of its fish resezves. 20. During 1970-72, the Bank Group accounted for about 18 percent of MIauritania's external capital assistance. This proportion is expected to reach 20 percent by 1980. As of December 1973, the Dank Group held 22 percent of Mauritania's external public debt (disbursed) of US$45 million. This propor- tion is expected to remain at about that level during the rest of the 1970s. The Bank Group iccounted for about 3 percent of total debt service payments in 1973. This ratio is expected to increase slowly in the coming years, to reach about 10 percent by the mid-eighties. PART III: THE TRANSPORT SECTOR The Transport System 21. Transport facilities in Mauritania are limited. External trans- port needs are met almost entirely by a port at Nouadhibou; a 350 m wharf at Nouakchott; airports in each of these two cities; and a ferry service at Rosso on the Senegal River which gives access to the Senegalese transport  system. The Nouadhibou port has specialized facilities for bulk handling of iron ore and a general cargo and fishing port. The Association has appraised and plans to negotiate shortly a project for the extension of the latter. The wharf at Nouakchott handled about 153,000 tons of cargo in 1973, working at about two-thirds of its capacity. It is expected to reach its full capa- city in the late seventies. 22. Intetnal transport needs are met by about 7,000 km of roads (of which only 500 km are paved and another 1,050 km are all-weather laterite roads), and a 740 km railway owmned by MIFERA (a private iron ore mining com- pany) for the shipment of ore from tle deposit fields in Zouerate to the port of Nouadhibou. The road system comprises three main axes: a north-south axis stretching 1,850 km from Rosso on the Senegal River to Atar and the Algerian border in the north, an east-west axis from Rosso to Nema, and a central axis linking Boghe (on the Senegal River), Aleg and Tidjikja. Except for the first axis, and some sections of the second, the roads have no definite alignments. Sandstorms in the north and floods during the wet season in the south make it necessary for the vehicles to drive cross-country. River transport was once significant but has now dwiodled to a few small itinerant craft. The possi- bility of reviving this mode of transport is presently being studied by the Organization for the Development of the Senegal River. Finally, internal air transport has been essential in helping to alleviate the effects of the recent drought but proved too costly to attract significant and continuous demand so far. It may be hovever the only feasible solution for certain long d:Lstance transport and should be given continuous attention when inter modal alterna- tives are considered. 23. Therefore, rransport to all but a few places in Mauritania is arduous and costly. For example, the official freight rate from Nouakchott to Nema, a nine-day journey over 1,400 km, is about US$O.1 per ton-km. This is explained by the nain difficulties which beset the transport sector: large distances, sparsity of population, difficult weather conditions, and insuffi- ciency of the facilities and maintenance organization. The Truckers' Associa- tion is responsible for organizing and regulating road transport except foi tre setting of maxini transport prices for each route, which is determined by the Government. However, the Trucker's Association suffers from ineffi- cient management and lack of technical and administrative expertise to perform its functions well. Therefore the proposed project will include the provision of a transport expert to assist the Goverrnent in the training of truckers in management and accounting techniques. 24. A first step in improving highway maintenance operations has been achieved by the substantial increases in the budget allocations of the Infrastructure Department, which accompanied the implementation of the IDA- financed Highway Mamntenance Project (FY 1969). This project included the purchase of highway maintenance equipment, the provision of technical assist- ance to execute a four-year highway maintenance and betterment program, and the training of mechanics and operators. This project contributed substan- tially to setting up an effective highway maintenance organizatior. now com- posed of the following:  - two central divisions (Equipment, and Road and Airport Divisions) in t.e Ministry of Equipment (ME); - nine field subdivisions, in the nine administrative regions, to carry out routine maintenance; and - four highway bases located respectively in the capital, and in the northern, central and southern ragions. The bases are mainly engaged in bettermL works, a prere- quisite to normal maintenance operatio.s. The major difficulty encountered by this project was the inability of the Government to assign a sufficient number of counterpart personnel to the team of consultants as a result of a general shortage of middle and upper level personnel. Long-Term Prospects 25. The aim of the Government in the transport field is, first, to continue reducing the dependence of Mauritania on Senegal for its imports; second, to link the east and the west of the country as part of a strategy to achieve national umity and reduce the wide discrepancies in living otand- ards between different areas; and third, to establish a reliable transport system necessary to develop the more populated southeastern regions. 