Liberia - Bong County Agricultural Development Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2037-LBR REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF LIBERIA FOR A BONG COUNTY AGRICULTURAL DEVELOPMENT PROJECT April 6, 1977 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS The official monetary unit is the Liberian dollar, with a par value equal to that of the US dollar. Apart from the Liberian dollar, the US dollar is a legal tender in Liberia. GOVERNMENT OF LIBERIA - FISCAL YEAR July 1 - June 30 GLOSSARY OF ABBREVIATIONS BPMU Bong County Project Management Unit GDP Gross Domestic Product IDA International Development Association LBDI Liberian Bank for Development and Investment LPMC Liberian Produce Marketing Corporation USAID United States Agency for International Development  FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF LIBERIA FOR A BONG COUNTY AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed credit to the Republic of Liberia for the equivalent of US$7.0 million on standard IDA terms to help finance an agricultural development project in Bong County. The United States Agency for International Development (USAID) is making a parallel loan of US$6.0 million 1/; the USAID loan would have a term of 40 years, including 10 years of grace, with 2% interest during the grace period and 3% during the following 30 years. PART I - THE ECONOMY 2. A basic economic mission visited Liberia in March 1973. Its report "Liberia: Growth with Development - A Basic Economic Report" (No. 426a-LBR dated March 1, 1975) was distributed to the Executive Directors. An updating report entitled "Liberia: Economic Memorandum" (No. 873-LBR dated September 15, 1975) has also been distributed subsequently. An eco- nomic mission visited Liberia in November/December, 1976 to review the Four- Year Development Plan (1976-80) and its report is in preparation. Country data sheets are contained in Annex I. Structural Characteristics 3. The growth of Liberia's economy remainc heavily dependent on the performance of the enclave sector consisting mainly of: (a) iron ore mines, (b) rubber plantations, and (c) forestry concessions. These enclaves are the main source of export earnings and contribute an important share of gov- ernment revenues. Iron ore mining is by far the largest single activity in the enclave sector, accounting for about one third of gross domestic prod- uct at factor cost. There are only limited linkages between the enclaves and the rest of the economy; as a result, the benefits of economic growth have been unevenly distributed. Annual repatriation by foreigners of profits and savings is equivalent to about 20% of gross domestic product. 4. At the other extreme, traditional agriculture has minimal inter- action with the monetized economy; however, it supports the majority of the population -- as much as 70%. With a population of about 1.5 million, average per capita GNP in 1975 was US$410; about 4% of Liberians have per capita income levels of US$3,000 or more, while the majority live at or near subsistence level with income of about US$100 per annum. To help redress 1/ USAID is currently considering increasing its contribution to US$7.5 million. See also footnote, page 9. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - 2 - this imbalance the Government is trying to increase its earnings from the concessions and use the resources to diversify the economy with increased participation by Liberians. Development Plan 5. The Government has recently prepared a Four-Year Development Plan covering the period July 1, 1976 to June 30, 1980. In preparing the Plan the Government was assisted by a planning team financed jointly by the Bank, United Nations Development Program (UNDP), United States Agency for Interna- tional Development (USAID) and the Government (Reference President's Memoran- dum to the Executive Directors, No. R74-61 dated March 25, 1974). The Plan identifies the basic, long-term objectives of Liberia's socio-economic develop- ment as: (a) diversification of production; (b) dispersion of sustainable socioeconomic activities throughout the country; (c) greater involvement of Liberians in development activities; and (d) equitable distribution of the benefits of economic growth so as to ensure an acceptable standard of living for the people throughout the country. The average annual growth of real GDP during the Plan period is envisaged at around 6.8%. However, because of delays in the implementation of expected investments in iron ore mining and some slackening in demand for the country's main exports, the recent Bank economic mission has estimated that real growth during the four-year period is unlikely to exceed 3-4%. Total development expenditure is projected at US$415 million, of which US$251 million would be financed from foreign sources and US$164 million domestically. Firm commitments accounted at the start of the Plan for almost 60% of the expected foreign financing. 6. The Development Plan attaches high priority to agriculture, partic- ularly integrated rural development, as the cornerstone of the Government's diversification strategy. The objective is to diversify and modernize agri- cultural production, increase productivity, improve associated rural economic activities such as marketing and processing, and provide social and physical infrastructure to improve the quality of life in the rural areas where most Liberians live. Recent Economic Developments 7. During 1973-1975 Liberia, like most other developing countries, was hit by higher import prices and international inflation. While strong world demand for Liberia's major export, iron ore, brought large gains in export prices in 1974, the 1975 recession in the industrialized countries significantly reduced the demand for the country's most important export commodities -- iron ore, rubber and timber. With growth performance con- tinuing to be largely a function of enclave activities, growth of real GDP -- which averaged about 6.4% a year in the 1967-1970 period has slowed down significantly and is estimated to be about 2.5% in 1976.  