Tanzania - Transport sector memorandum (Vol. 2 of 3) : Volume II

Document of The World Bank FY FOR OFFICIAL USE ONLY CONFIDENTIAL Report No 4042-TA TANZANIA TRANSPORT SECTOR MEMORANDUM VOLUME II January 4, 1985 Eastern Africa Projects Department 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  TANZANIA TRANSPORT SECTOR MEMORANDUM CURRENCY EQUIVALENTS Currency Unit Tanzanian Shilling (TSh) US$1.00 = TSh 9.5 Tsh 1 US$ 0.105 WEIGHTS AND MEASURES 1 meter (m) 3.28 (ft) 1 kilometer (km) 0.62 miles (mi) 1 square kilometer (sq km) 0.386 square miles (sq mi) 1 kilogram (kg) 2.2 pounds (lbs) ABBREVIATIONS ATC - Air Tanzania Corporation BT - Bank of Tanzania CIDA - Canadian International Development Aid EAC - East African Community EDF - European Development Fund FY - Fiscal Year MOCT - Ministry of Communications and Transport MOW - Ministry of Works MPEA - Ministry of Planning and Economic Affairs NBC - National Bank of Commerce NTC - National Transport Corporation PU - Planning Unit SAP - Structural Adjustment Program TAZARA - Tanzania-Zambia Railways TRC - Tanzania Railway Corporation ZR - Zambian Railways  TANZANIA TRANSPORT SECTOR MEMORANDUM VOLUME II SECTOR ISSUES Table of Contents Page No. I. Economic Background. ... ....................... . 1 II. The Transport System ...........**.. 3 III. Land Transport Flows .......... ...... 5 IV. The Transport Issues..** ............................. ..... 8 1. Transport Planning and Coordination., ................. 8 2. Trucking Industry.... ..... .......... .......... ...... . . . . 9 3. Road Maintenance ......... .............. ........ . 13 4. Operations of Railways and Ports..........* ............. 16 (a) Tanzania Railways Corporation .,................... 16 (b) Tanzania-Zambia Railway .................................. 22 (c) Port of Dar es Salaam.....s.... ... ................... 25 5. Foreign Exchange Availability .................... so ...... 27 6. Operations of Air Tanzania Corporation............. ........30 7. Manpower Shortage in the Sector .......................... 34 V. Government Strategy for the Sector ......................... 38 VI. Policy Measures Urgently Needed in the Sector ............... 42 Map: IBRD 12603   TANZANIA TRANSPORT SECTOR MEMORANDU1/ VOLUME II I. Economic Background 1. Tanzania has a large territory (945,000 km2), low population den- sity (19 persons per km2) and a widely dispersed populace. Therefore, both economic and social activities require the movement of people and goods over large distances. Of the total land area, about 60% is used for agri- culture, of which about 90% is for grazing and about 10% for crops. 2. Gross domestic product (GDP), according to official national accounts statistics, increased at about 5% per annum in real terms over 1973-79; however, the Bank Group estimate put the increase at only 1% per year. In 1979, GDP per capita was estimated to be about US$270. More than 80% of Tanzania's population (17.5 million) lives in rural areas and is de- pendent directly or indirectly on agriculture. The agricultural sector, which includes crops, livestock, forests, fisheries and other related acti- vities, accounts for over 50% of GDP, 90% of total employment and over 80% of exports. Exports continue to be dominated by the traditional primary products, which include coffee, cotton, cashew nuts, sisal, tea and tobacco. 3. The economic situation in Tanzania has been deteriorating over the last few years, and the country is facing its worst economic crisis since independence 20 years ago with severe domestic and external im- balances and a declining level of production. Export crop production has been declining; with exports stagnating, the current account deficit rose to 13% of GDP by 1980. The situation was aggravated in 1980 when, after three satisfactory harvests, domestic food production fell sharply. The oil price increase of 130% over the past two years and the need to import increased amounts of food (from 65,000 tons in 1979 to 310,000 tons in 1980) have added greatly to Tanzania's import bill. Consequently, foreign exchange is in very short supply, while the external debt has been rising sharply. 1/ TSM, Volume II was prepared by D. Jovanovic, Sr. Economist and M. Konishi, Y.P., following their mission to Tanzania in November/December 1981; M. Dick, Sr. Economist prepared sections on Ports and on Tazara Railway, while K. Ewing, Sr. Transport Engineer contributed to the section on Air Tanzania. The TSM was edited by C. Applegate, Technical Editor.  -2- 4. The weaknesses in the underlying structure of the economy, exa- cerbated by external economic factors, have become increasingly evident since the late 1970s. Substantial external aid from bilateral and multila- teral agencies (about US$500 million per annum) has not offset mounting economic problems which have led to long-term structural imbalances affect- ing the economy including the transport sector as well. Such a development inevitably questions the viability of the economic system which was esta- blished in the late 1960s. 5. The basic relevant economic factors of particular importance in developing the country's short- and medium-term strategy of the transport sector include: (a) the key role of the transport sector in Tanzania's eco- nomy, particularly for agriculture; in that regard the condition of second- ary and rural roads and the capacity and efficiency of the trucking indus- try is of specific importance for both agricultural inputs and produce mar- keting; (b) foreign exchange shortages and restrictions on imports that ad- versely affect operating efficiency of all the modes causing severe short- ages of spare parts for operating existing equipment and trucks and for purchasing new ones; (c) sharp increases of fuel prices (130% over the past two years) which not only increased transport costs, but combined with interruptions in oil imports caused periodic disruption of transport; and (d) acute shortage of qualified manpower in medium and upper managerial levels which continues to affect operations of the parastatal companies and Government agencies involved in the sector.  - 3 - II. The Transport System Sector Infrastructure and Organization 6. Owing to Tanzania's large size and widely scattered population, economic activity requires long hauls for transport movements. Consequent- ly, transport infrastructure plays a vital role in the economy, particular- ly agriculture, both in terms of internal distribution and export. In add- ition, the Tanzanian transport infrastructure serves as an important corri- dor for the external trade of four neighboring, land-locked countries-- Zambia, Burundi, Rwanda and Zaire. 7. Roads are the predominant transport mode, especially for domestic transport, with railways important for export-import traffic. The road network comprises about 50,000 km, of which 9,500 km are primary, about 7,300 km are secondary, and the rest are rural roads and tracks; by the end of 1981 only about 2,500 km were bituminous paved. The railways consist of two systems--Tanzania Railway Corporation (TRC), operating on about 2,640 km of track, and TAZARA (jointly owned by Tanzania and Zambia) with 970 km of track on Tanzanian territory. Three main ocean ports--Dar es Salaam, Tanga and Mtwara organized under Tanzanian Harbors Authority(THA), a pipe- line carrying oil between Dar es Salaam and Zambia, and two international and over 20 other airports complete the transport infrastructure. 8. The responsibility for the mainland road network is divided bet- ween the Ministry of Works (MOW), in charge of the construction and mainte- nance of primary and secondary roads, and the 20 regional administrations coordinated by the Prime Minister's office, which are responsible for rural roads. MOW is also responsible for construction and maintenance of the country's airports. The railways, the major ocean ports and internal air transport are operated by parastatals which were set up in 1977 following the break-up of the East African Community (EAC). While operationally au- tonomous these parastatals report to the Ministry of Communications and Transport (MOCT) for major decisions on investments and budgets. The Na- tional Transport Corporation (NTC), a parastatal also reporting to MOCT, is in charge of a number of parastatal trucking and passenger transport compa- nies and the Tanzania Coastal Shipping Company (TCSC). It should also be noted that the management and operations in different transport modes were significantly affected when EAC disintegrated and new national agencies/ companies were created with inexperienced staff and management. Sector Needs 9. Taking into account the general situation in the transport sector and the current status of the economy, the needs of the transport sector could be grouped as follows:  -4- (a) improving maintenance and rehabilitation of the primary road net- work, as well as increasing the capacity of MOW's Roads Division to maintain' the network; (b) improving accessibility to rural areas linking agriculturally productive areas by feeder/rural roads to the main network; (c) rehabilitating and when necessary, increasing existing capacities of ports and railways with special attention to international transit traffic (storage facilities, shipment facilities); (d) increasing efficiency and expanding the trucking industry; and (e) improving internal air transport. Sector Knowledge 10. In spite of the Bank Group's heavy involvement in Tanzania's transport sector over the past 15 years, our knowledge of the sector is fragmentary and incomplete. Our knowledge of the highways subsector is ge- nerally up-to-date but important gaps exist in the rural roads subsector and the road transport industry. Information on railways is based on re- cently completed consultants' studies, while the knowledge of the port of Dar es Salaam was updated for the preparation of a port project. The last TSM was prepared in January 1977, based on information from the mid-1970s. Since then the economy has seriously deteriorated, and the new TSM provides updated, integrated information on the sector and analysis of its main pro- blems.  - 5 - III. Land Transport Flows 11. The transport flows in Tanzania can be grouped into three catego- ries: (a) intra-regional; (b) inter-regional; and (c) international transit traffic. In 1980 total tonnage transported in the country was estimated to be about 4.6 million tons; TRC and Tazara together handled about 1.9 million tons, while most of the remaining 2.7 million tons were transported by road (a marginal volume of traffic was transported on water). Data on the road transport, both intra-regional and inter-regional are, however, scarce. Most of the transport flows go to and from the country's major port--Dar es Salaam, while part of the oveall traffic is directed to the port of Tanga and very little to the port of Mtwara. 12. The data on road traffic have not been kept up to date. The last country-wide traffic counts were carried out in 1978; they indicate that the average daily traffic on the roads is relatively light--rarely exceed- ing 200 vehicles per day. The heaviest flows of passenger and commodity traffic are in the east and northeastern parts of the country and on the international corridor to Zambia. The major transport flows have been re- corded in the following directions: (i) Arusha-Moshi-Tanga-Dar es Salaam; (ii) Dar es Salaam-Morogoro-Mbeya; and (iii) Dar es Salaam-Morogoro- Dodoma. It should be noted that the traffic on the competing mode--rail- ways--has been steadily declining not only because demand is falling, but because of inefficient operations, both TRC and Tazara railways have not been able to handle the existing demand (Chap. IV,4). Vast parts of the country are not adequately integrated into and covered by the transport facilities, leaving large areas in the western and southern part of the country cut off from trans-port services and consequently impeding economic development (Lindi, Mbeya, Rukwa, Kigoma and other regions). 13. Twenty regional capitals are poorly interconnected. Only a few of them are -linked by bituminous paved roads and/or a railway line: Dar es Salaam, Arusha, Moshi, Tanga, Mbeya, Morogoro, and Iringa. In addition, the following regional centers are linked with rail only: Kigoma, Tabora, Dodoma, Mwanza and Shinyanga; the remaining eight regional centers have to rely either on gravel/earth roads (often impassable during rainy seasons) or on ship transport (Lindi, Mtwara). It will take a long time before all the centers are connected by a reliable land transport link. According to the Long-Term Perspective Plan 1981-2000, the above target should be reached by the years 2000. 14. The average road density, based on a road network of about 50,000 km is only about 0.05 km per lkm2--one of the lowest in the region or 2.8 km of roads per 1,000 inhabitants. Global density figures may be mislead- ing. Therefore, regional density figures in regard to both rural popula- tion and agricultural land could be more meaningful. Road density remains, however, very low in most of 20 regions--ranging from 0.05km-0.22 km per 1km2 (average: 0.1km) and 1.6 km-6.9 km per 1,000 rural inhabitants (average: 3.3 km). Road density, however, is not always in direct propor- tion to the population density or to the size of agricultural land.  - 6 - 15. Aggregate data for intra-regional transport are scarce but indi- cate a volume of about 600,000 tons per year. In regard to the inter- regional commodity flows, about 2.1 million tons were estimated to be transported by road (1980). The density of the road network does not, how- ever, reflect economic needs and transport demand. The most important agricultural regions--Arusha, Kilimanjaro Morogoro and Tanga--account for about 45% of all marketed agricultural production in the country (850,000 tons/year)2/, while their combined road network accounts for only about 24% of the total. On the other hand, Tabora and Mbeya account for 9.5% in the agricultural production but 19% of the country's road network. The to- tal inter-regional commodity flow is grossly unbalanced as far as the direction of traffic is concerned, i.e. about 44% of aIl traffic is des- tined for Dar es Salaam/Coast regions, 13% for the Tanga region and 11% for Arusha/Kilimanjaro regions; the balance of 32% is distributed fairly evenly among the other 11 regions, while very small volumes of freight are destined for Singida, Lindi, Shinyanga and Kigoma. 16. The Ministry of Agriculture carried out in 1979 an analysis of the inter-regional transport of marketed agricultural products. An assess- ment was made for each of the 20 regions which led to an aggregate traffic volume of 579 million ton-km. Assuming that the volume and composition and the marketed agricultural production (export and food crops) has not changed substantially, the figures obtained should be considered indicative for the present as well, except that the railways' share (TRC and Tazara combined) has probably declined slightly, making the road's share propor- tionally larger. Modal Distribution of Inter-Regional Agricultural Traffic3/ Mode Ton/km % of Total (million) Road 357 61.6 Rail 210 36.3 Coastal/lake 12 2.1 Total 579 100.0 17. International transit traffic is sizeable--about 1.3 million tons (mostly Zambian and, to a smaller extent, Burundian and Zairan) or 28% of total commodity flows in the country. The traffic uses Tazara Railway and Tan-Zam Highway (for Zambian export/import traffic) and a stretch of about 1,000 km on the Dar es Salaam-Tunduma corridor; in addition, traffic from and to Burundi and Zaire use the TRC Railway connecting the ports of Dar es Salaam and Kigoma (on Lake Tanganyka), a distance of about 1,200 km. The flow of transit traffic has been, however, impeded by numerous difficulties encountered in both the port and the two railways (Chap. IV, 4). 