Tanzania - Highway Maintenance Project

CIRCULATtNG COPY TO BE RETURNED TO REPORTS DESR DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-.1 463-rTA REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A HIGHWAY MAINTENANCE PROJECT July 23, 1974 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 It may not be published, quoted or cited without Bank Group authorization.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 completeness of the report. I  CURRUCY EIUIVALWNTS USED IN THIS REPORT Tanzania Shs - U5$ O.J. US$ 1.00 - Tuh 7.1J TANZANIA FISCAL YEAR July 18t - June 30th  REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A HIGHWAY MAINTENANCE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the United Republic of Tanzania for the equivalent cf US$10.2 million on standard IDA terms to help finance a Highway Main- tenance Project. PART I - THE ECONOMY General 2. The last full Economic Report on Tanzania (AE-26) was distributed to the Executive Directors on May 22 and June 22, 1972. This was followed by an Economic Updating Report (30-TA) which was distributed on December 11, 1972 and which was especially prepared for the East African Consultative Group Meeting on Tanzania of January 1973. An agri- culture rural development sector mission visited Tanzania during September/ October 1973; its report is expected to be issued by September. A mission to study the industrial and mining sectors is scheduled to visit Tanzania in August 1974. 3. Tanzania celebrated its first decade of independence in December 1971. In the past 11 years gross national product increased in real terms by some 65 percent to the present level of about $1.5 billion. During the same period, life expectancy at birth increased from 35 to 41 years, infant mortality declined from 250 to 160 per thousand live births, maternal mortality declined from 4.7 to 2.7 per thousand deliveries, and the primary school enrollment rate increased from about 28 to 37 percent of the relevant age group. While this sample of economic and social indicators shows that significant progress has been made,oit also gives some idea of the magnitude and difficulty of the development task facing the country. For example, while GNP grew at 4.7 percent per annum in real terms during these years, these gains were to a large extent offset by the growth of population, with the result that per capita income increased at only 2.2 percent per annum. Tanzania is one of the 25 least developed countries. 4. Tanzania has a one-party system which is embodied in the consti- tution. The party, the Tanganyika Africa National Union (TANU), is a well organized mass party and is actively engaged at the grass roots in the promotion of popular involvement in the national development effort,  - 2 - and within the party democratic principles are being strictly adhered to. In economic policy making, the long-term objective of social equality prevails over economic interests of minority groups; some progress towards reducing inequality of income distribution within the category of employed workers has been made, but large gaps continue to exist between urban and rural standards of living. Economic Performance and Resource Mobilization 5. Tanzania's economic performance in recent years has been charac- terized by high marginal savings, relatively low returns on investment, and rapid institutional change. The growth of production, however, has been modest in most sectors, especially in agriculture. The combination of moderate production growth rates and a very ambitious investment program has led to severe pressure on resources. This pressure has been partly alleviated by steadily increasing external capital inflows and, until recently, by an improvement in the country's terms of trade. Although favorable world market prices for several of Tanzania's prin- cipal exports and the growing contribution for local project costs by foreign donors, had helped to build up external reserves equivalent to about three months' imports at the beginning of 1974, the recent rise in oil prices has drastically changed the situation. It is estimated that the foreign exchange cost of the oil price increase is in the region of $58 million per year. This compares with a net resource transfer from the World Bank Group of about $15 million per annum and a total net resource transfer of around $90 million per annum. The scope for cutting back on domestic oil consumption without reducing production is very limited. The combined effect of the oil price rise, the expected large food import requirements for the current year (partially due to the drought in the north of the country) and other relative price changes is expected to cause a significant drop in reserves during 1974. 6. It seems likely that special capital assistance will be required to prevent an acute foreign exchange crisis in 1975. At the invitation of the Government, a Bank mission has recently participated in a Presi- dential task force which assessed the effects of the oil crisis on Tanzania's balance of payments and which recommended an action program including a shift in investment priorities to more directly productive projects in agriculture and industry. Several bilateral donors, including Sweden, Canada, the Federal Republic of Germany and Yugoslavia, have already responded by increasing their aid commitments to Tanzania, but this may not be enough to meet the expected crisis during the next few years. So far, Tanzania has not drawn on any of the IMF credit facilities, but this may soon become necessary. On June 27, 1974 the Government approached the Bank Group for a program loan to assist in the financing of a program of structural economic adjustments forming part of the Govern- ment's medium and longer term response to the oil crisis and several other significant recent relative price shifts. We are presently considering this application; an appraisal mission is due to leave shortly.  - 3 - 7. Until the recent completion of the Tanzanian portion of thte Tan-7am Railway financed by the People's Republic of China, the country had been for a number of years Tanzania's principal source of foreign aid disburse- ments. A new $75 million bilateral aid agreement with China for the development of a Tanzanian iron and steel industry was signed earlier this year but it is likely to take some years before this major new commitment will begin to be disbursed as the iron and steel project is understood to be still in an early stage of preparation. Meanwhile, Sweden has become Tanzania's principal source of aid disbursements. After a pause of several years, the United Kingdom has recently resumed capital aid to Tanzania with an initial grant and a credit (together about $24 million) for rural development. In terms of outstanding commitments, the Bank Group is Tanzania's largest creditor followed by Sweden, Norway, Canada, Denmark, the Netherlands and the Federal Republic of Germany. Including a notional one-third share of the debt of the East African Community Corporation, the IBRD is presently holding l1 percent of Tanzania's outstanding external debt and IDA 16 percent; the IBRD share is expected to rise to about 20 percent in the next five years, and the IDA share to remain about the same. The share of debt service payments to the Bank is at present about 10 percent of total debt service payments; the corresponding share for IDA is about two percent. These two figures are projected to rise to about 20 percent and three percent, respectively, by 1980. Most capital aid to Tanzania is made available on very favorable terms, and a declining share of the total is tied to procurement in the donor country. Supplier's credits have been kept to the minimum. In addition to seeking as favorable a blend as possible and the minimum of tying, the Government has attempted to secure donors' agreement to simplifying the procedures associated with the use of committed aid. For example, Swedish assistance is now given within the terms of a frame agreement which allows the Government to set its own priorities in the use of SIDA funds and allows considerable flexibility in the switching of such finance between the various projects and program. The overall debt service ratio has declined in recent years owing to buoyant export earnings; it is currently about five or six percent and is not expected to rise significantly in the medium-term. In view oZ this low debt service ratio there is scope for a modest amount of lending to Tanzania on conventional terms, particularly if such lending is for export promoting or import substituting activities. 8. Tanzania's high rate of investment during the last five years has not been reflected in high growth in production -- at least not as yet -- partly because there was a heavy bias towards social and economic infrastruc- ture with long gestation periods. A substantial proportion of total invest- ment has been undertaken to provide a viable alternative outlet to the sea to neighboring landlocked Zambia after Sourthern Rhodesia'a Unilateral Declara- tion of Independence of 1965. Though basically designed to carry Zambian transit traffic, this railway will help to stimulate agricultural and industrial development in southern and western Tanzania. The budgetary position which has been adversely affected by sluggish economic growth in recent years coupled with high levels of development and recurrent expenditure, remains tight. In view of the already high marginal savings rate, the scope for  additional taxation is limited. Even with a decline in the rate of investment, in the face of escalating fuel prices Tanzania will still require a continued capital inflow in excess of the foreign exchange component of high priority projects if it is to achieve its development targets. Financing of some local expenditures will therefore be justified. 9. Financial discipline in the regions, Central Government Ministries, and many state corporations remains a problem, probably because scarce accounting and auditing skills are now even more thinly spread. There is a general serious shortage of many professional skills. The situation has been aggravated by the departure of many Asians and the Government's reluctance to recruit abroad. However, this reluctance is now diminishing as part of an effort to accelerate prolect preparation and implementation. 10. President Nyerere announced in October 1973 that following a review the Government had decided to move the capital of Tanzania from Dar es Salaam to Dodoma. By moving the capital city to the center of the country and so closer to the bulk of the rural population, it is expected that the Government will become more responsive to the needs of the rural sector. The Government presently plans to make the move over a ten-year period. No accurate estimates of the total costs involved are yet available, but in view of the scarcity of investment resources in Tanzania, it is likely that the transfer of the capital will take much longer than planned; in addition, the number of Government oifices moved may be fewer than presently envisaged. 