Mali - Livestock Project

FICECOPY, DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P- 1516a-MLI REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A A LIVESTOCK PROJECT January 17, 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 It may not be published, quoted or cited without Bank Group authorization.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 EQUIVAIENT Unit = Mali Franc (MF) US$1 = MF 450 MF 1 = US$ 0.002 MF 1,000 = US$ 2.22 MF 1,000,000 = US$ 2,222.00 Fiscal Year: January 1 through December 31  REPORT AND RECOMHENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A LIVESTOCK PROJECT 1. I subuit the following report and recommendation on a proposed development credit to the Republic of Mali for the equivalent of US$13.3 million on standard IDA terms to help finance a Livestock Project. PART I: THE ECONOMY Background 2. A report on "Recent Economic Developments in Mali" (233a-MLI) was distributed to the Executive Directors on September 27, 1973. Country data are attached as Annex I. 3. With a per capita GDP of about US$70, Mali is one of the poorest countries in Africa and one of the 25 "least developed" countries identified by the United Nations. Agriculture, livestock and fisheries contribute over two-fifths of GDP (1972) and are the backbone of the economy and the principal source of foreign exchange. Manufacturing accounts for only 9 percent of GDP. Real GDP growth during the 1960's was about 2.8 percent a year compared with a population growth rate of 2.1 percent. In 1968-1972, GDP growth averaged 3.3 percent a year; but in 1973 GDP is estimated to have declined by about 3 percent because of the severe drought which Mali suffered during 1972. This would imply a decline in agriculture in the order of 20 percent. Hardest hit by this decline were the nomadic and semi-nomadic people, tens of thousands of whom have fled the pastoral sone to seek refuge in the southern part of the country. There is likely to have been a further drop in national output in 1974, as a result of poor weather conditions in 1973. Rainfall in 1974 was close to the 30-year average and crops in 197V75 are expected to be about normal. Government Policies 4. Reports on previous credits to Mali have drawn attention to the legacy of difficult economic problems inherited fron the regime overthown by the military in November 1968. Many of these problems persist, in spite of the present Government's efforts to correct the most serious distortions in the economy by removing some of the restrictions on trade and payments, raising agricultural producer prices, and increasing budget revenue. The Government's policy of hiring aIl graduates of secondary and higher schools unable to find employment in the private sector has exerted constant upward pressure on public expenditure. Many state enterprises appear to be still operating at a loss, at least partly because they are not free in their pricing decisions. The state enterprises were the main beneficiaries of the 66 percent expansion of bank credit between 1968 and 1973, which was one of the chief causes of the continued balance of payments deficit.  -2- 5. There are nevertheless a number of encouraging developments. Production of cotton and groundnuts, the two main export crops, has been fairly well maintained despite the recurring drought, reflecting government investment and support. Substantial investments are being made to expand cotton and rice output, including the Mopti Rice Project financed by IDA (277-MII). River fisheries, for which mainly the European Development Fund (FED) has provided assistance, have also been making good progress. In connection with its efforts to increase food crop production, the Government is now acting again on producer prices. During negotiations of the Integrated Rural Development Project (491-MII) it agreed with IDA to raise prices of millet and sorghum and to carry out a study on producer prices and marketing arrangements for these two crops. In fact, prices have been raised somewhat above the levels discussed at that time. The producer price of a kilogram of millet or sorghum was raised in 1974 from MF 20 (1972/73 campaign) to MF 32, of white paddy from HF 25 to MF 40, of seed cotton (first quality) from MF 50 to MF 75, and of groundnuts (in shell) frao MF 30 to MF 40. Financial Developments 6. The balance of payments improved between 1968 and 1972, despite a continued current deficit, as a result of a sharp reduction of private capital outflows from US$13.6 million to US$4.9 million. Further, the proportion of grants in total external aid inflows increased from about 30 percent in 1968 to over 80 percent in 1972. In spite of higher world prices, exports in 1973 stagnated because of the drought while imports went up sharply (+22.5 percent) owing to the massive food imports required. The current deficit in 1973 thus reached a record of US$69 million. Although inflows of official funds more than doubled, net foreign assets of the banking system at the end of 1973 were minus US$108 million, again an absolute record. This was made possible by the right to draw on the Operations Account with the French Treasury. The balance of payments situation is unlikely to have improved in 1974. 