2/ Major crops expressed in annual tonnage are: cotton (173,000), sugar (123,000), maize (100,000), sisal (86,000), coffee (48,000) and cashew nuts (44,000). 3/ The Inter-Regional Transport of Major Agricultural Commodities in Tanzania, Ministry of Agriculture, Dar es Salaam, 1979.  - 7- 18. The land transport flows are far from being carried out smoothly and satisfactorily. *A number of obstacles impede the flow and impose at the same time serious constraints on economic development: (i) Poor state of the road network: The problem of an undeveloped trunk road network is exacerbated by inadequate road maintenance (Chap. IV,3) and vehicle overloading which causes serious damage to roads designed to low standards. (ii) Limited capacity and poorly organized road transport industry: Parastatal and private carriers combined have only about 60,000 tons capacity, part of which is not in use due to lack of spares and tires (Chap. IV, 2); great imbalances in the distribution of freight vehicles among regions should cause major concern: e.g. Dar es Salaam/Coast regions account for 56%, while the important regions of Morongoro, Mwanza, Mara, Mbeya and Shinyanga together account for only 6% of the total trucking fleet. (iii) Inefficient operations of TRC: Traffic is declining and the railway is able to carry only about half the goods offered for transportation; crop authorities and distributors of fertilizers have been significantly affected by the decline of TRC's perfor- mance together with some industrial plants in the north (due to TRC slowness in delivering black fuel) (Vol.III, Chapter 3a); and (iv) Unsatisfactory interface between roads and railways: There is a lack of roads feeding into the railways and low design standards of existing ones; furthermore inadequate facilities offered to railheads at Isaka, Shinyanga, Mbeya, and other places hamper transshipment. 19. In order to improve the transport flows in the country, the Government has commissioned several studies, among them are the Tanzanian Railway Transport Sector Study (1981) and the Motor Vehicle Distributon Study (1981). These studies have provided an improved framework within which to address specific problems in TRC operations and in analyzing the regional distribution of motor vehicles and repair facilities. However, there has been no comprehensive study on how to facilitate the transport flows by coordinating and integrating the differnt transport modes (Chap. IV,1) on the one hand, and the actions of the ministries and agencies apart from those directly involved in the sector but with interests in improving the transport flows (agriculture, industry, commerce, etc) on the other. 20. A road/rail comparative transport cost analysis by commodity together with the study on priorities for improving the road system feeding to the railways, including the improvement of railhead facilities to enable a smoother transshipment of commodities, is warranted. Furthermore, some centralization--creating a committee directly responsible to the PM's Office to monitor the transport flows, particularly of export/import des- tined comdodities-would be desirable. It would enable representatives of transportation, agriculture and industry to react in a timely and coordina- ted fashion to specific difficulties and bottlenecks.  -8- IV. Transport Issues 21. Some of the problems and issues in the transport sector are com- mon to other sectors of the economy and derive from shortcomings of the country's existing economic system and performance, while others, such as lack of coordinated development of transport modes, weak organizational set-up in road maintenance, insufficient storage facilities in ports and serious technical difficulties of the TAZARA railway, are sector specific. There are numerous problems in the Tanzanian transport sector; this volume, however, addresses only the principal issues affecting the sector: (a) transport planning and coordination; (b) the efficiency of road transport industry and the strategy to improve it; (c) the problems impeding improve- ment of road maintenance; (d) poor operational performance of the railways and ports; (e) the shortage of foreign exchange in the sector; (f) the development of manpower to manage and operate the facilities in the trans- port sector; and (g) the difficult situation of Air Tanzania Corporation. Volume III presents more information relevant to the sector and the issues, including other topics such as: road user charges, transport investments, rural roads, etc. 1. Transport Planning and Coordination 22. One of the major and generally recognized bottlenecks in the sec- tor has been inadequate planning and coordination of the transport modes. Since the disintegration of the EAC, Tanzania has had to build up its own transport sector institutions (except for roads). With few exceptions, the ministries and parastatal organizations involved with transport have done little planning; besides poor micro-planning of capital investments at the level of parastatal companies, deficiencies have occurred in planning of operations and, maintenance of existing facilities. Three ministries are directly involved with the management and development of the sector: (i) the highway-subsector is under the authority of MOW, (ii) MOCT is respons- ible in principle for the development of remaining transport modes, while (iii) the Ministry of Planning and Economic Affairs (MPEA), through its Di- vision of Infrastructure, reviews transport investments in five-year deve- lopment plans. In addition, there are numerous government-controlled para- statal agencies (Tanzania Harbors Authority, Tanzania Railway Corporation, National Transport Corporation, Air Tanzania Corporation), involved in the sector with their own activities. All of them are nominally under the authority of MOCT, but due to the lack of proper organizational set-up and inadequate staffing, MOCT has not functioned--particularly in regard to co- ordinating investments and operations of different modes--as it should have. 23. Transport planning capability is weak in most of these ministries and agencies: with a virtual absence of systematic data collection and ana- lysis, there has been little effective planning. Integrated planning and investments coordination--between various transport modes and with other sectors of the economy--have been largely neglected. As an example, weak- ness in the transport planning coordination has been evident during the  - 9 - preparation of the new Five-Year Plan (1982-86). Not only have long and undue delays occurred in inputs from the agencies, but inadequate in-house analysis of the internal five-year investment program is also not unusual. As a consequence there are cases when an investment program for a transport agency prepared by consultants is presented to MOCT without necessary scru- tiny and critical analysis. 24. Realizing the necessity of reorganizing and strengthening of transport planning and coordination, the Government decided in 1979 to have consultants undertake a study to analyze the problems and recommend solu- tions; terms of reference for the study were prepared by the Bank. The study was completed in early 1980 and contained essential information and recommendations. In order to speed up necessary action, it was agreed with the Government that an action program paper should be prepared by the Bank. On the basis of prior understanding reached with the Government, the Bank prepared a three-phased action program in February 1981: (i) the exis- ting Planning Unit (PU) in MOCT should be reorganized and strengthened; three technical assistance experts (transport economist/planner, transport engineer, and financial analyst) would be assigned to PU for three years; additional Tanzanian staff (currently only two economists are available) would have to be recruited and made available as counterparts, (ii) there- after a national transport study should be prepared with guidance and assistance of the technical assistance staff in PU, and (iii) on the basis of this study, an integrated strategy for transport sector development on a project basis for each transport mode for a period of five to ten years, should follow. 25. During 1981 the Government and MOCT agreed on the action program including TORs for technical assistance prepared by the Bank and with some specific steps to be made in PU. An understanding was also reached (with MOCT and MPEA) that the whole exercise (estimated at US$1.4 million) should be financed on a grant basis. However, since no tangible action had been taken by the Government, the transport mission tried to sound out the posi- tion of potential donors. Thereafter, the Government was informed that Swedish and Federal Republic of Germany bilateral aid agencies and EDF in Dar es Salaam expressed some interest in the matter. MOCT was consequently advised by the Bank to start necessary action within the Government, through MPEA and the Treasury, to initiate an official request from the Go- vernment for assistance from the potential aid agencies. That was done in the first quarter of 1982. Now, it remains to be seen what arrangements will be worked out with an external aid agency. 2. Trucking Industry Introduction 26. There has been a chronic shortage of capacity in the trucking in- dustry. Imports of trucks and spare parts have been severely restricted as the result of the Government's financial austerity policy. Even though the private sector still handles about 65Z of freight transport in the country, priority in the allocation of scarce foreign exchange has been given to the parastatal and state-owned crop trucking companies which have performed  - 10 - poorly. IDA has assisted the industry with two projects: the Trucking In- dustry Rehabilitation and Improvement Project (US$15 million) started in 1978, which assists five parastatal trucking companies, and the Export Re- habilitation Credit (1981) which provides, inter alia, for the procurement of spare parts and tires for the trucks owned by parastatal companies transporting export crops (US$15 million). Although some progress has been made in organizing the regional parastatal transport companies and in their initial operations, the overall situation of the industry is far from sa- tisfactory. 27. The Transport Licenses Authority (TLA), operating under MOCT authority, controls the entry and allocates routes to private carriers for both freight and passenger transport but entry into the industry is gener- ally free in practice since there is an under-capacity. Entry control is designed to achieve more balanced country-wide distribution of the avail- able capacity. In practice, that policy is not fully observed due to insufficient control. Nevertheless, administrative restrictions and con- trols, although not a major issue in the industry, should be removed. There are no reliable statistics on private truckers, but it is estimated that there are about 300 operating from one truck to about 20 per indivi- dual owner. Private carriers are often grouped into small cooperatives in order to survive difficult conditions (severe shortages of tires, spares and fuel). So far, they have not yet created a country-wide association. It has been reported that a growing number of small carriers (owning one to three trucks only) have gone out of business due to deteriorating condi- tions on the market. 28. There are no official inter-regional freight transport tariffs for general cargo; they are negotiable. Those for fuel transport are con- sidered to be too low and are not actually being applied. However, there is a growing concern in the Government to establish freight tariffs for the whole country, since the absence of tariffs has reportedly seriously under- mined price stability. The problem is being studied by MOCT, the Ministry of Trade, and the National Price Commission. However, intra-regional freight transport tariffs (maximum rates) do exist in a number of regions; they are established by regional authorities. The rates put into effect in the fall of 1981 in the regions of the IDA-financed Trucking Rehabilitation Project (Cr. 743-TA) cover the transport costs (Volume III Table 2.15). The different rates per region reflect road conditions and availability of trucking capacity in those regions (more on the road transport industry in Volume III Chapter 2c). 29. The deteriorating trucking industry greatly needs external assis- tance. There is, however, no systematic and coordinated aid to the indus- try. Most assistance provided to the industry so far has come from the two IDA credits and from EDF4/. Bilateral aid agencies provide some assis- tance on a limited scale through authorized dealers, suppling makes from their own countries (SIDA aid to Scania dealer, Italian aid to Fiat dealer, 4/ In December 1981, EDF made a grant of TSh 112 million grant to rehabilitate 600 trucks and provide necessary material and parts to assemble another 500.  - 11 - etc). Numerous problems have been recorded in the industry; the principle ones are the following: (i) a great imbalance between transport demand and available capacity;' (ii) severe shortage of spares and tires, very limited renewal of aging trucking fleet; and (iii) Government policy geared to sup- port parastatal companies at the expense of the private sector, thus re- ducing competition in the market. These issues are summarized below: (i) Imbalance between Demand and Capacity 30. The total estimated road transport demand (including transit traffic to neighboring countries) is estimated to exceed 3.0 million tons (1980), or to be about 1.0 billion ton-km5/. Commercial trucking fleet is estimated at only about 8,000 trucks with7a total capacity of about 60,000 tons. In theory, the capacity should be more than adequate, as it implies (with 75% utilization) only about 430 km per week per truck. However, in practice it appears to have been insufficient because the number of trucks out of service has been on the rise due to lack of spares and tires. Although a country-wide detailed analysis of the supply/demand situation per region is not feasible due to the lack of necessary data, it is possi- ble to draw some conclusions on the basis of facts recorded in five regions (Volume III, Table 2.14) where the IDA-financed trucking project is being implemented. The five regions are responsible for over 25% of the country's annual road transport demand or about 280 million ton-km (1980/81); on the other hand, available trucking capacity in the region (private and parastatal combined) can carry only- about 180 million ton-km. Agriculture production and its exports are believed to suffer the most from the imbalance. 31. The private carriers handle about two-thirds of road freight; the balance is carried out by about ten regional parastatal companies and by trucking fleets of various parastatal crop authorities. Present policy of the Government (para. 35) does not support development of the private sec- tor of the industry. On the other hand, the slow pace and limited numbers of truck renewals only widens the gap between demand and available capaci- ty. The problem is complex, and there does not seem to be an easy solu- tion. An increased use of railways--TRC in particular--could partly alle- viate the problem, provided that TRC substantially improves its effi- ciency. The other possibility is to concentrate assistance to those who have shown more efficiency in operation, i.e. the private carriers. (ii) Aging Fleets and Shortage of Spares and Tires 32. The fleet of private carriers is aging, since it has been diffi- cult to renew it; it is not, therefore, unusual to see them operating trucks over ten years old. The parastatal companies generally own newer trucks. 