8. Liberia has had a long history of sound fiscal management and public sector resources have not come under undue pressure during the past decade. A satisfactory growth in government revenues averaging about 13.5% per year between 1970-1975 enabled the Government to finance increasing expendi- tures. Recurrent expenditures during this period grew by about 10% while development expenditures increased nearly fourfold. However, public sector finances may come under increased pressure in the medium term mainly because of an anticipated acceleration in the rate of growth of government expendi- tures -- particularly current expenditure -- coupled with a more moderate rate of growth in revenues. The rate of growth of government revenues is likely to be moderate in view of the anticipated lower GDP growth rate as well as the uncertain future of the world demand for iron ore and the fluid state of the current negotiations between the Government and the iron ore companies regard- ing the Government's share in profits and future dividend distribution poli- cies. Balance of Payments 9. During the 1964-1972 period, the value of merchandise exports grew by 10% and imports by 5.9% annually in current prices. Thereafter, from 1972-74, mostly reflecting accelerated international inflation, imports rose by 29% annually, exceeding the 22% annual export growth. Oil imports increased from US$12 million in 1972 to US$56 million in 1974 but declined to US$48 million in 1975 due to reduced mining activities. Nevertheless, Liberia achieved a trade surplus of US$110 million in 1974, US$63 million in 1975 and an estimated US$99 million for 1976. During 1975, Liberia re- ceived aid commitments of US$93 million; US$82 million in loans and about US$11 million in current transfers. The World Bank Group was the largest donor in terms of commitments (43%). The other major donors were the United States, Italy and the African Development Bank. Creditworthiness 10. Liberia's external public debt outstanding and disbursed was esti- mated at about US$170 million as of December 1975. Debt service payments as a proportion of exports of goods and non-factor services were estimated at 5.1% in 1975 as compared to 5.7 and 7.7% for 1974 and 1972 respectively. Debt service payments as a percentage of government revenues have also de- clined from 24.3% in 1972 and 21.1% in 1974 to 17.3% in 1975. Both ratios are projected to decline further in the next few years as the final portion of the heavy debt incurred in the early 1960s is paid off. The Bank Group share of the public debt outstanding and disbursed is presently about 16% and, based on commitments of the aid agencies up to 1975, is projected to increase to about 30% by 1980; as a proportion of public debt servicing liability, the Bank Group share is projected to increase from its present level of about 12% to about 35% in 1980. Even with an expanded public bor- rowing program, Liberia's debt service ratio through the 1980s is expected to remain relatively modest unless there is an unexpected deterioration in external conditions. It should be noted, however, that Liberia's exports are highly concentrated in a few commodities (mainly iron ore and rubber) with  - 4 - unstable world market prices. Given the country's satisfactory performance in economic management and its modest debt service ratio, Liberia should be regarded as creditworthy for a significant amount of Bank lending, blended with some assistance from IDA. PART II - BANK GROUP OPERATIONS IN LIBERIA 11. The Bank has made 13 loans (including one Third Window loan) for projects in Liberia totalling US$71.2 million; there have been 4 IDA credits totalling US$17 million, and one technical assistance grant of US$200,000 for development planning. IFC has made two equity investments totalling US$555,000 in the share capital of the Liberian Bank for Development and In- vestment (LBDI). The Bank loans have been for roads, port expansion, power and LBDI; IDA credits have been for education and agriculture. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of February 28, 1977 and notes on the execution of ongoing projects. 12. The objectives of Bank Group operations are: (a) to help increase the absorptive capacity of the economy and enable Liberians to take greater initiatives in developing their own resources for the benefit of their own people; (b) to support policies and programs leading to broader sharing of the fruits of economic progress; (c) to help the Government in broadening the economic base; and (d) to assist the Government in mobilizing develop- ment resources from other external agencies. 13. In line with the priorities established in the Government's Four- Year Development Plan, the Bank plans to give increasing emphasis in its lending program over the next few years to the agricultural sector. The proposed project is designed to assist subsistence peasant farmers in the central part of Liberia to diversify their production base and to increase their productivity and income through the provision of an integrated package of support services and infrastructures, similar to the earlier project being implemented in the Lofa County (Credit 577-LBR). A project is being prepared to assist small- and medium-size Liberian rubber farms in rehabilitating and planting rubber trees which would involve a total of about 24,000 ha through- out the country; also under preparation is a forestry development project which would initiate a pulpwood plantation program and provide assistance to the newly established Forestry Development Authority for better management and development of Liberia's forest resources. 14. In infrastructure, a water supply project is under preparation which would extend the Monrovia water supply system and help strengthen the manage- ment and finances of the Liberia Water and Sewerage Corporation. A fourth highways project is also being considered which might include construction and improvement of high priority sections of selected primary and secondary roads, road maintenance and assistance to the domestic construction industry. In the power sector, an interim power project is being prepared which would include expansion of the Liberia Electricity Corporation's thermal power generating facilities until feasibility studies have been completed for a possible hydropower development. In the social sector, a third education  project has been appraised which would emphasize vocational and technical training and is expected to be submitted to the Executive Directors in the next few months. PART III - THE AGRICULTURAL SECTOR 15. Liberian agriculture is characterized by small, traditional farms that comprise more than 90 percent of total agricultural holdings. The tradi- tional sector is largely outside the monetized economy, located in areas with minimal infrastructure and composed of farms where less than 4 ha are cultivated each year, producing mostly subsistence crops such as rice and cassava and some cash crops such as coffee, cocoa and sugar cane. There is little or no adoption of modern innovation. The average income of the traditional smallholder is about US$70 per capita, compared with a national average of about US$410. Alongside the traditional agriculture, there are foreign concessions principally engaged in large rubber plantations and log- ging operations as well as Liberian-owned commercial farms producing mainly rubber but increasingly expanding into coffee, cocoa, poultry and livestock. 