11. The administrative structure and many of the functions of Government were decentralized to the regions in July 1972. This too was done to make the Government more responsive to the needs of rural development. It is still far too early to assess the success of the decentralization of Government in Tanzania. As expected, problems of coordination between the center and the regions have occurred, and the transfer of high-ranking officials from Dar es Salaam to the rural areas has had its inevitable, but one hopes only short-term, effect on the smooth functioning of Central Government. Some dislocation in project implementation has also been experienced. In some regions the new Government structure is already showing its potential to be more responsive and relevant to the needs of the rural sector. It has become apparent that the severe shortage of regional technical expertise will inhibit the ability of the new decentralized authorities to plan and execute rural projects; progress in regional development will, therefore, inevitably be patchy, reflecting the local availability of the required expertise. PART II - BANK GROUP OPERATIONS IN TANZANIA 12. Tanzania joined the Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1963, 16 credits and four Bank loans amounting to 8206.6 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of nine loans, totaling $229.8 million which have been extended for the development of common services operated regionally by Tanzania, Kenya and Uganda through their association in the East African Community. The only IFC investments in Tanzania  - 5 - to date, totaling $4.4 million, were made in the Kilombero SugaLr Company in 1960 and 1964. In 1969, IFC and other investors so?.d their interest in the Company to the Government. Annex II contains3 summary statements of Bank loans and IDA credits in Tanzania and the East African Community Organizations as of June 30, 1974 and notes on the execution of ongoing projects. 13. Our lending program, reflecting the emphasis the Tanzanian Govern- ment attaches to agricultural development, has increasingly focused on directly productive activities in the rural sector. Up to the end of FY72, 10 out of 14 loans and credits had been made for infrastructure. All but one of the loans to the East African Community Organizations, of which Tanzania is a beneficiary and co-guarantor, had been extended for improvements in transportation and communications. However, the approval by the Executive Directors of the Flue-Cured Tobacco Project (Credit No. 217-TA) in October 1970 opened a new phase in our lending for such directly productive activities. The Smallholder Tea Development Project (Credit No. 287-TA) was approved in March 1972. A Second Livestock Project (Credit No. 382-TA) was approved in April 1973. The Geita Cotton Project (Credit No. 454-TA) approved in January 1974 and the Cashew Nut Project (Credit No. 1014-TA) approved in May 1974 constitute the beginning of a major effort to expand cotton production and cashew nut processing. The proposed Kigoma Rural Development Project is ready for consideration and a proposed Sugar Development Project will be submitted to the Executive Directors shortly. Preparation of a proposed dairy project, a second rural development project and a forestry project are under way. 14. This will be the fourth highway project financed by the Bank Group in Tanzania. The first project was financed by an IDA credit in 1964 (Credit No. 48-TA) supplemented by another IDA credit in 1968 (Credit No. 115-TA) and consisted of the construction of six road sections totalling 860 km and detailed engineering of 230 km of the Tan-Zam highway and 335 km of secondary roads in the cotton growing district of Geita. This project was satisfactorily completed in 1970. The second highway project financed by an IDA credit and a Bank loan in 1969 (Credit No. 142-TA and Loan No. 586-TA) consisted of the reconstruction of 510 km section of the Tan-Zam highway and was satisfactorily completed in 1972. The third highway project financed by an IDA credit (Credit No. 265-TA) made in 1971 consists of the improvement of an existing gravel road between Mtwara and Masasi (200 km) in southern Tanzania and the betterment of 475 km of agricultural feeder roads. Progress on this project has been slow; however, equipment for the betterment has now arrived and a contract awarded for the improvement works. The project is about two years behind schedule and substantial cost overruns are expected for which the Government is seeking bilateral assistance.  - 6 - 15. Tanzania is developing an institutional structure, stressing greater regionalization and development of ujamaa villages, designed to promote and respond to development initiatives. These institutions are still in their formative stages, and related organization and staffing difficulties have sometimes resulted in the project delays referred to in Annex II. Tanzania's education and training programs are expected to solve the manpower problem in the longer run, but meanwhile there will continue to be a need for tech- nical assistance in planning and implementation if the difficulties in exe- cuting projects are to be overcome. The Government lhas taken steps to speed up recruitment of needed expatriate technical expertise and instituted a high level monthly review for all externally aided projects. As a result of these efforts, it is expected that project implementation should now improve. 