5/ Based on Motor Vehicle Distribution Study, TISCO, November 1981, Dar es Salaam.  -12 - Severe shortages of spares and tires are mainly due to very limited foreign exchange (see Issue 5). This affects both private and parastatal sectors of the industry, although the private sector stands, in principle, a better chance of acquiring a larger share of the 80% of the imported spare parts and tires (Volume III Table 2.16) which are assigned to franchise and bazaar dealers. This is possible due to the cash payment system, although it may reach several times the amount of *the list price. Another problem is the lack of workshops and their uneven distribution throughout the coun- try. Available information (Volume III Table 2.17) clearly shows that the workshops are mostly in the Dar es Salaam area and in the northeast (Tanga, Arusha and Kilimanjaro). That exacerbates the already difficult situation of the trucking industry. 33. Import of new motor vehicles is under the strict control of a pa- rastatal, the State Motor Corporation (SMC), which twice a year allocates a limited number of motor vehicles to the regions. As no reliable informa- tion on road transport supply/demand is available in most of the regions, one can express reservations on the distribution criteria. It is ultimate- ly up to the regional authorities to allocate the new trucks in their res- pective regions. Available information indicates that 70% is allocated to parastatals and only about 30% of new trucks (mostly of a larger capacity) to the private carriers. (iii) Government Policy in the Industry 34. The Government's long-standing support of parastatal trucking companies has not served to alleviate the difficulties of the trucking in- dustry. By favoring what appears to be the less efficient segment of the industry, the imbalance between the supply and the demand will not be reduced. Furthermore, the competition in the market will be markedly reduced if the role of the private sector declines. 35. Presently, there are ten regional parastatal trucking companies. The Government's plans to establish more and clearly indicates that further Bank Group assistance is expected. The parastatals (including those of crop authorities) have several disadvantages vis-a-vis the private carriers: (a) they lack experience; (b) they have no incentive system to improve their staff's effectiveness; (c) the servicibility of their trucks is estimated at about 60% (70% for the private sector in spite of an older fleet) and (d) load factor is 60% on average (75% for the private sector). Furthermore, the private sector tends to offer lower rates, successfully competing with parastatals, particularly for long-haul transport (private carriers own more, larger trucks). In conclusion, the policy of favoring parastatals may not only be harmful to the private sector, but to the effectiveness of the whole trucking industry and ultimately to the eco- nomy. The issue must be faced along with the broader problem of the viabi- lity of the country's present economic system.  - 13 - 3. Road Maintenance Introduction 36. The road network in Tanzania consists of about 50,000 km of roads and tracks (Volume III, Table 2.1). Responsibility for the road network is divided between the Ministry of Works (MOW), in charge of construction and maintenance of primary and secondary roads (over 16,000 km), and the coun- try's 20 regional authorities, responsible for construction and maintenance of tertiary-rural roads (about 33,000 km)6/. Until recently, the regional authorities, through their regional engineers, were in charge of field operations for road maintenance on the whole network. 37. This set-up led to a number of organizational problems, and efforts to centralize the maintenance operations of trunk roads started in the mid-1970s. While the reorganization was finally completed in 1980, it has not yet been fully implemented (para. 43), although a separate Trunk Road Maintenance Organization in the Roads Division of the MOW (see Chart in Volume III) was established.' New crews for routine and periodic road maintenance have started to be created in the regions, supervised by resi- dent engineers directly responsible to the Roads Division in MOW. The or- ganizational set-up for rural roads is presented in Volume III Chapter 2a. Due to the limited capacity of the MOW and its regional offices, coupled with the shortcomings presented below, priority in the MOW's road mainte- nance activities has been assigned to primary trunk road system (9,445 km). 38. Due to several factors, the maintenance of the road network has been unsatisfactory. This has led to a gradual deterioration not only of secondary and rural roads, but of trunk roads as well. Inadequate mainte- nance and the poor state of the road network have become the major problems in the highway subsector. Deterioration of roads has seriously affected the economy, particularly, the agriculture sector. Vehicle overloading and poor vehicle weight control contribute to the deterioration. It has been recognized that the economic life of motor vehicles in Tanzania is reduced by 50% compared with normal expectations due to the poor condition of roads; furthermore, the increasing need for spares and tires for motor vehicles unnecessarily drains the already limited foreign exchange resources of the country. It would be useful to quantify the correlation between additional foreign exchange spent for renewal of the motor vehicle fleet and for spares and tires on one hand and the financial gap in funding road maintenance on the other. 39. Results achieved in road maintenance have not been encouraging in spite of efforts made by two IDA-financed road maintenance projects cover- ing the whole trunk road network (Cr. 507-TA and Cr. 876-TA, the implemen- tation of which is presented in Volume III, Chapter 8). In 1980/81 only about 2,400 km of roads under MOW's authority were given some attention, of which less than 500 km received periodic maintenance (Volume III, Table 2.3). Such insufficient care has caused a number of bituminous roads to deterioratee to the point where strengthening/reconstruction is unavoid- able. Obviously, that absorbs substantial funds which could otherwise be used for developing and upgrading the network. 6/ About 17,500 km are regional roads and 15,500 km are district roads.  - 14 - 40. Several principal factors affecting road maintenance could be identified: new organization of road maintenance is only partially opera- tional, shortage of staff in MOW in various levels and lack of incentives, insufficient funding and inefficient use of available funds for road main- tenance, and lack of necessary equipment, vehicles, and spares. These main problems, including one of rural roads, are presented below: (i) MOW's limited capacity 41. The poor results in road maintenance have been caused, in the first place, by an absence of proper planning and execution of maintenance work. Furthermore at the end of 1981, only 16 crews (for routine and periodic maintenance combined) had been created; some were not operational, since their equipment was unusable because procurement of spare parts has been lagging behind schedule (procurement of spare parts has also been financed by both IDA credits). MOW, with assistance from the technical staff, estimated that the proper maintenance of over 16,000 km in 20 re- gions would require over 100 different crews (Volume III, Table 2.6). Even if the number is overestimated, there is a huge gap, which indicates that it will be a long time before MOW can adequately cover the network. 42. MOW carries out mostly routine maintenance and some regravel- ling. The very limited capacity of MOW is partly alleviated by engaging contractors to carry out periodic maintenance on paved and gravel roads which has proved to be successful. About 300 km per year are resurfaced or regravelled by contract, still far below the need. The local contracting industry has sufficient capacity to cover a substantially greater length of roads per year. However, financial constraints have prevented greater use of contractors. There are five or six foreign-owned contractors registered in Tanzania and about five domestic contractors. 43. The situation in road maintenance is exacerbated by an absence of a country-wide road maintenance program. Under the IDA-financed road main- tenance project (Cr. 876-TA), whose field operations were originally plan- ned to start in 1979/80 have not yet started; MOW was to prepare detailed annual implementation programs and that has not yet been done. (ii) Shortage of staff 44. Shortage of experienced and qualified staff has been a long- standing problem in MOW. According to an assessment carried out by MOW, it has about 240 vacancies for medium- and high-level staff in its roads ac- tivity alone (Volume III, Table 2.5). The problem became more complex by- -what appears to be reflection of the economic system--the absence of a bonus system which would stimulate and compensate MOW staff for additional efforts and productivity.  - 15 - 45. Two IDA-financed Road Maintenance Projects included technical assistance to help alleviate staffing shortages and aid in improving main- tenance management, operations and procedures. However, for a variety of reasons, the Fourth Highway Project, which is in its seventh year of imple- mentation, has not achieved its objectives. Based on the experience gained under the previous project, technical assistance for the follow-up Fifth Highway Project has been employed in executive line functions with only a few of them in advisory roles. Currently, over 25 expatriates are engaged (under different aid programs) in MOW Roads Division operations. 46. As a longer-term solution to the shortage of qualified staff in MOW, some 120 Tanzanian students are currently receiving training in various engineering disciplines in India under financing from the ongoing Fifth Highway Project. Considering the low number of engineers graduating from Dar es Salaam University, the low proportion of those allocated to MOW and the normal attrition of MOW's present staff, it will be necessary to continue these efforts. (iii) Insufficient funding 46. Actual allocations for the maintenance of primary and secondary roads have been clearly inadequate to properly maintain the network under MOW authority. According to available information (Volume III, Table 2.4), funds allocated annually for road maintenance have, in absolute terms, been stagnating for the last four years (since 1977/78) at about TSh 120-125 million per annum. No accurate details exist but there are indications that even this full amount is not spent on maintenance, since some minor road construction/improvements have been financed from these funds; MOW accounts, however, do not provide a reliable distinction in the use of funds by operation. The insufficient funding is also shown suggested by another indicator. Namely, total road maintenance expenditures, including those for rural roads (TSh 70 million/year), amounted in the last few years to 2.0%-2.2% of the recurrent budget of Tanzania compared with the 3%-4% observed in the countries of the region. 47. Insufficient funding of road maintenance is mainly the result of the overall economic and financial constraints in the country, and it is unlikely that a major change in funding will occur until there is some mar- ked macro-economic improvement. It should be noted, however, that estimat- ed Government revenues from road user charges (about TSh 470 million in 1980/81) significantly exceed, as in most other countries in the region, the amount spent on roads--for maintenance and construction combined, in- cluding feeder roads--TSh 280-290 million on average per annum. Notwith- standing macro-economic aspects of the issue, there is still room for im- provement. For example, setting up and closely monitoring a cost/perfor- mance accounting system for road maintenance operations in every region will substantially increase the efficiency of the use of available funds, which exceed US$10 million per year.  - 16 - (iv) Lack of equipment and spares 48. Shortage of road maintenance equipment, vehicles, spares and tires is an acute problem which seriously imperils the already limited capacity of MOW to maintain the network. Road maintenance equipment and spares in MOW have been or are being provided under the two IDA-financed projects (about US$4 million under Cr 507-TA, and about US$12 million under Cr. 876-TA). Even assuming that every expected piece of equipment is pro- cured and foreign exchange made available for necessary spare parts and tires, it is estimated that MOW still lacks hundreds of pieces of equipment and motor vehicles based on the estimated requirements needed for adequate maintenance of the whole network (Volume III, Table 2.7). Rural Roads 49. The construction and maintenance of rural (feeder) roads (over 33,000 km) is a separate issue. The Bank Group and other external donors have supported rural roads programs under rural development and agricul- tural projects; IDA-financed highway projects have included construction of over 1,000 km of rural roads. The Regional (20) and District Administra- tions (87) responsible for these roads are administratively, technically and financially weak. Given the present accumulation of road maintenance responsibilities and in anticipation of a continuing involvement in this subsector in the future, it is an opportune moment to formulate a consis- tent strategy for Bank Group assistance to rural roads in Tanzania. More about rural roads is presented in Volume III, Chapter 2a. 4. Operations of Railways and Ports (a) Tanzania Railways Corporation Introduction 50. Tanzania Railways Corporation (TRC) is a parastatal organization under the jurisdiction of the Ministry of Communications and Transport (MCT). While the Government holds the controlling interest, TRC operates as an autonomous business enterprise providing long-haul transport for most agricultural and industrial production in Tanzania. TRC was formed in 1977 to continue operations of the Tanzanian section of the defunct East Africa Railways Corporation (EARC) which broke up that year. Over the past few years TRC, which has had to establish a virtually new operating company to take over, supervise and run the railway, as well as hotel, catering, trucking, bus and marine services, is still in the process of organizing and equipping itself. However, though the system should be the natural me- dium for long-distance traffic in the sizeable part of the country that it serves, the performance and the investment allocation for TRC has not reflected this importance. Consequently, fundamental problems in Tanzania's economy cannot only be traced back to the poor performance of the agricultural sector, but also to a poor performance of TRC and other transport services.  - 17 - 51. TRC is a large, long haul system covering 2,640 km with a maximum haul of 1,200 km. It links four important port areas: Dar es Salaam and Tanga on the Indian Ocean, the Lake Victoria ports (Mwanza, Musoma, Bukoba) and Kigoma on Lake Tanganyika. TRC network includes the region which pro- duces about two-thirds of all exported agricultural products, 80% of all marketed cereal and food grains, and almost all of the cereal milling and processing facilities for major exportable agricultural products. It also serves the important transit traffic to and from Zaire, Rwanda and Burundi. Thus, the system should be a natural medium for long distance traffic. Nevertheless, the tonnage carried in 1980 was low, about 1.1 million tons, only about 70% of the peak year in 1972 (1.6 million tons). Passenger traffic declined over the same period from 4.2 million to 2.2 million. TRC has incurred net financial losses since its inception in 1977; revenues have barely covered the cost of operations despite a 30% across-the-board increases in freight tariffs in 1979 and 1980. Net losses were TSh 57.7 million in 1978, TSh 25.3 million in 1979 and TSh 7.6 million in 1980. No financial report has been audited so far (more information in Volume III, Chapter 3). Issues 52. Poor management and low capacity utilization for freight trans- port are the two critical factors behind the poor performance of TRC. These two basic problems have also produced a chain reaction of negative impacts on the corporation. A. Management and Planning of Operations 53. Inexperience on the part of senior management and the shortage and low poductivity of middle managers responsible for day-to-day opera- tions have created mismanagement and inadequate planning. Many are not only new to their jobs, but also new to the railway industry. Without con- solidated data for management information and with key managers lacking the empirical knowledge, the TRC has suffered from the lack of leadership when it has been most needed. Consequently, the Board of Directors and the MCT have had to become directly involved in day-to-day management rather than policy matters only. 54. The management has been seriously affected by poor staffing. The staff vacancies, especially on the management and technician levels (accountant, engineers, mechanics), are anywhere from 35-54%. One problem is TRC's policy of promoting only "academically" qualified staff. This seems to be a system applied countrywide and hinders the promotion of staff with useful knowledge of railways through on-the-job experience. In addi- tion, the attrition rate for the middle to high level managers is high, about 50% per annum, due to wages, fringe benefits and other compensation which are low relative to comparable companies.  - 18 - 55. Another factor in regard to the poor management and planning is the perceptual problem of the TRC management. The concept of minimum cost of operations and efficient use of existing capacity has not been pursued by the management in TRC operations. Management is aware of the extensive problems they face; nevertheless it still insists that major capital investment is an essential requirement to effectively increase rolling stock capacity. The major requirement in TRC, however, is not additional capacity but rather improved utilization of existing capacity. Eventual Bank involvement in TRC must be contingent upon their understanding and commitment to sound practices of minimizing cost and improving the effi- ciency of its available capacity (paras. 8 and 9). 56. The absence of an effective cost/accounting system has led to the management's lack of information on transport cost analysis per line and per km. Furthermore, there are no detailed historic measures of gross ton-km operations available to distribute the annual traffic on a monthly basis, thus making it difficult for management to plan operations. An acute shortage of economists, financial analysts and staticians is the central problem in addition to the disorganized management data and collection system. However, there are indications that a large amount of information exists but which is clearly neither systematically collected nor analysed. B. Capacity Utilization 57. As stated above, another of TRC's major problems is not inade- quate capacity but inefficient utilization of existing capacity (with the exception of passenger transport). Consultants estimate that TRC has only been able to meet 50% of transport demand, while existing capacity (for freight transport) is theoretically adequate to meet current and near future demand. Even allowing for the tendency for estimates of demand to be exaggerated, the discrepancy seems large. The annual carrying capacity of the existing wagon fleet (1980) is about 2.15 million tons, given a 25- day turnaround time and an average haul of 826 km (compared to 1.08 million tons actually carried in 1980). Also, a preliminary analysis indicates that even with 50% availability, the current diesel locomotive fleet is adequate to fulfill the current demand, which is unlikely to grow rapidly. However, the situation with the carriage fleet is different: 60% of the passenger fleet is overdue for general repair, while 30% of the fleet is 30 or more years old. Despite the poor condition of the fleet, there is heavy usage of coaches showing inadequate capacity to fulfill the high demand. TRC is taking steps to purchase new coaches.  - 19 - 58. Following are the specific factors responsible for TRC's ineffi- cient capacity7/ utilization: (a) long wagon delays experienced at the lake ports of Mwanza and Kigoma; (b) poor, old communications and signalling system hindering effect- ive traffic management and wagon control; (c) lack of maintenance facilities and equipment especially for die- sel locomotives; (d) uneconomic operations due to the gap between tariffs and actual transport costs. The major problems listed above are summarized as follows. Wagon Utilization 59. The poor load factor of TRC (50%) is caused by absolute and sea- sonal shortages of wagons. The shortage exists not as a consequence of in- adequate total capacity but because of long wagon delays in the system, particularly at modal interfaces in Mwanza and Kigoma ports. According to the official schedule, the longest round trip running time on the railway is less than five days; the average turnaround time, in fact, is 25 days and for wagons destined to and from the ports of Kigoma and Mwanza, 60 days. The delays in loading and reloading of wagons are caused by defi- ciencies of marine transport and inadequate interface facilities at these two ports and at the port of Dar es Salaam. Customers often use wagons as storage for goods that will not be unloaded promptly at destinations caus- ing wagon shortages throughout the system. It is estimated that as much as a quarter of all wagons are being used as go-downs at any given time. 60. The transport congestion is not strictly due to TRC management. The problem is partly attributable to the low shipping capacity of Zaire and Burundi; thus, even if the port facilities were improved, the landlock- ed countries would continue to hamper the operations of these lake ports. The Danish International Development Agency (DANIDA) is assisting TRC in upgrading the port facilities in Kigoma and Mwanza. DANIDA has commited TSh 1.65 million in grants to provide spare parts for ships in the two lakes and a marine engineer (2 years) with port management experience to improve the operations of the Kigoma port. 7/ These problems have also been identified by the CIDA-financed study: Tanzania Railway Transport Sector Study, 1981. See also footnote 8 on page 36  - 20 - Communications and Signalling System 61. Day-to-day wagon control and traffic management is coordinated among the four district administrators with guidance from headquarters in Dar es Salaam. The public telephone system is the prime communication link between the district administrators and headquarters, but the system is un- reliable. Radio links are also used but the system is old and communica- tions are often non-existent and/or inaudible. These deficiencies delay information on the availability of wagons, wagon movements, etc., with con- sequent reduction in control over operations and effective fleet manage- ment. Aid from the Federal Republic of Germany is helping to modernize part of the communications system. 62. TRC uses two types of signals: the station signal which is locat- ed in every station, and two interlocking signals which coordinate a number of different signals at two major junctions. Both types of signals are quite old and their frequent breakdowns increase traffic hazards and inefficiency of operations. Federal Republic of Germany aid and CIDA are taking part in upgrading this system. Maintenance and Repair Facilities 63. Prior to the break-up of EARC, TRC was equipped to maintain steam locomotives only; the shift to an all diesel fleet has left TRC without adequate workshops. Diesel locomotive availability is currently 50% and wagon serviceability is also low. This is due mainly to the lack of main- tenance facilities, spare parts and trained staff able to carry out locomo- tive and rolling stock maintenance. CIDA has tackled this problem by building the Morogoro Repair Shop. A CIDA report8/ indicated that this facility should be adequate to overhaul and maintain the current fleet of diesel locomotives. There are four other locations for servicing rolling stock but facilities are minimal and can only handle minor emergency re- pairs. 64. Lack of foreign exchange to purchase spare parts has also had a profound impact on the maintenance of rolling stock. This component is crucial to improving the locomotive availability and hence the operations of the railways. Tariffs 65. The TRC has not been operating on a commercially viable basis as required by the 1977 act which established it. Preliminary financial re- sults (reports have not yet been audited) for its first full year of opera- tions (1978) showed a net deficit of TSh 58 million (US$7.1 million equiva- 8/ Tanzania Railway Transport Sector Study: financed by CIDA and prepared by W.H. Crandall and Associates (Management) Ltd. in association with Development Planning Associates Consulting Ltd.  - 21 - lent9/); this and subsequent losses have been covered by Government subsi- dies. Currently TRC uses a tariff structure introduced in October 1981, based on some cost-related variables. However, an almost complete lack of cost information 'and operation statistics per line prevents TRC from setting tariffs related to operational costs. 66. Consultants carrying out the CIDA-financed study calculated that road freight rates on the same hauls are 1.7 to 5.4 times higher. than rail freight rates. Comparative Rail and Road Rates (TSh/ton) Rail Distance TRC Rail Rate Average Truck Rate Truck/Rail 203 km 90 150 1.7 465 km 140 380 2.7 1,031 km 235 850 3.6 1,229 km 276 1,500 5.4 Source: CIDA Study As the cost of operations cannot be determined from information currently available, CIDA is assisting TRC in this field, mainly through technical assistance. Technical assistance have already been provided to the Moro- goro Maintenance Facility (4-man mechanical team), train operations in transportation department (one operations specialist), finance and account- ing department (3-man team), and a special projects officer in the supplies branch. Investment Program 67. TRC has only recently systematically attempted to alleviate the problems identified in this TSM. The CIDA study was the first comprehen- sive review of TRC operations identifying the critical problems and recom- mending a strategy to upgrade them. Investments since 1977 have concentra- ted mostly on capacity improvements: for example, increasing the fleet of diesel locomotives and spares (34% of total investments since 1977), increasing the fleet of rolling stock (24%), and improving the permanent way (11%) (see Volume III, Chapter 3). TRC has recently been successful in attracting assistance from CIDA, DANIDA and the Federal Republic of Germany. 68. TRC has drawn up its proposed five-year investment program (FYs- 1982-86) in close coordination with CIDA and with attention to the recom- mendations in the CIDA study. The proposed'investment program, to be inte- grated into the five-year National Plan, is almost identical to the program recommended by.the study: TRC's proposed investment program is TSh 1,977 million (US$213 million equivalent) with a foreign exchange component of about TSh 1,515 million. However, the investment program must still be approved by MOCT and Ministry of Planning and Economic Affairs before being included into the Macro plan for cabinet and parliament approval. TRC's program concentrateA heavily on creating new capacity, yet existing capaci- ty and demand do not warrant such investment. 9/ Exchange rate US$1.00 = TSh 8.2. There are indications that the losses are larger than those claimed by TRC.  - 22 - 69. EDF organized a donors' meeting which took place in Brussels in mid-February 1982 to discuss the improvements to the transit corridors used by the landlocked countries (Rwanda, Burundi, Zaire). The role of TRC and the questions of how to improve TRC operations to benefit the landlocked countries were discussed. A Bank representative attended the conference (Volume III, Chapter 3,(a), Annex B). (b) Tanzania - Zambia Railway (Tazara) Introduction '70. Construction of a direct rail link between Zambia and Dar es Salaam Port resulted from evacuation difficulties Zambia experienced when Southern Rhodesia unilaterally declared independence in 1965. Presidents Nyerere (Tanzania) and Kaunda (Zambia), who had a close personal relation- ship, decided to divert as much of Zambia's traffic as possible, both ex- ports and imports, via routes other than Rhodesia and South Africa10/. The route of Tazara had been surveyed (in colonial times and again in the early 1960's) as a possible route for copper exports from Zambia and had two additional important benefits as seen by the joint enterprise coun- tries: (i) it would help to open up the productive southwestern area of Tanzania and the little developed northeastern area of Zambia (in both of which roads were few and of low design standard); and (ii) it would provide the shortest land route from the Copperbelt to the sea-- 1,860 km (1,163)11/ as compared with 2,382 km (1,490 miles) for the Benguelo Rail- way (botEh distances to Ndola in Zambia) and much longer still to Mozambique and South African ports. 71. In September 1967 the Government of the People's Republic of China signed an agreement to provide the governments of Tanzania and Zambia with physical and financial assistance to construct a railway between Tanzania and Zambia. A Tanzania-Zambia Railway Authority was established in 1968 as a joint enterprise of the two countries to coordinate con- struction of the railway and prepare for its management and operations. A Tanzania-Zambia Railway Act, regulating the management and operations of the railway, was passed in both countries in 1974. Construction began in October 1971 and Tazara became fully operational in August 1976. 10/ Further action taken to effect this purpose was the building of a pipeline for white oil products from Dar es Salaam to Bwana Mkubwa on the Zambia Railway (completed in 1968) and the construction of the Tan-Zam highway, a bituminous paved road for heavy vehicle traffic from Lusaka to Dar es Salaam, which was a Bank Group project (completed in 1972). 11/ The length on the Tanzanian territory is 970 km.  - 23 - 72. Detailed information on Tazara operational characteristics-- capacity availability and utilization, traffic and financial position--is limited. Such information is available in Volume III, Chapter 3 (b). How- ever, despite this, it is reasonably clear what the main constraints are on the system's effective capacity, and the determinants of prospective traf- fic demand. These problems are discussed below. Issues (a) Locomotives 73. The most immediate issue is the effective capacity of locomotives and rolling stock. With low availability, Tazara's effective mainline lo- comotive fleet is only about 22 at present. The low availability has been due to poor maintenance and to the inherent unsuitability of the Chinese design for the line conditions, especially in the mountainous central sec- tion. With train loads (net tons) in the dominant direction of about 1,000 tons, taking into account over 300,000 tons of traffic (per year) in the same direction and double heading of locomotives for about half the total distance, about 2.1 million engine kilometers are required. Thus locomo- tive kilometers per available locomotive is currently running at about 95,000 per year, a high figure under normal operating conditions in Africa. Thus, it is not surprising that Tazara suffers from major effects of inadequate capacity, inability to consistently handle the trafic po- tentially on offer and slow wagon turn-around time. 74. The immmediate motive power issue is being addressed through an aid agreement under which the Federal Republic of Germany is financing (a) re-engining of 8 existing Chinese locomotives with 16 compatible (but more reliable) German engines and (b) purchase of nine more powerful (3,000 HP compared with 2,000 HP) German locomotives, primarily for use on the cen- tral section. This program, for which contracts have recently been signed, should be fully effective by the end of 1983 and should result in an an effective short-term capacity increase, of at least 50%. The need for fur- ther locomotives will depend upon the Zambian evacuation route policy and decisions regarding the future role of Zambia Tanzania Road Services (ZTRS) (see below). (b) Wagons 75. Tazara has 2,100 freight wagons designed to handle about one million tons of traffic each way on a turnround of 15 days. In 1981 the average turnround reached over 50 days, reducing capacity to only about 300,000 tons in each direction. Thus, capacity was less than demand. The shortfall has been met by using Zambia Railway's (ZR) wagons on the Tazara system. About 700 ZR wagons were in use on the Tazara system in late 1981; there has been some reduction since (the number of Tazara wagons within the ZR system is lower). The deployment (or, more correctly, the virtual immobilizatiort) of ZR wagons with roller bearings, of which ZR has only 2,000 out of a total wagon fleet of 5,500, has reduced ZR's capacity to carry its own domestic traffic. In an attempt to relieve the situation, ZR lent Tazara locomotives, but in turn had to borrow locomotives from Zimbabwe and South African Railways (SAR) system. Consequently, there has been a domino effect from the Tazara locomotive shortage.  - 24 - 76. A related issue is the suitability of Tazara wagons for changing traffic patterns. Containerization is already important on the Tazara route. About 140 import containers per month are now handled by Tazara; by the mid-1980's the demand could quadruple. Tazara has presently no wagons specifically built to carry containers, but its 160 bogie flat wagons are suitable for this traffic and about 140 have already been adapted. They can carry two containers, even if (for export of copper) the containers were heavily laden--about 20 tons gross. Another 735 drop-sided open wagons could be converted though their limited capacity (30 tons) restricts the load per container to 14 tons gross or to a single container per wagon, which is sub-optimal. 77. The overall fleet can potentially handle a much larger volume of containerized traffic than at present. Assuming conversion of only a quar- ter of the drop-sided wagons (which can be achieved at very low cost) and a 26-day turnround time, capacity for 10,000 container movements per annum would be attainable. 78. The wagon availability and suitability issues are therefore resolvable for the medium term by conversion and substantially improved turnround time. The former can be readily addressed at low cost by Tazara, having already converted about 140 wagons. The latter issue will be re- solved in part by the increased locomotive availability dealt with under issue (a). However, part of the problem also stems from operational weak- nesses discussed under (c) below. (c) Management and Staffing 79. The establishment of a new railway system employing over 7,000 personnel almost at the same time as the East Africa Community was breaking up and the Tanzania Railway Corporation being formed has meant that re- cruitment and retention of suitable staff at all levels has been diffi- cult. Also, as a consequence of joint ownership of Tazara, joint Zambian/ Tanzania staffing is required. However, since employment opportunities are better in Zambia, "Zambian" slots at all levels have proved very difficult to fill. 80. In the initial years of Tazara operation, this was overcome by the employment of up to 750 Chinese, who have since departed. The pros- pects of their re-introduction under a low-cost co-operative agreement are remote, and consequently the physical problems of Tazara are, understand- ably, exacerbated by managerial and staffing weaknesses. However, separa- tion of the physical and organizational effects is difficult. Tazara mana- gement clearly believe that all their problems will be solved once they ob- tain new locomotives; unfortunately, there are few grounds to support this.  -25 - 81. A study12/ was recently conducted into salaries and job grading. This, inter aina, supported the view arrived at independently by UNCTAD/UNDP and Bank staff that there were institutional weaknesses which also needed to be addressed. Some, but not all, of these issues have been addressed in UNCTAD/UNDP studies13/ which have also suggested a timetable for discussion by interested parties on a "round table" basis by March 198. Agreement in principle on a staffing/management study financed by the Bank Group to supplement the UNCTAD/UNDP work has been reached with Tazara and hopefully work could commence early in calendar 1983. The combination of the UNCTAD/UNDP and Bank financed work could provide the basis for an investment program which would address both the physical and institutional problems of Tazara, in the mid-1980s. (c) Port of Dar es Salaam Introduction 82. While Tanzania has three commercial seaports (Dar es Salaam, Tanga, Mtwara), Dar es Salaam (Dar) is the only one of consequence, hand- ling about 90% of the country's seaborne trade, as well as large volumes of transit traffic, mostly Zambian. Dar port is also an important port of the central transit corridor serving Eastern Zaire and Burundi. 83. Dar port traffic has been declining (See Volume III, Chapter 4). Dry cargo reached a peak of 2.34 million tons in 1977 and declined to 1.86 million tons in 1980 and 1981. The decline has been due to two main occurrences, the decrease in Tanzania and Zambian overall external trade and the rerouting of some Zambian traffic. Between 1978 and 1981 the pro- portion of Zambian traffic passing through DAR port fell from 74% to 57%. This latter aspect is more disturbing, for Zambian traffic has in recent years accounted for about 50% of the total port traffic. The traffic has been diverted because of the inadequacy of Tazara (discussed in this Chapter), disillusionment with Dar port in 1977 particularly due to conges- tion and a fear that this will reoccur, and reopening of the southern route via Zimbabwe to South African ports, which facilitated diversion. 84. The traffic decline has occurred against a background, common to most East African ports, of a sharp increase in container traffic. Con- tainer traffic grew from virtually zero in 1978 to about 8,000 container movements in 1980 and about 16,000 in 1981. The total is expected to reach 12/ "Review of Salary Structures and Grading of Posts" RITES for Tanzania-Zambia Railway Authority, May 1982. 13/ "Operational Assistance on the Zambia to Dar es Salaam Transit Corridor" UNCTAD/UNDP (Sataellite "A") 1981 and supporting documents.  - 26 - at least 60,000 by 1985, equivalent to about 0.55 million tons, or over 25% of total dry cargo (excluding grain) forecast for that year. Such a con- tainer penetration would be in line with experience elsewhere and may in fact be an underestimate. Container traffic has potentially a much higher berth productivity than ordinary general cargo. Consequently the focus of attention is moving away from the simple provision of berths ensuring the port has adequate container facilities and equipment. Main Constraints in DAR Port 85. A number of problems have been hampering operations of DAR port: inadequate port/rail interface, insufficient width of entrance channel, poor maintenance of the port infrastructure and insufficient grand-handling facilities. Port/Railway Interface 86. Final transport from Dar es Salaam (though not initial transport from the port) is dominated by TRC and Tazara. The inadequacies of the railways inhibit efficient evacuation of the port and indeed its use as an evacuation route for Zambia and for Zaire, Burundi and Rwanda. The CIDA- financed study of TRC addressed the issue; it was formally presented to the Tanzania Government in February 1982 and further discussions with possible co-donors including the Association will take place. However, the TRC pro- blem will probably be substantially addressed by Canada, which is already formulating a $138.0 million investment program, and by EDF. 87. Tazara has two main problems (as earlier explained)--inadequate equipment and poor management and operational capability. The Federal Re- public of Ger-many is providing nine locomotives which will partly address the former problem. However, before the latter, a potentially more intractable problem can be addressed, it must be prefaced by a thorough study of staffing and management. TOR consultant short list and financing are in the process of being finalized with both Zambian and Tanzanian Governments and Tazara Entrance Channel Realignment 88. Proposals were made in the early 1970s that the port entrance channel should be straightened, widened and deepened to enable longer vessels to use the port. However, the cost is very high (approximately US$29 million) and while the prospective benefits are sufficient to gener- ate an acceptable economic rate of return, the priority of this investment is not as high as that of the other items which comprise the proposed pro- ject. Accordingly, agreement has been reached with Government and THA that channel works should be deferred to a subsequent project. Existing Port Infrastructure Maintenance 89. The conditton of the aprons on berths Nos. 1, 2 and 3 is very bad. THA has had the opportunity to make repairs since port congestion ended about two years ago but no action has been taken and no item was included in the latest budget. The Bank Group advised THA that a condition  - 27 - of Board Presentation of the DAR project would be that they had commenced repairing these aprons and attempted to have the work completed by June 1983. This work could be undertaken without the need for foreign exchange and on a step basis to avoid more than half of a berth being out of use at any time. 90. The need to train technicians and mechanics to maintain the port's mechanical equipment has high priority and provision is made in the pro- posed project for this. Grain Handling 91. Grain handling has long been one of the most inefficient opera- tions at DAR port. The volume of traffic (approximately 160,000 tons p.a. on average) does not justify construction of a new concrete silo complex, estimated to cost US$35.0 million. Accordingly, the Bank commissioned an expert to examine the possibility of achieving comparable handling improve- ments at lower cost. A revised* proposals has now been prepared and accepted by Government and THA for a design employing steel silos, which is estimated to cost about $12 million. This is included in the project. Overall Port Project 92. A carefully planned program for (i) clearance of port areas now clogged with unclaimed cargo, (ii) conversion of berths 10 and 11 (see map in Volume III) from conventional to container mode, (iii) provision of low- cost grain facilities, (iv) rehabilitation of the oil jetty, (v) opera- tional improvement through training and technical assistance, has now been agreed with Government and THA and should effectively address DAR port problems at reasonable cost. The project was agreed in July 1982 and work is expected to commence on the main components n late 1983. There are no other major issues (except project financing) at this time. THA's finan- cial situation is sound; tariffs are on the whole reasonable, the interface between port and land transport is being addressed (see TRC and Tazara) and there are no issues of consequence relating to Tanga, Mtwara or the essen- tially autonomous Zanzibar port. 93. The proposed project, including channel improvement, is estimated to cost about US$50 million in foreign exchange. Sources of finance have yet to be finally determined. 5. Foreign Exchange Availability 94. The deteriorating economic situation in the country has brought foreign exchange shortages and has caused restrictions on imports. This has produced a negative retroactive effect on different economic sectors, including the transport sector; namely, operations of the transport agen- cies and parastatal companies have been impeded. The prevailing financial situation calls for prudent use of limited financial resources and for substantial reduction in 'capital investment for a new infrastructure pro- ject. Such a policy should encourage the Government to place its priori- ties in the sector (during the new five-year development plan) on rehabili- tating and strengthening existing facilities..  - 28 - 95. How the above-stated problems affect the sector are illustrated by the trucking industry. Due to shortages of foreign exchange, coupled with import restrictions, imports of spare parts, tires and of new trucks have been substantially cut back, reducing the already insufficient capacity of the industry. This in turn has had a negative impact on the agricultural sector. In addition, availability of fuel has become irregular, impeding transport services. Shortages of local funds, on the other hand, have caused other problems: A four-year delay in providing necessary equity capital for the parastatal trucking companies has seriously affected the IDA-financed Trucking Project (Cr. 743-TA)14/. The lack of local funds has also adversely affected other projects in the sector, as well as road maintenance operations, staffing in the ministries and agencies in the sec- tor. 96. Available foreign exchange for non-capital investment is allocated following a complex procedure; an import license is required for all im- ports (vehicles, spare parts, tires, etc.). Basic responsibility for the distribution of limited foreign exchange lies with the Bank of Tanzania, specifically with the Directorate for Import Licenses (DIL). Decisions on the allocation of foreign exchange are made twice a year, in January and July. The process starts when the Director of DIL submits a proposal, ta- king into account applications from the ministries and parastatal compa- nies, to a sub-committee at the directors' level (from various ministries) and then to the Advisory Committee on Imports (at Permanent Secretary level), chaired by the Governor of the Bank of Tanzania. It is then that the final decision is made on the allocation of foreign exchange for a six- month period. In case of disagreement, the matter goes to the Cabinet for final arbitration. 