Sierra Leone - Agricultural Sector Support Project

Document of The World Bank FOR OFAL USE ONLY RePiw N.. P-3694-SL REPORT AND RECOIMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS (N A PROPOSED CREDIT OF SDR 20.3 MILLION TO THE REPUBLIC OF SIERRA LEONE FOR AN AGRICULTURAL SECTOR SUPPORT PROJECT May 24, 1984 This docuet ha a resricted isibul. ad my be sed by reciets nly in tde pef.n.mce of dtir okiad dutie Us cehjas my no oterwbe be discWod witswint Wed BaDk auihonlud.  CURRENCY EQUIVALENTS US$1 = Le 2.50 Leones 1.00 = US$0.40 SDS 1 = US$1.06 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS IADP Integrated Agricultural Development Project IFAD International Fund for Agricultural Development lAF Ministry of Agriculture and Forestry KMAR Ministry of Agriculture and Natural Resources .-DNR Ministry of Natural Resources PBMSU Planning, Evaluation, Monitoring and Services Unit SLPNB Sierra Leone Produce Marketing Board  FOR OMCIAL USE ONLY SIERRA LEONE AGRICULTURAL SECTOR SUPPORT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Sierra Leone Amount: SDR 20.3 million (US$21.5 million equivalent) Terms Standard Project Description: The project would directly contribute to Government's objec- tives of increasing domestic food production and agricultural exports. It would comprise: (a) an action program for rationalization of the institutional framework in the agricul- tural sector, including merger of ongoing integrated agricul- tural development projects with the reorganized Ministry of Agriculture and Natural Resources (MANR), privatization of Ministry operations in agricultural mechanization and palm oil processing, and improvements in operating systems in the MANR and in agricultural policy-making; (b) significant reductions in numbers of unskilled support staff in MANR; (c) financing of improvements in operating facilities for MANE; (d) provision of foreign exchange to finance key imports for the sector; (e) support of tree crop and swamp development programs; and (f) technical assistance. Provision of finance for imports would be linked to progress in the action program. Provision of key imports, principally fertilizers, spare parts and agricultural equipment, and support of swamp development and tree crop programs, would directly benefit about 80,000 farmers (about 25% of the total farm families), most of whom have incomes close to the absolute poverty level of US$75 per capita. The reorganization and strengthening of MANR would also result in improved management of foreign aid flows to the agricultural sector, which at present are widely dispersed and poorly coordinated. Project risks include: inability of MAMR to cope with the proposed changes in organizational structure, functions and systems; and inadequate interest of the private sector to participate in the privatization of services. These risks are minimized by the steps already agreed, a comprehen- sive package of technical assistance included in the project, and the degree of interest of the private sector which is already evident. This document has a resticted distribution and may be used by recipients only in the performance of their officl duties. its contents may not otherwise be discosed without World Bank authorization.  - ii - Estimated Cost 1/ (US$ million) Local Foreign Total Institutional Support 0.7 4.0 4.7 Sectoral Support 0.1 10.6 10.7 Tree Crop Development 2.2 1.5 3.7 Swamp Development 0.6 1.1 1.7 Nagbosi Extension 0.4 0.4 0.8 Sub-projects - 0.7 0.7 PPF Refinancing 0.9 0.9 Subtotal 4.0 19.2 23.2 Physical Contingencies 0.1 0.8 0.9 Expected Price Contingencies 2.0 2.8 4.8 TOTAL 6.1 22.8 28.9 Financing Plan (USS million) IDA 3.3 18.2 21.5 IFAD 0.8 4.6 5.4 Government 1.2 - 1.2 Beneficiaries 0.8 - 0.8 TOTAL 6.1 22.8 28.9 Estimated Disbursements (IDA Fl): (us million) 1985 1986 1987 1988 1989 Annual 2.9 5.9 5.7 5.4 1.6 Cumulative 2.9 8.8 14.5 19.9 21.5 Rate of Return: 35% for tree crop and swamp development components (25% of base project cost). Other elements do not lend themselves to quantification of benefits. Staff Appraisal Report: No. 4B33-SL, dated Nay 24, 1984. .ap: IBRD 17501 1/ Net of taxes and duties from which the project is exempt.  INTERNATIONAL DEVELOPKENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO SIERRA LEONE FOR AN AGRICULTURAL SECTOR SUPPORT PROJECT 1. *I submit the following report and recommendation on a proposed devel- opment credit to Sierra Leone for the equivalent of SDR 20.3 million (US$21.5 million equivalent) on standard IDA terms to help finance an Agricultural Sector Support Project. The International Fund for Agricultural Development (IFAD) would provide US$5.4 million equivalent of cofinancing for the project, with IDA serving as cooperating institution of the IFAD loan. PART I - THE ECONOMY 2. An economic report entitled "Sierra Leone - Prospects for Growth and Equity" (No. 3375-SL) of July 31, 1981 was distributed to the Executive Direc- tors. The following discussion is based on that report and on the findings of several updating missions which visited Sierra Leone during 1982 and 1983. Country data sheets are contained in Annex I. Structural Characteristics 3. Sierra Leone has a population of 3.7 million (1982), growing presently at 2.5 percent per annum. It is in the low-income category of the countries of Sub-Saharan Africa. In the last few years real per capita incomes have declined by nearly 2 percent per annum, and Sierra Leone has been classified as a "least-developed" country by the U.N. The average per capita income was about US$385 in 1982 and was unevenly distributed across sectors and regions. The rural population (75 percent of the total) have per capita incomes far below the national average; it is estimated that about 65 percent of them exist below the absolute poverty level of US$75. 