Tanzania - Second National Sites and Services Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 6828 PROJECT PERFORMANCE AUDIT REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) June 8, 1987 Operations Evaluation 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. COUNTRY EXCHANGE RATES Name of Currency (Abbreviation) Tanzanian Shilling (TSh) Year Exchange Rate a Appraisal Year (1976) US$1 = TSh 7.51 Intervening Years (1977) US$1 = TSh 7.60 (1978) US$1 = TSh 7.70 (1979) US$1 = TSh 8.25 (1980) US$1 = TSh 8.20 (1981) US$1 = TSh 8.30 (1982) US$1 = TSh 9.30 (1983) US$1 = TSh11.10 Completion Year (1984) US$1 = TShl7.50 /a Calendar year averages. The SAR used the average exchange rate of US$1 = TSh8.30. FOR OFFICIAL USE ONLY THE WORLD BANK Washington DC 20433 U$A Office of Directir-GeWaI Opersawne Ivalaimm June 8, 1987 1MORANDUM TO THE EXECUTIVE DIRECTORS AND THE PRESIDENT SUBJECT: Project Performance Audit Report on Tanzania Second National Siteti and Services Project (Credit 732-TA) Attached, for information, is a copy of a report entitled "Project Performance Audit Report on Tanzania Second National Sites and Services Project (Credit 732-TA) prepared by the Operations Evaluation Department. Attachment 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. FOR OFFICIAL USE ONLY ABBREVIATIONS AND ACRONYMS ARDHI Ministry of Lands, Housing and Urban Development BRU Building Research Unit DCC Dar es Salaam City Council DDCs District Development Councils EAPID East Africa Industrial Development and Finance Division EAPWU East Africa Water Supply and Urban Development Division GOT Gcvernment of the United Republic of Tanzania IDA International Development Association LRSC Land Rent and Service Charge MCH Maternal and Child Health MOF Ministry of Finance (also referred to as Treasury) M01 Ministry of Industries MPEA Ministry of Planning and Economic Affairs NBC National Bank of Commerce NSSP National Sites and Services Program PM0 Prime Minister's Office PCR Projec Completion Report PPAM Project Performance Audit Mamorandum PPAR Projec Performance Audit Report SIDO Small Industry Development Organization SSI Small Scale Industry TANESCO Tanzania Electricity Supply Company THB Tanzania Housing Bank This document has a restricted distribution and may be used by recipients only in the performance of their officia duties. Its contents may not otherwise be disclosed without World Bank authorihation. PROJECT PERFORMANCE AUDIT REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) TABLE OF CONTENTS Page No Bas c e Dt A Sheet. . .. .... . .. .. . . ... . . .. . .... 1100000 00#0*00000040 Evaluati A Summary........................... v PROJECT PERFORMANCE AUDIT MEMORANDUM I. BACKGOUND........................................... 1 Economic Context.................................... 1 Institu-ional Conex................................ 3 Urban Levelopment............................... 5 Urban Policy......................................... 7 II. PROJECT DESIGN........... ..................... 9 The Experience of the First Urban Project (Credit 495-TA) .................................... 9 The Project... .... ............................ 10 III. IMPLEMENTATION.............................. 14 Physical Accomplishments in Shelter and Community Physical Accomplishments in Small Scale Industry..... 21 Technical Assistance Achievements......... .......... 21 Achievements in Assistance to Town Councils for Achievements in Strengthening Cost Recovery Achievements in the Provision of Goods to Project Executing Agencies................................. 22 IV. OPERATIONAL PERFORMANCE AND IMPACT. ..........oo.... 23 General .. .. . .. . ......................................#41 0 0 # 0 23 Distribution of Housing Services..................... 23 Financial Performance: Pricing Policies............. 24 Financial Performances Equity Considerations........ 25 Table of Contents (cont'd.) Pae No. Financial Performances Collections................ 25 Institutional Performance......................... 27 Economic Reevaluation.... ...........0................. 28 V. POINTS OF SPECIAL INTEREST. ........... .....0.C.. 29 The Impact of Densification in the Upgrading of Squatter Settlements............................... 29 The Premature Appraisal of the Second National Sites and Services Project......................... 30 Diminishing Returns to State Protection for Manufacturing Industries.......................... 30 Physical and Financial Sustainability of Shelter 31 ANNEXES A. Project Description.................................. 32 Principal Changes in Project Descriptiono............ 32 B. Land Compensation Costs.............................. 36 TABLES 1. Mainland Tanzania - Urbanization Trends 1948-2000.... 38 2. Total Project Costs Estimated Vs. Actual........... 39 3A. Sources of Finance................................... 40 33. Actual Distribution of Sources of Finance by Component.......... ... . . . . 40 4. Allocation of Credit Proceeds........................ 41 5. Economic Reevaluation............. ......... 42 FIGURE Disbursement Profiless Actual Vs. Appraisal and Tanzanian Avetage................................... 43 PROJECT COMPLETION REPORT I. Introduction....................... ............. 45 II. Project Identification, Preparation and Appraisal.... 50 III. Implementation ............................ .......... 50 IV. Operating Performance................................ 56 V. Project Benefits.................................. 63 VI. Institutional Development and Parformance.......... 65 VII. Role and Performancw. of the Bank........*........... 68 VIII. Lessons Learned...................................... 69 Table of Contents (cont'd.) Page No. TABLES 1. Consolidation of Sites and Services Plots.......,.... 71 2. Project Cost and Financing.......................... 72 3. Comparative Cumulative Disbursements............... 73 4. Unit Cost Per Household.............................. 74 5. Difference in Unit Costs Between Appraisal and Actual......................................... 75 6. Internal Economic Rates ofReturn..A............... 76 CHART Estimated and Actual Disbursements..,........ ..... 77 APPENDIX Project Completion Report on Tanzania Second National Sites and Services Project (Credit 732-TA)- (Small-Scale Industry Component)................... 78 i PROJECT PERFORMANCE AUDIT REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) PREFACE This Project Performance Audit Report (PPAR) c3natitutes a perfor- mance audit of the Tanzania Second National Sites and Services Project for which Credit 732-TA for US$12.0 million equivalent was made in July 1977 and final disbursements were made in June 1985. The PPAR consists of a Project Performance Audit Memorandum (PPAM) prepared by the Operations Evaluation Department (OED) and a Project Completion Report (PCR) dated June 30, 1986, prepared by the Eastern and Southern Africa Regional Office. The PPAM is based on the PCR, discussions with Bank staff and dis- cussions with Government officials in Tanzania during an OED visit to that country in September 1986, on a review of ptoject files and records of the International Development Association (IDA) and on the transcript of the Executive Directors' meeting in which this project was considered. The audit concurs with the PCR in several respects, while drawing some additional conclusions on the basis of further analysis made of the available data. The audit report was sent to the Borrower for comments; however, none were received. PROJECT PERFORMANCE AUDIT BASIC DATA SHEET TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) KEY PROJECT DATA Original Actual or Item Plan Reestimate Total Project Cost (US$ million) 29.3 27.4 Cost Underrun (Z) - 6.0 a Credit Amount (US$ million) 12.0 12.0 Diibursed - 11.5 Cancelled -0.5 L Repaid n.a. Le Outstanding - 11.5 Date Physical Components Completed 09/30180 09/30/84 Proportion then Completed (%) 100 95 Id Proportion of Time Overrun (%) - 133 Financial Performance Less than Satisfactory Institutional Performance Less than Satisfactory Economic Rate of Return (2) L Dar es Salaam 24 23 Irings 28 17 Morogoro 22 19 Tabora 19 18 Tanga 22 15 /a Project cost in local currency was TSh284.6 million or 17% above the appraisal estimate. Local currency devaluation caused the 62 cost under- run in US dolar equivalent. However, physical targets were reduced by approximately 302 of SAR targets during Implementation, indicating that cost overruns occurred in both US dollar equivalent as well as in TSh. ~Lh The undisbursed balance of US$462,239.04 equivalent was cancelled on June 20, 1985, on occasion of the last disbursement. /c Repayment of principel is to start on September 1, 1987 and go on up to March 1, 2027. /d Based on the scaled-down physical targets. Completion would be approxi- mately 802 considering the physical targets set at appraisal. le ERR estimates refer to the quatter upgrading and surveyed plots compo- nents, both in the SAR and in the audit. iii STAFF INPUT (Staff Weeks) Fiscal Year Preappraisal Appraisal Negotiations Supervision Other 1975 0.0 1976 10.6 1977 32.6 54.4 8.2 1978 0.1 0.2 0.9 24.0 1979 34.0 1980 28.0 1981 29.4 1982 23.2 1983 32.1 1984 15.7 1985 10.9 1986 5.2 Total 43.4 54.6 9.1 202.5 0.1 Cumulative Estimated and Actual Disbursements FY79 FY80 FY81 FY82 FY83 FY84 FY85 FY86 Estimated 6.2 10.9 11.8 12.0 Actual 0.2 0.7 2.3 4.6 7.8 9.2 10.3 11.5 Actual/Estimated (Z) 3 6 19 38 65 77 86 96 OTHER PROJECT DATA Original Item Plan Actual First Mention in Files - 06/ /75 Government's Application - 10/ /75 Negotiations Completed - 05/20/77 Board Approval Date - 07/07/77 Credit Agreement Date - 11/03/77 Effectiveness Date 10/ /77 04/03/78 Closing Date 06/30/82 06/30/84 Borrower Government of Tanzania Executing Agencies ARDHI, PMO, THB, SIDO Fiscal Year of Borrower July 1 - June 30 Follow-on Project None iv MISSION DATA La Month/ No. of No. of Staff- Date of Item Year Weeks Persons Weeks Report Identification 10/75 3 1 3 10/75 Preparation I 03176 2 4 8 04/76 Preparation II 07/76 4 3 12 08/76 Appraisal 09/76 1 5 5 11/76 Supervision I 06/77 1 1 1 07177 Supervision II 09/77 1 2 2 10/77 Supervision III 01/78 1 2 2 03/78 Supervision IV 05/78 2 2 2 07/78 Supervision V 10/78 2 3 6 11/78 Supervision VI 03/79 2 4 8 04/79 Supervision VII 07/79 2 4 8 08/79 Supervision VIII 10/79 2 5 10 11/79 Supervision IX 02/80 2 2 4 03/80 Supervision X 06/80 2 4 8 07/80 Supervision XI 11/80 1 3 3 01/81 Supervision XII 03/81 3 2 6 05/81 Supervision XIII 19/81 2 2 4 11/81 Supervisioa XIV 03/82 2 3 6 04/82 Supervision XV 09/82 2 2 4 10/82 Supervision XVI 01/83 1 1 1 02/83 Supervision XVII 02/83 2 1 2 04/83 Supervision XVIII 04/83 1 3 3 05/83 Supervision XIX 01/84 2 2 4 03/84 Supervision XX 08/84 1 2 2 10/84 /a From Project Identification through Supervision Mission XIII staff vere simultaneously engaged in the supervision of the First Sites and Services Project (Credit 495-TA). V PROJECT PERFORMANCE AUDIT REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) EVALUATION SUMMARY Introduction The Second National Sites and Services Project rapidly followed Credit 495-TA, which financed the First National Sites and Services Project in Tanzania. The second project was appraised in 1976, only two years after the signing of the first Credit, was approved in 1977 by the Board, and became effective in April 1978. The IDA Credit for US$12.0 million to the United Republic of Tan!ania was intended to finattce 41 percent of total project cost estimated at US$29.3 million equivalent. ,The project corresponds to the second phase of the Government's program started under the first urban project. It addresses the problem of the proliferation of inadequately served squatter settlements created by the rapid expansion of the urban population in Tanzania. At a scale almost twice as large as the first, this project aimed at improving the efficiency of the national shelter program by introducing lower construction standards which were better suited to the country's conditions, and by approaching implementa- tion problems in administrative and financial areas from a uector-wide policy perspective. Moreover, the project was intended to compensate tor the per- ceived deterioration in urban employment by assisting the Government in the creation of new industrial jobs at low investment costs (PPAM, para. 20). Obiectives The principal objectives of the project were to improve environ- mental conditions of 40% of the existing squatter houses and satisfy 75% of the need for new plots in five major towns, at costs affordable by very low income households. Expected benefits included: (a) increased productivity resulting from improvements in living conditions and health standards; (b) increased employment; and (c) increased housing production. Technical assis- tance to oe provided within the project was expected to esult in significant improvement in public policies of urban taxation for Aand, shelter and infra- structure, as well as in increased project implementation capacity in key sector agencies. The economic rate of return for squatter upgrading and surveyed plots programs was estimated at 23% and close to 900 new jobs were expected from the small scale industry assistance program (PPAM, para. 21 and PCR, paras. 1.14-1.17). vi Implementation Experience Implementation extended over a period of eight years, instead of the programmed four years. To overcome problems created by the rapid deteriora- tion of the Tanzanian economy and to adjust to institutional changes made by Government, the project was substantially modified during implementation. Its scope was reduced by approximately 30% and new administrative arrangements were established three years after Credit effectiveness. Notwithstanding these commendable efforts, project outcomes were below expected levels, par- ticularly in the financial and institutional spheres (PPAM, paras. 29-32 and PCR, paras. 3.01-3.24). Results The project succeeded, to a large extent, in meeting its objectives of improving environmental conditions for a high proportion of squatter set- tlers in five cities. To a lesser extent, it also succeeded in ensuring the orderly use of urban land in these cities through the provision of a rela- tively large number of surveyed plots. The project was unable to support employment generation activities in two project areas as planned, but achieved some gains in its assistance to existing informal sector industries. Targets in the area of preventive health, nutrition, and expanded educational oppor- tunities for squatter settlers were not met on account of financial problems that halted the construction of community facilities. Technical assistance provided was effective in supporting consultancies for detailed preparation of the project and for training of engineering, planniug, and financial/economic specialists at the central government level. Technical assistance was less satisfactory in strengthening management at the Tanzanian Housing Bank (THB) and at the Small Scale Industry Organization (SIDO), and at providing guidance for urban taxation reform. So far the project has failed to meet its cost recovery objectives and has achieved less than satisfactory institutional performance. The reinstatement of urban councils in 1978 accounts for part of the observed institutional shortcomings. However, the unsatisfactory institu- tional performance of the project is primarily a result of administrative improprieties which occurred at THB (PPAM, paras. 33-34 and PCR, paras. 5.01- 5.12 and 6.01-6.18). Sustainability The project may not be replicated in the near future because its investments resulted in negative financial returns. Although special measures were taken to finance equipment and administrative assistance to strengthen cost recovery mechanisms, the susidies provided under the project were higher than the potential capacity of the Borrower to increase tax revenues. On the other hand, the longevity of the urban infrastructure built is predicated upon regular maintenance which, in turn, depends upon the availability of manage- rial and financial resources at the level of local authorities. These resources were augmented by the project, through provision of maintenance equipment, but still may prove insufficient to ensure long term phyl-ical sustainability of shelter related investments (PPAM, paras. 67-68). vII Conclusions and Lessons Learned The relatively high economic benefits which resulted from the up- grding and surveyed plots programs, indicate that the project succeeded, for the most part, in properly allocating scarce housing resources. The fact that a majority of project beneficiaries attained fairly high levels of housing consolidation without financial assistance from THB raises questions about the need for subsidies (PPM, paras. 57-58 and PCR, para. 5.08-5.10). On the basis of the Implementation experience with this project, the following points of special interest surfaces (1) public sector efficiency in upgrading squatter settlements in Tanzania may be increased if land compensa- tion policies are revised and project design to adjusted to minimise the demolition of existing houses (i) the employment benefits associated with assistance to small scale industries can be expanded, at lower costs to SIDO, by focusing the program upon improving the production capacity of existing firms instead of attempting to create new ones under highly protectionist policies; (iii) the case of insufficient financial returns to public invest- ments is illustrated by the pricing policies adopted in this project, since expected cost recovery (although higher than under previous urban projects) may not guarantee the proper maLutenance and operation of the services pro- vided; (Iv) both the scale of investments and the institutional arrangements for project Implementation could have been better adjusted to conditions prevailing in Tanzania (PPM, paras. 47-56, 60-68 and PCR, paras. 8.01-8.06). 1 PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) I. BACKGROUND Economic Context 1/ 1. The implementation of the Second National Sites and Services Project (1978-1985) coincided with a period of rapid deterioration in the Tanzanian economy. This trend, which Tanzania shares with other low income African countries, has not yet been reversed, although GDP is estimated to have resumed growth in 1984 and 1985 after three consecutive years of contraction. The country faces a reduction in per capita income (currently estimated at US$210 (1984)], a declining rate of output growth, and a high rate of popula- tion growth (3.3% p.a.). Under these circumstances, the average Tanzanian is worse off now than he was in 1970. Several internal and external constraints are delaying the onset of recovery. 2. Tanzania is a predominantly agricultural economy with a population of about 21 million (1984), settled dispersedly over a large territory (945,100 km2). Agriculture accounts for 83% of total employment, 45% of GDP, and 80% of exports. Coffee and cotton are the two major export crops. In the first decade after Independence in 1961, the Government was fairly successful in achieving national development goals. It met the basic needs of the pop- ulation and made exceptional gains in education, health, and income distribu- tion. The quality of life in Tanzania in the early seventies was higher than in other low income African countries. 3. Between 1970 and 1978, GDP expanded at an average rate of 5.2% per annum, enabling the economy to adjust to the first sharp increase in oil prices (1974/75). High coffee prices in 1976/77 and a strong export perform- ance for both coffee and cotton, helped Tanzania replenish its foreign exchange reserves by the end of 1978. The country's fiscal policy was fairly conservative. The recurrent budget showed a small surplus, and development expenditures grew with the availability of foreign finance. 4. During the second sharp increase in oil prices (1979), country economic conditions began to deteriorate, resulting in a cutback in both domestic consumption and investment. Mainly because of the war with Uganda (1978/79), the fiscal balance was destroyed. Government deficit has since remained at about 16% of GDP. A program of stLuctural adjustment was adopted 11 In the absence of a recent Country Economic Report, this section draws from the President's Report on a recently approved credit for a Sixth Highway Rehabilitatin Project. See The World Bank, Report No. P-4283- TA, dated April 10, 1986. 2 in 1982 but auch remains to be accomplished.2/ Tanzania's exports continued to fall during the 1980s, thereby reducing the country's ability to finance imports. By late 1979, Tanzania had accumulated external arrears equal to roughly six months of imports. Its foreign reserves were nearly exhausted. Shortages of basic consumer goods became common, and dependency on foreign aid grew sharply. During the past decade, Tanzania was plagued by other problems, such as two consecutive years of droughts (causing a need for Food imports and a drop in agricultural exports), and the break-up of the East African Community. 5. Government policy contributed to the decline of the economy during the second half of the 1970s by favoring food production and industrialization while allowing export crop production to fall. Overall, agricultural output has lagged behind population growth since 1979, and the capital stock in the economy as a whole suffered from steady deterioration. In manufacturing, value added decreased by 17% p.a. during the 1978182 period largely due to lack of foreign exchange for inputs. Lower labor productivity and capacity utilisation ensued. Investment trends remained skewed, with 52 of investment directed to agriculture and 601 to manufacturing and transport. 6. Since 1979, domestic inflation accelerated to an average of 281 p.a. from about 11% p.a. observed during most of the 1970s. In 1985, the annual rate of inflation was estimated at 352 p.a. A worker on a minimum wage does not earn enough to support a family. Lower urban incomes resulted not only from lower per capita income (which declined by an estimated 30% since 1980), but also from Governmental policy restraining urban wages.21 In the mean- while, public debt has grown tenfold from US$250 million in 1970 to US$2,594 million in 1984, with total debt service payments reaching 28Z of exports in 1984. Although the terms of trade for Tanzanian products have improved, they are still worse than in 1970. 2/ This adjustment program was in part financed by IDA Export Rehabilitation Program Credit (No. 1133-TA) of April 1981, and oriented by a major country implementation review held in Dar es Salaam in October 1982. 3/ The minimum wage was frozen over 1975/79 and since then has risen three times (in 1980, 1981, and 1984) but at levels below the rises in the consumer price index. Minimum wage earners in Dar es Salaam have been hit the hardest because prices in the capital city have risen faster than elsewhere. 3 7. Tanzania's prospects of recovery are limited by the rapid rate of population growth and by structural factors. Since Independence the popula- tion has doubled. Structural obstacles to renewed economic growth include low supply elasticity in agriculture, a cumbersome policy making apparatus, short- age of technical and managerial resources to carry out comprehensive policy reforms, and the great need of foreign aid to break the production impasse. According to a recent World Bank report, in view of these constraints, the country can expect to regain its 1970 per capita consumption level only in the course of the next decade.4/ 8. When the Second National Sites and Services Project was designed, signs of deterioration were apparent in the economy. The project adjusted to these conditions by reliance on very modest construction standards. Neverthe- less, there were many implementation difficulties. Lack of imported mater- ials, supplies, and equipment, delayed construction and led to price overruns. The increasing size of the Government deficit caused shortages of counterpart funds and forced the cancellation of several project components. The decline of urban incomes lowered the demand for new housing and thereby delayed the construction of new units contemplated in the project. Institutional Context 9. Tanzania is a highly open economy where the Government exercires a powerful influence on the monetarized sector. It does so directly, through ownership and control, and indirectly, through wage, price, tariff, and tax policies. Institutional factors become as important as market forces in explaining the country's development patterns. 10. During the first six years since- Independence, market oriented economic policies resulted in large income disparities between rural and urban earners, accelerated rural to urban migration, and widened regional imbal- ances. Discontent with these outcomes led the Government to reassess its development strategy in 1967. At that time, President Nyerere announced, in the Arusha Declaration, a democratic socialist form of government aimed at economic growth with equitable distribution of benefits. The role of the public sector in productive activities expanded since then, and a number of institutional changes were introduced. In the early seventies (1972), the Government abolished local government and agricultural cooperatives in an effort to strengthen centralized control over the economy. Crop authorities were established as the sole channels for the distribution of agricultural inputs, and for collection and marketing of export produce. These measures were followed by a resettlement program aimed at c,#ncentrating the rural population into villages (1974/76). The effects of the elimination of rural cooperatives and compulsory viltagization were disruptive to agricultural production. On the other hand, the abolishment of local government weakened 4/ The World Bank, Eastern and Southern Africa Regional Office, "Report to the Consultative Group for Tanzania on the Government's Recovery Program" Washington, D. C., May 20, 1986. 4 town management throughout the country hampered orderly urban growth. Later, the Government recognized the negative impact of these measures and reinstated both local governments and cooperatives. Unfortunately, their economic and administrative effects still linger. 11. Tanzania's monetary policies have created additional obstacles for economic recovery. The exchange rate was not adjusted between 1978 and 1982, notwithstanding the deteriorating terms of trade and domestic inflation in excess to that of Tanzania's trading partners. Devaluations of the shilling in 1983 and 1984 were insufficient to reverse the trend of appreciation of the Tanzanian currency on an inflation adjusted basis. This discouraged exports of agricultural and industrial products. Overvaluation of the shilling and shortage of foreign exchange led the Government to establish administrative controls over foreign exchange allocations which caused several bottlenecks throughout the economy. Pricing and exchange rate policy reforms were intro- duced in 1984/85, but they were not maintained, and the Government's ability to authorize higher prices to farmers producing export crops was lost. Depressed prices for export crops led farmers to replace their crops with foodgrains and other subsistence produce. 12. The reorientation of the Government's development strategy in 1967 led to the rapid growth of parastatal bodies and of the central administrative bureaucracy, causing the Government to become the country's largest employer. In fact, the expansion of the economic role of the state accounts for the service sector reaching 34% of GDP in 1985. Bureaucratic inefficiency, func- tional duplications, and ambiguities characterize the structure of several Government bodies. In recent years, an increase in the level of corruption (which once was almost nonexistent) has presented additional obstacles to economic recovery. 