16. Agricultural output in 1975 totalled US$197 million of which US$71 million originated in the monetized sector composed of rubber (US$36 million), coffee, cocoa, palm products, etc., and US$126 million in the subsistence sector. Average growth of all agricultural output during 1964-74 has been over 5% per annum in real terms. However, traditional agriculture grew at only 2.4%, while increases in the output of foreign concessions and Liberian owned commercial farms have been larger. 17. Prior to 1971, the Government's role in the development of Liberian agriculture was focused on the rubber and timber concessions and commercial plantations, while problems relating to traditional agriculture and rural poverty were largely neglected. In recent times, however, development of non-enclave agriculture has been emphasized by the Government, budgetary provisions have been increased (from 3.8% of total public expenditure in 1970 to 5.6% in 1976), and some policy changes introduced (e.g., new pricing formulae for export crops, establishment of. price stabilization and agricul- tural development funds, and support price for paddy). 18. As stated in the Four-Year Development Plan, which earmarks about one-fifth of total investment resources for the development of agriculture, the Government's objectives for agriculture aim at diversifying and moderniz- ing the sector. Two basic strategies have been adopted: (a) in the short run, the Government seeks to achieve self-sufficiency in rice, the staple food for Liberians, by increasing production of upland and swamp rice through provision of improved seeds and fertilizers; (b) in the longer term, the Gov- ernment aims to encourage farmers to move away from the traditional shifting cultivation. The upland areas of Liberia are generally unsuitable for perma- nent cultivation of annual crops due to low soil fertility and ecological reasons. To regenerate soil fertility shifting cultivation is widely prac- ticed with fallow periods ranging from five to ten years. However, the  - 6 - ecological conditions of the upland areas are suitable for the profitable cultivation of tree crops. The Government is, therefore, anxious to expand tree crops, particularly coffee, cocoa and oil palm. The extent of tradi- tional shifting cultivation could further be reduced by developing swamps and other low land areas for semi-permanent cultivation of rice. While swamp rice currently accounts for less than 10% of total rice production and has received relatively little attention, its long-term potential for development is very encouraging. 19. In order to implement the above strategies, the Government envisages three different types of projects: (a) integrated rural development projects whereby productivity, income and living conditions of the small traditional farmers would be improved by providing a range of farm support services and infrastructural improvements; (b) establishment of large plantation for oil palm, sugar cane, coconut and rice by public sector corporations; and (c) im- plementation of on-going special projects featuring mechanical land develop- ment and subsequent cultivation of cleared areas by smallholders with support services provided by the Government. Under the Four-Year Development Plan, allocations of US$22 million for integrated rural development projects, US$33 million for large-scale farming and US$16 million for special projects have been made. It is apparent that the special projects under (c) above reflect the Government's desire to rapidly increase agricultural output and offset the labor shortage. However, experience with such mechanized projects has raised doubt about their economic viability: fully mechanized land develop- ment has proved to be expensive and has caused serious damage to the fragile top soil. One such project is being implemented by the Government in the Kpartawee clan area, which is within the boundary of the proposed project. The Government has agreed that after June 30, 1977 it would not engage in any new large-scale mechanized land clearing activities for tree crop devel- opment in the project area until the proceeds of the proposed credit have been fully employed (draft Development Credit Agreement, Section 5.01). 20. One of the major constraints to the development of smallholder agriculture in Liberia is the serious inadequacy of the agricultural credit facilities. The only institutional (and extremely limited) sources of small- holder credit have been the Cooperative, Credit and Marketing Division of the Ministry of Agriculture and the Liberian Produce Marketing Corporation, a wholly-owned Government corporation engaged primarily in marketing and ex- tension of coffee, cocoa and oil palm. The Government is aware of the need for expanding and streamlining smallholder credit operations and is consider- ing establishment of a comprehensive agricultural credit system. The Govern- ment has agreed that by June 30, 1977 it would prepare, for consultation with the Association, a proposal for the establishment of an agricultural credit system in Liberia, and within six months thereafter it would prepare, for consultation with the Association, a detailed plan for implementation of such proposal (draft Development Credit Agreement, Section 4.06). The Mar- keting Corporation has recently introduced a program of providing free tree crop seedlings and a cash grant of US$30 per month for tree maintenance to farmers participating in the Government's special projects which include the Kpartawee area in Bong County as mentioned in paragraph 19 above. Such a policy is not considered to be consistent with efficient management and use of resources and in the long run could impose undue burden on the Gov- ernment's finances, besides hindering development of appropriate credit  institutions. The Government has agreed that, after September 30, 1977, pricing of inputs and the terms of credits provided by the Government to farmers in the Kpartawee clan area would be made consistent with those under this project (draft Development Credit Agreement, Section 5.02). 