Tanzania - Morogoro Textile Project

FILE COPY Dkoument of FL CPThe World Bank VOR OFMFCIAL USE ONLY Rqrt No. P-2353-TA REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A MOROGORO TEXTILE PROJECT June 14, 1978 Thi doment has a reddoIutIbtd Wom a i My be ued by recipies ondy in the perfmance of thir offiia dte. lt cotets may Nat orwie be disclod with_t World _ak anhoaloun.  CURRENCY EQUIVALENTS Currency Unit = Tanzania Shiliing (TSh) US$1.00 = TSh8.30 TShl.0 = US$0.12 (As the Tanzania Shilling is officially valued at a fixed rate of 9.66 TSh to the SDR, the US Dollar/Tanzania Shilling exchange rate is subject to change. Conversions in this report were made at US$1.00 to TSh8.30 which is close to the recent average exchange rate.) ABBREVIATIONS AND ACRONYMS CCM = Chama Cha Mapinduzi Company = Morogoro Polyester Textiles Limited Government - Government of Tanzania ICB - International Competitive Bidding MWATEX = Mwanza Textiles Limited MAF = Management Agency Firm PAF Project Advisory Firm PEF = Project Engineering Firm PIU = Project Implementation Unit RTC = Regional Trading Company TANZATEX = Tanzania Textile Trading Co. TEXCO = National Textile Corporation TIB = Tanzania Investment Bank TMF = Technical Management Firm FISCAL YEAR Government: July 1 - June 30 TEXCO and Company: January 1 - December 31  FOR OFFICIAL USE ONLY TANZANIA - MOROGORO TEXTILE PROJECT LOAN/CREDIT AND PROJECT SUMMARY BORROWER: United Republic of Tanzania BENEFICIARIES: National Textile Corporation (TEXCO) Morogoro Polyester Textiles Limited (Company) AMOUNT: Loan: US$25.0 million Credit: US$20.0 million TERMS: Loan: Terms of 20 years including 5 years of grace with interest at 7.5% per annum Credit: Standard RELENDING US$8.5 million equivalent of the IDA Credit and the TERMS: entire IBRD Loan would be relent to the Company for 15 years including 4-1/2 years of grace with interest at 10% per annum. The Company would bear the foreign exchange risk. US$9.5 million equivalent of the IDA Credit would be passed on to the Company as equity andUS$2,0 million equivalent would be provided to TEXCO. PROJECT The project would consist of an integrated textile DESCRIPTION: mill with spinning, weaving and processing facilities to produce about 21.5 million sq. meters of blended fabrics for shirtings and suitings, as well as 650 tons of polyester/rayon yarn. The mill would use locally grown cotton and imported polyester and rayon, and the project output would represent about 11% of Tanzania's projected total fabric production in the mid-1980s. The project includes provision for financing of technical assistance to TEXCO, and a training component. The project faces no substantial risks with regard to technical, marketing and pricing aspects. The management risk would be minimized with the involvement of experienced international firms during implementation and initial operations of the project, and a training program has been designed to ensure availability of trained manpower. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ESTIMATED (US$ Million (Equivalent) COST: Local Foreign Total Plant and Machinery 3.7 29.0 32.7 Civil Works 13.3 5.3 18.6 Freight, Insurance and Port Handling 2.0 3.6 5.6 Erection Cost 0.3 1.9 2.2 Engineering and Other Services 1.4 3.3 4.7 Study and Training 0.4 1.5 1.9 Base Cost 21.1 44.6 65.7 Physical Contingencies 1.6 2.2 3.8 Price Contingencies 3.7 5.7 9.4 Working Capital 8.8 5.7 14.5 Technical Assistance to TEXCO 0.2 2.0 2.2 TOTAL PROJECT COST 35.4 60.2 95.6 Interest During Construction 3.7 7.6 11.3 TOTAL FINANCING REQUIRED 39.1 67.8 106.9 of which taxes and duties 2.5 - 2.5 Project Costs net of taxes and duties 36.6 67.8 104.4 FINANCING PLAN: Debt: World Bank Loan 1/ - 24.3 24.3 IDA Credit - 8.5 8.5 Suppliers Credits - 20.0 20.0 Tanzania Investment Bank (TIB) - 10.0 10.0 Equity: From proceeds of IDA Credit 9.4 2.1 11.5 From Government's own funds 29.7 2.9 32.6 TOTAL 39.1 67.8 106.9 US$0.7 million of the Bank Loan would be used to finance foreign expenditures for the Management Agency Firm to manage the new plant during the first three years of operation. This expenditure is therefore not included in project capital cost estimates.  ESTIMATED DISBURSEMENTS: Bank FY 1979 1980 1981 1982 1983 1984 1985 Loan: Annual 4.6 14.7 5.1 0.2 0.2 0.2 Cumulative 4.6 19.3 24.4 24.6 24.8 25.0 Credit: Annual 8.3 11.7 Cumulative 8.3 20.0 RATE OF RETURN: 19% APPRAISAL REPORT: No. 1893(b)-TA of May 20, 1978   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN AND CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A MOROGORO TEXTILE PROJECT 1. I submit the following report and recommendation on a proposed Loan to the United Republic of Tanzania of US$25.0 million equivalent and a proposed Credit of US$20.0 million equivalent to help finance the Morogoro Textile Project. The Loan would have a term of 20 years including 5 years of grace at an annual interest rate of 7.5% per annum and the Credit would be on standard IDA terms. The grant element of the combined Bank Loan and IDA Credit is about 40%. Bank/IDA funds amounting to US$33.5 million would be onlent to the project sponsor (Morogoro Polyester Textiles Limited - the Company) for a period of 15 years including 4-1/2 years of grace at an annual interest rate of 10%. US$9.5 million in IDA funds would be passed on to the Company as equity and the remaining US$2.0 million in IDA funds would be passed on to the National Textile Corporation (TEXCO) for sectoral technical assistance. In addition to the Bank/IDA funds, the United Republic of Tanzania is arranging to borrow an additional US$30.0 million from other sources. The Tanzania Investment Bank (TIB) is expected to provide a loan of US$10.0 million for a period of 15 years, including 4-1/2 years of grace at an annual interest rate of 11%. The Government is contacting export credit agencies to cover the remaining US$20.0 million in project financing requirements. 1/ PART I - THE ECONOMY-/ Introduction 2. A Basic Economic Mission visited Tanzania in August 1976. The Basic Economic Report was distributed in December 1977 (Report No. 1616-TA). 3. Tanzania has experienced a degree of continuity and stability in political structure, leadership and objectives which is unrivaled in Africa. The TANUVI party, under the leadership of President Nyerere, has been the 1/ This section is the same as that of the President's Report on the Tanzania Tobacco Handling Project (Report No. P-2313-TA dated May 1, 1978). 2/ TANU (the mainland political party) was merged with the Zanzibar political party (the Afro-Shirazi Party) in February 1977. The new party is now called Chama Cha Mapinduzi (CCM).  -2- unifying force in Tanzania's political evolution since the early 1950s. For the past decade, following the Arusha Declaration in early 1967, Tanzania has pursued the objectives of social equality, self-reliance, the eradication of poverty and economic and social transformation. The Government has empha- sized rural development, social ownership of the principal means of production, and full participation of all regions and population groups in the development process. Economic growth has been an important objective but the leadership has been willing to forego short-term income gains for longer-term structural change and more equitable distribution. In restructuring the political, economic and social life of the country the leadership has introduced a series of far-reaching institutional reforms: most large-scale units in manufacturing, finance and wholesale trade have been nationalized; the Government has sharply increased its share of revenue in GDP through pro- gressive taxation; a significant portion of public sector expenditure control has been delegated to the regions and districts and a massive campaign of villagization has been initiated to join the rural population in viable long-term development units. 