Tunisia - Second Highway Project

E~ CuPrl CIRCULATRNG COPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT Not For Public Use Report No. P-1725-TUN REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A SECOND HIGHWAY PROJECT December 4, 1975 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 It may not be published, quoted or cited without Bank Group authorization.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.  Currency Unit Tunisian Dinar (D) The exchange rate of the Tunisian Dinar is floating. The rate used in the appraisal report, which approximates the current rate, is: US $ 1 = D 0.385 D 1 = $ 2.5974 D 1,000 = $ 2,597,40 D 1,000,000 = $ .2, 597,400 Fiscal year January 1 to December 31  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF TIIE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF TUNISIA FOR A SECOND HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed loan to the Republic of Tunisia for the equivalent of US$28 million to help fi- nance a second highway project. The loan would have a term of 24 years, in- cluding 4 years of grace, with interest at 8-1/2 percent per annum. PART I - TIE ECONOMY 2. A report entitled "The Economic Development of Tunisia - A Basic Report" was distributed to the Executive Directors in January 1975. An up- dating economic mission visited Tunisia in November, 1974; its report, "Memo- randum on the Economic position of Tunisia," was circulated on May 23, 1975. The main conclusions of the basic economic report and the updating mission are reflected below. Country data sheets are attached (Annex I). 3. Tunisia's development has been hampered by a scarcity of natural resources. Much of the country is arid or semi-arid, and agriculture is high- ly dependent on rainfall. Minerals are mostly of low quality and, apart from phosphates, limited in quantity. Relatively small quantities of petroleum were discovered in the mid-1960's, and have since become an increasingly valuable source of revenue and export earnings. Industrial development has been handicapped by the small size of the domestic market, as well as by a lack of skills and experience. Tourism has developed rapidly and workers' remittances have become a significant item in the balance of payments. Tunisia has enjoyed a large amount of external aid and used it to expand economic and social infrastructure, broaden the industrial base, make available a wide range of social and welfare services to a large part of the population, and increase the rate of growth. Per capita GNP increased by 4 percent annually from 1961 to 1974. Like most developing countries, however, Tunisia has not yet found adequate ways to cope with unemployment and poverty and to achieve a balanced distribution of consumption among income groups, between urban and rural areas, and among regions. 4. Government strategy in the 1960's relied heavily on central planning of investment and resource allocation, with the public sector playing a major role in production as well as providing infrastructure and services. Foreign exchange shortages and concern with inflation led to recourse to a pervasive system of price determination and controls. An unusually long series of poor crop years due to shortage of rainfall slowed down the growth of output. Many of the investments in public enterprises proved to be uneconomic and private initiative in most sectors except tourism and petroleum was limited.  -2 5. The Government's present development strategy was introduced after 1969. Its principal objectives are: (a) accelerating growth based on export- oriented industries by encouraging private initiative, reducing direct Govern- ment involvement in production and relaxing administrative regulations; (b) creating jobs, primarily in the expanding industrial sector, encouraging worker emigration, reducing population growth and improving education and training; and (c) maintaining internal and external financial stability. The 1973-76 Plan set a target rate of GDP growth of 7 percent, providing for a 5.4 percent growth rate in per capita private consumption. Investment was projected to increase by 80 percent above the level of the 1969-72 Plan. National savings were to finance three-quarters of investment. Exports of goods and services were projected to grow at 8.8 percent per year at constant prices and imports at 12.2 percent. The Plan foresaw an increase in net ex- ternal capital inflows of 55 percent over 1969-1972 average levels with ex- ternal capital providing 23.5 percent of total investment; debt service was to be held to below 20 percent of exports. The original Plan targets were conservative in terms of both growth and savings potential, and have been significantly affected by the impact of the changed petroleum and phosphate prices on the Tunisian economy (paras. 9 and 10). 