Report on the projects submitted by Costa Rican Government

L-58 R EPO RT on THE PROJECTS SUBIViITTED by COSTA RICAIN GOVERNMENT I.. PROJECTS II. EVALUATION OF PROJECTS III. CONCLUSIONS November 19, 1948  I. PROJECTS 1. The Costa Rican Government has submitted to the Bank the following projects in September and October 1948. The projects are listed in the order of a tentative priority established by the Government. C.R. Govt. Tentative Prior- Estt, External Cost ity Description Sponsor (millions UO S. $) 1 Electric Power Government a) purchase existing properties . ....... 6,4 b) integration and rehabilitation.... 1.2 c) Reventazon River new plant ......... 6,7 14.3 2 Agricultural Equip- Agric, I4inistry 1.0 ment 3 Nilk Processing t " e3 4 Fisheries " " 1.0 5 Cement Plant Government 3.0 6 Pacific Railway Pacific Railway Rehabilitation (Government owned) 1.7 7 Refrigerated 'fare- Agric. liinistry 1 house 8 Fruit Ship Fleet it if 1oh Total - Est. External Cost U.S.$22,8 mil. 9 Cacao Cultivation Agric. Itinistry n.a, 10 Leather and Tanning Private Interests n.a, Plant 11 Furniture Factory " " n.a 12 Textiles Plant t ft n.a,  II. EVALUATION OF PROJECTS 2. This preliminary evaluation of the projects is based on data available with a view to determining in principle whether they come within the Bank's scope. The insufficient information submitted on all the projects does not permit a determination of their suitability for the development of the Costa Rican economy except only in the most general terms. 3. Electric Power: The Costa Ricans report a shortage of electric power throughout the country. The powver shortage is said to be imie- diately serious in the lieseta Central and seaport tovns which are served by the private Saxe and municipally-owned companies, It is of interest that the properties and finances of these cor,-ipanies are reported as being in a deteriorated condition, In the San Jose capital city area, the Conpania Nacional de Fuerza y Luz, an American and Foreign Povfer Company subsidiary, state that they shall have installed by Mlarch 1949 sufficient new generating capacity to meet the more immediate service demands wvithin their area of concession. To coordinate and develop the powver production, the Govern- ment proposes to: C.R. Govt.Tentative Est. External Cost t ~~~~~~~~~~~~~~~~~~~(mpillions U.S. R (a) purchase all existing properties 6.4 (b) integrate all properties into one system and rehabilitate them 1.2 (c) construct new plants 6.7 Total 1 403  3- The Bank Uission pointed out to the Costa Ricans that the Bank could not consider the financing of the purchase of existing properties. However, the proposed increase and rehabilitation i existing capacity may be considered as coming within the Bank's scope. Before any further steps could be taken, appropriate market and tech- nical surveys, such as are being carried out by Ebasco International, wolald have to be considered. h. Agricultural Equipment: The Costa Ricans wish to expand coffee, dairy, and vegetable production on the Lieseta Central and, in order to do so, plan to shift beef cattle and staples production now on these lands to new lowland areas. Agricultural equipment imports to the value of U. S. $1 million are desired by the linistry of Agriculture, The Costa Rican proposal to the Bank for financing of agri- cultural equipment should be considered in the light of the present level of Costa Rican agriculture, aptly described as being in the "fmachete and ox cart" stage. On most farms, operations are character- ized by excessive amounts of hand labor, and the introduction of an ox is often a radical innovation. It has been found that the use of a plow dravm by an ox reduces the cost of land preparation in Costa Rica to one-third the amount usually spent for hand labor, Aninal-drairm agricultural implements, therrfore, rather than automatic farmL rnachinery, are the logical replacements for the rakes, shovels, axes and machetes which are now in common use. Tractors rmay prove useful in the new areas on the flat lowlands, but most Costa Rican farms are at present on slopes where better use can be made of animal-drawn implements,  - 4 - The project might be worthy of consideration, but a technical study determining the suitability of equipment is required before taking a decision of principle, 5. Milk Processing: Lack of organized pasteurization, refriger- ation and distribution facilities, seasonal shortages, and the high cost of feed concentrates necessary to supplement natural forage have impeded the satisfaction of domestic requirements for mnlk in Costa Rica. The potentialities of the industry are illustrated by the fact that Costa Rican imports of processed milk and milk products in 1946 were valued at "697,OOO. The Agriculture Lidnistry proposes to construct a pasteurized milk and milk products plant at San Jose, The external costs of the plant are estimated at US. 'Q300,000. The plant would be operated and managed by a Milk Producers' Cooperative in which the Government and the Banco Nacional would participate. It is almost certain that the establishment of a miLk pro- cessing plant would lift production of milk above present low levels and reduce imports. TJhether, however, the need is solely for a pas- teurization plant, or whether it is more desirable to combine pasteur- ization with the manufacture of powdered and canned milk, is a technical question. The outcome of action taken in this area is likely to be more favorable if one of the large foreign operators in the dairying field were consulted. 