97. The requests for the transport sector are made by MOCT (for civil aviation, railways, and ports), MOW and SMC (for trucking and bus compa- nies)15/. The complicated procedure is long and many factors (non- economic and economic) influence the final decision. In an absence of mid- term and long-term strategy, decisions on foreign exchange allocations are often pragmatic, made on an ad hoc basis. 14/ The Government (Treasury) was committed to provide about TSh 79 million of equity capital under the project to the parastatal companies in 1978; after over four years since the project began only TSh 43 million has been provided. 15/ The mechanism for requesting motor vehicles and spares for road transport is explained in the section on the trucking industry.  - 29 -. 98. Information on actual distribution of foreign exchange to the economy is available from the Bank of Tanzania. The table below summarizes data of foreign exchange allocation to the transport sector in 1980 and 1981. Data for previous years were not readily available, but there are indications that allocations to the sector were higher and that the declin- ing trend continued in 1981 as well. Foreign exchange contributions from external resources to the sector decreased sharply in absolute and relative terms in 1981 in comparison with the previous year--from TSh 781.2 million (US$95.2 million) to TSh466.8 million (US$56.9 million)16/ or by 40%. In 1980 the relative share of foreign exchange given to the sector was 12%, while in 1981 had fallen to 9%; however, if foreign assistance is excluded, only 4% of Tanzania's foreign exchange was made available for the transport sector in 1981. That is clearly very low. Foreign Exchange Allocation To the Transport Sector17/ (in TSh Millions) 1980 1981 Jan.-June July-Dec. Jan.-June July-Dec. G F G F G F G F Categories Manufacturing units (both builders and manufacturers of spares) 15.05 - 28.18 - 10.80 - 3.20 45.30 Motor vehicles 100.00 - 18.20 200.00 15.00 - 68.70 155.00 Motor vehicle spares 101.30 - 74.50 29.00 51.00 - 9.80 69.00 Other (aircraft spares, tires, railway spares, etc.) 85.80 - 57.20 72.01 39.00 - 68.70 45.30 Total transport sector 302.15 - 178.08 301.01 115.80 - 81.70 269.30 Total allocation for the economy 2,969.3 - 2,486.8 629.1 2,227.5 - 1,921.9 1,007.7 = = 16/ Cost of imported'fuel is not included, since data for the transport sector is not available; exchange rate of US$1 = TSh 8.2 was applied. 17/ For transport equipment, vehicles and spares: G - Government Financed; F - Foreign Financed. Source: Bank of Tanzania, Dar es Salaam, December 1981.  - 30 - 99. The declining role of the transport sector in the Tanzanian eco- nomy could be measured through its contribution to GNP. From 1974 until 1980, the sector's share, in current prices, dropped from 9.1% to 5.4%. While this substantial drop was caused by several factors (declining capi- tal investments in the sector, inefficiency of its parastatals, faster- rising output of some other economic sectors, a significant impact is attributable to its declining share of foreign exchange allocations ne- cessary for infrastructure, rolling stock, equipment and motor vehicles maintenance and renewal. 6. Operations of Air Tanzania Corporation Introduction 100. Due to the poor roads, which are costly to build and maintain, and the substantial distances between major population centers, air trans- port has the potential of becoming an important means of transport if orga- nized in a comprehensive fashion as a cost-effective development tool. At present, there is a lack of effective policy and direction as to the role that air transport should fulfill in the overall transport system and spe- cifically how Air Tanzania Corporation (ATC) could overcome its present major difficulties. ATC, established in February 1977 after the dissolu- tion of the EAC, is under the jurisdiction of the Ministry of Communica- tions and Transport (MCT). It is the only Tanzanian airline and provides both domestic and international services. It operates 2 Boeing 737's, 5 Fokker Friendships (F27) and 4 twin motor propeller planes (DH6); in addi- tion, it has two Boeing 707's which -have not been in use for some time. According to its schedule, ATC should fly to about 19 domestic destinations and 12 to 14 international ones. Intercontinental flights were terminated at the end of 1980 due to the huge financial losses they incurred. 101. ATC has not operated profitably since it was established; its accumulated losses were about TSh250 million (US$30.5 million at exchange rate of US$1 = TSh8.2) by the end of 1981. A financial crisis virtually shut it down in early 1981, but Government subsidies, which increased from about TSh 13.0 million in 1979 to over TSh 70.0 million in February 1981, kept it operating. The operational and financial management are in dis- array and need substantial improvements, including major technical assis- tance, if ATC is to become a viable commercial operation. ATC has been un- able to earn enough hard currency to buy spare parts, to pay for aircraft maintenance overseas or to service debt on aircraft. As a result, regu- larity and reliability of services suffered and traffic levels dropped off. This spiral continues. Lack of fuel (and its cost) at outlying air- ports, poor runway conditions, unreliable communications and lack of lights for night operations have led to less than optimum domestic operations and have prevented ATC from meeting the demand and benefiting from route prof- itability. 102. ATC produced a critical assessment of its operations in a March 1981 report titled Air Tanzania: Viability Study. It provides a concise and open assessment of the major bottlenecks in ATC operations which are: (a) operational management problems, (b) financial management problems, and (c) maintenance of aircraft and lack of spare parts, i.e. improvement of aircraft availability.  - 31 - (a) Operational Management Problems 103. ATC lacks the basic information operational management needs to make decisions. There is no effective cost accounting system and no market study capability to assess payload, range and economies of equipment use for effective route planning. Thus, ATC cannot make a major route profita- bility study and do market research to determine and coordinate its total operating network. Available traffic statistics have not been sufficiently analyzed to be useful management tools; consequently, some routes lack ade- quate aircraft utilization. The cargo market could increase ATC's earning capability and should be the subject of further market analysis. Present cargo capacity utilization is low (a load factor of 40%). (b) Financial Management Problems 104. ATC has consistently failed to meet planned operating targets for generating revenue and controlling expenses. Despite a 65% per year in- crease in passengers since 1977, a 52% per year increase in freight, and an 87% per year increase in gross revenue, cash generation from present air- craft operations has been inadequate (due to low base and large increase in expenses) to meet aircraft loan repayments plus interest charges. Air- craft operations have suffered from: (i) low seat utilization (47%); (ii) poor load factors on international routes (annual average of 54%); (iii) low revenue yields on domestic routes as a result of state-controlled do- mestic fares which have not been raised to match the rising fuel prices and other operational costs, and (iv) frequent flight cancellations. Summary of Financial Statement (TSh '000) 1977 1978 1979 1980 Total Total Revenue 42,084 102,938 179,634 275,183 599,839 Total Expenses 48,933 105,311 139,491 285,864 579,599 Depreciation (297) (6,689) (29,013) (37,665) (73,664) Interest Expenses (89) (1,1752) (24,541) (26,824) (53,206) Loss (7,235) (10,814) (13,411) (75,170) (106,630) 105. Operating costs of ATC have increased rapidly (80% per year). Salaries and social expenses, 17% of operating costs, have risen about 120% per year since 1977; aircraft fuel and oil costs, 47% of total operating costs, have risen 158% per year. Prices for aviation fuel paid by ATC have been 40% higher than those in Europe and the U.S., and their escalation has been a major factor in the profitability and liquidity picture of ATC. (More information in Volume III, 5).  - 32 - 106. Between 1977 and 1980, total losses were about TSh 107 million (US$13.05 million); a loss of TSh 93 million (US$11.34 million) is estima- ted for 198118/. Consequently, the accumulated loss for the 1977-1981 period exceedfsUS24 million. Past deficits have been subsidized by the Government. The annual financial reports have not yet been audited. 107. The lack of an effective cost/accounting system and route profi- tability study are the basic reasons for ATC's financial disarray. In- sufficient information on its own liquidity and asset position has resulted in financial overextension19/, and the absence of detailed operational cost information has made it impossible to determine the appropriate com- mercial fares for each route. There are, however, strong indications that the existing fare structure is generally too low. Even if ATC improved its loading average for freight and passengers to 80% (currently close to 50% for passengers and 40% for freight), it would still be below the breakeven point with current fare structure (after depreciation and interest costs)20/. Until recently, MCT refused to raise domestic fares, but in March 1781, both domestic and cargo rates were raised by 27%. 108. Revenues could be improved through an intensive route profitabi- lity study to eliminate or reduce unprofitable ones and through an optimi- zation of aircraft usage and an increase in freight operations. The costs of operations could be reduced, and an appropriate study should be carried out. (c) Maintenance of Available Facilities and Fleet 109. ATC suffers from prolonged reliance on outside assistance for maintenance and overhaul because sufficiently developed services are not available locally. The cost to ATC for these services is TSh 1.0 million per month (US$108,000); obviously, this could be reduced substantially if local facilities were available. The construction of the Kilimanjaro main- tenance hangar, the major maintenance facility for the entire airline fleet, is 13 months behind schedule with cost overruns of TSh 15.6 million (US$1.7 million). The intent is to reduce the high cost of hard currency expenses of maintenance work carried out overseas and reduce the out-of- service time by limiting ferry flights. However, the hangar seems to be oversized and full use of its capacity may become a problem. As Air Tanzania does not have the expertise to carry out most maintenance tasks, 18/ Verbal information from the Director General of Civil Aviation; exchange rate of US$1=TSh8.2 was applied. 19/ Noteworthy is the heavy non-productive investment in housing for ATC personnel. 20/ Mission estimate.  - 33 - it will require expatriate assistance and will continue to send major com- ponents abroad for overhaul until experience and expertise are developed. Major maintenance on the twin Otters is relatively simple and can be learned fairly quickly, but the Fokker F27 is more complicated and the B737 still more so, hence it may be 10 years before all major maintenance could be carried out at Kilimanjaro. 110. ATC also suffers from a critical shortage of foreign exchange to purchase spare parts. Consequently, minor and routine maintenance of air- craft is impeded and their availability is seriously affected; on average, half of the small ATC fleet is grounded due to the lack of spare parts. 111. In addition to shortages of technicians and experienced middle and high level managers, ATC is plagued by low staff morale, especially among maintenance technicians. Many of them have been adequately trained to maintain the aircraft but are prevented from doing so by spare parts shortages and inadequate facilities. Impact of Inadequate Organization of Civil Aviation 112. A major factor inhibiting proper management of civil aviation is the distribution of responsibility. ATC, under MCT, operates and manages the airline; the Department of Civil Aviation (DCA) under MCT rgulates air traffic safety, communications services and navigation, while the Aero- dromes Division under MOW is responsible for maintaining airports and air- fields and related facilities. ATC and the DCA have no authority over the airports and Aerodromes Division, and the neglect of airfield maintenance has often led to hazardous operating conditions. There is inadequate coordination between Air Tanzania, the Civil Aviation Directorate and the Aerodromes Division with respect to the domestic air transport system. A thorough market survey and analysis of air transport needs is required followed by an evaluation of the aircraft, airfields, air traffic control, communications, navigation aids, etc., that would be economically justified to meet requirements. A carefully evalua- ted investment plan should then be prepared to cover capital, training, operating and maintenance needs. Requirements for foreign exchange should be identified, particularly for maintenance needs. Investment and Rehabilitation Program for ATC 113. At present, Air Tanzania, the Civil Aviation Directorate and the Aerodromes Division are not in a position to earn sufficient foreign ex- change to meet their requirements. Landing fees and passenger taxes are a source of foreign revenue, but the foreign airlines would resist any cross- subsidization. Over-flight and en-route charges by the Civil Aviation Di- rectorate are also a source of revenue but are not adequate to pay for all foreign costs. Air Tanzania's foreign revenues and revenues derived from ground services at Kilimanjaro and Dar es Salaam are not expected to pro- vide adequate foreign exchange to meet these requirements.  - 34- 114. Given these constraints and the recommendations of the Viability Study, ATC management has worked out a two-year (FY82-83) stabilization in- vestment program. ATC expects a capital shortfall of about TSh 380 million in the first and-TSh 223 million in the second year of the program. In both years, about 47% of the shortfall stems from investments required to complete ongoing projects, most of which are non-productive investments such as staff housing. However, only 20% of the investments will be used to improve bottlenecks discussed earlier. 115. Operational revenue and expense projections appear realistic and forecast losses for the next two years seem inevitable if ATC is to conso- lidate its operations in the long run. 7. Manpower Shortage in Transport Sector Introduction 116. In accordance with President Nyerere's guidelines in the Arusha Declaration (1967) and the priorities outlined in the Government paper "Education for Self-Reliance", increased emphasis has been given to basic education of the entire population, particularly in rural areas. The Second Five-Year Plan (1969-1974) gave priority to achieving universal pri- mary education by 1989. This emphasis on universal literacy21/ demanded a heavy commitment of scarce resources to elementary education and severely limited post-elementary education (medium and high) which produces the country's technicians and trafhed specialists. 