6. The real growth of GDP has accelerated since 1970, reaching 9.4 per- cent per annum during 1971-1973 and 10.5 percent in 1974, compared with 4.6 per- cent during the previous decade. The acceleration can be attributed to for- tuitous factors such as good weather, leading to record cereal and olive crops, to important growth in tourism up to 1973, petroleum and phosphate revenues and workers' remittances, and to the general re-orientation of Government policy since 1970, which renewed self-confidence and initiative in the private sector. Expansion of manufacturing and phosphate production has been signifi- cant. By 1974, per capita GNP reached $420 at 1972 prices. The investment rate, which averaged 23 percent of GDP at current prices in the 1960's, declined to 21 percent in the early 1970's, but regained its previous level in 1974. However, the increase of investment in real terms is below Plan projections. National savings, on the other hand, rose sharply, from an average of 13.5 percent of GDP at current prices during the 1960's to 18 percent in 1973 and 21 percent in 1974. Consequently, the share of external borrowing in financing investment dropped from 44 percent in the 1960's to 17 percent in 1973 and 9 percent in 1974. 7. The balance of payments has improved steadily since 1967, with the current account deficit declining from an average of $115 million per year in 1961-1967 to $91 million in 1973 and $30 million in 1974. The effects of improved terms of trade on the 1974 balance of payments have been significant. Commodity export prices (mainly for petroleum, olive oil and phosphates) rose on average by 67 percent over 1973, but were accompanied by a rise in import prices of about 30 percent. In addition, receipts from services were affected by the slowdown in tourist activity and in the migration of workers to Europe. With estimated gross disbursements on external borrowing totalling $145 mil- lion (instead of $203 million as foreseen in the Plan), net reserves stood at $360 million at the end of 1974, equivalent to 4 months of imports.  - 3 - 3. Because of price controls and Government subsidization of basic consumer goods, and prudent fiscal and monetary policies, Tunisia has main- tained relative price stability. Domestic price increases averaged 4.2 per- cent between 1969 and 1973. In 1974 consumer prices increased by 4 percent only; however, the official GDP deflator rose by an estimated 12 percent and average investment costs increased by about 17 percent. 9. In 1974, Tunisia was on balance a beneficiary of the change in the world economic situation, but this favorable situation may change in later years. Petroleum and phosphate prices have increased about threefold since 1973; olive oil prices also increased substantially in 1973 and 1974. As a result, export earnings rose from $680 million in 1973 to $1,090 million in 1974. On the other hand, increases in import prices, combined with higher domestic demand, caused payments on imports to grow from $750 million in 1973 to $1,100 million in 1974. The gains from terms of trade changes registered by Tunisia in 1974 are expected to disappear by 1978-79. This reversal, which already became apparent in the first months of 1975, will be the result mainly of a stabilization or decrease in the prices of Tunisia's major exports, and further increases in the prices of imported industrial goods. At the same time, workers' remittances may continue to be restrained by slow economic growth in Western Europe. The level of net reserves is projected to represent about 4.5 months of imports in 1976 and subsequently to decrease to 4 months of imports by 1980. At that time, the balance of payments may re-emerge as a more serious constraint on Tunisia's development. 10. The recent temporary increase in foreign exchange reserves and Government savings, resulting from higher export prices and consequent in- creases in tax revenue, does not call for a substantial revision in develop- ment strategy. It suggests rather that Tunisia should step up its efforts to achieve the investment rate projected in the original Fourth Plan, and to realize higher growth rates and greater employment creation by better capacity utilization. Since workers' emigration to Europe is now limited, an effort to increase investment, particularly in labor-intensive industry and agriculture, should be made. With an adequate savings level, the Tunisian economy has the financial resources that should enable it to attain growth rates ranging from 7.5 to 9 percent per annum until 1980. In the longer term, higher rates of growth would require substantially higher external aid than in the past. The level of future growth would also depend on Tunisia continuing to stimulate private investment, to increase the international competitiveness of industry, and to improve public investments planning and implementation. 11. Tunisia has made impressive social gains. By 1974, primary school enrollment had reached 88 percent and secondary enrollment 19 percent of the relevant age-groups. Public health services have been greatly expanded with many provided free. A family planning program has been introduced. Total social expenditures increased by over 9 percent per annum; in 1974, they accounted for 11 percent of GDP and for 40 percent of total public expenditures. Nonetheless, major social issues remain. Further progress is needed in land reform and in creating employment. The unemployment rate was estimated at  - 4 - 18 percent in the non-agricultural sectors in 1972, and underemployment in the rural sector is high. There has been a growing concentration of productive activities in a few urban areas, especially Tunis. 