4. With an average per capita income of $180, Tanzania is classified as one of the least developed countries as defined by the United Nations (country data are provided in Annex I). Between 1967 and 1973 Tanzania's GDP at factor cost was growing at an annual rate of 4.5 percent. With population growing at2.7 percent per year, per capita output was rising at only i.b percent per year on average. Domestic savings reached 18 percent of GDP while gross investment was sustained at between 20 to 25 percent of GDP, extremely high rates for a country at Tanzania's low level of per capita income. However, the growth rate in GDP was not commensurate with the magnitude of the investment effort, in part because of the high proportion of investment which was directed into slow-gestation infrastructure and social services projects but also because of sluggish growth in the agri- cultural sector and stagnant or declining productivity in parastatal enter- prises. During this period Tanzania's overall balance of payments situation was generally satisfactory, despite the disappointing performance in the export sector. The rapid growth in imports was more than compensated by increasing capital inflows, largely from bilateral sources on soft terms. The overall balance of payments was in surplus in most years during 1969-73, resulting in a modest buildup in net foreign exchange reserves to slightly over $150 million at the end of 1973, the equivalent of almost four months' imports. The Economic Crisis of 1974 and the Government's Response 5. In 1974 Tanzania was suddenly confronted with a severe economic crisis. Failure of rains in late 1973 and early 1974 caused a massive decline in production and marketing of the major foodgrains and the Govern- ment was compelled to import large quantities of grain. Tanzania's main export crops were also affected by the drought, and the resultant declines in export volumes prevented Tanzania from taking advantage of the commodity price boom of 1974. These agricultural problems were compounded by the disloca- tion resulting from the rapid expansion of the villagization program.  -3- On the import side, total cost of merchandise imports rose by over 50 percent between 1973 and 1974, despite a slight decline in volume. As a result of these factors the trade deficit widened from $158 million in 1973 to $340 million in 1974 while the overall balance of payments moved from a surplus to a deficit of $140 million. This balance of payments gap was financed largely through drawings from the IMF and a rapid depletion of reserves. Net reserves fell to $60 million at the end of 1974, equivalent to only one month's import requirements. Industrial production also stagnated in 1974 due to shortages of imported raw materials and interruptions in power and water supplies. While production declined, domestic demand increased rapidly because of expansionary fiscal, monetary and wage policies. The imbalance between domestic demand and supply, combined with the sharp escalation in import prices, resulted in severe pressure on the domestic price level. 6. Once the extent of the problems facing the country was realized, the Government formulated a comprehensive package of policy actions to bring the balance of payments under control while maintaining the pace of its development effort. The principal elements of the package included a reallocation of investment in favor of directly productive sectors, measures to raise agricultural output, and constraints on wages and on public and private consumption. Government budget allocations to agriculture and industry were substantially increased; significant increases were approved in agricultural producer prices; tight import controls were implemented; indirect taxes on consumer goods increased; user charges for water and electricity were raised and an extremely restrictive wage and salary policy was followed. This package was reviewed with the Bank at the time of appraisal and negotiation of the Program Loan in late 1974, and approval of that Loan was based on the Bank's agreement with and support of the policy package. Approval of the subsequent Program Credit in 1977 was based in part on the Government's overall performance in implementing the agreed upon program. Economic Performance in 1975 and 1976 7. The major macroeconomic indicators have generally improved since 1974, reflecting both improved weather conditions and the effects of the policy measures introduced to deal with the crisis. Agricultural production increased by 6.5 percent in 1975 compared to a decline of 3.3 percent in 1974, while total GDP grew by 4.6 percent compared with only 2.2 percent in 1974. This was despite the fact that during 1975 production of cotton and some other cash crops still suffered from disorganization due to villagization. In 1976 some of the problems of villagization were being rectified through "operation correction," and since rains were once again favorable agricul- tural production was generally good. Agricultural production increased by about 4.5 percent in real terms in 1976, industrial production expanded 6.2 percent and GDP grew 5.2 percent. Preliminary estimates are that agriculture and total production expanded by about 5 percent again in 1977. 8. The goods and services account of the balance of payments continued to deteriorate in 1975 due to continuing production difficulties, declines in some agricultural export prices and the continuing need to import food for part of the year. The trade deficit increased from $340 million in  -4- 1974 to $400 million in 1975. Even after allowing for a high level of project-related capital inflows and a huge increase in grant assistance and concessional food aid, there was a residual deficit of almost $75 million. Whereas the 1974 residual deficit was filled almost entirely through a combination of IMF assistance and reserve depletion, the 1975 deficit was met through foreign assistance from a variety of sources, including the $30 million Program Loan from the World Bank (para. 6). In 1976 the balance of payments picture improved. The trade deficit declined due to strong export performance, especially for coffee and cotton, and to a slight fall in the value of imports occasioned by a greatly lessened need for foodgrain imports and continuing tight restrictions on all other categories of imports. The overall balance of payments surplus was about $35 million for the year and continued in surplus throughout 1977. Gross foreign exchange reserves at the end of 1977 totalled $280 million, or about four months imports. Because of the very concessional terms on which aid has been given to Tanzania and the Government's refusal to use higher cost commercial loans and suppliers' credits, the overall debt service ratio has remained low. Including a notional 40% share of the debt of the East African Community Corporations, it was less than 8% in 1977. While the favorable terms of much of Tanzania's foreign assistance (particularly the increasing proportion of grants) signi- ficantly reduce the debt service burden they also increase Bank Group expo- sure. Debt service payments to the Bank Group were about 28.6% of Tanzania's total debt service payments in 1977, and are projected to rise to approximately 30% in 1980. 