Cameroon - Post and Telecommunications Technical Assistance Project

Document of The World Bank IF% FOR OFFICIAL USE ONLY Report No. P-3 108-CM REPORT AND RECOMMENDATION OF THE PRESIDENT INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE UNITED REPUBLIC OF CAMERON FOR A POST AND TELECOMMUNICATIONS TECHNICAL ASSISTANCE PROJECT November 12, 1981 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1 = CFAF 270 a/ CFAF 1 million = US$3,704 ABBREVIATIONS INTELCAM - Societe Internationale des Telecommunications du Cameroun ITU - International Telecommunications Union NRU - Network Rehabilitation Unit P&T - Post and Telecommunications UN - United Nations UNDP - United Nations Development Program UPU - Universal Postal Union FISCAL YEAR July 1 to June 30 a/ The CFA Franc (CFAF) is tied to the French Franc (FF) at the ratio of FF 1 to CFAF 50. The French Franc is currently floating.  FOR OFFICIAL USE ONLY UNITED REPUBLIC OF CANEROON POST AND TELECOMMUNICATIONS TECHNICAL ASSISTANCE PROJECT LOAN AND PROJECT SUMMARY Borrower: United Republic of Cameroon. Beneficiary: The Post and Telecommunications (P&T) entity to be established under the proposed project. Amount: US$7.5 million. Terms: 20 years, including a 5-year grace period, at 11.6 percent interest p.a. Relending Terms: Same as charged by the Bank to the Government. Description: The proposed project aims at reorganizing and strengthening the institution responsible for post and telecommunications services as a first step towards (1) improvement of existing servfces and of the operating entity's financial situation, as well as (2) sound long-term development of the two sectors. The project would include the following components: (a) establishment of a new P&T entity with legal and financial autonomy; (b) preparation of an investment program for the P&T sectors; and (c) improvement of technical training at the P&T school in Yaounde; fellowships for training abroad of P&T staff. Benefits and Project benefits include better service, reduced operating Risks: costs, increases in revenues and improved billing and collec- tion. The main risks are those inherent in all technical assistance projects, particularly the effectiveness and experience of expatriate technical assistants to be selected. Appropriate steps have been taken to reduce these risks by identifying the consultants during project preparation, and by stipulating as a condition of Loan effectiveness the appoint- ment of a Steering Committee chaired by the P&T Minister to oversee the work of the consultants and ensure that their recommendations are acted upon. Estimated costs: The cost estimate for the proposed project--which would be exempt from local taxes and import duties--is summarized below. 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.  USa million Local Foreign Total 1. Study and outline of the new organization Consulting services 0.22 0.81 1.03 Operating expenses 0.19 - 0.19 0.41 0.81 1.22 2. Setting up of the new organization Consulting services 0.58 2.17 2.75 Operating iexpenses 0.59 - 0.59 1.17 2.17 3.34 3. Investment Program Consulting services 0.18 0.67 0.85 Operating expenses 0.16 - 0.16 0.34 0.67 1.0i 4. P&T School Consulting services 0.25 1.09 1.34 Operating expenses 0.33 - 0.33 School equipment 0.19 0.72 0.91 0.77 1.81 2.58 5. Miscellaneous Vehicles & office equipment 0.05 0.15 0.20 Scholarships -- 0.30 0.30 0.05 0.45 0.50 Base Cost 2.74 5.90 8.65 6. Contingencies Price 0.62 1.00 1.62 Physical 0.28 0.59 0.87 Total 3.59 7.50 11.14 Financing Plan: Bank Loan - 7.5 7.5 Government 3.6 - 3.6 Total 3.6 7.5 11.1 Estimated Disbursements: FY82 FY83 FY84 FY85 FY86 Annual 2.00 2.17 1.82 0.92 0.59 Cumulative 2.00 4.17 5.99 6.91 7.50 Economic Rate of Return: N.A. Staff Appraisal Report: None Maps: IBRD 14270, 14271 and 14272  INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE UNITED REPUBLIC OF CAMEROON FOR A POST AND TELECOMIMUNICATIONS TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed loan to the United Republic of Cameroon equivalent to US$7.5 million to help finance a Post and Telecommunications (P&T) Technical Assistance Project. The loan would have a term of 20 years, including five years of grace, with interest at 11.6 percent p.a. It would be relent to the P&T entity to be established under the proposed project, on the same terms and conditions as charged by the Bank to the Government. PART I - THE ECONOMY 2. A report entitled "United Republic of Cameroon Economic MemorandumD' (No. 2877-CM), was distributed to the Executive Directors on April 30, 1980. Annex I provides basic country data. Background 3. Cameroon is one of Africa's most diversified countries, with a wide range of climatic zones, ecological conditions, population densities, ethnic groups and traditional cultures. Cameroon was a federation from the time it gained independence, in 1960, until the United Republic, which unified the anglophone western and francophone eastern parts of the country, was formed in 1972. The Government has concentrated on fostering a sense of national unity among the different parts of the country: the sparsely populated eastern region, the relatively small but densely populated western part of the country, the sahelian zone in the north, with Muslim traditions, and the southern tropical regions. 4. Cameroorn has a population of 8.3 million (1979) and covers an area of 475,000 km2. Its main opportunities for development lie in the expansion of agricultural, livestock, and forestry production; the exploitation of energy and mineral resources; and the processing of agricultural, forestry and mineral products for domestic consumption and export. Soils and climatic conditions permit cultivation of a wide range of crops, and the southeast contains large untapped timber resources. The north holds potential for live- stock development. Cameroon became an oil producer in 1978 and is expected to export 3.5 million tons of crude petroleum in 1981. Additional oil production potential exists and the country has substantial unexploited gas, hydroelectric and mineral resources. Trade, transport and transit services and construction are other important economic activities. Cameroon's main economic centers are separated by large areas of low population density and the country's port facilities and transport network also serve landlocked Chad and the Gentral  -2- African Republic. A large port and an adequate trunk transportation system are therefore essential for promotirig agriculture, f-orestry and industry, and for strengthening internal communications and the country-s role as a regional trade center. With the growth of industry, transportation, conistruction and services, Cameroon is becoming increasingly urbanized. aibout 30 percent of the population now live in towns, mainly in Douala, the major port arid in- dustrial center, and Yaounde, the capital. 