4. Agriculture is the dominant sector providing employment to 65 percent of the labor force. But its contribution to GDP is about 30 percent, implying low productivity in the sector. Rice, the staple food, is grown primarily for subsistence by more than BO percent of the farmers. Even so, the country faces increasing rice shortages. Coffee, cocoa and oil palm are the major export crops. 5. Mining has been a key sector in Sierra Leone. Of the country's mineral resources, diamonds are most important, having accounted for 40 percent of all exports in FY82. The other minerals exported are bauxite, rutile, and gold. The manufacturing sector is small and consists largely of import-substituting industries; it employs 11 percent of the labor force.  6. Sierra Leone's sccial and economic infrastructure is not well devel- oped. The road network is generally adequate, but feeder roads are often lacking and road maintenance is pocr. The ccuntry has good water resources, but its hydro-electric power potential has not been fully exploited. Recent Economic Performance 7. Between 1962 and 1972, the first decade of independence, production and income rcse impressively. GDP grew nearly 5 percent a year, foreign exchange earning. were adequate, and public revenue grew satisfactorily. The Government did not face any serious limitation of financial resources. The situation changed after 1972. Diamond output declined, mainly as a result of the depletion of alluvial deposits; oil prices increased sharply; and there was a general rise in import prices of manufactured goods. The situation worsened further in 1975, when the country lost its second largest source of export earnings: the only iron ore mine closed due to rising production costs and the declining grade of the iron ore. As a result, the average annual growth rate of real GDP dropped from 2.3 percent during 1970-75 to 1.8 percent during 1975-80. Agricultural and mineral output, which together account for 35 percent of GDP and almost all the country's exports, has further declined since 1980. With a population growth of about 2.5 percent, per capita real iceme has been decreasing substantially. During 1980-82, inflation was 20-25 percent a year and it reached as high as 37 percent in 1983. Fiscal Performance 8. The slowdown in economic growth and the erosion of the export base after 1973 contributed tc a marked deterioration in fiscal performance. While public revenues increased 17 percent a year between FY73 and FY81, public spending rose more rapidly at a rate of nearly 23 percent a year. Between FY81 and FY82, public revenues actually declined slightly, while public spend- ing continued to increase. The estimated budget deficit for FY83 was US$215 million, which was about 14 percent of GDP. Public expenditures are difficult to reduce because nearly 50 percent of the current expenditures are for salaries and wages. There is also heavy pressure on the current budget from interest payments on outstanding debt. Balance of Payments 9. Sierra Leone's balance-of-payments situation has deteriorated stead- ily since the early 70s as import bills rose, largely as a result of the sharp increase in energy prices after 1973, and exports falling in value and volume. The cost of petroleum imports jumped from US$8 million in 1971 to US$87 million in FY82, claiming 65 percent of the country's export earnings. The price of other imports also rose during this time. On the other hand, stagnant production reduced the volume of exports. High demestic inflation and the rise in domestic demand created pressure on imports, making things even worse. The overall deficit increased from 5.4 percent of GDP in FY80 to 11 percent of GDP in FY82. At the end of December 1982, the outstanding external debt of Sierra Lecne was US$420 million, or 30 percent of GDP.  -3- Development Planning 10. Development spending during the first Five-Year Plan (FY75-79) fell far short of the target due mainly to fiscal management problems and foreign exchange constraints. Because of the experience with the first Five-Year Plan and the time needed to prepare the second Five-Year Plan, two interim invest- ment plans -- one for FY79-81 and the other for FY82-84 -- were prepared. There has also been a serious shortfall in implementing these plans. Another three-year investment plan is now being finalized. An IDA Technical Assistance Project has provided help for plan preparation, but progress has been slow. External Debt and Creditworthiness 11. In the face of slow growth in public revenues and export receipts, Sierra Leone has relied heavily since the mid-1970's on foreign borrowing to finance its capital expenditures. Total external debt outstanding increased from US$184.0 in 1975 to US$530.0 million in 1982, of which US$420 million was disbursed. Of the total debt outstanding and disbursed, 29 percent was in commercial credits, 39.5 percent in bilateral loans, and 31.5 percent in loans and credits from international institutions. As of December 1982, the Bank Group held about 10 percent of Sierra Leone's external debt outstanding and disbursed. Assistance from bilateral government sources came mostly from the Federal Republic of Germany, the People's Republic of China, the Netherlands, and Japan. The maturity structure of Sierra Leone's external public debt has deteriorated since the mid-1970's as a result of substantial borrowing through suppliers' credits. Unable to service its external debt, the Government approached its creditor countries through the Paris Club in September 1977 and November 1979 and negotiated debt-relief agreements. The relief amounted to an estimated US$39 million under the 1977 Agreement and US$37 million under the 1979 Agreement. At present, Sierra Leone has arrears on the renegotiated portion of both Paris Club consolidations as well as on other consolidated debt to Paris Club members. The Paris Club met again on February 6 and 7, 1984 and further rescheduled the debts. Development Issues 12. Weak economic management is the most immediate issue. Without macroeconomic policy reforms, the economy cannot be put back on a growth path. The reforms must include budgetary measures to increase revenue and reduce spending; extra-budgetary expenditures have stopped, but overstaffing is still a problem and the Government must reduce its work force and save in its current expenditures on wages and salaries. The Government has taken steps to correct prices, but further adjustment is needed, especially in foreign exchange, to help exports and curb domestic demand. A tight monetary policy, consistent with fiscal policy, is also needed to ease the inflationary pressure and help stabilize the economy. 