Mali - Second Telecommunications Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3170-MLI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A SECOND TELECOMMUNICATIONS PROJECT December 8, 1981 This document has a restricted distribufion and may be used by recipients only in the performance of their official duties. Its eontents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Malian Franc (MF) MF 1 million = US$2,000 US$1 = MF 500 FISCAL YEAR January 1 - December 31 ABBREVIATIONS ANI) ACRONYMS CCCE - Caisse Centrale de Cooperation Economique (France) OPT - Office des Postes et Telecommunications PPF - Project Preparation Facility TIM - Telecommunications Internationales du Mali WAMU - West African Monetary Union  FOR OFFICIAL USE ONLY MALI SECOND TELECOMMUNICATIONS PROJECT Credit and Project Summary Borrower: Republic of Mali Beneficiary: Office des Postes et Telecommunications (OPT) Amount: SDR 11.8 million (US$13.5 million) Terms: Standard Relending Terms: Government to OPT: 5 year grace, 20 year term; 10.6 percent interest per annum initially, to be revised to applicable rate for public enterprises upon Mali's reentry into West African Monetary Union. Caisse Centrale de Cooperation Economique (CCCE) will contribute US$7.7 million equivalent at 6 percent with a repayment period of 15 years including a 3 year grace period. Project Description: The project would enable OPT to acquire and install physical facilities essential to the improvement and the expansion of its services. It would also aim at developing the institutional aspects of OPT and in particular its telecom- munications department, financial management, planning, programming, and statistical services. The project would provide for (a) the construction of an automatic telephone exchange and the expansion of an existing exchange at a regional capital; (b) the substantial expansion of the local cable network in Bamako and the construction of such networks in about eight provincial cities; (c) the construc- tion of a microwave radio relay link on the route Segou- Sevare; (d) the construction of a number of VHF, UHF and SkF links to serve district and subdistrict centers; (e) the installation of a new telex exchange in Bamako; (f) tools, instruments and vehicles for installation, operation and maintenance; and (g) technical assistance for design engineering and maintenance of installations, local training and fellowships for training abroad. Project Risks: Risk of delay in project implementation is considered acceptable with specific measures recently taken by Govern- ment to improve OPT management and financial operations and with agreed performance indicators for monitoring efficient project execution. In addition, the proposed project comprises a large number of relatively independent activi- ties, and a delay in completion of some works would not normally prevent the use of other newly created assets. 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.  - ii - Second Telecommunications Project Estimated Costs (net of taxes and duties, which do not apply to OPT) Foreign Local Total -----US$ million----- A. Physical Facilities Local Telephone network 4.0 4.6 8.6 Interurban network 6.3 0.3 6.6 Telex 1.3 - 1.3 B. Tools, Instruments and Vehicles 0.9 - 0.9 C. Technical Assistance and Training 1/ 1.8 0.1 1.9 Base Costs 14.3 5.0 19.3 Physical Contingencies 0.6 0.2 0.8 Price Contingencies 3.4 1.8 5.2 TOTAL PROJECT COSTS 18.3 7.0 25.3 Financing Plan: IDA 11.0 2.5 13.5 53 CCCE 7.3 0.4 7.7 31 Government (OPT) - 4.1 4.1 16 Total 18.3 7.0 25.3 1UO Estimated Disbursements: FY82 FY83 FY84 FY85 FY86 FY87 FY88 Annual 0.3 I/ 1.7 2.9 3.1 2.6 1.8 1.1 Cumulative 0.3 2.0 4.9 8.0 10.6 12.4 13.5 1/ Includes US$0.31 million PPF advance Rate of Return: The estimated ERR is 25 percent. Staff Appraisal Report: No. 3561-MLI Map: IBRD 15789  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE FXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUbLIC OF MALI FOR A SECOND TELECOMMUNICATIONS PROJECT 1. I submit the following report and recommendation on a proposed development credit of SDR 11.8 million (US$13.5 million equivalent) on standard IDA terms to the Republic of Mali to help finance a proposed Second Telecom- munications Project. The Caisse Centrale de Cooperation Economique (CCCt) will contribute US$7.7 million equivalent on terms of 6 percent interest per annum with repayment over 15 years, including a three year grace period. PART I - THE ECONOMY 1/ 2. Two reports entitled "Economic Memorandum on Mali" (3200-MLI) and "Mali-Special Economic Study--Planning Institutions and the 1974-78 Plan" (3333-MLI) were distributed to the Executive Directors on June 30, 1981. The following paragraphs are based on these reports and findings of World Bank and IMF economic missions during April-June and August-September 1981. Annex I gives country data. Background 3. Mali is one of the poorest countries in the world. Covering 1.24 million square kilometers in the middle of sub-Saharan West Africa, this small country of about seven million persons had a 1980 GNP per capita of only US$190. It manifests all the signs of a least developed country, including a subsistence-oriented economy (85 percent of the population depends on the primary sector), dependence on a few commodity exports, an extremely low rate of domestic savings (minus 3.6 percent of GDP in 1980), a high population growth rate (2.6 percent), a low level of education (10 percent literacy), and difficult living conditions that give a life expectancy of only 43 years. 4. There are serious structural constraints to growth in Mali. Exploi- tation of mineral resources--including petroleum--is severely hampered by lack of geological data, by isolated deposits where access is difficult, and by high investment costs. Industrial growth is limited by narrow domestic markets, by poor infrastructure, and by inexperienced management. Moreover, three-fifths of the industrial sector depends closely on agricultural pro- duction for inputs. Thus, future growth will have to rely largely on the agricultural sector, which comprises 42 percent of GDP. Yet prospects for 1/ This section has been newly revised for this report.  -2- significant and rapid growth in this sector are also limited. Malian agri- culture is based mostly on a few low-yielding rainfed crops (millet and sorghum) and on traditional livestock herding, neither of which appear to have much potential for intensification. Rainfall is uncertain, which causes wide swings in production from one year to the next. Soils are fragile and prone to exhaustion and erosion, especially where rainfall is higher and cultiva- tion more intensive. Human resources are impoverished, in part because access to basic amenities like clean water, better health care, and educational opportunities remains quite limited. For example, only about one-tenth of the population has access to safe water and only about one-fourth of school age children are enrolled in primary school. Transportation and communication are extremely expensive by world standards, both because Mali is landlocked (Bamako is 1,200 kilometers from both Dakar and Abidjan) and because internal distances are vast (Kayes in the west is 1,750 kilometers from Gao in the east). As a result, transport costs on foreign trade alone were equivalent to 9 percent of GDP in 1980; and the unit cost of delivering basic services to the scattered population is high. Finally, Mali is an open economy; imports and exports together amount to more than half of GDP. Trade is concentrated in a few commodities--cotton and livestock comprise four-fifths of exports, and petroleum and foodstuffs, one-third of imports--making the country extremely vulnerable to changes in world prices. 5. Although these constraints make it difficult to achieve growth, Mali has long-run potential. Malian farmers are among the most proficient in West Africa, who have in the past tended to adopt improved technology and who are likely to respond quickly to higher incentives. For instance, they have been able to achieve the highest cotton yields in the region, in spite of lower prices and more expensive modern inputs than elsewhere. Rainfed maize produc- tion could be significantly expanded in the south where rainfall is higher, especially as higher-yielding hybrids are developed and disseminated. Mali has more irrigated rice land than any other Sahelian country, as well as the largest physical scope for expansion--mostly in the vast inland delta of the Niger river, although at present there are problems of maintaining existing irrigation facilities and of developing profitable production techniques. Potential hydroelectric generating capacity on the Niger and Senegal rivers is estimated at 2,000 megawatts, with less than 3 percent now developed, although it is difficult to envisage viable uses for this power. Except for cement, gold, phosphates, and a few others, mineral resources remain largely unexplored and unexploited but may offer longer-term opportunities. Although this potential can provide a basis for long-run growth in Mali, most of it cannot be counted on to contribute significantly in the short and medium term. 6. In view of its limitations, the economy appears to have performed well during the 20 years after independence (1960-80). Real GNP per capita grew 30 percent (1.3 percent annually), more than most other Sahelian countries. 