12. So far as can be judged from available data, real incomes increased in all sectors during the 1960's, yet by a lhigher percentage in the modern sector than in the rural sector, due partly to the series of poor harvests. In rural areas substantial income disparities remain, in part as a result of the structure of land tenure. In the modern sector, especially in industry, increases in real income in the 1960's exceeded the rise in productivity; the income distribution trend has favored industrial workers. Thanks especial- ly to the income redistribution effects of free social services, the propor- tion of the total population living in poverty, as defined by the Tunisians (i.e. earning less than D 70 annually at 1970 prices), was substantially reduced during the decade. About 90 percent of this group continues to live in rural areas, but, since 1970, increased agricultural output, a recent rise in minimum agricultural wages, the inflow of workers' remittances from abroad and the stabilization of basic commodity prices through Government subsidies have improved the absolute, and possibly also the relative, posi- tion of the poorest groups. 13. Agriculture, the dominant sector in the economy, provides nearly half of total employment, 30 percent of merchandise exports and 19 percent of GDP (1972-74). Food processing industries account for another 4 percent of GDP and over a third of value added in manufacturing. Agricultural production rose substantially in recent years, largely as a result of favorable weather. The potential for further growth is clear. While large infrastructure in- vestments were made during the last decade, current policy emphasizes proj- ects that make a rapid and direct contribution to production and recognizes various constraints on agricultural development: absentee ownership, inse- curity of tenure, inadequate access to agricultural credit, inadequate exten- sion services, insufficient agricultural education, and underutilization of irrigation investments. Under the Fourth Plan, more than $140 million has been allocated to a rural development program to be executed by the provincial administrations. 14. During the 1960's, manufacturing production in Tunisia increased by 8 percent annually. There was a remarkable acceleration of growth in the early 1970's due in part to record years for the olive oil processing industry and to favorable developments in the textile and chemical industries. The early thrust of industrialization was supplied by large import substitution projects in the state sector. These suffered, however, from the limited domestic market and shortages of experienced staff and management. More emphasis has been put on export-oriented private industries since 1970. Under the Fourth Plan, private manufacturing investment, particularly in food pro- cessing, textiles, fertilizers and metals transformation, is expected to average D 25 million per year, compared with D 12 million in 1972, and to account for two-thirds of total investment in manufacturing; these targets are likely to be exceeded. Foreign and domestic private investment is now stimulated by a comprehensive incentive framework, and facilitated by the streamlined approval procedures of the investment promotion agency. Foreign  - 5 - investors are expected to contribute know-how and overseas marketing. Tunisia's preferential trade agreement with the EEC is currently being re- negotiated. Preinvestment work, and preparation of programs for re-equipment and modernization in priority subsectors have been started. Tunisia plans to develop petroleum and phosphate based industries, and possibilities in metal and light electrical manufacturing for export are being explored. The Government has recently established a special fund to encourage growth of small industries and industrial decentralization, and has started a program to establish industrial estates. 15. The development of tourism in Tunisia is relatively recent. Foreign- visitor arrivals in Tunisia reached a record level of 780,000 in 1972, with an annual rate of growth over the period 1961-1972 of 30 percent -- higher than that of any other Mediterranean country. Since 1970, earnings from tourism have been a major source of foreign exchange, having reached US$154 million in 1973. While 1973 saw a drop in the number of visitor nights, and 1974 registered another overall drop, increased activity since the last months of 1974 provides a basis for optimism in the medium-term. The decline in tourist inflow resulted from both external and domestic factors, the former being mainly the effect of the energy crisis on the European tourist flow and adverse currency movements, the latter inadequate development of infrastructure (par- ticularly recreational facilities), shortages of trained manpower and the inadequacy of services. The Government is endeavoring to alleviate their ef- fects through a variety of measures including revised investment incentives, increased efforts in marketing, and the preparation of codes to enforce quality standards and more stringent zoning laws. 16. Since the early 1960's Tunisia has received relatively large amounts of external capital. During 1965-1973, loan commitments from Governments and multilateral organizations averaged $100 million per annum, while disbursements were some $76 million per annum, or $20 and $15, respectively, per capita per annum. During this period, the major bilateral lenders, on a commitment basis, were the United States (22 percent of official loans), France (14 percent), and Germany (13 percent), with important contributions also from Canada, Italy, Kuwait and Sweden. Loans from the Bank Group