13. In addition to these short-run policies, the Government has to address several important structural issues. First, the economy at the moment is highly dualistic. The agricultural sector is based on subsistence with low productivity. A very small modern sector covers mining and some manufac-  - 4 - turing. The dualism cr3ates inequities in living standards and incentives for outmigration from the traditional sector, causing labor shortages during the peak agricultural season and further losses in productivity in agriculture. 14. Second, the economy has an exceptionally low rate of savings, esti- mated at less than 2 percent of GDP for FY82. The rate of taxation is also very low. Compared with other economies having a similar mining sector, Sierra Leone's rate of taxes on mining is exceptionally low, an important factor in the low rate of overall saving. While the saving rate is low the investment structure has been such that the incremental capital-output ratio for the economy has been quite high, at about 10 in the 1970s. This has been due to heavy emphasis on infrastructure development and capital-intensive projects. Third, the development of human resources has been poor. The literacy rate for the country is only 15 percent; life expectancy is estimated at about 47 years. Access to social services in rural areas is extremely limited. Only 12 percent of the population has access to safe drinking water. Sierra Leone has one of the highest infant mortality rates in the world, about 200 per 1,000 live births during 1974-79. The primary school enrollment ratio is low compared with other neighboring African countries. The lack of educational and training opportunities is reflected in the shortage of skilled manpower. Although Sierra Leone has a reasonably competent administrative structure with adequate managerial and professional skills, mid-level skills and the overall quality of labor have been poor. Short-term economic management is needed to put the economy back on track. Long-term growth will depend, however, on development of agriculture and of human resources. Recent Economic Reform Measures 15. The Government recently has taken several bold macroeconomic measures. It devalued the leone by 100 percent (in July 1983), contained public expenditures (including a freeze on all extra-budgetary expenditures), increased agricultural prices up to 100 percent, and prepared with the Bank a plan to recrganize agricultural services. A Fund standby of SDR 50.2 million was approved on February 3, 1984. Future Prospects 16. The next two to three years will be difficult for Sierra Leone. The earliest revival of economic growth will probably not be before 1985-86, even with the new investments in mining and continued investments in agriculture. Appropriate agricultural prices and intensified efforts to increase agricul- tural production could increase export earnings from cocoa, coffee, and palm oil. But the total export earnings is likely to change little during the next few years. On the other hand, the cost of imports may still rise, with the rate of increase depending on the demand management policies pursued by the Government. In any case, the balance-of-payments will continue to be under pressure. Further rescheduling of both official and private debt servicing may be necessary. In the medium and long term, however, Sierra Leone could both restore and sustain its creditworthiness as the Government implements macroeconomic policies required to implement the IMF supported program to improve the balance-of-payments.  - 5 - 17. The future outlook of the mining sector is mixed. The extent of mineral deposits is not, however, fully known. The kimberlite underground diamond mining project has good prospects, but it may take some time to materialize. Large iron ore reserves have been discovered, but most of these are of low grade and presently not economic to mine. Only one iron ore mine, which had earlier ceaaed operation. because it was incurring losses, has now reopened. Mining of rutile is operating well below capacity. Bauxite mining has improved recently with the installation of new machinery and more bauxite deposits have been discovered, but these are of low quality and will be economic only if used to manufacture alumina. In recent years, the interest in gold mining has revived but the total production remains very small. 