9. Tanzania has a suitable development program which will require substantial domestic funds in excess of local savings and external capital. In view of our support for the Government's increased emphasis on local cost intensive rural investments and the need not to aggravate the local funds shortage, local cost financing is justified on country grounds. East African Community (EAC) 10. The recent developments in the East African Community were outlined in a report to the Executive Directors dated December 29, 1977. Dr. Victor Umbricht, the independent mediator recently appointed by the Partner States, visited East Africa in February and has begun work on the questions involved in appraising the assets and liabilities of the EAC Corporations and making recommendations on their allocation. The de facto breakup of the Community is expected to have some impact on Tanzania's budget as new national corpo- rations take over the services formerly provided by the EAC Corporations. While substantial initial investments are required (particularly in the formation of the airways corporation and the rehabilitation of the railways), the burden on the Government budget will hopefully be temporary as the new corporations should become self-financing. A major development related to the EAC difficulties was the closure of the border with Kenya. Kenya was a major trading partner of Tanzania and in the short run considerable adjust- ments have had to be made in locating new suppliers for some items and developing alternative outlets for some manufactured goods and agricultural products.  -5- PART II - BANK GROUP OPERATIONS IN TANZANIA 11. Tanzania joined the Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1962, 33 IDA credits, 13 Bank loans and two Third Window loans amounting to $559.5 l/ million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of 10 loans totalling $244.8 million which have been extended for the develop- ment of the common services and development bank operated regionally by Tanzania, Kenya and Uganda through their association in the East African Community. IFC investments in Tanzania, totalling $4.7 million, were made to the Kilombero Sugar Company in 1960 and 1964. This Company encountered financial difficulties and in 1969 IFC and other investors sold their interest in the Company to the Government. A new IFC investment of $1.75 million in soap manufacturing in Mbeya was approved by the Executive Directors on June 8, 1978. Annex II contains summary statements of Bank loans and IDA credits to Tanzania and the East African Community organizations as of April 30, 1978 and notes on the execution of ongoing projects. 12. In keeping with Tanzania's overall development strategy, Bank Group lending operations are increasingly focusing on the rural sector and directly productive projects. Up to the end of FY72, 10 out of 14 loans and credits made individually to Tanzania had been for infrastructure. The overwhelming majority of the operations approved since then have been for directly productive projects. Furthermore, a number of Bank Group supported infrastructure projects have been closely linked with specific productive activities. For example, the Urban Water Supply Project CLoan No. 1354-TA) approved in January 1977, will support the Industrial Complex in Morogoro (Loans No. 1385-T-TA and 1386-TA) and the proposed project. Other directly productive projects recently approved include a Tanzanian Investment Bank Project, a Tobacco Handling Project, a Second Cashewnut Processing Project and a Mwanza/Shinyanga Rural Development Project. The first Bank Group assisted project in the forestry sector, the Sao Hill Forestry Project (Loan No. 1307-TA), approved in July 1976 will provide the raw materials for Tanzania's first paper and pulp plant, also under consideration by the Bank Group for financing. Projects which have been appraised include a Second Urban Water Supply Project, a Sixth Education Project, the Mufindi Pulp and Paper Project, a Tourism Rehabi- litation Project, and a Fifth Highway Project. A rural development project in Mara, a harbours project, an agricultural services project and a line of credit to the Tanzania Rural Development Bank are also under preparation. Including three projects approved by the Executive Directors on May 16, 1978 -- the Tobacco Handling Project, the Second Cashewnut Processing Project and the Mwanza/Shinyanga Rural Development Project.  -6- 13. Although the comparatively high proportion of undisbursed loans and credits, detailed in Annex II, is in large part a result of the recent approval of many of these projects, it also reflects the fact that overall project implementation has been slower than was pro- jected. It is clear in retrospect that both the Bank and Tanzania have been optimistic regarding Tanzania's absorptive capacity. The causes of the difficulties in implementation are varied. Some stem from the scarcity of suitably trained and experienced manpower, some reflect the problems in identifying agronomic input packages appropriate to the needs of smallholder farmers while others result from the strains asso- ciated with attempting a "frontal attack" on poverty. These problems have been compounded by frequent and drastic administrative changes, which -- though potentially the source of long-term benefits -- have certainly disrupted orderly execution of projects and made parts of earlier project concepts obsolete. In general, these difficulties have been more severe in agriculture, particularly in the smallholder rural sector. As our lending program has increasingly concentrated on this sector, these problems have become correspondingly more apparent and severe. By contrast, the "modern" sector projects have tended to fare better: the Tanzania Investment Bank, Mwanza Textile, and Cashewnut Processing Projects, for example, are proceeding well. 14. As the Bank's lending program has expanded, increasing attention has been given to measures designed to improve project implementation. A course was conducted in Dar es Salaam in 1973 and again in 1978 on Bank procurement with the relevant Government officials. A special project implementation unit was set up in the Ministry of Agriculture and nine Agricultural Development Services staff have been assigned to Bank projects. The need to establish a close and continuous working level dialogue between responsible Tanzanian officials and Bank staff on follow- ing up implementation problems was one of the prime reasons for the expan- sion of the Resident Mission to two professionals in October 1976. In February 1977 a regular Government/Bank review of project implementation was established. Discussions, chaired by the Ministry of Finance and attended by Bank staff and officials from implementing agencies, were held in Dar es Salaam on the entire Bank Group program. Steps to strengthen this review procedure were taken in August 1977 when those meetings were shifted to a monthly basis. The Government also agreed that periodically these reviews will be conducted on an "in-depth" basis to discuss in detail individual problem projects and problems which are affecting project implementation across a number of sectors. As a result of these reviews a number of positive developments have been noted. Most of the actions agreed to during the reviews have been completed. In addition, the reviews have significantly improved coordi- nation and communication by providing an opportunity for project implementing agencies to discuss their problems with all ministries involved and with high level officials in the Ministry of Finance. During the two in-depth reviews in October 1977 and January 1978 a series of general implementation issues were discussed with senior Tanzanian officials and follow-up actions or investigations agreed upon. The next in-depth review is scheduled to take place in July.  -7- 15. The Government has also become increasingly conscious of implementation. In addition to fully supporting the project implementa- tion review system, the Ministry of Finance has now decided to set up an internal unit to oversee project performance. Furthermore, there have been more consistent responses to Bank suggestions and a willingness to openly discuss project problems raised by Bank staff. As a consequence, the project disbursement record has improved somewhat over the last two years, and a recent analysis indicated that the Tanzanian disbursement performance is about equal to the Bank-wide average. However, it should be noted that significant potential for further improvements exists as a wide range of serious long-term bottlenecks remain. This is particularly true in the agriculture and rural development sectors where individual projects face a considerable number of constraints in trying to increase the incomes of smallholders (the lack of proven technical packages, a weak extension system, problems in input distribution and output collection, etc.). PART III - INDUSTRIAL SECTOR 16. At the time of independence in 1961, Tanzania had a rudimentary industrial sector which contributed less than 5% to Gross Domestic Product (GDP) and was mainly confined to simple processing of export items such as cotton, sisal, and coffee; cotton ginning was the largest single manufactur- ing activity. 17. With the new orientation of economic policies after the Arusha Declaration of 1967 (para. 3), industrial development became a major concern of the Government, the primary focus being on import substitution in essential consumer goods and meeting the basic needs of the population. Existing major manufacturing plants were brought under the newly established Government companies (parastatals), and these companies became the leading investors in medium and larger scale industrial units. In 1974, the parastatal organizations accounted for an estimated 50% of new capital formation and 50% of manufacturing value added. However, even with the increase in parastatal activity, the private sector remains an important participant in industry (430 of 500 factories with over 10 employees are in private hands). 18. The expansion of public ownership of manufacturing enterprises (there are currently six parastatals under the Ministry of Industry) has been accompanied by increasing reliance on direct controls in allocation decisions. Components of the control system include centralized decision making on investments, detailed allocations of foreign exchange through import licensing, credit allocations according to the annual Finance and Credit Plan, wage setting, and price controls.  -8- 19. The growth of industry until 1973 was quite significant, reaching an average annual rate of 9.4% in real terms between 1964 and 1973. During this period, the share of manufacturing in GDP at current prices rose from nearly 7% to 11.5% and in 1973 almost half of the total supply of manu- factured goods in Tanzania was produced locally. Rapid advances have been made in import substitution of consumer goods, which represented about 60% of the total output of large and medium scale manufacturing firms in 1973. After a decade of significant growth, however, the manufacturing sector stagnated during 1974 and 1975 because of steep increases in the pricesof imported commodities, an acute balance of payments problem, extended drought, and shortages of water and power. Industry has sub- sequently recovered from the period of economic crisis and an industrial growth of 6.2% in real terms was achieved in 1976. 20. While this record of increasing output would seem to indicate satisfactory industrial performance, a detailed analysis of Tanzania's record in the manufacturing sector indicates that productivity has been low and output has been far less than warranted by the level of invest- ment. The problems underlying the suboptimal performance in the sector are many. At the macro level, the Government has not yet developed the administrative capability to monitor and coordinate effectively the control systems which were instituted along with increased public owner- ship of manufacturing enterprises. While the Government felt these controls were needed to achieve its development goals, their effect has largely been to insulate public enterprises from the discipline of market forces. At the micro level two additional sets of problems operate. First, performance indicators consistent with the macro control systems and clear guidelines for evaluating performance are still lacking. Managers and workers, therefore, have few motivating incentives. Second, there is a scarcity of trained managerial personnel and skilled labor, and most enterprises have to live with periodic shortages of other key inputs. 21. These issues have been raised in various Bank reports on the Tanzanian industrial sector and were a particular focus of the review of the Basic Economic Report in November 1977. The Government is well aware of them and considerable discussions have tAlne place witI-ir Tanzania on possible solutions. While decisions on major macro policy changes dealing with the incentive system for workers and managers, efficiency of parastatals and the price and import control systems will take time because of their broad impact, some steps have been taken. The Government recently agreed to institute an incentive system in the textile industry; managers are being held accountable for performance -- companies consistently making losses are being told to either improve performance or expect to be wound up; and some steps have been taken to loosen or remove import controls on spare parts and raw materials, At the firm level, a series of additional steps have been taken! there has been retrenchment in overmanned parastatals;  -9- a limit has been placed on allowable increases in overhead costs of manufacturing firms which approach the National Price Commission for price increases; and foreign consultant groups have been hired to advise on how to achieve operational/managerial improvements, The use of such consultants has greatly improved the operating performance of the firms under the National Development Corporation (the largest industrial holding company in Tanzania). Similar efforts are to be initiated in the textile sector and will be supported under the project (para.29). Basic Industrial Strategy and the Third Five-Year Plan 22. Future development of the sector will be based on the Basic Industrial Strategy (BIS) which was adopted in 1974 by the Government. The two main goals of this strategy are structural transformation and self-reliance and its main emphasis is on the use of domestic resources for domestic needs. This involves giving top priority in investment allocations to industries supplying (i) basic needs of food, shelter, health, education and trans- port, and (ii) producer goods which contribute to production of a wide range of industrial products. However, as it has emerged, BIS will also permit expansion of export-oriented production, especially that based on domestic raw materials (for example cashew processing, sisal spinning, textile manufacturing, and meat and leather processing). A potential problem with the BIS is that attempts to restructure the economy too quickly during a period of resource stringency may ultimately frustrate both growth and structural change. Too rapid expansion of particular sectors may lead to excessive reliance on external finance, know-how and markets, and the massive investment coordination required by the strategy may overburden the country's already weak planning capacity. 