Cameroon - Second HEVECAM Rubber Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2672-CM 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 DEVELOPMENT CREDIT AND LOAN TO THE UNITED REPUBLIC OF CAMEROON FOR A SECOND HEVECAM RUBBER PROJECT December 21, 1979 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.  CAMEROON SECOND HEVECAM RUBBER PROJECT CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) US$1 - CFAF 210 1/ CFAF 1,000 - US$4.8 CFAF 50 - FF 1 1/ Floating Exchange Rate. ABBREVIATIONS CA1MDEV - Cameroon Development Corporation CCCE - Caisse Centrale de Cooperation Economique (France) (Central Bank for Economic Cooperation) CDC - Commonwealth Development Corporation (U.K.) CFA - Communaute Financiere Africaine (African Financial Community) ENSA - Ecole Nationale Superieure Agronomique (Higher National School of Agronomy) FONADER - Fonds National de Developpement Rural (National Fund for Rural Development) HEVECAM - Societe Hevea - Cameroun IRCA - Institut de Recherches sur le Caoutchouc (Rubber Research Institute) PAMOL - Societe Pamol Cameroun (Unilever Group) SAFACAM - Societe Africaine Forestiere et Agricole - Cameroun (African Forestry and Agricultural Company - Cameroon) SATET - Societe Africaine de Travaux et d'Etudes Topographiques (African Company for Topographical Works and Studies) SEDA - Societe d'Etudes pour le Developpement de l'Afrique (Research Company for the Development of Africa) SOCAPALM - Societe Camerounaise de Palmeraies (Cameroonian Oil Palm Plantation Company) FISCAL YEAR July 1 - June 30  FOR OFFICIAL USE ONLY CAMEROON SECOND HEVECAM RUBBER PROJECT CREDIT AND LOAN AND PROJECT SUMMARY Borrower: United Republic of Cameroon Beneficiary: HEVECAM Amount: US$15 million IDA Credit US$16.5 million IBRD Loan Terms: Credit: Standard Loarn: 20 years, including 5 years of grace, at an annual interest rate of 7.95 percent. Relending Terms: The US$15 million. IDA credit and US$16.5 million IBER) loan would be relent by Government to HEVECAM on t:erms equivalent to the IBRD loan to Government. Project Description: The proposed project would comprise a second five-year phase in the development of an industrial rubber estate within HEVECAM's 40,000 hectare Niete concession. Its maini objectives would be to: expand by 9,300 ha the area planted with rubber, maintain this new planted area as well as the 4,200 ha planted under the first project (which are still in the pre-production phase), bring 1,500 ha planted under the first project into production, construct a rubber factory and provide technical assistance to HEVECAM. It would consist of thirteen components: (i) fell and prepare for planting a further 9,800 ha of forest; (ii) plant a further 9,300 ha with selected rubber clones; (iii) maintain during the pre-production phase this planted area together with 4,200 ha planted from the first project; (iv) bring into production the first 1,500 ha planted under the first project; 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 discklsed without World Bank authorization.  - ii - (v) establish the infrastructure necessary for the expansion of the estate; (vi) construct a factory capable of processing 30 tons/day of rubber; (vii) establish nurseries to provide material for the 1,500 ha of rubber to be planted under a future third phase of the project; (viii) complete the survey of the Niete concession and prepare studies for the rubber company's further development; (ix) provide technical assistance to manage HEVECAM and to train Cameroonian staff; (x) continue field trials on rubber varieties, disease control and tapping techniques; (xi) clear land for food crop production by estate workers; (xii) clear about 250 ha of land outside the concession area and conduct trials for the introduction of rubber as a smallholder crop; and (xiii) conduct a survey to determine the quantity of timber available for salvage logging in the forest areas to be cleared for the project. Benefits and Risks: The project would eventually supply block rubbers for export and, thereby, lead to a reduction in the country's heavy dependence upon cocoa and coffee for agricultural export earnings and help to fulfill the Government's plans for the economic development of the sparsely populated Kribi region. While HEVECAM is taking measures to ensure the availability of sufficient labor for full project implementation, there may be some difficulty in obtaining the skilled tappers beyond the project period needed to realize full production potential of high yielding rubber clones. A long-term plan for development of perennial crops in Cameroon's coastal area, to be completed in 1981, is expected to recommend a course of action that will balance the need for labor with its availability. The principal agricultural risk would be "Fomes" disease, which attacks the roots of rubber trees. However, the precautions that have been incorporated in the project design are considered adequate to ensure a satisfactory stand of trees at maturity.  - iii - Estimated Costs Foreign US$ million as % Foreign Local Total of Total Plantation Development and Operating Costs 16.5 31.5 48.0 34 Civil Works, Utilities 1.8 7.8 9.6 19 Vehicles, Equipment 3.7 0.9 4.6 80 Factory Investment 1.9 1.1 3.0 62 Smallholders Program and Studies 0.4 1.0 1.4 29 Total base cost 24.3 42.3 66.6 36 - Physical contingencies 1.2 2.1 3.3 36 - Price contingencies 9.0 16.1 25.1 36 - Total cost (including taxes) 34.5 60.5 95.0 36 - Taxes - 6.2 6.2 - Total cost (net of taxes) 34.5 54.3 88.8 39 Financing Plan: US$ million Foreign Local Total IBRD 6.9 9.6 16.5 IDA 6.5 8.5 15.0 CCCE 10.1 8.9 19.0 CDC 11.0 14.7 25.7 Government - 18.8 18.8 Total 34.5 60.5 95.0 Estimated Disbursements: US$ million FY81 FY82 FY83 FY84 FY85 Annual 5.8 6.1 7.9 8.2 3.5 Cumulative 5.8 11.9 19.8 28.0 31.5 Economic Rate of Return: 15 percent Staff Appraisal Report: Report No. 2661-CM dated December 10, 1979. Maip: 'IBRD 14373 and IBRD 14374   INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT AND LOAN TO THE UNITED REPUBLIC OF CAMEROON FOR A SECOND HEVECAM RUBBER PROJECT 1. I submit the following report and recommendation on a proposed development credit for the equivalent of US$15 million and on a proposed loan for the equivalent of US$16.5 million to the United Republic of Cameroon to help finance the Second HiEVECAM Rubber Project. The credit would be on standard IDA terms and thLe IBRD loan would have a term of 20 years, including five years of grace, with interest at 7.95 percent per annum. The Common- wealth Development Corporation (CDC) has agreed to finance the project with a loan to Government of L 12 million (US$25.7 million) with a term of 20 years, including seven years of grace, with interest at 7.5 percent per annum. The French Caisse Centrale de Cooperation Economique (CCCE) has also agreed to finance the project with a loan to Government of FF 80 million (US$19 mil- lion). Sixty million French Francs (US$14.2 million) would carry a term of 20 years, including eight years of grace with interest at 5.5 percent per annum. The remaining FF 20 mill;ion (US$4.8 million) would have a term of 15 years, including a five years oi grace, at 10.25 percent interest per annum. The Cameroonian Government would contribute CFAF 3.9 billion (US$18.8 million) to project costs and CFAF 1 billion (US$4.8 million) to cover HEVECAM's working capital requirements during the project period. PART I - THE ECONOMY 2. A report entitled "United Republic of Cameroon Economic Memorandum" (No. 1798-CM), was distributed to the Executive Directors on April 5, 1978. Its principal findings and conclusions, updated by missions that visited Cameroon in April and June 1979, are incorporated in the following paragraphs. Annex I provides basic country data. Background 3. Cameroon is one of Africa's most diversified countries with a wide range of ecological conditions, ethnic groups and cultures. Cameroon was a federation until the United Republic, which unified the anglophone western and francophone eastern parts of the country, was established in 1972. The Government has concentrated on the establishment and maintenance of national unity between the eastern and relatively small western parts of the country and between the sahelian zone in the north with Muslim traditions and the southern tropical regions.  - 2 - 4. Cameroon has a population of 7.9 million (1978) and covers an area of 475,000 km2. The main opportunities for development lie in the expansion of agricultural production, including forestry, and the processing of agricultural and forestry products for export. Soils and climatic condi- tions permit cultivation of a wide range of crops, and the southeast contains large untapped timber resources. The north holds promising potential for livestock development. Cameroon became an oil producer and exported nearly 250,000 tons of crude petroleum in 1978. Beginning in 1979, crude oil exports reached a rate of about 270,000 tons every two months or 1.6 million tons per year. Trade, transportation and transit services are other important economic activities. Cameroon's main economic centers are separated by vast areas of low population density; furthermore, the country's transport facilities also serve landlocked Chad. As a result, a large port and adequate inland trans- portation infrastructure are essential for promoting agriculture, forestry and industry, and strengthening Cameroon's role as a regional trade center. Past Performance 5. GDP growth was nearly 4.5 percent per year during both the Second Five Year Plan (1966-71) and the Third Plan (1971-76), and accelerated to 7.9 percent during 1977-78, the first two years of the Fourth Plan. Population growth is estimated at about 1.8 percent per year in the 1960s, about 1.9 percent until the mid-1970s and about 2.3 percent from 1975 to 1980. Per capita GNP reached about US$460 in 1978. 1/ 6. Most agricultural crops, livestock, fishing and forestry experienced high growth rates during 1966-71 thanks to favorable supply and demand condi- tions including high producer prices, high domestic income growth and rapid economic expansion abroad. Lower agricultural growth during 1971-76 was due in part to the decrease in output of two major commercial crops, cocoa and arabica coffee. Important factors in this decline were the decline in rela- tive competitiveness of producer prices with food cash crop prices and the termination of the foreign supported fertilizer subsidy program for arabica coffee. The decline in cocoa and arabica coffee output was not fully offset by growth in other important commercial crops including cotton, rubber, and oil palm. Growth in forestry production dropped during 1971-76 because of reduced Western European demand and some transportation bottlenecks. 7. Manufacturing and mining grew at about 10 percent per year during 1966-71 mainly on account of the rapid development of import substitution industries, particularly manufactured consumer goods. The lower manufacturing growth experienced during 1971-76 was due to the slowdown in new import substitution activities and to slower income growth because of the deteriorat- ing terms of trade. 1/ This reflecrs the revisions incorporated in the new series of national income statistics compiled by the Government with the assistance of the UN Economic Commission for Africa.  - 3 - 8. Since 1976, Cameroon experienced rapid growth in most major sectors. Agricultural growth was helped by recovery in cocoa production as farmers responded to higher producer prices and in forestry production. The construc- tion industry grew by 15 lpercent per year during 1977-78 as large investments were undertaken for the implementation of the plan. The rapid increase in income and thea high rate of economic activities led to substantial growth in most other sectors particularly food crops, trade, transport and other services. Investment and Savings 9. During the Second Plan period (1966-71), the investment rate, in- cluding increase in stocks, exceeded 16 percent of GDP, and gross domestic savings and gross national savings were respectively 13.4 and 12.6 percent of GDP. Foreign resources financed about 33 percent of investment during this period. During the Third Plan period, despite slow income growth, the investment rate increased to 18.1 percent of GDP. Gross domestic savings and gross national savings rose to 16.4 percent and 13.9 percent of GDP, but debt service increased by 60 percent from a small base. External resources therefore continued to finance about one-third of total investment during this period. The higher savings rate in a period of slow output growth was made possible by a drastic reduction in the real growth of consumption, particu- larly private consumption, to less than 2 percent per annum. One of the prices paid for the substantial improvement in savings during the Third Plan was, however, a limitation on farmers' earnings in tree crops, providing insufficient incentives for farmers to obtain more output from the existing trees and to make new plantings to maintain and expand production capacity -- a situation that has serious implications for the longer term future of these crops. The maintenance of a high investment rate during this period was offset by a decline in the efficiency of investment. Some reduction in capital productivity was attributable to projects, such as in oil exploration and transport infrastructure, which would lead to production increases only a number of years later, and social infrastructure investments, which would improve welfare but have a limited impact on output. During 1977/78, the investment rate reached an average of 22.8 percent of GDP. Due largely to the record cocoa and coffee export prices, gross domestic savings and gross national savings increased further to 19.9 and 19 percent respectively of GDP. As a result, external resources financed only about one-fourth of total investment during these lwo years. Public Finance and Balance of Payments 10. Budgetary revenue amounted to about 17 percent of GDP during each of the past two plan periods, respectively, while public savings after debt service as a percentage of total public investment declined from about 39 percent in 1966-71 to about 36 percent in 1971-76. During 1977/78, the share of budgetary revenue in GDP increased to an average of 19.4 percent. The balance of payments did not become a problem until 1974-76. Imports increased rapidly in 1975 and 1976 as a result of world-wide inflation and heavy public development expenditure, especially in capital goods, and the decline in  -4- agricultural exports, particularly exports of cocoa and timber, resulted in sizeable current account deficits. The bulk of the current account deficits was financed by net capital inflows but a substantial drawdown of inter- national reserves also took place in 1975. Therefore, net official inter- national reserves decreased from more than two months of imports in 1974 to less than one month in 1975. In 1977-79, exports rose substantially (at an average annual rate of 21 percent) but imports also increased ( annual average rate of 23 percent) because of economic recovery and expanded investment. Gross official international reserves were rebuilt in 1976-79, in part by the use of IMF credit (Oil Facility and Compensatory Financing in 1976), but net official international reserves continued to be less than one month of imports at mid-1979. This was a low level by international standards but still acceptable considering Cameroon's membership in the Central African Monetary Union. Development Issues and Prospects 11. Cameroon's main medium- and long-term potential lies in the develop- ment of a diversified agricultural sector relying upon export crop production to generate foreign exchange and domestic food crop production to meet the needs of a growing urban population. Realizing this potential depends upon an appropriate mix of public policy measures aimed at stimulating private initiative. Factors that further complicate the agricultural development effort in Cameroon are the dispersion of its main economic and population centers, its regional and institutional diversity, the competition between export and cah food crops for the dwindling agricultural labor in some parts of the country, the dependence of a substantial part of public revenue and savings on cocoa and coffee, and the limited availability of skilled agricul- tural agents and administrators. Through its technical assistance and educa- tion projects and through its normal project work, the Bank is supporting Cameroon's effort in manpower training and development in the agricultural services, as well as in other sectors. In industry the Government has moved to channel more financial resources for investment directly through the public sector, in addition to the indirect support provided by tax incentives and other measures, which have been in existence for many years. The Government has actively participated in a Bank study of the manufacturing sector whose results will help to identify bottlenecks and opportunities to develop exist- ing as well as new industrial activities. 12. The outlook for agricultural and industrial growth during 1979-81 is quite favorable. It is based on the maintenance of cocoa output at about 110,000 tons; recovery of robusta coffee; continuing expansion for arabica coffee; increased production of most other commercial and food crops, as well as of livestock; and expansion of commercial forestry production. Growth of industrial production is expected to derive from existing and expanded manu- facturing facilities (particularly for food, beverages and construction materials), some new industrial projects, as well as from crude oil and new mining ventures. Given the stepped-up production and investment activities, a high growth rate is expected also for construction and services.  -5 - 13. Long-term growth could be somewhat constrained by a worsening of the terms of trade, which will make it difficult to sustain the high investment rate planned for the 1976-81 period, and by the need for prudent debt manage- ment to ensure the country's long-term borrowing capacity. Growth prospects will be greatly influenced by the extent to which Cameroon succeeds in the difficult task of maintaining and expanding the country's main traditional export crops, and the large-scale development of still unexploited forestry resources. Results of studies on the forestry potential, forestry sector development policy, investment plans and transport requirements, many of which are part of Bank projects, will support the latter development. In addition, there are still uncertain indications for the exploitation of iron ore, but with heavy investment requirements and long lead times to establish commercially viable export operations, production could probably not begin until the end of the 1980s. Fourth Development Plan (1976-81) 14. Cameroon is implementing its Fourth Economic and Social Development Plan. Private investment is encouraged, under Government guidelines, to expand production capacity in agriculture, forestry, mining and manufac- turing. A part of financing of private investment activities, however, will be publicly guaranteed borrowing. Planned investment of some US$3.1 billion (in 1974/75 prices) is about 80 percent higher in real terms than the esti- mated level achieved during the last plan period and almost triple previous Plan expenditures in nominal terms. Public investment is expected to account for 73 percent of total investment. However, public investment should not be maintained at planned levels for several reasons, including: (a) the heavy dependence of public revenue and savings on cocoa and coffee export prices, which are expected to decline substantially in the last three years of the Fourth plan (1979-81) from their record levels in the past; (b) the need for adequate producer prices to give farmers sufficient incentives for produc- tion and new plantings; (c) the rise in import prices, which is expected to continue; and (d) the requirement to keep supplementary borrowing on commercial terms at prudent levels to maintain Cameroon's long-term capacity to borrow. An investment rate during the Fourth Plan period of about 22 percent of GDP, some 10-20 percent below planned levels, appears manageable, implying a total investment in current prizes of US$3.4-3.7 billion or about US$690-740 million a year. Financial Prospects and Creditworthiness 15. In the first two years of the Fourth Plan period (July 1976 - June 1978), with the favorable terms of trade, public savings after debt service financed more than half of total public investment. However, in the last three years (July 1978 - June 1981), public savings after debt service are not expected to finance more than 30 percent of total public investment, a share of domestic public financing that is unlikely to be exceeded in the longer run. Cameroon will thus have to rely increasingly on external financ- ing for the bulk of its public investment, and foreign official lenders should  - 6 - finance a high proportion of total project costs of externally financed proj- ects, including local costs in appropriate cases. An increasing reliance on foreign borrowing during a period of deteriorating terms of trade will require careful external debt management. Borrowing on commercial terms increased significantly in the last two years as a result of the implementation of a number of large investment projects at higher costs than initially planned. Debt service will thus increase faster than expected at the beginning of the Plan period, but the debt situation will remain within acceptable limits provided future borrowing at commercial terms is kept within prudent limits. Cameroon has yet to establish a timely and comprehensive system for controlling the foreign borrowing of its public enterprises. However, our latest mission has enabled us to bring our estimates up to date. Cameroon is judged to be creditworthy for Bank financing over the medium-term on the basis of its ability to maintain and improve productivity in the utilization of the coun- try's resources and its potential in the long term to further diversify the economy by developing still unexploited resources. In order to keep debt service within reasonable limits, foreign public donors should provide at least 50 percent of public capital assistance on concessionary terms. On this basis, the foreign debt service ratio, 7.6 percent of export earnings in 1978, should not exceed 17 percent by the mid-1980s. PART II - BANK GROUP OPERATIONS IN CAMEROON 16. The Bank Group's commitments in Cameroon now amount to US$496 million and cover 32 projects: fourteen in agriculture, elev%n in trans- portation, three in education, two in public utilities, one~ sall- and medium- scale enterprises project, and one technical assistance project. Transport represents the largest share (54 percent) of past commitments, followed by agriculture (35 percent). Annex II contains a summary statement of Bank loans and IDA credits as of October 31, 1979, and includes notes on ongoing projects. Although delays and setbacks have been occasionally encountered in the execution of projects, the Government has consistently shown willingness to collaborate with the Bank in finding solutions to such problems. 17. For the future, the Bank Group's strategy is to support the Govern- ment in its effort to increase agricultural production, including export- oriented crops, and in the process create productive employment in rural areas; upgrade and improve the operation and maintenance of the country's infrastructure; stimulate investment by local entrepreneurs and increase employment in urban areas; and enhance the efficiency of Cameroon's institu- tions. 18. The Government rightly attaches priority to the balanced regional development of agricultural resources, and to the improvement of conditions in the rural sector parallel with promotion of plantation agriculture, in- cluding smallholder schemes. Bank Group assistance to Cameroon in agriculture is designed to support these policy objectives. The Bank helped the Govern- ment create an effective and well-managed plantation sector by financing oil  -7- palm and rubber plantations in the south and west. The first rubber project approved in 1975 is completed and the second project proposed in this report would help further the development of the southwest coastal region. The second SOCAPALM and CAMDEV projects are follow-up operations to successful oil palm and rubber projects in the western coastal regions. At the same time the Bank has assi6ted, with two SEMRY projects, in promoting smallholder rice irrigation in the north. The ongoing cocoa project is aimed at modernizing smallholder cocoa growing and raising rural productivity in areas south and west of Yaounde. Rural development projects in populated but poor regions are being established with the assistance of the Bank. The Plaine des M'Bo Rural Development Project is financing studies and trial activities to establish whether a full-scale rural development program can be launched. The ZAPI-East Integrated Rural Development Project supports ZAPI's ongoing integrated rural development activities as well as an expansion of ZAPI's activities in eastern Cameroon. The Western Highlands Rural Development Project provides a package of inputs, techniques and iinfrastructure aimed at improving productivity for the agricultural economy of the western part of the country. The Rural Development Fund Project is designed to help the Government establish the machinery for processing and implementing small-scale rural development schemes - initially in the north. The objective of a rural development project that is proposed for the northern region will be to establish planning and coordination capabilitiLes at the provincial level, as well as to finance crop diversification, reforestation, small-scale irrigation and rural water supply. The second phase of a livestock development program which began in 1974 is now being prepared and will comprise tsetse eradication, training and a credit scheme for traditional producers. 19. Recognizing the crucial importance of transportation to economic growth in Cameroon and in neighboring countries, the Government has devoted the largest portion of pub]Lic investment to this sector. The Bank Group, together with other development institutions, has substantially aided develop- ment of adequate transport facilities. The First, Second and Third Highway Projects were designed to help complete the country's basic trunk road system. A Feeder Roads Project approved in 1977 will establish institutions for feeder road administration and maintenance in addition to providing the necessary resources for a feeder roadl program to support high priority agricultural/ rural development projects.. The Fourth Highway Project which became effective in November 1979, will concentrate on road maintenance and rehabilitation and includes funds for feasibil]ity studies for the construction of a two-lane heavy duty road between Yaounde and Douala. The Fourth Railway Project, which was signed in August 1979 will help finance the new Douala marshalling yard, maintenance facilities at Yaounde, railway equipment, and technical assistance for improvements in operatiLons, management and training. Given projected traffic increases, and the backlog of required investments in the transport sector, substantial capital outlays are still necessary - particularly for the expansion of the Port of Douala, which is being assisted by a Bank loan and IDA credit, and for relatecl facilities such as those being financed by the Fourth Railway Project. Future road investments could possibly include financing of strategic international access routes, but should place greater emphasis on road maintenance and on developing the network of forestry, feeder and farm access roads.  