Niger - Industrial Development Project

Document of I L E C 0 Y The World Bank FOR OFFICIAL USE ONLY Report No. 3658-NIR. STAFF APPRAISAL REPORT INDUSTRIAL DEVELOPMENT PROJECT NIGER February 26, 1982 Western Africa Projects Department Industrial Development and Finance Division 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 US$1 = CFAF 270 The CFA (Communaute Financiere d'Afrique) Franc is fixed with respect to the French Franc (1FF = CFAF 50) and floats with respect to the US dollar. In this report the following conversion has been used: US$1 = CFAF 270 CFAF 1 million = US$3,704 ABBREVIATIONS AfDB African Development Bank BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest BDRN Banque de Developpement de la Republique du Niger BIAO Banque Internationale de l'Afrique de l'Ouest BFCE Banque Francaise du Commerce Exterieur CCCE Caisse Centrale de Cooperation Economique CND Conseil National de Developpement COFIFA Compagnie Financiere France Afrique CPCT Caisse de Prets aux Collectivites Territoriales CEAO Communaute Economique de l'Afrique de l'Ouest DEG Deutsche Entwicklungs Gesellschaft ECOWAS Economic Community of West African States KfW Kreditanstalt fur Wiederaufbau OPEN Office de Promotion de l'Entreprise Nigerienne SONICA Societe Nigerienne de Credit Automobile SYNAPEMEIN Syndicat National-des Petites et Moyennes Entreprises et Industries du Niger STB Societe Tunisienne de Banque UMOA Union Monetaire Ouest Africaine UNDP United Nations Development Program UNIDO United Nations International Development Organization Fiscal Year October 1 - September 30  FOR OFFICIAL USE ONLY NIGER INDUSTRIAL DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. THE SETTING ........ .1............. I A* The Support Sectors .... .... 2 B. Government Policies and Instruments . .5 C. The Financial Sector .11 II. THE INSTITUTIONS .14 A. Banque de Developpement de la Republique du Niger ... 14 B. Office de Promotion de l'Entreprise Nigerienne ...... 20 C. Centre des Metiers d'Art du Niger .... 22 III. THE PROJECT. ...... .... ......... . 24 A. Origin and Objectives ..24 B. Project Description ........ . ... 24 C. Project Costs and Financing . .. 29 D. Project Implementation . . ............................ 29 E. Benefits and Risks ...... 32 IV. RECOMMENDATIONS .33 This report is based on the findings of missions to Niger by Patrice J. Dufour, Manga Kuoh and Cherif Azi in February and July 1981. Tis 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.   List of Annexes Annex 1. BDRN: Loan and Equity Portfolio Analysis (September 30, 1980) Annex 2. BDRN: State Credit Portfolio (September 30, 1980) Annex 3. BDRN: Financial Statements 1976-1980 Annex 4. BDRN: Financial Forecasts 1981-1986 Annex 5. OPEN: Financial Statements (September 30, 1980) Annex 6. CMAN: Financial Highlights (1980-81) Annex 7. PROJECT: Estimated Disbursement Schedule Annex 8. PROJECT: Selected Documents in Project File  I  NIGER INDUSTRIAL DEVELOPMENT PROJECT STAFF APPRAISAL REPORT I. The Setting 1.01 Niger"s economy continues to develop along dualistic lines, with slow but steady progresa in the traditional rural sector and dramatic but fragile growth in uranium production and earnings. Uranium production, begun in 1971 in Niger's remote Air region, totaled 3,615 tons in 1979. It has firmly established itself as the engine of Niger's economy, which has grown at an average rate of 8.6% per annum in real terms between 1975 and 1980. Uranium revenues have, until recently, provided Niger with considerable foreign exchange earnings--CFAF 85 billion in 1979--and an important source of Government revenues, some CFAF 26 billion in 1979 alone. 1.02 Despite this rapid growth, landlocked Niger remains one of the World's poorest countries, with 90% of its work force employed in agriculture or herding. After the 1975 Sahel drought, the Government gave top priority to improving food production (1.6 million tons of millet and Sorgho; 300,000 toas of cowpea in 1979) and upgrading animal herds (13 million heads) which had been severly hit by the drought. Cash crops have suffered from the premium on edible grain; peanuts (89,000 T in 1979) do not even satisfy the local market; cotton production (4,500 tons in 1979) supplies less than one third of installed ginning capacity. Irrigated agriculture along the Niger river is being developed but requires substantial investments. 1.03 Two developments may threaten Niger's dualistic economy and jeopar- dize the Government-s basic stategy of improving the country-s physical and social infrastructure; the first one is, of course, the uncertainty regard- ing the marketability of Niger's uranium resources, given the projected availability of more easily exploitable ore bodies in Australia and Canada and the slowing down of nuclear power investments in many industrial countries. Marketing arrangements with France--which has recently agreed to buy Niger's production at a price higher than the world market--and continued interest by the Japanese in developing Niger-s deposits should not hide the fact that Niger's mines might soon be operating at a loss. The Government is therefore reconsidering its public investment program as foreign debt service obliga- tions