26. These objectives are sound, although the scope and the timing of some of the investments presently being considered by the Go-vernment to implement these policies axe questionable from an economic point of view. At present, priority is given to the construction of a two-lane paved high- way from Nouakchott to Nema (1,0O0 kr), via Boutilimit and Aleg; the construc- tion of an international airport and a deep-water port in Nouakchott; and the construction of the RoEso-Boghe-Kaedi road along the Senegal River. From an economic point of view, the latter only can be justified at this time, and constitutes an important part of the project. It appears that A.-ab funds will be forthcoming for the financing of the other projects mentionrd above. The Government has agreed to an annual review with the Associatior, of its road maintenance program and budget for fiscal years 1976 through 1979 (see Section 4.03 c of the draft Credit Agreement). Also, in order to e-sure that the realization of important road projects does not affect the allocation of adequate resources to the maintenance of the ongoing projects, the Government has agreed to discuss vith the Association the budgetary implications uf the construction and maintenance of such projects (see Section 4.03 d of the draft Credit Agreement). PART IV: THE PROJECT 27. The project constitutes a continuation of the ongoiag maintenance project described in para. 24. Appraisal of the proje-t took place in September and December 1973. Negotiations were held from September 3 to 10, 1974. The  HSauritanian deleg.-.on was led by Mr. I. Ba, Director of Planning. A credit and project summary is attached as Annex III. The project's appraisal report (No. 493-MAU) is being circulated separately to the Executive Directors. Objective and Description of the Project 28. The principal aim of the project is to consolidate and expand the maintenance and betterment efforts, started under the ongoing maintenance project. The project would consist of the 'oll - (a) technical assistance tc tb Ministries of Equipment, Trade and Transportation .- Planning; (b) purchase of highway equipment for maintenance and betterment works; (c) a betterment program on about 365 kn of roaus; and (d) feasibility study and detailed engineering for the construction of the Rosso-Boghe road (900 kr,). Technical Assistance 29. This component includes the provision of 350 man-months of tech- nical assistance which Is mainly an extension of that provided under the ongoing Road Maintenance Project. The extension is required to relieve the shortage of qualified highway personnel. and to allow continuation of the ongoing training program. The technical assistance team would include: - five mechanical experts who would be assigned to the Equipment Divisica fo- a period varying between two and three years to asiist in the management of operations and to train operators and mechani(s - three highway experts who would be assigned !o the Road and Airport Division for a period varying betwee- zwo and three years to help reorganize the field subdivisiuns train their personnel and program their activities; make the required investigations to revise the highway recurrent budget; prepare the necessary engineering for the betterment program; and implemert adequate accounting procedures; - a senior expert specialized in training on a short-term assignment of about 3-4 months; - a transport planner/eccnomist for a two-year period to assist the Government in the analysis of transport investments and transport organization problems; and  - ?0 - a transport expert with good experience in the tru( _ing industry,,for a two-year pertod, to help the Govetm.'snt train truckers in managtner.c aud accounting techniques. Purchase of Highway Equipment 30. The project would provide the equipment required to continue building up the maintenance capacity i7 seven of the nine field subdivisions to an adequate level, the remaining two being already sufficiently equipped, and the necessary items to complete the existing equipment fleet of the high- way betterment bases. Betterment Program 31. The road sections selected for betterment total about 365 km, of which 165 km are in the north and 200 km in the souti.east. These sections are now mere earth tracks without definite alignments; traffic on them is often interrupted. The works proposed include earthworks on new aliroenets to avoid sandy or periodically flooded areas, and construction of surface courses and of drainage and light river-crossing structures. Feasibility Study and Detailed Engineering of the Rosso-Boghe Road (200 km) 32. This is the most heavily trafficked of the unpaved roads. It crosses the flood area along the Senegal River, and is closed to traffic for almost six months of the year. Economic and engineering investigations6 are required to determine the appropriate construction standards, rnd to select definite alignments, the types of river-crossing structures, and the road materials to be adopted. Cost Estimates and Financing 33. The total capital cost of the project net of taxes is estimated at US$11.3 million equivalent, of which US$9.5 million are foreign costs and US$1.8 million local costs. Details of projr:ct costs are summarized below. Project Costs and Financing (US$ '000) Costs Financing (net of taxes) Local Fore_>n Total Taxes Total IDA Canada KF Govt. Net of Gross Taxes Technical Assistance 360 1,670 2,030 - 2,030 890 - 1,140 - Preinvestment Studies 140 570 710 - 710 320 - 390 - Betterment Program 840 1,650 2,490 1,650 4,140 1,100 - 1,390 1,650 Eyjipment Procurement - 3,495 3,495 - 3,495 - 3,495 - - Contingencies 460 2,115 2L575 720 3,295 690 1,005 880 720 Total 1,800 9,500 11_,3002 370 13,6.70 3,000 4,500 3800 2 ,370  - 11 - 34. The total rost _f the project net of taxes would be financed by the Association (27%), the Kuwait Fund for Arab Economic Development (KF) (33;%) and Canada through the Canadian International