21. An integrated smallholder development project using concepts and techniques similar to those of the proposed project is being implemented in the Lofa County of Liberia, financed jointly by IDA (under Credit 577-LBR, Lofa County Agricultural Development Project) and USAID. The project is assisting about 8,000 small farmers in Lofa County to increase and diversify production of upland and swamp rice, coffee and cocoa by providing credit, inputs and extension services as well as by strengthening physical and social infrastructures required for smallholder development. There was an initial delay in implementing the Lofa project due to difficulties in recruitment of key project staff. However, the Lofa project is now fully staffed and is being implemented satisfactorily, although it is too early to make a full assessment of its performance. The project has received necessary coopera- tion and support from the Government agencies and there has been a positive response from the project farmers. In designing the proposed project for Bong County, special care has been taken to ensure that there is no similar delay in the start-up of the project. Accordingly, the key project staff (i.e., Project Manager and Financial Manager) have already been appointed and the Association has granted an advance under the Project Preparation Facility to help finance essential project start-up activities. PART IV - THE PROJECT 22. The proposed project was identified by the Government and prepared by consultants, Agrar-und-Hydrotechnik (Germany), financed under the Liberia Agricultural Development and Technical Assistance Project (Credit 306-LBR). The Government requested IDA and USAID assistance in financing the proposed project and a joint IDA/USAID team appraised the project in May, 1976. A report entitled "Liberia: Bong County Agricultural Development Project," No. 1307a-LBR dated February 11, 1977, is being circulated separately to the Executive Directors. A credit and project summary is presented in Annex III. Negotiations took place in Washington December 6-10, 1976. The Liberian negotiating team was led by Mr. Louis A. Russ, Minister of Agriculture. Project Objectives 23. The principal objective of the project is to increase the farm income and improve the quality of life of subsistence farm families in the Bong County, who live on average holdings of about 2 ha and have an average per capita income of about US$68. The smallholders in the project area (about 19,000 farm families) employ traditional farming methods; farm management and husbandry practices are poor, and there are virtually no modern innovations, resulting in low productivity and standards of living at or below subsistence level. The project would introduce for the first time in the area a package of relatively simple and inexpensive technology combined with a set of farm support services and essential infrastructural improvements. Together, they  - 8 - are designed to induce and enable the target population to adopt innovations and attain higher production and farm incomes through diversification of their production. It is estimated that about 9,000 farm families in the project area would participate in the farm and crop development program under the project. Experience with similar projects in West Africa has shown that, within the constraints of finance, management and, in particular, the exten- sion service, not more than 40 to 50 percent of the area farm families would participate in the project technical program. Also, in order to en- sure continuity of farm support services initiated by the project, existing national and local institutions would be strengthened and new ones establi- shed. The project would be implemented over a five-year development period 1977/78-1981/82. 24. The Lofa project, as well as the project under consideration here, form an integral part of a comprehensive rural development program being launched by the Government in accordance with the national development pol- icy embodied in the Four-Year Development Plan. Both projects mark the be- ginning of a conscious effort by the Government to involve the rural poor in the national development effort and to bring about a more equitable dis- tribution of the benefits of economic growth. Project Content 25. Farm and Crop Development - The project would lead to increased production on about 6,000 ha of upland rice, 2,000 ha of swamp rice, 3,000 ha of cocoa and 1,500 ha of coffee. To achieve the increased production, the project would provide: (a) farm inputs (improved seeds and seedlings, fertilizers, insecticides, farm equipments, hired labor) on the basis of credit operated under a revolving credit scheme; (b) extension services, which include technical advice on farm management and crop production, assistance to farmers in the selection of appropriate soils for different crops and, where required, in land clearing and land development and farmer training; and (c) assistance in improving on-farm processing of coffee and cocoa, and marketing of crops. 