5. CameroDon subscribes to a philosophy of planned liberalism, and the country s economic development has been pursued within a quinquennial investment planning framework. The Fourth 5-year Plan period eased in June 1981, and work on the Fifth Plan is now largely completed. Cameroon's develop- ment and macro-economic policies have been rather cautious, with the result that while growth has not been exceptionally rapid, the country has enjoyec noteworthy economic stability. 6. Growth. Over the past fifteen years Cameroon has experienced an acceleration ln rates of output and population growth. The real GDP growth rate during the Second Plan Period (1966-71) averaged 4.2 percent; in the Third (1971-76), it rose to 4.5 percent; and in the Fourth (1976-81), it is estimated provisionally at 7.1 percent. Population growth in the three periods was about 1.8, 1.9 and 2.3 percent a year. Per capita GNP rose between 1966 and 1980 at an annual rate of about 3.1 percent. 7. Within the overall pattern of accelerating growth, tnere was some unevenness in the performance of key productive sectors from one plannins period to another. During the Third Plan in particular, both agriculture and manufacturing experienced periods of slowdown although services grew very stronglyc Contributing to the agricultural slowdown were decreases in the output of two major export crops--cocoa and arabica coffee--related Lo declines in producer prices compared with food prices, and to the termination of a fertilizer subsidy program for arabica coffee. Forestry output dropped towards the end of the period because of reduced Western European demand and some transpo:rtation bottlenecks. Growth of the manufacturing ani mining sector slowed as a result of the declining moment-um of import substitution activities which had produced rapid iricreases in manufacturing output durin6 the Second Plan years, and deteriorating terms of trade. The acceleratiol in growth during the Fourth Plan was helped by rapidly rising construction output. reflecting sharply higher levels of investment, by recovery in cocoa and robusta coffee production, as farmers responded to higher producer prices, and by recovery in forestry output. Since 1978, the start-up of oil production has contributed significantly to aggregate growth. 8. Investment and Savings. Underlying the longer term rise in GDP growth have been rising proportions of investment. The investment/GDP ratio averaged over 15 percent during the Second Plan, about 19 percent durin6 the Third and close to 24 percent during 1976-80. Investment priorities have shifted over time. The First Plan emphasized directly productive projects (53 percent), and the Second, infrastructure and social projects (58 percent). DuriLg 1976-80, directly productive activities (63 percent) were again favored, with heavy emphasis on manufacturing, mining and energy (52 percent).  3- 9. Despite the rising investment/GDP ratios, the mobilization of domestic savings more than kept pace, due largely to increased public savings. Gross domestic savings rose from about 84 percent of total investment under the Second and Third plans to about 87 percent during 1976-79. After allowing for net factor service and current transfers and the amortization of foreign medium- and long-term loans, reliance on foreign financing fell from about 33 percent of total investment during the Second Plan to about 30 percent during 1976-79. 10. Public Finance. Budgetary revenues amounted to about 15 percent of GDP during the Second and Third Plan, and increased slightly during 1976-79. Public savings after debt service declined from about 39 percent of total public investment during the First Plan to about 36 percent during the Second; however, it rebounded to 55 percent during 1976-79, thanks to substantial contributions from the agricultural export stabilization runds. 11. Balance of Payments. During previous plans, the balance of payments did not pose particular problems, apart from some short-term deterioration during the 1974-76 period. In 1977-80, exports rose substantially (at an average annual rate of 26 percent) but imports also increased (at an average annual rate of 20 percent) because of more rapid economic growth ana hig6ter investment. International reserves were rebuilt in 1976-80, in part by the use of IMF credits, rising in 1980 to a gross level equivalent to about seven weeks of imports and to a net level of about five weeks. This was a low level by international standards although still acceptable considering Cameroon's membership in the Central African Monetary Union. Development Prospects and Issues 12. Short- and Medium-term Developments. Oil production is bringing with it significant changes in the Cameroonian economy. Prior to the advent of oil, Cameroon was dependent on the export of agricultural products for the bulk (72 percent in 1978) of its export earnings. Cocoa and coffee alone accounted for 53 percent of the value of 1978 exports. lfowever, oil exports, which represented about 1 percent of total exports in 1977/78, are estimated to have risen to about 28 percent in 1979/80, with the share of agricultural products dropping to close to 50 percent. Exports of oil are estimated to have continued to rise sharply in 1980/81, further reducing the proportional importance of agricultural exports, and this trend is expected to persist for at least the next two years. * 13. The outlook for agricultural and industrial growth in absolute terms during 1980-86 is still quite favorable. Agricultural growth expectations are based oni some increase in cocoa output above 110,000 tons; recovery of robusta coffee; continuing expansion for arabica coffee; increased production of most food and other crops, as well as livestock; and expansion of forestry produc- tion. Growth of industrial and mining production is expected to result from existing and expanded manufacturing facilities (particularly those for food, beverages and construction materials), from some new industrial projects and from new mining ventures. A further significant impact on the structure of the economy, notably a relative expansion of the construction and services  - 4 - sectors is expected from the Fifth Development Plan investment program (1981-86). Preliminary indications are that the investment/GDP ratio will aga.n. increase wuder the Fifth Plan, which is expected to emphasize support to agriculture and expansion of the supply of technical and professional manpower, and to allow for some large-scale industrial projects. 