117. At the root of the transport sector's problems, as experienced with the past Bank-financed projects, is the acute shortage of competent and experienced middle and high-level personnel in planning and administra- tion. The absence of such personnel makes coordinating and implementing projects and programs very difficult. Many of the parastatals suffer from a lack of technicians to maintain and operate vehicles and equipment, and of economists, financial analysts and statisticians to organize and analyze financial and operational data. 118. Three ministries are directly involved in transport--MOW, MCT, and MPEA; there are also numerous parastatals involved in the sector, each with its own development program, but, in principle, all under the authori- ty of MCT. None has an established policy for staff development and plan- ning. As a result there is a predictable organizational disarray. 21/ By 1981, the literacy rate was close to 80%.  - 35 - Issues 119. For manpower, these are: (i) the acute shortage of competent middle and high level managers, resulting in poor planning and management; (ii) the acute shortage of technicians, especially in engineering, finan- cial analysis and data collection; and (iii) the high turnover rate for em- ployees in civil service and the parastatals. The vacancy rate averages 35 to 40% for middle- and high-level management positions in the transport- related ministries and parastatals. The vacancy rate for engineers, econo- mists, financial analysts and technicians is 30 to 35% in most transport agencies. The shortage of technicians/mechanics has had a critical impact on equipment maintenance and operation. For example, TRC locomotives and wagons have had a poor availability record mainly because there are not enough technicians to maintain them. The shortage of economists and finan- cial analysts has hindered investment planning and operations management. In the parastatals, the shortage means a poor data collection system, no reliable financial statements, and a lack of management information data which have made sound management and operations extremely difficult. Thus, the manpower shortage has been a critical factor in preventing proper operation of the parastatals. 120. The high staff turnover rate exacerbates the already acute man- power shortages. For middle- and high-level managers in Tanzania's trans- port sector, it is estimated to be as high as 50% per year and is caused by low wages and insufficient fringe benefits in comparison to those offered by the private sector. It is estimated that the best Government salaries are about one third of those for comparable jobs in the private sector and that Government fringe benefits are far fewer (Volume-III, 6). 121. The low wages, unconducive work environment (inadequate distribu- tion of responsibilities, insufficient discipline at work, insufficient workloads for technicians in the parastatals due to lack of spare parts) and the absence of an effective incentive system have resulted in falling productivity, and low staff morale, motivation and discipline. The lack of career development has contributed to low staff morale because the promo- tion system is based on academic qualifications of staff, and those with experience but without a diploma have only a slight chance of greater responsibility and wage increases. Such a system which only aggravates the manpower shortage, should be changed so that low and middle-managerial po- sitions can be filled. 122. Finally, the manpower allocation system in Tanzania contributes to the staffing shortage. The agency responsible for personnel placement in ministries and parastatals is the Ministry of Manpower Development and Planning (MMDP). In 1979, a comprehensive survey to assess the situation in manpower was started. MMDP has implemented a bonding system requiring all graduates and trainees returning from abroad to serve in civil or para- statal positions for at least five years. Despite these efforts, the  - 36 - existing organization of manpower allocation is still in its early stages and suffers from arbitrary decisions and inefficient management22/. Con- sequently, MMDP is still unable to assess manpower shortages in each of the Government agencies and to formulate clear macroeconomic priorities and po- licies which would provide guidelines for systematic manpower allocation. In a centrally controlled economy like Tanzania's, it is of utmost import- ance to utilize an allocation system which optimally distributes available manpower. The Government should assess the real needs in each sector and allocate available manpower on the basis of the priorities it sets for itself. 123. However, the facts that MMDP is so young and that the shift in emphasis from elementary to higher education was made only recently (1981) mean that the shortage of experienced manpower will continue, and future Bank assistance to the sector must take this into account. Past Bank Group Projects and Difficulties with Manpower Shortages 124. Implementation of past Bank Group projects in the transport sec- tor has been hampered by the shortage of skilled manpower. Projects have suffered during execution from the usual shortages of middle- and high- level managers; the shortage of skilled technicians has resulted in equip- ment misuse. In order to mitigate these problems, the Bank has tried to (i) request appointment of local counterparts to the technical assistance teams as a condition of credit effectiveness, (ii) ensure that technical assistA1ce personnel would be given some executive and managerial authority until sufficient number of nationals were trained; and (iii) ensure re- cruitment of expatriates to fill key positions temporarily. Although it is too early to hand down a final verdict on these efforts, it should be noted that their results have not been satisfactory so far. 125. The staffing problems in the sector have not responded as expect- ed to Bank Group financed technical assistance components of the projects. Five projects in the highway subsector23/, or about 100 man/years, have been used or are about to be used without substantial improvements. This is partly due to the shortcomings on the part of consultants themselves (slow adjustment, inadequate initiative, lack of interest, etc) partly due 22/ There are no figures available for manpower allocation to the transport sector; however, it is thought to be far lower than the actual need. 23/ The Fifth Highway Project which actually started in 1981 was not considered in this context.  - 37 - to inadequate cooperation by the Government (failure to provide counter- parts, to engage consultants in proper assignments), and to some extent due to inadequate design of technical assistance and its supervision by the Bank. The Bank has tried to improve the impact of technical assistance by requiring all technical assistance staff to submit a task timetable based on their terms of reference; this makes it easier for the Bank and the Go- vernment to monitor and supervise them more closely. More on the past Bank Group assistance to the sector is presented in Volume III, Chapter 8.  - 38 - V. Government Strategy For The Sector (1) General 126. The Government has not yet defined a long-term transport sector strategy to solve the pending problems listed in this report and to permit the sector to play its vital role in economic development. The Govern- ment's short-term objectives in the sector are set out in the country's general five-year development plans. The planning document for the period FYs1982-86 is still being prepared and consequently, the comments below could not be final at this stage. According to preliminary information, the new plan is expected to allocate about TSh 9 billion or 13% of all cap- ital investment to the transport sector; that would be an increase in both absolute and relative terms compared with the previous plan. However, the increased share expected to be allocated to the transport sector is some- what misleading since it includes investments to the sector transferred from the previous five-year plan; therefore, the new investments may still fall short of meeting the needs of the sector in the near future. A detailed presentation of projects by transport modes is not yet available, preventing an appropriate analysis of the program for the sector. 127. In the roads subsector, the Government assigns priority to the improvement of road maintenance particularly in rural areas, while new road construction is to be limited to most needed links between productive rural areas and urban ones. The review of a preliminary program for highways is presented in Volume III, Chapter 2. In regard to road transport, the Go- vernment plans to reduce the importation of fully assembled trucks by 50% in 1986--due to expected expansion of domestic truck assembly. In addi- tion, the draft plan also calls for better distribution of commercial vehi- cles by regions and indicates that new parastatal trucking companies may be created; there is no mention of eventual support of the private trucking industry. -It is important, however, to note that the draft plan envisages creation of an organization to coordinate transport programs for the entire country; it is stated that such an organization would include MOCT, MOW, MPEA and other ministries which require transportation services--Agricul- ture, Commerce and Industry. Although the mechanism of setting up such an organization was not elaborated in the draft documents, it is the first time to our knowledge that a planning document has given direct attention to the problem. 128. In regard to railways (TRC), high priority is rightly assigned to repair/rehabilitation of the existing facilities (of the permanent way and the rolling stock), while a limited number of locomotive carriage cars and freight wagons will be ordered. In the port subsector the Government is mainly concerned with improvement and expansion of the Dar es Salaam port. A container transport study is planned to be carried out, while the coastal transport and the link with Zanzibar are expected to improve; in that con- nection, the Government intends to expand the ports of Tanga and the smaller ports of Lindi, Kilwa and Mafia. It is not clear, however, how the Government will carry out the expansion of the coastal transport opera-  - 39 - tions. Finally, in regard to air transport, the Government's principal objective is to construct a new international airport at Dar es Salaam; in addition, five small airfields are also expected to be built. The estima- ted cost of the new. airport is US$60 million and is mostly financed by bi- lateral aid from France. The project's economic viability and priority are questionable, and the feasibility study does not contain an economic rate of return. Nevertheless, the Government was very keen for the works to start (in September 1981); it is expected that this prestige project will be completed by the end of 1983. 129. In the absence of a defined strategy for transport sector deve- lopment, the Government's past policy vis-a-vis the sector could be judged on the basis of investments allocated to transport. For example, it showed a major drop in investments allocated to the sector, from 20% in the previous five-year plan (FY1972-76) to only 10% of all capital investments. This may have indicated that the Government, notwithstanding financial constraints, had under-estimated the urgent needs of the sector. Consequently, due largely to this, the sector's contribution to GDP dropped from 9.1% in 1974 to only 5.4% in 1980 (in current prices). Despite the Government's awareness of the crucial importance of transport services for the country's economic development and its recognition of current problems and shortcomings, it has not yet been demonstrated how the transport sector will regain its proper role in the economy and increase its share in GDP. 130. In a recently prepared "Long-Term Perspective Plan 1981-2000", the Government recognizes the poor state of the sector: "...on the whole, however, the transport sector still faces problems. This is especially true for road and railway transport, both of which account for over 90% of all transportation services in the country. Many areas have no adequate road networks, a fact which makes inter-rural or rural-urban communication difficult. The unsatisfactory performance of the transport sector has from time to time-been responsible for the late delivery of agricultural inputs (seeds, fertilizers, etc.), harvest pile-ups and consequent losses, etc.-- this latter problem was exacerbated by the lack of sufficient storage faci- lities" 24/. 131. Sectoral objectives are set very vaguely in the long term plan. The plan calls for all 20 regional centers to be connected by bituminous paved roads by the year 2000. Production of motor vehicles is expected to be established in the country. The Plan also calls for general improvement in other transport modes stressing the need for creation of a Tanzania- Zanzibar, jointly-owned shipping company for improving transport ties bet- ween the two for both freight and passenger transport. The Plan also fore- casts that the transport sector will reach 8% of GDP by the year 2000; it is not, however, demonstrated how the increased role of transport will be achieved. In summary, the long-term plan appears more a political document than a long-term economic analysis. 24/ Long-Term Perspective Plan 1981-2000, para. 19, Dar es Salaam, 1981.  - 40 - 132. Lack of an established strategy for the sector is not surprising, bearing in mind that there is no integrated comprehensive study of the state of the sector with possible alternatives for development on one side, and no coordination and planning in different transport modes on the other. Proposed strengthening of transport planning and coordination in MOCT along wth the carrying out of an appropriate transport study should enable MOCT to assume its expected role in the country's transport development and ultimately prepare the necessary ground for the Government to establish the long-term strategy for the sector development. (ii) Governmental Structural Adjustment Program 133. In response to rising economic crisis in the country, the Govern- ment prepared a three-year Structural Adjustment Program25/ (1982J83-84/85) which encompasses measures and actions to be taken at macro and sectoral levels. In regard to the transport sector, the Program issued by MPEA is sketchy and falls short of recommending specific measures which are urgently needed to alleviate mounting problems. 134. The Program recognizes that "transport deficiencies are one of the main bottlenecks for the economy's productive sectors" and that the problems are mainly of technical, managerial, operational and financial na- ture. Furthermore, the Paper acknowledges the magnitude of the problem by stating that "...insufficient foreign exchange and local funds available to the transport system make it impossible to purchase the required spare parts, rolling stock or even to carry out proper maintenance and repairs." However, no specific recommendations are proposed; the Paper remains con- fined to general and vague terms calling for: - strengthening of planning capacity of MOW and MOCT; - rationalization of parastatal vehicle capacity to achieve higher load factor; - more systematic measures for greater economic use of energy; - transport tariff policy which will allow recovery of cost; - shifting the long-distance movement of cargo from road to rail, etc. 135. The.transport section of the Government Program also lists a few projects/investment priorities in different transort modes. In the highway subsector, a few roads were listed which are mostly already under construc- tion and a road maintenance program (assisted by an IDA credit); the priorities also include strengthening part of the Tanzam Highway (to be 25/ Structural Adjustment Program for Tanzania, MPEA, Dar es Salaam, June 1982.  - 41 - assisted by the upcoming Sixth Highway Project). While the road program appears viable per se, the priority of some items at this stage of economic austerity (construction of Kibiti-Lindi Road and the Unity Bridge) should be assessed on the macro level in comparison with projects in other sec- tors. There is, however, an inaccurate statement that the Bank Group is assisting in the establishment of trucking parastatal companies in all re- gions. The trucking project financed by IDA is helping create only five companies (in 5 of 20 regions) and it is unlikely that assistance to other parastatal companies in other regions will follow (para. 38). Furthermore, the Government's one-sided approach in pushing for parastatal trucking com- panies does not seem to be very helpful in decreasing present difficulties in the trucking industry. 136. The real issues in the railway and civil aviation subsectors (ports were not mentioned) were not discussed, namely weaknesses in manage- ment, accounting and planning of operations in parastatal companies Program, however, mentions the need to acquire new railway rolling stock, reconstruction of bridges and improvement of the signalling system (TRC), acquisition of new locomotives (Tazara); except for new wagons, the pro- posed projects are generally reasonable. For civil aviation, priority is assigned to the construction of new airport buildings at Dar es Salaam air-* port -- a project which lacks economic justification. While the section on the transport sector states that "substantial additional external assis- tance" is needed for a number of different projects, the figures have not been provided. At the end of the Program, MOCT is assigned the ta4J of collecting data on the supply and demand of transport in the country and to prepare a long-term strategy for the sector development. While the need for this is long overdue, it is not explained how it will be carried out; at present, MOCT does not have the capacity to take over such an important assignment. 137. Overall, the program for the transport sector prepared by the Government does not come up with an analysis of the sector and consequently lacks a coheive strategy. It contains some meaningful objectives but the timing for implementation and how the objectives will be attained remains unclear. A pragmatic, action-oriented approach to cope with the urgent problems of transport flows and inefficiency of parastatal companies in the sector (as presented earlier in the TSM) unfortunately is not presented in the Program. Therefore, a set of specific measures to be taken by the Gov- ernment is missing. A set of measures is presented in Chapter VI of the TSM as an attempt to address the pending problems on the sectoral level.  - 42 - VI. Policy Measures Urgently Needed in the Sector 138. In this period of economic crisis in Tanzania, it is obvious that capital investments in the sector have to be kept to a minimum, while the emphasis has to be given to recurrent expenditures -- maintenance and re- pair of existing facilities. In addition, it is essential and urgent that an action program including policy measures at macro and sectoral levels be prepared by the Government. This chapter tries to outline necessary mea- sures of high priority for the transport sector which should be addressed in the next one to two years. These measures, however, would not imply that their implementation in the short run would eliminate andresolve nu- merous problems in the sector. They will only alleviate the problems, per- mitting easing of critical bottlenecks in transport flows and allowing gen- erally more reliable transport service -- vital for the country's economic survival and development. Some of the measures proposed below go beyond the issues and framework of the sector itself and require decisions on the macro level; the others are more of a technical nature confined to the sec- tor. The proposed measures derive from the analysis of the sector pre- sented in the TSM. To avoid repetition, the proposed actions and measures are presented in an outline set of recommendations -- first, those of a general nature for the whole sector and then specific ones related to diff- erent transport modes -- to be carried out in FY83 and FY84. 139. (a) GENERAL (i) The Planning Unit in MOCT should immediately be re-organized and strengthened to carry out expanded responsibilities in transport planning and coordination. Tanzania needs a systematic approach for analyzing and formu- lating policy measures and for coordinating investment decisions in the sector. This requires strengthening of MOCT with both local and expatriate technical assistance staff; the establishment of adequate procedures for collecting and analyzing data on the sector should be considered a prere- quisite for any serious work on the strategy for the transport sector. A three-phase action program (para. 24) prepared by the Bank Group in February 1981, and later accepted by MOCT, has not yet been implemented. Its implementation (an external grant of about US$1.4 million is needed) is critical. Action Needed: MOCT should strengthen the Planning Unit with local staff and then wark out together with MPEA and Treasury necessary arrangements for the necessary external aid (FY83).  - 43 - (ii) Allocation of sufficient and timely foreign exchange to the. transport sector. The existing capacity of the transport sector is significantly underutilized, largely due to the shortag of foreign exchange (for spares, tires, maintenance tools and regular supply of fuel). Records obtained from the Bank of Tanzania indicate that in 1981 only 4% of foreign exchange (para. 98) made available to the economy from Government's own sources was allocated to the transport sector. This was substantially inadequate, leading to major operational difficultues. The problem was compounded by delays in allocating foreign exchange for maintenance and repair of existing facilities. The exact annual needs of foreign exchange for the sector have never been assessed. For the trucking industry alone, it could be estimated that for one year only about US$18-20 million in foreign ex- change would be needed for repairs of existing trucks and renewal of a small part of the fleet. (iii) Creation of a Standing Committee to monitor the haulage of commodities. Due to the long-standing Snfrastructural and operational prob- lems, particularly in road and rail transport (para. 18), there is an ur- gent need to alleviate the problems which adversely affect the whole econo- my and agriculture in partcular. There is no authority to monitor the efficiency of land transport flows, which have been encountering bottle- necks. A Standing Committee should be created, therefore, to monitor the efficiency of particular export/import commodities and should be given the responsibility and authority to intervene when needed to resolve opera- tional crises in land transport flows in different transport modes (road, rail, lake and port transport). Action Needed: MOCT should initiate the proposal. To be effective, the Committee should be composed of a few members only -- high-level represen- tatives of various parties concerned (from MOCT, Ministry of Agriculture, Mnistry of Industry, Trucking Industry, Tanzania Harbors Authority, Chamber of Commerce, etc.). The Committee should report directly to the Prime Minister. It should be created preferably in FY83 and dissolved when the transport services improve sufficiently and demonstrate that no interven- tion from inside is further warranted. (iv) Compensation system of personnel employed in parastatal companies in the sector requires urgent change. Inefficiency at work and low staff morale and motivation in the sector (para. 121) call for a commitment on the part of the Government to reassess tie existing compensation system of personnel employed in the pub- lic transport sector. An incentive (bonus) system to be incorporated into salary structure and re-examination of fringe benefits offered to staff across the board (from the lowest level up to top management) should be  - 44 - seriously considered. It has been well-known that inadequate compensation has had a major impact on the existing shortage of qualified managers. While this problem is being tackled, the Government should consider in some cases temporarily assigning expatriates to managerial positions. Action Needed: MOCT should request changes in the compensation system from the Ministry of Finance (FY84) after necessary analysis by MOCT Planning Unit of compensation systems in the Government, parastatals and the private sector on one hand and turnover of staff and vacancies on the other. 140. (b) HIGHWAYS AND ROAD TRANSPORT (v) Road maintenance requires more Government attention and increased funding from general budget. Poor road conditions throughout the network have been a well- known bottleneck to land transport. To a large extent, the existing condi- tions are due to inadequate road maintenance. While efforts are being made to improve the organizational set-up of road maintenance operations inclu- ding training and necessary technical assistance backed up with new equip- ment procurement (IDA-assisted project), average annual (recurrent) expen- ditures on periodic and routine road maintenance have been inadequate. In order to ameliorate the situation, an increase of funding is indispensable. Maintenance of a major part of the primary road network alone (which totals 9,500 km) would require an increase to at least TSh 200 million (estimated total annual Government revenues from road user charges are about TSh 500 million); that would provide for resurfacing of about 300-400 km/year of paved roads, thus saving on costly reconstruction in the future. However, prior to the increase, cost/performance accounting system for road maintenance operations in each region has to be established and monitored closely by MOW. Action Needed: MOW should prepare a sound, effective program for road maintenance by region (FY83), cost it and submit proposals to the Treasury for an increase in funding (FY84). (vi) Foreign exchange allocations for renewal and expansion of the trucking fleet should be distributed equitably to both parastatal companies and private carriers. It has been generally recognized that the trucking industry has inadequate capacity and an aging fleet. Two-thirds of the market has been handled by private carriers while existing procedures for truck renewals favor parastatal companies that have been less efficient. Action Nee'ded: NTC should urgently prepare and submit to MOCT (FY83) a specific proposal which would guarantee the private carriers a fair share of the allocation of foreign exchange (imported trucks) with parastatal companies. The new system could start from FY84.  - 45 - 141. (c) RAILWAYS (vii) Existing rates in both TRC and Tazara Railways should be brought closer to commercial ones. Railway operations have been encountering deficits for years. Although the deficits cannot be eliminated in the short run, some measures could reduce it significantly. As an emergency measure, the existing tar- iffs need to be revised. It is well-known that existing rates have been low and have not been covering full costs (para. 65). The issue is not only linked to efficiency of railway transport, but requires a comparison with road transport as well. Action Needed: TRC and Tazara should initiate a rail/road transport cost study (FY83) and thereafter should reassess their tariff systems (FY84). (viii) TRC and Tazara need urgent measures to improve utilization rate of wagons and interface with roads (TRC). High turnaround time for wagons (exceeding 50 days) have not been declining for years. That has substantially reduced already limited capacity of the railways (paras. 59, 75). These operational problems should be quickly addressed through an improvement of management of opera- tions; if local qualified staff is not available at this stage, expatriates should be brought intdmanagerial positions as a temporary emergency mea- sure. Poor interface with roads and a lack of coordination with road transport exacerbate TRC problems. Since the problem of locomotives is being addressed in Tazara, limited capital investments seems to be urgently needed in TRC only -- about US$12 million for improvement of telecommunica- tions and about US$3-4 million for spare parts; that should be considered in an emergency program for TRC. Action Needed: A management operations and staffing study is badly needed for the railways. Tazara has already agreed on that, while TRC should do the same. MOCT should ensure that both studies will take place in FY83. Furthermore, MOCT should, together with TRC and NTC, address the problem of rail/road interface and come up with an agreed policy to resolve the prob- lem. Obviously, MOCT has to be strengthened as proposed in para. 153 prior to taking any meaningful role. 142. (d) AIR TRANSPORT (ix) ATC should urgently analyse transport costs (by routes) and revise its rates accordingly.  - 46 - Numerous problems are encountered in ATC operations. A thorough market survey and analysis of routes and tariffs is urgently needed to re- verse the course of mounting deficits in operations (para. 104). Presently, ATC rates are not commercial and efforts have to be made to bring them closer to covering full cost. Furthermore, uneconomic routes have to be scrutinized carefully and if some are to remain, the Government should make a clear commitment to subsidize specific uneconomic routes. Action Needed: ATC has to introduce an effective cost-accounting system as soon as possible; a market study has to be introduced simultane6usly. MOCT should closely monitor the progress in revising routes and tariffs. (x) Spare parts to ATC should be made available on time. Recent experience has shown that due to delays in providing spare parts to ATC, major disruptions of ATC operatons have occurred, contri- buting significantly to the company's already serious financial problem. It could be estimated that about US$4 million per year is needed for ade- quate servicing of the existing ATC fleet. This, however, does not include foreign exchange requirements to maintain ground facilities (not owned by ATC). Action Needed: ATC and MOCT have to request (FY84) some firm commitment from the Government on the annual and timely allocation of foreign exchange if ATC is to continue to exist. A well-documented report by ATC should, however, precede the request; the report also has to specify the timing of the need for spares. For ground facilities, MOCT should also prepare annu- ally a separate report (together with DAC and MOW) on the timing for speci- fic foreign exchange needs. 143. There is no urgent action needed in the ports subsector. Devel- opment of containerized traffic, acknowledged by Tanzania Harbors Authority as priority, should be supported (the upcoming IDA-financed Port of Dar es Salaam Project is assisting in that respect). 144. The above proposals and measures expected to be implemented in the two years' time in the transport sector should be thoroughly discussed with Tanzanian authorities as soon as possible. They may not all ultimately be acceptable to the Government at this stage, but as a beginning, it will be very encouraging if the Government shows responsive- ness to the proposals and readiness to take some action in the suggested directions. Thereafter,a dialogue with the Government on the broad scope of sectoral (long-term) issues presented in the TSM should follow.