1/ But trends mask wide swings from year to year caused by climatic conditions; GNP declined in 1969, 1973, 1974, 1978, and 1980 but 1/ Economic growth rates given here are compound annual rates, calculated from end points. For GNP and GDP, rates are always in constant prices.  grew by more than 10 percent in 1975, 1976, and 1979. Nor has the growth been evenly distributed among sectors. For 1965-80--the longest period for which detailed data are available--GDP growth was 4 percent per year, but the primary and secondary sectors lagged (3.0 and 2.9 percent) while the tertiary sector--comprising 48 percent of GDP by 1980--grew more rapidly (5.3 percent). Food production per capita has performed especially poorly-- as in most of sub-Saharan Africa--declining by 13 percent between 1970 and 1980. The relatively poor showing of the productive sectors (agriculture and industry) compared to the tertiary sector reflects public policies that have consistently shifted resources into consumption and government services and out of productive investment. 7. Faced with severe structural constraints and lack of sufficient resources to overcome them, economic management in Mali is particularly difficult. Since independence, the government has attempted to promote growth while trying to improve social equity and raise consumption from very low levels. But in the process it has adopted and followed economic policies that in practice have led by the end of the 1970s to financial and economic imbal- ances of huge proportions. In 1979--the last year for which there are accounts--financial losses of the 12 largest state enterprises were 5 percent of GDP, roughly equivalent to their total value added. During 1980, the current account deficit was a massive 17 percent of GDP; and the government Treasury deficit was 40 percent of revenues. At the end of 1980, net foreign assets of the banking system were negative by almost over US$250 million; gross foreign reserves were sufficient to finance less than two weeks of imports; and medium- and long-term external public debt had risen to 60 percent of GDP. There are multiple. causes for these imbalances, and the origins of almost all can be traced to continuing mistakes of economic management, which began in the early 1960s. Evolution 8. Mali's economic history can be divided into three periods (1960-67, 1967-74, and 1974-80) based roughly on changes in economic and political conditions. After independence, the first government undertook a major program of modernization that included an independent monetary system, an ambitious five-year development plan, a program of industrialization based on state enterprises, and a welfare orientation intended to keep prices down and to assure consumers with an adequate supply of basic commodities. During this period, GDP increased at 3.1 percent per year and the structure of the economy shifted somewhat away from agriculture--with the secondary sector increasing from 10 to 13 percent of GDP and the tertiary, from 35 to 37. By 1966, 27 state enterprises were in existence, and their share of sales in the modern sector had increased to 71 percent from only 24 percent in 1961. But public pricing and investment policies created imbalances that could not be sustained. Government budgetary deficits, which often exceeded 5 percent of GDP, and state enterprise losses were financed through bank credit, which grew at an annual rate of over 30 percent. This created excess demand that was met 1/ Economic growth rates given here are compound annual rates, calculated from end points. For GNP and GDP, rates are always in constant prices.  - 4 - through imports, and by 1967 the resource gap had risen to 16 percent of GDP (compared to 4.1 in 1960) and the current account deficit amounted to 28 percent of GDP. Net foreign assets had declined from a positive level to a minus US$ 56 million, and the debt service ratio had risen to 19 percent. The economic crisis led to the signature in early 1967 of monetary accords with France, to a 50 percent devaluation in mid-1967, and to reintegration with the franc zone in early 1968. At that time, the French Treasury opened an Opera- tions Account for Mali to provide overdraft facilities to support the conver- tibility of the Mali franc. 9. In late 1968--early in the second period, a new government assumed power and launched an ambitious but pragmatic reform program that was to include increases in official commodity prices and more liberalized private trade--especially in cereals. The government was immediately confronted by the shock of the severe Sahelian drought that began in 1968--when per capita food production fell by 9 percent. By the end of the drought in 1974, the loss of human life--though not fully known--had been severe among nomadic groups, the young, and the elderly; two million head of cattle, or over one-third of the herd, were lost; food production per capita had fallen by 30 percent, turning Mali from an exporter into a net importer of food. As the country was just beginning to recover from 6 years of drought, it was hit by a second shock: a sudden rise in world petroleum prices, which quintupled between 1972 and 1974. The legacy of economic disequilibria from the previous government, coupled with these massive shocks, made it extremely diffi_u_, f_r the ..ei 8;cr=nt to follow a course of sound economic management. 10. Compared to 1960-67, performance during 1967-74 was poor. GDP grew at only 1.8 percent per year and real per capita income declined. Output in the primary sector fell at 1.4 percent per year, although the secondary and tertiary sectors--fueled in part by rapidly increasing foreign assistance-- continued to grow, at over 4 percent per year. By 1974, the primary sector accounted for only 35 percent of GDP and the economy was now dominated by the tertiary sector, which accounted for 49 percent. In an effort to assure consumer access to essential commodities, the government resorted to large imports of cereals when domestic output fell and to consumer subsidies in the face of rising costs of imported and locally manufactured goods. To finance losses incurred by state enterprises that imported and sold subsidized goods, larger amounts of bank credit were used, especially in the early 1970s, ultimately adding to external indebtedness. Efforts to suppress domestic price rises, particularly of foodstuffs, depressed domestic food production and exacerbated the need for further cereal imports. By 1974, the economic imbalances--already bad 7 years earlier--had either not improved or had deteriorated: the resource gap was one-third of GDP; dissaving was nearly one-fifth of GDP; and the current account deficit remained high at 18 percent of GDP. Net foreign assets had fallen by over 100 percent to a minus US$139 million, and public external debt more than doubled. The government budget deficit stood at 3.5 percent of GDP. Thus, these years not only imposed great human suffering on much of the Malian population, but they also left a heavy legacy of debt for Mali's internal and external finances.  - 5 - 11. After the end of the drought in 1974, economic performance in the third period began to recover although financial imbalances continued to worsen. GDP grew by 6.7 percent per year between 1974 and 1980. Agriculture led this growth as it recovered from low drought levels, with 8.7 percent per year, despite a significant decline in the terms of trade for farmers during most of this period and poor crops in 1977 and 1979. The secondary sector, however, virtually stagnated. As in many countries at this time, inflation began to pose an additional problem for the country's economic management; prices doubled in only 6 years. Public fiscal management proved largely unable to cope with the continuing problems, and the country's economic situation remains precarious despite its positive growth. Though improved over 1974, the resource gap was equal to almost 19 percent of GDP in 1980; and domestic savings were still negative. The deficit on current account remained high at 17 percent of GDP. By the end of 1980, net foreign assets had fallen by almost another 100 percent to minus US$249 million. This increase in foreign liabilities, largely to the Operations Account, mostly reflected the 16 percent annual growth in credit to the economy over the period, which was needed to finance large government Treasury deficits (4.0 percent of GDP in 1980, including modest capital expenditures) and large losses in the state enterprise sector (US$60 million in 1979, or 5 percent of GDP). As the result of borrowings to finance the 1974-78 plan, external public debt doubled again to over US$850 million. Full recovery from the drought was made extremely difficult by the country's structural constraints, by the dislocations caused by the drought and subsequent world inflation, and by the financial imbalances that have been deteriorating since independence. 12. The continuing financial deterioration was basically caused by the inability of the government to reverse policy orientations in the face of large, external shocks. Owing to cost of living adjustments and expansion of the Civil Service, the government's wage bill increased sharply over the period. Although budget revenues did increase, the government Treasury deficit tripled during the period. Losses of the public enterprises--often the result of consumer subsidies and price freezes--were 17 times greater (at current prices) in 1979 than in 1975. These consumption-oriented policies kept demand above levels sustainable by the domestic economy, causing imports to rise more than exports. Mali financed the increasing current account deficit by overdrafts on the Operations Account plus grants from other donors, at the cost of substantially reducing its net foreign assets and of diverting scarce external resources from productive investment to current consumption. Faced with worsening financial disequilibria coupled with reduced access to central bank financing, the Malian government at the end of 1980 requested technical and financial assistance from both the Bank and the IMF to help it carry out a program of economic reform and adjustment. 