20. In other sectors, the Small- and Medium-Scale Enterprise Project, approved in 1975, focuses mainly on developing local entrepreneurship and a second project is under preparation. A Third Education Project, approved in April 1976, places special emphasis on rural education and training. The Second Water Supply Project, signed in December 1979, will provide water to 13 secondary centers, reinforce and expand water supply systems in Douala and Yaounde, and includes financing for sewerage and drainage master plan studies for these two cities. At the same time an urban project is being prepared which is designed to upgrade several low-income settlements and develop sites and services in Douala and Yaounde. 21. All these projects include, as needed, training, technical assis- tance, and other provisions necessary for strengthening institutions and improving sector policies. The Technical Assistance Project approved in June 1977 is helping to support Government services in several key Ministries involved in investment planning, policy analysis and project processing and a second project is in preparation. The Bank's lending strategy will continue to emphasize strengthening the institutional framework, particularly sector planning, and project preparation and implementation in transportation and rural and urban development. 22. During the second half of the sixties, overall disbursements of official development assistance to Cameroon amounted to about US$40-45 million a year. While at the beginning of this period 65 percent of aid funds were grants, the proportion of loans slowly increased. A major part of external assistance was provided by France and was concentrated in infrastructure and the productive sectors. The European Development Fund and European Investment Bank directed their lending mainly to agriculture and infrastructure. Bank and IDA disbursements were small during this period. Since 1972 overall disbursements of foreign aid increased to about US$90 million per year with one-fifth as grants. The Bank and IDA's share of these inflows amounted to about 23 percent. Their lending to Cameroon has been closely coordinated with other donors; in 14 of our 32 projects, joint or parallel co-financing arrangements have been made and co-financing for several future projects is being actively sought. 23. Public debt outstanding and disbursed as of December 31, 1978, amounted to US$1,153.4 million and is projected to reach US$3.1 billion in 1983. Public debt service as a proportion of export earnings amounted to 7.6 percent in 1978 and is projected to reach 16.5 percent in 1985. At that time, annual foreign aid disbursements may amount to over US$500 million. At end-1978, IBRD loans accounted for 8.9 percent of Cameroon's public debt outstanding and disbursed, and 13 percent of its public debt service. IDA credits accounted for 9.3 percent of public debt outstanding and 5.8 percent of public debt service. The Bank and IDA are expected to account for about 20 percent of total public debt and 11 percent of public debt service in 1985. 24. In October 1974, Cameroon became IFC's 100th member. IFC's first operation in Cameroon, a US$380,000 underwriting to bring domestic share- holders into a previously wholly foreign-owned shoe manufacturing company,  -9- was approved in May 1975. In September 1976, the IFC Board approved an equity investment of about US$800,000 in a foreign-owned rubber estate (SAFACAM), which is currently the second largest rubber producer in Cameroon, and which has provided technical assistance to HEVECAM. The investment will assist in the rehabilitation and diversification of an existing estate that will produce rubber for export and palm oil for the domestic market. The operation will also facilitate participation of domestic shareholders in the estate. In November 1977, the Board approved a third operation, an investment of up to US$125,000 in the share capital of a promotional company for maize development. No commitment has yet been made on this investment since the original technical partner has been replaced and major changes have been made in the arrangements expected earlier. The Board approved a second equity investment of US$410,000 in SAFACAM in September 1978. The increased capitalization is required to finance the construction of a palm oil pressing mill. Cameroonian participation again increased with this operation. The Societe Nationale d'Investissement, a national development bank, is doubling its share in SAFACAM. In April 1979, the Board approved an investment of US$7.92 million consisting of US$7 million in loan and US$0.92 million equivalent in equity in a Cameroonian aluminum producing company, ALUCAM, to help expand the company's production capacity. PART III - THE AGRICULTURAL SECTOR General 25. Agriculture plays a major role in the economy of Cameroon and agricultural expansion is likely to remain the cornerstone of the country's economic development strategy. The rural sector contributes 40 percent of the GNP, 70 percent of the country's export earnings and employs about three quarters of the total labor force. Rural per capita incomes vary widely between regions, the main distinction being between the forested areas in the south, US$90-160, and the northern savannah areas, US$66-90, where income is less than a third of the national average. 26. Cameroon's diversity of soil and climatic conditions are reflected in the variety and geographic distribution of its principal agricultural products. In the north, millet, sorghum, rice, maize, groundnuts and cotton are produced and there is potential for wheat. In the center and eastern provinces, marked by low population density, root crops, groundnuts, coffee, tobacco and some cereals are grown and livestock production is also an impor- tant feature. In the center south, comprising the principal urban concentra- tions, 80 percent of the country's cocoa is produced while plantain and taro are major food crops. In the coastal provinces, robusta coffee, cocoa and bananas are produced by individual farmers, while oil palm, and rubber are produced on large scale estates. In the heavily populated western provinces maize and tuber crops are the main food staples supplemented by groundnuts, beans and vegetables.  - 10 - 27. Smallholder farming is the predominant source of agricultural output. Nearly a million farm families, cultivating an average of about 2 ha, contribute 90 percent of total production. Of the export crops, coffee and cocoa come principally from peasant producers. Three other important crops, namely cotton, tobacco and rice are also supplied largely by small farmers. 28. Attention in the past, particularly in the field of research, technical support and extension, has been focussed on export crops such as cocoa, coffee, cotton and oil palm. By contrast, food crop production has suffered from weak rural institutions, limited access to credit and seasonal inputs and lack of training and agricultural research dissemination to the small farmer. 29. Recent agricultural production trends have varied. Food crop and cereal production have remained stable over the past five years following poor results during the drought of the early 1970s. Root crop production has grown at an appreciable rate over the past decade. Cash crop production has followed an uneven trend: expanding between 1967 and 1972; regressing between 1972 and 1976; and, more recently, increasing as a result of improved producer prices, stronger Government support and intervention policies, and the matur- ing of investments from earlier years. Potential for increased production is good as Cameroon possesses considerable unexploited land resources: it is estimated that little more than 4 percent of potentially cultivable land is currently under production. Only in the western provinces is there a density of population which puts pressure on available cultivable land. Government is currently pursuing measures to encourage migration out of this area by opening up new productive lands such as those envisaged as part of the present project. 