16. Our Regional Mission in East Africa was involved in the preparation of six projects in the agricultural sector. Our capacity to provide such as- sistance has proved to be particularly valuable in a country where project preparation capacity is, and for some time will be, limited. We are also exploring with the Government how assistance of this kind can be strength- ened and best fitted to Tanzania. Through participation in their projects we have supported Tanzania's new development institutions at an early stage. Our supervision of the projects has resulted in bringing to light, earlier than might have happened otherwise, that some of these institutions are facing significant difficulty in executing the projects they have under- taken. Because of our involvement, we have been able to help the Govern- ment in its consideration of how to overcome this problem whose solution is fundamental to rapid development. 17. The credit for the Tanzania Investment Bank (Credit No. 460-TA) approved in February 1974 and the National Sites and Services Project approved in July 1974 were the Bank Group's first lending in the indus- trial and urban sectors of Tanzania. The other project outside the agriculture sector was the Kidatu Supplementary loan approved in June 1974 to complete the Kidatu Hydroelectric Project (Loan No. 715-TA). A proposed project for textile development is presently under preparation. 18. Although no projects are planned in the near future for the Common Services Organization of the East African Community, the Bank, through its supervision of ongoing operations, is continually reviewing possible further assistance to the Community Corporations for the further develop- ment of common services. Recently, however, three of the Cormmunity Corporations have been delinquent in making debt service payments to the Bank. The East African Harbours Corporation (EAHC) has not met payments amounting to $459,215 due on June 15 under Loan No. 638 EA, the East African Posts and Telecommunications Corporation (EAPTC) payments amounting to $371,250 due on June 15 -under Loan No. 675 EA and $260,130 due on July 15 under Loan 914 EA, the East African Railways Corporation (EARC) payment amounting to $1,037,059 due on July 15 under Loan No. 110 EA.  7- he Railways have for some time now been faci-ng fin&acial and c'eratiora problems which include an inadequate tariff structure, inefficient use of rolling stcck and differeiaces between the Partner States on liow the railways should be managed. In the case of EAPTC and EAHC, the recent delinquency is primarily due to problems between the Partner States which had prevented the two Corporations from transferring surplus funds earned in one country to the corporate headquarters located in another country. Except for this difficulty, both Corporations are financially scund and do not lack the domestic resources to meet their debt serrece obligations to the Bank. I9. The Bank has Pressed all three Corporations and the Partner States for payment of their obligations. The Partner States are very much alive to these problems and the Finance Ministers of the three Partner States met on July 19, 1974 to discuss these matters. The Bank has been infonmed by the Minister of Finance of Kenya that decisions were taken to allow inmediate payment of debt service dues under Loans 638 BPA, 675 EA and 914 EA, as well as to provide funds to meet the cash requirements of the Railways including its debt service payments. In addition, a high level meeting to be attended by the Minister of Finance and Conmmunication of the Partner States and the Comrmunity anct by senior representatives oI the Bank will be held in Nairobi on July 29, 197T. At this meeting, it is proposed to discuss the long term problems of the Railways and the other Community Corporations and to agree on measures to resolve them. PART III - THE TRANSPORT SECTOR General 3ackground 20. The transport system of Tanzania comprises about 3,400 hO n of roacds, about 3,500 km of railways, three ocean ports, coastal and lake shipping, 21 airports and a 900 km pipeline which is used exclusively for conveying oil to Zambia. Development of the sector has been dicoated by: b the need to serve scattered areas ot productive activity and population, to facilitate the movement of Tanzanian exports and imports to and from the ports and to provide access to the sea for neighboring landlocked countries. Because of the priority need to develop long-distance transport, emphasis was initially on the railways and only in recent years has attention been given to developing a reliable road network. 