13. During the first half of 1981, despite difficult circumstances including poor rains in 1980 and a further deterioration in the terms of trade, the government has been able to initiate several major fiscal improve- ments, including credit restraint, improved tax collection, new taxes on basic consumer goods, fewer subsidies to offset price increases, restraint on government personnel costs, savings on material, reductions in scholarships,  - 6 - and suspension of some education expenditures. During the first six months of 1981, tax receipts were 38 percent above the level for the same period a year earlier, while expenditures were held to only 80 percent of the budget (on an annual basis). Credit expansion has been kept at a 10 percent annual rate. Initial steps have been taken to restructure the state enterprise sector and to improve the medium-term viability of key enterprises. For example, SOMIEX, the state enterprise that exports cotton and groundnuts and imports basic consumer goods, has already substantially lowered its operating deficit from US$18 million in 1979 to a projected US$2 million or less in 1981 by reducing wholesale activities, cutting staff, closing retail facilities, and raising prices. To improve incentives for agricultural production, the government has substantially raised commodity prices (by 21-23 percent for cereals and by 18 percent for cotton). With technical assistance financed by IDA, the role of OPAM--the cereals marketing board--is being reduced to allow more private trade in grains, and the board is being reorganized to make its remaining operations less costly. Finally, in a move intended to strengthen Mali's financial and monetary policy further, the government is to rejoin the West African Monetary Union. While these are positive signs, it is still too early to judge if the measures can be sustained. Similar efforts have been initiated in the past but postponed because drought, world inflation, structural con- straints and poverty leave the country little margin for maneuver. There are negative signs that foretell of continuing difficulties in reducing the budget and current account deficits. Education expenditures will markedly increase in the last half of 1981 as schools are reopened after being closed for a year. Petroleum import prices have increased significantly in 1981 as the US dollar has appreciated. Cotton production in 1981 is.the lowest since 1974, caused both by late rains and by the 45 percent increase in fertilizer prices needed to keep subsidies from growing. On balance however, the government's actions warrant cautious optimism that economic reform will be continued. The IMF is negotiating a Standby Loan to help support these adjustments. Planning 14. The government has recently drafted a new Five-Year Plan for Eco- nomic and Social Development for 1981-85. Like those of the previous Plan (1974-78), its broad objectives continue to give priority to water develop- ment--for the rural population, livestock, and irrigation; to agricultural and livestock production--especially for achieving food self-sufficiency, for supplying an expanded agro-industrial sector, and for increasing commodity exports; to energy development; and to conservation of natural resources-- especially forests and pastures. These investment objectives seem to accord fairly well with the major economic constraints facing the country. The new Plan represents an important departure, however, from the past in terms of development strategy. It puts special emphasis on the need for policy reforms to re-establish fundamental financial and economic equilibria, notably by balancing the government budget, reducing the balance of payments deficit, reducing the losses of the state enterprises, and controlling training and recruitment for the Civil Service. The new Plan clearly accepts the co- existence of the public, mixed, and private sectors, and it seeks to increase local private participation in planning, financing, and maintaining investments (like access roads and schools) and in carrying on production and trade.  Finally, the new Plan gives priority to maintaining existing infrastructure investments rather than investing in new ones (especially in sectors like transport). Compared to the last Plan, relatively fewer funds are being allocated to agriculture (32 percent) and more to infrastructure, including telecommunications (28 percent). The secondary sector will receive 32 percent and social services, the rest. 15. Investments proposed by the new Plan are estimated to cost US$2.2 billion (in 1981 prices and exchange rates), of which US$1.7 billion would be required during the five-year planning period. Roughly 70 percent would be used to finance actual capital investments, the rest being for supporting expenditures. Foreign sources will be expected to provide over 85 percent of the financing (compared to more than 90 percent for the 1974-78 Plan). Although comparisons are difficult, the implied annual investment level appears to be over 50 percent higher than the one attained in the previous planning period (1974-80), during which roughly US$1.5 billion (in 1981 prices) were actually commited over 7 years. Judging from past experience implementation of the Plan may encounter delays and difficulties. in project preparation and execution. The real impact of the plan investments on growth performance is also difficult to judge, but the proposed real GDP growth rate (4.8 percent per year)--while modest compared to 1974-80, which were drought recovery years--is well above the long-term average and may be too ambitious, especially if other economic policies reduce the effectiveness of the invest- ments. However, many of these implementation problems may be alleviated during the 1981-85 Plan if the emphasis on policy reform and the government's efforts to strengthen the operation of the Planning ministry materialize. Foreign Aid 16. Foreign aid finances practically all planned public investment in Mali and is therefore critical for promoting future growth. The inflow of foreign aid has increased rapidly--especially since the drought--with net disbursements of official development assistance rising from only US$4 per capita in 1970 to over US$28 per capita in 1979, an increase of 130 percent in constant prices. More than half of this aid is in the form of grants, and almost 95 percent of the rest is loaned on highly concessional terms by official aid agencies. Long-term external public debt has also increased substantially, rising from US$288 million in 1970 to US$853 by the end of 1980, about three-fourths of which is disbursed. Despite the absolute in- crease in debt, it has declined in relative importance in the economy over the last 10 years, falling both in terms of real debt levels per capita and as a share of GDP. This shift reflects both the increase in official grant aid and growing recourse to short-term liabilities drawn on the Operations Account, which added another US$224 million (including unpaid interest) to total public external debt at the end of 1980. Bilateral sources hold 59 percent of the long-term debt; multilateral agencies provide another 39 percent; and private sources account for the remainder. The USSR and the People's Republic of China (PRC) hold three-fifths of the bilateral debt (about US$300 million), most contracted in the 1960s. The other important bilateral lenders include Egypt, France, Iraq, Kuwait, and Saudi Arabia. IDA is by far the largest  - 8 - multilateral lender, accounting for over half the multilateral loans and for 21 percent of total debt committed and outstanding. Actual debt service payments on long-term debt have been modest, amounting to US$11.1 million in 1980, or only 4.1 percent of exports of goods and non-factor services. This ratio is lower than in the late 1960s and the early 1970s, and has been made possible by rescheduling some debts (as was done for USSR and PRC debts until 1983) and by conversion of some loans into grants (as was done for US$92.9 million in 1978 by Canada and the Federal Republic of Germany). However, the debt-service ratio could rise significantly in the future unless further rescheduling and conversion occurs, which seems probable. 