30. Allocations totalling US$740 million for agricultural and rural sector activities in the Fourth Development Plan are evidence of Government's commitment to these sectors and represent a 4 percent increase in the share allocated to them in the investment budget over provisions made in the Third Plan. In pursuing overall objectives of improving income distribution and regional disparities, modernizing social facilities and living conditions and developing local technology, Government's agricultural policy is concerned with improving: (i) coverage of extension services; (ii) availability of agricultural credit; (iii) farmer organization through cooperatives; and, (iv) research dissemination to smallholders for major crops. In pursuing attempts to stem the growing exodus of young people from rural areas, funds have been earmarked to help establish young farmers in cash and food crop production. 31. The Bank's activities in Cameroon include a number of integrated rural development projects although almost 60 percent of sector lending to date has been to industrial crop projects for rubber and oil palm such as CAMDEV, SOCAPALM and HEVECAM and for rice development in the two SEMRY pro- jects in the north. These projects are assisting Cameroon to diversify its production of export crops. Rubber production now amounts to about 18,000 tons a year and palm oil about 50,000 tons (primarily for domestic consumption) as against coffee and cocoa at 90,000 tons and 100,000 tons respectively.  - 11 - Government is also considering diversifying into coconut production for which variety trials are underway and seed gardens are being established in a pilot component of the CAMDEV II project (Loan 1508-CM). 32. In line with Government's wishes to involve smallholders in indus- trial crop projects, CAMDEV II and SOCAPALM II (Loan 1392-CM) include plans for 3,000 ha of smallholder oil palm and 1,000 ha of smallholder rubber, and the presently proposed HEVECAM II project incorporates trials of 250 ha of rubber to be planted by some 100 smallholders. Smallholder plantings would be developed alongside the estates so that they could benefit from the tech- nical expertise of the nucleus organization and from the estate processing facilities. This is essential to achieve higher yields and higher quality. The overall size of such smallholder components is however constrained for at least the next few years by the low population density in areas adjoining the estates currently being developed and the lack of experience in rubber produc- tion of these populations. 33. The total area under rubber in Cameroon at the present time is about 25,000 ha, two thirds of which are in tapping. Production averages 18,000 tons a year. The major contribution comes from CAMDEV with about 11,000 ha in tapping and an annual production of 12,000 tons. SAFACAM with 4,000 ha in tapping, produces about 4,000 tons and PAMOL, with 1,600 ha, about 2,000 tons. Long-term plans for further expansion of the area under rubber will depend on the outcome of two regional master plan studies for which financing has been provided under ongoing Bank projects. In terms of land availability, it is probable that the area under rubber could be increased to 100,000 ha without jeopardizing other important agricultural developments, in particular the expansion of production of staple food crops. Institutions 34. HEVECAM (Hevea-Cameroon), a wholly state-owned development company, was established by Government decrees in 1975, and was charged with the development of a 15,000 ha rubber estate within a 40,000 ha concession at Niete in Ocean Department. The concession is about 25 km southeast of Kribi and 250 km from the main port of Douala. Initial financing of CFAF 300 million (US$1.4 million) was contributed jointly by Government, the National Office for Marketing of Primary Commodities and the National Investment Company. An IDA credit (574-CM) of US$16 million and a loan by the CCCE of FF 20 million were granted in 1975. WitbL this external financing, the Government initiated the first phase of the Niete development, with a target of planting 5,800 ha of plantation rubber. 35. Despite a slow start, due to problems associated with mobilizing a large project in a remote and undeveloped region, HEVECAM has almost fully achieved the physical targets set for 1976-79. However, the costs of this work has substantially exceeded that foreseen during appraisal, by an esti- mated US$7.6 milLion. Reasons for this include changes in the method of land preparation to assist burning and reduce the risk of root disease, a revision of planting techniques due to losses from rodent damage and the adoption of higher housing standards. Thus, only 4,200 ha instead of the expected 5,800  - 12 - ha have been planted during the first project; and it is now proposed to finance the remaining fifth year's planted area of 1,600 ha out of the second project. 36. Also financed under the first project were associated activities which included technical assistance to HEVECAM and the preparation of a Master Plan for the economic development of the Kribi region. In addition to the management support it receives under a contract with the Societe Africaine Forestiare et Agricole du Cameroun (SAFACAM), HEVECAM also benefits from the advice of IRCA (Rubber Research Institute) with headquarters in Paris and the collaboration of IRAF (The National Agricultural and Forestry Research Institute). The company operates under the auspices of the Ministry of Agriculture. The President of the Board of Directors is nominated by the President of the Republic and membership of the Board includes representatives of the Ministries of Agriculture, Economy and Planning, and Finance. The Managing Director, at present an expatriate with long experience in the management of rubber planta- tions, is responsible to the Board for the day to day conduct of the company's affairs. PART IV - THE PROJECT 37. The project would comprise a five-year second phase in the develop- ment of an industrial rubber estate within the 40,000 ha Niete concession in south east Cameroon. It would contribute to finance the planting by HEVECAM of 9,300 ha of rubber, increasing the size of the planted estate from 4,200 ha to 13,500 ha. The project preparation report was completed in November 1978 and the project was appraised jointly by the Bank, CDC and CCCE in March/April 1979. Negotiations were held in Washington on November 12-16, 1979. The Cameroonian delegation was led by H.E. Benoit Bindzi, Ambassador to the United States, and included the Director General of HEVECAM. CCCE and CDC also participated in the negotiations. Project Description 38. The principal objectives would be to: (i) clear and prepare for planting a further 9,800 ha of forest which, added to the 5,200 ha cleared under the first project, would complete the clearing for the total 15,000 ha development envisaged by Govern- ment; (ii) plant a further 9,300 ha with selected rubber clones, which would extend the estate's total planted area to 13,500 ha. The remaining 1,500 ha cleared under this project would be planted during a future third phase;  - 13 - (iii) maintain during the pre-production period the 4,200 ha planted iunder the first project together with the 9,300 ha that would be planted under the proposed project; (iv) bring into tapping about 1,500 ha of the first trees planted under the first project; (v) establish the infrastructure necessary for the expansion of the estate, including the construction of housing for workers, the installation of water and electricity services and the provision of a hospital, schools, markets, stores, recreational buildings and sports facilities; (vi) construct the first stage of the rubber factory and install processing capacity to handle 30 tons per day of rubber; (vii) establish nurseries to provide material for the 1,500 ha that would be planted under a future third phase; (viii) complete the survey of the Niete concession and preparatory topographical and soil studies on a new site to provide for the company s further development; (ix) provide technical assistance to HEVECAM under the existing management contract with SAFACAM, which in- cludes provision for the training of Cameroonian staff at all levels of responsibility; (x) continue the field trials on rubber varieties, disease control and tapping techniques; (xi) clear forest and make land available for food crop husbandry by the estate workers and their families and provide them with improved seed and other planting material for the major subsistence crops; (xii) clear about 250 ha of land outside the concession area, conducting trials and making other pre- parations, such as creating credit facilities for participating growers, for the introduction of rubber as a smallholder crop in association with the industrial plantation; and (xiii) conduct a survey to determine the quantity of timber available for salvage logging in the forest areas to be cleared for the project.  - 14 - Project Implementation 39. The majority of land clearing would be done on force acccount by HEVECAM using the fleet of heavy tractors purchased under the first pro- ject. With only minor additions, this equipment should suffice for the completion of a 15,000 ha estate. HEVECAM would subcontract operations such as tree felling with chain saws for which local contractors are available. 