21. Two separate rail systems ser-ve the country: the E-ast African Railways, operated by the ES:st African Railways Corporation (EAnC), a Common Service Organization under the East African Community, and the Tan-Zam Rdilway, administered by the Tanzania-Zambia Railway Authority (TAZARA) and jointly owned by those two countries. The East African Railways serve the northern half of the country and connect the ports OI Dar es Salaam, Tanga and the Kenyan port of Mombasa with western Tanzania. This forms the backbone of the transport system and carries the bulk of heavy long-distance traffic. With assistance from the Bank, substantial investments have been made in recent years in noderrnizing  - 8 - and expanding the East African Railways to serve growing traffic volumes. Railway transport is now undergoing a further major extension through the construction, with finance from the People's Republic ot China, of the Tan-Zam Railway. Though basically designed to carry Zambian transit traffic, this Railway will, together with the Tan-Zam Highway, help to stimulate agricultural and industrial development in southern and western Tanzania. The Railway has recently been opened to limited traffic as far as the Zambian border and is expected to be completed to Lusaka by 1975. Under Bank loans (638 EA and 865 EA) Dar es Salaam port, among other works, is being expanded to serve the additional traffic expected to be generated by the new railway when it becomes fully opera- tional. Transport Policy and Coordination 22. wiith transport policy directed almost exclusively toward the requirements of external trade, emphasis was, for many years, on railway development, and roads were seen primarily as feeders to the rail system and to the ports. While the movement of export-import traffic remains important, transport policy recently began giving emphasis to regional development, both by upgrading and extending the main road network and by building new feeder roads. In the past, competition among modes has been limited to a few routes but the potential for competition is increasing, and planning investments in transport now requires complex analyses of the trade-offs between competing modes. The Government recognizes this need and is giving increasing attention to the development of its transport planning capacity. The Planning Unit of the Ministry of Communications and Works (Comworks), established in 1970, has primary responsibility for transport planning. Due to its limited staffing, the Unit has tended to provide ad hoc support rather than systematic sectoral planning, but the Government intends to strengthen the Unit's capacity to enable it to provide sectoral economiic analysis and to coordinate transport planning more fully with the needs oI other sectors. 23. In Tanzania the question of encouraging the private road transport industry has been approached cautiously by the Government which believes it may conflict with its policy of socialism and state control of important services. The National Road Haulage Company (NRHC), a subsidiary of the National Transport Company established in 1969, has been created to provide long-distance freight haulage within the country. NRHC s long-term objectives are to take over the main responsibility for long-distance road transport, while regional and inter-regional transport cooperatives will be allowed to operate the shorter hauls. Licenses are issued freely to private carriers hauling their own goods, but licenses to carriers offering for-hire transport are restricted, with the NRHC and tram port cooperatives given first priority. Also, as of March 197h, the haulage rates have been restructured. These measures are proving a disincentive to independent truckers, and a serious shortage  of trucking capacity, particularly for short hauls, has developed. The Government has approached the Association to finance experts to review the functioning of its road transport industry in vi9w of the seriousness of the problems being encountered in the industry and the repercussions being felt in other sectors of the economy. Accordingly, the credit includes $43,700 for financing a Road Transport Industry study and the Government has agreed that upon receipt of the experts' report, it will discuss the recommendations with the Association with a view to determining what action is necessary (Section 4.02(a)(i) of the Development Credit Agreement). Highways 2h. In the highway system only about 2,600 km (eight percent) are paved and the remainder consists of low-standard gravel or earth roads. Over the past decade some 2,000 km of primary roads have been rebuilt largely with Bank Group assistance. In recent years emphasis has also been given to the development and maintenance oi feeder roads and since 1970, the Ministry of Communications and Works (Comworks) has taken over responsibility for some 17,000 km of rural roads from the District Councils which were unable to maintain them properly. This increased workload and the subsequent departure of a number of expatriate staff has strained Comworks' capacity considerably, and a substantial backlog of maintenance work has developed. In 1971 the Government commissioned a firm or consultants, with financing provided by the United States Agency for International Development (USAID), to undertake a highway maintenance and organization study. The Government considered the program recommended by the consultants for rehabilitating the entire highway network (33,400 km) over a five-year period at a total cost of US$140 million equivalent to be too ambitious, but using the consultants' recommendations as a base, designed a program for rehabilitating and maintaining the country's primary roads at an estimated total cost of some US$50 million. Subsequently, the Government and the Association agreed that the program should be carried out in two stages, both because of the limited staff resources available and so that the second stage could profit from the experience which would be gained in determining the proper balance of equipment, labor and other needs. The proposed project includes the first stage of the longer term program. PART IV - THE PROJECT General 25. An appraisal report entitled "Tanzania - Highway Maintenance Project" is being circulated separately. A credit and project surmmary is provided as Annex III to this report.  - 103 - 26. A mission from the Projects Department of the Eastern Africa Region appraised the project in the field in December 1973. Negotiations for the proposed credit were held in Washington, D.C. in June 1974. The Tanzanian delegation was led by Mr. J. Sepeka, Principal Secretary, Ministry of Communications and Tbrks. Project Description 27. The project comprises the first stage of the Govermment's program to improve the maintenance of primary roads throughout the country and will provide for assistance in strengthening conworks' organization and road maintenance for the two areas with the most urgent needs of the four into which the country has been divided. The two areas (Areas I and IV as shown on map) cover 10 regions out of the 20 into which the country is divided and include about 3,300 kma of primary roads. A second stage extending to the rest of the country will follow when staff have been trained under the first stage and lessons have been learned of the best ways to maintain roads in Tanzania. However, the bene'its during this first stage will have an impact on the re- mainder of the country's road network in that road maintenance personnel from all over the country will profit from the training program. 28. The proposed project will be executed over a four-year period (1975-78) and includes the following: (a) the maintenance and, where necessary, rehabilitation of about 3,300 km of primary roads; (b) the construction and improvement of road maintenance camps, workshops and offices; (c) the purchase of road maintenance and workshop equipment, vehicles, spare parts, tools, and materials; (d) the training of main- tenance personnel; and (e) technical assistance to Comworks. The project also includes a review of the road transport industry in Tanzania. 29. Over the project period, routine and periodic maintenance of the primary roads in the project area will be gradually improved to an adeouate level. About 1,700 kmn of the roads are paved and, while most are in satisfactcry condition, periodic maintenance has been neglected and some of the older roads require resealing. Deterioration of the gravel and earth roads (1,600 km) has been more pronouced; about 1,160 km need to be rehabilitated to provide a satisfactory level o. service. The work will be undertaken by 30 section crews for routine maintenance and six special crews for resealing and rehabilitation. The road crews in the project area will be supplied with new equipment financed under the project and Conrwork-s' existing equipment will be allocated for the maintenance of other roads in the country. The Government has also agreed to rehabilitate the existing salvageable equipment and use it to maintain non-project roads (Section L.02(c) of the Development Credit Agreement). 30. The Comworks' mechanical workshops are small, poorly constructed and equipped. Under the project it is proposed that the existing central workshop at Morogoro be renovated to provide major repairs for  - 11 - all equipment serving Area I and the Mbeya workshop be upgraded to provide similar services in Area IV. The project provides for the physical expansion and the provision of equipment and tools fkr these two workshops. A new regional workshop will be constructed at Dar es Salaam to serve Dar es Salaam and the coast regions. Other regional workshops in the project area will also be renovated and expanded to provide adequate facilities for the routine servicing of equipment. The project also provides for an initial stock of spare parts to keep the new maintenance and workshop equipment in working order and materials needed for road rehabilitation and resealing works, such as bitumen, explosives and steel. Administration 31. The Ministry of Communications and Works (Comworks) which has responsibility for the various aspects of highway administration will be the executing agency for the project. Within Comworks the Roads and Aerodromes Division (RAD) designs, constructs and maintains the road network. During the past few years a shortage of competent and experienced engineers has adversely affected Comworks' performance, especially in road maintenance and planning. The highway maintenance and organization study carried out by the consultants referred to earlier in paragraph 24 identified several deficiencies in the present organization, most importantly unclear lines of authority and over- lapping responsibilities. It recommended streamlining operations and strengthening the RAD, first by giving it primary responsibility for all aspects of highway administration including more direct control of field operations and equipment maintenance and, second, by augmenting its technical staff considerably. The Government has accepted many of the consultants' recommendations