17. Sustained and viable growth of Mali's economy in the longer run depends crucially on policy reforms that will strengthen the economy. However, policy reforms take time, in large measure because the existing patterns of high domestic consumption--both public and private--will have to be switched carefully to avoid undue hardship on an already poor population. Regarding needed new investments, Mali's financing capacity is severely constrained both by the legacy of high spending levels in the past and by the limited savings potential when per capita income is extremely low. IDA funds can help finance sound productive investment, including a high level of recurrent, local-cost financing to reduce delays in project implementation. PART II - WORLD BANK GROUP OPERATIONS IN MALI 18. The proposed credit would be the Association's twenty-fifth credit extended to Mali (including two supplementary credits), which would bring total commitments of IDA funds to US$213.9 million equivalent. Of the twenty- four operations already approved, nine have been for agriculture, seven for transport, two for education, one each for telecommunications, small scale industries, urban development, and petroleum exploration promotion. Trans- portation and agriculture represent the largest share of past commitments, each representing about 38 percent of total commitments. The experience with ongoing operations has been mixed, the cotton project doing reasonably well, while the other agricultural projects have experienced considerable difficulty. Highway reconstruction and improvement has been successful while highway maintenance has lagged. The railway and education projects are being imple- mented, though somewhat behind schedule. Implementation is beginning on forestry, urban and small-scale enterprise projects. In general, project implementation and subsequent cost recovery has been hampered by Mali's dif- ficult public finance situation. Notes on the execution of ongoing projects are set out in Annex II. 19. The Bank Group's strategy in Mali is governed by (i) the extreme poverty, poor health and low level of basic skills of a largely rural population; (ii) a harsh natural environment with large fluctuations in the availability of basic food supplies; (iii) a landlocked position with long distances and difficult access to foreign markets; and (iv) an extremely  - 9 - difficult macro-economic situation, in particular in the public sector. The principal objectives of Bank Group assistance are (a) to support the adoption of policies designed to encourage balanced economic growth, and to redress the financial imbalances of the public sector and correct the biases of expenditures now disfavoring rural areas; (b) to help finance investments that will increase agricultural production; (c) to help meet the needs of the rural population in terms of health, literacy and rural infrastructure; and (d) to help provide an adequate transport and communications network. Given the close linkages between macro-economic policy performance and project implementation, the Government's ability to address policy issues is an important determinant of the scope and timing of Bank Group lending. 20. Future Bank Group lending for Mali will reflect a close liaison between project objectives and related policy and institutional reform. In the agricultural sector, follow-up operations to the sucessful Mali-Sud cotton project (Cr. 669-MLI) and the Office du Niger technical assistance project (Cr. 854-MLI) are scheduled. In both cases a major focus will be on pricing and institutional issues. The recently approved Road Maintenance Project (Cr. 1104-MLI) addresses the problem of generating and allocating adequate recurrent cost financing in the road transport sector. A proposed project for power distribution will aim at improving financial and technical management. Interventions are also envisaged for rural health, rural water supply, and for the production of biomass alcohol as a blend for gasoline. PART III - THE TELECOMMUNICATIONS SECTOR Background 21. Communications are extremely important in Mali, yet the means are meager; distances are great, population is dispersed, transportation is difficult, slow, and expensive. Efficient telecommunications services between Bamako, the capital, and secondary centers are particularly necessary for stimulating and supporting economic development outside the capital city and for encouraging decentralization. At present, however, only very limited telecommunications services are available along even the backbone route Bamako-Segou-Mopti, which includes some of the country's most productive areas. Of the total population in Mali, only 17 percent live in cities or towns with access to some sort of telecommunications or telegraph. There are only 52 telegraph offices in the country, and with one exception all telex facilities are located in Bamako. Only two of the seven regional capitals in Mali have satisfactory telephone service; six of 46 district centers have no telephone service at all and 70 out of the 281 subdistrict centers have neither telephone nor telegraph service. Organization and Access to Service 22. Telecommunications are under the control of the Ministry of Infor- mation and Telecommunications. Operation and expansion of telecommunications services are the responsibility of the "Office des Postes et Telecommunica- tions" (OPT), an autonomous entity established in 1960, which also operates  - 10 - the postal services and provides various public financial services--money orders, postal checking accounts, and savings accounts. Another autonomous organization, "Telecommunications Internationales du Mali" (TID), jointly owned by the Government (65 percent) and "France Cable & Radio" (35 percent), operates common carrier facilities for international services. No telecommu- nication manufacturing industry of any significance exists in Mali. Televi- sion has not yet been introduced and the radio broadcasting service, the responsibility of a separate body, has a very limited coverage due to lack of intercity transmission circuits. 23. The number of main telephone connections (direct exchange lines) in Mali is only 4,700 (end of 1980), which works out to a density of 0.06 tele- phones per 100 inhabitants, one of the lowest in the world, and low regionally as well; the average for Africa (excluding South Africa) is 0.40 telephones per 100 inhabitants. Outside Bamako, which has 11 percent of the population and 55 percent of the telephones, the density is only 0.01 or one connection for every 10,000 persons. Usage of Service 24. The Government is the dominant user of telephone service and accounts for about 40 percent of the revenues from telecommunications services. Due to the shortage of lines and the relatively high subscriber connection charges, a very large portion of residential telephones is used for professional and business purposes. Public telephones, particularly those outside of Bamako (70) are used very little due mainly to the poor intercity service offered. Quantified data which would enable a comparison of service demands by various categories of clients do not yet exist. Sample checks indicate that about two-thirds of traffic in Bamako is local and one-third interurban and inter- national. Quality of Service and Existing Facilities 25. About 72 percent of the telephones in Mali are connected to local automatic exchanges which provide a 24-hour service whereas the manual exchanges function only during office hours and thus provide limited service. It is estimated that more than 95 percent of local traffic, about 65 percent of the interurban domestic traffic, and nearly 40 percent of the international traffic is automatic. 26. Full advantage cannot be taken of existing automatic exchanges in Bamako, Segou, Kati and Koulikoro until the local cable networks are improved and extended. One automatic exchange in Sikasso, an important regional capital, does not have a satisfactory link to the national network. Manual exchange links to the national network are either by open wire pole lines or by HF radio, neither of which is satisfactory. Cancellation of calls using line circuits varies from 25 to 50 percent; for calls using fF circuits more than 50 percent are cancelled, indicating a very inferior service. 27. International traffic to Europe and beyond and to Algeria is routed by satellite circuits. Other African countries are served by HF circuits. The satellite circuits provide reliable service, but during peak hours the  - 11 - demand exceeds the capacity of available facilities, resulting in long waiting times. The company which operates these facilities, Telecommunications Internationales du Mali (TIM), is intending to increase capacity during 1982. Demand for Service 28. Applicants for telephone service cannot be given a firm delivery time, with applicants for a residential telephone having to wait for two to three years or more, despite the discouragingly poor quality of service at many places. The official waiting lists (end of 1980) contain 1,800 registered applicants, 1,348 of which are in Bamako. There is an additional latent demand of probably the same size which emerges as expansion works are undertaken, and also an important general demand from the Government for services in various cities and towns throughout the country. It is expected that the number of registrations on the official waiting lists will exceed one year's installation capacity of OPT throughout 1981-85. 29. The subscriber capacity of the present telex exchange was reached more than a year ago and OPT has ceased accepting applications until tne new exchange provided for in the proposed project has been put into operation. The present unfilled demand is estimated at 150-200 subscribers. Sector Goals and Constraints 30. The goals established by the Government for medium-term telecom- munications development are to: (a) establish a long distance network which functions with an acceptable reliability, and links the regional capitals with one another and with the district centers; (b) connect a maximum number of subdistrict centers and other rural development centers to the main long distance network as this network expands; and (c) improve the local networks in all important cities and towns. 