constituted the main single source of total official lending, accounting for 25 percent of commitments during 1965-1973. There has been a steady shift from program to project lend- ing. Most aid has been obtained on concessionary terms; in 1969-1973, the average terms of borrowing from bilateral sources were 3.6 percent interest and 24 years to maturity, including 6 years of grace; from multilateral sources 5.4 percent interest and 28 years to maturity, including 6 years of grace. Tunisia received annually some $30 million in grants during 1965-1973, as well as capital inflows from private sources amounting to some $40 million annually. Direct foreign private investment has been limited, but as a result of in- creasing outlays on petroleum exploration and development and, recently, foreign investment in manufacturing, it has shown a rising trend, from $17 million in 1965 to $54 million in 1973.  - 6 - 17. Tunisia's total external public debt was $1,271 million, of which $824 million were disbursed, at the end of 1973. Disbursed debt at the end of 1974 is estimated at $900 million. Debt service fell from 16 percent of exports and workers' remittances in 1972 to 9 percent in 1974. The debt service ratio is projected to decrease to 8 percent by 1976, following recent increases in commodity export earnings, but may rise after 1980 when external capital requirements are likely to increase substantially. While Tunisia is capable of servicing substantial additional debt on less concessionary terms than in the past, it should continue to seek part of its external resources on concessionary terms so as to prevent the debt service ratio from rising unduly in the long-term. PART II - BANK GROUP OPERATIONS IN TUNISIA 18. Since 1962, Tunisia has received a total of twenty-two Bank loans and ten IDA credits amounting respectively to $266.9 million and $65.7 mil- lion, net of cancellations and refundings. Annex II contains a summary statement of Bank Loans, IDA credits and IFC investments as of October 31, 1975, and notes on the execution of ongoing projects. 19. While there have been some problems in project execution, as in the railways, agricultural credit and family planning projects, on the whole proj- ect implementation has been satisfactory. Important institutional improvements have been achieved. In a number of sectors, independent agencies have been created or strengthened. 20. In accordance with Tunisian priorities, past Bank Group lending has emphasized support for long-term investments in social development and infra- structure. Lending for urban and social development, including water supply, education, family planning and the Tunis urban planning and public transport project, accounts for 39 percent of Bank/IDA commitments in Tunisia. Lending for transport, power and tourism infrastructure accounts for a further 28 percent. Agriculture and fisheries have received 14 percent of total commit- ments. Industrial and hotel financing through Banque de Developpement Econo- mique de Tunisie (BDET) has received 12 percent, and the Gafsa phosphate development project accounts for 7 percent of total commitments. 21. The Bank has participated in a number of projects in the transporta- tion sector totalling $64 million. These include a highway project, a railway project, a pipeline project and two port projects. With the exception of the highway and the railways projects, wihich should be completed at the end of the year, all have been completed satisfactorily. 22. The first highway project (Loan 746-TUN) for $24 million was pre- pared under a highway engineering loan for project preparation (S2-TUN for $0.8 million) and approved in 1971. Under this project certain heavily travelled trunk roads were modernized and light and aging pavements were  - 7 - strengthened. Consultants were also provided to study institutional improve- ments, the strengthening of maintenance operations, the system of road user taxation, and improvement of 350 km of roads. Due to large cost overruns and the demonstrated need for a four-lane highway, the three-lane road between Tunis and Turki has been eliminated from the project with the approval of the Executive Directors (R75-158 of July 14, 1975); it is expected to be financed by the Kuwait Fund. The Government has provided supplementary funds to com- plete the remaining project components. 23. Two additional projects, a sixth loan to BDET and a second agricul- tural credit project, are expected to be presented to the Executive Directors this fiscal year. Future Bank lending to Tunisia is expected to support im- provements in policies and institutions, in particular agricultural policies and agencies and the planning and implementation machinery; it would also sup- port measures to create employment and to introduce institutional reform. The proposed lending program emphasizes investment in agriculture; this will require substantial Government inputs of manpower and technical assistance to support increased production and the creation of new institutions which can reach the rural poor. 24. Lending for industry has so far been largely through the main Tunisian development finance company, BDET, and has mostly benefited medium- size companies; the Bank has encouraged BDET to diversify its sources of funds and progress has been made in this respect. The Bank has also lent directly for the Gafsa phosphate mining project. Further loans for priority industrial subsectors in which Tunisia has a comparative advantage would depend on the progress achieved in the formulation of sound projects. 