26. Physical Infrastructure - The project would include (a) construction of about 170 km of new farm-to-market roads, reconditioning an existing 130 km and maintaining 540 km; (b) construction of offices, stores and houses; (c) expansion of a training center and related facilities at Suakoko; and (d) construction of about 300 village wells for supply of improved drinking water for residents of the project area. 27. Institutional Support - The project would include (a) the estab- lishment of farmer cooperatives to facilitate input, credit supply and mar- keting; (b) the establishment of the Bong County Project Management Unit (BPMU) for project implementation and to train Liberian staff in technical and managerial fields to strengthen the local capability to implement agri- cultural projects; (c) assistance to the Liberian Bank for Development and Investment (LBDI) for establishing banking facilities in the project area to provide customary banking services to local residents; (d) improved research facilities and capabilities at the Central Agricultural Experiment Station at  Suakoko; (e) the promotion of smallholder land registration; (f) assistance to the Ministry of Health in the surveillance of schistosomiasis, which is endemic in the country, in the project area; and (g) strengthening the Moni- toring and Evaluation Unit established under the Ministry of Agriculture for monitoring and evaluation of the project. 28. Technical Assistance - The project would include the employment of consultants for (a) preparation of an integrated agricultural develop- ment project, tentatively identified in Grand Gedah County; (b) a survey to explore the potential of a citrus processing indugtry in Liberia; (c) a detailed study on the reorganization of the Ministry of Agriculture; and (d) a study on agricultural research requirements, including organizational arrangements. This technical assistance would require about 70 consultant man-months with an estimated average man-month cost of about US$5,000. Project Cost and Financing 29. The total cost of the project is estimated at US$20.3 million (which includes about US$0.2 million of indirect taxes but excludes other taxes and import duties) during the five-year development period, 1977/78-1981/82. The foreign exchange component is estimated at US$9.8 million (48% of the total project cost). IDA would contribute US$7.0 million, USAID US$6.0 million 1/ and the Government US$7.3 million which represent 34%, 30% and 36% of the total cost, respectively. The IDA credit of US$7.0 million would finance US$5.4 million (or 55%) of foreign cost and US$1.6 million (or 15%) of local cost. The USAID Loan would finance US$4.4 million (or 45%) of foreign cost and US$1.6 million (or 15%) of local cost. The IDA credit would be on stan- dard terms and the USAID loan would be for 40 years, including 10 years grace, repayable in 30 equal annual installments with interest at 2% during the grace period and 3% thereafter. Signing of the USAID loan agreement by the Govern- ments of USA and Liberia would be a condition of effectiveness of the credit (draft Development Credit Agreement, Section 7.01). The following tables summarize project costs and their financing: 1/ The USAID is currently considering increasing its contribution to US$7.5 million. An increase in the U.S. contribution would be used to finance additional local costs and reduce the Government contribution by a proportionate amount.  - 10 - A. Summary of Estimated Project Cost -------US$ Million------- Local Foreign Total Institutional Support /1 4.74 2.78 7.52 Farm Inputs 2.03 1.40 3.43 Infrastructure /2 1.05 2.71 3.76 Technical Assistance - 0.35 0.35 Contingencies 2.70 2.49 5.19 Total 10.52 9.73 20.25 (% of Total Project Cost) (52) (48) (100) B. Proposed Financing ------------US$ Million------------ IDA USAID Liberia Total Institutional Support /1 3.88 0.38 3.26 7.52 Farm Inputs - 2.08 1.35 3.43 Infrastructure /2 1.19 1.74 0.83 3.76 Technical Assistance 0.35 - - 0.35 Contingencies 1.58 1.75 1.86 5.19 Total 7.00 5.95 7.30 20.25 (% of Total Project Cost) (34) (30) (36) (100) /1 Providing staff, vehicles, equipments and operating costs for the project management, schistosomiasis surveillance and evaluation and planning units. /2 Including farm-to-market roads, buildings, establishment of banking facilities, research improvements and village wells. 30. The main project items to be financed by IDA are internationally recruited staff, vehicles, vehicle operating costs, buildings, equipment, research improvements, development of banking facilities and consultants for feasibility studies. USAID will finance mainly farm inputs (fertilizers, insecticides, seeds, farm equipment, etc.) and farm-to-market roads. Items to be procured under the USAID loan would be competitive with world market prices. 31. In order to expedite initial implementation of the project, an advance of up to US$200,000 has been granted under the Project Preparation Facility. The advance would finance expenditures required prior to effec- tiveness of the proposed credit in connection with project startup activities, e.g., construction of staff houses, office buildings, recruitment of key ex- patriate staff, and vehicles. In accordance with normal terms and conditions of advances granted under the Facility, the advance and the service charge thereon will be fully repaid to IDA through reimbursement under the proposed credit as soon as it becomes effective.  Project Implementation 32. The Bong Project Management Unit (BPMU) would be established at Suakoko as a semi-autonomous entity of the Ministry of Agriculture with sole responsibility for implementing the project. BPMU would consist of five divisions: agricultural services; cooperative and credit services; training; finance; and administration. The project would be staffed by qualified local staff whenever possible, but because of shortage of experi- enced Liberians, certain key positions may have to be filled by expatriates. Accordingly, funds would be provided for the international recruitment of a Project Manager, Managers of the Finance, Agricultural Services, Training and Cooperative and Credit Services divisions, a Swamp Development Officer and a Land Use Planning Officer. These positions would be filled by persons having qualification and experience, and on terms and conditions, satisfactory to IDA (draft Development Credit Agreement, Section 3.01(c)). All expatriate staff would have an additional responsibility for training their Liberian counter- parts so that the latter may take over management of the project toward the end of the development period. 