40. The following table summarizes the operational calendar for the major field operations envisaged: Timetable (ha) Total Projects Project I Project II I and II 1980 1981 1982 1983 1984 Total Land Clearing 5,200 2,210 2,200 2,190 1,700 1,500 9,800 15,000 Planting 4,200 998 2,210 2,200 2,192 1,700 9,300 13,500 Opening for Tapping - - - 131 243 1,093 1,467 1,467 41. The project will continue to rely on varieties of planting material which have performed well under the first project and are internationally recognized as suitable for large-scale industrial plantings. A number of other varieties such as recently developed Malaysian clones could also be included but on a smaller scale. Experience has shown that the best re- sults are to be expected from container-grown plants raised in irrigated nurseries. As much as possible of the rubber planted under the project would be raised in this way. The balance would be planted as budded stumps or would come from seedlings planted directly in the field and bud-grafted about a year later. 42. High density planting (555 trees per hectare) would maximize production during the early years of harvesting while the use of yield stimulants (Ethrel) would both enhance yield and keep down labor costs. production is expected to start in year six after planting, with a yield of 200 kg of dry rubber per hectare, rising to 2,300 kg at full maturity, in about year fifteen. Over an expected tapping life of thirty-two years, this would give an average production of just under 2,000 kg per hectare per year. 43. HEVECAM at present employs about 1,600 workers. The proposed project would provide a further 1,400 jobs bringing to 3,000 the total number of employees. The project would finance the construction of housing and the provision of medical and social services for these additional employees. This would include a hospital, stores, clubs, and facilities for indoor recreation and outdoor sports and schools. Assurances were obtained from Government that schools built at Niete would be operated in accordance with the provisions governing its public educational system (Section 4.04 of the  - 15 - draft Credit Agreement). A typical village would house 400 workers on a 15 ha site and, in addition, HEVECAM would clear 60 ha of forest and allocate this land to workers wishing to cultivate their own food crops. HEVECAM would also operate a food crop unit that would be responsible for the multiplication and distribution of improved planting material. To improve communications, assurances were obtained that Government will upgrade by December 1980 and maintain thereafter an all-weather road between Niete, Kribi and Douala (Section 4.05 of the draft Credit Agreement). 44. Government is anxious to develop smallholding rubber in association with the industrial estate and financing has been included to launch a small- holder program. This is seen as essentially experimental in nature and would involve only about 250 ha with perhaps 100 participants during the project period. It would be unreaListic to attempt a more ambitious program under the proposed project. Rubber is an unfamiliar crop, population density in the area surrounding the concession is low, and local farmers already have time and labor constraints in the practice of their traditional husbandry. Financial assistance and suipervision of the smallholder program would be managed by HEVECAM under a Credit Administration Agreement with FONADER. The arrangement would be similar to those being implemented under the Second SOCOPALM (Loans 1391-T and 1392-CM) and the Second CAMDEV (Loan 1508-CM) projects. Project Costs 45. Total project costs during the five-year investment period are estimated at CFAF 20 billion (US$95 million) inclusive of all identifiable taxes. Taxes account for ICFAF 1.3 billion (US$6.2 million) or 7 percent of total project costs. The net of tax cost of the project would thus be CFAF 18.7 million (US$88.8 million). The foreign exchange component of the second project would be only 39 percent or CFAF 7.3 billion (US$34.5 million). This is due to the substantial investments already financed under the first project in the form of equipment, vehicles and materials. Physical contingencies have been estimated at 10 percent on civil works and buildings and 5 percent on all other costs except salaries. Price contingencies have been calculated through- out at 10 percent compounded annually on January 1979 base costs, plus physical contingencies. This is consistent with the first HEVECAM project and with other projects presented recently for Cameroon. Project Financing 46. The Bank Group would provide an IBRD loan of US$16.5 million and an IDA credit of US$15 million to Government, making a total participation of US$31.5 million. A provision for retroactive financing would be made for a total not to exceed US$400,000, corresponding to expenditures to be incurred after January 1, 1980. The CDC would provide a loan of b12 million (US$25.7 million) and the CCCE a loan of FF 80 million (US$19 million). The terms of the CDC loan to Government would be 20 years with a seven year grace period and 7.5 percent annual interest. There would be a commitment fee of 0.75  - 16 - percent. The terms on FF 60 million of the CCCE loan to Government would be 20 years with an eight year grace period and annual interest of 5.5 percent; the remaining FF 20 million would be for 15 years, including five years of grace, at 10.25 percent interest. The Government would finance the balance of CFAF 3.9 billion (US$18.8 million). Government would also provide CFAF 1 billion (US$4.8 million) to cover working capital requirements of HEVECAM during the project period. Assurances were obtained that HEVECAM's liquid assets would be maintained at a level sufficient to cover its expenditures for a four-month period (Section 4.01 of the draft Credit Agreement). To ensure a satisfactory debt/equity ratio during the project period, it was agreed that all Government financing would be contributed to HEVECAM as equity; FF 20 million (US$4.8 million) of the CCCE loan to Government would also be passed on as equity and FF 15.8 million (US$3.7 million) as a grant. The remaining financing would be relent to HEVECAM for a period of 20 years, including ten years of grace for both interest and capital, a proposal justified by the long gestation period of the project. The relending interest rate charged by Government to HEVECAM at the end of the grace period would be equivalent to about 12.6 percent. All these conditions would be provided for in a subsid- iary financing agreement to be entered into between Government and HEVECAM on terms approved by the Association and the Bank (Section 3.01(b) of the draft Credit Agreement). Assurances were obtained from Government that additional financing after the project period would be provided to bring the 15,000 ha rubber estate into full production (Section 4.02 of the draft Credit Agree- ment). Procurement 47. Contracts for goods of US$100,000 or more would be awarded through international competitive bidding in accordance with Bank guidelines. Goods so purchased would total about US$7 million of which the Bank and IDA would finance US$2.3 million and would cover heavy vehicles, equipment, fertilizers and chemicals and factory equipment. CCCE would finance, under its procurement rules, light vehicles and wheeled tractors with a value of FF 4.4 million (US$1 million). Contracts of between US$50,000 and US$100,000 would be procured through local competitive bidding procedures acceptable to the Bank. Purchases below US$50,000 would be made on the basis of quotations from not fewer than three suppliers and limited in total to an equivalent of US$4 million for contracts so procured. A 15 percent margin of preference may be granted in favor of goods manufactured in Cameroon. 