31. The sector has suffered from Mali's macroeconomic situation. Sector development has been notably constrained by the lack of long-term foreign exchange financing, which in turn has hindered the preparation of a realistic investment program of sufficiently large scale. Another principal factor retarding progress has been connected with OPT's organization, management, anG manpower. OPT's statutes did not clearly define the duties and responsibili- ties of its various departments and sections but did create a bureaucracy that is much too heavy for a telecommunications administration, and has prevented efficient operations. Senior management has changed frequently, making con- tinuity difficult. OPT's personnel come under the national civil service system where salaries are too low to attract the most qualified people. Consequently, the number of well trained, experienced staff is too small and OPT has relied heavily on consultants, often without the best results. Insufficient support for training has also contributed to OPT's personnel problems. OPT's statutes,  - 12 - however, were revised in March 1981 to define more clearly duties and respon- sibilities, and to modernize procedures. The revision improves the structure significantly and provides a foundation for modern and efficient operations (paras. 43-45). In addition, the telecommunications department at present has reasonably good management, training is being given more constructive attention and technical assistance is being coordinated better than in the past. Past Bank Group Assistance 32. IDA approved a US$3.6 million credit for telecommunications in June 1972 (Credit 321-MLI). The project aimed at rehabilitating and expanding the principal local and long distance facilities and was designed to meet demand through 1977. In addition to physical plant, some limited technical assistance was provided to OPT for engineering, management and accounting services. Delays in getting the project started and a substantial cost overrun resulted in a reduction in the scope of the project and CCCE partici- pation in a new financing plan. Except for some cable work in Bamako, the modified project was successfully completed in 1979. Based on the first project, the second project aims as much at institutional development as at supporting the investments. Two PPF advances were approved to assist in preparing the second project--one financed the technical preparation which was completed in December 1980; the other a financial expert who is working on various tasks to strengthen financial management and accounting. Performance Under Previous Credit 1/ 33. The project was one of the first in the telecommunications sector in one of the poorest West African countries, and it is now evident that: (a) preparation of the project was not sufficiently advanced at the time of appraisal and initial supervision was inadequate; (b) the capability of the beneficiary institution was overestimated; (c) there were probably too many covenants which were somewhat overlapping, and not well understood by succes- sive OPT managers; and (d) the social and political environment did not support change as rapidly as hoped. However, even with the delays in con- struction and installation, as well as a lack of substantial institutional improvement, the results in a number of respects are positive: telephone service, for those who have lines, is greatly improved; there is direct long distance dialing; an increase in exchange switching capacity has greatly decreased the time required for obtaining a dial tone; 23 percent more custo- mers are being served and the quality of voice communication is noticeably better. 1/ Summary of the Project Completion Report issued September 30, 1981.  - 13 - PART IV - THE PROJECT Background and Objectives 34. The project is an integral part of the telecommunications investment program for the period 1981-85 prepared by OPT with the assistance of a con- sulting firm. A total advance of US$0.31 million was extended through the Project Preparation Facility (PPF) for the preparation of the project (para. 32). Appraisal took place in January/February 1981. Negotiations were held in Washington in November 1981 with a Government delegation led by the Minister for Information and Telecommunications. A Credit and project summary is given at the beginning of this report and a staff appraisal report (No. 3561-MLI) is being distributed separately. A supplementary project data sheet is at Annex III. Project Description 35. The project will enable OPT to install physical facilities essential to the improvement and expansion of its services. It also aims at the develop- ment of the institutional aspects of OPT and, in particular, its telecommunica- tions department, financial management, planning, programming, and statistical services. 36. The physical facilities, technical assistance, and training provided for under the project comprise: Component A (to be financed by CCCE) (a) construction of a new automatic telephone exchange and expansion work at an existing exchange in a regional capital; (b) construction of a microwave radio relay link on the route Segou-Sevare, with some spur links; (c) provision of tools and instruments for installation, operation and maintenance; (d) provision of technical assistance for design, engineering and maintenance of installations and for local training; fellowships for training abroad; Component B (to be financed by IDA and OPT) (e) a substantial expansion of the local cable network in Bamako; new construction of such networks at eight provincial cities; provision material and equipment to connect new subscribers; (f) construction of a number of VHF, UHF, and SHF links to serve district and subdistrict centers and other important rural develop- ment centers, particularly in the Niger-Bani delta and in the southern agricultural areas;  - 14 - (g) installation of a new telex exchange in Bamako; provision of teleprinters; and installation of voice frequency telegraph equipment needed to connect remote teleprinter installations to the Bamako center; (h) provision of tools, instruments, and vehicles, for installation, operation and maintenance; and (i) provision of technical assistance for design, engineering and maintenance of installations and for local training; fellowships for training abroad; local training equipment and material. Project Costs and Financing 37. The total cost of the project is estimated at US~25.3 milllon of which 72 percent (US$18.3 million) would be foreign exchange. OPT is exempted from customs duties and taxes. The proposed IDA Credit of SDI 11.8 million (US$13.5 million equivalent) would finance about 53 percent of the total project costs. The Government would contribute US$4.1 million or 16 percent of total project costs; these funds would be provided through OPT internal cash generation and would represent about 59 percent of the local costs of the project. Project costs and proposed financing plan are summarized in the Credit and Project Summary. 38. The CCCE will contribute US$7.7 million equivalent or 31 percent of total project costs for procurement of certain equipment and installation services from French suppliers, as well as the provision by French companies of te"'rnicPl Assistantp nnd trAining of OPT qtaff in relation to this same equipment. The CCCE loan will be to the Government for onlending to OPT on conditions similar to other recent loans, that is, 6 percent interest per annum and repayment over 15 years including a three year grace period. Effectiveness of the CCCE financing is a condition of Credit effectiveness (Development Credit Agreement (DCA) Section 5.01(b)). 39. The Government will onlend the proceeds of the IDA Credit to OPT at an annual interest rate of 10.6 percent for 20 years, including a five-year grace period. This rate represents a positive rate with respect to recent and projected domestic inflation and is commensurate with the present domestic interest rate structure for public enterprises, which ranges between 8 and 15 percent depending on the type of enterprise, its financial condition, and the extent to which the enterprise contributes to the Government's social develop- ment priorities. Such a role is imposed on OPT, for example, in opening up remote areas with telecommunications services that are not always remunerative. To maintain parity with the domestic interest rate structure, assurances were obtained during negotiations that the 10.6 percent interest rate would be revised to the applicable rate (expected to be higher) for public enterprises when Mali rejoins the West African Monetary Union (para. 9; DCA Section 3.01(b)). The signing of a subsidiary loan agreement between the Government and OPT is a condition of Credit effectiveness (DCA Section 5.01(a)).  - 15 - Procurement 40. All equipment to be financed by proceeds of the proposed IDA credit will be procured through international competitive bidding (IC), except for a few items costing a total of about US$350,000. The items excluded from ICB are contracts for the laying of cables, accessories, tools, instruments, and vehicles, with each contract costing less than US$50,000 equivalent. Such contracts would be awarded following OPT local procurement procedures, which are acceptable to IDA. Consultants will be engaged in accordance with the August 1981 Bank guidelines. Disbursement 41. The Credit of US$13.5 million equivalent would be disoursed against the following items and would cover 100 percent of foreign exchange expendi- tures and 90 percent of domestic currency expenditures: cables, auxiliaries, and subscriber material (US$3.1 million); radio link equipment and material (US$2.3 million); telex, teleprinters and voice frequency equipment tUS*1.6 million); and tools, instruments, vehicles and training equipment (US$U.7 million). In the case of cable installation and duct works (US$2.4 million), disbursement would cover 100 percent of foreign exchange expenditures and bU percent of domestic currency expenditures. Disbursement for technical assis- tance, training and fellowships (US$1.1 million) would cover lU0 percent of total contract cost. In addition, the PPF advance of US$0.31 would be refunded upon effectiveness of the Credit and US$1.99 million would remain unallocated. All requests for disbursements will be fully documented. Project Implementation 42. OPT will be responsible for project implementation. Consultants will prepare technical specifications for ICB and assist OPT in the prepara- tion of contract documents. Suppliers will install equipment for telephone exchanges, for radio links, and for the telex exchange. Certain portions of the local cable network construction will be done by subcontractors; the remainder by OPT workforce, which will also install telephone and telex subscriber equipment. Internationally recruited experts will assist OPT with operation and maintenance of complicated installations, and at the same time train Malians on the job. Technical assistance has been estimated at US$15,000 per work-month for about 60 months, including per diem, foreign travel, and price and quantity contingencies. IDA will closely supervise adherence to schedules and conditions so as to prevent a repetition of the significant delays incurred under the first project. Institutional Aspects 43. OPT, the implementing agency, was established in 1960 as a govern- ment-owned entity. It is governed by a fifteen-member board of Directors chaired by the Minister of Information and Telecommunications. The chief  - 16 - executive officer of OPT is the Director General who is appointed by the Government and has responsibility for the administrative, technical and financial activities of the entity. Under the new OPT statutes (para. 31), a Managing Committee has been instituted to advise the Director General, which should provide more management continuity, a problem in the past. OPT is divided into two major departments--postal/financial and telecommunications-- each headed by a Director, and a central accounts unit headed by OPT's Chief Accountant, all responsible to the Director General. OPT's activities in each region (eight including Bamako) are headed by a regional director. The Postal/Financial Department provides the usual postal services, countrywide money transfer and public checking account services and a savings bank opera- tion. OPT's telecommunications staff totalled 857 at the end of 1980 and consisted of 26 engineers, 250 technicians and skilled workers, and 581 admin- istrative positions. Although the total number of staff is high for the size of the operation, the financial impact is relatively low and the operating ratio is expected to be in the 65 percent range which is reasonable. Training which in the past has not been systematized is now being more carefully con- sidered and the training component in the technical assistance program will be relied upon heavily. 44. The statute creating OPT gives it an industrial and commercial character and endows it with legal personality and financial autonomy. In practice, however, the financial autonomy is inadequate, particularly since OPT is required to bank with the Treasury with the consequence that deposited funds are frequently unavailable to meet OPT's obligations. In August l19l the Minister of Finance approved an arrangement for OPT to deposit its tele- communications receipts in commercial bank accounts from which it meets its expenditures under operating and investment budgets in regard to the telecom- munications services; transfers from this account to OPT's account with the Treasury may be authorized by the Minister of Information and Telecommunica- tions, only after it is determined that the balance is in excess of the needs to meet budgetary and other obligations. Under the proposed project, this arrangement would be maintained (DCA Section 3.02 and PA Section 3.03). 45. OPT operates under an annual budget which limits expenditures and estimates revenues but otherwise has not in the past set out specific goals. To control expenditures against the approved budget, all requests are cleared through a special unit attached to the Director General's office. Other than budgetary control, financial management has been nonexistant. The new statutes enable, however, a delegation of authority throughout the OPT and clarify internal relationships, which have been ambiguous. Thus, for example, the Directors of Telecommunications and of Postal/Financial Services are now independently responsible to the Director General for all aspects of their operational and investment programs, determined by the government approved budgets; the responsibility includes, inter alia, the approval of budgetary expenditures and the staffing of the two sectors. The statutes also institute a division of economic studies and finance. This division will coordinate the objectives for operations as well as all financial activities of OPT, includ- ing among other things a management information system.  - 17 - Financial Aspects 46. The historical pattern of financial performance shows that OPT's Postal/Financial Department operates at a loss while the Telecommunica- tions Department, responsible for managing over 90 percent of OPT assets, generally operates at a profit. Under the credit agreement for the first project the Government was required to subsidize the Postal/Financial Depart- ment and this requirement would be retained in the proposed project (DCA Section 3.04). Performance of the Telecommunications Department improved considerably in 1979 after a deficit in 1978, and 1980's performance is estimated at a 13 percent rate of return on revalued net fixed assets in use. The improvement was made possible by increased number of customer connections and increased traffic and reflects the results of the investment in the first project. The rate of return on telecommunications average net fixed assets in operation is forecast to range between 18 and 11 percent during the project implementation period. It will be lowest at the end of the period when considerable new fixed assets will be placed in service but it is likely to increase again thereafter, as new investments begin to earn income. 47. A 10 percent rate of return on revalued net fixed assets in opera- tion was required annually in the credit agreement for the first project and was met in some years; it is proposed that this covenant be increased to 12 percent for the proposed project as a minimum performance target. Although this represents the lower limit of projected performance (para. 46), it would be premature to fix a higher target prior to agreement on asset revaluation and results of the tariff study to be financed under the proposed project (para. 51). Assurances were obtained during negotiations that by June 30, 1982, OPT will prepare a plan to review its fixed asset valuations annually in accordance with a method acceptable to IDA for the purpose of monitoring financial performance through a rate of return, beginning with the 1962 accounts (Project Agreement (PA) Section 4.03). 48. The principal characteristics of OPT's overall financial position is that current liabilities exceed current assets. This is the result of using funds deposited with the postal/financial services to finance long- term investments in telecommunications and increasing working capital, primarily in accounts receivable and inventories. This would be a tolerable situation if funds deposited with the Treasury were available when needed. However, due to a severe liquidity problem, the Treasury is usually unable to transfer the funds back to OPT, which is part of a macroeconomic problem being addressed by the International Monetary Fund. In the context of the proposed project, the problem cannot be solved, but action is proposed to increase OPT's liquidity by requiring maintenance of designated bank accounts for OPT (para. 44), and by enforcing covenants related to the current payment of the postal subsidy (para. 46) and of bills for telecommunications services to the Government, as well as by requiring the general acceleration of the billing and collection procedures (DCA Section 3.03). At present the Government's obligations to pay OPT the arrears on charges for telecommunications services and the reimbursements for postal deficits equal approximately OPT's liabili- ties to Government for service payments on Credit 321-MII. An agreement has  - 18 - been reached to allow these items to cancel out by book transactions. The balance of approximately MF 1 billion (US$2 million) di:e to OPT will be paid through successive transfers in the national budget during FY83-85. 