33. The Project Steering Committee composed of the Ministers of Agri- culture (Chairman), Finance, Planning, Local Government and Rural Develop- ment as members, and the Project Manager of BPMU as secretary, would be established, to determine project policy, exercise budgetary control and ensure interministerial coordination at the national level in the execution of the project. Coordination and cooperation among tribal heads and local leaders in the project area would be achieved through the Project Consulta- tive Committee which would include the County Superintendent (Chairman), paramount chiefs of the six chiefdoms, heads of the local branches of var- ious governmental agencies, chairmen of the farmer cooperatives, and the Project Manager and Deputy Manager of BPMU. 34. The Ministry of Public Works would be responsible for implementing the farm-to-market road component of the project through a special unit to be created within the Ministry. The surveillance of schistosomiasis would be through a special unit established under the Ministry of Health, which would cover both the Bong and Lofa Projects. These units would operate in close liaison with BPMU in all phases of their work. An assurance has been given by the Government that, in the event of a marked increase in schis- tosomiasis in the project area, the Government would promptly institute preventative and curative measures (draft Development Credit Agreement, Section 3.09(b)). 35. A study on the reorganization of the Ministry of Agriculture car- ried out under the Agricultural Development and Technical Assistant Project (Credit 306-LBR) has been completed by consultants. The consultants' re- port, which is currently under review by the Government and IDA, recommends that a semi-autonomous Rural Development Authority be established as an agency responsible for smallholder agricultural development. However, the study was not intended to provide the details required for implementation  - 12 - of the reorganization proposals and further work is required on such matters as job descriptions, position classification and cost estimates. In view of the urgent need for creating an adequate institutional framework that would ensure continued support services to project farmers during the post devel- opment phases of this and other projects being developed within the agricul- tural sector, funds would be provided under the proposed credit for a fol- low-up study designed to provide more detailed proposals for reorganization, including the specifics of implementation. Training 36. The project would provide for the training of all extension, coop- erative and credit field staff recruited by BPMU by a combination of short courses interspersed with practical field instruction. The project would also provide overseas training of selected Liberian staff in coffee and cocoa as well as training in project management and rural development administration for senior Liberian staff of BPMU. Farmer training would be organized on village demonstration farms, at farmer training centers attached to the six zonal offices of BPMU and through farm visits. Upon completion of the proj- ect, field staff trained uLnder the project but not needed for maintenance of the project would be transferred to other counties where there is a big demand for, but serious lack of, trained extension workers. Agricultural Credit, Input Supply and Marketing 37. Under the project, farmer cooperatives which would be responsible for delivery of farm inputs and credit and for providing improved marketing facilities to project farmers would be established. However, until this is done, BPMU's Cooperative and Credit Services Division would arrange for these services. 38. A revolving credit fund would be established under an agreement between the Government and the Liberian Bank for Development and Investment (LBDI), the latter acting as administrator of the fund. LBDI would lend to the farmer cooperatives which, in turn, would advance credits to project farmers. Individual credit applications would be screened by a credit advis- ory committee consisting of the village or clan chief and BPMU cooperative staff. Two types of credits would be provided under the project: (a) Development loans would be available to cover costs of developing coffee and cocoa (seedlings, fertilizers, land development service, hand tools, processing equip- ment, etc.) and swamp rice (hired labor for construction of water control and storage structures, pedal threshers, etc.). Loans for coffee and cocoa development would be repaid in 12 years, including a 4-year grace period, and would bear interest at 10% per annum. Loans for swamp rice development would be repaid in 8 years, including a 2-year grace period, and would bear interest at 10% per annum.  - 13 - (b) Seasonal loans would be available (with an average maturity of about 8 months) to cover costs of seasonal inputs for rice, coffee and cocoa (improved rice seeds, fertilizer, agricultural chemicals, spraying service, etc.) and would be repayable at harvest with a flat 10% service charge. A Revolving Credit Fund Agreement, satisfactory to the Association, would be entered into between the Government and LBDI not later than June 30, 1977, and would provide for smallholder credit to be made available on the terms agreed with the Government (draft Development Credit Agreement, Section 4.05 (a) and Section 4.05 (f)). The revolving credit fund would charge farmer co- operatives 7% per annum on loans onlent to farmers at 10%, allowing a margin of 3% for farmer cooperatives to cover the costs of administering loans and bad debts. LBDI would receive a 2% commission on disbursed funds to cover the cost of administering the revolving credit fund. At the end of project development in 1982, the fund would have about US$570,000 and by 1995 all development loans amounting to US$2.5 million would have been repaid and made available for further agricultural development as determined by the Revolving Credit Fund Agreement. The Government has agreed that, after the completion of the project, the fund's capital would be used exclusively for the purpose of smallholder credit operations (draft Development Credit Agreement, Section 4.05 (d)). 39. The supply of farm inputs would be organized and implemented ini- tially by BPMU and later by the farmer cooperatives with assistance from BPMU staff. The Liberian Produce Marketing Corporation would be responsible for procuring farm inputs mainly through importation and for delivery to BPMU or cooperative storage in the project area. Farmers would pay the full delivered price for all inputs supplied. The Marketing Corporation would be entitled to a 5% commission on the value of inputs plus transport costs. The farmer cooperatives would receive a 5% fee to cover handling charges plus local transport costs for delivery to farmers. 