25. The Bank Group accounted for almost 20 percent of disbursements of official aid to Tunisia between 1969 and 1972 and is expected to maintain its share, with that of the US declining and that of other, particularly Arab, sources of funds rising. The Bank Group's shares in total debt outstanding and disbursed at the end of 1972 (including loans from private sources) and in debt service during 1972 were 11 percent and 7 percent respectively. Over the rest of the decade, the Bank Group's share in disbursed external debt is expected to rise to about 20 percent; its share in debt service will probably rise to the same level. 26. IFC has invested in a fertilizer plant, in BDET, in COFITOUR (a company to promote and invest in tourism projects), in RYM (a large hotel development) and in Industries Chimiques de Fluor, which will produce alumi- nium fluoride from local fluorspar for export. IFC's most recent investment, in May 1975, was in the Sousse-Nord project, an integrated tourism development project. Including the Sousse-Nord project, IFC's net commitments in Tunisia total $17.2 million. 27. Since 1962 the Bank has chaired the Consultative Group for Tunisia bringing together the principal donor countries and the institutions concerned with the country's development. The most recent meeting of the Group was held in Paris in June 1975. New participants in the Group included Saudi Arabia, Japan, the Arab Fund for Economic and Social Development and the Commission of the European Communities.  - 8 - PART III - TRANSPORTATION IN TUNISIA 28. On becoming independent in 1956, Tunisia inherited a relatively well developed transport system. Few additions were made until 1968-1969, when major improvements to ports, railways, highways and airports were undertaken in the light of the recommendations of a transport survey carried out by con- sultants in 1968 under a United Nations Development Programme (UNDP) project for which the Bank was the executing agency. This survey revealed two short- comings in Tunisian transport policy: namely, (a) the absence of effective administrative machinery for intermodal coordination in the transport sector, and (b) an excessive degree of regulation. Since 1968 significant improvements have been introduced. In 1970 a Direction des Transports in the Ministry of the National Economy was established; this directorate was transferred to the Ministry of Transport and Communications (MTC) on its establishment in January 1974. 29. As part of the first highway project, consultants carried out a road user taxation study and made related recommendations which aim at a simplification and rationalization of the tax system, and which are expected to improve the allocation of traffic to modes and vehicle types. The Govern- ment is now reviewing this study in order to formulate specific recommendations. During negotiations, the Government agreed to review its recommendations with the Bank and to prepare related new regulations on road user taxation prior to April 30, 1976, and put them into effect promptly but not later than December 31, 1976 (draft Loan Agreement, Section 4.03). 30. All transport tariffs are fixed by the Government and cannot be exceeded. The Government also requires the semi-public transport companies (Societes Regionales de Transport - SRTs) to provide certain of their services at nominal fares well below the cost of operation and as a result, some SRTs are in financial difficulties. The Government recognizes the need to provide these companies with the funds required to cover losses in revenue due to these reduced tariffs. During negotiations, the Government agreed fully to implement this strategy prior to December 31, 1978 (draft Loan Agreement, Section 4.04). 31. Ilighways: There are 16,850 km of roads, 45 percent of which are paved. The road network is most developed in the north, where the bulk of economic activity is concentrated. Although the road network is generally adequate in extent, the most heavily travelled highways need major improve- ments, and there is a need for more feeder roads to stimulate agricultural production. Under the first highway project, maintenance operations were satisfactorily reorganized and strengthened. However, recent traffic surveys show that traffic is growing faster than expected and that there is a need for major improvements of many roads, particularly in access roads to large cities. In the long run, new traffic patterns are likely to arise as the result of a more balanced regional development policy.  - 9 - 32. The Direction des Ponts et Chaussees (DPC) in the Ministry of Pub- lic Works (MPW) is responsible for the maintenance and development of the highway system. DPC has seven headquarters divisions, and the organization of DPC was established following recommendations by consultants financed under the first highway project. A major feature was that DPC was given full responsibility for the management of its own equipment fleet, previously drawn from another directorate in the p The Design Division in the DPC is responsible for planning and designing highway projects, but DPC employs con-- sultants, both local and foreign, for the preparation of important highway projects. Smaller projects are designed by the division. Design standards applied are satisfactory. 