49. Taken alone and apart from the liquidity situation, the financial situation of the Telecommunications Department would be quite strong. Its activities and size, excluding financial services, dominate OPT. In 198U, 93 percent of OPT's fixed assets were attributed to this Department and the proportion will increase during the project period. Similarly, the expected cash flow from telecommunications is of singular importance and should begin to add liquidity to the system. Billing and Collection 50. The billing and collection function has been a serious problem in spite of the relatively small number of subscribers. In February 1981, this function was put on a small computer, which contributes significantly to solving the problems of late billing and to improving collections. Collection from the private sector is about equal to the billing. Collection from the Government represents about 60 percent of the amount billed. Several of the actions required as conditions of negotiations aimed at improving the root problems in the billing and collection process and have been satisfactorily met. Specifically, the delay in the preparation and distribution of bills has been reduced to less than two months, as compared with several months on average during 1980. From the 1981 budget, each ministry and state organism has a separate budget for telecommunications expenditures. The Government is in the process of settling its accounts with OPT in a debt offsetting transac- tion (para. 48). All these actions were considered necessary preconditions for finalizing a policy on collection. Measures to be authorized for OPT to ensure payment of its telephone bills include suspension of service for non-payment. OPT has already adopted satisfactory measures with respect to private persons, state-owned companies and parastatal organizations. At present, however, OPT cannot suspend service to the central government admin- istration, the military and security forces. Special measures are under consideration, such as quarterly prepayment against a percentage of anticipated billing. During negotiations, assurances were obtained that the Government will pay on a current basis for the services rendered by OPT (DCA Section 3.03) and that by March 31, 1983 a comprehensive collection plan would be furnished to IDA for comments and subsequently implemented by June 3u, 1983 (PA Section 3.04). Tariffs 51. Charges and tariffs for the installation, connection, and use of telephone and telex facilities in subscribers' premises, for the use of public telephones and of telex facilities, and for telegrams are established by decree issued by the supervisory Minister after acceptance by OPT's Board of Directors. The installation and connection charges were last increased in 1979. Other rates have not changed since 1975 although an increase in domestic telephone tariffs of about 25 percent is expected to be implemented in January 1982. Agreement was reached during negotiations that if this increase is not  - 19 - in effect by the time of Credit signing, it would be inserted in the Develop- ment Credit Agreement as a condition of Credit effectiveness. The tariff structure is old and complicated; allocational aspects have not been a prime factor in its design or in the level of rates. Whereas the annual rent is at about average world level, installation and connection charges are higher than in most countries, and charges for untimed local calls are almost a world record. Interurban charges are also comparatively high. Assurances were obtained that OPT will study its tariff structure under terms of reference discussed during negotiations. This study would be completed by December 31, 1982, and the results and implementation implications reviewed with IDA not later than June 30, 1983 (PA Section 3.05). Inventory 52. OPT's stock of supplies and spare parts is too large and needs to be reduced. To correct the situation, a proper inventory has recently been made, the valuation of the stock is being reviewed, and obsolete and deterio- rated items purged from the books with the collaboration of auditors and the financial expert (para. 54). Financial Control, Accounting and Audit 53. OPT operates under an annual budget which limits expenditures and estimates revenues. In order to control expenditures, all requests are cleared through a special unit attached to the Director General's office. There is need for a reporting system which marks the progress of OPT's various activities. 54. Separate accounts are maintained for the postal/financial and the telecommunications services and the system follows the French Plan Comptable. Accounting is presently scattered among three departments but is being reorga- nized. Two financial experts, funded by an advance under the PPF and by BEPTOM (Bureau des Etudes des Postes et Telecommunications d'Outre-Mer (France)) have started in August 1981 to assist in strengthening the financial management and the accounting. 55. An independent external accounting firm performs the annual audits. Due mainly to delays in closing the accounts, the audits are perennially late. The auditor has been unable to certify the accounts and has repeatedly recom- mended actions to remedy the situation. OPT is now taking systematic action on the various recommendations in the 1979 audit report. During negotiations, assurances were obtained that OPT would provide IDA with an audited report within nine months after the end of 1981, and within six months for 1982 accounts and thereafter. Reporting to IDA of unaudited accounts within four months of the end of the fiscal year will be required (PA Section 4.02). Benefits and Risks 56. Most segments of Malian society will feel, directly or indiretly, the benefits of the OPT 1981-85 investment program, since its completion will contibute to greater efficiency in business, transport management, government administration, as well as in programs for rural development, and health and educational services.  - 20 - 57. In the principal urban areas, the telephone density would have increased to 0.59 connections per 100 inhabitants at the end of 1985, up from the figure of 0.47 at the end of 1980. In other areas, mainly rural, the increase would be from 0.01 connections per 100 inhabitants to 0.04. The expected flow of benefits is acceptable, but tariff measures will be con- sidered that can in the future guide the flow of benefits better than at present. These measures will follow the tariff review previously mentioned (para. 51). The internal financial rate of return on the telecommunications project and ongoing works is 15 percent. This rate of return does not take into consideration a major portion of the indirect and external benefits accruing to non-users of the service nor does it include consumer surplus which is attributable to telephone users. Using a minimum estimate of consumer surplus based on the assumption that old and new subscribers would be willing to pay the same amount in real terms for service in future years as present clients are paying, the quantifiable economic rate of return is 25 percent. 58. In principle, the implementation of the second telecommunications project faces the same risks for delay as that of the first telecommunications project and other IDA financed projects in Mali. Specific measures have been envisaged, however, aiming at efficient project execution. Some of these measures specifically addressed problems of management and financial operations experienced in the first project and were met satisfactorily as conditions of negotiations for the proposed project (paras. 43-45, 50). Others are included in the project design and were confirmed during negotiations (Annex III). Performance indicators were also discussed during negotiations for clear agreement on technical implementation and management performance targets. Project supervision will allow frequent verification of adherence to agreed performance indicators and execution schedules and to technical assistance commitments and credit conditions. With these safeguards, it is believed that the risk for delays would be acceptable. In addition, the proposed project comprises a large number of relatively independent activities, and a delay in completion of some works would not normally prevent the use of other newly created assets. PART V - LEGAL INSTRUMENTS AND AUTHORITY 59. The draft Development Credit Agreement between the Republic of Mali and the Association, the draft Project Agreement between the Association and the Office des Postes et Telecommunications and the Recommendation of the Com- mittee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 60. Special conditions of the project are listed in Section III of Annex III. Conditions of effectiveness would be (i) signing of a subsidiary loan agreement between the Government and OPT (para. 39); and (ii) fulfillment of all conditions precedent to the initial disbursement of the CCCE loan (para. 38).  - 21 - 61. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 62. I recommend that the Executive Directors approve the proposed Development Credit. A.W. Clausen President Attachments Washington D. C. December 8, 1981  -22- ANNEX I Page 1 TABLE 3A MALI R= INDICATORS DATA SHEET MALI REFERENCE GROUPS (WEIGHTED AVEfAGES LAND AREA (THOUSAND SQ. EM.) - MOST RECENT ESTIMATE)- TOTAL 240. 0 HOST RECENT WV IMNCIE MIDDLE INCOME AGRICULTURAL 320.5 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA GNP PER CAPITA (USS) 50.0 70.0 140.0 238.3 794.