18. Sierra Leone's extremely difficult economic conditions and its vulnerability to fluctuations in primary product export earnings make it desirable that future debt service obligations be kept as low as possible. Consequently, Sierra Leone will have to depend upon IDA resources for Bank Group borrowing over the next few years. This is also consistent with the country's relatively low per capita income. At the same time, to help ensure a more adequate flow of foreign exchange into the country, it would be appropriate to finance some local costs of projects. PART II - BANK GROUP OPERATIONS IN SIERRA LEONE Bank Group Operations 19. Bank and IDA operations in Sierra Leone to date have totalled US$107.8 million. There have been five loans amounting to US$18.7 million and twelve credits totalling US$89.1 million. IFC has provided a loan of US$2.1 million to Sierra Cement Manufacturing Company, Ltd. which is now fully disbursed. Five loans and six credits are fully disbursed. Disbursement performance under Bank loans and IDA credits was satisfactory in the past, with disbursements amounting to more than 40 percent of loans and credits outstanding at the beginning of each fiscal year from FY78 to FY81. This was because foreign assistance, including cofinanciers' contributions, have accounted for a high proportion of project coats and because the Government provided counterpart resources promaptly. However, over the last two years, the Government has been experiencing a severe shortage of resources for in- vestment and this has delayed the execution of several projects in the agri- cultural sector as well as the Second Highway Project. The Association is maintaining a close dialcgue with the Government on provision of counterpart funds so as to minimize delays in project execution. Bank and IDA operations have been in support of agriculture (32 percent), education (28 percent), power (20 percent) highways (18 percent) and techn-cal assistance (2 percent). Annex II contains a summary statement of Bank loans and IDA credits as of March 31, 1984.  -6- Lending Strategy 20. The principal objectives of Bank and IDA assistance to Sierra Leons are to: (a) support improved economic management, including economic devel- opment planning and project preparation; (b) stimulate the productive sectors with a view to broadening the country's export base; (c) improve the country's essential infrastructure, particularly roads and power, the inadequacy of which presently constitutes a constraint upon the country's economic growth; (d) raise the income levels and standard of living of the poorest section of the population; and (e) broaden access to education, particularly in the rural areas, and improve its quality. At the same time, the Bank and IDA seek to encourage the adoption of appropriate sector pricing policies and to strength- en the management of public sector corporationa wherever appropriate. 21. With the gradual decline in the production of diamonds, it has become increasingly important to develop the agricultural and manufacturing potential of the economy. Bank Group-financed agricultural development projects have provided improved extension services, feeder roads and farm inputs to small- holder farmers. These activities were started in the Eastern area under the first project in 1972, and expanded in the East and introduced in the North under the second project. A third agricultural development project in the East and a second for the Northern area were approved by the Executive Direc- tors in FY81. These ongoing operations complement other integrated agricul- tural development projects (IADPs) under way with the assistance of the Inter- national Fund for Agricultural Development (IFAD) and the European Economic Community (EEC). In late 1982, the Bank carried out a review of the agricul- tural sector which determined the need for a broader reform of the whole sector, for the provision of direct productive investments in rice, coffee and oil palm, and for the smooth assimilation of the IADPs into the Ministry of Agriculture. The proposed project is based on these premises. 22. In infrastructure, the Bank Group's first highway project (Cr. 218- SL/Ln 710-SL of October 1970) included sections of the country's main trunk road system and a maintenance program, as well as studies for further improve- ments of the road system. The second highway project (Credit 1129-SL of October 1981) is being implemented to strengthen the country's capacity to maintain its road network. A power sector engineering and technical assistance project (Credit 1265-SL of July 1982) is helping to rehabilitate existing thermal generation and distribution system facilities, support institutional improvements in the power sector, and complete preparation of the Bumbuna hydroelectric project. 23. In education, the Bank Group's first and second education projects (Cr. 170-SL of January 1970 and Cr. 573-Sl of July 1975, respectively) supported the Government's priorities for skilled manpower by providing assistance to improve secondary education and technical training. The third education project (Cr. 1353-SL of May 1983) is assisting in the improvement of the quality of primary education and increase in access to primary education in rural areas. In December 1979, a technical assistance project (Cr. 970-SL) was approved to strengthen the Government's capability in development planning, preparation of development projects, training of local staff, and monitoring and evaluation of public investment programs.  -7- 24. As noted in Part I of this report, Sierra Leone has experienced economic difficulties in the last few years. More recently, the Government has embarked upon signifioant policy reforms to improve the situation and lay foundations for oconomic recovery. The proposed project is an Important step in this direction. Further progress in this area and general improvement in the Government's management of the economy will be important determinants of the level of future Bank Group operations in Sierra Leone. PART III - THE AGRICULTURAL SECTOR Introduction 25. Sierra Leone has a total area of 72,000 Km2. Approximately 75 percent is considered to be potentially suitable for agricultural use (including forest). Of this area about 80 peroent comprises uplands of relatively low fertility and the remaining 20 percent more fertile land, mainly swamps and valley bottoms, most of which would require some water control to reach their full potential. Total precipitation over most of the country, however, is high (2,000-3,000 mm), and conditions are generally favorable for plant growth. 