13. In contrast, the institutional context in Tanzania is remarkable in its political continuity and stability. President Nyerere, who was the head of the Government from Independence until November 1985, voluntarily relin- quished his office. Thus, despite tribal and religious diversity, after twenty-five years as a nation, Tanzania is peaceful, united, and relatively stable. Also positive are the policy measures taken recently, aiming at reducing the scope of government activity and at improving the efficiency of public services. In the mid 1980s, several public enterprises were dissolved, the number of ministries was reduced from 22 to 15, and the freeze on hiring government employees was maintained. Although these measures still fall short of establishing the institutional environment necessary for economic recovery, they are in the right direction. 5 Urban Development 14. At Independence, Tanzania was one of the least urbanized countries in the world, with less than half a million urban dwellers (4.6% of the total population) and only five regional centers, besides the capital city. Since then the country has undergone a rapid process of urbanization, with urban population growth rates at times in excess of 10% p.a. The population of cities and towns grew eightfold between 1961 and 1986, and accounts now for about 16.5% of the total, or an estimated 3.6 million inhabitants (1986).51 This trend is projected to persist through the turn of the centruy, leading to the urbanization of about 30% of the total population (Table 1). This shift in settlement pattern created a broad-based urban structure where small ser- vice centers multiplied in support of rural activities.6/ Within this struc- ture, Dar es Salaam retains primacy with approximately 35% of the total urban population. The capital, with about 1.4 million inhabitants (1986), is more than six times bigger than the next largest city (Mwanza). This rapid pace of urbanization cannot be sustained indefinitely, but demographic dynamics in Tanzania make it likely to continue over the next two facades.71 Under these circumstances, it can be expected that between 8 and 10 million people may be living in urban areas in Tanzania by the end of this century, a twentyfold increase over forty years. 15. The decade of most rapid urban growth in Tanzania (1967/78), when the urban population grew by an average rate of 11.1% p.a., immediately pre- ceeded the implementation of the Second National Sites and Services Project. This explains, most likely, the relatively ambitious housing targets of the project. The intensification of rural to urban migration during that period was caused by the decline in agricultural production, the search for urban 5/ The rate of urban population growth in Tanzania was only surpassed during the same period by that of Swaziland (12.8% p.a.) and Lesotho (21.4% p.a.) among countries in the Subsaharan African Region. See "Basic Indicators," in The World Bank, Financing Adjustment with Growth in SubSaharan Africa, 1986-1990, Washington, D. C., 1986. 6/ See S. M. Kulaba, Housing, Socialism, and National Development in Tanzania, Centre for Housing Studies, ARDHI Institute, Dar es Salaam, 1981. The compulsory program of villagization contributed to the prolif- eration of small urban places during the 1970s. Between 1967 and 1976 the number of urban places with more than 2,500 inhabitants increased from 76 to 369. 7/ Among these factors, the most important are the sustained high birth rate; the widely held belief in the benefits of large families where children are seen as assets for their parents' old age; the drastic increase in life expectancy (from about 40 years to 50 plus); and the acceptance of urbanization as a way of life. 6 employment and expected higher earnings, and the expansion of educational opportunities in the towns.8/ In addition, urban settlement in Tanzania has been comparatively easier than in other African countries where access to urban land is restricted. Unlike the case in much of Western Africa, urban land in Tanzania is state-owned, having been entirely nationalized in 1963.9/ As early as the British colonial period, official policy permitted Africans to build their own homes in Crown land of traditional materials. Urban settlers enjoyed security of tenure and were inclined ::o build houses providing for rental rooms, since rental income was seen as a safeguard in case of unem- ployment and in old age. After Independence, security of tenure was further reinforced by the Government practice of paying compensation (according to formal market assessment valuation) for crops and houses when "squatter" dwellings were removed from state land. However, notwithstanding these com- paratively permissible settlement policies, the pace of urbanization soon outstripped the Government's ability to distribute building plots and provide minimal public servicero. In consequence, squatting (not in the sense of illegal occupation of land but rather of disorderly occupation of unserviced land) expanded rapidly and became the preponderant pattern of urban settle- ment, particularly in Dar es Salaam.10/ Ten years after Independence, an estimated 60% to 65% of urban residents lived in unserviced squatter areas.11/ 8/ The ILO estimates in 12.4 times the differential between nonagricultural wages and small holder cash income in 1973/75. See ILO, Basic Needs in Danger, Addis Ababa, 1982. For an economic analysis of migration in Tanzania see Richard H. Sabot, Economic Development and Urban Migration: Tanzania 1900-1971, Oxford, Clarendom Press, 1979. The decline of social and economic investments in rural areas in the 1970s is described by John Harris, "Tanzania's Performance in Meeting Basic Needs The International Context," Boston African Studies Center Working Papers, No. 82, 1984. 9/ Traditional land rights are recognized by local people in peripheral town areas, notwithstanding state ownership, and there is a flourishing market for private plots in the largest cities. 10/ R. Stren points out the fact that the state control over urban land is, in itself, a factor favoring the explosive growth of squatter settle- ments. The legislation on land ownership, the author maintains, has weakened public control over land use, rather than strengthened it. See R. E. Stren, "Squatting and the State Bureaucracys A Case Study of Tanzania," prepared for the Annual Meeting of the African Studies Association, Philadelphia, 1980. ll/ See University of Dar es Salaam, Economic Research Bureau, National Urban Mobility, Employment, and Income Survey of Tanzania (NUMEIST), Dar es Salaam, 1972. 7 Urban Policy 16. New institutional arrangements and policies accompanied the process of urbanization in Tanzania during the 1970s. The growth of Dar as Salaam was perceived as unbalanced and led the Government to seek improvements in the spatial distribution of economic activity and population. The Second Development Plan (1969/74) introduced a program of industrial decentraliza- tion. In 1972, the Government launched an administrative decentralization program aimed at transferring to regional centers approximately 40% of the central government activity. A year later the decision to move the capital from Dar es Salaasm to Dodoma reinforced the same general policy. The Third Development Plan (1975/80) extended the industrial decentralization program to all twenty regional capitals, but the onset of the economic crisis forced the Government to refocus its industrial policy and curtail the establishment of new industrial firms. On the other hand, housing shortages in Dar es Salaam were severe and the witing lists for a National Housing Corporation (NHC) unit and for a surveyed plot from ARDHI, exceeded more than 15 thousand names each by 1974. Shortage of middle-income housing prompted the nationalization of the most valuable urban rental units in 1971, and the establishment of a new agency to administer these units and rent them out to public servants at subsidized prices.12/ 17. Up until the Implementation of the administrative reform, urban councils were the basic urban management units. These councils operated with assistance from district, regional, and central government departments, and administered their own taxes. In 1972 this structure of local government was radically changed. Urban councils were replaced by District Development Councils (DDCs) with jurisdiction over both rural and urban areas.13/ The incipient technical staffs of major town councils were disbanded and replaced by a cadre of party bureaucrats. These bureaucrats became more important than elected officia:s in the DDCs.14/ Planning, administrative, and financial 121/ The Registrar of Buildings (ROB) was regulated by legislation introduced in 1973 establishing a graduated rental schedule, pegged on incomes, which allowed rents to vary within the range of 7.5% to 12.5% of the gross income of the tenants. This system of rent control is enforced in publicly owned housing only. It represents a severe drain on public resources and benefits primarily upper level civil servants who comprise the majority of tenants, and systematically discriminates against the lower income public employees. 131/ Although some districts corresponded roughly to urban areas there was no urban government per so under the reform. 14/ See Justin H. Maeda, Popular Participation, Control, and Development: A Case Study of the Nature and Role of Popular Participation in Tanzania's Rural Development, (Ph.D. Dissertation, Yale University, 1976). 8 instruments appropriate for urban management, such as property tax and grass roots participation, were eliminated or effectively curtailed. While the intention of the reform was to transfer substantial decision-making power to the regions, it resulted in a further centralized public finance system. The newly created DDCs had no authority to raise revenues or to coodinate central ministry activities within their jurisdictions. They were unable to develop an effective management approach. In 1974 a variety of local property taxes and rates was replaced by a single levy, the Land Rent and Service Charge (LRSC), which was collected by the Treasury.15/ This taxation system effec- tively broke the link between revenue collection and expenditure in urban areas. It has worked poorly due to cumbersome valuation procedures, delays in updating valuation rolls by ARDHI and in transmitting these to the Treasury, limited coverage, and an inefficient collection system.16/ In general, the institutional reforms of the 1970s reflected a development strategy which assigned low priority to the urban sector and aimed at transferring public expenditures from urban to rural areas. The result was an abrupt drop in the level of resources available for the maintenance of existing services, the construction of new infrastructure, and the operation of community facilities in urban areas. This caused a large scale deterioration of assets and living conditions in most cities. The Second National Sites and Service Project addressed the problems of the new fiscal system by expanding the coverage of the LRSC to include squatter settlements and by financing a study of that levy to guide the amendment of the legislation. 18. Local government was reinstated in 1978 with only few modifications to the pre 1972 structure, namely the establishment of a dual system whereby local authorities would report to the Office of the Prime Minister (PMO) and also to the Ministry of Local Government (MLG).17/ This new system is still in the process of consolidation and town management has remained weak. Most urban authorities suffer from shortages of trained staff, insufficient resources for the provision of basic services, lack of coordination of devel- opment activities, recurrent maintenance problems, and unclear distribution of functions which create strains in the relationships between local and central 15/ The LRSC was equal to 10% of the economic value of unimproved land, determined periodically by ARDHT's valuers. 16/ For a discussion of the financial aspects of decentralization see The World Bank, Tanzania: Fiscal Aspects of Decentralization, Report No. 587-TA, Washington, D.C. 17/ Control by the PMO is channeled through its nominees at the regional government and control by the MLG is made through Regional Commissioners and Regional Development Committees. The link between local authorities and the PM0 was reinforced in mid 1984 by the transfer of the Sites and Services Directorate from ARDHI to the PMO. 9 government. Local authorities are highly dependent on grants from the central government (estimated to cover, on average, 70% of local expenditures), and have had their autonomy further eroded by the necessity of referring decisions and actions to many different agencies.18/ The resulting administrative complexity is a serious obstacle to the successful management of urban devel- opment projects. The large number of agencies, whose accountability is not centralized, makes it very difficult for local authorities to operate effi- ciently. 19. These problems reflect a still incipient level of urban institu- tional development, and were greatly intensified by the country9s economic crisis. In fact, the decline in per capita consumption and income levels, which affected all sectors of society since 1979, were more pronounced in urban than in rural areas, since real urban incomes declined more rapidly than agricultural incomes.19/ The urban investments in manufacturing made during the 1970s resulted in low levels of capacity utilization and output, and made large demands upon scarse foreign exchange. As a result, many industries which received preferential treatment by Government are now worth less than the resources invested in their production. II. PROJECT DESIGN The Experience of the First Urban Project (Credit 495-TA) 20. The Second Development Plan supported a program of Improvement in squatter settlements through the provision of basic services and recommended the relaxation of building codes and a reduction in the production of conven- tional public housing.20/ This policy was the basis for the First National Sites and Services Project, financed by IDA in 1974 through Credit 495-TA, which provided for the development of serviced sites, the upgrading of squat- ter settlements, and the construction of community facilities benefitting approximately 160,000 low-income residents of Dar es Salaam, Mbeya, and Mwanza. An assessment of the performance of this first urban project shows 18/ These agencies include district organs, regional departments, technical ministries, the PM0, party organs, and parastatal corporations in addi- tion to urban councils. See M. Halfani, Urban Management and the Imple- mentation of an Externally Financed Project in Dar es Salaam, (Ph.D. Dissertation, University of Toronto, 1986), page 143. 19/ See The World Bank, "Report to the Consultative Group for Tanzania...," (1986) and PCR, Credit 732-TA, para. 1.03. 20/ See ARDHI, "The Limited Resettlement of Squatters and Interim Rehabilitation of Squatter Areas," Dar es Salaam, 1969. 10 uneven results. In some respects it might be considered quite satisfactory, as in the timely execution of physical infrastructure. In others it failed to achieve its objectives. Specifically, implementation difficulties arose in the areas of financial management, cost recovery, plot allocation, site occu- pancy, and maintenance of infrastructure in project sites. Moreover, an estimated 60% of THB loans, financed units costing well above the target figure of TSh100,000, shifted affordability levels to middle and high income earners.21/ The second urban project continued the basic policy of supplying low cost housing solutions to low income residents, but with modifications aimed at overcomIng the deficiencies observed in the first project. The most important changes introduced in the second project compriseds a greater emphasis on squatter upgrading as opposed to fully serviced plots, and an experiment with employment generation through assistance to small scale indus- tries, a fiscal reform approach to cost recovery, and the adoption of reduced construction standards to permit project benefits to better reach the lower income groups than was possible under the first project. The Project 21. The preparation of the Second National Sites and Services Project was done by ARDHI with assistance from Bank supervision missions over a period of 14 months. The necessary studies were financed with proceeds from Credit 495-TA. The project was appraised in 1976, only two years after the signature of the first urban credit. Negotiations were held in Washington in May 1977 and Board approval was granted in June 1977. The principal objectives of the project were to: (a) support the continuation of Tanzania's national sites and services program over an additional period of four years (1977-1981), ensuring the replicability of the approach and its effectiveness in responding to the problems of improving existing squatter areas and controlling rapid new growth; (b) strengthen the institutional and financial capability of the Government to implement such an approach; and (c) initiate a pilot program of assistance to small scale industries, including enterprises in the urban informal sector.22/ The President's Report (para. 57) states that the project was expected to generate a wide range of direct benefits to approximately 21/ See The World Bank, Operations Evaluation Department, "Note of Record, Tanzania First National Sites and Services Project (Credit 495-TA)," Washington, D.C., October 1983. For a thorough analysis of the manage- ment problems encountered in this first urban project see also M. S. Halfani (1986). 22/ The World Bank, Tanzania: The Second National Sites and Services Project, Staff Appraisal Report No. 1518-TA, Washington, D.C., June 1977, para. 3.01. 11 315,000 low income urban residents.23/ This figure was based on incorrect population projections. It presumed to correspond to 26% of the urban popula- tion in 1977. In fact, it represented 621 of the half m.llion urban residents of mainland Tanzania In 1978 (Table 1). The scale of the project was, there- fore, larger than the absorptive capacity of the five selected towns. Addi- tional direct benefits were expected from the small scale industries compo- nent, in the form of approximately 870 new jobs, to be created over a period of three years at low investment cost per job in two towns (PR, para. 58). 22. The project, whose total cost was about US$29.3 million equivalent and whose components are detailed in Annex A, consisted of the following interrelated components in Dar es Salaam, Tanga, Tabora, Morogoro, and Iringa: (a) Squatter Upgrading and Surveyed Plots (about US$10.5 million equiva- lent or 36% of toual cost with contingencies), including provision of land titles, water supply, drainage, footpaths, roads, and street lighting to about 15,800 houses in existing squatter neighborhoods and preparation of about 19,000 surveyed plots in planned residential layouts to be allocated with legal titles to low income applicants in five towns; (b) Community Facilities (about US$1.4 million equivalent or 5% cZ total project cost with contingencies), including primary schools, health centers, and markets in the upgraded neighborhoodsl (c) House Improvement and Construction Loans (about US$13.4 million equivalent in shelter loans and US$0.4 million in workshed construction loans, or a total of about 47% of total project cost with contingencies), including assistance to the THB for building materials to be used in construction of houses and worksheds; (d) Small Scale Industry Assistance (about US$1.5 million equivalent, or 5% of total project cost with contingencies), comprising assistance to exist- ing and new small scale industries in Tabora and Tanga. The program would provide serviced sites for about 150 worksh.ps, creeit for equipment and technical assistance to selected small enterprises, coope..atives and artisans; (e) Equipment and Vehicles (about US$0.4 million equivalent or 1% of total project cost with contingencies), including provision of equipment and vehicles needed for project implementation, maintenance, and garbage collec- tion; and 23/ The World Bank, Report and Recommendations of the President of the IDA to the Executive Directors on a Proposed Development Credit to the United Republic of Tanzania for a Second National Sites and Services Project, Report No. P-2119-TA, Washington, D.C., June 1977. 12 (f) Technical Assistance (about US$1.6 million equivalent or 6% of total project cost with contingencies), including consultants' services for detailed engineering and construction supervision, training of Tanzanian personnel in executing agencies, management support, monitoring and evaluation of the project, a study of pricing and taxation of land and shelter services in urban areas, and preparation of a follow-on project. 23. The principal criteria used in the selection of project towns were the magnitude of squatter settlements and the demand for plots. With regard to the latter, the audit has already noted that demand projections were based on erroneous urban population estimates that were approximately three times over actual figures.24/ 24. The project cost at appraisal was estimated at TSh243 million (US$29.3 million) in mid 1977 prices, including 15% physical contingencies for civil works and provisions for price increases for civil works, equipment, and services.25/ Of the total estimated project cost, 41% was to be financed by IDA Credit No. 732-TA for US$12.0 million equivalent and the balance of TSh143.3 million (US$17.3 million) by Government, which was the Borrower, with resources from the THB (US$12.6 million) and from the central budget (US$4.7 million). 25. The principal agencies involved were: (a) ARDHI to build the infra- structure in squatter areas, prepare the layout and build access roads in surveyed plots areas, provide titles to land in both types of areas, construct community facilities, and administer the terhnical assistance program; (b) THB to provide house improvement and construction loans and workshed construction loans; and (c) SIDO to provide assistance to small scale industries. Credit proceeds were to be transferred to ARDHI by the Borromer through normal budge- tary channels. Separate Project Agreeents were to be entered into between IDA 24/ The Population Census of 1978, recorded for the five project towns, a total population of 256,535 inhabitants, not 860,00 inhabitants as postualted in the SAR, representing 51.7% of the total urban population of mainland Tanzania (see PPAM, Table 1). 25/ The price escalation provisions were based on estimated inflation rates that subsequently proved totally unrealistic. These rates were: 10% in 1976 and 9% in 1977, 1978 and 1979 for civil works; and 8% in 1976 and 7.5% in 1977, 1978 and 1979 for equipment and services (see SAR, para. 4.02). 13 and THB and between IDA and SIDO, as were subsidiary loan agreements between the Borrower and THB and between the Borrower and SIDO.26/ 26. Special Credit conditions included assurances that: (i) the recom- mendations of the LRSC study be discussed with IDA and a timetable for the implementation of these recommendations be agreed upon by December 1977 (Section 3.03(a), CA); (ii) land rent and service charges be collected on surveyed plots and registered squatter houses until such time as the recommen- dations of the LRSC study be implemented (Section 3.03(b), CA); (iii) land titles be issued by the Borrower to beneficiaries of the shelter components (Section 3.05, CA); (iv) the Borrower's approval of the importation of cement by THB for building materials loans (Section 3.06, CA); (v) the Borrower's guarantee for cont',xued financial viability of THB's lending program in squat- ter upgrading area& if the default rate on that program exceeded 25% (Section 3.07, CA); and (vi) the Borrower's preparation of guidelines for the maternal and child health clinics (MCH) of the project by December 1977 (Section 3.09, CA). 27. Procurement conditions stated in Schedule 3 of the Credit Agreement provided for ICB for the purchase of cement by THB and for contracts for infrastructure works in which local contractors would be accorded a preferen- tial margin of 7.5% over foreign contractors in the evaluation of bids. Contracts for the purchase of goods and for the construction of community facilities, valued at less that the equivalent of US$100,000, would be awarded by LCB. Procurement of equipment, vehicleb, and other materials would follow the Borrowerts procedures, and contracts for hire-purchase equipment and raw materials would follow SIDO's procedures. Moreover, procedures for the allo- cation of surveyed plots, set forth in Schedule 4, specified that applications would be selected by Land Allocation Committees in the respective regions or districts, with preference given to applicants exhibiting, inter aliag the following characteristics: (i) previously displaced by public works projects; (ii) with large households; (iii) not owning a house in the vicinity of the project area; (iv) whose residence and employment were in the project cities; and (v) whose household incomes were below TShl,000 per month. In addition, a sum of up to US$200,000 equivalent was approved for retroactively financing expenditures on consultancy contracts for the LRSC study and for detailed engineering, incurred from February 1, 1977, to the date of Credit signing. 28. The project was to be completed, in its physical components, in 1980 and Credit closing was programmed for December 1981. 26/ Credit funds relent by the Borrower to THB would be repaid in 20 ye.4j, inclusive of five years of grace at an interest rate of 3% p.a. with the Borrower bearing the foreign exchange risk. In the case of SIDO, relend- ing terms were the same except for the repayment period of 10 years inclusive of three years of grace. See Section 3.01 of the Credit Agreement No. 732-TA, dated November 3, 1977. 14 III. IMPLEMENTATION General 29. Project execution extended over a period twice as long as originally planned, since eight years elapsed from the date of eligibility for retroac- tive financing to the last disbursement in June 1985. Credit effectiveness was postponed six months to April 1978, because of delays in finalizing the subsidiary loan agreements by the Borrower. The scope of the project was substantially reduced in 1984. At Credit closing, on-site and off-site con- struction works at upgradingr and surveyed sites were virtually complete, except in one upgrading and two surveyed sites that had been deleted. Four of the twenty-four community facilities were built, equipped, and are in opera- tion. All surveyed plots were allocated. Housing construction by project beneficiaries reached an estimated total of 55,736 rooms in 1985, or about 44% of the original targets for that year, although THB provided only about 32 of the anticipated number of construction loans.A7/ The LRSC study was completed but Government did not use its recommendations to reform local taxes. The experimental program of assistance to small scale industries generated only about 40% of the jobs that were estimated at appraisal. The completed project represents, therefore, about half of the original and approximately 952 of the reduced program. Total project cost, expressed in US dollars, fell short of the appraisal budget by 6%, reflecting devaluations of the Tanzanian shilling with respect to the US dollar, as well as deletion of expenditures originally planned (Table 2). However, in effect, the project incurred cost overruns because less was built than originally planned, and also because nominal exchange rates were significantly lower than effective rates in Tanzania during the project implementation period. The completed project differs from the original design primarily in scale, indicating a misapprehension of local conditions in the projections of demand and implementation capacity in the appraisal. Changes in the institutional structure and in the countryts eco- nomic conditions contributed to the reduced output and the less than satisfac- tory institutional achievements, but so did project design by setting overly ambitious targets. More realistic targets could have been defined if apprai- sal had been postponed to a later stage in the implementation of thp first 27/ In Annex 9, the Appraisal anticipated completion of 18,977 housing units at surveyed sites and the densification of upgraded sites by 82 per year, representing an additional 12,389 houses in 1985 over the original 15,811. The new housing stock was estimated to comprise four-room units, thereby bringing the expected number of rooms to 125,464 by 1985. The actual consolidation level estimated for 1985 reflects an occupancy rate of 50% at the 10,964 surveyed plots (5,487 units or 21,928 rooms), plus an increase by 8,302 units at upgraded squatter areas equivalent to 33,208 additional rooms. 