40. As several thousand farmers who have so far had little or no ex- perience with market production would have to be integrated into the mar- keting system, an objective of the project would be improved marketing mech- anisms and related infrastructural facilities. This would be achieved by the creation of collection points where farmers would be paid full producer prices set by the Government, the promotion of farmer cooperatives as mar- keting intermediaries, the provision of market information service to farmers, and the introduction of more efficient farm-to-market transport and storage facilities. 41. Liberia is not a major producer of coffee and cocoa and its cur- rent exports are less than 0.2% of world production of each commodity. The incremental coffee and cocoa output from the project would be insignifi- cant in terms of total world production and would have no impact on world  - 14 - prices. The International Coffee Organization and the International Cocoa Organization have been consulted and they have no objection to the proposed coffee and cocoa development, respectively, under the project. Procurement and Disbursement 42. Procurement contracts for vehicles, equipment for offices and workshops, and other items valued at more than US$50,000 would be through international competitive bidding in accordance with IDA guidelines. Domes- tically manufactured goods would be allowed a 15% preference or the applicable duty, whichever is lower, when comparing domestic bids with those of foreign manufacturers. Contracts for items costing between US$5,000 and US$50,000 and civil works (office buildings and houses) would be awarded on the basis of local competitive bidding in accordance with procedures satisfactory to IDA. Contracts for items costing less than US$5,000 would be through cus- tomary local procedures satisfactory to IDA. The aggregate value of procure- ment under these procedures (i.e., international competitive bidding, local competitive bidding and local customary procedures) is estimated at about US$2.2 million. 43. The IDA credit of US$7.0 million would be disbursed over the five years 1977/78 to 1981/82. It would be disbursed against: (a) 100% of for- eign expenditure for imported vehicles and equipment (other than farm equip- ment and road building vehicles financed by USAID) or 90% of the total cost if locally procured, totaling US$0.8 million; (b) 80% of the cost of buildings and furnishings, totaling US$0.4 million; (c) 100% of foreign expenditure for internationally recruited staff, consultants and overseas training of local staff, totaling US$2.15 million; (d) 70% of expenditures for administration and operating costs, the establishment of banking facilities, and materials for village wells, totaling US$1.1 million; (e) 20% of expenditures for local staff, excluding those financed by USAID, totaling US$0.6 million; and (f) 100% of foreign expenditures and 50% of local expenditures for the improvement of research and laboratory facilities, totaling US$0.45 million. An amount of US$1.5 million would be unallocated. Project Benefits and Risks 44. The overall economic rate of return calculated on the basis of the quantifiable part of incremental costs (86% of the project cost) and benefits is estimated at 21%. At project maturity in 1990, direct benefits from the project would be incremental production of about 8,700 tons of paddy rice, 3,000 tons of cocoa beans and 1,500 tons of clean coffee annually. From 1990, the project would generate net foreign exchange earnings and savings of about US$6.7 million annually through increased export of coffee and cocoa, and rice import substitution. About 9,000 smallholder families with average holdings of about 2 ha would benefit directly from increased production. By 1990, their average net family income is estimated to increase from the present US$360 (US$68 per capita) to about US$850 (US$160 per capita) in real terms. However, even this increased level of income would still be substantially below the present national average per capita income of US$410 and the project  - 5 farmers would still be poor. The project would cause substantial mobilization of labor in the project area, particularly the seasonally unemployed and underemployed. 45. The project would have important secondary benefits for the com- munity as a whole from improved roads, banking facilities, health services and marketing system. Development of the cooperatives would create rural capabilities for providing farm support services, which could benefit poten- tially all the farm families in the project area. The project would also strengthen the technical and managerial capabilities of the Agriculture Ministry, resulting in improved planning and implementation of future rural development projects. 46. As in other rural development projects, the project's direct con- tribution to Government revenue is minimal because there are no Government taxes that can be applied; the present system of land taxation being com- pletely inelastic to farm incomes. Nor can project beneficiaries be charged for general technical services. However, there are likely to be substantial increases in revenues to the Government from indirect taxes (sales tax, excise duties) resulting from increased expenditure on imported and locally produced goods. The Marketing Corporation, through increased market turnover, should increase its revenue from coffee and cocoa by about 8% of FOB value annually, and in addition would receive a 7% levy on project generated coffee and cocoa for its agricultural development fund. Development loans made under the proj- ect for farm inputs would be repaid and made available for further agricul- tural development in Liberia. 47. Smallholder agricultural development projects are inherently and conceptually complex and subject to a number of potential risks and uncertain- ties (e.g. inadequate coordination and cooperation among Government agencies). However, the Government has demonstrated considerable commitment to the development of smallholder agriculture and this has been confirmed by the seriousness with which the Government is currently implementing the Lofa project. Risks due to technical weaknesses have been minimized since the technological packages are simple and have already been successfully tested in Liberia as well as elsewhere in West Africa. PART V - LEGAL INSTRUMENTS AND AUTHORITY 48. The draft Development Credit Agreement between the Republic of Liberia and the Association, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association and the text of a draft resolution approving the proposed credit are being distributed separately to the Executive Directors. 