26. The most important agricultural product is rice, the staple food. There are virtually no large enterprises in the agricultural sector. Less than 40 percent of total agricultural production enters the monetized economy and this comes mostly from the eastern and southern areas of the country, where climatic conditions have led to the development of tree crop production for export. In the northern half of the country growing conditions are less favorable, as the dry season becomes longer, and the cropping system is based mainly on shifting cultivation of upland rice for subsistence. 27. The value of total agricultural production (in constant prices) increased only 1.1 percent annually during FY71-75 and this growth rate slightly increased to about 2.2 percent during FY76-80. The relatively faster rate of growth of agricultural output in the latter part of the 70s was from the expansion in cultivated areas in response to some increase in producer prices. 28. Since then performance has deteriorated again and, for example, rice imports have risen steadily to above 20 percent of total domestic requirements in 1982/83. Notwithstanding the present somewhat unpromising situation, there is considerable agricultural potential in the country. Less than 10 percent of the swampland area suitable for agricultural use has been developed and about 50 percent of the tree crep potential remains untouched. Furthermore, the recovery of the economy greatly depends on the agricultural sector, since in the medium-term it is the only foreseeable engine of growth.  -8- Govornment Objective. 29. Rooognizing the present state of Sierra Leone's economy, namely, doclining commodity production, low levels of domestio savings, persistent deficits in Government financial operations and balance of payments, the Government is giving priority to tackling two major sote of problems. These are: (a) short-term finanoial problems which need to be set right expedi- tiously, and (b) structural constraints to be addressed in the oourse of implementing the Second Development Plan and subsequent development efforts. 30. In terms of the agricultural seotor, these objectives mean giving priority to increasing production, so as to reduce imports of foods in whioh the country has some comparative advantage, and to increase exporte of major crops, and also to increasing efficienoy in operations of Government agenoies. These objectives would be achieved through policies and program, that would improve incentives to farmers, expedite completion of successful ongoing investment projects, initiate new projects only where quick-yielding results are expected, and streamline public services in agriculture, with privati- zation of suitable activities. Bank Group Operations in the Sector 31. Bank Group operations in the agricultural sector, to date, have been in support of the Government's earlier strategy of emphasis on integrated agricultural (or rural) development projects (IADPs) designed to improve delivery of extension and related services to farmers. The Bank Group con- tributed to the financing of two IADPs through a phased approach under four loans/credl.ts which were made between 1973 and 1981. The Eastern IADP is in its third phase (Cr.323 - Phase I; Cr.568/Ln.1138 - Phase II; Cr.1094 - Phase III), while the Northern is in its second (Cr.568/Ln.1138 - Phase I; Cr.1128 - Phase II). IFAD is the sole external financier of the Magbosi IADP (for which the Bank is the executing agency), and a co-financier of the Northern IADP II. 32. The Project Performance Audit Reports (PPARB) for Credit 323 (Report No. 2066) and Credit 568/Loan 1138 (Report No. 4581) indicate that these projects have been reasonably successful in meeting their physical targets of crop devc1'pment and civil works. The crop programs have contributed to increased food production, mainly in rice and palm oil, and the v-^oa program is now coming into production. They have been successful in cre"64ng an awareness among farmers of the benefits of improved practices, as reflected in the growing demand for oil palm, cocoa and coffee seedlings and for improved rice seeds and fertilizers. However, the overall impact has been somewhat below expectations. Yield increases have not been as high as originally envisaged; higher yielding swamp farming has not been integrated into the traditional farming systems, which are concentrated on the uplands; and markedly improved technical packages have not been developed. The explanatory factors include technical weaknesses due to inadequate research, as well as organizational weaknesses as reflected in the quality of the extension services. The institution-building efforts i.ave had mixed results. Positive results were achieved in project management and financial control, but central ministerial co-ordination has been weak and project spin-off thus reduced.  -9- Sectoral Constraints 33. The earlier emphasis on the area rather than sectoral/sub-sectoral approach, has been justified on the basis of the need to concentrate scarce resources directly on increasing production in specific areas with high potential. While the IADPs have certainly cuntributed to the transfer of substantial resources to the regions, and have been major sources of - extension, credit and input supply services, they still remain isolated operations partly dependent on foreign expertise and external supervision. During earlier discussions on possible IDA lending operations, it was agreed that as a subsequent phase of Sierra Leone's agricultural development strategy, wider institutional improvements and incentive policies were required to maintain and expand the achievements of the IADPs. Therefore, more thorough sectoral analysis than has been possible within the framework of the project approach utilized in the past was necessary. Accordingly, the Bank, jointly with IFA]D, undertook a review of the agricultural sector, focussing on incentive, technological, and institutional issues. On the basis of the analysis and recommendations of that review, the