7. Public savings have remained negative despite considerable improve- ment in tax collection in recent years. Government current expenditures have been rising at a rate of over 11 percent annually between 1970 and 1974, chiefly because of the strong increase of wages and salaries, which reached a share of 67 percent in 1974. As a result, the overall deficit (excluding investment expenditure financed out of foreign aid) rose from HF 2.2 billion in 1970 (9.2 percent of total spending) to MF 7.7 billion in 1974 (21.2 per- cent). Nevertheless, the deficits in the drought years 1973 and 1974 remained below what had been expected earlier for two reasons: FED aid, which made up for the loss of revenue from the cattle tax that had been suspended to help drought-stricken farmers, and the remarkable efforts of the Malian Government in speeding up tax collection and improving tax administration, which led to the collection of over MF 4 bill-on in back taxes during 1973 and 1974. Further, the introduction of a "taxe conjoncturelle3 in mid-1974 yielded another HF 500 million in revenue. Thus, instead of stagnating, revenue in 1973 and 1974 increased faster on average than in the two years before.  - 3 - 8. Imports of petroleum products are only 10 percent of total merchan- dise imports (1972). But their price to Mali has roughly doubled between September 1973 and early 1974, adding another unfavorable factor to an already difficult situation. Petroleum consumption could not be reduced without affecting the productive sectors, since consumption for leisure and tourism is marginal. The development of Mali's hydro-electric potential is currently being studied by consultants under a project jointly sponsored by UNDP, FED, Germany, France and Italy. It is expected that these studies will provide the basis for a program designed to meet the country's long-term power require- ments, and the World Bank would be prepared to provide some assistance for projects of proven economic feasibility. 9. Two large mmlti-purpose schemes for the development of Mali's water resources are presently under examination. One would involve the construction of a dam on the Sankarani River upstream from Bamako close to the border with Guinea; this would permit regulation of the river for irrigation and the gene- ration of power. The other envisages the construction of a dam on one of the tributaries of the Senegal River in the West of Mali as part of a huge program for the development of the Senegal River Basin for the benefit of Mali, Senegal and Mauritania. An important aspect of this scheme would be the opening up of the Senegal River to navigation, which would provide Mali with direct access to the sea. Foreign Aid 10. The greater part of public investment is financed from external sources. During 1966/67-1970, Mali received an annual average of US$30 million of external aid disbursements, including technical assistance of about US$3 million. Nearly half of this aid was provided by the USSR and the People's Republic of China in the fonm of medium- and long-term concessionary loans; close to 40 percent came from France and FED in the form of grants. In 1971, Mali received foreign aid disbursements of US$31.3 million, of which 81 percent were grants. In 1972, disbursements increased sharply to US$54.3 million, of which 86 percent were grants. 11. The present drought has prompted special aid to Mali from the inter- national community. Emergency aid amounted to about US$5 million in 1972/73 while US$17 million have been pledged for 1973/74. This aid consisted mainly of food: 133,000 tons of food grains, powdered milk and other essentials were provided in 1972/73 and another 150,000 tons in the following twelve months. The EEC, individual EEC members, the FAO, the United States and Canada have been the main donors. In addition, these sources and other agencies have committed funds for rehabilitation and drought control projects totalling about US115-20 million, including an IDA Credit of US$2.5 million. Despite close to "normalm rainfall in 1974 and fairly good crops, the Government has requested another 150,000 tons of food aid for 1974/75 to make up for some local shortages and to rebuild grain reserves. 12. Mali's external public debt outatanding at the end of 1972 was US$324 million, including US$62 million undisbursed. IDA's share in the total amount disbursed and outstanding at this date was 5.9 percent. Repayments of principal and interest due in 1972 would have claimed about 15 percent of the  - 4 - year's foreign exchange earnings (12 percent in 1971); actual debt service payments were small (less than 1 percent in 1971 and 1.5 percent in 1972). Outstanding debt at the end of 1973 was US$368.0 million, including an undisbursed amount of US$85.1 million. IDA's share in the total amount disbursed and outstanding was 7.7 percent. Repayments of principal and interest due in 1973 would have claimed nearly 20 percent of foreign exchange earnings (15 percent in 1972); actual debt service payments were small (1.5 percent in 1972, 1.8 percent in 1973), however, owing to the 1970 rescheduling chiefly of Chinese and Russian debts on short- to medium-term arrangements. Mali has received several standby credits frran the IMF, of which US$6.5 million are outstanding. The lF recently agreed to reschedule US$2.5 million of payments due in 1974 and 1975. Development Prospects 13. Mali's prospects for accelerating economic progress depend mainly on raising farm and livestock production and on improving infrastructure geared to the needs of the productive sectors. The next five-year plan, now in the final stages of preparation, makes the achievement of these goals its first priority. According to preliminary studies, the plan would require investments -- estimated at 19714 prices -- of MF 395 billion (US$878 million at the 1974 exchange rate), of which external sources are expected to finance 85 percent or nearly US$150 million per year. The plan's growth target is 7.3 percent a year. The Government hopes that new partners will join the traditional sources of aid to help achieve these very ambitious targets. As in the past, however, the econoay will also be greatly influenced by factors beyond the Government's control, chiefly the weather and changes in the terms of trade. Attaining an annual growth rate of 5-6 percent would thus already represent a significant success. 