49. Special conditions of the project are listed in Section III of Annex IV of this Report. Signing of the USAID loan agreement of US$6 million and the appointment of the Manager of the Agricultural Services division of BPMU would be additional conditions of effectiveness of the Credit Agreement. A  - 16 - condition of credit disbursement against the cost of improving research facilities (except for expenses in respect of continuation of rice research initiated under Credit 306-LBR) would be that the Association has approved the proposals for the reorganization of agricultural research referred to in paragraph 28 above. 50. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 51. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President by J. Burke Knapp Attachments April 6, 1977  ANNEX I Page 1 of 4 pages TABLE 3A LIBERIA - SOCIAL INDICATORS DATA SHEET LAND AREA ITHOU KN21 - ---------~-- -- LIBERIA REFERENCE COUNTRIES (19701 TOTAL 111.4 MOST RECENT AGRIC. 6.2 1960 1970 ESTIMATE GHANA IVORY COAST JAMAICA" GNP PER CAPITA IUSI) 180.0 290.0 410.0 340.0 340.0 770.0 POPULATICN AND VITAL STATISTICS POPULATION (MID-YR. MILLION) 1.0 1.3 1.5 8.6 5.4 1.9 POPULATION DENSITY PER SQUARE KM. 9.0 12.0 1'4.0 36.0 16.0 170.0 PER So. KM. AGRICULTURAL LAND 160.0 211.0 242.0 64.0 32.0 3814.0 VITAL STATISTICS CRUDE BIRTH RATE PER THOUSAND 44.4 42.8 43.6 49.8 46.1 38.5 CRUDE DEATH RATE PER THOUSAND 27.9 23.5 20.7 24.4 23.3 8.6 INFANT MORTALITY RATE (/THOU) .. 137.3 159.2 156.0 .. 32.2 LIFE FXPECTANCY AT BIRTH IYRS) 36.5 41.0 43.5 41.5 41.0 67.8 GRCSS REPROlDUCTION RATE .. 2.6 2.7 3.2 3.1 2.7 POPULATION GROWTH RATE IX) TOTAL 3.3 3.P 3* 2.6 3.4 /a t.41/ URBAN .. .. 8.6 /a 5.0 8. 7? 6.2 URBAN POPULATION (t OF TOTAL I .. 26.2 27.6/d 29.0 28.0 37.0 AGE STRUCTURE (PERCENT) 0 TO 14 YFARS 37.2/a 40.7 41.6 46.9 42.5 45.9 15 TO 64 YEARS 58.87a 56.0 ss.n 49.5 54.8 50.14 65 YEARS AND OVER 4.o7a 3.3 3.4 3.6 2.7 3.7 AGE DEPENDENCY RATIO 0.7 0.8 0.8 1.0 0.8 1.1 ECONOMIC DEPENDENCY RATIO 1.0/a.b 1.0/a .. 1.4 0.9 /c 1.7 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) .. .. .. 10.9 .. 49.8 LSERS It OF MARRIED WOMEN) .. .. .. 2.0 EMPLOYMENT TOTAL LABOR FORCE ITHOUSAND) 410.0 /a 580.0 .. 3300.0 2600.0 600.0/f LABOR FORCE IN AGRICULTURE 42t 81.0 7a- 72.0 .. 54.0 / 82.0 33.0 UNEMPLOYED (5 OF LABOR FORCE) .. 20.0/b . 6.2 .. 14.0 INCOME DISTRIBUTION I OF PRIVATE INCOME REC D BY- HIGHEST 5 OF HOUSEHOLDS .. 61.7/c .. HIGHEST 202 OF HOUSEHOLDS .. 72.67 ... LOWEST 20Y OF HOUSEHOLDS .. 5.37 ..7 LOWEST 402 OF HOUSEHOLDS .. 10.97 ... DISTRIBUTION OF LAND OWNERSHIP 2 OWNED BY TOP 10 OF OWNERS 2 OWNED BY SMALLEST 10 OWNERS .. .. .. HEALTH AND NUTRITION POPULATION PER PHYSICIAN 12000.0/c 10450.0 .. 12950.0 /b 15320.0 d 2630.0 POPULATION PER NURSING PERSON 5?i4.30,Z' 4140.0 .. 1070.0 76 2830.0 /d 1720.0/b POPULATICN PER HOSPITAL BED 730.0 530.0 *- 760.0 1150.0 Z 240.0 PER CAPITA SUPPLY OF - CALORIES 4t OF REQUIREMENTS) 86.0 88.0 94.0/b 96.0 108.0 103.0 PROTEIN (GRAMS PER DAY) 35.0 36.0 39.07 46.0 60.0 56.0 -OF WHICH ANIMAL AND PULSE .. 10.0/d .. 10.0/c 18.0/e 29.0/ DEATH RATE (/THOU) AGES 1-4 29.0/a *- 21.0 4.2 EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 38.0 43.0 52.0 /c 58.0 76.0 101.0 SECONDARY SCHOOL 2.0 12.0 IS.O 7a 9.0 11.0 24.0 YEARS OF SCHOOLING PROVIDED IFIRST AND SECOND LEVEL) 12.0 12.0 12.0 15.0 13.0 12.0 VOCATIONAL ENROLLMENT tt OF SEClOtAttY) 12.0 5.0 4.0 /o 23.0 7.0 9.0 ADULT LITERACY RATE 4I1 9.0 /a 15.0 *- 25.0 20.0 86.0/d HOUS ING PERSONS PER ROOM /AVERAGE) 1.7/d .. OCCUPIED DWELLINGS WITHOUT PIPED WATER l2) .. .. .. .. .. 78.0/e ACCESS TO ELECTRICITY tT OF ALL DWELLINGS) .. .. .. .. .. 27.0 RURAL DWELL INGS CONNECTED TO ELECTRICITY I1) .. .. .. CONSUMPTION RADIO RECEIVERS (PER THOU POP) 77.0 132.0 . 78.0 17.0 376.0 PASSENGER CARS tPER THOU POP) 1.0 11.0 9.0/c 4.0 10.0 38.0 ELECTRICITY (KWH/YR PER CAP) l01.0 330.0 573-0 338.0 120.0 825.C NEWSPRINT IKG/Yt P et CAP) . 0.1 0.1 0.4 0.2 '.3 see NOTES AIUI DEFINITIONIS ON REVERFE  Page 2 of 24 pages Unless otherwise noted, data for 1960 refer to any year between 1 959 and 1961, for 1970 between 1 968 and 1970, and for Most Recent Estimate between, 1973 mind 1975. W e to imsigratlon, grw~th rate Is higher then rate of natural increase. * Jmassaca has bean selected me.a objective country since its GNP per capita io between two and three times that of Liberia; its economic structure depends heavily on the mining sector; both countries are encouraging foreign investments; and Liberia's employment policy objective is to0 reach the current level of Jamaica's manpower training. LIBERIA 1960 /a 1962; /b Retio of poplmAtion under 15 end 65 and over to total labor force; La 19624; /d 1956 households, city of Monrovia only. 1970 /a Ratio of population under 15 and 65 and over to total labor force; /b Unemployed and partially employed; /, Popula- tion, 1975 Hank Econcnic Report. Higher income calculated as residual; includes eapatrietes; /d 1962446. MOST RECENT ESTIKATE: /a 1970-71; /b 1969-71 avenage; /c 1972; /d 1971. GFJAM ~1970 /a Eacluding unemployed; /b Registered, not all practicing In the country; /c 1966468. IVORY COAST 1970 /a Thi to immigration, the growth rate is higher than t-he rate of natural increase; /b 1965-70; La Retio of population under 15 and 65 and over to tcial labor fosce; /d Gomernment only, including midwives; /La 1966-66. JAMAIA 1970 /a Thi to emigration, the growth rate is lower than, the rate of natural inmcrase; /b Personnel in government services only; /c 19624-66; /d 1966; e masids only; I Dathe based on official definition which includes those willing to work but not acetively seeking employmat.n R8, March 2, 1977 DiPINITIONS OP SOCIAL INDICATORS teed Ares (thon ;o2) Ppoclation Per cocaine persol - Population divid.d ky anusber of practicing Total T- tatnlufc area coprining hand area and inland water. oaile and female graduate nurses, "trsined" or "certified"m-res, ad, ARt)i