proposed project was designed, in conjunction with the Government, to assist in addressing the major institutional, incentive and technological problems. Institutional Framework 34. Shortages of local funds, particularly acute in the past two years, have adversely affected operations of the Ministry of Agriculture and Foresty (MAF) and the Ministry of Natural Resources (XNR). Such shortages have not, however, slowed expansion of the number of employees in these Ministries, particularly that of daily wage categories. In 1982/83 the wages of daily- paid categories accounted for 50 percent of recurrent costs while permanent staff salaries accounted for a further 23 percent. The share of daily paid labor has been rapidly increasing at the expense of operations and mainte- nance, thus undermining the Ministries' ability to provide services to farmers. In addition, because of the shortage of foreign exchange, the MAP has been unable to import fertilizers or spare parts for the past 18 months for use outside externally-financed projects. As a result the Ministry's general field operations are at a virtual standstill. 35. The core organizations of MAP and MNR are charged with providing planning, extension, monitoring and evaluation, cultivation and agricultural engineering, and regulatory services under central direction. These core services are generally ineffective, due to an absence of clear objectives, inappropriate priorities, inadequate funding of development programs, lack of facilities, insufficient research, and extension staff who are poorly paid, untrained, and poorly organized. In regions where there are IADPs, there are normally two, virtually separate, extension services. The IADP staff are better paid, with better logistical support, and are generally better trained than the staff in the Ministries from whom a significant share of the staff has been attracted. They have clearer objectives and work programs and are consequently better managed. At the same time, the Government's counterpart commitment to these externally funded projects has been a major contributing factor to the shortage of resources for the Ministries' own operations. Under Credit 1094-SL it was agreed that the Eastern IADP would be merged with MAF,  - 10 - but no specific plan of action was included and implementation has been delayed. 36. The result of this overall situation has been a near eclipse of MAF/MNR and a general malaise in the public services supporting agriculture, which can only get worse unless specific steps are taken to tackle it. Head- quarters weakness has resulted in inadequate coordination and supervision of the various externally funded activities. The two Ministries have a develop- ment budget for agriculture of Le 53 million (USS21 million) in 1983/84 of which Le 11 million is from domestic sources and Le 42 million represents external funding. This budget covers a total of 70 ongoing projects, of which 34 are receiving external funding. The IADPs represent about 44 percent of the total development budget. Headquarters weakness has resulted in inade- quate coordination and supervision of these various externally funded activi- ties and the Ministries have not been able to develop a coherent overall program for development of the sector. This results in large part from the wholly inadequate level of staffing at senior levels in the two Hinistries. Only 32 Principal Agricultural Officers or equivalent and above manage an operational staff of 1360 plus support and laboring staff of over 10,000. For an effectively staffed combined Ministry (MAF and M R), a staffing of about 110 in these management categories would be required. Even including IADP staff, senior management is stretched far too thinly. At the same time, the excessive manpower in the lowest grades complicates the management task. 37. The Government is greatly concerned about MAF's deficient performance and there is a widespread desire throughout MAF to improve the operating environment. It has been agreed in principle that MAF and MNR would be combined, and IADP staff and operations merged with the combined Ministry. It is intended that the combined Ministry should be reorganized to develop an organizational structure which is manageable, but at the same time flexible enough to effectively implement programs and allow for change in a developing situation. More specifically, the approach would place emphasis on (i) re- ducing the scope of activities of the Ministerial organization and assisting the private sector to develop its capacity to assume responsibility in commer- cially oriented areas such as production (e.g., oil palm and rubber) and provision of inputs (e.g., agricultural machinery, contracting services, seeds, fertilizers and chemicals, and credit); (ii) establishing a more effi- cient and flexible operational and financial management system; and (iii) improving strategic and operational planning for the Ministry. The Incentive Framework 38. Past policies of the Go-ernment have had a serious effect on agri- cultural production, mainly because of the exchange rate policy. The over- valued leone imposed low producer pUices. In July 1983 the official rate was adjusted from US$1 = Le 1.25 to US$1 = Le 2.5, and buying prices for the major export crops were adjusted in line with the new exchange rate. Given the limited level of commercialization of agriculture and the potential for local monopsonistic situations to arise, there will remain a need, even after the interim period of adjustment to the new exchange regime, for a mechanism of guaranteed buying prices, in order to provide producers with some guidance and security. In the past, the problem of low producer prices has been compounded  - 11 - by delays in price adjustment. AB a result, price signals have often been too late for producers to respond, and delayed announcements of price have caused market