15 project, thereby permitting more ample use of that experience in the design of the second project.281 30. The first year of implementation was relatively problem-free, but adjustments to project design became necessary soon after Credit effectiveness in 1978, when IDA approved substantial modifications to the SSI componen, in response to SIDO's request.29/ Subsequent developments, including reinstate- ment of urban councils in July 1978, transfer of responsibility for urban xinancial policies to the PMO in March 1979, and the onset of the country's economic crisis, delayed decisions on urban taxes on which cost recovery in the project depended, and slowed down implementation progress in general. The mounting operational problems at that time includeds (i) lack of overall management and considerable attrition between participating agencies, as a result of shifts of responsibility for major project activities from ARDHI to separate agencies which did not have the power to coordinatel (ii) inflation induced price escalation, at levels substantially above appraisal projections, and consequent cost overruns; and (iii) scarcity of foreign exchange and Government restrictions on imports, leading to shortages of construction inputs, stoppage of work at several sites, and delays in the implementation schedule. In parallel, the first project was encountering major allocation and housing consolidation problems.301 31. A review of the project experience in the Spring of 1980 suggested that the project be restructured to reduce its scope and complexity to a level commensurate with the country9s implementation capacity. It was also suggested that cost recovery mechanisms be strengthened, the role of urban councils (which did not exist at the time of appraisal) be formalized, and the housing consolidation problems of the first be resolved. A decision to reshape the project was taken by Government in February 1981, and amended legal documents were transmitted by IDA and countersigned by the Borrower in July 1981. The most important changes introduced to the project, described in Annex A, comprises 28/ Critics of the first project found the decision to finance a second project to be in itself unwise (see M. Halani (1986)). 29/ See Project File, Supervision Report dated June 8, 1978, accounting for the joint request by the Ministry of Industry, SIDO, ARDHI, and THB, for revisions to the SSI component, and letter from IDA to the Borrower conveying the Association's decision on the matter, on June 5, 1978. 301 In 1980, sixty percent (5,000) of the plots serviced in 1976 under Credit 495-TA remained Idle and the others had unfinished houses. The idle plots had not been allocated, and the incomplete houses were attributed to difficulties encountered by plot holders in obtaining property titles and, as a result of that, in receiving THB construction loans. 16 (1) Shelter Components: Cancellation of one upgrading site in Dar es Salaam (SAR cost reduced by about US$0.4 million) and cancellation of the provision for street lighting in all upgrading sites; reduc- tion in the number of surveyed plots from about 19,000 to about 10,000 (SAR cost reduced by about US$0.2 million); reduction in IDA's participation in THB construction loans by 8% and allowance for construction loans to be extended to beneficiaries of IDA Credit 495-TA on account of Credit 732-TA;31/ transfer of responsibility for selecting applicants and for allocating surveyed plots from ARDHI to the corresponding Town Councils in each project city; (ii) SSI Component: Cancellation of the industrial cluster in Tabora (SAR cost reduced by about US$0.25 million); transfer of responsi- bility from ARDHI to SIDO for the construction of infrastructure at the industrial cluster in Tanga, and from THB/clients to SIDO for the construction of worksheds; confirmation of the ownership by SIDO, of all facilities at the Tanga industrial cluster; and increase in the hire-purchase equipment share allocated to cluster industries in Tanga, from about 25Z to about 60% of the total; (iii) Community Facilities: Reduction in the number of facilities to be built from about 24 to about 4 (SAR cost reduced by about US$1.0 million); (iv) Cost Recovery: Allocation of funds to the Treasury for assistance in the collection of land rent and service charges (adding about US$0.6 million to SAR cost); (v) Maintenance: Allocation of funds to Town Councils in project cities for assistance in the maintenance of project sites (adding about US$0.3 million to SAR cost); (vi) Reallocation of Credit proceeds and creation of new disbursement categories to reflect changes made in project scope; (vii) Closing Date: Extension of the Closing Date by two years, from December 1981 to December 1983; and (viii) Amendments to Project Agreements between IDA and THB, and between IDA and SIDO, to reflect changes introduced in the Credit Agreement. This 1981 amendment reduced appraisal costs by about 30Z thus keep- ing total project costs within the original budget, notwithstanding 31/ The amended Credit Agreement does not specify THB lending targets but IDA correspondence with the Borrower recommended a reduction by approximately 40% in these targets, from about US$13.4 million equivalent to about US$8.0 million equivalent. See Project File, Supervision Report dated 08/11/80. 17 the anticipated cost overruns.32/ A subsequent amendment, in May 1983, extended the Closing Date by six months to June 1984. A third and final amendment, in June 1984, reallocated once again the pro- ceeds of the Credit to increase resources available to Town Councils and to further reduce THB allocations (Annex A, page 3). These various changes altered the financial composition of the project (Table 3), although the participation of IDA remained approximately as planned, at 42% of total project cost of about US$27.4 million equivalent. In addition, private sector project investments accounted for more than twice total public sector costs, judging by the available estimates of US$32.7 million equivalent in housing expenditures made by project beneficiaries in surveyed and upgraded areas.33/ 32. Disbursements occurred at a slightly slower pace than the average for Bank operations in Tanzania (and more so during the first four years of implementation than thereafter), while the appraisal disbursement schedule appears by comparison totally unrealistic (Figure 1). The magnitude of the appraisal error in this respect is also highlighted by comparison with dis- bursement profiles for Credit 495-TA and for Bank loans to the urban sector as a whole (PCR, Table 3).24/ At the closing of acc.unts, US$0.46 million of Credit 732-TA remained undisbursed and was cancelled in June 1985, although disbursements continued to be made one year past the official Closing Date. The actual distribution of disbursements by category (Table 4), indicates less absorptive capacity by SIDO, Town Councils, and the Treasury, than anticipated in the 1984 reallocation of Credit proceeds. 32/ Cost figures in this paragraph are given in current US dollar prices of mid 1977, which was the base used at appraisal, except for private costs. 33/ These estimated private costs of construction differ in amount from those given in the PCR (para. 5.04) for reasons later explained in this PPAM in the context of the economic reevaluation of the project. Reliable infor- mation on private costs related to SSI subprojects is not available. 34/ The standard disbursement profiles used in this comparison are based on the experience of the Bank Group in Tanzania and elsewhere over the FY76/85 period. The audit must note that application of standard dis- bursement profiles for estimates of disbursement and implementation schedules was instituted at the Bank only in 1985, explaining why such planning tools were not used in the project being reviewed. See The World Bank, OPN 3.11, Memorandum dated October 27, 1985. 18 Physical Accomplishments in Shelter and Community Facilities 33. The physical accomplishments of the project in housing related services compriset (i) upgrading of eight squatter settlements, with about 20,128 housing units in five cities, through provision of roads, water stand- pipes, drainage, three primary schools, one maternal and child health clinic, and land reservation for future construction of additional community facili- ties; (ii) land preparation, layout, and construction of access roads at five sites in five cities, to accommodate approximately 10,974 surveyed plots; and (iii) about 4,544 home improvement and construction loans, 93% of which were made to beneficiaries of Credit 495-TA and the remaining to those of Credit 732-TA. These achievements compare with appraisal and revised project targets as follows: Project Achievements in Shelter and Community Facilities Upgraded Surveyed Housing Community Houses Plots Total Loans Facilities Appraisal (No.) 15,811 LA 18,977 34,788 21,280 24 Revised (No.) 14,673 L& 10,000 24,673 12,800 4 Actual (No.) 20,128 10,974 31,102 4,544 4 Actual/Revised (%) 137 110 126 36 100 Actual/Appraisal (Z) 127 58 89 21 17 a Appraisal and revised targets above exclude densification of upgrading sites anticipated to result in an additional 12,389 dwelling units by 1985. The housing related services provided under Credit 732-TA were concentrated in Dar es Salasm where almost 20,000 upgraded and serviced plots, representing 64% of the total, were located. The remaining 11,139 plots and houses were distributed among four regional centers as follows: Tabora 3,984 (13%); Morogoro 3,337 (11%); Tanga 2,384 (8%); and Iringa 1,434 (4%). 34. The aquatter upgradinA component was implemented, with minor changes, according to appraisal design in all infrastructure elements except street lighting, which had to be deleted due to poor coordination between ARDHI and the Tanzanian Electricity Supply Company (TANESCO), responsible for the subcomponent. Construction difficulties were mostly non-engineering in nature, including shortages of construction inputs and delays in compensating settlers for property losses. Densities at squatter settlements were expected to almost double, reaching a maximum of 28,200 houses eight years after pro- ject inception (1985). The 20,128 registered houses correspond to 71% of the expected maximum density. This relatively high density level was achieved in spite of the deletion of one site and the demolition of a large number of squatter houses. Other noteworthy achievements include the completion of 19 squatter house registration for tax purposes (in October 1984) and the assump- tion of site maintenance responsibilities by the appropriate Town Councils following completion of civil works. However, notwithstanding its success, squatter upgrading exhibited two serious design flaws. First, it failed to minimize demolition of existing dwellings, causing 2,847 houses (or 19% of the base number of 14,673 units) to be destroyed. Second, infrastructure stand- ards presupposed regular maintenance (PCR, paras. 4.12-4.13), which is diffi- cult to achieve in Tanzania. Inspection by the audit of the maintenance equipment acquired with project funds revealed a high proportion of units disabled for lack of spare parts. 35. The surveyed plots component represented an important design innova- tion appropriate to low income countries facing rapid urban growth since it permitted the orderly settlement of a large number of households at very low public investment cost. Direct construction costs in this program, tenta- tively estimated at US$25 equivalent per plot, cannot, however, be confirmed because the audit had no access to project accounts disaggregated by upgrading and surveyed sites expenditures. Physical achievements, comprising 10,974 surveyed plots, exceeded appraisal estimates in Tabora and Tanga, but fell short of the original targets in Dar es Salaam, Iringa, and Morogoro, where implementation difficulties (described in the PCR, paras. 3.04-3.09) led to the cancellation of about half the original program. Plot allocations in surveyed sites were poorly administered (PCR, para. 4.20) and hampered by misallocation problems. These difficulties (less severe, however, than those observed in the first project), may be attributed to the administrative tur- moil accompanying the transfer of functions from ARDHI to the Town Councils mid way in the implementation process. The level of plot occupancy, as veri- fied by the audit, was 50% in most surveyed sites, reflecting the impact of deficient management, urrealistic standards for housing consolidation, and the more general problem of declining urban incomes. Institutional obstacles to the success of this program included language used in property titles requir- ing plot holders to use permanent materials in housing construction, therefore discouraging low cost consolidation and plot occupancy.35/ At least to a certain extent, the higher accessibility to low income settlers afforded by the minimal construction standards at surveyed sites was in effect curtailed by legal restrictions and administrative barriers. 36. Home improvement and construction loans by THB totalled, at project completion, about 4,544, corresponding to approximately US$7.6 million equiva- lent (TSh86.6 million). During the first four years of project implementation THB lent exclusively to beneficiaries of the first project because infrastruc- ture works and house registration in the second project were incomplete. However, once civil works were completed in 1982 THB was unable to accelerate 35/ In 1981, IDA reported 4,000 plot holders as having received property titles containing such restrictive construction requirements. See Project File, Supervision Report dated 11/13/81. 20 loan processing, for reasons explained by the Region (PCR, para. 3.11),36 with the result that only 308 loans were made to beneficiaries of Credit 732- TA (or 3% of the original program of 9,480 loans). The Region describes, in detail, the institutional shortcomings of THB (PCR, paras. 6.09-6.10). To that the audit must add that the failure by THB to keep separate project accounts renders futile any efforts at evaluating the financial and economic performance of the project under this component, and also precludes the con- firmation of cost figures for the component shown in Table 2. What is clear from the paucity of available data is that the relatively high level of hous- ing consolidation achieved in the project has been unaided by THB loans. 37. As already mentioned, the program of construction of community facilities at squatter settlements was reduced to three primary schools and one clinic, on account of the serious budgetary deficit facing the Borrower in 1981. Because the schedule of construction of the additional facilities designed for the project could not be determined at that time, the audit questions the propriety of demolishing squatter houses for this purpose, in view of the economic, social, and financial costs associated with land acqui- sition and compensation. On the other hand, the availability of properly located parcels did encourage community groups in some sites to take upon themselves the initiative of building these facilities, as seen in the case of one primary school in Morogoro visited by the audit mission. Regarding costs, the audit notes that ARDHI has not presented the costs of the community facilities built separately from infrastructure costs (Table 2), thus making it difficult to assess the economic results of these investments. 38. Direct costs of all housing related components, comprising land, infrastructure, and THB loans, were US$21.9 million equivalent (TSh223.4 million), or 80% of total project cost. These costs fall short of appraisal estimates by 13%, since cost underruns in THB loans and community facilities balanced the fivefold increase in land compensation costs and the 6% increase in the cost of infrastructure. 39. The aggregated direct costs of infrastructure and land compensation at surveyed and upgraded sites ascend to about US$14.3 million equivalent (TSh136.7 million), corresponding to an average unit cost of about US$460 per plot.37/ Lower unit costs reflect the devaluation of the Tanzanian shilling by reference to the US dollar, and not an increase in the number of surveyed and upgraded plots (as stated by the Region, PCR, para. 3.21), since no such an increase was observed. 36/ THB loan approvals in 1982 dropped to 58 per quarter. See Project File, Supervision Report dated 10/28/82. 37/ The unit cost figures estimated by the audit differ slightly from those given by the Region (PCR, para. 3.21 and Table 4) because there were a few discrepancies between physical achievements and costs reported in the PCR and those confirmed by the audit and reported in this PPAM. 21 Physical Accomplishments in Small Scale Industry 40. As indicated by the Region (SSI-PCR, paras. 3.01-3.02), project achievements under the small scale industry component were unsatisfactory. SIDO did not accept the low cost standards proposed at appraisal for cluster industries, encountered severe procurement problems in the implementation of the hire-purchase equipment program, and incurred substantial cost overruns. As a result, the number of jobs generated by the program was substantially reduced, their unit investment cost increased, and the installed capacity of hire-purchase equipment is much below expected levels. The total cost of the component, at US$2.6 million equivalent (TSh27.0 million), exceeded by 36% the appraisal estimates, largely on account of over threefold cost increases in the development of the Tanga industrial cluster. This cluster serves only seven subprojects whose capacity utilization is estimated by both the audit and the Region at 24% (SSI-PCR, Annex 2). The 340 industrial jobs expected from the program have a unit investment cost of roughly US$7,800 or more than seven times the cost of US$1,000 per job estimated at appraisal. In general, the experience with this component confirms the observation made by the Region, that SIDO has not yet developed the appropriate delivery system for assistance to small scale industry, and requires technical improvements and higher functional specialization in order to achieve a satisfactory level of operational efficiency. Technical Assistance Achievements 41. The technical assistance services provided by the project, at a cost of US$2.6 million equivalent, were kept within the appraisal budget. These services comprise: (i) consultant services for detailed engineering of upgrading and surveyed sites and for construction supervision; (ii) a study aimed at reviewing the land rent and service charge system; (iii) training of technical staff of project executing agencies; (iv) monitoring and evaluation of the project; and (v) preparation of a follow-on project. These activities were carried out with mixed results. The Region and the audit agree in asses- sing as satisfactory the performance of engineering and management consultants (PCR, paras. 4.01-4.05). However, for reasons not totally within the sphere of the project, effective use of the recommendations of the LRSC study was not made by Government, and the studies for a third urban project were halted in 1980 in consequence of the mounting implementation problems in the first and second projects. With regard to training of local personnel, results included an increased technical capacity at ARDHI, whose staff benefitted from on-the- job training by working with consultants as well as from general and post- graduate training abroad (PCR, para. 3.14). Among the lesser achievements of the technical assistance component, the audit notes the negligible amount of training received by THB and SIDO staff, as well as shortcomings in project monitoring and evaluation. The latter was made part of project management but results were unsatisfactory because of management fragmentation. Project monitoring of key indicators was omitted, for example, periodic records of plot occupancy at surveyed sites, records of property titles issued, project accounts for housing loans, and data on characteristics of beneficiaries of surveyed plots. Comprehensive reviews of project execution were occasionally 22 made in the context of IDA supervision missions, but not a regular practice of the project management team. These shortcomings indicate that efforts at improving project implementation capacity in Tanzania may depend, in part, upon establishing more effective procedures to monitor activities by various project executing agencies, for assembling such data in periodical review reports, and for critically analyzing the contents of these reports to identify areas requiring management action. Admittedly, these management tasks are more difficult in the absence of a general project manager, as in the case of Credit 732-TA. Achievements in Assistance to Town Councils for Maintenance 42. Introduced in the project in 1981 in response to a need felt during the implementation of the first project, this component contributed to strengthening the capacity of Urban Councils in the general area of infra- structure maintenance. A total of about US$1.0 million equivalent (TSh14.6 million) was spent on acquisition of equipment and financing of recurrent costs for urban councils at all project cities. Achievements in Strengthening Cost Recovery Mechanisms 43. This component, also introduced in the project in 1981, represents less than 1% of total project cost (UM .09 million equivalent), but was instrumental in enabling the Treasury (through provision of vehicles, office machines, computer equipment, and operating costs support) to organize an urban tax collection unit, computerize records of house registration and amounts collected, and finance consulting services to assist in extending house registration to all sites upgraded under Credit 732-TA and Credit 495-TA (PCR, Para. 6.12). Although still restricted to settlements included in Bank financed projects, and hampered by operational difficulties, this initiative is an important beginning towards improved fiscal performance in urban areas in Tanzania, since its impact is being multiplied at the level of urban coun- cils through the training of local government staff by the Treasury. Achievements in the Provision of Goods to Project Executing Agencies 44. Equipment, vehicles, and materials were procured for the Sites and Services Directorate at ARDHI under Credit 732-TA, at a cost of about US$0.2 million equivalent (TSh2.4 million), with positive results. The provision of these goods has strengthened the capacity of that Ministry to implement urban projects in general, and facilitated project execution by increasing the mobility and productivity of the Sites and Services staff. The audit was able to verify that these goods are being properly maintained by the Borrower. Other vehicles, equipment, and materials procured under Credit 732-TA were allocated to THB, Urban Councils, and SIDO and have already been discussed in connection with other components in this PPAM and by the Region (PCR, para. 3.19). 23 IV. OPERATIONAL PERFORMANCE AND IMPACT General 45. At full occupancy the project shall have provided basic urban ser- vices for about 39,000 houses, including some 22,700 new units, sufficient to accommodate 142 of the urban population increase projected for 1978/86 in Tanzania.a8 With about 25,600 occupied houses, including some eleven thou- sand new units, the project has already contributed to the orderly settlement of 72 of the additional urban residents. This level of public sector response to accelerated urban growth is high compared to Bank experience in other African countries, and particularly so for Tansania during a period of eco- nomic crisis. The impact of the project, howver, could potentially be doubled if Government measures were to succeed in accelerating occupancy at surveyed plots. These measures, not presently pursued, should aim at encour- aging plot holders to build with the least expensive materials and methods, and at redistributing plots held by those not planning to build. Distribution of Housinag Services 46. Project performance at providing housing services to the lowest urban income groups is difficult to determine in the absence of income data for beneficiaries. Nonetheless, the audit corroborates the Region in esti- mating project benefits, for the most part, to have reached the target popula- tion on account of the following reasons: (i) project design emphasized squatter upgrading and avoided fully serviced housing plots; and (ii) about 251 of the surveyed plots were allocated to former squatter settlers for relocation purposes. As a result, approximately 742 of the project benefici- aries may be classified within the target population, although uncertainties persist regarding the status of the remaining 262. The audit also agrees with the Region (PCR, para. 5.02) in noting deviations from the target population to have been more frequent in Dar es Salaam than in the regional centers, in view of the greater pent-up demand for housing among middle income groups in the capital, and greater administrative difficulties in allocating plots at the city council. 38/ An additional 332 thousand urban households are estimated to have been formed during the past eight years in Tanzania (PPAM, Table 1 and para. 14). Project impact estimates above assume an average household size of 4.3 persons and an average occupancy rate of two households per house in urban areas. At full occupancy, these estimates also assume further densification of upgraded sites up to a maximum of 26,400 houses and the completion of housing units in all 11 thousand surveyed plots. 24 Financial Performances Pricing Policies 47. Although cost recovery was one of the project objectives most con- sistently pursued in Bank and Government policy statements, and notwithstand- ing the attention and resources given to strengthening cost recovery mechan- isms throughout project implementation, results are disappointing on account of both pricing policies and collection performance. 48. The instrument chosen to recover costs incurred in upgraded and surveyed sites was land rent, although utility prices were expected to be charged if and when settlers officially connected their houses to public water, sever, and power systems (PCR, para. 4.26). During the 1980/83 period, land rent prices were temporarily set at TSh100 p.a. per house in squatter settlements and project sites (US$12 p.a. equivalent in 1980). Subsequently, by virtue of the Local Authority Rating Act, effective July 1, 1983, this rent was nominally doubled to TSh200 p.a. per house, and split in half between land rent (collectable by the Treasury) and site rate (collectable by local author- ities).)9/ At 1985 prices the combined land rent and site rate was equivalent to about US$11 p.a. per house. Holding these rents constant, and assuming no payment default on the part of project beneficiaries, direct construction and land costs would be recovered within a period of 40 years, excluding the opportunity cost of the sums invested.40/ Repayment terms for housing loans set negative interest charges (at 6% p.a., later lowered to 4% p.a.) compared to domestic inflation rates in excess of 30% p.a., and also in relation to official bank lending rates (which varied between 12% and 13% in 1981/84 in Tanzania).41/ A charge of 4% ).a. in interest rates on housing loans was insufficient to cover THB administrative expenses and also allow THB to repay Treasury loans at 3% p.a. It follows from these pricing policies (applicable to the recovery of 80% of project costs), that project design explicitly supported high levels of public subsidies in the provision of shelter services. 