48. Civil works totalling US$12.3 million (Bank/IDA US$4.1 million) for the estate infrastructure would be carried out by HEVECAM on force account with a limited amount of sub-contracting since they are unlikely to attract foreign bidders and there are no suitable local contractors available in the area. Deforestation and land clearing costing US$35.1 million (Bank/IDA US$16.1 million) would also be carried out by HEVECAM on force account. The continued use of force account for deforestation is justified given the substantial residual capacity now available to HEVECAM from the first project (heavy equipment, workshops, trained manpower) and that, in view of HEVECAM's performance and recent international tenders for deforestation work  - 17 - in Cameroon, it is the less costly alternative. Since the purchase of land clearing and other agricultural equipment was financed under the first proj- ect, depreciation costs would be specifically excluded in calculating reimburs- able amounts on force accounts operations. Services for chain sawing operations would be procured on the basis of price quotations solicited from local contractors. HEVECAM's management and administrative expenses would total US$28.2 million of which US$9.4 million would be covered by IDA/Bank financ- ing. Expatriate costs (US$48,000 per man-year) total US$2.9 million (of which IDA/Bank US$1 million). Management services totalling US$2.7 million under an existing technical assistance contract would be financed by CCCE. Disbursement 49. The IDA credit and IBRD loan would be disbursed over about five years and would cover 33 percent of total project costs including taxes and 35 percent of total costs net of taxes. The IDA credit would be disbursed first. It is expected that no loan proceeds would be disbursed until the second half of FY83. Bank/IDA financing would be disbursed on a pari passu basis with CCCE, CDC and Government. In addition, CCCE would parallel finance cars and light tractors, technical assistance from SAFACAM and project related studies, totalling US$4.9 million. Government would also finance 100 percent of the costs of food crop development, applied rubber research and the smallholder program totalling US$5 million. Costs during the first three quarters of FY80 totalling an estimated US$6.1 million would be financed by Government (US$1.2 million) and CDC (US$4.9 million). Disbursements against contracts would be fully documented, while in the case of work carried out by HEVECAM on force account, disbursements would be made against statements of expenditure verifi- able from supporting evidence which would be made available during project supervision. HEVECAM's financial management has been strengthened by the appointment of a financial and administrative director. Annual audits will be carried out by independent auditors and will be submitted to the Bank. Organization and Management - Plantation Development 50. As under the first project, responsibility for the creation of the plantation, its maintenance and eventual exploitation has been assigned to SAFACAM, a Cameroonian pilantation company with international affiliations, under the terms of the existing technical assistance contract concluded at the commencement of the first project and scheduled to last for eight years. This contract has operated satisfactorily to date and is expected to continue through the five year period of the proposed project. SAFACAM assists HEVECAM in the preparation of annual budgets and, through formal inspection visits, keeps the HEVECAM Board advised on all matters relevant to the successful implementation of the program of development. In addition, assurances have been obtained that HEVECAM would at all times employ a technical manager, industrial manager and a fiLnancial and administrative manager with qualifica- tions acceptable to the Bank. (Section 3.01 (b) (i) of the draft Project Agreement).  - 18 - Training 51. On-the-job training of skilled labor and intermediate level staff has proved effective during the first project and will continue. Most manage- ment recruits have a sound agricultural background but lack management experi- ence. HEVECAM is very conscious of this problem; a training and development program anticipating the long-term needs of the company has been submitted to its Board of Management for approval. Management trainees who show good potential will also be given the opportunity to travel within Cameroon or overseas to gain experience on successful rubber estates. Long-Term Plans 52. Government will prepare a long-term plan (not later than December 1981) for the future development of perennial crops in the coastal area of Cameroon. This study would take into account human and financial resource requirements of such a plan and wouLd make recommendations regarding the allocation of resources between industrial plantations, intermediate scale operations and smallholder activities. (Section 4.03 of the draft Credit Agreement). Existing plans already envisage the completion of a 15,000 ha plantation within the Niete concession, but any subsequent Bank group partici- pation in the further expansion of HEVECAM would be contingent upon the acceptability of the long-term plan by Government and evidence of the com- pany's sustained financial viability. Rubber Production 53. Production from trees planted over the 4,200 ha area during the first project would commence in 1982, and the crop from these areas would reach a peak of 9,700 tons in about 1994. Production from the 9,300 ha to be planted under the proposed project would reach a maximum of about 21,000 tons before the end of the century, by which time, assuming the full 15,000 ha program were to be realized, the total production would reach 34,500 tons per year. Market and Prices 54. Although no long term forecasts of rubber prices have been issued covering the period beyond 1990, there can be little doubt that the cost competitiveness of natural rubber with other elastomers, has been further strengthened by the recent increases in the prices of petroleum products. The total demand for all rubbers is expected to increase at a rate of about 5 percent over the next decade, and at about 3 percent between 1990 and 2000. To meet this demand, the present global production of 15 million tons has to be doubled over the next 20 years, to reach 30 million tons by the year 2000. For natural rubber to maintain its present 30 to 35 percent market share, production must be increased to at least 10 million tons. For Malaysia, the world's leading producer of natural rubber, this would mean increasing the area in tapping from 1.7 to 2.7 million hectares. Quite apart from the diffi- culty of finding another million hectares of suitable land, in competition  - 19 - with currently more profitable crops such as oil palm, there is the even more difficult problem of attracting another 250,000 workers to the industry in order to ensure harvesting of the additional crop. Indonesia, the second largest producer, with a smallholder-dominated rubber sector, and a high proportion of over-aged trees, would also be expected to have problems mobi- lizing the cap'+-al and manpower resources required to maintain its market position. It may be concluded, therefore, that there are excellent prospects for West African countries, such as Cameroon, to acquire an increasing share of the market. 55. The HEVECAM project would produce technically specified block rub- bers equivalent to the Malaysian "SMR" grades. The average price is expected to equal that of RSS1 (first quality ribbed smoked sheets) which is the basis for market price forecasts. Based on price projections through 1990, and the best estimates that can be made beyond that period, it is expected that the average price obtained over the 41 years exploitation period, would be CFAF 301 per kg, in constant 1979 terms, c.i.f. West European ports. Financial Returns 56. Due to cost increases experienced during the first HEVECAM project, the revised estimated financial rate of return for the 4,200 ha planted is 3.8 percent, as compared with an estimated return of 10 percent at appraisal for the 5,800 ha expected to be planted. Based only on the incremental costs of creating an additional 9,300 ha of plantation, the second project would show a financial rate of return of about 11 percent. For the 13,500 ha estate which would result from a combination of the first and second projects, the rate of return would be about 8 percent. These calculations are based upon all investment and operating costs and benefits during the useful life of the two areas planted; the additional 1,500 ha cleared under the proposed Second HEVECAM Project are not taken into account. With a 15,000 ha plantation at full maturity, HEVECAM's annual operating costs, in constant 1979 terms, would be about CFAF 5.5 billion (US$25 million). Revenues from sales of rubber would exceed twice this amount, CFAF 11.5 billion (US$52 million). By the year 2000 annual income from rubber sales would be more than double operating costs. Over the period 1975-2000 cumulative net profit in current terms would be CFAF 98 billion (US$467 million). With cumulative depreciation of CFAF 41 billion (US$194 million), the internal cash generation during the period would be CFAF 139 billion (US$669 million). It is probable that these self-generated funds would be reinvested in new plantings. Project Benefits 57. The project would provide continuing support to Government's plans for the economic development of the Kribi region. Development of this sparsely populated, forest area is keyed to the expansion of industrial scale plantation agriculture. Depleted, logged over forest of little economic value would be replaced by perennial tree crops, principally rubber, oil palm and coconut. The rubber planted under the HEVECAM projects would provide the first major contribution to this development. The expansion of rubber produc- tion would significantly reduce Cameroon's present heavy dependence on cocoa and coffee for its agricultural export earnings.  - 20 - 58. At maturity, the HEVECAM development would provide full-time employ- ment for about 7,000 workers. Ancillary employment opportunities, created by the existence of this large industrial complex, would make a contribution to the future development and economic prosperity of the region. 59. Given the start up problems with the first project, the expected rate of return on the first 4,200 ha was 7.5 percent. The marginal economic rate of return for the 9,300 ha project is estimated at 15 percent. Thus, the rate of return for the two projects combined is estimated at 11 percent. Completion of the 15,000 ha estate would provide an economically sound invest- ment that could withstand substantial increases in costs or shortfalls in benefits while still remaining viable. A sensitivity analysis, based on the more cautious of the two price hypotheses tested, shows that in spite of a 28 percent increase in costs, or a 22 percent fall in benefits, the economic rate of return for the 15,000 ha estate would not fall below 9 percent. Risks 60. While measures already taken by HEVECAM to resolve the general labor supply problem such as housing, medical and social services (see para. 43 above) will probably be successful, there may be a longer term difficulty in obtaining skilled tappers once full production commences beyond the project period. The long-term plan for development of perennial crops (see para. 52) is expected to make recommendations for a course of action which will balance the need for labor with its availability. The principal agricultural risk would be Fomes root disease. This is inherent in any development of rubber plantations from natural forests in which the disease is endemic. However, the precautions that have been incorporated in the project design (methods of deforestation and land preparation) are considered adequate to ensure a satisfactory stand of trees that would produce the expected yields. PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Development Credit Agreement between the United Republic of Cameroon and the Association, the draft Loan Agreement between the United Republic of Cameroon and the Bank, the draft Project Agreement between the Bank, the Association and HEVECAM, the Recommendation of the Committee provided for in Article V Section 1 (d) of the Articles of Agreement of the Association, and the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank are being distributed to the Executive Directors separately. 62. Special conditions of the project are listed in Section III of Annex III. 63. Special conditions of loan and credit effectiveness (Section 6.01 of the draft Development Credit Agreement and Section 5.01 of the draft Loan Agreement) would be that:  - 21 - (a) a Financing Agreement has been concluded on behalf of the Borrower and HEVECAM; and (b) the effectiveness conditions of the CCCE Loan Agreement and the CDC Loan Agreement have been duly met. 64. I am satisfied that the.proposed loan would comply with the Articles of Agreement of the Bank and the Association. PART IV - RECOMMENDATIONS 65. I recommend that the Executive Directors approve the proposed Loan and Credit. Robert S. McNamara President Attachments December 21, 1979  - 22 - ANNEXI TABLE 3A Page 1 of 5 pages X COOlt - SOCIAL IDICATOIS DATA STrT CAHUOON luzmcI GRoups (ADJUSTED A5jRACES WAID ARIA (TROUSAJD O. (.) - MOST RLCN ES MAT' - TOTAL 474 SANE SAME Nt RICHRZ ACRICULTUIAL 156.4 M0ST RECENT GOCRAPIC INCOM5 INCOME 1960 Lb 1970 /b ESTIMATE /b UGION 7c GROUP /d GOUP /I CGP PER CAPITA (US$) 130.0 250.0 460.OL 306.1 467.5 1097.7 EURGY CONSUMTrON PER CAPITA (KILOGRAMS 07 COAL EQ(IVZAIt) 55.0 91.0 98.0 80.6 262.1 730.7 POPULATION-AND VITAL STATISTICS POtPltATIO, MID-YER (ILLI0S) 5.7 6.8 7.9 UR o POuLAnoN (7nCINT OF TOTAL) 13.9 20J3 27.2 17.1 24.6 49.0 POPUATION PROJECTIONS POPuLATION i YA 2000 (MILLIONS) 13.0 STATIONARY POPULATTIO (MaLLIORS) 32.0 TEAR STATIONAR POPULATION IS URACMD 2135 POPULATION DSIT Pnr SQ. KIt. 12.0 14.0 17.0 18.4 45.3 44.6 PU SQ. KM. AGRICULTUAL LAND 36.0 U.0 51.0 50.8 149.0 140.7 POPULATION ACE STRUCTU (PtRE) 0-14 YES. 38.5 41.3 43.0 ".1 45.2 41.3 15-64 YES. 59.2 55.7 54.0 52.9 51.9 55.3 65 ns. MAD AOE 2.3 3.0 3.0 2.8 2.8 3.5 POPULATION GROIiT RATE (PRCET) TOTAL 1.4 1.8 2.2 2.7 2.7 2.4 URA .. 5.6 8.0 5.7 4.3 4.5 CRUDE SIRTH RATE (PER TOSAND) 43.0 42.1 43.0 46.3 39.4 31.1 CRUDE DEATH RATE (PER THOSAND) 27.0 22.0 19.0 17.2 11.7 9.2 GROSS REIODUCTION RATL 2.3ZI 2.7 2.8 3.1 2.7 2.2 FAMILY PLANNING ACCEPTOS S, ANUAL (THOUSANS) .. .. .. USURS (PELCENT OF MAID EN) .. .. .. .. 13.2 34.7 FOOD AND NURRITION IWDEX oF FOOD PRODUCTION PER CAPITA (1969-71-100) 70.4 100.0 102.0 94.3 99.6 104.4 PER CAPITA SUPPLY OF CALOtIES (PERCENT 0O REqUIREmNTS) 96.0 96.0 102.0 89.5 94.7 105.0 PROTEINS (CRAMS PER DAY) 59.0 59.0 59.3 55.8 54.3 64.4 OF WHICH ANIMAL AND PULSE .. 23.0/b 16.5 17.9 17.4 23.5 C2ILD (AGES 1-4) MDRtALITY RATE 40.0 32.0 27.0 22.3 11.4 8.6 HEALTH LIFE EVECTANCY AT BIRTH (TEARS) 37.0 42.0 44.0 47.0 54.7 60.2 INFANT MORTALITY RATE (PER THOUSAND) 167.0/i .. .. .. 68.1 46.7 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. 26.0 20.3 34.4 60.8 URBAN .. .. 35.0 53.9 57.9 75.7 0RmAL .. .. 22.0 10.1 21.2 40.0 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 2.5 40.8 46.0 URJAN .. .. .. 62.5 71.3 46.0 RURAL .. .. .. 13.9 27.7 22.5 POPULATION PER PHYSICIAN 34000.0/f 25960.0 13980.0 17424.7 6799.4 2262.4 POPULATION PtR NURSINC PERSON 5210.0/f 2470.0 1890.0 2506.6 1522.1 1195.4 POPULATION PER HOSPITAL BED TOTAL 530.1/f 310.0 380.0 502.3 726.5 453.4 URBAN .. .. 350.0 201.4 272.7 253.1 RURAL .. .. .. 1403.6 1404.4 2732.4 ADMISSIONS PER HOSPITAL RED .. .. .. 23.4 27.5 22.1 HOUS ING AVERACE SIZE OF HOUSEHOLD TOTAL .. .. 5.2 4.9 5.4 5.3 URSAN .. .. 5.1 4.9 5.1 5.2 RURAL .. .. 5.2 5.5 5.5 5.4 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. .. .. .. 1.9 URAN .. .. .. .. .. 1.6 RURAL .. .. .. .. .. 2.5 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. .. .. 26.1 50.0 URSAN .. .. .. .. 45.1 71.7 RURAL .. .. .. .. 9.9 17.3  -23 - ANNEX I Page 2 of 5 pages TABLE 3A CAMEROONW-SOC1AL4 INDICATORS DATA SKEET CAMEROON IEFERENCE GROUPS (A=DSTED AyERAGES - NOST RECENT ESTIMATE) - SAIS SAME. NEXT HIHE-R MOST RECENT GEOGRAPHIC iNCt IfNCOME 1960 Lb 1970 /b ESTIMAE /b REGION 1c GROUP /d GROUP /e EDUCATION ADJUSTED ENROLLMENT JATIOS PRIMARY: TOTAL 65.0 107.0 120.0 59.0 82.7 102.5 MAILE 87.0 124.0 133.0 64.2 87.3 108.6 FEMALE 43.0 91.0 106.0 44.2 75.8 97.1 SECONDUY: TOTAL 2.0 9.0 Ii.0 9.0 21.4 33.5 MALE 4.0 13.0 23.0 12.0 33.0 38.4 FEMAALE 1.0 5.0 11.0 4.4 15.5 30.7 VOCATIONAL ENROL. (S OP SECO#DARY) 23.0 23.0 23.0 7.0 9.8 11.5 PUPLL-TEACER RATIO PI.IARY .. 48.0 51.0 42.2 34.1 35.8 SECONDAILY *. 24.0 23.0 22.9 23.4 22.9 ADULT LITERACY RATt (PERCENT) 151.0 12.0 .. 20.8 54.0 64.0 CONSUMPTION PASSENGER CARS PER TEWOSAND POPULATION 3.0 6.0 7.8 4.0 9.3 13.5 RADIO RECEIVERS PER THOUSAND POPULATION 3.0 36.0 96.0 44.3 76.9 122.7 TV RECEIVERS PER THOUSAD POPULATION .. .. .. 2.9 13.5 38.3 NEWSPAPE& ("DAILY GeNERAL INTEREST") CIRCULATION PER THOUSAND POPULAtION 2.0/h 3.0 3.9 5.6 18.3 40.0 CINEMA ANNUAL ATTENDANCE PER CAPITA D.1 .. 1.0 0.4 2.5 3.7 LABOR FORCE tOtAL LABOR FORCE (THOUSANDS) 2230.0 2560.0 2783.0 EMALE (PERCENT) .. .. 40.0 31.9 29.2 25.0 AGRICULTURE (PERCENT) 78.5 75.9 73.8 77.6 62.7 43.5 fIDUSTRY (PERCENT) 4.6 6.0 6.3 7.9 11.9 21.5 PARTICIPATION RATE (PERCENT) TOTAL 39.3 37.8 35.7 40.8 37.1 33.5 MALE *- *- 45.6 53.9 48.8 48.0 FEMALE .. .. 26.9 25.6 20.4 16.8 ECONOMIC DEPENDENCY RATIO 1.0 1.2 1.3 1.2 1.4 1.4 INCOME DISTRIBUTION PERCE.4T OF PRIVATE lNCOMK RECEIVED BY HIGHEST 5 PERCENT OF HOOSEHOLDS .. .. .. .. 15.2 20.8 HIGHEST 20 PERCENT OF NOUSEROLDS .. .. .. .. 48.2 52.1 LOWEST 20 PERCENT OF HOUSEROLDS .. .. .. .. 6.3 3.9 LOWEST 40 PERCENT OF gOUSEROLDS .. .. .. .. 16.3 12.6 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVEM INCOME LEVEL (USS PER CAPITA) URBAN .. .. 169.0 187.6 241.3 270.0 RURAL .. .. 88.0 96.8 136.6 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. .. 138.4 179.7 282.5 RURAL .. .. .. 71.0 103.7 248.9 ESTIMATED POPULATION 8ELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 15.0 34.5 24.8 20.5 RURAL .. .. 40.0 48.7 37.5 35.3 Nor available Not applicable. NOTEs /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is noL uniform. /b Unless otherwise noted, date for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c Africa South of Sahara; /d Lower hiddle Income ($281-550 per capita, 1976); /I Intermediate Middle Income (5551-1135 per capita. 1976); /f 1962, including ex-South Cameroons under British Administra- tion; Ig West Cameroon only; /h 1964-19766; /i 1960-65; /I Fiscal year July-June. Most Recent Estimace of GNP per capita is for 1978. August, 1979  -24- ~~~~ANNEX I or a~to ~ICA! ~Page 3 of 5 pages dJ=heh*the dt o. free e0enOee 6inOOLLY Jodge the A00 eatkeittlve ea -elol, It eati eLse be Geted thee they swot be Lmterve. b.ma o the loo" of etanardined defntionsloee omtomneete us"n by diffevent .0tutrise in oolieetlag the data. Th. data m,e, onethlesaa, bmesfd. to dee.oribe oed-v of IA deU, iLdICAat teseis, sag sharetWoxM 44e s mjanor differece beoteems ptwi.a. = 101e MM orw ema InAcator sr o. elxatlo.. elgtd