23. Preliminary indications are that the Third Five-Year Plan under preparation (FY77-81) envisages an investment program of about TSh23 billion, of which about 21 percent will go to manufacturing. Projects earmarked for development/implementation under the Plan are mainly based on Tanzania's domestic resources. Among the sizeable Tanzanian projects currently under implementation in the industrial sector with Bank Group support are the industrial estate at Morogoro, cashewnut processing factories and the textile mill expansion at Mwanza. In addition, the National Development Corporation is presently implementing five major projects: a tannery, a bicycle plant, a farm implements factory, a detergents factory, and a pharmaceutical plant. A pulp and paper mill project is in an advanced stage of preparation for Bank Group financing and future investments in the textile sector are reviewed below (para.34 ). Textile Subsector 24. As the third largest cotton producer in Africa, Tanzania has a significant raw materials base to expand textile production. It currently produces about 67,000 tons of cotton per year of which about 15% is locally processed into textiles. The rest is exported mainly to Hong Kong, the People's Republic of China and Japan. Tanzania cotton is of superior variety and commands a premium on the export markets.  -10- 25. Guided by the Arusha Declaration, the public sector has assumed a leading role in the development of the textile industry. A textile holding company, the National Textile Corporation (TEXCO), was established to oversee the expansion of the industry and it began to implement a number of large scale mills and consolidate a few others. As a result, the textile and clothing sector, which played a minor role in the early 1960s, has become the largest individual manufacturing subsector, accounting in 1976 for 15% of total gross output, 20% of value added, and 30% of employment in manufacturing firms employing 10 or more workers. Total employment in the subsector was about 22,000 in 1976. The domestic output of woven textiles, which W'as less than 10 million m2 in the early 1960s, expanded to about 91 million m2 in 1974. It has declined in subsequent years because of several problems discussed further in para. 27 below. In cotton textiles, which represent about 95% of total domestic output of woven textiles, import substitution has progressed significantly. In blended fabrics import substitution has been minimal, 26. There are currently seven textile mills in Tanzania, five of which are under TEXCO. Two are in the private sector. The textile mills under TEXCO represent 94% of the total annual production capacity. In addition, there are 38 garment manufacturers,each employing 10 people or more,producing about 2.8 million trousers, 2.2 million shirts, and children's clothing items, among other things. A new Government garment factory was established recently under TEXCO with a capacity to produce 500,000 trousers and 1 million pieces of ladies' and children's apparel annually. 27. Sectoral Problems. Recently, the industry has faced management, financial, and manpower problems which are particularly pronounced in the TEXCO group. The problems are mainly related to:(i) the reduction in the number of expatriates in key positions before adequately developing Tanzanian capabilities; (ii) lack of adequate training and maintenance programs; (iii) lack of spare parts to keep equipment running at acceptable rates; and (iv) power and water shortages which, with the commissioning of new facilities, have now been largely resolved. If all existing TEXCO mills had operated at effective capacity (which is feasible under efficient opera- tional conditions), their textile output in 1977 would have been about 95 million m2, 27 million m2 more than their actual output in 1977. In the labor-intensive garment industry, a specific problem has developed as restrictions on imports of shirtings and suitings of polyester blends have forced garment manufacturers to produce at low capacity and reduce the number of their employees. The situation is expected to improve with the local production of blended fabrics under the proposed project. 28. The management of TEXCO is aware of the need to improve operations at its five existing mills, and a number of steps have been taken which should have a positive effect on sectoral output in 1978 and beyond. Completion of an expansion program and introduction of an incentive system to reward workers for increased efficiency at one mill has already resulted in substantial improvements. At a second mill, a rehabilitation, balancing and expansion program completed in October 1977 is expected to increase 1978 output by 50% over last year. At two other mills, modernization and expansion pro- grams are scheduled to begin implementation in late 1978 with completion in 1980. Steps to improve operations at the other TEXCO mill, Mwanza Textiles Limited (MWATEX), are described in more detail below (para. 33).  - 11 - 29. To supplement the above programs, TEXCO and the Government have agreed to appoint a Technical Management Firm (TMF) to assist TEXCO in carrying out a study by December 31, 1978 that will recommend measures to improve the capacity utilization and productivity of operating textile mills. Appointment of the TMF is a condition of effectiveness of the proposed loan and credit (Section 5.01(d) of the draft Development Credit Agreement) and modification or termination of the contract with the TMF would be subject to the approval of the Bank (Sections 2.03(a) and (b) of the draft Project Agree- ment). Financing for the TMF would be provided by the Tanzania Investment Bank (TIB) using part of the funds available under the IDA Technical Assistance Project (Cr. 601-TA). After completion of the study, TEXCO would review the study's recommendations with the Bank and thereafter take such measures as shall be necessary to implement the recommendations, including the employment of qualified and experienced technical personnel (Section 2.03(c) of the draft Project Agreement). Financing for the technical personnel needed to assist TEXCO would be provided under the proposed project. 30. Market. Despite the impressive development of a cotton based textile industry which produced a rapid increase in local production of woven textiles (para. 25 above), textile supplies in Tanzania have been inadequate to meet local demand. Moreover, local supplies have been further curtailed as a result of both problems at the existing textile mills (para. 27) and an increase in import restrictions on textiles due to balance of payments problems. These developments resulted in a sharp decline in the apparent consumption of woven textiles from 8.5 m2 per capita in 1974 to about 6 m2 in 1976, which was less than the level reached in the mid-1960s (1966: 7.5 m2 per capita). Taking into account the unsa- tisfied demand estimated for 1974 and the actual growth of per capita income in 1975 and 1976, as well as the elasticity of demand for textiles, consump- tion in 1976 might have reached 10 m2 per capita but for these supply constraints. This would represent total consumption of 153 million m2 of textiles in 1976, compared to actual consumption of 93 million m2. 31. Due to foreign exchange constraints, import restrictions have been particularly severe for blended fabrics (imports were cut from 20 million m2 in 1973 to 6 million m2 in 1976). In the absence of any significant domestic production of blended textiles (less than 5 million m2 in 1976) this has resulted in a severe cutback in Tanzania's per capita consumption of man-made fibers. This reduction occurred in spite of the fact that Tanzania's textile demand had been shifting toward blended fabrics, which have a ready market in work clothes, school uniform and other institutional clothing and are in great demand because of greater durability and easy care properties. Supply/demand projections indicate the demand for blended fabrics is expected to increase to 28 million m2 in 1980 and 46 million min in 1985. Thus the proposed project would cover only about 46% of the estimated 1985 demand. Except for very limited production of blended fabrics by another TEXCO owned mill and two private mills, the proposed project would be the only source of such materials in Tanzania.  -12- 32. Marketing and distribution of textiles in Tanzania is currently handled by the Tanzania Textile Trading Company (TANZATEX), a parastatal under the Ministry of Trade. Because of management and other staff constraints, TANZATEX is ill-equipped to perform its designated functions efficiently. Its activities are too centralized to ensure a balanced distribution of textiles in Tanzania, and its marketing research and export promotion services are virtually non-existent. As a result, the Government has taken measures to allow all mills by July 1, 1978 to distribute their output directly through Regional Trading Companies. This arrangement would apply to the proposed project, and should help the Company to build up an efficient sales organization and to facilitate early adjustment in the product mix to take account of changes in market conditions, consumer tastes and styles. The Government agreed that it would continue to make satisfactory arrangements for the sale and distribution of the Company's outputs (Section 3.02 of the draft Development Credit Agreement). Bank Experience in Textiles 33. In its first loan to Tanzania in the textile sector (Loan 1128-TA of 1975), the Bank provided financing for expansion of one of TEXCO's mills, Mwanza Textiles Limited (MWATEX). Project implementation performance has been acceptable and is due for completion by July 1978, four months behind schedule, but within the original cost estimates. The existing MWATEX mill operated satisfactorily until 1975, but since then production has declined. Between 1975 and 1977, efficiency as a percent of effective capacity dropped from 82 to 59% in the spinning mill and from 65 to 52% in the weaving mill. These declines can be attributed to: management deficiencies caused by reduction in expatriate staff before local personnel were fully prepared to take over; lack of attention to preventive and operational maintenance; and shortages of spare parts which have resulted in excessive equipment break-downs. In order to ensure efficient operation in future, a management agency firm has been identified to manage the expanded complex for a period of at least three years, as requiired under the terms of the Bank loan. In addition, TEXCO has completed studies with regard to reconditioning of equipment, and measures required to attain a smooth flow of operations in MWATEX's existing and expansion facilities. Contracts to implement the recommendations of the studies are expected to be signed by the end of June 1978 but due to the lead time required to order spare parts, the bulk of the work on reconditioning of equipment is not expected to begin until December 1978. The general liberalization of import restrictions by the Government will help to ease the shortage of spare parts and alleviate maintenance delays in future. In addition, over the next three years, the management agency firm will assist in the imple- mentation of measures to improve MWATEX*s operations. It is believed these actions will satisfactorily resolve the existing problems.  -13- Other Investments in Textiles 34. TEXCO's investment plan for the next Five-Year Plan has been reviewed by Bank staff and found acceptable. Assurances have been obtained that TEXCO will keep the Bank Group informed of major developments within the textile sector (Section 5.02 of the draft Project Agreement). In addition to the Mwanza Project, three projects are under implementation by TEXCO: the Tabora and Ubungo Spinning Mills and the Musoma Textile Mill. The Tabora Spinning Mill (scheduled for completion in late 1979), is designed to produce 5,950 tons of cotton yarn per year, while the Ubungo Spinning Mill (scheduled for completion in mid-1980) will produce 3,000 tons of cotton yarn annually. The Musoma project, to be completed by the end of 1980, will produce 22 million m2 of cotton fabrics. The Government is also considering a textile mill at Mbeya to produce 25 million m2 of grey cloth, including 7 million m2 for export. PART IV - THE PROJECT 35. The project was proposed to the Bank in June 1975, to help the country meet the growing but largely unsatisfied demand for blended fabrics. It is part of the Government's program to expand the domestic production of textiles with the aim of reducing the import dependence in essential con- sumer items. A preappraisal mission visited Tanzania in June/July 1977 and this was followed by a full appraisal in October/November 1977 and a mission in February 1978. Negotiations on the project were held in Washington in early May 1978. The Tanzanian delegation was led by Dr. F. M. Kazaura, Principal Secretary of the Ministry of Industry. A Loan/Credit and Project Summary is at the front of this report. Project Description 36. The project will consist of an integrated textile mill to be located at Morogoro, about 200 km west of Dar es Salaam, and will produce 21.5 million m2 of blended fabrics for shirtings and suitings (about 14 million m2 polyester/cotton blends and 7.5 million m2 of polyester/rayon blends) as well as 650 tons of polyester/rayon yarn for sale to an existing textile plant. The project is basically directed at import substitution; no significant quantities of blended fabrics are expected to be available for export. As noted in para. 29 above, funds would also be provided under the project to finance technical assistance directed at improving capacity utilization in the existing textile mills. The Staff Appraisal Report (No. 1893(b)-TA, dated May 20, 1978) is being distributed separately to the Executive Directors.  -14- Project Execution and Operation 37. The immediate responsibility for the execution of the new project would rest with TEXCO's Project Implementation Unit. This unit would be assisted by a Project Advisory Firm responsible for supervising project implementation, and a Project Engineering Firm responsible for project design, engineering, procurement, construction, commissioning, and training of personnel. These firms have been selected and contracts are being negotiated. Appointment of the firms under terms and conditions acceptable to the Bank is a condition of effectiveness of the proposed Loan and Credit (Section 5.01(d) of the draft Development Credit Agreement), and the contracts would not be modified or terminated without the prior consent of the Bank (Section 2.02(b) of the draft Project Agreement). The implementation period covers 3-1/2 years of construction with commissioning expected to be in January 1982. It would be followed by a 3-year production build-up with production reaching full effective capacity from 1985 onwards. The project would be owned and operated by Morogoro Polyester Textiles Limited (the Company), a new company established in February 1978 under TEXCO. 38. The project would employ a staff of 2,525 of which 150 would be in general management and administration and 2,375 in factory management and operations. During the initial years of operation of the project, the Company would have to rely on expatriate assistance for performing key technical and managerial functions. A Management Agency Firm (MAF) would therefore be appointed six months before mechanical completion of the project to operate the mill for at least the initial three years of plant operation, under terms and conditions satisfactory to the Bank; this contract would not be modified or terminated without prior Bank consent (Section 2.06 of the draft Project Agreement). 39. Recruitment of all management and other staff would take place during construction. Some middle management, foremen and skilled workers are likely to be drawn from the existing textile mills. However, due to the persistent shortage of trained people in Tanzania, supplemental training would be provided under a program for training abroad and in a training center to be established in Morogoro as part of the project. The Company and TEXCO have agreed that a specific recruitment and training plan would be submitted for Bank approval by December 31, 1978; this training program would be carried out according to a mutually agreed plan.In order to ensure the availability of trained personnel to take over the operation of the mill at the conclusion of the appointment of the MAF, assurances were obtained regarding the timely appointment of qualified key management personnel to be trained by the MAF. Details of agreements reached with regard to training are given in Section 2.07 of the draft Project Agreement. 