39/ See Daily News, June 22, 1983, Dar es Salaam. Also, Project File, Supervision Report dated 03/22/84. 40/ If we include investment costs in establishing the collection unit at the Treasury, of providing maintenance equipment for local authorities, of supplying ARDHI with vehicles to administer the project, and of designing and supervising infrastructure works, the resulting total investment would be recuperated only over a period of 46 years under the chosen policies. 41/ IMFp International Financial Statistics, Washington, D. C., 1986. 25 49. For the small scale industry component, onlending terms for the hire-purchase equipment program set interest charges at 8.% p.a., also highly negative by comparison with prevailing bank rates and domestic inflation. Moreover, SIDO failed to comply with the Bank's requirement of charging eco- nomic rents for the use of space and common facilLies at the industrial clus- ter in Tanga and used instead, nominal rental schedules, including rent exemp- tions for installed industries not fully operational. These pricing policies endanger the sustainability of the small scale industry program and undermind the viability of SIDO as a public enterprise. 50. Disincentives to public enterprise financial soundness are also apparent in the provision of Credit 732-TA (Section 3.07, CA) requiring the Borrower to guarantee the financial viability of THB in case of default rates in excess of 25% by the clients of that bank. This covenant, although possibly realistic in the particular case, in effect discouraged THB from improving its financial position. Firancial Performance: Equity Considerations 51. As noted by a Tanzanian scholar, to ensure fairness and credibility, land rents should apply to all urban parcels, irrespective of their location in squatter areas or Bank-financed projects.42/ Reassessment of surveyed parcels is now slowly proceeding in Tanzania, but in the meanwhile, rates valued in 1970/71 on the basis of plot size and use, apply. The glaring tax inequalities resulting from this dual and outdated system cannot but discour- age payments of land rent by project beneficiaries. Unfortunately, the recom- mendations of the project-financed study on this matter did not contribute an early solution to the problem. Similar inconsistencies exist between stated Government policy of full cost recovery in low cost housing schemes and mount- ing rental subsidies extended to public housing tenants. Financial Performance: Collections 52. The collection performance of the land rent and site rates appears to have declined over time, and to be lower in Dar es Salaam (where the bulk of the housing investments under Credits 495-TA and 732-TA are concentrated) than elsewhere in the country. The Region estimated at 502 the collection rate over amounts due at project completion (PCR, para. 4.32), while the audit reports an average of 30% for FY84/85, unevenly distributed by cities as follows: 42/ S. M. Kulaba (1981) points out that many urban parcels, and the great majority of those enjoying better public services, pay completely out- dated land rents. Furthermore, he continues, because rates are undiffer- entiated by location, a centrally located and a peripheral plot of the same size and use pay equal rent. See Kulaba (1981), page 140. 26 Land Rent and Site Rate Collection Performance at Sites Uparaded Under Credit 732-TA (FY84185) Amount Collected as City of Amount Due Dar es Salaam 13 Iringa 43 Tabora 50 Tanga 53 Morogoro 77 Average 30 Sources Government of Tanzania, Treasury Collection Unit, 1986. Collections at surveyed sites are hampered by diffieulties in enforcing pay- ments due on unoccupied plots. On the positive side, the audit notes efforts on the part of the PM0 and the Treasury at extending collection facilities from central to local authorities.431 53. For different reasons, information on repayments of housing loans to THB and of hire-purchase equipment loans to SIDO, is not available. In the case of THB, accounting Improprieties explain the absence of data (PCR, para. 4.36), although prospects of success are small, judging by an analysis of THE revenues covering the years 1977181 which shows an uncollected balance of 80% over expected revenues.44/ Low recovery is also anticipated at SIDO by the Region (SSI-PCR, paras. 2.04-2.06), although actual collection data will be available only after the termination of the grace period on the loans in 1987. 54. On balance, the cost recovery performance of the project thus far, even within the reduced scale aftorded by its subsidized prices, has been unsatisfactory. Since there are no indications of substantial Improvements fortheoming, the audit must conclude by rating the project non-performing on financial grounds. 43/ Since local authorities do not as yet have the capacity to establish collection centers, the PM0 has issued directives to urban councils to assign counter clerks to Internal Revenue Collection Units, thus enabling the local authorities to collect urban rates when taxpayers come to pay land rent. See Project File, Supervision Report dated 10/17184. 44/ Project File, Back-to-Office Memorandum dated 02/15/83. 27 Institutional Performance 55. The technical capacity of the Borrower to supply urban areas with basic infrastructure services and building plots increased as a result of the project, particularly at the level of the central government where the Sites and Services Directorate functions. However, in so far as these services involve activities other than the design and construction of physical works, the Borrower still lacks the implementation capacity necessary to distribute, finance, and maintain urban services in efficient operating order. Punctual interventions made in the context of the project assisted in removing specific bottlenecks, but more clear general policy directives are required from Government to consolidate gains thus far achieved. These directives must aim, initially, at simplifying the various interlocking administrative systems and procedures. The urban sector shares with other sectors of Government activity the problems of over-extended bureaucracy and lack of accountability. These problems could be minimized, and inter-agency coordination enhanced, if the sheer number of administrative agencies and procedures are to be drastically reduced.45/ Administrative inefficiencies in project management effectively limited access to a large number of potential beneficiaries--as illustrated by THB housing loans made contingent upon title deeds which, in turn, required two to three years to secure, and the occupation of surveyed plots made condi- tional upon the use of building materials unaffordable to the majority of the target population. 56. The audit agrees, in general, with the institutional perforwance assessment made by the Region (PCR, paras. 6.01-6.18 and SSI-PCR, para. 3.02), and supports the recommendation that future Government projects in the urban sector be carefully scaled down to match the thinly stretched implementa;ion capacity of key sector agencies. Major project achievements include the strengthening of ARDHI's Sites and Services Directorate, the active participa- tion of the Treasury in house registration (with the consequent expansion of the urban tax base), and the involvement of local authorities in project execution. However, the audit disagrees with the Region's argument (PCR, para. 6.18) suggesting more financial assistance to THB as an appropriate approach to promote improvements in that agency. On the contrary, the housing consolidation experience in the project shows that low income families have access to private credit and/or savings resources, and are likely to continue to finance housing construction in this manner, thereby rendering the partici- pation of a publicly supported mortgage bank less important in the medium term. Moreover, judging by the magnitude of the public resource constra.nts in Tanzania, and in view of the efforts by Government at reinstating fiscal 45/ Halfani accounts for the direct involvement of a minimum of 13 agencies in the process of delivering urban housing services, and cites as princi- pal institutional obstacles to project success the followingi ill- defined sector policies, frequent shifts in management systems, class bias of bureaucrats against the poor, ineffective operational linkages between central and local government agencies, and weak administrative controls. See M. S. Halfani (1986), especially Chapters 3 through 5. 28 balance, a contraction, rather than an expansion, in THB operations would probably be more appropriate to the Introduction of the necessary reforms. Primarily on account of THB, the audit rates the institutional performance of the project as less than satisfactory. Economic Reevaluation 57. The economic benefits accuring to beneficiaries of shelter invest- ments under the project are siseable and partially justify the transfers made by Government in the form of subsidies on account of improved distribution of urban incomes and expansion of the housing stock. Following the approach taken in the appraisal, the audit reevaluated project costs and benefits, focussing exclusively on two shelter components--squatter upgrading and sur- veyed plots. To facilitate interpretation of the results of this analysis, the following assumptions and notations are specifieds (1) costs of the two shelter components were aggregated in the data base and therefore the analysis could not address each component separately; (ii) returns are estimated over a 25 year period and costs and benefits are expressed in US dollar equivalent prices; (iii) costs are based on PPAM, Table 2 and comprise land compensation (100%), design and engineering (50% of technical assistance costs), construc- tion (100% of infrastructure costs), maintenance (100% of maintenance equip- ment costs), and private building costs (estimated for 5,487 four-room houses at surveyed sites and 13,300 additional rooms at upgraded sites, according to construction prices used in the PCR);"/ (iv) benefits at upgraded sites include rents for additional rooms built and general rental increases, affect- ing all housing units, resulting from improved services and environmental conditions; at surveyed sites, benefits equal the rental value imputed to completed units; (v) rental values are assumed to be higher for Dar es Salaam than for regional centers, but variations from one regional center to another are considered irrelevant; (vi) rental values are estimated on the basis of data provided by the Region and verified, in three cities, by the audit mis- sion; and (vii) benefits are estimated to accrue after completion of physical works at the rate of 32% on the first year, 53% on the second, and 100% from the third year onwards. 58. The resulting IRR estimations (Table 5) average 21% for the two shelter components and vary within the range of 15% to 23% per city. These are lower returns than estimated by the Region (at 21% to 30%) due to lower plot occupancy levels used by the audit at surveyed sites. To a lesser extent, the differences are also due to the exclusion of maintenance and engineering costs in the PCR. The same set of reasons explain why audit returns are 4% to 5% below the appraisal estimates. At full site occupancy, however, IRR estimates for the two components are expected to exceed appraisal estimates, as suggested by the Region. 46/ The additional rooms considered at upgraded sites equal 40% of the esti- mated increase of 33,200 rooms at these sites, because the process of densification cannot be entirely attributed to the project. See SAR, Annex 9. 29 V. POINTS OF SPECIAL INTEREST 59. Because of the issues they raise and the possible relevance of their lessons for future Bank projects, attention is drawn here to points of special interest to project implementation and design in the urban sector. The Impact of Densification in the Uparading of Squatter Settlements 60. In response to the improvements made in service provision, project design predicted site densification to occur at a faster pace in upgraded areas than in squatter settlements in general. While squatter neighborhoods city-wide were expected to grow at 5% p.a., upgraded areas were estimated to grow at 8% p.a. after completion of infrastructure works. This estimated level of densification corresponds closely to the actual level seen in the project, except that the timing for densification was very different. In fact, densification began not at completion, but at the design stage of the project, for the simple reason that Government compensated for property losses resulting from public works. Thus, as soon as an area was selected to be .upgraded, prospects of future compensation payments began to attract new settlers. 61. The project experience shows the serious problems that result from such a premature densification. Civil works are delayed and project manage- ment becomes more complex because many more people require compensation and relocation than originally planned. Engineering design no longer fits the terrain and has to be amended. Compensation expenses increase by large and unforeseen quantities. Opportunities for valuation errors and compensation malpractice multiply. There are no easy answers to this problem since the costs of controlling premature densification are also high. The Region recom- mends that the dynamics of the process be recognized in future projects (PCR, para. 8.03). The audit suggests, in addition, that compensation policies be revised to limit their application to a narrower time period. For example, settlers installed after completion of aerial site surveys would not qualify. Furthermore, the obligation assumed by the Borrower to relocate the families whose houses are demolished might be unrealistic in the context of Tanzania, since it imposes excessive strains upon the administrative capacity of urban authorities. Indeed, it is difficult to match the time of relocation with the availability of appropriately located surveyed plots. To avoid this rather complex linkage, it might be sufficient to compensate settlers in cash for their losses and give preference to them in the allocation of surveyed plots, without attempting to precisely match each relocated family with a new plot. 62. The audit would suggest, in addition, that site design be oriented towards minimizing the number of houses that need to be demolished to accomo- date roadways and community facilities. This goal should be pursued even if such areas might later need to be expanded to provide for higher service standards. The Illsautration of untimely demolition of squatter houses is given by the project in the case of community facility plots to be built upon at an undetermined time in the future. Very wide and straight roads have caused unnecessary house demolition in several project sites. The costs and 30 benefits of alternative site designs for urban upgrading, in sum, can only be measured if more than one site layout is tried during project preparation and the audit recommends that such practice be adopted in future projects. The Premature Appraisal of the Second National Sites and Services Project 63. Repeated lending operations stand a higher probability of success when they incorporate lessons from previous projects. By overlapping, for the most part, the implementation of Credit 495-TA and 732-TA, both the Borrower and the Bank contributed to the loss in efficiency of the second project (PCR, para. 8.01). Opportunities to learn from experience were needed particularly in the areas of demand for housing services and administrative implementation arrangements. At the time ofbappraisal of the second project there were still doubts regarding effective demand for the complete housing package offered in the first project, specially as to the demand for THB home improvement and construction loans. There were also uncertainties as to whether or not Tanzanian institutions could muster the human resources necessary to carry out such a large serl.e and rather complex program. Actual experience in site maintenance was virtually impossible to assess prior to the completion of at least one site. Therefore, judgment on appropriate construction standards could not properly account for maintenance conditions (PCR, para. 8.04). Given these uncertainties related to shelter services, the decision to initi- ate a pilot operation in the small scale industry sector could not but increase the overall risks of the project. 64. Implementation experience shows that project design was overly ambi- tious and contained errors which could have been avoided if appraisal had taken place at a later date. The corrective measures introduced during imple- mentation precluded the occurrence of greater problems, by reducing the scale of the project. However, they did not succeed in fully resolving the problems of THB housing loans, in totally avoiding malpractice and delays in plot allocation, nor in establishing a financially viable cost recovery system. These shortcomings then became common to both the first and the second urban development projects financed by IDA in Tanzania. Diminishing Returns to State Protectionism for Manufacturing Industries 65 Project experience in the small scale industry sector is particu- larly relevant because it represents the first Bank operation in the sector in Tanzania, and also because policy reforms in the sector are currently under consideration by the Aorrower. The most interesting lesson learned from the implementation of this component is that cost effectiveness declined as the level of Government protectionism increased. The project extended assistance to existing small scale enterprises as well as to new ones established at industrial clusters. In the case of the existing firms, the program of assis- tance comprised the provision of complementary equipment to on-going procuc- tion lines and small loans to cover their cost. For the second group of enterprises, in contrast, SIDO provided fully aerviced industrial sites, high standard buildings for factory installation, equipment for a complete produc- tion line, raw materials necessary for the take-off period, and larger loans 31 to finance equipment and materials. This latter group clearly received a much higher level of Government protection and was expected to generate higher returns. 66. The implementation evidence, illustrated by 27 subprojects in Tanga, reveals instead, much higher levels of capacity utilization at the least pro- tected enterprises than at those located in industrial clusters (SSI-PCR, Annex 2). With an average subloan of US$19,000 equivalent, existing indus- tries were able to reach roughly 83% capacity utilization at project comple- tion, in contrast to 242 capacity utilization and loans averaging US$141,000 equivalent among clustered industries. Performance in the creation of indus- trial jobs also appears to have been higher among existing industries than in new ones. This experience suggests that SIDO could have had greater success in achieving project objectives if its assistance program were to focus on removing production bottlenecks at existing enterprises while avoiding the high levels of protectionism, costs, and risks embodied in the development of new enterprises at industrial clusters. Physical and Financial Sustainability of Shelter Investments .67. The development strategy supported by the Borrower is one that favors the equitable distribution of benefits from public investments above higher returns obtained under less equitable conditions. Given this policy objective, and considering housing as a practical vehicle for improving the income distribution in urban areas, the provision of subsidized shelter ser- vices to a large number of low income beneficiaries would appear justified. However, for a subsidized program to be viable, a number of preconditions must be met, the most Important among them being that enough resources are avail- able in the economy to support the program, and that benefits in fact accrue to the poor. While the audit is fairly satisfied with the proportion of project benefits which appears to have reached the poor under Credit 732-TA, it fails to identify the sources of funds for supporting this policy over time. Most likely, tax revenues cannot be increased to offset the high levels of subsidy. The impact of adopting a highly subsidized pricing policy in the project is twofold. On the one hand, project assets in the form of urban infrastructure and equipment are likely to depreciate at a fast pace due to lack of maintenance. On the other, the equity objective is jeopardized because Government soon finds itself unable to extend similar benefits to other low income settlers. 68. The unsatisfactory financial performance of the project, and the correspondingly high risks of inadequate maintenance and replicability, sug- gest that future urban investments in Tansania must assign higher priority to financial considerations. It might be that only very modest public sector goals would prove financially viable in the housing sector. Nevertheless, one must remember that even the limited objective of ensuring orderly use of urban land at no fiscal deficit, would represent an improvement over the provision of a large number of services that cannot be maintained. 32 ANNEX A Page 1 I. PROJECT DESCRIPTION (as per Schedule 2 of the Development Credit Agreement dated November 3, 1977) "Part A: (1) The improvement of the basic infrastructure and related facli- ties, including, inter alia, roads, water supply, drainage, and power supply, on existing squatter settlements comprising Rpproxi- mately 16,000 houses in ten areass in Dar es Salaam at Mtonil Tandika, at Mbagala, and at Hanna Nassif; in Tabora at Isebya and at Kiloleni; in Tanga at Gofu Juu and at Mwakisaro; in Morogoro at Msamvu and at Kichangani; and in Iringa at Kihesa. (2) The provision of surveyed land and installation of basic water supply systems for approximately 19,000 surveyed plots, of which about 75% are in Dar as Salaam, 9% in Iringa, 7% in Tanga, 5% in Tabora and 4% in Morogoro. (3) The construction of, and the provision of equipment and furni- ture for, community facilities (approximately 12 primary schools, one medical outpost, two new and upgrading of three existing mother and child health clinics and six markets) in the communities included in paragraph (1) of this Part. "Part B: The purchase and utilization of an adequate number of vehicles and equipment to assist in carrying out the Project. "Part C: Strengthening the capability of ARDHI to implement the Borrower's national sites and services program by providing technical assis- tance for detailed design and engineering work, for tendering and supervision of infrastructure, for on-the-job training of engineer- ing assistants, for support in financial management, community development, training and preparing a management manual, for moni- toring the impact and effect of the Project, and preparing further urban development projects. "Part Ds Study of land rent and service charge in urban areas. 33 ANNEX A Page 2 "Part Es The provision by THB of (1) house construction and improvement loans to persons living in the existing communities included in Part A(1) of the Project or having acquired plots included in Part A(2) of the Project, and (2) loans for building workshops and sheds included in Part F(2) of the Project. II. PRINCIPAL CHANGES IN PROJECT DESCRIPTION 1. As per amended Development Credit Agreement dated 06/24181: (1) Cancellation of the Hanna Nassif upgrading site in Dar es Salaam; (2) Reduction in the number of surveyed plots from approximately 19,000 to approximately 10,000 plots; (3) Reduction in the number of community facilities to be built, equipped, and furnished, from about 24 to about 4 as followss Primary School - from 12 to 3 Medical Outposts - from 1 to 0 MCH Clinics (new and extensions) - from 5 to 1 Markets - from 6 to 0 (4) Cancellation of ARDHI's training and management manual; (5) Cancellation of THB loans for the construction of workshops and sheds in Tanga and Tabora, in connection with the Small Scale Industry Development Component (SSI); (6) Cancellation of the industrial cluster in Tabora (SSI), and transfer of the responsibility for construction of the industrial cluster in Tanga from ARDHI (infrastructure), and THB (loans for workshops and sheds), to SIDO; (7) Extension of the project completion date by two years, from 12/31181 to 12/31/83; (8) Transfer of the responsibility for receiving and processing applica- tions and for allocating surveyed plots from ARDHI to the respective town councils; (9) Assistance to the town councils in Project towns, for maintenance of Project sites and facilities, through the allocation of Credit proceeds for this purpose; 34 ANNEX A Page 3 (10) Assistance to the Treasury in the collection of land rent and ser- vice charges (LRSC) through the allocation of Credit proceeds for a newly created LRSC Collection Unit; (11) The allocation of the Credit proceeds was changed and new disburse- ment categories were created (see Item 11-4 in this Annex); (12) The Project Agreements (PA) between SIDO and IDA, and between THB and IDA, were modified to reflect the relevant changes introduced in the DCA; (13) The PA between SIDO and IDA was further modified to increase the share of the Tanga cluster industries from about 252 to about 602 of the total hire-purchase program allocation. 11.2 The Closing Date was extended by an additional six months, from 12/31/83 to 06130/84, as per telex from IDA to the Borrower in May 1983. 11.3 The THB was permitted to lend for house improvement and construction to persons living in existing and new communities included in the First National Sites and Services Project, although wording to that effect was not formally part of the DCA or of the PA. 11.4 Changes in Schedule 1 of the DCA, "Withdrawal of the Proceeds of the Credit made on occasion of the first amendment to the DCA in 06/24/81, and on occasion of the second amendment to the DCA on 06/29/84, as follows: CATEGORY ( 11/03/77) FIRST AMENDMENT (06/24/81) SECOND AMENDMENT (06/29/84) % of % of % of Exp. to Exp. to Exp . to Category Allocation be Financed Category Allocation be Financed Category Allocation be Financed (US$ '000) (US$ 1000) (US$ '000) 1) Civil Works 6,100 70 1) ARDHI 1) ARDHI a) Civil Works 7,049 70 a) Civil Works 6,83Y 70 b) Meterials, b) Materials, equipment, equipment, vehicles 180 100 /a vehicles 190 100/75 /a 2) Furniture, 2) THB 2) THB materials, Materials, Materials, equipment, equipment, equipment, vehicles vehicles 990 100/75 /a vehicles 170.6 100/75 /a a) Imported 1,500 100 b) local 500 75 3) Consultants' services 2,100 100/75 /a 3) SIDO 3) SIDO Ln a) Civil Works 121 33 a) Civil Works 122 33 b) Materials, b) Materials, equipment, equipment, vehicles, vehicles, training 1,650 100/75 /a training 1,649 100/75 /a 4) Unallocated 1,800 4) TOWN COUNCILS 4) TOWN COUNCILS Materials, Materials, equipment, equipment, vehicles, vehicles, staffing, staffing, operating costs 630 100/75 /a operating costs 1,449.4 100/75 /a 5) TREASURY 5) TREASURY Materials, Materials, equipment, equipment, vehicles, vehicles, staffing, staffing, > operating costs 280 100/75 /a operating costs 280 100/75 /a TOTAL 12,000 TOTAL 12,000 TOTAL 12,000 /a 100% of foreign expenditures and 75% of local expenditures. 