are putting an increasing burden on its resources. The second weakness is the agriculture's dependence on uncertain rainfall. During the last two years, Niger has been able to attain self-sufficiency in basic food crops; this achievement would be questioned if Niger were to face another year of drought. In any case, neither mining nor agriculture would be in a position to generate employment and income for Niger-s population of 5.5 million. This justifies the emphasis of Niger's Development Plan (1979-1983) on the develop- ment of "secteurs d'accompagnements," that is the sectors which support, and benefit from, the growth in agriculture and uranium mining. These activities, which include manufacturing, construction, transport, and services, would be the beneficiaries of the proposed project.  - 2 - A. The Support Sectors 1.04 In 1979, support sectors accounted for one-third of Niger's GDP of CFAF 454 billion. 1/ Among them, modern manufacturing and traditional crafts represented 1.1 and 5.2% respectively, construction and civil works 5.9%, commerce and hotels 11.1%, transport 3.6% and non-government services 3.8%. Manufacturing 1.05 The industrial sector in Niger is still embryonic. In 1979, only 43 modern enterprises were in operations with total sales of CFAF 16.3 billion. Their structure is given below: Table 1: STRUCTURE OF THE INDUSTRIAL SECTOR (1979) Number of Employment Branch Firms (1977) 2/ Sales Value Added Number % Number % CFA billion % CFA Billion % Food & Drinks 8 18 781 22 4.3 26.6 1.5 29.3 Textiles & Leather 6 13 1,231 35 5.4 33.4 1.4 26.0 Paper/Printing 4 10 247 7 0.7 4.1 0.3 6.4 Chemical Products 6 13 2.1 12.6 0.7 13.9 311 9 Shoes and Plastic 4 10 0.6 3.5 0.2 4.1 Construction Material 8 21 496 14 1.8 11.0 0.5 9.5 Metal & Wood Products 7 15 458 13 1.4 8.8 0.6 10.8 43 100 3,524 100 16.3 100.0 5.2 100.0 This table clearly indicates the extent to which Nigerien industry is geared toward import substitution and basic agro-processing. The construction-related subsector (material + wood and metal work) is also important. Of the 43 existing firms, 23 are fully privately-owned, 13 are mixed enterprises and 7 are state-owned. Many of them are either operating at a loss or facing severe 1/ Source: Ministry of Plan. 2/ Total industrial employment is now estimated at 5,400.  -3- difficulties. This malaise can be partly explained by natural conditions (input shortages, high transport costs, lack of middle management and skilled labor, limited market, etc.), but it is certainly worsened by competing unreported imports from Nigeria 1/ and, most important, by stringent price controls (para. 1.21). Despite its limitations, industry is growing and new investments have recently been made, including a dry-battery plant, a shoe factory and several bakeries. Most new projects include Nigerien capital, thus reflecting the growing interest of Niger's business community for in- dustry. In the 1979-83 Plan, several large projects (including a sugar refinery, a cement plant and a flour mill) are listed for a total investment of CFAF 47 billion. Some of them are being postponed owing to recent resource constraints. Artisans 1.06 The artisan subsector represents, according to Plan estimates, a population of 35,000 of which 10,000 operate in the towns. Their contribu- tion to GDP has been estimated at CFAF 23.4 billion (5.2%) in 1979. Artistic artisans (weaving, leather, silver and gold jewelery) work mainly for the tourism market. The National Museum sponsors about 150 artistic artisans and sells their products in its gift shop (annual sales of CFAF 40 million a year). Centre des Metiers d'Art du Niger (CMAN), established under IDA's first Employment Creation Project currently employs 60 leather artisans in Niamey. It is also developing a workshop in Maradi and an artisan coopera- tive in Zinder. The proposed project would continue IDA-s assistance to the leather subsector, a promising traditional activity with export potential. 1.07 Nothing has yet been done to assist production artisans (kitchen ustensils, tools and agricultural implements, pottery, food). In Niamey, several hundreds of these live and work as squatters in the "Boukoki" area where they process salvaged and stolen materials into cheap consumer goods and implements. Previous attempts to assist this group have revealed the sensitive nature of the problem and an initial survey would be carried out under the proposed project to determine how best to assist this group (para. 3.06(b)). Construction 1.08 A survey of the construction industry recently carried out for IDA has highlighted the importance of the construction sector in the Nigerien economy: sales have increased 21% each year over the last three years, from CFAF 34 billion in 1977 to CFAF 73 billion in 1980; between 1977 and 1983, its share of GDP is expected to increase from 4.4% to 8.9%. In terms of production, value added and employment, the construction sector therefore appears three times as large as the modern manufacturing sector. Although the market share of Nigerien entreprises has tripled between 1978 and 1980, it 1/ There is a difference of 20 to 30% between the official and parallel CFAF/Naira exchange rates.  re2 '5