6. Fisheries: The development of fisheries in Costa Rica is long overdue. Fish could furnish a cheap protein food for the population,  -5- organic fertilizer to increase agricultural production, and cattle feed concentrates which must nowr be imported. Mlajor obstacles to the devel- opment of a fishing industry in Costa R1ica are the lack of skilled fishermen, and management experience. The Agriculture Uvinistry proposes to purchase a fishing fleet, to construct a fish cannery and to install organic fertilizer processing from the waste, at the cost of ''l,000,O00 in foreign exchange. This project would represent a tangible contribution to the development of Costa Rica. Howlever, it will require further investi- gation (availability of technical assistance, training of personnel, etc.). The Costa Ricans expressed their interest in the immigration of, e.g., Dutch fishermen. 7. Cement Plant: Cement, widely used in coffee drying patios, housing and other constructions, is imiported fron abroad and has cost Costa Rica in recent years U.S. `400,ooo per annum. The Government proposes to build, ownm and operate a local cement plant to meet these needs. In order to justify its proposal, the Government submitted a study made by the Lone Star Cement Company when it was considering constructing a plant for the production of 360,000 barrels annually. The external cost is tentatively estirnated by the Government at 133 million, This study does not appear justifiable as production capacity is in excess of local consumption, production costs are too high to be competitive without tariff protection, and the service of a loan and other charges would exceed present dollar requirements for cement imports. Final evaluation of the project, however, should be postponed  until other proposals now reported in process are received and until proposed regional studies are made by the Bank. 8. Pacific Railway Rehabilitation: The Government-owned electri- fied Pacific Railway, providing service from Puntarenas on the Pacific to San Jose, is in poor condition. For a numaber of years no provision wvas made for depreciation reserves, and high operating costs have reduced working capital, It cannot, therefore, afford to effect com- pletely the rehabilitation of its rolling stock, track, and other properties vwhich the management asserts to be ani irmqediate necessity. The Railvray management desires to finance the external costs for new equipment and rehabilitation, An itemized list has been sub- mitted which totals approximately U.S. $V1.7 million4 The railway and its management were completely reorganized in May 1948 by the Ju-nta Government. The newr management is already carrying out at least the internal aspects of the rehabilitation pro- gram, such as tie and ballast replacement, painting, etc. !Aaile equip- ment is old, it appears, nevertheless, to be in fair condition. An evaluation of the railway project is considered premature until more is known of the operating results of the reorganized railway unider its new management. 9, Refrigerated Jarehouse: The expansion of food production and its even distribution has been handicapped by a lack of storage and refrigeration facilities, The Government has initiated a solution to the stora-e problem through construction of silos at San Jose for cereals and beans and it  -7- now proposes to construct a refrigerated warehouse for potatoes which is a staple food, at an estimated external cost of U.S. 100,000. The Costa Ricans realize that the expansion of storage and refrigeration facilities to handle such food products as milk, fish, meat, fruit and vegetables would be very important as the reduction in waste through spoilage rwould increase availabilities and reduce seasonal price fluctuations. TOhilst the potato warehouse project should be considered now, it would doubtless be in Costa Rica's interest that a more inclusive warehousing program be studied: 10. Fruit Ship Project: The Costa Rican Agriculture 1iinistry reports that local growers are producing 30,000 stems of bananas weekly on the eastern lowlands. An export surplus is available, but lack of regular shipping hampers their marketing. The IAinistry proposes the purchase of a fleet of four small refrigerated vessels to ship these bananas to rmarkets in the United States. The external cost is estimated by the Costa Rican Government at 41.4 millionf The bananas produced on the eastern lowlands are small and of inferior qualityQ They show the effects of the banana diseases vhich forced the United Fruit Company to abandon its cultivations in this area. Presently, these stems are shipped abroad in occasional sm..all refrigerated vessels and they command only a limited market at below- average prices. Justificatior. of this project reql4ires considerable further detail than has been supplied and, at be'st, it appears doubtful.  - 8 - 11. -Vith respect to the remaining projects, Cacao Cultivation, Leather and Tanning Plant, Furniture Factory, and Textiles Plant, a considerable amount of further detailwould be necessary before their evaluation can be attempted. Generally, it is known that cacao ranks as the third most important export for Costa Rica. But surveys of soil and climatic conditions in the proposed producing area of the eastern lowlands, the disease-resistant qualities of the cacao seed to be selected, pro- duction and marketing arrangements and world prospects will be essential, The last three projects, wrhich are sponsored by private interests through the Costa Rican Chamber of Industries, have merit as illustrated in the review of these activities contained in the Economic Report. However, production and marketing surveys should be prepared and submitted. In all instances, external costs estimates will be necessary. III. CONCLUSIONS 12. The presentations of the projects, for the most part, illus- trate ideas only: the detailed documentation is lacking. Of all the projects so far submitted, the following five are in the iiission's opinion the most promising: C.R, Govt. Tentative Estirated External Trxpenditure (; millions) hilk Processing .3 Fisheries 1. Refrigerated Uarehouse 1* Agricultural Equipment 1. Electric Power - Construction of 6,7 new capacity only Total 9.1 million * For potatoes only. The remaining projects may be considered at a later date, provided that the Costa Ricans desire to present adequate documentation.