36 ANNEX B Page 1 LAND COMPENSATION COSTS Appraisal Estimate 1. The SAR estimated the number of houses to be demolished at 1,518 in upgr*ding sites. In addition, the SAR planned for an undetermined amount of compensation for crops in surveyed sites. Assuming that the SAR allocated approximately 10% of the compensation amount (TSh900,000) for crop compensa- tion, the balance (TSh5,001,000) was intended to cover compensation for demol- ished houses, at an average cost of TSh3,360 per house or approximately US$405 equivalent. PCR Estimate 2. The PCR does not indicate the number of houses demolished nor the amount paid for crop compensation. It provides a total figure of TSh45,580,000 as corresponding to expenditures on compensation for land. This figure is transformed into US dollar equivalent by using an average exchange rate of TShlO.516 per US$1.00. The audit disagrees with the use of this rate of exchange because compensation for land was paid in 1979 and 1980, when the exchange rate averaged TSh8.20 per US$1.00. Moreover, the audit was unable to confirm the figure in local currency given in the PCR and presumes that it includes compensation for houses at the Hanna Nassif site, in Dar es Salaam, which was deleted from the project, and, therefore, should have been omitted. Audit Estimate 3. Figures provided by ARDHI to the audit for Dar es Salaam, Morogoro, Iringa, and Tabora, indicate that 2,398 houses were demolished in these four towns, at a compensation cost of TSh24,687,600, paid in 1979 and 1980. For Tanga, the audit estimated at 450 the number of houses demolished and at TSh4,590,000 the compensation cost. Thus, total compensation paid for approx- imately 2,848 houses was TSh29,277,850. Allowing 102 of this total for com- pensation of crops (TS2,977,785), total compensation expendistures ascended to TSh32,205,635 or 29% below the PCR figure. Using the average exchange rate prevalent in 1979 and 1980 (TSh8.20 = US$1.00), the corresponding US dollar equivalent is US$3,927,516. The distribution of compensation expenditures by project town is the following: 37 ANNEX B Page 2 No. of Compen- Source Year Houses sation Unit of of Town Demolished Paid Cost Data Payment (TSh) (TSh) Dar es Salaam 1,168 16,366,600 14,013 ARDHI 1980 Morogoro 606 4,253,900 7,008 ARDHI 1979 Iringa 220 1,377,750 6,262 ARDHI 1979 Tanga 450 4,590,000 10,200 ARDHI 1979 Tabora 403 2,689,000 62674 ARDHI 1979 Total for houses 2,847 29,277,850 10,284 Compensation for crops (102) - 2,927,785 Grand Total 32,205,635 or US$3,927,516 equivalent - 38 - TABLE 1 PROJECT PERFOMANCE AUDIT MEMORANDUM TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) MAINLAND TANZANIA URBANIZATION TRENDS 1948-2000 ('000) House- Relon Populatlon holds Annual Growth Rates Population Projection Population Alto I Alt. 2 1948 /a 1957 /a 1967 /a 1978 1 /b 1948-57 19$7-67 197-78 1980 2000 1990 2000 Der es Salaam 69 129 273 757 189 7.1 7.8 9.7 911 2,729 1,918 3,641 Mwanza 11 20 35 111 26 6.5 5,8 11.1 137 399 287 544 Tanga 21 38 61 103 24 7.0 4.6 4.9 114 373 239 454 Mbeya 3 7 12 76 17 9.1 6,0 17.9 107 276 224 424 Tabora 13 15 21 67 15 2.1 3.2 11,2 83 243 173 332 Morogoro 8 15 25 25 15 6.6 5.7 8.5 73 223 153 290 Iringa 6 10 22 57 13 5.9 8.6 9o2 68 206 143 272 Arusha 5 10 32 55 15 7.3 12,4 5.0 61 199 128 243 Moshl 8 14 27 52 13 6.1 7,0 6.2 59 188 124 235 Kigoma 16 21 50 10 16.1 7.1 81 59 180 123 233 Mtwara 15 20 49 12 2.5 8.2 57 175 119 226 Dodoma 9 13 24 46 9 4.0 5.8 6.2 52 165 108 205 Musoma 3 7 15 33 6 10.0 7.9 7,1 38 118 79 149 SIngIda 4 9 29 7 0.0 9,3 10.8 36 105 75 143 Sumbawanga 28 6 6.0 29 103 60 114 Lindi 9 10 13 27 7 2o1 2*6 6.7 31 98 65 124 ShInyanga 2 3 5 22 5 1.3 5.0 4.1 24 78 49 94 Bukobe 3 5 8 20 6 5,6 4.4 8.7 24 74 51 96 Songea 1 1 _ 18 4 9.7 14.4 11.5 22 65 47 89 Subtotal 172 333 631 1,664 339 7o4 605 9,2 1,983 5,997 4,167 7,909 Other towns 12 31 55 510 106 22.5 573 1-831 1 Grand Total 184 364 686 2,174 ? 6.5 6,0 11.1 2,556 7,834 5,193 9,746 5NM...... =.s. aon saa 26.M a .. m - .-. *=o 100ass -W 1MODS /a Source; Bureau of Statistics, Recorded Population Changes 1948-1967; Tanzania Population Census, Vol. 2, Der as Salaam, 1970, /b Source: Bureau of Statistics, Preliminary Results of the 1978 Population Census Der as Salaam, 1979. From S. M. Kulaba, Housing, Socialism and National Development in Tanzaniap Centre for Housing Studies, ARDHI Institute, Dr as Salaam, 1981. - $9 - tMKT PW@W~lE AUlEI NOMAISIM TAIMIA SM~O6 MATIM8AL SITS AS SERVICEFS JECT tfEfDIT 732-TA) TkTAl. M*0æcT CISTI tSTIlAI fl. ACUAL (in Current Fricos) CpnntAppraiset totistto /g. A*tu.l Dliff5eenac M 15$.000 iTh'O000 US'0 TS'00, US$teg I. Land Aquisitlo/ Co6pesatlCen 6,000 723 32, 206g Q 3,928~ Q 26,206 4437 + 3,20$ +443 2. Civii Woriis (MtVIII si infrestructur. 01,197 9,763 104,32~ I 0,389j +23,339 + 29 + 606 + 6 b)> Comuity Fee tilities 1,ii9 _a11 1.443 1.981 -100 ' 443 -j100 Subtotal Clvii trrks (MC01I> 93,178 11,226 104,$32 10,389 +11,394 + 12 • 837 - 3. Equipment, Vehteles and istoriuts 3,437 414 2,388/ Q 223 • 1,049 - 30 - 191 - 46 4. lbuse taprovement ad Costruction Loans (1il) a) imported Nieterlis 10,015 1,206 2,239. 200 & 7,776 - 18 - 1,006 - 83 i» Rosmeining Loens 10ja261 Q i 04.390 &g 7.398 Q -16.663 - -7 - 4.804 - 39 Subtotai <(16) 111,276 13,406 86,637 7,9 -24,639 - 22 • 9,808 - 43 5. Small Scale Indutry Deveiopmet ($100> 0> Mneo n†fl6 AsItenco 3,360 409 428 92 • 2,932 - 87 - 393 - 87 b> Hirorchase Progira. 8,924 1,027 18,724~ l ,76~ 4 10,200 +120 + 738 - 72 c) Clvii Unrks for Ciuster IndustrIes ( infre†ructure end work'shds) 4.j34g QjQ . 7.929. 819 +3.795 +92 + 319 +64 Subtotai <8100) 16,018 1.932 27,081 2,636 +11,063 + 69 + 704 + 36 6. Technicui Asstance, Cosutants and Trainlng 13,220 1, 593 19,979 1,976 + 2.399 + 18 - 17 - 7. Tosn ounctlis (Equpment, Vehicoles ad operating Cots) - - 14,646 992 +13,646 +100 4 992 +100 8. Treaury (alupoent, Vehicles and Opertag Ost ) - - 1,907 91 + 1,507 +100 + 91 +i00 AIS T0TAL. 24,129Q 29,29 105 24,,76 27,433 +41,447 + 17 - 1,861 - 6 Cm~i- -allte -L-4 -, -8 -LO -j« - ~gphysieet and prlc. on†tagency elioumnces are diStrIbuted according to SMt speclflcation. ~ lhe total shotn to 295 belov the. PE fIgur,, vlhich the. sudlt se soebie to confiro. It is possli l tat no FC lncluded cosmensao 9.1d for houses. demnilsed ln the. Ilanna NiessIf site, ln Der ss Sas, slthough thatoi se s deleted fro. 11e project. The auldit estlastO IS based on MV0MI's de, as explsaned In Annex 8. Local currency ses trsformd ntl U11 dollar equiveint by pplylng the sverage exchage rte prevalent durng lse p1r0od hen co+2 ensu- tIons sere paid, I.., 1979-9g0, ahe tota shone besed on esfuel disbursements ver 44> 1979-1985 perlod, mde sgesast løtegorl- s 1 and - -A. Te1 sarago excshang. rate for Gec disbursemnt year ss usied to der iv loeal current equivatent f igures. Eolas storis and equpent st ood to Tie and to 1100. 1ho tot1i reflects actul disbursements tranIsformed loto T$h equlveot using ile svere emohange ret. of each1 dlsbursement yer. ona nIsd sa a1ta d0sbursm8nts ageInst Ato9r6s 2 -nd 2-A. SExludes b ot s for the construction of voraMshds <astimatod In fin SM et US$373 thousand equivgi-nt), sioce 410 Item 0es subeqOuently transferred to 800. 1) lluldt s stb* to c .firu Te expeditures beause ?15 did not k-p separste scoots for the 1 pojct. -he amount shown8 Is based sa thle total Ti5 feens glven lain e PC <(?1,86,637) minus expendituros for leortetlon of geteri- als anld vdhiclss (T61h2,2397. US doller equlvaient figures refleet average exchange rates for ile yeers 1982-1984 sIhen f6 disbureed thle housintg leans, Sincludes eaGt of equipoent, los†olletton, trolning, and laporetten o$ rev mterils. tinuover, the cost of equiposat represents g$ of the totl. g inclaludes allosstIon for vorlisled construction (US$373 thlousand) ss slti s related infrastructuro (US$127 th,ouasand to Cluse the olster ndustries. 160 Ihe to tei projeot oost estlaste (T8h243,016 ur US$29,280> una corrected for s ulstehe found by ilo esdlt in ile osetsao o otingencies applod to ie 8100 asapanent. The revised total 6,US$14,000 above 01 $2R figur. 40 TABLE 3 PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) A, SOURCES OF FINANCE Appraisal Estimate Actual US$'000 Percent US$'000 Percent Government 4,694 16.0 7,255 26.4 TUB 12,586 43.0 7,419 27.0 SIDO - - 1,222 4.5 IDA 12,280 41.0 11,537 42.1 TOTAL 29,280 100.0 27,433 100.0 $M==M 20M== U = M B. ACTUAL DISTRIBUTION OF SOURCES OF FINANCE BY COMPONENT Total Component Cost Government THB SIDO IDA US$'00O US$'000 % US$'000 % US$'00O % US$'000 % 1. Land 3,928 3,928 100 2. Infras. 10,389 3,117 30 7,272 70 3. Vehicles, Equip. 223 9 4 214 96 4. Housing Loans 7,598 7,419 98 179 2 5. Small Scale Industries 2,636 1,222 46 1,414 54 6. Technical Assistance 1,576 200 13 1,376 87 7. Town Councils 992 992 100 8. Treasury 91 1 1 90 99 TOTAL 27,433 7,255 26 7,419 27 1,222 5 11,537 42 - 41 - TABLE 4 PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) ALLOCATION OF CREDIT PROCEEDS (in current US$ equivalent) Amount Allocated in Amended Actual Disburse- Credit Disburse- ment Agency/Component /a Agreement /b ments /c Difference Category US$ % 1. ARDHI/Civil Works Infrastructure 6,839,000 7,272,076 /c +433,076 + 6.3 1, 1-A 2. ARDHI, THB, DCC/Technical Assistance and Consultants 1,300,000 1,375,883 /e + 75,883 + 5.8 1-C, 3 3. ARDHI/Vehicles, Materials and Equipment 190,000 213,758 If + 23,758 +12.5 1-B, 2-A, 2-B 4. THB/Housing Loans, Vehicles and Materials 170,000 179,460 + 8,860 + 5.2 2, 2-A 5. SIDO/Civil Works for Cluster Industries 122,000 121,346 - 654 - 0.5 1 6. SIDO/Equipment, Installation and Training for Hire-Purchase Program 1,649,000 1,292,898 -356,102 -21.6 2-A, 3-B 7. TOWN COUNCILS/Vehicles, Equipment and Operating Expenses 1,449,000 992,246 -457,154 -31.5 4 8. TREASURY/Vehicles, Equipment and Operating Expenses 280,000 90,004 -189,996 -67.9 5 TOTAL 12,000,000 11,537,671 -462,329 fg - 3.8 /a Two components are omitted, namely Land Acquisition/Compensatl -n, which was to be wholly financed by the Borrower, and Community Facilities, which was deleted from the project. /b In accordance to the last Amendment to the Development Credit Agreement (;)CA)t dated June 29, 1984. The original DCA established only four disbursement ctegories which are not readily comparble with those introduced during project implementation. /c In accordance with World Bank Comptroller's report entitled, "Paid Withdrawals for Credit 0732-TA as of August 1986," of 10/01/86. /d Excludes $121,346 disbursed to SIDO for civil works. 7e Includes consultants assigned to DCC, THB as well as to ARDHI, but disbursements to ARDHI represent approximately 97% of the total against categories 1-C and 3. /f Excludes $403,134 disbursed to SIDO hire-purchase program and $50,267 disbursed to THB for vehicles and materials. Thus disbursements shown above represent primarily ARDRI's reimbursements for vehicles, materials and equipment, L The Credit balance of US$462,329.44 equivalent was cancelled on June 20, 1985, on occasion of the last disbursement. PROJECT PERFORMANCE AUDIT MEMORAND TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) ECONOMIC REEVALUATION Cities Infrastructure Costs /a Building Costs /b Benefits /c IRR Design Surveyed Upgraded Total Incremental Rent Total Benefits Land & Enge Infras. Mntce. Sites Sites Cost Income Per Year Per Year /d (1) (it) (181) All Cities 3,928 788 10,389 992 22,835 9,860 48,792 6,139 2,723 4,117 12,979 21.3 Der es Salaam 2,196 465 6,130 585 16,340 7,520 33,236 4,357 2,256 3,048 9,661. 23.1 Tabora 361 118 1,558 149 1,967 461 4,614 540 92 . 412 1,044 18.5 Tanga 615 71 935 89 2,677 552 4,939 734 110 123 967 15.0 orogoro 571 87 1,143 109 1,155 1,165 4,230 317 233 385 935 18.7 fringa 185 47 623 60 696 162 1,773 191 32 149 373 17.3 /a Source: PPAM, Table 2 and PPAM, Annex B for land compensation costs. Costs shown above are distributed in proportion to the number of units served In each city. /b Corresponding to 3,631 units In Der as Salaam at an Investment cost of US$4,500 equivalent per unit, and 1,856 units in other cities, at an investment cost of US$3,500 equivalent per unit. Investment costs per room in upgraded sites are US$800 equivalent In Dar as Saelam and US$600 equivalent in other cities, for a total of 9,400 rooms in Der es Salaam and 3,900 rooms in other cities. /c Average rents Imputed vary as follows: (1) one surveyed plot room in Oar es Salaam rents at US$300 per year equivalent and in other cities at US$240 p.ea. equivalent. (1i) one room at upgraded sites rents at US$240 p.a. equivalent in Der es Salaam and at US$120 p.a. equivalent in other cities; and (11i) an increment to all rents at upgraded sites equivalent to US$60 p.a. per room in Dar as Saleam and US$36 p.a. per room in the other cities. These general rent increases apply to all 20,128 registered squatter houses* /d Benefits accrue after project completton as follows: 32% on the first year, 53% on the second year, and 100% on the third year and thereafter up to year 25. 43 FIGURE 1 PROJECT PERFORMANCE AUDIT MEMORANDUM TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) DISBURSEMENT PROFILES: ACTUAL vs. APPRAISAL AND TANZANIAN AVERAGE 1o.. SAR TANZANIAN ** * AVERAGE (*) * 4- 4** Credit 732-TA * /- 4 10 80.. 93 SYears of Prolect Implementation ()Combined profile for all loan types disbursed over FY76-85. Source: The World Bank, Updated Disbursement Profiles, October 1985. T HIS PAGE IS BLANK . 45 PROJECT COMPLETION REPORT TANZANIA SECOND SITES AND ShRVICES PROJECT Cr. 732-TA I. INTRODUCTION A. Sector Background Urbanization Trends 1.01 Although one of the world's poorest and least urbanized countries, Tanzania has been experiencing a rapid rate of urbanization. The urban population is currently estimated to be growing at 9% per annum and the proportion of the population living in urban centers increased from 5% in 1967 to about 9% in 1976. Both census and survey data indicate that the rapid growth of Tanzania's towns has been che result of migration rather than natural population increase. Dar bs Salaam (1,011,000) is by far the largest city in the country, followed by Tanga and Arusha (138,000 each). 1.02 Unplanned squatter settlemients have proliferated. Official estimates of the number of squatter houses in Dar es Salaam imply an average annual increase of 16.6% during 1963-73 and a growth rate of 24% per annum subsequently. Between 40% and 70% of the residents of Tanzania's main towns now live in squatter settlements. Although these settlements are not dense by international standards and much of the housing is sound or improvable, the infrastructure in these communities is often inadequate or completely lacking, and their residents have less access to community facilities than other urban dwellers. 1.03 Another consequence of the rapid growth of Tanzania's towns has been an increase in urban unemployment. Population growth has considerably exceeded the creation of new employment opportunities. Regular wage employment, which accounted for just over two-thirds of the employment opportunities in the urban sector in 1969, grew less than 6% a year during 1969-1976. The figure declined further in subsequent years. Average real earnings from this type of employment declined slightly during this period. Informal opportunities (casual and self-employment) grew at some 11% per annum, but because low-income self-employment accounted for much of the growth, average real earnings in this sector were more than halved. As a result of these changes and growth in the labor force, average per capita real earnings fell about 50% during this period and unemployment rose from approximately 8% to 17% of the labor force in urban areas. Furthermore, urban dwellers' purchasing power has been sharply reduced by increases in producer prices for key agricultural goods as well as inflation. Data for 1976 suggest that between one-third and two-fifths of Tanzania's urban households have cash incomes below the minimum wage. Although the minimum wage has been subsequently adjusted upwards on three occasions - May 1980, July 1981 and July 1984 - there has not been any increase in the purchasing power of urban dwellers. On the contrary, purchasing power has been continuously eroded as a result of inflation. 46 Urban Sector Initiatives During the 1970s 1.04 Tanzania's socialist strategy of economic development, articulated in the 1967 Arusha Declaration, focuses primarily on agriculture and emphasizes social equality and self-reliance. Implementation of this strategy has led to more equitable income distribution but has also affected the overall rate of economic growth. The villagization program contributed to a decline in agricultural production, commitment to costly social programs such as universal water supply and universal primary education strained public resources, while nationalization of key econoqkic sectors limited the flow of private investment funds. Administrotive decentralization initiated in 1972 resulted in overextension of scarce administrative resources. These difficulties were exacerbated by the global recession of 1974. Faced with the economic crisis in 1974, the Government took a series of drastic measures aimed at increasing agricultural production, reducing the growth of recurrent expenditures, and freezing wages and salaries. As a result of these measures, agricultural production increased and economic prospects improved. Nevertheless, budgetary and manpower constraints on public policies are likely to remain severe in the foreseeable future. The Government has been recently relaxing controls on various items and has reduced the number of ministries. A few non-profitable entities have been dissolved. All this has been done to reduce public expenditure. Also, to tide over the economic crisis, the Government has recently removed the subsidy on 'sembe', the staple diet of most of the population. 1.05 The national development strategy assigns low priority to urban areas and the urban sector. Since a comprehensive urban policy has not as yet been explicitly formulated, specific measures and initiatives affecting the urban sector have evolved mainly as a result of broader policy actions. Four aspects of the urban sector have been particularly affected: urban rents and incomes, land development and housing programs, industrial and administrative decentralization, and urban administration and finance. 1.06 Urban Rents and Incomes. In order to reduce the gap between urban wage earners and rural farmers, the Government has tried to restrain wage increases for better-paid workers and has tried to raise producer prices for key cash crops. As a part of this policy, since 1969 rents paid by public sector employees living in publicly owned housing have been determined on the basis of their incomes rather than the characteristics of the units. However, the Government is presently reviewing the economic rents being paid for public buildings because they are not applicable to the present situation. The policy has had the effect of redistributing real incomes more equitably among public sector employees. Since Government is the country's main employer, the policy has also had a considerable impact on the urban income distribution. The nationalization of rental buildings and the imposition of rent controls further equalized the distribution of wealth in urban areas, but also discouraged new private investment in construction and adequate maintenance of existings. 1.07 Land Development and Housing Programs. A new National Housing Policy was announced in November 1981. In broad terms, it views the housing problem in two ways. Firsz,emphasis is laid on the improvement of existing squatter settlements and development of new residential areas 47 through surveyed plot programs. The improvement program provides security of tenure in existing settlements and basic environmental improvements. Importance has been placed on the improvement of the quality of houses using locally available materials and the findings of research by the Building Research Unit (BRU). The surveyed plots program uses limited capital resources to provide a planned context for self-help residential construction, offering an affordable alternative to squatting. Secondly, for urban areas, the policy emphasis is on increasing the amount of housing; preserving the existing stock with proper maintenance; encouraging employers to build houses for workers; encouraging people to build their own houses by providing serviced land; credit facilities for purchasing building materials; and technical assistance. Housing cooperatives would also be promoted. 1.08 Industrial and Administrative Decentralization The Second Development Plan (1969-74) designated eight towns outside Dar es Salaam for preferential industrial development. The Third Plan (1975-80) emphasized the development of all 20 regional capitals. Following the economic deterioration, the Structural Adjustment Program emphasized maximum utilization of the existing industries before new ones are built. The private sector is now being encouraged to participate more in industrial development. The development of private industries is now being closely monitored and is being assisted by the Government. 1.09 Administrative decentralization has been more successful. Initiated in 1972, it shifted 40% of the central establishment from Dar es Salaam to the regions. Urban councils were reintroduced in 1978 and local councils in 1983. The main aim is to facilitate the formulation, development and implementation of projects at the local level. In 1973, the Government decided to move the national capital to Dodoma and the office of the Prime Minister has already been transferred there. Plans are underway to shift five Ministries to Dodoma during the next five years. 1.10 Urban Administration and Finance. Following the decentralization measures of 1972 and the abolition of local authorities, the link between revenue collection and expenditure in urban areas was broken. The public finance system is still centralized. However, revenues will now be collected through the local authorities. Allocation of funds to various councils will depend a great deal on the amount of revenue they will be able to collect through a variety of taxes they are empowered to charge. A head tax has also been introduced effective 1984-85, whereby every adult has to pay Shs. 200/- to the local council. 1.11 In line with its general policy, in 1974 the Government abolished a variety of local property taxes and rates, replacing them with a single levy, the Land Rent and Service Charge. This is an annual charge equal to 10% of the economic value of unimproved land as determined periodically by ARDHI valuers. 1.12 Since the revenues from the Land Rent and Service Charge were not earmarked for any specific use, their level was not determined by urban infrastructure expenditure needs but by general budgetary considerations and by the pace of ARDHI's valuation, The latter was slow, hampered by a lack of resources and manpower and somewhat cumbersome valuation methods. 48 There were also delays In transmitting updated valuation rolls from ARDHI to Treasury. Furthermore, because of the equivocal wording of the Land Rent and Service aarge Act of 1974, the charge had not been levied at all in squatter areas, until house registration was completed. The charge is now being effectively collected by Treasury in the upgraded areas of Phase I and also a start has been made in the upgraded areas of Tanga, Morogoro, Iringa and Tabora where house registration is completed. Registration is in progress at Mtoni Tandika. It is believed that with the reintroduction of Urban Councils, collection will be more efficient because they will get part of the revenue for their use under the Urban Authorities (Rating) Act. 1.13 While the 1972 reform specifically sought to transfer public expenditure from urban to rural areas, its impact on the former was accentuated by the general budgetary crisis and lower than expected yield of subsequently introduced new levies such as the Land Rent and Service Charge (LRSC). The result was a steep decline in the resources available to urban areas in absolute as well as in real terms. The lack of funds for maintenance and new infrastructure investment caused a large-scale deterioration of urban infrastructure, necessitating stop-gap remedial measures. With the reintroduction of Urban Councils who have been empowered to collect property rates and head tax, it is likely that urban infrastructure may receive adequate maintenance in the future. But progress in this respect would also greatly depend on the ability of the local authorities to effectively manage their environment programs and build up an efficient collection system. B. The Project 1.14 The project was designed for implementation over a four-year period, and was to be the second phase in the Government's nationwide low-cost housing program. As appraised, it consisted of: (a) Provision of about 18,985 surveyed plots, and 1,518 serviced sites for low-income housing at Dar es Salaam, Iringa, Morogoro, Tabora and Tanga. The plots actually surveyed and actually serviced with their respective locations are shown in the table of 'Key Indicators'. The criteria used for the selection of project sites included the availability of a reasonably large parcel of land in conformity with the master plan, a good location in relation to job opportunities, transportation and off-site infrastructure, and good natural drainage. Due to the magnitude of the problem there, about 70% of the plots were to be in Dar es Salaam. The typical plot size was to be 288m2, which although large compared to previous Bank/IDA projects, was appropriate in the Tanzania context where multi-family occupancy and gardening are widespread; (b) upgrading of existing squatter settlements consisting about 16,000 families in Dar es Salaam, Iringa, Morogoro, Tabora and Tanga. Simple layouts were emphasized for economic construction and servicing and minimizing compensation payments. The size of the project and the number of regional centers included were determined by the estimated capacity of ARDHI, THB and the regional administrative offices; 49 (c) provision of twelve community education centers, one health center, four Maternal and Child Health (MCH) extension outposts, four markets and two extensions of existing markets; (d) financing for low-income housing loans through the Tanzania Housing Bank; (e) consultant services for the design and detailed engineering of basic infrastructure and overall project supervision and for reviewing the land rent and service charge system; (f) a training programme for technical staff of the executing agencies; and (g) equipment and vehicles. 1.15 Total costs were estimated to be approximately TShs. 243 million (US$29.2 million equivalent). The IDA Credit of US$12.0 million was to finance the foreign exchange costs and 28% of local costs. The principal objectives of the project were to: (i) support Tanzania's continued determination to deliver housing and services to the country's low-income majority (ii) enhance the living conditions of the urban poor through basic improvements in their environment (iii) extend the first project to more regional centers (iv) build up the institutional capacity for implementing similar projects throughout the country (v) open up access to credit for low-income families to build low-cost housing, and (vi) increase the housing stock and service infrastructure for the low-income population in project cities. 1.16 ARDHI's principal criteria in selecting town for the second project were the magnitude of the squatter settlements and demand for plots as determined by the number of applications at the District Land Offices. Other factors such as potential compensation costs for displaced squatters direct requests from regions, geographical balance and availability of assistance from other sources were also given consideration. On the basis of ARDHI's recommendations, Dar-es-Salaam and four up-country towns, (Tanga, Morogoro, Tabora and Iringa) were included in this project. 1.17 The project was set up for an implementation period of four years: The special unit, initially known as the Sites and Services Directorate, which had been established in ARDHI for the preparation and implementation of the first project, was also to be responsible for the second. It was headed by Tanzanians. Consultants were to be used in the areas of engineering and design. 