Cameroon - Second Urban Project

Document of The World Bank FOR OmCIL USE ONLY ^A/ 22 4 4-4 q Repot No. P-4866-CM MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$146.0 MILLION TO THE REPUBLIC OF CAMEROON FOR A SECOND URBAN PROJECT October 3, 1988 |Thwis document has a restricted distribution aDd may be used by recipients only in the performance of| their officisl duties. Its contents may not otherwise be disclosed without World Bank authorization.|  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1.0 - CFAF 290 CFAF 1 million US$3448 FISCAL YEAR July 01 -- June 30 SYSTEM OF WEIGHTS AND MEASURES (METRIC) 1 meter (m) = 3.28 feet (ft) 1 square meter (m2) 10.76 square feet (sq ft) 1 cubic meter (mW) 35.3 cubic feet (cu ft) 1 kilometer (km) 0.62 mile (mi) 1 square kilometer (1m') = 0.39 square mile (sq mi) 1 metric ton (t) = 2,205 pounds (lb) ABBREVIAIrONS AND ACRONYMS CFC Cameroon Housing Loan Bank CIDA Canadian International Development Association DDA Swiss Department of Development and Humanitarian Aid ERR Economic rate of return PAC Fonds d'Aide et de Cooperation GDP Gross domestic product MAETUR Urban and Rural Land Development Agency NGO Non-governmental Organization UNDP United Nations Development Programme  FOR OMCIAL USE ONLY REPUBLIC OF CAMEROON SECOND URBAN PROJECT Loan and Project Summary Borrower: Republic of Cameroon Financial Intermediary: CrAdit Foncier du Cameroun (CFC) Beneficiaries: Ministry of Town Planning and Housing; Municipalities of Douala and Yaound4; Ministry of Territorial Administration; secondary cities; MAETUR and CFC. Amount: US$146.0 million equivalent Terms: Amortization over 17 years, including 5 years of grace, at the Bank's standard variable interest rate plus standard commitment. On-lending Terms: US$9.0 million would be onlent, at least on the same terms as the Bank loan, through CFC to: (a) munici- palities for financing of income-generating proj- ects; and (b) MAETUR for land development. Finan.cing Plan: IBRD US$146.0 58% Government US$107.5 42% TOTAL US$253.5 100% Economic Rate of Return: Weighted average of 20%, ranging from 32% without time savings for road and traffic Improvements in Douala to 12% minimum ERR for all other components. Staff Appraisal Report: Report No. 7398-CM Haps: IBRD 19632R Major Urban Centers IBRD 19662 Douala Diagnostic Map This document has a restricted distribi tion ant may be used by recipients only in the performance of their official duties. Its contents may not cthtivise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPUBLIC OF CAMEROON FOR A SECOND URBAN PROJECT 1. The following memorandum and recommendation on a proposed loan to the Republic of Cameroon for US$146.0 million equivalent is submitted for approval. The proposed loan would be on standard IBRD terms with 17 years' maturity, Including 5 years of grace and would assist in financing a Second Urban Project, including improvement of urban resource mobilization, invest- ments in priority infrastructure and a sectorwide institutional and policy reform program. Part of the proceeds of the loan would be channelled to the Credit Foncier du Cameroun (CFC) at least on the same terms as the Bank loan. The foreign exchange risk would be borne by CFC. 2. Background and Strategy. Urban-based activities account for over two thirds of non-oil GDP in Cameroon. In the country's maturing economic structure, cities have an increasingly important role to play in national development. This is the case, in particular, of Douala, the main port and economic center of the country, and Yaounde, the capital city. The annual non-oil GDP growth of over 6% that Cameroon has experienced between 1973 and 1984 results, to a large extent, from the steady rate of urbanization which has allowed for a population distribution well suited to the economic poten- tials of the country. Urban population now represents close to 40% of the total population. By the year 2000, the city of Douala is expected to exceed 2 million inhabitants, Yaounde, 1.7 million, and several of the provincial cities are expected to exceed 300,000 to 400,000 inhabitants. A substantial share of the employment creation to meet the 3.2% annual population growth will be urban-based and private-sector driven. Improving the urban centers' economic efficiency is, therefore, one of Cameroon's key development priori- ties. Improved urban services and better access to urban markets play a central role in the demand for increased agricultural production. The Govern- ment's strategy is to establish institutions and priority urban infrastructure to allow cities to fulfill more efficiently their commercial, administrative and financial functions, strengthen municipalities, and improve resource mobilization and cost recovery, to ensure maintenance of urban infrastructure and financial sustainability of the sector. 3. Rationale for Bank Involvement. The proposed project is the result of a continuous sector dialogue between the Government and the Bank since 1977. A First Urban Development Project (Ln. 2244-CM), approved in 1983, is about to be fully disbursed. After initial difficulties, this project proved instrumental in developing and implementing appropriate urban management mechanisms which would be continued and strengthened under the proposed project. Because of declining oil revenues and agricultural export earnings in CFA terms, the country's continued capacity to support urban development is at risk. Reduced availability of financial resources is causing the Govern- ment to delav investments in urban infrastructure needed to preserve urban-based economic growth and alleviate urban poverty. The proposed project has a national scope and fully reflects the sectoral strategy which has resulted from the dialogue between the Government and the Bank. Through the proposed project, the Bank will support the Government's strategy in the urban sector during the difficult period of limited financial resources and enable  -2- the Government and the municipalities to develop alternative means of financ- ing urban investments. 