33. Between 1966 and 1970, annual expenditures for construction and main- tenance of roads averaged approximately D 4.2 million. These low expenditures reflected the low priority accorded by the Government to highway infrastruc- ture investment. However, based on the recommendations of the 1968 Transport Survey and the recommendations of the Bank-financed Hlighway Maintenance Study, highway allocations grew from D 15.4 million in 1972 to D 17.3 million in 1975. The sharp rise was caused by the need for repairs of roads damaged in the 1969 floods. The central Government provides all funds (maintenance and construc- tion) for the primary and secondary road network, and the Gouvernorats for the tertiary roads. The level of highway investment is in line with the economic needs of Tunisia. 34. As a matter of policy the DPC usuallv undertakes construction of roads through contractors. This is a reversal of an earlier policy whereby all highway construction was executed with DPC forces. Supervision of all highway construction is carried out by the construction division of the DPC. Periodic maintenance such as the renewal of the wearing course of paved roads is carried out by contractors whereas routine maintenance is carried otut by the field subdivisions with DPC's own forces. The qualitv of both construc- tion and maintenance is satisfactory. 35. Ports: The country has four major commercial ports (Tunis-La Goulette, Bizerte, Sousse and Sfax), and a fifth port is under construction at Gabes for exports of phosphates and chemicals. The Bank has made two loans totalling $15.5 million for construction and improvement of Tunisia's port system. 36. Railways: The railway network consists of 479 route-km of standard gauge in the north and about 1520 route-km of narrow gauge linking Tunis and Gabes and serving the phosphate and iron mines of the interior. Because emphasis has been chieflv on the renewal of old equipment and the acquisition of new rolling stock, the condition of the track is poor, and major improvements are required. In 1969, the Societe Nationale des Chemins de Fer Tunisiens began to carry out a rehabilitation program with the assistance of a Bank loan and an IDA credit together totalling S17 million. 37. Airports: There are three international airports (Tunis-Carthage, Sousse-Monastir and Djerba-Mellita) to serve tourism demand. The domestic airports, with the exception of those at Sfax and Gabes, are not equipped for use by commercial aircraft.  - 10 - PART IV - THE PROJECT 38. The project was identified by a Bank mission which visited Tunisia in September/October 1974. Project preparation was carried out by the Govern- ment with the assistance of consultants financed under the first highway project. The project was appraised in IMarch/April 1975, and negotiations took place in Washington in October 1975. The Tunisian delegation was headed by Mr. M. A. Soula of the Ministry of Public Works and included representatives of the Ministries of Planning and Foreign Affairs. A detailed description of the proposed project is given in the report entitled "tAppraisal of a Second High- way Project - Tunisia" (No. 930-TUN) dated December 4, 1975, which is being distributed to the Executive Directors separately. A Loan and Project Sum- mary is attached as Annex III, as is a map showing project components. Objectives and Description 39. In line with the Government's overall development objectives and its policy of stressing maintenance and improvement of the highway network, the project would reduce transport costs on a number of more heavily trafficked routes, improve future transportation planning and on-the-job training for staff of the MTC, and foster rural development. 40. The project consists of the improvement of about 225 kilometers of the following roads: (i) Tunis-Libyan border road; (ii) Tunis-Medjez-el-Bab road; (iii) Beja-Jendouba road; (iv) Tunis-Bizerte road; and (v) Hammamet-Korba road. The Tunis-Libyan border road is one of the most heavily travelled roads in the country and the construction of bypasses at Sousse, El Djem, and Sfax should ease congestion considerably. The remaining roads are to be improved through resurfacing, strengthening, widening and in some cases realignment of existing sections. Bypasses will also be constructed around the towns of Hammamet, Nabeul, and Beni Khiar on the Hammamet-Korba road. 41. The project also includes provision of technical assistance for transport planning and the preparation of a rural roads program. The tech- nical assistance for transport planning would provide for about 70 man-months of consultants' services to assist MTC in updating the 1968 Transport Survey and for on-the-job training for permanent MTC staff and is expected to help ensure that future investments in the transport sector would be made according to an integrated transport plan based on economic criteria and reliable basic data, including fleet statistics. About 110 man-months of consultants' ser- vices would be provided to assist the MPW in the preparation of a program of relatively inexpensive rural roads in the less-developed regions of Tunisia, which is expected to foster agricultural and rural development.  