14. Longer-Term Developments. Cameroon's promising potential in areas outside agriculture implies a longer-term shift towards a somewhat more diversified industrial base. Agriculture will play a critical but less dominant role, and a shift in priorities to'wards increased food production for the growing -urban population appears probable. The rate at which agricultuiral productivity increases will be a crucial determinant of the pace of economtc development and will call for an appropriate mix of public intervention and policy meastures aimed at stimulating private initiative. External Borrow:ing and Creditworthiness 15. Total debt outstanding and disbursed rose from US$515 million in 1976 to US$1.6 billion at the end of 1979, and is expected to exceed US$2 billion in 1981. Debt service payments rose from US$39 million in 1976 to US$126 million in 1979, while exports increased from US$715 million to more than US$1.3 billion during the same period. Notwithstanding a hardeingc average loan terms in the 1970s, Cameroon's debt service ratio was sti ll 'ess than 10 percent at the end of 1979, up from 5-1/2 percent in the mid-1970sc It is projected to peak at about 14 percent in 1982 and to stay i-n the 12 to 14 percent range throughout the remainder of the decade. This projection assumes that loans contracted during 1982-86 will be slightly above the average annual anounts contracted in 1977-81, and that external assistance programs will continue to f-ollow recent trends. Borrowing on non-concess-onary terms would account for about two-thirds of total new commitments, and average terms would harden during the period. Because of higher debt service payments, projected net disbursements would be less than in the past but, with Cameroon-s favorable export and savings prospects, would be sufficient to allow an invest- ment rate of above 25 percent of GDP, as well as the restoration of a strong foreign reserve position. 16. Based on these considerations, its strong growth, its substantial resource development potential, and the Government's ability to utilize its resources to further strengthen and diversify the economy, it is proposed that Cameroon shortly be phased out of IDA. However, in view of the fact that it is still, despite its improved prospects, a low-middle income country, it is planned to continuie with preparations of an IDA credit for a first urban proiect later this fiscal year. This would be the last IDA operation in the countrJJ! PART II - BANK GROUP OPERATIONS IN CAiyEROON 17. Bank and IDA commitments in Cameroon as of September 1, 1981 amiounLed to US$590.9 million and covered 36 Drojects; 17 in agriculture, 11 in trau;.- portation, 3 in education, 2 in public utilities, 2 small- and medium-scale  enterprise projects and I technical assistance project. Transport accounts for the largest share (45 percent) of these commitments, followed by agricul- ture (41 percent). IFC has invested in five enterprises, with total net loan and equity commitmento of US$12.7 million. Annex II contains a summary state- ment of Bank loans, IDA credits and IFC investments as of SeptemDer 1, 1981, including notes on the execution of ongoing projects. Although delays and setbazks have occasionally been encountered in implementation, the Gov.ernment has consistently shown willingriess to collaborate with the Bank in finding solutions to such problems. 18. The Bank-s initial investment strategy in Cameroon was to support the Government-s development efforts in three main directions: (i) streng- thening and extending the road and rail trunk systems; (ii) raising agricul- tural output and net exports, with emphasis on the establishment of modern industrial plantations, and (iii) providing assistance to education. Through 1975, apart from one water supply project, Bank lending was concentrated entirely in the transport, agriculture and education sectors. 19. Since 1975, it has become more diversified, with new types of projects in transport and agriculture and an extension to cover SME and technical assistance projects. Within the transport sector, the first three highways projects were designed to help complete the basic trunk system connecting the more remote parts of the country to the central north-south axis. A feeder roads project in 1978 helped finance priority needs and establish a construction and planning capability, while the Fourth Highway Project in 1979 concentrates on road maintenance and rehabilitation. A forth- coming Fifth Highway Project, in which the Bank would be joined by several cofinanciers, would establish a good quality all-weather road link between Douala and Yaounde. The first three railway projects were designed to finance urgently needed infrastructure improvements, and the fourth (FY80), will improve railway productivity by helping finance a marshalling yard, aainte- nance facilities, equipment and technical assistance. A planned Third Ports Project would follow earlier projects designed to improve the capacity and efficiency of the port of Douala and would mainly comprise an extension of an industrial berth for clinker handling and the transfer of banana ioading to general cargo facilities. The proposed Post and Telecommunications Technical Assistance project would improve the efficiency and reliability of the communications networks. 20. In the agricultural sector, through 1975, the Bank helped finance three industrial plantations in oil palm and rubber, a smallholder rice project, a livestock project, and a cocoa project near Yaounde. Since then, in addition to follow-up industrial plantation, smallholder rice and livestock projects, the Bank has supported four rural development projects in various regions. These projects included studies, trial activities, agronomic and technological elements to improve agricultural productivity. The ongoing Rural Development Fund Project is designed to help the Government establish machinery for processing and implementing small-scale rural sub-pro2ects, initially in the poorer northern regions. A first forestry project is scheduled for this fiscal year.  - 6- 21. The first two education projects were directed towards expanain- secordary education, training primary school teachers, and estaolishini technical schools. A third, approved in 1976, emphasized rural education and training. While all Bank projects include training, technical assistance and ott-er provisionis to strengthen institutions and improve sector pooicies, the major thrust of- the Bank-s free standing technicai assistance program has been to strengthen the central technical ministries and executing ageDcies. The First Technical Cooperation Project, approved in 19779 supported Government services inT several key ministries involved in investment plan..ing, policy analysis and project processing. The Second Prolect has just been si6ned and is designed to strengthen and extend the ongoing program and improve the Government s macro-economic and financial analysis and management. 22. The First and Second Small- and Medium-Scale Enterprise <SMEE) Projects, approved in 1975 and 1980 respectively, focus mainly on developing local ertrepreneurship. A First Water Supply Project established initial netn:orks in Douala and Yaounde and the Second will help finance water distri- bution irn 13 secondary centers and extend the Douala and Yaounde systems to poorer areas, A First Urban Project, scheduled for FY82, would upgrade 1ow4 Income settlements and develop sites and services in Yaounde and Douala. 23. For the future, projects may be expected in agriculture, to consoli- date existing tree crop operations, extend rural development efforts and strengthen agricultural research, and to expand and rehabilitate transport ane commurnications infrastructure. Further education and technical assistance projects may be anticipated, as well as further RT!E, urban and water supply/ severage projects. The Bank has carried out sector studies in forestry, energy, industry and telecommunications, and additional projects in these areas have already been tentatively identified. Thus, the trend towards further sectoral diversification of Bank lending, reflecting the growing complexitv ol Cameroon's development needs, will continue. 24. In addition to such lending operations, it is proposea that tne Bank expand its program of economic and sector work, develop its proc, ram of technical assistance and strengthen and broaden its economic dialogue with the Government. In relation to short- to medium-term issues, this dialogue woild address the pace, pattern and conditions of oil and gas development; the size and composition of the investment program; private versus public sector activities; technical, professional and other skilled manpower con- straints. trainirng needs; improvements in the governmental administrative apparatus; development priorities for export and food crops; potential Dottle- necKs in transport and communications; the adequacy of intermediate 6oods supplies; and the control of potentially disruptive infrlationary pressures. 25. With regard to longer-term issues, the dialogue would center on basic agricultural (especially food crop) and industrial development policies. Factors that complicate the agricultural development effort are the dispersion of the main economic and population centers; regional and institutional dive-rsity the weakness of administrative struct-ures; the competition between exo&rt a-d food crops for the dwindling supply of agricultural labor and limi-ed land i-n some parts of the country; and the limited availability of  -* skilled agricultural agents and administrators. In industry, the Government has moved under recent Plans to channel more financial resources for investment directly through the public sector, while continuing the indirect support to private initiative via tax incentives and other measures that was providea for many years previously. The Bank has recently completed a comprehensive stuay of industrialization and the system of incentives, which nas been discussed with the Government. Difficulties with the present structure of industrial tariffs, tax concessions and credit policies are that it has encouraged industrial concentration in import-substitution (as opposed to export-oriented) activities; and the growth of large, modern, expatriate-dominated industrial corporations rather than of small- and medium-scale indigenous enterprises. We propose to continue our dialogue with the Government on these matters with regard to the objectives, economic performance and accountability of public enterprises. Bank's Role in Relation to That of Other Donors 26. Overall disbursements of official development assistance to Cameroon amounted to about US$45 million a year during the second half of the 1960s, mostly in the form of grants. France provided most of the assistance, wnich was concentrated in infrastructure and some productive sectors. EDF and Elb directed most of their assistance to agriculture and infrastructure. biiank ana IDA disbursements were small during this period. In the 1970s, foreign aid has increased to about US$90 million a year, with only one-fifth in the form of grants. Bark and IDA financing amounted to about 23 percent of total dis- bursements. Bank Group lending to Cameroon has been closely coordinated with that of other donors; in 16 of the 36 Bank projects, joint or parallel finan- cing was arranged and expanded cofinancing is being actively sought for several future projects. Cameroon is now borrowing increasingly from private sources; such borrowing rose to over 40 percent of external financing in 1975-79, compared with only 11 percent in 1967-69. 27, Cameroon's public debt outstanding and disbursed as of December 31, 1979, amounted to US$1.6 billion, 7.9 percent of which was due to Bank loans and 7.8 percent to IDA credits. Bank loans accounted for 9.4 percent of public debt service and IDA credits for 0.6 percent. By 1985, public debt is projected to reach US$2.6 billion. In 1985, Bank loans and credits are projected to account for about 26 percent of debt outstanding and 14 percent of debt service. PART II. THE POST AND TELECOMMUNICATIONS SECTORS 28. Despite the lack of accurate data, it is clear that current post and telecommunications services are not adequate to suipport Cameroon's economic and social development. The postal services reach remote areas of the country, but are unreliable. Mail delivery can take up to three weeks, due to an inadequate vehicle fleet, insufficient maintenance, and the poor condition of the road network. The telecommunications services, despite high-cost invest- ment in equipment and plant, remain characterized by uneven coverage and quality. This has frustrated, in particular, efforts to stimulate business activity and modernize agriculture.  - 8 Existing Facilities and Service 29. The post offers a full range of postal operations plus a checking account system and savings bank. These services are provided through 200 post offices, comnplemented by 25 rural mobile units. The savings bank--which extends loans to the public and semipublic sectors--has some 215,000 clients and about US$26 million of deposits; the corresponding figures for the checking account system are 24,000 and about US$18 million. Because private banks do not find it profitable to operate outside the main business centers, the post is the only institution channelling savings from agricultural areas. However, managerial and other constraints prevent it from performing this role effi- ciently. 30. The telecommunications network links Yaounde, the capital, and Douala, the major port, to the northern region across vast, uncerpopulated areas. The country has some 40,000 telephones or a density of 0.5 per 100 inhabitants, slightly above the average for sub-Saharan Africa (0.4), but lower than that for most countries on a comparable level of development. Almost 60 percent of subscribers are concentrated in the tiuo largest cities. Service, practically all automatic, is available in about 35 provincial towns but does not extend to most of the isolated rural areas. The domestic tele- graph network comprises 84 offices, and telex service is available to 500 subscribers only. 31. About 80 percent of telephone subscribers and 90 percent of telex suLbscribers are private firms. In the two main cities, the services and public administration sector account for 60 percent of subscri-ber connections, with industrial and residential sectors representing 20 percent each. The agricultural sector-s share is negligible, due to acute underequipment of the rural areas. Various factors, including poor investment planning and almost non-existent maintenance, explain the poor condition of the network and the poor quality of service. Repair waiting times of 6 to 18 months have been reported. The number of subscribers has grown by about 10 percent p.a. since 1973, but existing and potential demand remains largely unaccounted for. Sector Institutions 32. The P&T Ministry is the regulatory and policy-making authority for both sectors; it is also the operating entity for the postal/financial services and for the domestic telecommunications services, and as such, follows admini- strative procedures not always suited for sectors requiring flexible manage- ment and a commercial approach. International telecommunications, however, are efficiently provided by an independent semi-private company, the Societe Interrationale des Telecommunications du Cameroun (INTELCA.M) which is under the control of the same Ministry. In order to ensure a comparable quality of service, the Government has decided to create, under the proposed proJect, an autonomous, profit-oriented P&T operating entity (para. 46), while leaving the policy-making/ regulatory function within the Ministry. Although post and telecommunications are frequently operated under two separate entities, the Government-s choice is acceptable at this stage of development in Cameroon partly because it will avoid staff redundancy for joint services; it can work  - 9 - efficiently as long as the post, financial and telecommunlcatiors branches are operated orn a com7nercial basis with separate accounts and finances, as provided . _id u :rt-- th ro 'Para. 45)> Manageentr, Pe. s0 -t-!1, Training 33- F.e" s-ue-:^ its stat-us as a government department, se'veral important Ministry7s Central Administration (planning, budget, soc-neI; buidings, transport) are partly carried out, and deci- s~ion- Lta_i' by Otc r LAnistries. Even within the P&T Ministry, there is insufficS e-t delega-ion of authority; there is no clear separation between execuaxtive and policy-making functions, which sometimes results in duplication of ef fort Land ctiler times in lack of action. 34".' The two secotors employ about 6,000 people. The higher figure for tee postal sector i . ,500) is required for mail distribution. The figure for telecommunications (1,5500, half of whom are technicians) gives a ratio of 88 staff members per 1,000 subscriber lines (as against, say, 29 in Kenya), which suggests low producLivity, particularly in the absence cf substantial construc- ti-on or maintenance activities. Some 900 employees work in the joint services. Even when competent, managers have to work in a difficult and frustrating environment, characterized by few skills upgrading opportunities, little hiring ard firing authority, untrained lower level staff, low salaries and the absence of a staff development program. The problem is compounded, in the case of telecommunications, by the fact that skilled technical staff are in short supply in the country, and that the private sector offers more competi- tive working conditions. 35. While little training is yet available in the field of busirness anid management, in 1969 the Government established, under the P&T Ministry, a P&T school consisting of a main establishment, in Yaounde, and a small branch in Buea. Both schools train postal clerks and telecommunicatiorLs technicians in an 8-month program taught in French in Yaounde and in English at Buea. In addition, the Yaounde school offers a bilingual program, producing administra- tive and technical staff in 18 months, or in 33 months for senior personnel. However, its curricula demonstrate a theoretical bias and gaps in coverage, which the project proposes to correct (para. 48). The buea school, which is more efficient, is not included in this project. Tariffs, Planning and Finances 36. P&T policy and tariffs are formulated by the P&T Ministry and approved by the Council of Ministers. Postage rates are kept at a low level (the lowest in the Central Africa region); telecommunications tariffs are almost twice as much as in most LDCs, but given inter alia the very high unit cost of the present network, they may not even be adequate to produce a rate of return of at least 10 percent. A 5-year investment program has been prepared (para. 39), but there is no forecasting of demand, revenue, operating expenses and manpower requirements as a basi-s for sound development planning, a need urovided for by the proposed project (para. 47).  - 10 - 37. For lack of a commercial accounting system, the PFT ventral Adman- istration does not produce the accurate integrated statements needed for au evaluation of its financial results. Annual expenditures are planned as part of the national budget managed by the Minister of Finance, and revenues are paid into the Treasury. The strict budgetary controls exercised oy the Ministry of Finance are geared to containing operating expenses, regardless of the impact on revenue generation, which partly explains the shortage of vehicles and spare parts for day-to-day operations. 38. Almost three-quarters of total revenues in the sectors derive from telecommunications. The 8 percent decline in revenues over 1977/78 (the last year for which accurate figures are available) can be largely attributed to a deterioration in the quality of service, and, for domestic telephone and telex services, to poor billing and collection procedures. The level of collection is under 80 percent, and drops to below 25 percent for government subscribers; accounts receivable (all subscriber categories) represent about two years of billingO The Country's P&T Program 39. The US$110 million invested by the Government in both sectors during the first three 5-year Plan periods (1961-76) went mostly to telecom- munications, largely on an ad hoc basis. Similarly, additional capital investments scheduled under the current Fourth and the forthcomin6 Fifth Plans will be of minimal benefit unless the many institutional constraints identi- fied are alleviated, and a comprehensive approach to sector development is adopted. 40. The objectives Government expects to reach through the establisniient of a P&T entity are: in the postal sector, improved speed and coverage of mail delivery and increased effectiveness of the financial branches; in tne telecommunications sector, rehabilitation of the existing facilities, with some extensions where demand clearly exists (namely Douala and Yaounde) and strengthening of the sector's planning capability, both for short- and medium- term expansion and for long-term development. Pending approval and start of project implementation, the Government undertook in the fall of 1980 the most urgent rehabilitation works, with technical support from the International Telecommunications Union (ITU). The existing Network Rehabilitation Unit supported by ITU would continue these priority works until the proposed new entity can take over its assigned responsibilities (Section 4.04 of the draft Loan Agreement). Bank-s Strategy in the Sector 41. The proposed project would be the Bank's first involvement in the P&T sectors in Cameroon, and represents the initial phase of a strategy stressing much needed institutional improvements, and sound and balanced extension of the system. The basic rationale for the proposed project is that reliable communications are fundamental to the overall economic efficiency and development of Cameroon. Additional justifications relate to the role piayed by the posts financial services in mobilizing aomestic savings, ana the large revenue-earning potential of the telecommunications sector.  - 1i - IV. THE PROJECT Back-ground 42. The proposed project was identified by a joint telecommunications sector mission of the Bank and the International Telecommunications Union (ITU) which visited the country in December 1978. The mission found that establishing an efficient institution was a prerequisite for sound development of the telecommunications sector. Government shared this position and also requested that the postal sector be included in this reorganization effort. The proposed project was appraised in February 1981, and negotiations held in Washington on August 24-27, 1981. The Cameroonian delegation was led by Mr. Benoit Bindzi, Ambassador to the US. The main features of the project are highlighted in the Loan and Project Summary at the beginning of this report, supplemented by Annex III. There is no separate staff appraisal report. Project Objectives and Description 43. The objectives of the project are to improve the quality of domestic and international post and telecommunications services. The major initial step in this direction is a reorganization of both sectors through the estab- lishment of a commercially viable, cost-efficient public enterprise with legal and financial autonomy. This new entity would be responsible for planning ana managing its own financial, technical and manpower resources, developing post and telecommunications services, networks and facilities, and ensuring effi- cient operation and proper maintenance of its plant and equipment. 44. The project would support a three-year program of technical assis- tance comprising the following: (A) establishment of a new P&T entity, to take place in two phases: (i) a study and assessment of the present sectoral institution, and the design of a new public entity; (ii) setting up of the new organization; (B) preparation of an investment program for the P&T sectors (including projects suitable for external financing); and (C) improvement of technical training given at the Yaounde P&T school. A. Establishment of a New P&T Entity 45. Phase I: Study of the existing organization and outline of a new one. Consultants would undertake the following specific tasks: (a) prepare the legal framework and the financial and organizational structures of a new operating entity (to be formally established about one vear after the beginning of the project) providing for separate accounts, budgets, and cash management for each of its three major branches of activity (post, financial services and telecommunications) and appropriate financial controls for each;  - 12 - (b) prepare a valuation of the existing post and telecommunications assets and liabilities, an assessment of the new entity-s debt servicing capacity and of the liquidity requirements of its three major Dranches of activity; and detailed recommendations for transfer of assets and, to the extent feasible and appropriate. of liabilities, to the new entity; (c) design a comprehensive commercial accounting system; (d) design detailed management information, planning and budgeting systems; (e) detine a personnel policy, including a staffing plan and a staff developmerit program for medium and higher level P&T staff; (f) definie organization, methods, and services for equipment procurement and maintenance; and (g) define the organization of the post, financial and telecommu,nica- tions services. Some 16 consultants, totalling about 75 man-months of services (US$1 "illioo. would be assigned to this study, expected to last nine months. 