on staffing and technical operations which have been incorporated in the proposed project. Training and Technical Assistance 32. The Government is constructing a center at Morogoro for the training of road maintenance technical personnel. This center will be supported under the project by the provision of instructors and training aids. Six training experts including a training coordinator will be employed for a period of about three years to develop specific courses of instruction, prepare curricula and help Comworks' staff teach at the center. Employment of the experts will be coordinated with the equipment purchases so that training can begin prior to the arrival of the new equipment. The first group of students has already been selected and some existing equipment has been set aside for training purposes. In addition to the technical assistance for the Morogoro Training Center, the project will provide 15 experts to help alleviate the acute staffing shortage in Comworks. Six of the experts will assist at headquarters and advise staff in managerial positions on project implementation while the remaining nine will be involved in  - 12 - field activities such as supervision of road maintenance crews and management of workshops. The employment of these 21 experts is es- sential to the success of the maintenance program and the Government has agreed on a timetable for the recruitment of these experts. The Government has also agreed to assign Tanzanian counterparts for some of the members of the technical assistance team so as to ensure that the gains made under the first stage of the maintenance program continue beyond the project period (Section 3.02 and 4.02(d) of the Development Credit Agreement). Project Costs 33. The total capital cost of the project is estimated at US$12.5 million with a foreign exchange component of US$10.2 millicn (82 percent). The proposed IDA credit of US$10.2 million will finance the total foreign exchange cost of the project. In addition to financing the remaining capital costs of the project, estimated to be about US$2 .3 million, the Government will finance all recurrent expenditures needed to carry out the maintenance program, expected to amount to US$7.6 million over the four-year project period. The breakdown of project cost is given in Annex III. Procurement and Disbursement 34. Equipment and materials will be procured on the basis of international competitive bidding in accordance with Bank/IDA guidelines through separate contracts for each type or group of similar types of equipment. The contracts will provide for delivery of 20 percent of the equipment in 1975/76, and 80 percent in 1976/77. The suppliers of equipment will be required to provide an adequate servicing organization in Tanzania and to maintain a reasonable inverttory of spare parts. Local manufacturers would be allowed a preferential margin of 15 percent or the existing rate of import duties, whichever is lower, over the c.i.f. price of competing imports. In order to avoid unnecessary delays, materials, miscellaneous items and equipment in the amount of less than $50,000 would be purchased in accordance with the Government's normal procurement procedure. Construction of workshops, offices and road camps estimated to cost about US$1.34 million are unlikely to attract international interest because of their scattered location and staggered implementation. They will be built by local contractors after competitive bidding, or if the Association should so agree, by force account (Section 3.03 of the Development Credit Agreement). A schedule of estimated disbursements is included in Annex III.  - 13 - Economic Evaluation 35. The objective of the proposed project is to ensure ti-at e-conomic growth is not hindered by deterioration of the road network. Proper maintenance oi' roads is essential in Tanzania where upgrading is often not justified because of low traffic levels and yet roads provide the only link for much of the widely scattered population. While the present project is directed specifically to primary roads rather than to improving access to rural areas, it will increasingly free existing resources for maintenance of the less trafficked secondary routes while also improving long-distance communications for small towns and laying the foundation for improved maintenance operations from which all roads in the country will benefit. In the analysis, only direct and quanti- fiable benefits have been considered; the initial rehabilitation works, where applicable, produce a reduction in vehicle operating costs which will remain at approximately the same level with subseqaent proper maintenance. Compared to the situation without the project, these savings will increase with time and, when applied to projected traffic volumes, provide the total benefits considered in the evaluation. Over its economic life, the project is sound, yielding an economic return of 22 percent. PART V - LEGAL INSTRU1ENTS AND AUTHORITY 36. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement, and the text of a resolution approving the proposed credit are being distributed to the Executive Directors separately. 37. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMkENDATION 38. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments Washington, D.C. July 23, 1974   Pap I of 3 ; ages aWS1BT DATA - TANZABIA POPULATION DBNSITT 945,C