Development Agency (CIDA) (40%) under separate agreements with the Government. The financing plan foresees that: (a) IDA and KF will jointly finance the total costs of technical assistance, preinvestment study and the better- ment program (net of taxes); (b) Canada will finance 100% of foreign costs of equipment procurement and related services; and Execution 35. The Ministry of Equipment will be responsible for implementing teic part of the project concerning highways while the 'linistries of Trade and Transportation and Planning will he responsible for technical assistance to thieir respective ministries. In order to ensure that the interdependent aspects of the projects are adequately taken into account by the co-financers, an understanding has been reached ar.ong the co-financers to compare the pro- gress nmade in the implementation if each part of the project, to discuss possible re-visions of the imp7ementation sc'-.dule with the Government if necessary, and to coordinate project supervision. Finally, an agreement has been reached with the Government that the Association will have access to all data necessary to follow overall project implementation. Procurement and Disbursement 36. Consultants for technical azsistance and for the feasibility and detailed engineering studies would be selected on terims and conditions accept- able to the Association. For the equipment purchase component of tY- roject, which would be financed by Canada, procurement procedures would folloa CIDA's regulations. With respect to the betterment program financed Jointly bv the Association and KF, all road works would be carried out by force accoun. River crossing structures and drainage works would be executed by contract following international competitive bidding in accordance with Bank Group guidelines. Domestic contractors would be granted a mar_in of preference of 7-1/2 percent. Contracts estimated to cost less than USS100,000 equivalent, up to an aggregate not exceeding US$500,000 equivalent, would be awarded on the basis of competitive bidding advertised locally and in accordance with local procedures, -which are satisfactory to the Bank. The project would be implemented over a period of four years. 37. The credit would be disbursed against 44 percent of the total costs (net of taxes) of technical assistance, preinvestment study, and the betterment program, with the balance being financed by the Kuwait Fund. An agreement was reached with the Kuwait Fund according to which disbursement applications would be sent to both the KF and the Associatior. If either the KF or the Association considered not approving an application, they would consult each other as soon as possible as to the appropriate course of action.  - 12 - Benefits 38. Benefits from the project will accrue almost entirely to the tradi- tional sector of the economy. The economic return of the maintenance program is estimated at 36 percent over the six-year expected life of the capital investment. Road betterment works under the project are expected to extend the seasonal use of some of the most important unpaved roads in the country, to reduce transport coscs on these roads throughout the year, and to ensure greater transport reliability during the wet season. The betterment project is expected to yield an economic return of 35 percent for the Boghe-Kaedi-Kiffa section and 16 percent for the Akjoujt-Atar-Choum s-:ction. Finally, the Rosso- Boghe road, for which a feasibility study and detailed engineering, if feasible, would be undertaken, is an important connection between Nouakchott and the center of ongoing and planned agricultural and livesteck developments. Con- struction of the road, together with1 the betterment works proposed on the Boghe-Kaedi-Kiffa road, l-ill considerably improve access to the eastern region. PART V: LEGAL INSTRUNENTS AND AUTHORITY 39. The draft Development Credit Agreement between the Islamic Republic of Maurita.ia and the Association, the Recommendation of the Committee provided for in Arricle V, Section 1 (d) of the Articles of Agreement of the Association, and t0- text of a draft resolution approving the proposed credit are being distribated to the Executive Directors separately. 40. In addition to the feature referred to in para. 26, the following features are of particular interest: (a) The following events of suspetision and default have been added: (i) a suspension of the right of the Government to make withdrawals under the Canadian agreements or the KF loan agreenent, and the Government shall have failed to de=onstrate that alternative funds are avail-7ale to it for the Project (Section 5.01 (a) and Section 5.02 (a) of the draft Credit Agreement); and sii) a default by the Government under _ne Canadian loan agreerent or the KF loan agreement (Section 5.01 (b) and Section 5.02 (b) of the draft Credit Agreement). (b) Additional conUitions of effectiveness include: (i) the signing of the contract for technical assistance between the Government and the consultants (Section 6.01 (a) of the draft Credit Agreement); and  - 13 - (ii) the signing and effectiveness of the Canadian agreenients and the KF loan agreement, and the fulfillment of the conditions precedent to initial disbursements, if any, under such agreements, save for the effectiveness of the Credit Agreement (Section 6.01 (b) of the draft Credit Agreement). 41. I an satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI: RECOMP{NDATION 42. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments Washington, D.C. October 29, 1974  Sv t~~~~~~^ ~<Qs> !: ::: , v . ,-j t prcv.- ovt' R: .:r: ,, F2>S*,9, z3-0 >-i, o;,I 4 tJ W < s _ a . i W-| - r ts ;' 5 SD