50 II. PROJECT IDENTIFICATION, PREPARATION AND APPRAISAL A. Identification 2.01 The Project is the second phase of the National Sites and Services Program. While the first phase involved new serviced plots and improvements in squatter communities in Dar es Salaam and two regional centers, the second project extended the program to four other regional centers as well as to new sites in Dar es Salaam. The primary emphasis of the project was on upgrading and on surveying of plots which would be serviced as settlement occurred. S. Preparation 2.02 ARDHI began planning the project in 1975 using preparation funds included in the first credit. Preparation was carried out with the help of an engineering consulting firm. Missions visited Tanzania in March and July 1976 to assist with and review project preparation. 2.03 Before the visit of the appraisal mission the consultants prepared preliminary engineering designs and cost estimates for the physical components. Preparation of the rest of the project, including THB's lending program, institutional and financial aspects, as well as technical assistance was far less advanced. Most of the work on these components was done during the appraisal mission with the assistance of Bank staff. C. Appraisal 2.04 Appraisal took place in October 1976. The mission consisted of five Bank staff and two consultants who collectively spent 16 staff weeks on the task. The appraisal concentrated on working out a suitable composition of the project. III. IMPLEMENTATION A. Effectiveness and Start-up 3.01 The project having been appraised in October 1976, while formal approvals to the loan application were being processed, tenders were invited for consultancy services for the detailed engineering design and supervision of construction of infrastructure services. The contract was finally awarded to a Nairobi-based firm of consulting engineers %lth a commencement date of lst July, 1977. There were some delays in the initial stages resulting from the border closure between Tanzania and Kenya. 3.02 It was agreed that contracts would be signed for the work in each town separately. The consultants were therefore to program the completion of the design work in the following order: Tanga, Morogoro, Iringa, Tabora and Dar-es-Salaam. Tenders for construction were called in that order. 51 B. Progress of Physical Works 3.03 The physical components of the-project can be divided into the following categories: 3.04 Infrastructure: Infrastructure contracts covering roadworks, drainage and water distribution networks were revised to accommodate changes unforseen at appraisal. The main modifications were: (i) services to the area north of Gofu Juu (named Nguvu Mali) in Tanga were deleted from the contract since thi plots in this area were allocated to some people other than those whose houses were demolished in Gofu Juu, (ii) The scope of drainage at Msamvu, Morogoro was increased to include the construction of a pipe culvert across the Tanzania-Zambia Highway, (iii) A vehicular bridge was added across Morogoro River to provide the link between Kichangani and Msamvu, which is now serving as a very important link road, (iv) The people whose houses were demolished at Mtoni Tandika, Dar es Salaam could not be resettled in one pocket of land at Mbagalla, they had in the end to be scheduled in four different areas at Mbagalla. (v) A 350mm ductile iron main had to be laid from Pugu Road up to Mtoni water works to boost the pressure in Mtoni Tandika - Dar es Salaam area; this was necessary since the pressure in this area was rather low and residents would not have received any water even if a sophisticated distribution system had been laid, (vi) Some of the roads in Mtoni Tandika and Mbagalla - Dar es Salaam which were initially designed to have gravel wearing surfaces, were down-graded to earth standard because of shortage of funds. 3.05 Work in upgraded areas proved to be more difficult than anticipated. In most cases, the contract commencement date had to be revised because of delays in allocating plots and payment of compensation for crops encroaching on the road reserves. The maximum delay was experienced in Mtoni Tandika - Dar es salaam for which the commencement date was 1st February 1981, but the plots continued to be allocated until late 1982. 3.06 Electricity: Because of the increase in the cost of infrastructure works and the poor working experience with TANESCO during the first project, the work on providing security/street lighting was deleted in 1981. However, the design drawings and bills of quantities have been completed by the Consultant and have been submitted to ARDHI and TANESCO. 3.07 Community Facilities: Because of cost increases, the construction of community facilities was deleted in 1981 although a total of 24 plots for such facilities have been earmarked, cleared and serviced. 3.08 The procurement of building materials became extremely difficult as the economy deteriorated following the world oil price increases in 1973/74, the collapse of the East African Community in 1977 and the 1978/79 war with Uganda. Building material industries operated well below their installed production capacity and imports were inadequate to meet the shortfall. In 1977, for example, the total demand for cement in the country was estimated to be 800,000 tons, whereas only 246,500 tons were produced locally and another 200,000 tons were imported. The supply was therefore adequate to meet only 56% of the demand. Similarly in 1978, 52 supply was estimated to be only 36% of demand* The shortages were much more acute in the up-country towns as a result of the system of pan-territorial pricing whereby differential pricing according to location and transport costs was not allowed. Subsequently, however, the prices for cement were fixed by the regiotis with effect from June, 1982 taking into account the transport costs. Another very important factor affecting the rate of progress has been the acute shortage of stone resulting from the general shortage of explosives in the country. Shortage of fuel, tires and spare parts for equipment have been other contributing factors in the delay in completion. Most of the fuel and cement required at Tabora had to be sent from Dar es Salaam, i. process which was often hampered by the non-availability of railway wagons. Furthermore, even when materials were available, they were often sold on the unofficial market at highly inflated prices. 3.09 There was a long delay in importing water supply fittings which are not manufactured locally. Because of foreign exchange constraints, permission to import the fittings was not granted by Bank of Tanzania. The matter was finally resolved by the World Bank paying directly to suppliers overseas. It has been very difficult to get the water supply work completed at Tanga, Morogoro and Iringa since the contractor had demobilized by the time the water supply fittings arrived. 3.10 House Improvement and Construction: The target which were set under tnis component were that, THB should finance 9.480 loans of which 920 would be for households to be relocated and continuation of areas of Phase I, another 2,860 loans for upgrading areas and 5,700 loans for surveyed plots. Sites in regional towns to have been covered under this programme for squatter upgrading were: Tanga - Mwakizaro and Gofu Juu Morogoro - Kichangani and Msamvu Tabora - Isevya and Kiloleni Iringa - Kihesa Additional areas which were a continuation of Phase I were:- Mwanza - Nyakato Dar-es-Salaam - Kijitonyama, Sinza, Mikocheni, Manzese A and B, Mbagala, and Mtoni Tandika Mbeya - Mwanjelwa. 3.11 The project started in 1977 and closed in June 19b4 although it was earlier anticipated that it would have been implemented over a four year period; start up on the part of THB depended on completion of other physical components of the project which inclided infrastructure and house registration, Because of delays in completion of these components, the THB component was delayed by four years. Therefoie, THB continued to give loans to areas under Phase I and started exteiding loans to Phase II areas in December 1982. A total of 4,236 loans were made to plot beneficiaries under the first project. Under the second project, at appraisal, it was anticipated that some 9,480 loans would be made for home improvement and construction but only 308 loans were given. The target was not reached for the following reasons: 53 (a) Delay in taking off which was caused by late completion of infrastructure and other facilities. The first loans to project beneficiaries under Phase II were granted in Dar es Salaam project areas in December 1982 and the first applications from upcountry towns were received in January 1984. (b) At appraisal it was also anticipated that materials depots would be established in all project areas. As it turned out, only one depot was established in Dar es Salaam to cater for six project sites. Although the THB tried to transport some materials to upcountry towns, this was hampered by inadequate transport facilities and erratic supply of materials from the factories. The arrangement did not last. Cement was not imported as should have been the case, but arrangements with local suppliers were made so that the project could secure cement and corrugated iron sheets in quotas. Inspite of these arrangements shortages continued causing delays in house construction. Unlike cement and corrugated iron sheets other building materials did not suffer from severe shortages and were generally available at retail outlets. (c) Loans to improve existing homes (house improvement) was one aspect of the housing component which did not materialize as THB was hesitant to extend this type of loan because of the lack of proper titles in upgraded areas. C. Progress of Other Programs 3.12 Small Scale Industry. The project design provided for an experimental program of assistance to existing and new small-scale industries in Tabora and Tanga. Serviced sites for workshops, credit for equipment and technical assistance were to be provided. 3.13 Serviced sites have been prepared as follows: Tanga - Gofu Juu 6 plots Mwakizano 6 plots Tabora - Kiloleni 12 plots Isebya 16 plots 3.14 Training: It was intended to use the services of an Engineering Instructor for training the local personnel in various aspects of engineering design and construction supervision. However, it was later found more appropriate to attach the trainees to the engineering consultant's office where they would be working under different engineers and closer supervision. In all, 5 graduate engineers and 10 technical assistants have received training under this scheme. In addition the following training/postgraduate education was funded by the World Bank fully: 54 1. Review trip in East Africa for 6 officers 2. Housing Studies at Bouwcentrum, Netherlands - one officer 3. Postgraduate education in Economics in U.K. - one officer 4. Postgraduate education in Urban Planning in U.K. - two officers 5. Training in the use of micro-computers - two officers. Furthermore, five Accounts Assistants were given on-the-job training by the Consultant Financial Analyst. 3.15 Monitoring and Evaluation: Monitoring and evaluation became a part of the management information system under the second project. Periodic returns based on the formats developed by the Bank team in consultation with the Project staff were compiled and submitted to the Bank. D. Project Costs 3.16 Costs were closely watched and the scope of works adjusted to retain priority items while keeping within the budget. However, reshaping the project was found necessary in 1981 to accelerate progress, as well as to trim the scope, complexity and cost to a more achievable level. In the process, urban councils and the Treasury were directly involved in the implementation of the project. The value of the shilling, however, fluctuated. The appraisal was based on the currency rate of US$1 - 8.30 TSh. Since then the local currency underwent many devaluations, the latest one being in June 1984 when US$1 was equivalent to TShs, 17.50. As a result of this the total project cost in terms of local currency increased by 13.8% whereas in terms of US$ it showed a decrease of 10.8%. 3.17 The cost overrun on equipment and vehicles was due to increased quantities having been purchased during the latter part of the extended implementation period in accordance with the reshaped project. These overruns were offset by reductions in the scope and costs of community facilities and THB house construction loans. 3.18 There was a five-fold cost-overrun in compensation for land acquisition. This was caused by the additional house conbtruction which took place after project preparation and by the slightly wider road reserves adopted during detailed design. E. Procurement of Equipment and Vehicles 3.19 As the economic condition of the country deteriorated, availability of spares continued to be difficult. Contractors were therefore allowed to import spares and equipment worth US$302,000. In addition, road maintenance equipment has been procured for various Town Councils. Office equipment and vehicles have been procured for ARDHI, THB, DCC, SIDO and Treasury Collections Unit for speedier implementation of the project. 55 F. Disbursements 3.20 Chart 1 compares the actual disbursement schedule with that anticipated at appraisal. Delays in disbursements reflected del-Sys in Implementation and in submission of requests for reimbursement. The project, however, does not compare favorably with the first project as indicated in Table 3, with less than half the funds disbursed by the end of Year 4. G. Unit Costs 3.21 Actual unit costs in US$ were significantly lower than anticipated at appraisal (Table 4). The reason was the devaluation of the Shilling and the increase in the number of households benefitting from the project. While actual unit costs in shillings were 41% more than appraisal estimates, they were 33% less in terms of dollars (Table 5). The lowest actual unit costs were recorded in Iringa at TSh.4,656/- (US$266) and the highest at Tabora at TSh.6,513/- (US$372). As a result, these costs were higher in nominal terms - about three and a half times higher - than those achieved in the first project. H. Conclusions 3.22 The project, as implemented, differed from that appraised in that: (i) there was a 46% increase in the number of household provided with services in the upgraded areas, (ii) 3% of the anticipated number of construction loans were provided by Tanzania Housing Bank, (iii) the program of surveyed plots actually implemented was 34% of the number estimated at appraisal, (iv) no community facilities were constructed as against the anticipated number of 24, and (v) an alternative cost recovery system needed to be devised to enable the urban councils to get the much-needed funds for maintaining the infrastructure. 3.23 Implementation took longer than anticipated which was the result of the changes in the institutional and economic environment. The closing date of the project was extended by 21 years from 12/31/1981 to 6/30/1984. This was to allow for the completion of infrastructure services and to enable the Tanzania Housing Bank to improve its lending program and the draw-down of project funds. 3.24 The number of households provided with services increased by 7,206 or 46% of the original quantity envisaged at appraisal. Project benefits were therefore delivered to a wider section of the community and unit costs were lower. This achievement should not however cloud the fact that overall costs in shillings were considerably higher than appraisal estimates. This situation was unavoidable considering the general economic situation at the time, especially the rising rate of inflation. Inflation was 7.3% in 1978. The figure for 1984 is 31.7%, with an average of 22.2% in the seven year intervening period. On balance, the project costs were well controlled, thanks to the joint efforts of the consultants, executing agencies and Bank staff. 56 IV. OPERATING PERFORMANCE A. Role and Performance of Consultants 4.01 Consultants were hired to assist with various stages of project preparation and implementation. Apart from detailed engineering design, consultants were involved in preparing a study of the land rent and service charge system advising and assisting ARDHI (Later PMO) with controlling project funds, and to work with Dar-es-Salaam City Council on house consolidation. In addition, four consultants were hired to prepare a Third National Sites and Services Project. The performance of consultants was generally satisfactory. They also took the opportunity to train local staff in their respective technical fields. Training was however, hampered in many cases by the lack of suitable local counterparts. 4.02 The engineering consultants had some problems initially trying to co-ordinate activities between Dar es Salaam and Nairobi, particularly because the border between the two countries was closed from 1978 to 1983 (the border closure took place after signing of the contract with Consultants). The movement of professional and technical personnel between the project towns was also hampered by several outbreaks of cholera in Tanzania with the resulting restrictions on personnel movement. 4.03 As results of studies/evaluation completed under the first project became available during the late stages of implementation, the importance of infrastructure design and standards on maintenance became evident. The issues raised in the studies related to the question of appropriate standards and trade-offs in initial capital costs of different standards. In view of the results of these studies some adjustments were made by the consultants during construction, For instance, whenever possible and given the availability of funds bitumen surfacing was provided for major roads and storm water drainage was lined (stone pitching). 4.04 The management consultants who prepared a study of the operation of the Land Rent and Service Charge system produced a report recommending a simplified valuation technique which was considered by Government but could not be adopted immediately due to difference of opinion at the technical level. The major argument against the proposed system was that it had not been implemented elsewhere. 4.05 Relations between the Tanzanian authorities and consultants were cordial and cot-ducive to effective performance. This is partly the result of experience gained in the firdt project, Individual consultants were able to adjust to working conditions in the public sector and to winning the confidence of trainees, Government officials and contractors. Where professional tasks were divided between consultants and staff, for instance in the planning of upgrading sites, effective co-ordination was achieved. It is envisaged'that in future consultants will still be required to contribute expertise in specialized fields where it has not been possible to develop local skills. 57 B. Performance of Contractors 4.06 Contractors generally did a good job and completed the infrastructure works with minor time overruns. In nearly all cases it was necessary to charge liquidated damages and in one, that is at Iringa, there were so many problems (shortage of water supply fittings, lack of spares, fuel, and death of a senior partner of the company, etc.) that termination was considered. 4.07 It has been found that contractors in Tanzania have a very casual attitude towards completion schedules. There is need for Government to tighten dis"ipline by enforcement of Conditions of Contract on defaulters, especially as it is relatively easy for contractors to use the scarcity of materials, fuel and spares as an excuse for poor performance. 4.08 Experience has shown that local civil engineering contractors are unable to carry out work relating to water supply. At tender stage the consultants had recommended award of water supply work to specialist contractore. However, this recommendation was not accepted in order to ensure that there was no clash due to different contractors working on site. Subsequent experience has shown that it is advisable to appoint a separate specialist contractor with suitable provisions in the tender documents relating to co-ordination of work. 4.09 At the time of tendering although firms were prequalified for each site many of these firms experienced increasing difficulties over time as result of deteriorating economic situation within the country which was not envisaged at the prequalification stage. Efforts were made by the Project authorities to provide as much assistance as deemed necessary to the contractors. For instance funds under the project was used to allow contractors to import essential spares and equipment. 4.10 From the experience of the delays in the importation of water supply fittings, it is necessary in the future to allow a certain percentage of the contract of sum to be disbursed overseas to cover the importation of essential materials and spare parts. 4.11 If the public sector is to continue to play an active role in implementation, the rules and procedures for establishing contractual obligations between government agencies will need to be more precisely defined. Procedures for the timely resolutions of conflicts should also be more clearly defined, and 100% advance payments, which is currently the practice, should be avoided. C. Performance of Standards Used 4.12 Infrastructure. The modest infrastructure standards used were basically the same as those used in the First Project. They were based on the assumption that a reasonable level of maintenance would take place and on specific types and volumes of traffic. The wearing surface of roads is gravel made from coral rock or disintegrated rock in other regions, Since there is little bituminous surface, it is important that regular maintenance of roads is carried out after every rainy season. Again, since most of the drains are earth and unlined, it is necessary that the drains 58 are cleaned before every rainy season so that the drainage system can work effectively. It has been noticed that traffic volumes on project roads are higher than originally anticipated and this will accelerate the deterioration of the roads if proper maintenance is not carried out. 4.13 To overcome this problem, and due to the deteriorating economic situation which made it extremely difficult for local authorities to procure spares and requisite equipment to undertake adequate level of maintenance some equipment was procured within the project for every Town Council to facilitate maintenance operations. In Dar es Salaam, where the bulk of investment took place, road maintenance equipment has also been purchased for use by the City Council. 4.14 Community Facilities: Because of cost overruns on other aspects, the construction of Community facilities was deleted although plots for various facilities have been earmarked and cleared. Community facilities, unlike the basic infrastructure services, would be built over time as financial resources become available. 4.15 Mapping and House Registration: Maps and house ownership registers have been prepared for all the upgrading sites. The purpose is to facilitate revenue collection and update official records on these areas. The standards of accuracy used in mapping were adequate for the purpose; it was more important to document the approximate size and location of the dwelling than to record its exact dimensions to the inch. 4.16 House Construction: In the First Pr3ject, the THB, in cooperation with the Building Research Unit (BRU), a Directorate in the PMD's office, had produced type plans for building in traditional materials as well as sand-cement. Model houses had also been constructed in project sites. However, THB has financed no sand-cement or mud and pole units whatsoever. It appears that some town and housing bank officials did not fully understand the project concept and have discouraged rather than encouraged the initially low standards. Furthermore, the letters of offer sent to plot recipients and the certificate of occupancy issued by the local authorities require construction in "permanent" materials. This was contrary to agreements reached with the Bank that the Government would award the certificate of occupancy to permit plot recipients to build their house in "semi-permanent" materials. This issue was raised by the Bank on several occasions with ARDHI and the local authorities, but inspite of repeated assurances from Government no changes were made. Although ARDRI claimed that it was not enforcing this clause, some town officials appear to be doing so which may have discouraged some plot recipients from investing in "non-permanent" materials on their plots. 4.17 Many project participants in upgraded areas have built additional rooms and rendered their mud and pole houses with cement, thus greatly improving the units' durability and value. Most, however, have chosen to build in sand-cement. D. Compliance with Covenants 4.18 Minor problems occured with the compliance of some of the covenants but corrective measures were taken before the situation got out of hand. 59 4.19 Collection of the Land Rent and Service Charge on surveyed plots proceeded well with the Internal Revenue collecting the land rent and the urban authorities collecting the rates (property tax). Collection of the TSh.100 - subsequently raised to TSh.125 - in upgrading areas was undertaken as soon as house registration had been completed on each site. 4.20 The allocation of plots according to agreed criteria was to some extent marred by the lack of reliable income data. Some applicants declared an income of say TSh.800 at ARDHI so that they could qualify for a plot, and a much higher income at THB to raise the loan ceiling. Displaced persons were resettled on surveyed plots. However, the question of double allocations plagued the allocations process throughout; it was most acute in Dar es Salaam. DCC was aware of it and undertook the necessary measures to remedy the situation in so far as that was possible. They were assisted in this effort by a consultant. 4.21 Although adequate progress was made with revenue collection in the upgrading areas, performance with regard to the granting of short-term occupancy rights has been poor. This is a covenant which ARDHI and DCC have been reluctant to observe for a variety of administrative and technical reasons. In the first place during implementation when this issue was raised with ARDKI and DCC, the unavailability of supplies such as paper, ink, etc. was cited as the major bottleneck. Consequently, during the reshaping of the project funds were made available to DCC for procurement of essential supplies which were not available within the country due to the deteriorating economic situation. Inspite of these arrangements DCC failed to make progress with the issuance of short-term occupancy rights. -The failure to observe this covenant appears to be as a result of a lack of commitment and low priority assigned to this by DCC. Whereas in planned areas issuance of occupancy certificates is essential for construction of dwellings in upgraded areas where dwellings are already established. There was no incentive for issuance of short-term occupancy certificates. Consequently, it would appear that DCC did not view this as an important function. 4.22 Adequate Staffing of the Sites and Services Directorate in ARDHI has been satisfactorily executed considering the acute staffing problems experienced throughout the public sector in Tanzania. Most key posts have been filled. Top positions in engineering and finance are still however being held by expatriates. 4.23 Due to the deteriorating situation vis a vis maintenance of infrastructure in all the project towns funds were reallocated from the THB component for purchase of addition spares and equipment for us3 by urban authorities. However, personnel shortages, inadequate organization and insufficient recurrent budgets have made it difficult for the relevant urban authorities, including DCC, to carry out effective maintenance. 4.24 Whereas ARDHI/PMO found it relatively easy to maintain separate project accounts and have them audited and submitted, THB displayed a lack of commitment towards maintaining separate accounts. A separate project account was not maintained. Audited accounts for FY's 1918-1984 for the whole of THB were not available till mid-1984 after there had been a change in THB's top management. THB did also not observe the covenant requiring 60 staffing of the sites and Services Unit by September 30, 1977. There were frequent changes in the unit to the extent that it was difficult to maintain continuity. 