disruptions. Interministerial review of proposals on agricultural prices and taxes prior to submission to Cabinet has been uneven and XAF has lacked an adequate data base on agricultural production and farm prices, or the analytic capability to adequately fill its role in this area of agricul- tural price fcrmulation. To stimulate use of fertilizers MAP and IADPs have sold them at subsidized prices. Under Credit 1094-SL Government agreed to phase out these subsidies. This process has, however, been disrupted by the recent devaluation. Technological Base 39. Virtujally all production in Sierra Leone is undertaken by small- holders, and production systems are characterized by low input/low output traditional technologies. The major opportunities for improvement are judged to be in lowland rice production, use of mechanical power for cultivation, and improvement of perennial crops. Efforts have been made, principally within the IADPs, to promote improvement and use of inland valley swamps for rice cultivation, but in many cases the water control structures were poorly con- structed and maintained. The reasons are complex, including a lack of hydraulic engineering expertise in the country or of reliable hydrological data; lack of expertise among farmers in the construction and maintenance of small water-control structures; lack of technical support to farmers following initial construction; socio-cultural factors; and labor constraints. Increases in labor productivity in annual crop agriculture in Sierra Leone have been hindered by lack of a non-human power source. Although climatic conditions are not very favorable for cattle, efforts have been made in recent years to develop suitable ox-drawn equipment and there is said to be increased interest among farmers particularly in the north. Development of private tractor services has been hindered by introduction of a highly subsidized but inadequate and inefficient MAF operation which should be terminated. PART IV - THE PROJECT 40. Initial discussions on a fifth agricultural development project were held in mid-i979, when Government recognized the priority of efforts to address and alleviate the maJor constraints of the sector. In 1981, Huntings Technical Services completed a major study on behalf of Government for insti- tutional reform of the Ministry of Agriculture and Forestry (MAY) and the Ministry of Natural Resources (CUR). The study was followed by a thorough sectoral analysis carried out jointly by IDA and the International Fund for Agricultural Development (IFAD) in October/November 1982, which concluded that there was a need for a broader institutional reform as well as provision for direct productive investment in rice, coffee and oil palm. This project was prepared by the Government and a Bank preparation mission and appraised in June 1983. Negotiations were held in Washington, D. C. in April 1984; the Sierra Leone delegation was led by Mr. Abass Bundu, Minister of Agriculture and Natural Resources. A Staff Appraisal Report (No. 4833 SL, dated May 24, 1984) is being distributed separately. Significant events and special conditions are summarized in Annex III and Annex IV.  - 12 - Project Objectives 41. The proposed project is national in scope and addresses the key priorities of the sector. It would combine sectoral reform, principally institutional reorganization, with financing of key imports for the sector and specific investment items. These three sets of components are closely related. Reorganization cannot take place in an operational vacuum or where basic operaticnal needs are naot available. At the same time, existing organizational arrangements are hampering the effectiveness of ongoing pro- grams. The most important of the proposed reforms would be linked to credit disbursements through a monitcrable action program (see Table 1 and Annex IV). 42. The Government has provided its full support to the proposed sectoral approach. The early positive initiatives which Government has taken on devaluation, farm prices for rice, cocoa and coffee, privatization of the Gambia-Mattru Oil Palm Company and the MAF tractor fleet, and the favorable reception to reorganization, provide a promising prospect for reform. A major reorientation, as is proposed here, will require more than the three years of the proposed project to achieve its full impact. However, the project, with its strong institutional and policy focus, would provide the basis for a more coherent subsequent program of externally funded activities, either on a sector or sub-sector basis (e.g., irrigation, tree crops, forestry) or on a specific area/project basis. Brief Description 43. The main features of the project would be: (a) A Plan of Action (outlined in Table 1 and Annex IV) to be undertaken by the Government of Sierra Leone with the following principal elements: (i) a rationalization of the institutional framework in the agri- cultural sector through a merger of MAF and MNR, a reorga- nization of the merged Ministry of Agriculture and Natural Resources (lAIR) based on decentralization of field operations to six regional offices, merger of integrated agricultural development projects (IADPs) with this structure, and privatization of Ministry operations in mechanical land preparation, and oil palm production and processing; (ii) enhancement of Ministry operations through reorganization of financial and accounting systems, establishment of staff devel- opment and training units and development of appropriate pro- grams, development of improved planning and monitoring systems, reduction of daily-paid labor by at least 35 percent during the project period, and improvement in coordination arrangements for research and training;  13 - (iii) improvement of policy-making in agricultural pricing and taxa- tion through strengthening of an interministerial committee in this area and development of an appropriate data base