Cost Estimates and Financing Plan 42. The total cost of the project (including physical and price contin- gencies) is estimated at $52.3 million of which $28 million is the foreign exchange component. A detailed breakdown of project costs is given in Annex III. The proposed loan would finance the foreign exchange component (54 per- cent of total costs) net of duties and taxes; the local currency costs will be financed by the Government. Implementation 43. The DPC would be responsible for the implementation of the road works. All road improvement works would be carried out by contract and super- vised by the DPC which is competent for this purpose. The DPC would also be responsible for the preparation of the rural roads study whereas the MTC would be responsible for the updating of the 1968 Transport Survey. The consulting services would be provided to DPC and MTC by qualified and experienced con- sultants satisfactory to the Bank. Procurement and Disbursement 44. For the improvement works, contracts on the basis of unit prices would be awarded after international competitive bidding in accordance with the Bank's Guidelines for Procurement. Works are expected to start about mid-1976 and be completed about early 1979. Proposals for consulting services would be invited in early 1976, after terms of reference have been agreed between the Government and the Bank. The consulting services are expected to be completed in the second half of 1978 for the updating of the Transport Survey as well as for the Rural Roads Study. 45. Disbursements would be made on the basis of 53 percent of total expenditures (which is the estimated foreign cost component) for the highway improvement works (civil works), and 70 percent of total expenditures for consulting services. Disbursement is expected to be completed in FY 1980. Justification 46. The highways to be improved represent sections of Tunisia's highway network most in need of improvement. The present transportation costs on these sections are unduly high and the improvements will reduce vehicle operat- ing costs, journey times, accidents and highway maintenance costs. Additionally, a shift to larger (more economic) vehicles will be possible and increased travel comfort available. 47. The routes on which the project sections are located are inter- regional. Benefits will therefore accrue to both long distance and local traf- fic. The bypass sections will enable through traffic, particularly trucks, to avoid the towns of Sousse, El Djem, Sfax, Hammamet, Nabeul and Beni Khiar.  - 12 - 48. Based on the most probable estimates of construction costs, vehicle operating costs, time costs, base year traffic and traffic growth, the proposed investments in the project roads sections produce economic returns (ERs) ranging from 18.0 percent to 42.0 percent. These ERs range from 16.5 percent to 36.0 percent if travel time savings are not considered. The ER for the road improvement program as a whole is 33.2 percent (26.4 percent without travel time savings). Benefits accruing from the consulting services have not been quantified. The assistance for transport planning is justified since it will contribute to increased efficiency in highway administration and assist the Government in upgrading the highway network. The main purpose of the rural roads study is to identify and analyze rural roads for construction and im- provement in areas where their adequacy is a serious obstacle to rural and agricultural development. 49. The Government controls tariffs and thereby limits profits on vehicle operations. Since the tariffs are related (among other things) to road conditions, transport cost savings from the proposed project road im- provements are likely to be passed on to farmers and manufacturers, consumers and passengers. The project will assist in stimulating economic development and regional integration. PART V - LEGAL INSTRUMENTS AND AUTHORITY 50. The draft Loan Agreement between the Republic of Tunisia and the Bank, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement and the text of a draft resolution approving the proposed loan are being distributed to the Executive Directors separately. The draft Loan Agreement conforms to the normal pattern for highway projects. Features of the draft Loan Agreement of special interest are referred to in paragraphs 29 and 30 of this report. 51. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMENDATION 52. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments December 4, 1975  Page of 3 pages COUNfTR DATA- TUNISIA AMUA _______T__ DENSITY 164.15o kmi -i~~~~~~~ , llies (mid-1973) 98 Is Per c2of ...abla Iend SOCILt IDIICAIO5S Reference Countries 1960 IL9?U L~~990 19 70 ---_197 ON? PER CAPITA 03$ (ATLAS BASIS) /4 220 /b.n 380 /d 360 /d "DO Ic 1,L6c /d DEACGRAPNIC Crude birrth rate (Per thmouand) 5:6 37 /d L55 Li .6 /d Crude death rate (par thousand) 19 1L it132 Infant e-rtelity rate (Per thousand liebit)..i67 aP 1392 Life expectancy at birth (years) ..56 57/ Ii8 7D Dream rera'odotarat 3.1 2. 3h/c 6 D. Po .ltioM rot rt- 3.7 - 3.3T Psenlation groeth rate - crisbano Age etr-cure (persant) -11. 42 /i ~ 64.7d 532 156 d r53 503 1 Aedepsndency rati /4 0.9 lit? ).9 n Eoasoeio dependency ratio 1.3 1.,7 1.8 1.3 1.0 Urbee polonletioc as p.roest of total so LLs. LO /.., 39 /0a 0A/ 53/o Fmily planning: Ho. of occptore cuscali-n (mccc. 108 . ___ NO. Of uaere (9 of carried ene) 1 ?otal lbor forco (thousands) i,b00 (p 05011/ ,0 c 7 ,0/ Percentage espioped Is agrIculture ~~~~ ~~~69 [p 53 Id542 9i 0 c, Percentage unsployed 10n g9 i3l.. ra1 7d Froast.g. ca..l ss.ynad reeve yidese 9. ' ,2/ 6 t Prc.e.o national I.nes. ecen. by bighes. 