4.25 Generally, the compliance with covenants was more satisfactory at ARDHI/PMO/Treasury than THB, but even in the former case performance (i.e. allocation of plots, issuance of certificates of occupancy, etc.) was not impressive. E. Financial Performance and Project Replicability 4.26 Pricing. Individuals were expected to make monthly payments for ground rent, repayment of construction loans, and utility bills, if any. The ground rent was to consist of a statutory ground rent and a service charge. The statutory rent was to be a charge levied by the Treasury for the privilege of using land, calculated at 4% of its capital value, whereas the service charge was to be based on the cost of the infrastructure provided. 4.27 Cost Recovery Performance. Plot occupants employed by the Government, parastatals and businesses with ten or more employees, were expected to make monthly payments through a salary deduction system. Beneficiaries without a salary deduction option were expected to pay through ARDRI's regional offices. 4.28, In order to implement the provisions of the new legislation the economic value of the land had to be determined, houses had to be registered and demand notices sent out before actual collections could take place. There was, therefore, an extended period when very little progress was made during which the Association repeatedly expressed its concern. In October 1976, during negotiations for the second project, the Government agreed to launch a nationwide program of house registration, starting in Manzese (serviced during Phase I), and to review the provision of the LRSC Act with a view to expediting the start-up of collections. The study was completed in August 1977. 4.29 By April 1978, however, only six of the 42 blocks in Manzese had been registered. Collections of land revenues nationwide continued to be poor as derand notices were being sent through the mail to plot-recipients at their post-office boxes and it was virtually impossible to personally contact defaulters. Furthermore, the Treasury, which was responsible for collections had very little incentive to collect these charges, as they represented a very small percentage of their total revenues. Local authorities in the other hand could perhaps have done a better job but under the existing system Treasury was not allowed to delegate collection of responsibility to the Local Councils. 4.30 In June 1980, a paper recommending an interim charge of 100/- was approved by the Economic Committee of Cabinet to facilitate the initiation of collections pending the development of an appropriate system for plot valuation. Simultaneously, the Association and the agencies involved in the implementation of the project undertook a review of the experience with the Treasury, financed from the proceeds of the second project. By December 1980, the registration of Manzese has been completed by ARDHI and handed over to the new collections unit. 61 4.31 Cost recovery was finally initiated in Manzese in March 1981 when preliminary demand notices were issued to the residents. By April 1982, 80% of the expected amount had been collected. 4.32 ARDRI has subsequently registered all the sites upgraded under the first project and the unit in the Treasury is proceeding with collections. The position with respect to the sites upgraded under the second project is as follows: Name of Town House Registration Collection Tanga Completed Started January, 1983 Morogoro Completed Started September, 1983 Tabora Completed Started June, 1984 Iringa Completed Started April, 1984 Dar es Salaam (Mtoni Tandika) In Process Scheduled to Start January, 1985. Due to delays in completion of house registration collections in most of the project areas began towards the end of the project implementation period. Collection statistics indicate that collection rate is about 50%. 4.33 The redelegation of responsibility for collections to urban authorities as of June 1982 is an encouraging move in a direction supported by IDA. The incentive to col .ect these charges at the local level is likely to be much greater than that at the central level as the amount involved represents a significant portion of the local budget but only an insignificant share of general revenues. 4.34 Urban authorities received half the proceeds collected by the Treasury Collections Unit. As of June 1984 TSh.4.4 million had been collected from first and second project sites. It is expected that the collections rate, now averaging at about 50%, will improve as the coordination between PMO, Treasury and urban councils gets better and registration is completed at Mtoni-Tandika. 4.35 The Land Rent and Service Charge Act has been repealed and replaced by the Urban Authorities (Rating) Act with effect from July 1, 1983. The effect of this new legislation is that property owners outside the upgrading areas have to pay a land (ground) rent to the central government and rates or service charge to the urban council. This also applies to serviced sites and surveyed plots. 4.36. Proceeds of the credit made available to THB by the Treasury at 3% interest for 25 years were to be onlent to beneficiaries at 6%. Funds accruing to THB as a result of the difference between its borrowing and relending rates were to be used for future loans, after covering administrative costs and any defaults in repayment. In 1979, however, as indicated below, as part of an overall revision of its interest rate structure, the rate chargeable on these low-income urban housing loans was reduced to 4% thus reducing the spread and therefore the potential for the 62 creation of a revolving fund. No information is available on THB's collections, since THB did not maintain separate project accounts as required by the Project Agreement. Although the Bank did discuss with THB the importance of considering an increase in interest rate, the fact that under this project THB was lending primarily its own money (about 90%) did not provide the Bank enough leverage to insist upon an increase in THB's lending rates. 4.37 THB's performance in the first project was disappointing. It did not improve in the second. Rapid expansion had not been matched by an equivalent growth in non-mortgage investments. The debt/equity ratio declined from 1.53 in 1976 through 5.26 in 1980 to 8.73 in 1983. Profits after tax were a mere Shs.900,000 in the 18 month period ending June 30, 1983. The auditors' report for FY 1982-83 carries serious reservations relating to: (a) Incomplete records of mortgage loan balances; (b) The absence of bank reconciliation statements for some months and incomplete statements for the remainder with material unexplained items; (c) Inaccurate accounts of the public deposits; (d) Missing details of housing deposits; (e) Large amounts of staff debts; (f) Unavailability for verification of title deeds of houses for sale; (g) An unexplained mortgage suspense account containing substantial amounts of money, and; (h) Bank exceeding its borrowing powers. 4.38 In the light of all this the Bank's capacity to continue participating in large-scale shelter programs of the type executed in the Project is largely dependent on the government's willingness to take peremptory and swift remedial action. F. Conclusions 4.39 The principal conclusions on general operating performance are: (a) Consultants made a useful and effective contribution while at the same time helping to train local staff; (b) Unforeseen circumstances like cholera outbreaks, the collapse of regional cooperation, and materials scarcities were dealt with by trial and error, in most cases with reasonable success; 63 (c) Contractors needed close and strict supervision plus assistance in procuring essential materials and spare parts. Judicious enforcement of conditions of contract was necessary, but at times this was not practical due to serve economic environment; (d) Maintenance of infrastructure especially roads and stormwater drains continued to be a problem which the Project could only partially attempt to address due to lack of funds; (e) The planning, design and construction standards were generally acceptable to officials and the target group. Since the results of evaluation of experience under the first project became available at later stage of implementation of the project to was only possible to apply the experience of the first project to a limited extent; (f) Compliance with covenants was satisfactory - better in government departments than THL; (g) Cost recovery got off to a fairly good start but could have commenced earlier; (h) THB has been unable to revise lending policies and practices to meet the long term needs of the low income population, and has made it a formal policy to lend only to those with a certificate of occupancy in surveyed areas. In upgraded, however, certificate of occupancy is not critical for securing TUB loans because lending in these areas is carried out under procedures applicable to rural areas. V. PROJECT BENEFITS A. Beneficiaries 5.01 About 320,000 persons have been provided with services in newly serviced and upgrading areas. Eighty percent of these beneficiaries are in upgrading areas where the majority of residents are within the target group. The project has also met the demand for new shelter by providing 6,500 surveyed and 3,700 serviced plots. 5.02 As in the first phase, the sites and service areas attracted applicants in a much higher income bracket. This is evidenced by the size and quality of the houses built. This is especially so in Dar es Salaam, where THB records show that a higher proportion of loans over Shs. 35,000 has been advanced than in the secondary towns. While some plots in the serviced areas may have been allocated to persons outside the target group through corruption and the enormous pressures resulting from the scarcity of serviced plots in the towns, the emphasis of this phase on upgrading means that more low-income earners have benefitted. 64 5.03 The surveyed plots program introduced a novel way of making residential plots available at minimum cost and great speed. The demarcation of sites for community facilities has created the opportunity for local communities to build their own educational and health facilities using the self-help approach. 5.04 The project is estimated to have resulted in over TSh.700 million (US$67 million.) in additional investment in house construction and investment. The work was done through a combination of self-help and hired artisans. Employment was thus generated on the order of about Shs.140 million (US$13 million). Families in both new and improved shelter were able to earn additional income by subletting some of the rooms. 5.05 Through house registration a total of 30,000 plots in upgraded areas have been absorbed into the mainstream of municipal administration and their owners have received de facto recognition of ownership, although arrangements for granting short term rights of occupancy have not been finalized as originally envisaged at the time of project appraisal. This will affect the owners' ability to obtain a future loans from THB, as THB's policy is not to lend to those without a certificate of occupancy. 5.06 During the course of the project a Collection Unit was established in the Treasury for the purpose of collecting land rent and service charges on the project sites. A total of TSh.4.4million was collected in the three FY's ending June 1984 on behalf of central government and local authorities. The collection rate currently is less than 50%, but this is expected to rise in future with the completion of house consolidation and registration. 5.07 The less tangible benefits include the training received by technical personnel in the Government, THB and other local authorities, improvement in living conditions in what had hitherto been considered slums, improvement in the communications networks of the project towns, and expansion of the indigenous building materials industries and distribution networks. B. Economic Reevaluation 5.08 The internal rates of return for the second project were significantly higher than for the first. This is reflected by appraisal estimates as well as figures for completed projects. In the first project the economic rates of return varied from 10.4% to 14.5%. Re-estimates done on project completion showed rates of return ranging from 20% to 33%. Upgrading sites showed a higher return. At appraisal of the second project the rates of return varied from 19% to 28%. 5.09 Reestimates now reveal that these figures were quite conservative (table 7). This is largely due to two main reasons. Firstly, the project benefitted a lot more households than originally anticipated, about 50 percent more; secondly, the bulk of the funds were spent on squatter upgrading, which inherently yields a higher return than sites and services. 65 5.10 The basis of the calculations is the relationship between the rental value of the new.units in the sites and services and surveyed areas, and the investment in the form of infrastructure and building costs; for upgrading sites two types of changes were taken into consideration, that is the rent increases due to improvements, or extensions to individual houses, and general rent increases resulting from improved services and environmental conditions. C. Conclusions 5.11 Project benefits reached a lot more poor people than originally planned. At the same time house owners in the upgrading areas had the benefit of having their property formally registered, while the government managed to collect a reasonable level of revenues. 5.12 Rates of return were significantly higher in Dar es Salaam than in the secondary towns, largely because of the relatively high rents and low construction costs in the capital city. VI. INSTITUTIONAL DEVELOPMENT AND PERFORMANCE 6.01 The first project had been implemented by the Ministry of Lands, Housing and Urban Development (ARDHI) and the Tanzania Housing Bank (THB). The two continued to serve as the principal agencies in the second project, with the additional support of the Treasury and the urban councils especially Dar es Salaam City Council (DCC). By far the most important capacity to design and execute an on-gcing sites and services program. 6.02 ARDHI's Sites and Services Unit was to be reorganized and fully equipped to assume overall responsibility for the overall scheduling and coordination of the surveyed plot program. The Unit's Planning Section would collaborate with planning staff in regional offices to select sites and prepare detailed layouts and planning guidelines. The Engineering Section would coordinate the detailed engineering and supervision of construction contracts for physical infrastructure and community facilities. 6.03 Management and community development capabilities were to be strengthened mainly through the preparation of a management manual and guidelines, the recruitment of a financial analyst to head the financial management for the project, and conducting an orientation seminar for local officials. The management manual was never prepared. Community development and land officers were to receive a high profile in implementing the non-physical aspects of the project. However, the Unit was assigned only one community development worker, and he was formally attached to the Housing Policy Division, not the Unit. 6.04 As urban councils were non-existent at the time of appraisal, it was envisaged that local project teams headed by a Coordinator and Site Officer would work in each town under the overall direction of the Regional Development Director. The Sites Officers would work closely with the new ward councils mandated by the Urban Wards (Administration) Act, 1976. At 1976. At the same time an experiment in community maintenance of roads and drains using manual equipment supplied through the project would be 66 conducted in a few project sites. The equipment would be given to local engineers who would lend it to the ward councils and provide technical supervision. The experiment did work in Tabora and was partially successful in Tanga, but did not work in the other project towns and was not even attempted in Dar es Salaam. 6.05 THB was to administer the house improvement and construction lending component through its Sites and Services Section in the Operations Department. Regional office in Tabora, Tanga, Morogoro and Iringa would handle the day-to-day administration. 6.06 It was not foreseen that either the Treasury or DCC would be required to play such an important role in project implementation. Nor was it foreseen that ARDRI's Sites and Services Unit would subsequently be divorced from the Ministry of Lands, Housing and Urban Development and become attached to the Prime Minister's Office, which is what happened in mid - 1984. To all intents and purposes then the project was implemented by ARDHI. A. The Prime Minister's Office 6.07 The transfer of the housing portfolio to the PM0 did not materially affect the project operations, especially as the project was about to close and there was in any case no change in project personnel. The Sites and Services Unit was by then a section in the Housing Development Division. The first Sites and Services Project Manager had been promoted to Director of Housing Development, and another Tanzanian had moved up within the Unit to take over as Project Manager. 6.08 During the implementation period it was not possible to effectively solve the perennial problem of personnel shortages and high staff turnover. At appraisal less than two thirds of the Ministry's approved technical posts were filled. The situation did not change drastically during the course of project implementation, with particular problems being experienced in recruiting engineering and finance personnel. What the project did achieve was the integration of the Unit into the mainstream of housing operations in such a way that sites and services became the most important activity in the division. The Director and the Project Manager assumed greater authority in the Ministry's heirarchy. It was thus possible for the division to exert better control over project operations and, utilizing the experience gained in the first project, to give appropriate guidance to consultants as well as maintain adequate records and accounts. Nonetheless, coordination between the Directorate, the engineering consultants and the civil work contractors could have been better; the consultants recommendations regarding contractors' performance were not always followed up promptly enough. B. Tanzania Housing Bank 6.09 The role of THB ' ider the project was to extend materials loans in the surveyed plots areas and house improvement loans in the upgrading areas. Expansion of lending operations in squatter areas and establishment of on-site materials depots would have necessitated increases in THB staff at headquarters and the regions. Separate accounts were to be kept for the project. 67 6.10 As implementation proceeded, it became evident that THB would not be able to meet many of the performance targets set at appraisal. The Sites and Services Unit remained relatively weak, with a high rate of staff turnover. Only one on-site depot was established. Difficulties were experienced in the procurement and distribution of materials. Separate accounts were not kept, and as at project completion it was still not possible to isolate sites and services accounts from the general accounts. It was thus difficult to monitor recoveries and arrears. The level of corruption noted in the first project continued unabated. These observations are amply corroborated by the auditors' report on THB's accounts for FY's 81-83. Partly because of poor performance part of the project proceeds allocated to THB were diverted and applied to more pressing areas including the purchase of road maintenance equipment for urban authorities. The Government itself intervened in mid-1984. The General Manager, Chief of Operations and Technical Services and the Director of Finance were replaced by top-level managers from other parastatals. At the same time, a firm of management consultants was appointed to look into the Bank's operations. C. Dar-es-Salaam City Council 6.11 Among the urban authorities involved in the project DCC has been singled out for closer scrutiny because of first the large concentration of first and second project investment in the city, and secondly the city's erorgence during the later years of project implementation as an enthusiastic though inexperienced partner. DCC played an active role in coordinating plot allocations and monitoring house consolidation on serviced sites and surveyed plots in the city. It worked closely with ARDHI, PMO and the Treasury. It also endeavored to improve its capabilities in infrastructure maintenance. Nonetheless the Council was experiencing severe staffing and administrative problems which resulted for instance in low rates of equipment utilization; late disbursement applications; delays and confusion in the purchasing of equipment; and poor devolution of responsibilities. D. Treasury's Collections Unit 6.12 The Collections Unit in the Treasury started operations in 1981 as a one-man effort with limited resources assigned to initiate collections in Manzese. It subsequently grew to an effective collections unit headed by a senior official and staffed by a number of field personnel operating in all the project towns. Through the project it was able to acquire vehicles and office equipment. By the time of project closure the Unit had procured micro-computers to assist in its work. It was also in a position to offer training to local government staff in collection methods. E. Coordination 6.13 The resurrection of urban authorities brought in an unforeseen element in that what was to be implemented by the Regional Development Directors was taken over by the urban councils. However, no major difficulties were experienced. The Sites and Services Directorate was itself later transferred to PHO, making coordination with urban authorities relatively easier. 68 6.14 The inability of THB to coordinate well with the other clencies and to process loan applications speedily presented a weak link that manifested itself in the consolidation rate. 6.15 Although the Treasury's Collections Unit attempted to maintain up-to-date records of plot allocations and ownership, there were discrepancies between its own records and those maintained by DCC. Such differences however were expected to be reconciled once DCC had succeeded in unravelling the complexities of double plot allocations, missing plots and similar anomalies. F. Conclusions 6.16 During the implementation of the second project reasonable progress was made in consolidating institutional gains won during the first. Not only did ARDHI's Sites and Services Directorate receive the hard-won recognition it deserved but urban authorities to a limited extent were able to participate and gain experience in project execution. Cost recovery, maintenance and plot allocations benefitted more of urban authorities were fully involved in project design and implementation. 6.17 Although the project cannot claim to have addressed fully the personnel problems of the various agencies in the central and local governments, training and manpower development was a prominent feature that benefitted the major implementing (ARDHI, THB) agencies. 6.18 Finally, if THB is to fully discharge its role on the financial intermediary for providing credit for low-income families, it's operational and administration polices must be substantially revamped. Furthermore, future financial assistance to THB must be significant enough to have an impact on its policies and operations. VII, ROLE AND PERFORMANCE OF THE BANK 7.01 The Bank took great pains to maintain the continuity and smooth transition between the first and second phases. While this was achieved, a price had to be paid. Some of the negative attitudes and routines that characterized the implementation of the first phase were continued in the second. For instance the disappointing performance of TANESCO in the first phase influenced the Bank's attitude towards parastatals as contractual partners. This was partly due to the fact that TANESCO gave very little priority to the projeet. For a similar reason a fruitful partnership with THB could not be established. Due to the Bank's limited everage it was easier to continue dealing with THB as it was than to demand a major reorganization. 7.02 The recognition of and adherance to the basic guiding principles of affordability, cost recovery, and competitive bidding was in itself a major achievement. House registration, which we initiated on an experimental basis, later turned out to be a successful venture that could easily be executed by the Tanzanians themselves to great advantage. As a result of house registration, the potential proceeds from cost recovery efforts were greatly enhanced; this is an experience that could be useful in other similar projects elsewhere. The rebirth of local governments well 69 after project implementation had commenced could not have been foreseen. Not only did it create organizational problems and caught the Bank on the wrong foot, it also deprived the local authorities of the full benefits of the project that they would otherwise have enjoyed. For example, our training programs would have been better designed to meet the needs of the local authorities in such roles as project management, finance, engineering, planning and maintenance. 7.03 Although we have generally acted in a very pragmatic manner for the purpose of facilitating project implementation, it is i0orrying that after eleven years of our involvement in the sector, Tauzania had to rely on a consultant to control project finances or monitor plot allocations. 7.04 Bank staff spent approximately 26 days in this field every year on mission to observe progress. Every mission included at least one member who had been on a previous mission. VIII. LESSONS LEARNED 8.01 The first and second projects enabled the Tanzanian Government and the Bank to work together towards formulating an6 implementing a shelter policy designed to meet the needs of the poor. While the Government's commitment was evident throughout, it nevertheless became clear during the implementation of the second project that the capabilities of local institutions had been grossly overestimated. Delays were caused by administrative bottlenecks in ARDRI, THB, PM0 and Treasury. In future projects, it may pay to be less optimistic. The long period of overlap between the first and second projects prevented drastic changes in approach from being made during the preparation and appraisal of the second project. 8.02 In spite of the worsening macro-economic situation and the strained relations that existed between Tanzania and the IMF during much of the project period, the Bank was able to sustain a working momentum and ensure that project operations were not unduly disrupted. Some of these difficulties could have been foreseen. While the devaluation of the shilling worked in favor of the project in that the dollar value of project expenditure was considerably reduced and savings could be shown at the end of the day, the acute shortage of foreign exchange seriously hampered the execution of physical works. In subsequent projects in Tanzania or countries with similar circumstances, the Bank should earmark some funds for the purpose of effecting purchases overseas by contractors or consultants. 8,03 Another experience from which lessons could be drawn is the rapid change in the upgrading areas between the time of project preparation and implementation. Because of consolidation in the squatter areas not only did the areas earmarked for serviced sites and infrastructure way leaves shrink considerably but the amount of compensation soared to unforeseen levels. The dynamics of such communities have thus to be recognized and understood. 