and analytic capability in MANR. (b) Financing, primarily designed to support institutional reforms and to strengthen ongoing programs, would include: (i) Institutional Support - Improvement of physical facilities and provision of essential vehicles, office and field equipment, spare parts and supplies to MANM; - Consultancy services (258 man-months) for implementation of new planning, management, financial and accounting systems, support of staff development and training, and in-service training for MANE staff. (ii) Sectoral Support - provision of foreign exchange for financing key imports for the sector, including 24,000 tons of fertilizer over 3 years; spare parts for tractor rehabilitation; 110 tractors; implements; 300 power tillers; ox-ploughs; livestock drugs; and equipment for the improvement of Daru Oil Mill; - establishment of an Agricultural Development Fund into which leone funds obtained from the sale of imports would be placed (para. 61). (iii) Program Support - planting of 4,400 ha of coffee, 1,900 ha of oil palm, 700 ha of bananas/plantains and fruit trees; and rehabilitation of 1,000 ha of old coffee; - provision of professional services (48 man-months) and equipment to establish a Drainage and Irrigation Unit in NANR; provide in- service training and execution of a development and demonstration program for intensified swamp development in over 500 ha comprising about 65 schemes averaging about 8 ha, and collection of hydrological data in areas for potential larger scale irrigation and drainage for swamp development; - financing an extension of Magbosi IADP by some 12 months to end- 1986; - provision of foreign exchange for small sub-projects to be prepared and implemented by HAIR. In order to more fully allow the project to support the needs of MANR during this period of change, Government, IDA and IFA]) will carry out a mid-term review of the implementation of the project before June 30, 1986 to consider possible changes in the structure and implementation of the project (Section 4.12 of the Development Credit Agreement).  NM (F te ( 1. Rat ialbatLm of rntmaumttal Frudi inIEIW IMCTI 11130 TN= SID NU TAM 1. Irumr of W ard MU Hppna1s by PFesidst, wer 1983 2. Argarizatlin of WM Oatllm Stnmaure of MfIllstiy agtm in prlncipt by Cdbfret. 3. PalIiu.t of Staft aOtlihm staffin pattem within dme ktAim. Nmyuwr uniy of Unisry in pecmm ad to be stnCtum 1hm been esd. auyleted aby Sqtatr 30) 198. 4. Tntepmtim of 11W. 1. Ub,t*iops ld bnazyiTchri to ktta. Hamme hqu. to be fully cprtlmnOd by etobr le pnatv tuuxt.ru aff an WM ad 1984. wd Igtan regn staff of nidtrles and E1 for KuIadaattim. 2. atlf gial officer for eNtem lh By b mm 3D, 195, _t.aui of do infnlq PLrn apolnte. Tb be rap.ible for alz IDPa dmld hwe ral or pm to do s lor dm "_t of E11W. Ortober I, 1986. hwe bun p follf diilm_ wh tdo ebIrat dun _e1A. 5. Privatlzatim of Ttctor Fleet lUdattey hm Identifled lD trutom kActl. 11nhb fLfty trwtor to be sold by 1,y 1 1981 In iddd an In mitable axdltlmo for edstls wditltm. eepIr ad male. FNfty tow bee ktf.n. buabUdint of joiat vemtu for Wa ad bsIy rdhbilstated and sold to famrs. sewrve of trecom I ad qufirt u teun ad omfitfum a:clptahle to ML > 6. PMvatizatfm of bmu Oil Pab Co. ketim. btIlfImit of a joket vebu amp" to tin ovr peratim aeptable to ML  11. Operatioral lbxp 1. Porgazatlm ard Finwita ad CGmtract has beWm mwed to Parrell, ktim. Typleamtatiom to be amilated by Sept.er 30. 1986. Iccntfg Systam lKrr, ad Foster for thxe_haae study of finmciad naq.st and acomtiin syste in MAFMR. lbrk e dmm1 .huly 1, 1983. Draft first phas report an edatir, system, with design of prose now spstm to liwnre 0C;L ystem and Incorporate 1ADPs, delivered Tec. I5. 1983. 2. Persoel _tt and TrainiB (a) Institutional Arr.nmtts ktion. Staff D.veIlpt ui Tainz ldta to be intabledq in WQ&-y SepStber 30, 1984. Action. Iatiml Agricultual rainin lbrkizGr Coup to be establid by Septeber 30, 1984. 0') RPhictiat of Daily-Wge Labor Actin. Bxpditure In eal te r to be r3m d by 352 frm lewel Dqmuliture of Jaly 1983: (i) b (toIer 1, 1984 ll (ii) By (ttober to l985 lox (iLL) By er 1. 1986 lI (iv) By Ott*er 1, 1987 52 (c) Persornel BjalustiSc n System t ystm to be desiW by Jlm 30, 1985. (d) Training rg Dr t. Agriculture md Natural Emsu Training Prcg. to be drafted by Demer 31. 1985. 3, Phserch d m teinsiin Actim. EftdaIibt of Igriult ral _eerdh Cotoinatizg Gm=cil by Septaber 30, 1984. P t PpatIon of Natiaml Agrialhual %mseardh PolVcy wd Pla by 31, 1985. 4. Plainrg ad HbiFtoring System (a) Plamin kticm. q2eratlal plms for the uix now reglm erize M to be prepaed by Septuber 1964. ktiom. SUhprowt poposas to be prep by rged md adwitted to WIM for apprwal for finaic fms Agr. DaI. FUind. (b) NxltorLnf ktim. Initial fonata for umhly ad quarterly reporting systes to be desWed by Der 194. 5. Iatr smirces Developmet Actio. Drainae Ud Irrigation Unit to be eastblid In Lad and later DOuelipit Divisim by Septad2er 30. 1984.  PIM OF A(IN 111. Agrliultural Pricirg, Credit ad Hirketing 1. Pricirg iid Pblicy Fbrmilaticn Acticn. Fouut1izatm of Tntenulnintrinl Ottee mc Apictl- tural Pricing md Tmatlion udch wvld reviw aguiwlbgral input ad pniroct prim at least cow a year. 2. Pricing Fixed prices for proozw.t of coffee Actiol. Fatalidb t of PriciN mnd Ma1ating Sectim in MW wi zco by Sierra Lmim PronL by S er 1984. w to repot perlxicaUy to ht- d HIrketing Board (S116) tere raias by ctudttm an price md pmwtim trens. further 5Z in lbrdi 1984. ktion. (bvNnt to MMMe priM for umm On qrs eeiIzlU. 3. Boral BHuk% Bwk of Sierrn Lema has decided to prce"i k D et. Final prnopal an fom md epezatpa of pilot with estabLihrmtt of pilot rural bair. but to be aixtted by Sqttber 30. 19W.. 4. Cdi5t mn Tnput Supply xy. RevA of perfoau. of J4W inpt mwly/cmdit astm and mmuudatimm for its futur dne ent foUM LW zr to be preprd by Sqeiter 1985. 5. Fertilizer Actiim. Fhrtlim uidiy to be red to IH by Jam 30, 1987.