Senegal - Second Small Rural Operations Project

Document of The World Bank FOR OFmFCIAL USE ONLY c.e /qqZ- Se Report No. P-4929-SE MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 12 MILLION TO THE REPUBLIC OF SENEGAL FOR A SECOND SHALL RURAL OPERATIONS PROJECT FEBRUARY 6, 1989 This document has a restricted disribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) US$1 - CFAF 300 SYSTEM OF WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest (West African Central Bank) BNDS Banque Nationale du Developpement du Sen6gal (National Development Bank of Senegal) CBP Centre d'Expansion Rural Polyvalent (Rural Development Center) CNCAS Caisse Nationale de Credit Agricole du Senegal (Agricultural Credit Bank of Senegal) CONGAD Conseil des Organisations Non-Gouvernementales d'Appui au Developpement (Association of Non-Governmental Organizations) CRA Capital Replacement Account MDR Ministere du D4veloppement Rural (Ministry of Rural Development) MDS Ministere du D4veloppement Social (Ministry of Social Development) NGO Non-Governmental Organizations NPA Nouvelle Politique Agricole (New Agricultural Policy) OMVG Organisation pour la Mise en Valeur du Fleuve Gambie (Organisation for the Development of the Gambia River) OMVS Organisation pour la Mise en Valeur du Fleuve Sen4gal (Organisation for the Development of the Senegal River) SAED Societe d'Amdnagement et d'Erploitation des Terres du Delta du Fleuve Senegal et de la Faleme (Agency for the Development of the Senegal River Delta and Fal4me River Valleys) SODAGRI Soci6t6 de Developpement Agricole de la Vallee de l'Anambe (Organization for the Development of the Anambe River Valley) SODEFITEX Soci6t6 de Developpement des Fibres Textiles (Cotton and Eastern Senegal Rural Development Agency) SODEVA Societe de D6veloppement et de la Vulgarisation Agricole (Rural Development Agency for the Groundaut Basin) SOMIVAC Societe de Mise en Valeur de la Casamance (Rural Development Agency for the Casamance Region) GOVERNMENT FISCAL YEAR July 1 - June 30  FOR OFFICIAL USE ONLY REPUBLIC OF SENEGAL SECOND SMALL RURAL OPERATIONS PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Senegal Beneficiary: Ministry of Sccial Development Amount: SDR 12 million (US$ 16.1 million equivalent) Tenrms Standard, with 40 years maturity Cofinancier: International Fund for Agricultural Development (IFAD) Financing Plan: IDA USS 16.1 million IFAD USS 5.0 million Government US$ 3.0 million Beneficiaries US$ 2.0 million TOTAL US$ 26.1 million Economic Rate of Return: 16 S Staff Appraisal Report: Report No. 7490-SE MAP$t IBRD 21200 This document has a restricted distribution and may be used by recipients only in the performance of their official duties Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE ?RESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF SENEGAL FOR A SECOND SMALL RURAL OPERATIONS PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Republic of Senegal for SDR 12 million (USS 16.1 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms, with 40 years maturity, and would help finance a second small rural operations project. The project would be cofinanced by IFAD for about SDR 3.7*7million (US$ 5 million equivalent). 2. Background. Three quarters of Senegal's territory lies in the Sahel, which suffers from low rainfall and periodic droughts. Yet, 702 of the population depend for employment and income on the rural sector, making it the principal livelihood for most Senegalese. Despite efforts at modernization, agriculture continues to stagnate and, aside from climate, the main constraints include: (i) the limited scope for diversification; (ii) the lack of a well-functioning capital market and credit system; (iii) the low productivity of large-scale public investments; (iv) the weak institutional environment for project identification and implementation; and (v) the weak organizational structures at farm level. 3. Government's long-term strategy aims at increasing the profitability of agriculture. Realizing that the development of both rainfed and irrigated agriculture at reasonable cost can be done only by transforming rural institutions and giving greater responsibility to farmers, this strategy focuses mainly on: (a) the generation and transfer of adequate technology; Cb) the strengthening of rural institutions; (c) the improvement of the economic incentive environment; (d) sustainable natural resource management; and (e) the recapitalization of the rural economy. Government and the Bank Group are pursuing this strategy within ongoing projects and Structural Adjustment Operations. 