46. Phase II: Setting up of the new organization. Following reavew by the Bank and approval by the Government, recommendations of the study onuld be implemented over a 20 month period, in two stages: first, formal establisimono of the P&T entity and setting up of the new framework, structures, systemis an.Ld orocedures developed (about 12 to 15 months); second, a start-up periods w-th take-over of functions previously undertaken by other government services, and on-the--`ob training in management, accounting, and administration (abouc 3 o 6 ronths). This part would require about 12 consultants, for a total of 200 man-months of services (US$2.8 million), including 18 man-months for training B. Preparation of an Investment Program 47. The project would provide for preparation of an investment prcgram (primarily in telecommunications) to ensure a cost-efficient use of resources: Because the telecommunications facilities need rehabilitation and expansiorn preparation of the investment program cannot be delayed until the new planning system to be designed by the consultants is fully operative. This componaent2 to be implemented in parallel with the study undertaken under Phase I (para. 45), would include: (i) a demand study and market analysis to determine investment priorities; (ii) preparation of financial projections to assess the new P&T entity's ability to finance implementation of the proposed investment program; (iii) formulation of an investment program, including projects and sub-projects identified and designed for external financing; and (iv) dra ng of bidding documents suitable for international competition. This component would require aboutt 63 man-months of services (US$0.8 million), and wou'd cc executed over a 6--month period.  13 -- C. The Yaou-nde P&T School, Training Fellowships 48. The project also includes: (i) formulation and i ntroduction of comprehensive traJning and up-radi ng programs tailored to job cequirements of the new enlity; (i>) training of Cameroonian instructors, modernization of teaching methods and introduction of instruction in more advanced technolo6y; (iii) equipping of tlhe 3chuol ivorkshops, laboratories and classrooms; and 'iv) about 40 Felt-tlcwshi?s for training, upgrading or specialization abroad of solected P&T staff. Tnis com-ponent, expected to last about three years, would De allocaLed ibQ .:i'x.thS of expatriate expert time (UiS$1.3 million), including the services of a project coordinator, one educator, one training material specialist, one equip.ent maintenance/management specialist and of various technIcal consultants. Project Organization and Execution 49. The Government decided to split the Project's first component into two contracts--for the study and for setting up the new organization--thus reserving its right to retain a different consultant for the second phase. Although the Government's position is understandable, a concern for continuity would suggest retaening the same team. At the end of the study, and based on a review of its recommendations in which the Bank would participate, Government would take a decision on this point. The Government has provided an assurance that, if a different consulting team were selected for setting up the new organization, their qualifications, terms of reference and conditions of employment would be satisfactory to the Banak (Section 3.02(a) of the draft Loan Agreement). 50. The Government has already selected for the study and the investment program a consortium led by Maheu, Noiseux and Co., a Canadian consulting firm with broad experience in organization, management and accounting; other members are: Bell Canada International; Postes Canada; and Kooh and Mure, a Cameroon-based auditing firm. The qualifications, terms of reference and conditions of employment of this consortium have been approved by Government and by the Bank; their contract was negotiated in June 1981, and found accep- table by the Bank. Working under the supervision of their team leader, the consultants would be assigned to the existing P&T Central Administration during preparation of the study. At the setting-up stage, they would be attached to the new P&T entity and each would train a selected Camerooinan counterpart who would gradually take over the new operational functions as defined in the course of the study (Sections 3.06 of the draft Loan Agreement). 51. For the Yaounde P&T school, the Government has selected as con- sultants the International Telecommunications Union (ITU) and the Universal Postal Union (UPU). These two experienced United Nations specialized agencies would provide technical training experts recruited internationally according to their own procedures. The Government has provided an assurance that the contracts to be signed with both UN agencies would be on terms and conditions satisfactory to the Bank (Section 3.02(b) of the draft Loan Agreement). Admission of new students would be suspended during the reorganization period. Once fully operative, the training team would be integrated into the P&T entity, where it would be responsible for all training activities.  - 14 - Pro Tect Coordination and Supervision 52. Overal.l coor,dination and supervisiorn of proJent activiCJies -,uld * entrusted to the P&T Minister, assisted by a Governmuent appointed StearJin Commlttee. This Committee, to consist of four senior representatLves of the government services concerned, would be chaired by the Minister. it WoulC -losely follow ,he work of consultants, including their recommendations, whicn WOuld be reviewed with the Bank before a final decision is made by the Governl- ment on the establishment of the P&T entity. 'The Executive Secretary or t1he Committee--who would participate in its deliberations without vote--would inltially: act as Project Director and Cameroonian counterpart to the con- sulting team leader; be responsible for maintainin8g alL Pro ect accounts ann4 ensuring that Loan proceeds are used for their designated purposes; liaise betwieen the Government and the Bank on Project matters, a role which tne senior executives of the new P&T entiLy would subsequently take over. Details of the composition, organization and terms of reference of the Steering Committee have been agreed upon with the Government; appointment oL the Committee by Government would be a conditioni of loani effectiveness (Sections 3.01(b) and 6.01 of the draft 'Loan Agreement). General Manager and Financial Director of the New Entity The Government s choice of the General Lanager, who wou-l Aecbue Pro-,ect Director, and of the Financial Director of the new P&T entiry is of the utmost importance for the success of the project, Terms of