40. Provision of housing facilities for expatriates and top and middle-level executives is included in the project cost estimates. TEXCO  -15- has prepared a workerst housing plan for the proposed textile project and it was agreed that adequate sites and services would be developed in Morogoro in a timely fashion for project workers (Section 3.04 of the draft Development Credit Agreement). Raw Materials and Utilities 41. The proposed mill would use locally grown cotton and imported polyester and rayon. The Agricultural and Industrial Supplies Company Limited, a state trading company, is in charge of the import of items such as dyestuffs, chemicals and fibre materials for the textile sub- sectors, and charges 10% commission on the c.i.f. value to meet its overhead costs. However, effective July 1, 1978 companies in Tanzania will be allowed to import these raw material requirements directly. Assurances were obtained from the Government that it would continue to make satisfactory arrangements to ensure that the Company could procure imported raw materials, maintenance materials and spare parts in a timely manner (Section 3.02 of the draft Development Credit Agreement). Finally, the Government agreed to take adequate measures to meet the project's water and power requirements in time for project start-up (Section 3.03 of the draft Development Credit Agreement). Project Technology 42. For the proposed project, modern but conventional technology would be used in the spinning and weaving units which account for about 85% of the project cost. The choice of conventional technology (broad automatic shuttle looms, and ring spindles) rather than pre-conventional technology (narrow mechanical looms and direct spinning) is based on the fact that in most applications pre-conventional technology is less efficient due to: (i) slow machine speed; (ii) higher capital and operating costs per unit of output; (iii) lack of machine versatility to produce finer fabrics; and (iv) the need for additional skilled operators. In the finishing unit, the latest processing technology would be used not to save on labor but to ensure high product quality and also to economize on the use of water, fuel, dyestuffs, and chemicals. Were a less advanced process to be employed, the finishing mill would not absorb many additional employees. Project size was decided after studying various alternatives and after taking into account the demand for blended fabrics, economies of scale, and availability of financing. Ecological Considerations 43. Provision has been made in the project to keep within interna- tionally acceptable limits the discharge of solid, liquid and gaseous wastes. The design of the buildings would allow the noise level to be kept below 90 decibels, and fire protection and emergency lighting systems are also included. These environmental facilities are judged adequate, and assurances were received that they will be installed and properly maintained (Section 2.05 of the draft Project Agreement).  -16- Project Cost and Financing 44. The estimated total financing required for the project is US$106.9 million equivalent, including US$2.2 million for sectoral assistance to TEXCO and $2.5 million in taxes and duties. About 65% of net project costs is in foreign exchange. The cost of equipment and materials to be procured from foreign suppliers has been estimated on the basis of indicative quotations provided by various prospective suppliers of modern conventional equipment. Price contingencies totalling 15% on the base project cost are calculated on the basis of the appraisal mission's estimates of price movements in Tanzania and elsewhere. 45. The proposed Bank Group financing of US$45 million -- a US$25 million Bank loan and a US$20 million IDA credit -- would cover about 42% of the total financing required for the project and would include US$35.6 million in foreign costs and US$9.4 million in local costs. Financing of local costs is justified on country grounds (para. 9). The remaining project costs would be financed by the Government's own resources and borrowings from other sources. The proposed Bank Loan would be made to the Government for a period of 20 years including 5 years of grace. The proposed IDA Credit would be made to the Government on standard IDA terms. IDA funds for sectoral assistance to TEXCO (US$2.0 million) would be passed on by the Government directly to TEXCO. US$9.5 million of IDA funds would be passed through TEXCO to the Company as equity and the remaining US$8.5 million in IDA funds and all Bank funds would be onlent from the Government to the Company at an annual interest rate of 10% for a period of 15 years, including 4-1/2 years of grace. These onlending terms are slightly more favorable than for the Mwanza Textile Project because the proposed project is a completely new project while Mwanza was primarily an expansion. The Company would bear the foreign exchange risk on the loan and credit proceeds relent to it. Execution of a Subsidiary Loan Agreement between the Government and the Company, reflecting these conditions, is a condition of effectiveness of the project (Section 5.01(a) of the draft Development Credit Agreement). Bank/IDA funds would be used to finance civil works, equipment and spares for weaving and processing, initial imported raw material requirements, technical assistance, engineering services, study and training and interest on the Bank loan during construction. 46. The proposed financing plan is based on an offer of US$20.0 million equivalent for bilateral credit through the Japanese EXIM Bank, for spinning and weaving equipment to be provided by Toyo Menka of Japan. That credit would be repayable over 8 years at an interest rate of 8% per annum, with the first installment due 24 months after the date of the last shipment under the credit. This represents an effective grace period of about 4 years. TEXCO is also investigating other possible sources of bilateral and suppliers' credits for spinning and weaving equipment in Europe, Asia and the United States with a view to establishing a bidding procedure which would enable them to arrive at the lowest evaluated bid taking into account detailed prices  - 17 - and financing terms for the equipment. The financing plan is subject to change following determination of the exact amount of bilateral financing to be provided. The Tanzania Investment Bank (TIB) has agreed in principle to provide US$10.0 million equivalent to help finance the project. The TIB loan (which would not utilize the proceeds of Bank Group lending to TIB) would be for 15 years, including 4-1/2 years of grace, with interest at 11% per annum; funds would be used to finance the downpayment on equipment expected to be provided under bilateral or suppliers' credit, and to finance most of the foreign component of civil works. All of the Government's own funds for the project (US$32.6 million) would be provided as equity, with installments made according to a specific schedule (Section 3.01(d) and Schedule 3 of the draft Development Credit Agreement). Effectiveness of financing from TIB and external sources is a condition of effectiveness of the proposed Bank Loan and IDA Credit (Section 5.01(c) of the draft Develop- ment Credit Agreement). Procurement and Disbursement 47. Goods and services (except consultants) financed by Bank/IDA