4. Rationale for IDA Involvement. The Bank's rural sector strategy for Senegal is in full agreement with the Government's priorities concerning rural development and growth in agricultural production. In accordance with the New Agricultural Policy, and through its continued involvement in small rural operations, the Bank seeks to support the Government's quest for less costly government interventions, greater private initiative, and a more balanced mix of private and public institutions in the rural sector. By continuing efforts begun under the first Small Rural Operations Project (Cr. 991-SE), it is hoped that this second project will eventually create new institutions (especially farmers' groups, but also small contractors) that have a solid foundation in rural communities and do not require for their survival a continuous infusion of outside money and skills. A number of non-governmental organizations (NGOs) are involved with small rural operations in Senegal,  -2- often with differing approaches. IDA's involvement is also crucial in order to bring about the gradual harmonization of the procedures of these NGOs, which are under the supervision of the same Ministry as the project, and to involve them as much as possible in field-level implementation. S. Experience from the first-phase Project has demonstrated that small rural operations (fruit and vegetable perimeters, beekeeping, etc.) provide an important source of cash income for a significant number of rural inhabitants. Overall performance has been satisfactory, and results, in terms of the number of activities financed and the area covered, have surpassed appraisal targets. Much interest has been generated by the component that was added to support subprojects "to be identified in the course of implementation". 6. One of the innovative features of the first phase project was the Capital Replacement Account (CRA) which asked farmer groups to open a blocked account in their name, the funds from which would be used to replace medium-term assets at the end of their useful life. Results in the initial stages were mixed in terms of farmer acceptance and contribution to the CRAs. Despite this initial reluctance to constitute the the concept has now been accepted by the groups. Except for the fishing subproject, all other subprojects have enough funds in their CRAs to permit at least partial replacement of their medium-term assets. Groups have in general now paid into their CRAs an average of about 60 2 of the theoretical amounts they were expected to pay. Producers seem to have understood the need to save to replace assets in the future, and are expected to continue contributing to their CRAs. This aspect of the first phase will continue to be supervised to ensure that subprojects financed under the first Project become self-sustaining. The proposed project emphasises farmers' commitment to the CRA concept by asking for a higher initial producer payment into their account of at least 10 X of the installed cost of medium-term assets compared to 52 in the first phase project. 7. Apart from the initial problems with the CRA the other main problems encountered under the first phase project weres (i) the poor quality of construction; (ii) lack of clarity on the respective roles of the Project Management Unit and some implementing agencies; and Ciii) inadequate provisions for the maintenance of developed perimeters. The main difficulty was that most executing agencies considered the project, at least initially, to be peripheral to their main activities. The selection and appraisal process of the proposed project has incorporated these lessons learned under the first project. Executing agencies for appraised operations have been closely involved in the preparation and appraisal of subprojects assigned to them. Contracts linking the Project Management Unit and the agencies would spell out: (a) supervision responsibilities during both construction and project execution; (b) inputs expected from the agencies in procurement; and (c) departments within the agencies responsible for subproject implementation. The proposed project has also introduced the notion of maintenance accounts that farmers are to set up to repair and maintain shared facilities. Training on farmer responsibilities and on correct use of assets would also be an integral part of the project.  -3- 8. Project Obiectives. The broad objectives of this project remain the same as under the first project, namely: (i) to foster productive small-scale investments in the rural sector through local initiative and participation; (ii) to introduce producer groups to new technology and render them creditworthy in the judgement of the local banking system; and (iii) to reinforce the Senegalese capacity for identification and preparation of small rural projects. A special effort is to be made under the project to train and assist producer groups in becoming more independent and creditworthy and to involve NGOs as executing agencies for sub-projects. The latter would be an experiment in combining systematically the resources of the public sector on the one hand, withb the skills and local knowledge of NGOs in Senegal on the other. 