20% *,. .2 Ic 5 Per cart ofnotional1 income received by hioost 20%*..3 7 1&az - Percent Of catioa .. oons.- rau-i-d by incest LO%- .8/c 1 ,. DISORIBUTIOVl iF LAND 0ijjSRSHIP 9 sond by top 101ofower . 53 /4 - 57' /pz 21.7a 9 owned by mea11ent 10% of osn,eas 0.5L I4 . t 2.6 A.IThAD: IP TifIONY PnjainlePhy,1,iac 10,000 /j 5,220oc 0,3 1,287 620 Poplaio per nor g parsu ..700 a4 ,831 /cc 1, 0 1,.'a /so P.pulatiso par hospIta. bed 36 las! 10 /4'.30 M0 360 Per caPi ta calorie supply as Osf requirements 66 /b 86 89 96 116 Per caPitaproteIn' esppl total (grans pea day/ 65/ 95 L9 90 0 Of eblh, animal end pulse 5143 /4 IL/4 222 oh 0 o beau rate 1-5 peers /7 .. 1~~~~~~~~ ~ ~ ~ ~~~~~.5 IE I 3 lb . 0.9 I RIRCATION Adjus_ted /8 pr imary enhool aoroll-tin ratio 75 107 ~ak 9(4 01 0 e Adueed . aonoisy echos nerolleat ratio 11 20 2bOn 60 o e rears of scbsoing provided, fleet aed fleced lens) 03 13 10 0 VOcall0sel esollesnt as 9 of sac. echon1 enrollent 25 31 4,L 29 lad 0 d c 20 p Adult Literacy rate S . 55 ide., 68 e 69 p 2 AverageO Na. of p-rese Per soom (cries) *.2.7 /p, . 2.1 0.9 Percent of scrupied -nts sIthent piped eater ..60 3L 35 so. Acceem to electricity (aso Of total pepoltion) 25/5c ..9_5 Percent of rural pspu]tis cenoected to electrIcIty 96 73 5 Radio receivers per 1000 PePulatlos 41 75 Ld 220 La 211 / 1102I Paseasger care. per 10D population 11 15 Ld ~I 3o d Electric power consuptisn (bays p.c. 72 188 d 1752 5 231 1,266 Neawsprint coseespntien p.c. bg per year 0.3 0.1 /4 2.5/ 1.7d4 5.6 Nclea Fig-c refer ithe- to tns- latest periods or t. soesot of ea-i-roosent.al tesporatere, body .miglnte, an tin lateat yearn. Ltatet periode refer In principle to diatribotioc by age o and. of ets-tloi PePolatle-e tine y.are 1956-60 or 1966-70; tie latest years L. ps4i.- A Pastelseteards rectd sao for all coactries as retabn siple to 1960 and 1.97D. limbed by SDDA ico....Is Rasoareb Service provide for a eioima /I Thoe Per Capita 0GNP eti-ete is at moket princ foe alonsas of dO gran Of total proteIm per day, ana 20 gra of yea.rs cth- then l960,oalofleted by the c-an c-srereor miaal Asnd plee protein, Of wbicb 10 grena hboud be animal 'L techinsqnc ma tbs 1972 World Banjo itlan. protein. Thane at-ad.,ardase esesebt lower linac those of 29 /4Average enusier of daughtere par esnesa of rep-uo-tccvo grams of total prtoein and 23 Sr-s of etssi potiames .a.-. avrage for the world, Propoeed by PAO is the Third World Food /4Popnla.tic greeti rtes ar for lbs deatdes aodieg in Suve. 1960 and 1970. 4Sam etdiee have e-ggeated that er.od dec16 ratee of ichildree A4,Ratio of popsulatisn -ader 15 and 65 and aver to0 inpula- ages 1 thrughn Ii eay be cead as a firet approatmtico Index of tim .of again 15-61, far Age depeodency rais end to labor aaI-trlttsn. furee of Wgs 15-64, fcr ese..emic dapanolesy rstia. I Parentage enrolled OF anerepunontg ppelatios of school age P4 AO refareace eteandarde represent physiological re Ae defined for esobn oantry. qairmanna for name) activity aad health, taking /a, IBDE eatisate, excluding ynaaturee and foreeta; lb 1961; /v Computed by applying in lie 1970 figuare tie growth rate of the aNIcep. in real tar"e frca 1960 ts 1970; /4 1972; /4 1971; /_f Ezolodiog asOadin Indio jungle population; / 1965-TO, UN eatimate; /h 1960-72; -i Real growtb rate; /4 1956-66; /. Noer 10,000 popu- lation; 4 196-72; /4 Capital of prosiocce and santone; A4 10,000 and Over; /- Huanic1paIItlee end -sesna in whinch tine largest populetion center ban 10,000 or mer inhabitlat end popuaetion of 12 slier urban agglomeratlosa irreepectlve of their Population; Za 1966; /4, 1956; /4 Officia eatimate; /a Excluding perm,on in toe- puleerY silitary servIces med pareone macking work for tie fleet 11ame; /t, Excluoding anamployed acane; /4 Ecooc- misally atctive PePulatloc; /4 Paressal disposeable income; /. HlOueholda; /4 Beirnt and outskirte; 4 Covering fn.5mll:Lion hectares of private land, aeclunilog 0.8 hULes tearee In public oee--hip, mcd 2.1 million -t-re Of eslsive lend; /z Covering L.5 mil-liss hectares of privtet land; /aa 1963; lab Pereoscel to gocare-nt seior only; /ao 1ncluding mldwlve; (p 1969; /I me1962; If Iloludlog rural hospitals; 1pg o-e-ntcc hospital eetabliehsanss.; 1.h 19654-66; /ai 1967; /~ Registered only; za l6~/7 loudinog lUNdi schoonls; 15 yoaaroend oveor; /4 Reed end write; /4w 1965; /&p 10 yeasandc, r g Dte refer t. o icolg units; Total,Iurban. tand rural; (pp Data refer to hnua.halde; 7at Ineide or Oatside; (pM Inside; Io- PercLenae of dwellings with elenlrioal 1ighLting; Is, atio o,f PcpcniatIeucoder 15 and 65 an seer to total labor ore Greece has been emleetd asa bjective co-try an tie heels of tie nse of lie. poplaisos, mediterranea gnographi-aI eltoation And lits ec=ons, whlc Presents me similarity wdit Tensia-e' will reepetL. -to s ..ced resources, anriet aizec grIcoaltora and erieactivities. R8 Octoib- 73, 1975  ATINlET I Page 2 of' 3 TUNISIA -FEOON GLEOPaCU251P9197119 5121 Actua- ESt. - Prected 1/ 196-5 17- 1927 - l?69 1970 1 72 1 c73 1076i 19~79 15~79- 19'O 1979 1975 1950 7 12<10<1 xcryllio's L~~~~~~~~~~~~~~ ~~~~~~~~inacr ilosa 969 Price Avcp5nna rwt ae Sare of FIP 0 ,o~~~ n ibsosir Thnirdi:cS 9~~~~~~~35 567 873 873 965 1057 11 50 11,92 a6.5 77 7. 100.0D Coos -r,e '