would be procured through international competitive bidding in accordance with the Bank's guidelines except: (a) items costing less than US$100,000 equivalent but not exceeding the aggregate amount of US$2 million may be purchased through international shopping on the basis of suitability, availability and price considerations; and (b) proprietary items and items in limited supply critical to the timely completion of the project whose aggregate cost is estimated not to exceed US$1 million may be procured following bidding from a list of qualified suppliers acceptable to Bank/IDA. 48. In the event that domestic manufacturers submit bids for equip- ment or spares, a preferential margin in bid evaluation equivalent to the prevailing tariff, or 15% of the c.i.f. cost of imports, whichever is lower, would be granted for items financed by Bank/IDA. Equipment financed under bilateral or suppliers' credit (para. 46 above) would be procured according to their guidelines. About 58% of civil works (excluding site development and housing) would be financed with Bank/IDA funds; contracting would be by international competitive bidding in accordance with Bank guidelines, with local contractors being given a 7.5% preference. Local procurement and civil works financed by the Government and TIB would be carried out according to Government procedures which are acceptable to Bank/IDA. 49. Bank/IDA funds would be disbursed as follows: (a) 78% of local and 15% of foreign expenditures for civil works (excluding site develop- ment and housing); and (b) 100% of foreign expenditures for technical assistance, engineering services, study and training, imported equipment and spares, imported raw materials for initial operations, freight and insurance, erection and start-up costs related to imported equipment financed by Bank/IDA, and interest during construction on the Bank Loan. Retroactive financing for engineering services, training, and foreign expenditures for bid advertisements is recommended up to US$500,000 equivalent for project expenditures incurred after March 1, 1978 (Schedule 1, para. 4 of the draft Development Credit Agreement).  -18- Financial and Reporting Covenants 50. In order to ensure a sound financial situation for the project, the Company will maintain at all times a current ratio of at least 1.5:1 and a debt/equity ratio of 60/40 (Sections 4.04 and 4.03, respectively, of the draft Project Agreement). In addition, the Company will not declare or pay any dividends if by so doing the Company's projected debt service coverage ratio for the fiscal year involved would fall below 1.5:1 (Section 4.05 of the draft Project Agreement). Furthermore, for the initial three years after completion of the mill, the Company will exchange views with the Bank on any investment by the Company not related to the project whose aggregate cost would exceed US$5.0 million in any fiscal year (Section 4.06 of the draft Project Agreement). Finally, the Government will take all measures necessary to ensure that the Conpa-i. at: efficient operations obtains revenues sufficient to cover all its costs, service its debts and earn a reasonable return on capital invested (Section 3.02 of the draft Development Credit Agreement). 51. Annual financial statements of the Company would be audited by an independent auditor acceptable to the Bank Group and submitted to the Bank Group within four months after the end of the year and prompt atten- tion would be given to audit recommendations. Quarterly financial statements and reports on project progress and procurement status would be submitted within 45 days after each quarter (Sections 2.09(b) and 4.02(a) of the draft Project Agreement). The Company will also train and employ competent accounting personnel to prepare the accounts satisfactorily (Section 3.01 of the draft Project Agreement). No later than six months after the closing date, a completion report on the execution and initial operations of the project would be prepared and furnished to the Bank Group (Section 2.09(c) of the draft Project Agreement). Benefits and Risks 52. The proposed project would contribute to meeting Tanzania's grow- ing demand for blended fabrics and help save scarce foreign exchange. After reaching full capacity in 1985, the project is estimated to generate net foreign exchange savings of over US$20 million annually (1977 prices). The project would directly create about 2,525 jobs and would have a significant indirect employment impact, particularly in the garment industry (at least 1,500 jobs) which is suffering from low capacity utilization due to severe import restrictions on blended fabrics. As the project would be located in Morogoro, a Government designated new growth center to relieve population pressure in Dar es Salaam, it would help ensure a more balanced regional development in Tanzania. Moreover, the project would help transfer appro- priate modern technology and skills to Tanzania through training and technical assistance.  -19- 53. The economic rate of return (ERR) of the proposed project is estimated at about 19%. In the proposed project, the ERR is more sensitive to changes in revenue than in operating and investment cost but sensitivity tests show that under all moderately adverse circumstances, the rate of return remains at an acceptable level.- The financial rate of return of the proposed project is satis- factory at 18.9% before and 12.8% after taxes (which are currently 50% of income). 54. The project could face some risks because of the lack of available trained management staff and the general shortage of skilled labor in the country. However, the involvement of experienced international firms in project imple- mentation and initial operations of the project as well as the training provisions under the project are expected to minimize such risks. The technical risk in the project is minimal since the technology used is a proven one which has been in commercial use since the 1960s. The market risk is also minimal since the pro- posed project is favorably located with respect to the market area, and the project's output is expected to be easily absorbed by the market. PART V - LEGAL INSTRUMENTS AND AUTHORITY 55. The draft Loan Agreement between the United Republic of Tanzania and the Bank, the draft Development Credit Agreement between the United Republic of Tanzania and the Association, and the draft Project Agreement among the Bank, the Association, Morogoro Polyester Textiles Limited and the National Textile Corporation are being distributed to the Executive Directors separately. Also being distributed separately are the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association. 56. Special conditions of the project are listed in Section III of Annex III. Conditions of effectiveness include execution of the Sub- sidiary Loan Agreement between the United Republic of Tanzania and Morogoro Polyester Textiles Limited, effectiveness of cofinancing agreements, and appoint- ment of the Technical Management, Project Advisory and Project Engineering Firms (Sections 5.01(a), (c), and (d) of the draft Development Credit Agreement). 57. I am satisfied that the proposed Loan and the proposed Credit would comply with the Articles of Agreement of the Bank and the Association. PART VI - RECOMMENDATION 58. I recommend that the Executive Directors approve the proposed Loan and Credit. Robert S. McNamara President Attachments Washington, DC June 14, 1978  - 20 - ANNEX I TABLE 3A TANZANIA - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) ------------------------------------------------- _______________ TANZANIA REFERENCE COUNTRIES (1970) TOTAL 945.1 MOST RECENT AGRIC. 508.3 1960 1970 ESTIMATE KENYA KOREA REP. OF MALAYSIA** GNP PER CAPITA (USS) 60.0*/a 100.0*/a 180.0*/a 140.0* 280.0* 440.0* POPULATION AND VITAL STATISTICS