9. Project Description. The project, to be implemented over five years, focuses on channeling funds and technical services to small groups of rural people who will undertake to provide labor and some funds for the development of several types of directly productive activities. Eight subprojects have so far been appraised, namelys rehabilitation of rice perimeters developed under the first-phase project (Ngalenka); development of new irrigated rice perimeters near Ngalenka; development of rice and vegetable perimeters near Matam for women's groups; rice and vegetable perimeters near Bakel; vegetable and fruitcrop production (Sirmang); a fruitcrop, rice and banana perimeter (Fass); one beekeeping subproject (Kolda); and development of a banana perimeter (Diendd). There is a provision for subprojects to be identified and prepared during implementation, of which about 302 would be earmarked for activities directly implemented by women's groups. The project also provides for the operation of the Project Management Unit, which is located within the Ministry of Social Development and would collaborate closely with field- level executing agencies, as well as for monitoring and evaluating the impact of both the first phase project and the proposed second phase. Funds would be included under this component for the training of producer groups and for management assistance to them, with special emphasis on women's groups. 10. Total project cost is estimated at US$ 26.1 million equivalent, with a foreign exchange component of US $ 14.2 million, or 55Z. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursements, and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank group operations in Senegal are presented in Schedules C and D, respectively. A map showing project location is attached. The Staff Appraisal Report No. 7490-SE dated February 6, 1989 is being distributed separately. 11. Agreed Actions. It has been agreed with Government that project management would remain within the Ministry of Social Development. It is also agreed that the concept of the Capital Replacement Account (CRA) would be maintained and that first-year agricultural inputs would be considered as capital expenditures to be financed under this second phase project. During appraisal and negotiations, agreements were reached on the operation of the CRAs, especially on the higher initial contribution to be made by  -4- producer groups and regular contributions to the accounts. The groups would also be required to obtain from their members repayments for first- year inputs, to establish a revolving fund for inputs, and to open accounts for the maintenance of their assets. In order to ensure sustainability of the operations under both the first phase and the proposed project, agreement was reached with Sovernment that if any CRA accounts under both project phases remained in arrears, the Interministerial Committee, to be set up for supervising the project, would issue the necessary instructions for taking appropriate action including seizure of equipment. Agreements were also reached ont earmarking funds for omen's groups (30Z of the allocation for unidentified activities); and economic, financial and other criteria for selecting projects to be financed from the allocation for unidentified activities. 12. Benefits. The project's directly productive activities are expected to benefit over 4,500 families and create rural employment. Another important benefit, however, will be the strengthening of an institutional framework to encourage and support local initiatives, and to render groups of producers creditworthy. The project will also introduce an additional revenue-earning activity to rural households. For the identified subprojects, estimated ERRs range from 12 to 34 percent. 13. Risks. Experience under the first phase project and from similar projects elsewhere suggests that the main risks would concern the quality of construction works on the perimeters, the lukewarm attitude of the executing agencies towards assuring beneficiary participation and initiative, and the beneficiaries' reluctance to set aside funds needed to replace renewable assets. Executing agencies have been more extensively involved in project preparation and appraisal and detailed procedures established between project management and agencies to ensure a more active participation of the agencies in supervising construction and implementation. In addition, most groups being included in the project are recognized legal entities or are in the process of constituting themselves into legal entities. They have also explicitly asked for project assistance and hence are expected to be fairly well motivated. 14. Recommendation. I am satisfied that the proposed credit complies with the articles of Agreement of the Association and recommend that the Ecexutive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. January 19, 1989  Schedule A REPUBLIC OF SENEGAL SECOND SMALL RURAL OPERATIONS PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Project Costs a) Local Foreign Total .