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 14.9 21.2 29.7 70.5 707.5 POPULATION AND VITAL SIATISTICS POPULATION, MID-YEAR (THOUSANDS) 4224.0 5362.0 6750.0 URBAN POPULATION (PERCENT OF TOTAL) 11.0 14.9 19.3 17.5 27.7 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 12.2 STATIONARY POPULATION (MILLIONS) 35.0 YEAR STATIONARY POPULATION IS REACHED 2130 POPULATION DENSITY PER SQ. KM. 3.4 4.3 5.4 27.7 55.0 PER SQ. KM. AGRICULTURAL LAND 13.3 16.9 20.5 73.7 130.7 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 43.7 44.7 45.3 44.8 46.0 15-64 YRS. 53.7 52.6 52.0 52.4 51.2 65 YRS. AND ABOVE 2.6 2.7 2.7 2.9 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 2.1 2.4 2.6 2.6 2.8 URBAN 5.2 5.4 5.5 6.5 5.1 CRUDE BIRTH RATE (PER THOUSAND) 49.8 49.1 49.4 46.9 46.9 CRUDE DEATH RATE (PER THOUSAND) 26.5 23.6 21.5 19.3 15.8 GROSS REPRODUCTION RATE 3.3 3.2 3.3 3.1 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. .. .. USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 103.0 100.0 85.0 89.3 89.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 86.0 94.0 90.0 90.2 92.3 PROTEINS (GRAMS PER DAY) 56.0 59.0 57.0 52.7 52.8 OF WHICH ANIMAL AND PULSE 15.0 16.0 15.0 17.8 16.1 CHILD (ACES 1-4) MHRTALITY RATE 41.0 34.7 31.3 27.3 20.2 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.2 40.4 43.0 45.8 50.8 INFANT MORTALITY RATE (PER THOUSAND) .. .. ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. 9.0 23.9 27.4 URBAN ' 29.0 42.0 55.0 74.3 RURAL .. .. 3.0 18.5 12.6 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 8.0 .. 26.2 URBAN .. 63.0 .. 63.5 RURAL .. .. .. 20.3 POPULATION PER PHYSICIAN 67047.6 44314.0 25145.7 31911.8 13844.1 POPULATION PER NURSING PERSON 4982.07c.d 4124.6 3232.4 3674.9 2898.6 POPULATION PER HOSPITAL BED TOTAL 1472.0/c e 1480.0/e 1818.6 1238.8 1028.4 URBAN 302.: e77 1310.8 617.1 272.8 423.0 RURAL 2849. Ofc, 1604.7 .. 1745.2 3543.2 ADMISSIONS PER HOSPITAL BED .. 27.3 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. 4.8 URBAN .. .. RURAL .. .. AVERAGE NUMSER OF PERSONS PER ROOM TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN .. .. RURAL  -23- ANNEX I Page 2 TABLE 3A MALI - SOCIAL INDICATORS DATA SHEET MALI REFERENCE GROUPS (WEIGHTED AVEAGES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 10.0 24.0 28.0 56.4 73.7 MALE 14.0 31.0 36.0 70.7 96.8 FEMALE 6.0 17.0 20.0 50.1 79.0 SECONDARY: TOTAL 1.0 5.0 9.0 10.0 16.2 MALE 1.0 8.0 13.0 13.6 25.3 FEMALE 0.3 2.0 5.0 6.6 14.8 VOCATIONAL ENROL. (E OF SECONDARY) 15.0/f 10.0 9.0/ 8.0 5.3 PUPIL-TEACHER RATIO PRIMARY 45.0 40.0 43.0 46.5 36.2 SECONDARY 14.0 15.0 .. 25.5 23.6 ADULT LITERACY RATE (PERCENT) 3.0/c *- 10.0/S 25.5 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 2.0 1.6 2.1 2.9 32.3 RADIO RECEIVERS PER THOUSAND POPULATION 1.9 11.2 13.2 32.8 69.0 TV RECEIVERS PER THOUSAND POPULATION .. .. .. 1.9 8.0 NEWSPAPER (-DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 0.2 0.5 0.5 2.8 20.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 2.0 .. .. 1.2 0.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 2431.3 2964.8 3604.2 FEMALE (PERCENT) 47.6 47.4 47.2 34.1 36.7 AGRICULTURE (PERCENT) 94.0 91.0 88.4 80.0 56.6 INDUSTRY (PERCENT) 2.7 4.1 4.9 8.6 17.5 PARTICIPATION RATE (PERCENT) TOTAL 57.6 55.3 53.4 41.7 37.2 MALE 60.6 58.6 56.9 54.3 47.1 FEMALE 54.5 52.0 50.0 29.2 27.5 ECONOMIC DEPENDENCY RATIO 0.8 0.9 0.9 1.2 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. HIGHEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 20 PERCENT OF HOUSEHOLDS .. LOWEST 40 PERCENT OF HOUSEHOLDS .. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 98.0 136.0 381.2 RURAL .. .. 60.0 84.5 156.2 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 61.0 99.1 334.3 RURAL .. .. 37.0 61.2 137.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 27.0 39.7 RURAL .. .. 48.0 68.8 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not unifor. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1976 and 1979. /c 1962; /d Goverusent Personnel; /e Government hospital establishments; /f Not including private vocational schools; /A 1975. May, 1981  -24- . ~~ANNE I PRue 3 DEFINITIONS OF SOCIAL !I5DICArORO Note.: Although the date era doe too --. aurs ...t1y judged the.os auhrtt- sd teliabl, it should also ha noted sthat they say to hn iater- n ationlly cosPetble ba..uu.. of the lent, of ened-rdieed definitions end tne used by different cut iesi collecting the dec.. The detessa oe theles..s,. usful d.. decihe orders of ugnituda, indicate trende. end thecec. rig cetain eujon differa...e. betannonrig The reference groupeere (1) oh. sas country group of tha subjett country and (2) u counry group sith ooa.enha higher e..e. I..Inuc then the oaygrasp of the subject coun try (anoapt for "Capitel Surplus Oiitp ..nr' .rop shore nMiddl. tesm Nltrnh Africa end Kiddie teen' is chosen be.e.ee of etrtgr sioutuneffOinites). 1n the referent grou.p dene the -eSege era populotio sighted aninteeti ase for each lodisno .ed ehn only nbeo seriny of the cou..trine In A group hoe date for thot 1ndicunor. Sinu the -oeoag of contie on the indicator depode on the sneilohility of dnts and i cutucifrm, autin sut ho ener-led it rel.ignn AV-rge of ann idicator so anther. Thos.s. rg. era onlY ...nful in comParing the roue of on nicenor at Ati ag the country end refnre.c. groups. fLANt AREA (tesu qO. o aio e ortol sad - total cohn, sod rural - ynpuitiot (total, Total - Total surface area c-eprisieg od ar-7 n iclan,:d onats.~ ura n rural) dividdbytirrpoin tuhrcdhsitlbd Agoi-ult-ral - Eteiute of agriculture) are use te_ caily orpormently eratllhie is public uod prirats geesr. so .d spec1isend hospital sodr- for cr. sa.patre,aerbot and kitchac 5acdeo -c to lie fa11on; 1970 data. hbilitatico catr . Supotalsaross-blishaects pe -anety staffed by at -eston phsii.ttabliabheot providiog prinoipoily ..usto- GRIP Pft CooPITA (UnS) - Iffy per on pits estimetso at correct erkas pric..., ..e- dlacnar o inlded. Octal hospitals. hsvr ncuehat cisnatd by 1 ea . overico sathud as crIld Sank Atlas (1977-79 basie); l9t0, sod sdi-aIcner IntpsrAtlty staffed by a physicino (but by A 1575, aod 1979 data. sdical aesist-n, tunas, sidoife, or .1 thOo off.so to-Pe c echo-- datic ond provide A l5ineid range of adical facilitie. Fr s_ais fOEIlY CtONSUMPTION PMg CAP1TA - A_u-Ioosnpic f coocial energy (oo otal preourbas hosp"ital include WHOe princepal/gaerh osio and lignte, Ps.r.I.-, nnorl1 gsa sod hydro-, nuclear aod geutherua also- so -1ru oeil loca or rura hoaplnals and edtalsd ssrob`Mi,ty1 oIcI tcy) in kilugras of coa equivalent per -spica; 1900) 1907) end 1979 ranters. tpecislI= hoaptsl L. ildsd only oodar notul. dote. pdi aiugor Senisa tBad - Tota nubr of dmisai... to or di-oh-rga frue hospitlsl duvtd7d by hbs ,tub- at bed. POPoLrATIunMO fNDVCAL STATISTICS Tons) ocaoc.Kid-Ysor fthooso..ds) - As of July 1; 1960, 1970, sod 1979 SOUSING daa A..r... ..ss of tosbod .oer.... par .h ...hldl -tns. oa._ sod rurs1 - lbso Ocoolatilc (rP,usnt of to.tal) - Raiu of urban to cutol ocouleion; A houshold cnits of group of itdintdsul nho ehece~ liin qutosA difr tdfiiio fura urossytaffect v-Par..hilicy of dote end their asic oa.le. A hoarder or Iudgsr my or may no be. includd io et oc .is;1h, 1970, end 197 data theh Iooi o ntieiaprpss ...onlaico Pois-tiu..voe sh frrospe ns oa. urban. and -srl - Average -, Pnpclattoiver2) G-:lcao. uplcinp-u)-cico err hose.d cc 1980 b.he of parsons- per roo .itall urban, and rurlccpied c-naunone total pop.lanioo. by ags sod -s ad theco sortalny and fertility ge.d,los epciey eldg aniuds . -ar e t.--utnn Aad Proetu assnr rsreityratscmreofthro. leon..asece-.u..cpiAd parts. tn et secoc t Itbir_th'increuig.. cur' psr ospiot isoos Access to l-otricity (rpercen of dNnllio-) -~total, urban, sod rurl - Isnel. and I sa ids, soyecton.y tnabilisiag at 77.5 y-ur. Ths peon- C.....ntr_l deIIng. sieb glsrn toir is lini qrtora as p...r.ntags ester o etilItyrcatals hovs those leel-s1 in declios Ln of octal, chen, and rura dmnllingeeep-tiivly. ferotintytr . acodinghnotocneleelan potifetily plao..In perfoomance. uch ounyis heasIgne .o of .thes nic coA binstioe of artaliny EDUCATION sod fortiliny oreeds foprojcio .oros. L Adjusted Enrol11nt Rtut OrsoicuaroooonlsniccIoastooionry ppulnl chr us oevth str Pi.o.coo. tsl sal and fenaleIoottl aeedfnl the irtratece qua cc the death rsre, end . alorngsrcua-nolst of all ages at the prmylel as pecnae of.repnIIIe asios constant. This is achieved only srt"orfetilltp rates decine no priesry echool-Seepplain;toelyiolds hlrn ed0LI cho reyaceac lece o,1 f cIt tt s -orioo st, 1h-r -,ch georaron %b0 bu Adlustad for different lengths of primary edustio; for uf some replacs Orsei nescri. The eauloner popultio sise one cotra nIt,u1 ros edo 1ineso -o asy eaceed 100 psocet sitOmord en tho bosis of ths Projected oh--onrtsios ef the popeltion sioaustuisor e orhon Ithe official sohool age. in thn yasor 1000, and chs cats of Idcino of fertility rats to relos non yecol- toal male sod f-sal - Corsted as shon; socoodary ac leve, education reqoirs en least Poor years of oppred prmar,y insItructio; Yea pta .ies . ccloion is ce.c bed - The year ob.n stettosoy rooetnprraitdss gersal .. tcaisal,ccteacher -raisig intrct . f. sOppib sits has b...rsachsd. usel f12 no 17 ytsas o at g; oorreapoedog ... ur.ans era gansouly ,.r.J tio "Ise lyn s tded. Par so. A. - Kid-,.rr popu.lat.o per aqo-ro kiluator (110 hscalls..) of Poaielarlmaot (osoo o sssav - atiotal in-ointirta t 6ere;10)190ad199dais inlde tehia,idustril oon prgraa ahichsprt indnpeed- Par so. ko. sariclcuralan - Copoud os shor for agriculnora1 land -ely or a department of asescisryissitutions. only; 1960. 1970 and 1970 dons. :ci-e:enrtn-ormr.sd sadr Tonal studeno en1o1d it Prou!ltcice Ao Struture (osrect) - Children (D-lu y-sr) , enrkito-see (15- P.iay cod aaeod.ry as I divdd by onbhor ofteachers in the 64, years), an ritired (65 ytsrs and ove) as parooosgee of etA-year rp.,- corsodiglvl. II i...Adt (1I Id.d-t) lco;10,1970, sod 1979 doco. Adl ieac aeferec isrtaun fbet ee n ie On ltiot Orth Rate (