4. Objectives. The proposed project's main objective is to consolidate the basis for sustainable and replicable urban development operations initiat- ed under the First Urban Development Project. Improvement of infrastructure and better access to urban services, especially In the least developed areas of urban centers where the poorer segment of population settled, would greatly contribute to economic and social growth in the urban setting. A better distribution of responsibility between the central Government and the munici- palities and between public and private providers of urban services would improve urban living and working conditions. The project will also strengthen management capabilities of all urban agencies and prepare replicable urban upgrading programs financed through improved cost recovery and local resource mobilization mechanisms. 5. Project Description. The project would have three major complemen- tary components to ensure the success of .he sector strategy. The urban resources mobilization component (72 of project expenditures) provides for (a) improved cost recovery through the implementation of a fiscal cadastre, and better management of state-owned lands; and (b) financial assistance to municipalities for on-lending to income-generating projects. The priority infrastructure component (86x) includes (a) traffic, roads and drainage improvements in Douala; (b) traffic management and road rehabilitation in Yaounde; and (c) road and drainage improvements in secondary cities. Institu- tional development (71) would allow for (a) sector policy reforms through the implementation of an urban policy action plan; (b) the strengthening of project management and planning capabilities of the Ministry of Town Planning and dousing and of selected municipalities; and (c) the preparation and implementation of an action plan to rehabilitate parapublic enterprises in the urban and housing sectors and to stimulate the shift from public to private sector for the provision of housing and urban services. The project also includes studies and pilot operations to improve urban services such as waste management and latrines. Financing for parts of related programs not included in the proposed project is already provided by FAC, CIDA and DDA. Several NGOs are also active in the urban sector and would participate in project implementation. 6. Agreed Actions. These actions fall into two broad categories: policy and management. At negotiations, agreement was reached with the Government on: (a) an urban policy action plan which would be Implemented under the supervision of an urban development steering committee consisting of representatives of the various Ministries and institutions involved in the sector; (b) a three-year rolling urban investment and expenditure program which would be annually updated, reviewed, and agreed upon with the lank; (c) an action plan to resettle the displaced households and regularize their land rights;  -3- (d) the preparation of an action plan, with an agreed implementation schedule, for the rehabilitation of urban and housing sector para- statals, with the ultimate aim of transferring responsibility for land development to the municipalities and the private sector; (e) the annual review by the Bank of munlcipalities' operating and investment budgets; and (f) the establishment of an appropriate institutional structure for the project and the sector. 7. Justification and Benefits. The project is expected to yield lasting benefits to Cameroon: first, by its three-pronged approach of re- source mobilization, infrastructure improvement and institutional strengthen- ing, the project will consolidate the basis for sustainable urban development operations already initiated under the First Urban Development Project; secondly, through the combined action of upgrading of squatter settlements and resettlement in the least-developed areas of the cities, the poorer segments of the population will benefit proportionately more than other segments of the urban population; and thirdly, by adjusting urban and housing policies under the policy action plan, the project will enable the Government to transfer a substantial share of responsibility for urban development to the private sector, thereby freeing government resources for other sectors of the economy. Building upon past involvement in the sector, the project would be a stepping stone towards a broad base sectoral approach in future lending. 8. Risks. The Government's continued financial difficulties might put the project as well as sector development at risk. This risk is being mini- mized through: (a) annual reviews by the Bank of the Government's urban investment programs started, de facto, in July 1988 as part of the Public Expenditure Review in preparation of the proposed SAL; and (b) the resource mobilization components of the project which will improve the municipal revenue base and help project financing in the later years. Another risk would be the Government's slow implementation of policy reforms. This risk is addressed through the policy action plan by clearly defining the combination of studies and actions required to bring about policy changes. Both these risks will also be minimized by the close monitoring through the project of the policy action plan and the annual reviews of operating and investment budgets of the institutions benefitting from the project. 9. Recommendation. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank and recommend that the Executive Directors approve the proposed loan. Barber B. Conable President Attachments Washington, D. C. October 3, 1988  -4- Schedule A REPUBLIC OF CAMUNEON SECOND URN PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Project Costs ------- (USS million) ---% of Item Local Foreign Total Base Cost A. Urban Resources Mobilization 4.7 8.8 13.5 7 B. Priority Infrastructure Program 1. Dousla 46.4 52.8 99.2 52 2. Yaound6 12.6 19.0 31.6 17 3. Secondary Cities 12.5 19.0 31.5 17 C. Iastitutional Development 3.9 9.7 13.6 7 Total Base Cost 80.1 109.3 189.4 100 Physical Contingencies 7.5 9.5 17.0 9 Price Contingencies 19.9 27.2 47.1 25 Total Project Cost 107.5 146.0 253.5 134 of which Taxes 31.1 --- 31.1 16 Net of Taxes 76.4 146.0 222.4 Per(.nat 34 66 100 Financing Plan --- (US$ million) ------- of Item Local Forei8n Total Project Cost Government Funds 107.5 --- 107.5 42 IBRD _ 146.0 146.0 58 Total 107.5 146.0 253.5 100 AFlI October 3, 1988  Schedule B Page 1 of 2 REMUILIC OF CAMEROON SECOND URBNU PROJECT PROCUREMENT METHOD AND DISIJUERIS Amounts and Methods of Procurement (US$ a llion) ------------------- Procurement Method / ------------------- Project Element ICB LCB Other A Total 1. Civil Works (a) Douala 87.9 2.9 --- 13.9 /b 104.7 (48.4) (1.6) --- (---) (50.0) (b) Yaoundd 38.0 2.9 --- 40.9 (20.9) (1.6) --- --- (22.5) (c) Secondary Cities 40.3 --- ~ -- --- 40.3 (22.2) --- --- --- (22.2) (d) Nylon --- --- 1