---.US$ million----- Rehabilitation of Ngalenka 0.3 0.5 0.8 Second Ngalenka Rice Perimeters 0.7 1.1 1.8 Small Rice Perimeters of Matam 0.3 0.3 0.6 Small Rice Perimeters of Bakel 0.4 0.6 1.0 Sirmang Fruit & Veg. Perimeter 0.4 0.4 0.8 Pass Cereal & Fruit Perimeters 0.5 0.6 1.1 Beekeeping (Kolda) 0.2 0.1 0.3 Banana Perimeter of Diende 0.5 0.6 1.0 Project Management 3.4 2.1 5.5 Unidentified Activities 2.8 4.1 6.9 PPF 0.0 1.5 1.5 Base Costs 9.5 11.9 21.4 Physical Contingencies 0.6 0.8 1.4 Price Contingencies 1.8 1.5 3.3 Total Project Costs 11.9 14.2 26.1 a) including taxes of US$ 0.8 million Proposed Financing Plan _____________________._ Government 3.0 -- 3.0 Beneficiaries 1.0 1.0 2.0 IDA 6.0 10.1 16.1 IFAD 1.9 3.1 5.0 Total 11.9 14.2 26.1  -6- Schedule B page 1 of 2 REPUBLIC OF SENEGAL SECOND SMALL RURAL OPERATIONS PROJECT PROCUREMENT METHODS AND DISBURSEMENTS Procurement Method Local and Interna- tional Total Project Element ICB Shopping LCB Other NIA Cost Land Developme_t & Civil Works a/ 3.9 0.6 4.5 (2.5) (0.3) (2.8) Vehicles and Equipment 1.7 0.2 1.9 (1.0) (0.1) (1.1) Agricultural Inputs bI 1.3 1.3 (0.5) (0.5) Consultants, Training and Audits 2.1 2.1 (2.1) (2.1) Personnel and Operating Costs 1.4 2.2 2.4 6.0 (0.8) (1.2) (1.4) (3.4) Goods and Services for Unidentified sub-projects cl 3.0 0.2 2.3 3.3 8.8 (1.7) (0.1) (1.1) (1.8) (4.7) Refunding of Project 1.5 1.5 Preparation Advance (1.5) (1.5) 4.7 1.8 6.2 11.0 2.4 26.1 (2.7) (1.0) (3.6) (7.5) (1.4) (16.1) a/ Develop&ent of irrigation networks, tubewells, roads and stores spread over space and time and hence not very suitable for ICB. b/ Agricultural inputs and services would be procured by farmers under open market conditions following procedures set up under Government's New Agricultural Policy. c/ Procurement allocations are tentative and will be decided upon review of the subprojects when appraised.  -7- Schedule B page 2 of 2 Disbursements Amount of 2 of Estimated Credit Allocated Cost to be Category Item ('000) Financed 11 uS$ SDR 1 Ngalenka Rehabilitation 700 520 952 2 Matam Perimeters 500 375 952 3 Bakel Perimeters 800 595 95S 4 Pass Cereal & Fruit 800 595 95? 5 Kolda Beekeeping 200 150 95X 6 Diende 750 560 95? 7 Unidentified Activities 4,450 3,310 95Z 8 Project Management 5,300 3,940 95? 9 Refunding PPF 1,500 1,115 Amount Due 10 Unallocated 1,100 840 16,100 12,000 11 In all cases disbursement is 95? of Investment Costs, except for Project Management where it is 952 of Total Costs. Estimated IDA Disbursements tSDR million) FY90 FY91 FY92 FY93 FY94 FY95 FY96 FY97 FY98 Annual 1.1 0.6 1.0 1.4 1.4 2.0 2.3 2.0 0.2 Cumulative 1.1 1.7 2.7 4.1 5.5 7.5 9.8 11.8 12.0  -8- Schedule C RZPUBLIC 0F 8SUOAL SECOND 8MALL RURAL OLPRTIONS PROJZCT TIMETABLE O XEY PROJECT PROCESSING VNTS (a) Tim. taken to prepares one year (b) Prepared bys SOlED (Socidt# Nationale d'Etudes pour le D6velopp eunt) (c) First IDA miasions Wovember 1986 td) Appraisal mission departure: April 1988 (e) Negotiations: November 1988 cf) Planned effectiveness: July 1989 (g) Relevant PCRs and PPARus N/A  -9- Schedule D STATUS OF SAW( GROW OPErIATIONS IN SENEGAL SUMMARY STATEMN OF LOA AND IDA CREDM (As oI Janunry 81, 1989) Amount in USS million (Ieea cnl ltilon) Loan or Fiscal Credit No. Year Borrowor Purpose Bak IDA Undisursed Credits 84 Credits closed 891.84 CIlOIO-SEN 181 SENEMAL FORESTRY 9.a0 4.05 C118O-SEN 1981 SENEGAL INWESTMENT PROMOTION 2.60 0.74 C11760-SEN 1982 SENEGAL AGRIC RESzARCH 19.60 2.08 ClS100-SEN 1988 SENEGAL RURAL HEALTH 15.00 8.90 C1B2B0-SEN 198B SENEGAL PETROLEUM EXP. 9.60 0.28 CPO01O-SEN 1984 SENEGAL T.A. URBAN MONT. & RE 2.05 0.7t CP0140-SEN 1984 SENEGAL DAKAR PORT III 4.65 CiB980-SEN 1984 SENEGAL PARAPUBLIC SS T.A. ll.OD 2.0 C14060-SEN 1984 SENEGAL EASTERN SENEGAL RURA 16.10 0.B1 C14480-SEN 1984 SENEGAL HIGHWAYS V - MAINTEN 10.76 0.50 C14590-SEN 1984 SENEGAL DAKAR PORT III 2.65 0.90 C15"40-SEN 1986 SENEGAL WATER SUPPLY SS 24.00 6.04 C16520-SEN 1986 SENEGAL IRRIGATION T.A. 4.90 8.88 C17100-SEN 1986 SENEGAL ENERGY SECTOR REHAM. 20.00 20.84 C17140-SEN 1986 SENEGAL TELECOMS 1I 22.00 20.82 C178E0-SEN 1987 SENEGAL PRIMARY EDUC DEV 12.00 11.68 C18S60-SEN 1988 SENEGAL IRRIGATION IV 88.60 86.26 CIt.88-SEN 1988 SENEGAL INDUSTRY SECTOR 8.00, 88.64 C18840-SEN 19088 SENEGA MUUICIPAL HOUSINO DE 46.00 48.74 3 C91CO-SEN 1988 SENEGAL TA DEVT MOUT 17.00 10.62 TOTAL NUMBER CREDITS a 20 816.60 216.84 Loans 19 Loans(s) closed 124.11 L14180-SEN 1977 SENEGAL TOURISM I 6.41 0.19 TOTAL NUMBER LOANS * 1 5.41 0.19 soc TOTAL 129.65 707.94 of which repaid 47.74 18.68 TOTAL held by Sank A IDA 61.79 694.81 Amount sold 5.75 of which repaid 8.26 TOTAL undisbursd 216.56 NOTES o Not et effective ** Not yt silgned cOo Total Approved, Repayments, and Outstanding balance represnnt both *ctiv, and tnactivv Loans and Credits.  IBRD 21200 -t r-~~~~~~~~~~~~~~~~~~~~~. 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