70 8.04 We are often criticized for lack of foresight in matters relating to maintenance and the longevity of infrastructure life. While these criticisms are sometimes unfounded, the Tanzanian experience has shown that it is occasionally necessary to sacrifice cost limits and affordability objectives in order to guarantee the durability of investment. This effort needs to be supported by measures to equip the relevant government departments and local authorities with maintenance equipment and personnel. 8.05 Efforts to streamline operations and improve efficiency at THB were not successful, for four reasons. First, there was no net advantage in banking terms in THB handling project funds. Secondly, project lending consisted of only a minor proportion of total TUB operations, that is THB did not need the funds provided by the project. Thirdly, THB was hamstrung by government rules regarding interest rates. Fourthly, the Bank found it more difficult to establish rapport with TUB executives, than with officials in other institutions. The Bank had therefore overestimated its capacity to reform THB. 8.06 Cost recovery could have started much earlier had it not been for the vacuum created by the changeover from the land rent and service charge to the new rating (property tax) system. Nonetheless it was possible under the project to institute interim measures in the upgraded areas. The project has implemented a system of house registration and revenue collection that could easily be used in similar situations elsewhere pending legislative reforms. 71 TABLE 1 PROJECT COMPLETION REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES Cr. 732-TA CONSOLIDATION OF SITES AND SERVICES PLOTS SURVEYED PLOTS (Physical Development Surveys) Status of Consolidation (Surveyed Plots) Total No. No Some Completed or of Plots Town and Site Development Development Occupied Allocated La (December 31, 1984) - Gofu Juu n.a. n.a. n.e 450 - Mwakiziano - -01 - Nguwumali 12 65 23 109 Total 1anga Morogoro (December 31, 1984) - MeavU 206 312 13 531 - Kichangani 12 263 Total Morogoro 138 113 794 Tabora (December 31, 1984) - Kilonent 139 18 70 227 - Isebeya, IPUCI 333 29 151 573 Total Tabora 800 Di (December 31, 1984) - Kibesa 87 199 98 384 Total Iringa 384 Dar es Salaam (December 31, 1984) - Hbagalla A, B, C, D and Site visit January 1984 indicates 2,263 Hama Nassif consolidation looks good. No physical - Tabata survey has yet been carried out. Ttal Dar es Salaa 2,263 TDTAL 4,901 72 TAKE 2 amUA m=0aND NATIL Sm AMD S iES er. 732-TA FRW=C 0mS AN FDREDM DMSaMSØ- mrAL mmrAL ofAL OVAL ~M?4 AUDCAM MOUN HM1SS OMTS OM CsS MST (UNDE~) IN CREIT DISBURSED DIEE M M OMEMTSL'000 US$'000 TSH.'000 US$'000 (% IN US$) AEffæff IN US$ % 0 Iand kquisiti QCMpnstion 6,000 723 45,580 4,334 500 - - - la Infrastructure/clvil ~brks 81,196 9,723 97,711 9,568 (2.2) 6,100 7,167 17.5 Cæmmnity Faclities 11,983 1,443 - - 100 Fqulent and 1. Veiddcles 3,437 414 19,242 1,325 220 2,000 1,325 -33.75 'iB Hme lprovment ard Construction lons 114,256 13,768 86,637 7,862 (43) - 60 Smo n.a. n.a. n.a. n.a. n.a. Consultant Services and 1 ~alning 13,220 1,595 16,608 1,631 2 2,100 1,440 -31.4 Unallocated 1,800 Project Tbtal 230,092 27,723 261,778 24,720 (11) 12,000 9,992 -16.7 NS: 1. emhn Import support provided to cotrætors US$302,387/=. 2. 1btal project cost ss underrun of 11$ xcluding SEDO figures. 3. Applied to the coom nts as per Apprasal. 4. Apraisal Estmates are based o 1US$ - 8.30 TSH. Actual costs are based on average rate of 1us$ = 10,516 herever the actual rates are not available. 73 TABLE 3 PROJECT COMPLETION REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT CR.732-TA COMPARATIVE CUMULATIVE DISBURSEMENTS Cumulative % disbursed of original amount by year from date of Board approval: --------------YEAR ---- ------ ----- 1 2 3 4 5 6 7 8 Tanzania Second National Sites and Services Project 4.2 10.8 29.2 43.3 65 83.3 100 First NSSP 10.6 26.9 49.4 61.2 69.4 75.3 96.5 100 IDA 1.4 16.3 31.9 49.2 65.5 79.1 89.8 97.3 Urban Projects Bank-wide 1.7 9.7 24.2 42.2 60.6 75.3 87.7 96.7 74 MMKE 4 1Pm=11C m| aD NAr^L si1 MD W6 Cr. 732-U i m m lUE D (Taro0) cost of cOmpn- Q,stof Qun- 1k~ber of Ira- satin 1btal Omst per 1Mber of Infra- at~o 1btel Cost per 1bM Hmse l Strture (oste (bsts Iouehl0d Houehnide Struture (bete ~bsts Household Tabora 2,9%4 14,365 1,057 15,422 5,203 3,907 22,670 2,778 25,448 6,513 Mg 82 3,507 2,778 3,985 4,719 1,095 5,0'0 664 5,714 5,218 Mbrogoro 2,282 6,334 785 7,123 3,121 3,308 12,150 4,448 16,598 5,018 Iringa 1,118 3,179 413 2,592 3,212 1,992 5,600 1,184 7,414 4,645 Par es SaaaUm 10,163 32,296 3,468 35,764 3,519 16,83 52,241 35,876 88,117 5,231 imtAL 17,239 59,685 6,000 65,685 3,790 26,745 97,711 45,580 143,291 5,357 (ave~ g (aveg) 75 TABLE 5 PROJECT CGMPLETION REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT CR.732-TA DIFFERENCE IN UNIT COSTS BETWEEN APPRAISAL AND ACTUAL APPRAISAL ACTUAL DIFFERENCE Town UNIT COST UNIT COST TSHes US$ TSHs US$ TSHs US$ @17.50 Tabora 5,203 627 6,513 372 25.2 -40.7 Tanga 4,719 569 5,218 298 10.6 -47.6 Morogoro 3,121 376 5,018 287 60.8 -23.7 Iringa 3,212 387 4,656 266 -5.0 -31.2 Dar es Salaam 3,519 424 5,231 299 48.7 -29.5 TOTAL 3,790 459 5,357 306 41.3 -33.0 76 TABLE 6 PROJECT COMPLETION REPORT TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT CR.732-TA INTERNAL ECONOMIC RATES OF RETURN Appraisal Reestimates Estimates (Complete Development) Dar es Salaam f4 30 Iringa 28 25 Morogoro 22 25 Tabora 19 23 Tanga 22 21 77 Chart 1 PROJECT COMPLETION REPORT TANZANIA SECOND SITES AND SERVICES PROJECT CREDIT 732-TA ESTIMATED AND ACTUAL DISBURSEMENTS 12 oo E- ESTIMAED 11/ 10 10/ - ACTUAL I 9 I I I 2 7,, Yeas - 78 - APPENDIX PROJECT COMPLETION REPORT Page 1 of 11 TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT (CREDIT 732-TA) SMALL-SCALE INDUSTRY COMPONENT A. Small Industry Development Organization (SIDO) 1.01 The SSI component was designed as an experimental program of assistance to the small scale industry (SSI) sector in Tanzania and was to cover two project areas: Tanga and Tabora. The program represented the Bank's first involvement in the SSI sector in Tanzania and the first operation with the Small Industry Development Organization (SIDO), 1.02 SIDO was established by an act of Parliament in November 1973 as a promotional and coordinating agency for SSI development. It replaced the National Small Industries Corporation (NSIC), which from 1967 to 1973 was responsible for promoting 881. SIDO is headed by a General Director who reports to a Board of Directors. The Board is chaired by the Junior Minister of Industries. SIDO has 20 regional offices, 10 training-cum-production centers and 13 industrial estetes. The regional offices, one 4n each region, are staffed with a small industry promotion officer, an iconomist, and a technical officer.' 1.03 SIDO took over many of the programs of the NSIC, including its industrial estate programs, hire-purchase schemes, and training and marketing activities. During the early years of its inception, SIDO grew rapidly, undertaking major technology transfer programs and expanding its industrial estate program. Its development budget and staff increased rapidly to take on new activities, and it was aided in this by substantial inflows of foreign assistance. 1.04 In 1982, in response to the expansion of its activities, SIDO undertook an organizational restructuring and its staff and budget increased. However, with the economic crisis in the country, SIDO was instructed to find ways to self-finance many of its activities, and in 1983 it was reorganized once more to trim expenses. It underwent yet another reorganization in 1984. These successive organizational changes have led to many personnel changes resulting in a lack of continuity in project implementation. Some of the recent changes created positions which have not corresponded with the competence and/or desires of staff and have consequently led to low staff morale. 1.05 SIDO now faces many challenges, the most-Amportant of which is to find ways to plar its activities with limited resources, without reducing its effectiveness in promoting and developing SSIs. In order to concentrate on these objectives, SIDO should transfer many of the functions that it presently carries out to other agencies that are better able to handle them, such as the National Bank of Commerce for the administration of loans under the equipment hire/purchase schemes, and national vocational training centers or other national institutions for those training activities carried out by SIDO which are largely a duplication of effort. In the future, SIDO would also have to continue giving priority to increasing capacity utilization in existing SSIs and to emphasizing projects with high domestic inputs. SIDO would also have to improve its project implementation and monitoring capabilities and its coordination with other agencies and regional authorities. 79 APPENDIX Page 2 of 11 B. Project Objectives and Description 1.06 The basic objectives of the SSI component were: (1) to increase the economic and employment potential of the two project areas (Tanga and Tabora) and to diversify their economic base; and (ii) to strengthen SIDO's program-implementation capabilities in urban areas in preparation for future expansion of the program. The program was to give priority to industries utilizing local resources and employing labor-intensive technologies. In selecting the product lines, particular emphasis was placed on strengthening industries that would serve surrounding rural areas and on developing the building materials industry. The program would promote the creation of new industrial firms, which were to locate at induqtrial clusters developed as part of the project (cluster industries), as well as assist selected exiv%ing enterprises, which would form a network to facilitate the sharing of training and technical assistance services (network industries). 1.07 The three major elements of the program as conceived at appraisal, are' described below: (a) SIDO's Management training and technical assistance program. This was to involve management and technical apprenticeships and training materials for short, practical courses, e.g. on accounting and financial management. Vehicles and management assistance to SIDO headquarters was also to be provided. The cost of this subcomponent was estimated at US$405,000, with a foreign exchange component of 66%. (b) Equipment Hire/Purchase Scheme This component was to build upon SIDO's existing hire/purchase scheme. Funds were also provided for contracting people to install equipment and provide technical training on unfamiliar machinery. The funds for this component were to be used for: (i) the procurement of industrial prouction equipment (69%); (ii) the procurement of selected raw materials that needed to be imported (17%); and (iii) equipment installation and training of operating staff within the enterprises (14%). The estimated cost of this component, with contingencies, was equivalent to US$1,027,000 with 85% in foreign exchange. (c) Infrastructure for Industrial Clusters Three hectares adjacent to the areas were to be serviced with roads, electricity, water supply, and sewerage to be constructed by Ardhi (Ministry of Lands, Housing and Urban Development). The participating *industries would be responsible for building workshops and sheds in these areas with assistance from the Tanzania Housing Bank (THB) in the form of construction loans. A local coordinator was selected to supervise construction with SIDO's assistance. &pproximately US$330,000 was budgeted to finance low-cost sheds in both Tanga and Tabora. Project 80 APPENDIX Page 3 of 11 coordinators were to be selected in each town to be responsible for identifying and organizing productive groups which could participate in the cluster and network industries. The project coordinators would be responsible for the istart-up of the industries and for providing on-going management asistance to new industries promoted in Tanga and Tabora. Project economists within SIDO's Tanga and Tabora offices would prepare feasibility studies for small projects and financial packages. It was agreed that by September 1977 SIDO would prepare at least ten feasibility stud$es for review by IDA. Such studies would concentrate on market potentials, raw material resources, criteria for selection of participants and organizational aspects. The estimated cost of this subcomponent with contingencies was US$500,000 equivalent (comprising US$373,000 in construction loans and US$1279000 in civil works for infrastructure provision) with 44% in foreign exchange. II. IMPLEMENTATIQN A. Progress of Project Components 2.01 In 1978, a number of changes in the design of the SSI component were propoced and adopted. The original concept envisaged the provision of cluster infrastructure by Ardhi and the construction of worksheds on these clusters by individual entrepreneurs using IDA funds onlent through THB. However, SIDO maintained that individual ownership of sheds was not consistent with its overall industrial estate program, in which sheds were owned by SIDO and rented to entrepreneurs, and, moreover, that individual entrepreneurs could not be counted upon to utilize loan financing from THB for the designed purpose and to build sheds of good quality in a timely manner. It was, therefore, decided that SIDO could retain responsibility for the construction of industrial cluster infrastructure and worksheds, and could own the worksheds. SIDO was,therefo,4, reallocated project funds from Ardhi and THB to construct the cluster complexes. At this time it was also decided that SIDO staffing was adequate in the regions, and the foreign experts supposed to be financed under the project would not be necessary. Funds earmarked for this purpose would, therefore, be reallocated within the SSI component. 2.02 The SSI component was further modified in 1979 when it became apparent that there would be significant cost overruns in constructing the Tanga Cluster (because of implementation delays, construction cost increases, and the fact that the type of buildings being constructed were not the low cost type envisaged at the time of appraisal) and, therefore, that there would be insufficient funds to complete both the Tanga and Tabora clusters. The Tabora cluster was dropped, while the amount allocated for the network industry hire purchase program in both areas was increased. As a result of all these changes, the project costs increased to US$2.4 million, and SIDO agreed to contribute the increased amount for 81 APPENDIX Page 4 of 11 construction of the Tanga cluster. All these changes were introduced by SIDO in consultation with the Bank. SIDO financed the revised management and technical component from its own funds; no IDA funds were used for this purpose* 2.03 Implementation was planned over a period of three years, but took twice as long as originally planned due to several factors including: (i) change in the scope of the project; (ii) changes in ownership of the worksheds within the industrial clusters; (iii) higher costs for construction and machinery; (iv) inadequate funds for purchasing equipment and raw materials; and (v) scarcity of qualified management and training staff for providing the technical assistance. 2.04 The hire-purchase scheme assisted udder the project, financed a total of 46 subprojectr, 27 in Tanga and,19 in Tabora. When fully operational, these subprojects are expected to generate approximately 340 new industrial jobs. A review of the subprojects in Tanga reveal that 44% of them are encountering problems mainly due to lack of spare parts, lack of training to utilize the equipment, and faulty procurement (para 2.14). At appraisal it was estimated that 870 new jobs would be created at a unit investment cost of US$1,000. With only 340 jobs actually expected to be generated, and substantial cost overruns, the average investment cost is expected to be substantially higher than estimated at appraisal. 2.05 The hire/purchase scheme appears to be more cost-effective for subprojects which are selected amongst existing industries than for new industries created by SIDO in specially built industrial estates. A review of the program in Tanga shows that subprojects in the industrial estate exhibit higher unit costs and lower levels of capacity utilIzation than do those benefitting existing industries. The cost of idle equipment as a percentage of the total cost of equipment is 76% in the industrial estates, as opposed to 17% for exieting industries, and the average unit cost of equipment is about two-and-a-half times higher in the industrial estates. The value of equipment currently idle in Tanga is estimated to be about US$814,000 or approximately 60% of the toAl investment in the hire/purchase program. Data on equipment purchases and capacity utilization for Tabora have not been collected, but similar problems are expected to exist there (Annex 2). The reasons for low capacity utilization in Tanga by subproject are shown in Annex 3. 2.06 Onlending terms for the hire/purchase program, although in accordance with project covenants, turned out to be highly subsidized, as interest rates were set at 8.5% p.a., when inflation in Tanzania averaged about 30% during the implementation period. The loan recovery performance under this project has not yet been evaluated. However, loan recoveries are expected to be low due to the problems discussed in the previous two paragraphs. 2.07 The administration of the hire-purchase scheme in terms of financial control and follow-up has been 1 I te. This scheme has 82 APPENDIX Page 5 of 11 deviated much of SIDO's manpower resources way from its other activities in the SSI sector and has burdened it with a task it is not well equipped to perform. SIDO has now reached an agreement with the National Bank of Commerce (NBC) whereby SIDO's responsibilities would be limited to the technical aspects of SSI promotion, while NBC would provide assistance on matters of loan finance. 2.08 As a result of the workshed ownership problems, construction of worksheds only began in early 1979 - a 12-month delay In implementation. As indicated previously, beyond the ownership issue, the other reasons for delay involved the increases in workshed size and adoption of higher design and construction standards. The Tanga cluster was completed by mi-1982. It includes 11 sheds, one common facility center, a power station and estate and regional manager offices. SIDO failed to comply with the Bank's requirement of charging economic rents for-the use of space and common facilities at the industrial clusters. 2.09 Ten feasibility studies were to be prepared and reviewed by the Bank by September 30, 1977 (para 1.10(c)). StDO prepared only five studies two years later. The studies were well conceived and acceptable to the Bank, 2.10 The objective of strengthening SIDO's implementation capabilities has not been satisfactorily achieved. Much of the management assistance subcomponent was not implemented, and therefore the management, institutional and policy issues of SIDO have not been carefully reviewed in detail in the context of this project. It would appear that, over the years, SIDO has taken on a variety of functions which in many instances it is not well equipped to handle (as with banking functions), and which result in a duplication of effort with other agencies in Tanzania. Coordination between SIDO and other agencies has also been poor. For example, investments were made by Ardhi in servicing 12 sites in Tanga and 28 sites in Tabora for industrial use, independent of SIDO's investments. These sites, prepared in conjuction with the squalter upgrading component of the project, have not yet been allocated add a program for their development is presently lacking, due to poor inter-agency cooperation. B. Project Costs and Financing 2.11 Annex I shows the actual costs versus appraisal estimates and the financing for the component. The total costs amounted to about Tsh 27 million equivalent to about US$2.6 million. The costs estimated at appraisal amounted to about US$1.9 milion, but were revised upwards to US$2.4 million in 1978 reflecting the changes in the project design. The actual total costs are 36% higher than appraisal estimates, but only 10% higher than the revised estimates. The cost overruns for the component are attributable to general price escalation during implementation and, more importantly, to the use of higher standards at the Tanga industrial cluster. The costs of this cluster amounted to US$1,978,000 (US$819,000 83 APPENDIX Page 6 of 11 for civil works and US$1,159,000 for the hire-purchase program), or more than three times the appraisal estimate of US$620,000. 2.12 During appraisal, it was estimated that the Bank credit would provide about US$1,450,000 or 75% of total costs. In actual fact, IDA financing of the component was reduced from 75% to 54% and amounted to about US$1,414,000. The balance of US$1,222,000 was financed by SIDO with transfers from the Government. C. Disbursements and Procurement Disbursements 2.13 Disbursements started approximately 18 months after the effective date of the credit. As of June 30, 1982, the original cloaing date for the credit, aggregate disbursements amounted to only US$0.9 million equivalent; about 47% of the total IDA credit, This poor disbursement record was due mainly to initial commitment delays, changes in project design, and slow appraisal of applications for financing. As a result, the closing date for disbursements was extended to June 30, 1984. Procurement 2.14 A reviey of the subprojects financed in Tanga shows that 12 out of 27 subprojects are either not functioning or are operating below capacity mainly due to faulty procurement. In many cases, the equipment to be imported by SIDO was not clearly specified at tender causing suppliers to ship the wrong kind of machinery. When specifications were correct ut suppliers sent the wrong equipment anyway, SIDO was unable to bar entry at port and demand a replacement. The value of equipment currently idle in Tanga is estimated to be about US$814,000 or approximately 60% of the total investment in the hire-purchase program. Data on equipment purchases and capacity utilization for Tabora have not been collected, but similar problems are expected to exist there also. III. CONCLUSIONS 3.01 As discussed in the previous paragraphs, the implementation of the project and its impact have not been satisfactory. Due to the changes in project design and procurement problems there were lengthy implementation delays, which resulted in cost overruns. The project is expected to generate only about 40% of the jobs that were estimated at appraisal, and the investment cost per job is expected to be substantially higher than appraisal estimates. There is a high element of subsidy in the component both in terms of rents charged for the use of space and common facilities at the industrial clusters, and in terms of interest rates charged under the hire-purchase scheme. 84 APPENDIX Page 7 of 11 3.02 The objective of strengthening SIDO has also not been satisfactorily achieved. Although the Government has accorded great importance to the SSI sector, it has not yet developed a comprehensive policy framework designed to encourage the sector's growth. SIDO needs to clearly define its development strategy and to focus its activities more on the technical aspects of small industry development and to transfer many of the functions that it presently carries out to other agencies that are better able to handle them. SIDO also needs to Improve its project implementation and monitoring capabilities and its coordination with other agencies and regional authorities. TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT Small Scale Industry Cowponent Costs and Financing (US$ '000) Actual Costs Versus Appraisal and Revised Estimates Sources of Pnanue Appraisal Estimate Revised Estimate 1/ Actual Costs SIDO IDA Subcomponent 1. Management and Training 405 50 52 52 -o 2. Hire-Purchase Equipment Program 1,027 1,600 1,765 472 1,293 3. Civil Works for infrastructure and worksheds in . Industrial clusters 5.00 750 819 698 121 TOTAL 1,932 2,400 2,636 1,222 1,414 -o Ra 86 APPENDIX Page 9 of 11 ANNEX 2 TANZANIA SECOND NATIONAL SITES AND SERVICES PROJECT Credit 732-TA Cost Effectiveness of New Industrial Estates vs Iaprovements in Existing Industries Tanga SSI Program: industrial Estate ExistLg Industries Total N9 of subprojects 7 20 27 Cost of equipment(US$) 984,524 378,629 1,363,153 Average subloan (US$) 140,646 18,931 50,487 Cost of idle equip- ment (US$) 750,309 63,989 814,298 Idle/total equipment cost (2) 76 17 60 - 87 - APPENDIX Page 10 of 11 ANNEX 3 Page 1 of 2 TANSANIA SECOND NATIONAL SITES AND SERVICES PROJECT Credit 732-TA Saall-Scale Indusgry Component Baems for low 1s1osit atilisation An Te by subtroject. Oi the 27 eubprojects Hamced la tengs, 3 have not yet started production and 9 are oparating below capacity. The reasons for the difficulties are the followags (1) Peacil actory. Capacity installed in 1964 and factory not yet operating due to one wood-slicing machine which is missing from the batch of equipment procured by S100. Cost of idle equipment estimated at US$394,120. Locations SIDO industrial cluster. (2) Tin Containers. Factory sot In operatio due to lack of 3 machines which were lost due to theft and tire. Cost of lost equipment estimated at US$6,249. Location: SIO industrial cluster. (3) Cardboard boxes. Equipment not yet installed, factory not in operation. Cost of idle equipment estimated at US$214,265. Location: SIDO industrial cluster. (4) Narrow tapes. Project faces a technology problem: supplier of equipment did not train entrepreneur in the use of the machines and these asai idle. Cost of idle equipment estimated at US$93,675. Location: SIDO industrial cluster. (5) Uananchi Footwear. The wrong type of eauil"03 was procured by SI1O and the entrepreneur refuses to receive it. The subloan was partly disbursed. The rejected equipment is seating at SIDO's deposit. The factory is operating at pre-project capacity level. Cost of idle equipment estiasted at US$1,516. Location: city. (6) J.J. Radio Centre. Vrong type of equipment was procured by SIDO and entrepreneur refuses to accept it. Subloan was not disbursed. The idle equipment io stored at SIDO's deposit. The factory is operating at pre-project capacity level. The cost of the idle equipment is estimated at US$747. Location: city. (7) Pioneer lectric Co. Ltd. Satrepresear left the country without taking posseesiei of equipasat. 500 to trying to identity another alient for tb equipment which is ne seating in the deposit. The cost of the idle equipment is estimated at US$12,542. Location: city. 88 APPErDIX Page 11 of 11 ANNEX 3 Page 2 of 2 (8) Building Haterials Ltd. Equipment not utilized due to (i) wrong type of power source; (ii) lack of operating manual. The factory is operating at pro-project capacity level. The cost of the idle equipment is estimated at US$14.209. Locations city. (9) Exres. Shoes. Original client decided the equipment was too expensive for his and refused to accept it. SIDO is now trying to identify another client. Subloan not disbursed. Equipment seating at SIDO's deposit. Cost of idle equipment estimated at US$20,206. Factory operating at pre-project capacity level. Location: city. (10) Taash Enterprises. Equipment cannot be used properly because certain parts were omitted from the batch Procured by SIDO. Of 4 machines only one fits the client's specifications and is operating. The cost of the 3 idle machines is estimated at US$13,072. Location: city. (11) Nyota Garage. Of four machines purchased only 3 are operating, the 4th is inappropriate for the activities of the garage and is kept idle. The cost of the idle machine is estimated at US$1,696. Location: city. (12) Tanga Modern Furniture. Although all 3 machines financed by the program are operating, the owner antecipates problems in securing spares (e.g. rubber belts for wood-saws) and machine parts a:e rapidly wearing out. This problem affects all subprojects and points to future inefficiencies.