refereince and the profiles of' candidates would be defined during the initial study. Lo De rev-iewed with the Banzk. The Government has provided assuran.ces tnat, DetOre entering the second contract (related to the settinrg-up of the new orgariiza- tioll) it would appoint to these posts, persons with the qualifications ann experience required for satisfactory discharge of their respect`ve responsi- bilities (Sect-ion 3.35 of the draft Loan Agreement). Cost and Financing 54. Total project cost is estimated at US$11.1 million (net of local taxes and duties, from which the project would be exeimpt). TIhe prouosec US$71 .5 million Bank Loan would be made to the Government which woulld relend its proceeds to the new P&T entity, once established, on the same terms ana. conditions as charged by the Bank, under a Subsidiary Loan Agreement to De approved by the 3ank (Section 3.01(c) of the draft Loan Agreement). The proposEd loan would cover the foreign cost component, representing aboout 67 percent of total costs, while the Government would meet the remaining (local) costs, about US$3.6 million equivalent. Contingencies would amount to almost 30 percent of total base costs, including about 10 percent as physical con- tingencies. The Project would include the provision of about 41 man/years of consulting services, about 40 fellowships, vehicles, office and school equip- mkent, local staff and operating expenses (including travel in Cameroon). Average base costs for consultants selected for the study and the investment program--including salaries, various allowances, overheads and international travel--are estimated at US$14,000 a monthI (US$13,000 for the Cameroon-based firm). These costs are admittedly high, but are considered necessary in order  - 15 - to attract to the Central African Region the specialized expertise required for the project. For the UN experts in charge of the more limitea reorgani- zation of the P&T School, the 1981 costs amount to US$8,500 a month because of lower overheads and because ITU and UPU are non-profit organizations. Procurement and Disbursement 55. International competitive bidding according to the Banik's guide- lines would apply for laboratory and workshop equipment and tools, costing US$0.9 million. Because of the small size of the orders, vehicles and office equipment totalling less than US$200 000 would be procured through local competitive bidding following procedures acceptable to the Bank. The presence of local representatives of foreign manufacturers would permit adequate service and supply of spare parts. 56. The proposed loan of US$7.5 million would finance 100 percent of the foreign exchange cost of consulting services (US$4.7 million), 100 percent of foreign expenditures and, if purchased locally, 75 percent of local expendi- tures for equipment and vehicles (US$880,000), and 100 percent of total expenditures for fellowships abroad (US$300,000). Disbursements would be fully documented. About US$1.6 million of loan proceeds would be unallocated. Accounts and Auditing 57. The consultants would design for the new P&T entity a commercial accounting system. Accounts and financial statements would be audited each year by independent auditors acceptable to the Bank. The report of the auditors and annual audited financial statements would be submitted to the Bank for review within six months after the end of the fiscal year (Section 4.03 of the draft Loan Agreement). Benefits and Risks 58. The proposed project is expected to lay the groundwork for sound development of both sectors. It would set the stage for a major improvement in the flow of information needed for the efficient growth of the various regions and sectors. In the case of telecommunications, it would pave the way for future capital investment projects to be externally financed, notably a possible second, larger Bank operation, and would help create the conditions for maximizing the sectors fiscal and economic returns. It would aim at ensuring that resources are used efficiently and that investments match the development objectives and the absorptive capacity of the country, two important goals at a time when oil discoveries are beginning to enhance the revenue and investment prospects of Cameroon. In the process, the planned reorganization of the sector is expected to translate into better service for the whole economy, a reduction of operating and investment costs, and improved collection of receivables. Substantial as they may be, however, these benefits are difficult to quantify. 59. The major risks inherent in this, as in most technical assistance projects, are delays at key stages of implementation. In this case, those  - 16 - risks have been minimized by selecting the consultants during project prepa- ration, and making appointment of the Steering Committee a condition of loar. effectiveness (Section 6.01 of the draft Loan Agreement). The other risks-- namely that difficulties may arise between national staff and expatriate technical assistants, and that some of the consultants recommendations may be left unheeded by the Government--have been addressed by bestowin8 upon the Steering Committee the role of supervising the consultants' work, particularly formulation of their recommendations, and of ensuring that once accepted, these are acted upon. Such risks are considered worth taking in view of the potential benefits of the project for the economy as a whole, and are in any event moderate, given the keen interest expressed by the Government in the project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 60. The draft Loan Agreement between the United Republic of Cameroon and the Bank 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. 61. Special conditions of the Project are listed in Section III of Annex II1. A condition of effectiveness would be the appointment of a Steer- ing Committee of senior government officials responsible for supervision and coordination of project activities (para. 52). 62. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VI - RECOMMFENDATION 63. I recommend that the Executive Directors approve the proposed loan. A. W. Clausen President Attachments Washington, D.C. November 12, 1981  ANNTEX I -17- -s Page 1 of 7 TABLE 3A CAMEROON - SOCIAL INDICATORS DATA SHEET CAMEROON REFERENCE GROUPS (WEIGHTED AVE GES LAND AREA U HOUSAND SV- MOtA - ?OST RECENT ESTIHATE) TOTAL 4 75. 4 MOST RECENT MIDDLE INCOME MIDDLE INCOME AGRICULTURAL !56.9 1960 lb 1970 /b ESTIMATE b AFRICA SOUTH OF SAHARA LATIN AMERICA & CARIBBEAN GhP PER CAPIIA (US