114. Mali's capacity to increase public savings in the short and medium run is strictly limited by a number of factors: the much-reduced capacity, due to the drought, of a large section of the population to pay more taxes; the existence of sizeable arrears resulting fran past budgetary problems; the difficulties in reforming the public enterprise sector; and, last but not least, world inflation. Though existing monetary arrangements with France signifi- cantly a.leviate the foreign exchange constraint, M1ali 's heavy debtor position on the Operations Account and its large outstanding obligations to China and the Soviet Union clearly point to the need for the Government to be extremely cautious in its borrowing. These reasons, added to Mali's poverty, strongly suggest that foreign aid should be given on the most concessionary terms possible, and should cover a h.gb proportion of total project costs, including substantial amounts of local expenditures. PART II: BANK GROJUP OPERATIONS IN MALI 15. The proposed credit would be IDA's tenth operation in Mali, bringing the total of IDA funds committed to US$7P.3 million, most of them during the past three years. Of the presently outstanding amount (US$59.0 million), US$25.3 million had been disbursed as of December 31, 1974.  16. Bank Group lending during the 1960's was handicapped by the country's poor economic performance and the lack of well-prepared and economically justified projects. However, in 1966, a US$9.1 million IDA Credit (95-MLI) was made for improvement of the Malian section of the Bamako-Dakar (Senegal) railway. Since the end of the 1960's, project preparation has been sharply stepped up. The Bank's 1969 economic mission and other reconnaissance and preparation missions, as well as the Government's improved competence in preparing projects itself, provided the basis for formulating a substantially expanded and diversified Bank Group lending program, and the initial results of these efforts have already materialized. An IDA Credit (197-MLI) of US$7.7 million helped finance a first highway maintenance project in 1970. Credits of US$6.9 million for the Mopti rice project (277-NLI) and US$3.6 million for a telecommunications project (321-MLI) were approved in 1972. Further credits for a US$6.7 million second railway project (384-MLI) and a US$9s5 million second highway project (383-MLI), as well as a US$5.o million first education project (420-MLI) and a US$2.5 million drought relief project (443-MLI), were signed in 1973. An IDA Credit (491-MLI) of US$8.0 million helping to rehabilitate the groundnut industry was approved in 197h. Annex II contains a summary statement of IDA Credits as at December 31, 1974, as well as notes on the execution of current projects. Experience with ongoing projects has generally been good, although the extreme shortage of rainfall and reduced flooding of the Niger River in recent years interrupted production under the Mopti Rice project. That project should nevertheless show a highly satisfactory rate of return because of rising world cereal -prices; a proposal for an increase in the amount of the credit mainly to offset the effects of currency realignments and cost increases, has been submitted to Executive Directors for their approval. 17. Mali has considerable potential for agricultural and livestock devel- opment, and most of the operations envisaged by the Bank Group in the near future are related in some measure to the rural sector. They include a second rice and a third highways project, the former providing a follow-on to the Mopti rice project, the latter focussing particularly on feeder roads. A cotton and foodgrains project in the south of the country will be ready for field appraisal in the summer. Beyond that, further Bank Group financing may be sought for other agricultural projects, and the Government is also interested in having the Bank Group provide assistance for the large multi-purpose schemes referred to in paragraph 9 above. Given the limited availability of IDA funds, a major effort1 will be needed to mobilize financing from other sources if all these projects are to go forward. PART III: THE AGRICULTURAL SECTOR IN MALI 18. Agriculture, including livestock, is the most important sector in the economy of Mali. It directly provides the livelihood of 85 percent of the population, contributes 43 percent of GDP, and accounts for virtually all of its foreign exchange earnings (US$54 million equivalent in 1972). Farming is carried out on some 500,000 farms of 2-5 hectares, mostly at the subsistence level. About 85 percent of the cultivated land is devoted to food crops, principally millet, sorghum, and in the river valleys, rice. Cotton and groundnuts are the principal cash crops.  -6- The Livestock Sub-Sector 19. In 1970, the country's livestock population included 5.4 million cattle and about 11 million sheep and goats. Until the drought started to cause major losses in 1972, growth of the national cattle herd (due mainly to rinderpest control) had averaged about almost 6 percent annually over the past decade. From 1960 to 1972, livestock exports more than doubled and reached a yearly level of 220,000 live cattle and 210,000 small stock, or 30 percent of Mali's annual livestock production and 40 percent of all exports. The most important markets are Ivory Coast and Ghana. Then, mainly due to the repeated droughts, livestock's share of GDP declined from 20 percent in 1969 to 17 percent in 1972 and almost certainly declined further in 1973. During the 1972/73 drought, the worst in 50 years, about 15-20 percent of the country's cattle population was lost. Cattle herds typically consist of 50-80 head and 10-30 sheep and goats owned by semi-nomadic family groups consisting of 2-3 families each averaging 6 family members and provide a per family income of US$100-150 a year. Virtually all beef production comes fram the traditional sector, and the predominant production system remains nomadic or semi-nomadic (transhumance). Livestock taxes normally constitute 8-10 percent of public revenue. Deterioration of the Pastoral Resource 20. The principal problem facing the development of Mali's livestock industry, and especially the traditional industry of the Sahelian zone, is the progressive degradation of pastures, which in the northern areas is resulting in the advance of desert conditions. The recent drought years have accelerated this condition which results from overstocking and overgrazing of cattle. 21. In existing circumstances, maximizing herd size makes sense for the average pastoralist, because: (a) Pastoralists have no legal rights to the use of grazing land, which is state-owned and used communally; consequently, each livestock owner grazes as many cattle as he can in an attempt to maximize his share of the common resource; (b) In the absence of banking facilities and any other investment opportunities, cattle provide the only means of accumulating wealth; (c) Milk is an important component in the pastoral family's diet, and its sale is usually the only source of regular cash income. Consequently, the proportion of cows is deliberately kept high, which permits the herd to expand rapidly when grazing conditions are favorable; (d) Large cattle numbers are an insurance against the risks of losses from drought and disease.  - 7 - 22. External factors have further decreased the ratio of grazing land to animals because: (a) Livestock projects have concentrated on providing improved animal health care and watering facilities, and neglected the need for control to ensure a balance between animal numbers and the carrying capacity of pastures. They have led to a rapid increase in livestock numbers and serious overgrazing; (b) Due to population pressure more and more farmers have moved into traditional pasture lands and started to cultivate there; (c) Increasing numbers of cattle have moved in from Upper Volta and Mauritania. 23. Until recently, cattle movements and the duration of grazing in each area have been governed by strict traditional rules. Traditional authority is now breaking down and there has been little if any effort to provide an alternative. If one of Mali's principal resources is to be preserved, and if the impact of future droughts is to be minimized, livestock numbers must be regulated. The range must never be grazed so hard that it deteriorates and fails to regenerate sufficiently quickly to prevent permanent damage, which in the northern and drier areas already results in the advance of desert conditions. Livestock Development Strategy 24. The objectives of Government's livestock development strategy are to increase the productivity of livestock resources and to expand the volume of livestock exports, principally, through: (a) helping nomads and semi-nomads make the best use of pasture land; (b) opening up new grazing areas; and (c) helping farmers in higher rainfall areas take up beef and milk production. 25. Achievement of the first objective requires an integrated approach such as would be implemented under the proposed project. 26. In the case of the second objective, Mali still has large areas of underutilized rangeland that could be more efficiently used through providing better watering facilities. A benefit of this approach would be to relieve pressure on the present grazing areas. An important water development program in the 5th Region is included in the proposed project. The Government also plans to combat trypanosomiasis in large areas south of latitude 130 north, and has already started to study the methods to be applied.  - 8 - 27. In pursuit of the third objective, much is already being done to help farmers Lake up livestock production. Modern techniques are being tested and demonstli.ted at two research stations, a FED-financed ranch, and in the "Office cu Niger" irrigation scheme. A USAID scheme is to provide training, extension, and credit for cattle fattening by farmers. Feeder steer marketing to serve fattening schemes would be developed under the proposed project. Finally, as the area around Bamako is suitable for milk production, the Government intends to start a smallholder dairy scheme there which will include artificial insemination, pasture improvement, and fodder growing. PART IV: THE PROJECT 28. A report entitled "Appraisal of a Livestock Project" (N