Benin - Agricultural Services Restructuring Project

Documat of The World Bank FOR OMCIL USE ONLY l ' c Nc, 1,}. t' - l t b 4;\ ik- ei,'L2t No. f!- t~ bit N F1u A(; tN P-5516-BEN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 9.3 MILLION TO THE REPUBLIC OF BENIN FOR AN AGRICULTURAL SERVICES RESTRUCTURING PROJECT JUNE 3, 1991 This doc"ment has a resrited disbtibution and may be used by redpients only in the performance of dik offica duties. Its cwents may not otherwise be dilosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = CFA Franc (CFAF) US$1.00 = CFAF 253 a/ WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BCEAO Banque centrale des Etats de l'Afrique de l'Ouest Central Bank of the West Africatn States CARDER Centre d'action regionale et de developpement rural Regional Rural Development Agency EDF European Development Fund FAO Food and Agriculture Organization of the United Nations FAO/CP FAO/World Bank Cooperative Program GTZ German Technical Cooperation Agency IDA International Development Association IFAD International Fund for Agricultural Development MDRAC Ministare du developpement rural et de l'action cooperative Ministry of Rural Development PCR Project Completion Report PPAR Project Performance Audit Report SONAPRA Soci6td nationale de production ag. icole National Agricultural Production C(mpany UNDP United Nations Development Program FISCAL YEAR January 1 - December 31 a/ Exchange rate of January 1991. The parity of the CFAF with the French franc is fixed at 50/1.  FOR 0MCIL USE ONY REPUBLIC OF BENIN AGRICULTURAL SERVICES RESTRUCTURING PROJECT CREDIT AND PROJECT SUMMARY Borrowert Republic of Benin Beneficiary: Ministry of Rural Development and Cooperative Action (MDRAC) Amount= SDR 9.3 million (US$12.3 million equivalent) Terms: Standard IDA terms, with 40 years maturity On-lending Terms: Prevailing market rates Financin2 Plan: Government US$ 4.9 million IDA US$12.3 million French assistance US$ 3.2 million EDP US$ 2.9 million GTZ USS 0.9 million IFAD US$ 4.0 million UNDP T1S$ 1.5 million TOTAL US$29.6 million Economic Rate of Return: Not applicable Staff Appraisal Report: 9442-BEN Mans IBRD No. 22909 This document has a restricted distribution and may be used by recipients only 1n the p ,rformance of their official duties. Its contents may not otherwise be disclosed without WorL. r A authorization.  MEMORANDUM AND RECONMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF BENIN FOR AN AGRICULTURAL SERVICES RESTRUCTURING PROJECT 1. The following memorandum and recommendation on a proposed Development Credit to the Republic of Benin for SDR 9.3 million CUS$ 12.3 million equivalent) is submitted for approval. The proposed credit would be issued on standard IDA terms with 40 years maturity and would help to finance an Agricultural Services Restructuring Project. The principal implementing agency would be the Ministry of Rural Development and Cooperative Action (MDRAC). 2. Country Background. Between 1977 and 1982 the Beninese economy achieved an average real growth of about SZ per annum. This growth resulted in part from buoyant investment activity and in part from strong reexport and agricultural export trade with neighboring countries. The end of the boom in those countries and the completion of major public sector projects left Benin saddled with low return investments, a heavy external debt service and a poorly managed state- dominated modern sector. A first piecemeal response from the Government yielded limited results. In 1989, the Government adopted a more radical approach to structural adjustment with the support of IDA and IMF as well as of other donors. 3. The structural adjustment program entailed a major departure from centrally planned economic policies towards greater reliance on private initiative and market forces. Progress was achieved ii- reforming trade policies, liquidating nationalized banks and public enterprises and reducing the public wage bil'_'. However, the economic and financial context deteriorated in the second half of 1989, with a contraction of Governaent revenues following the decrease in transit trade, the lack of liquidity of the banking system, and declining tax and duties collection due to growing fraud and intermittent strikes. With the resolution of the political crisis early in 1990, conditions for the implementation of structural reforms were re-established, and conditions for the release of the second tranche of SAL I were' fulfilled by June 1990. 4. Sectoral Background. Benin's economic performance is largely determined by that of its agricultural sector. Benin farmers have been flexible in adapting both their cash an, food cropping patterns to changing financial signals, and the introduction of draZt cultivation has been rapid where warranted. However, as a result of a historic interest by the donors and Government in cotton, modern inputs and extension support have been limited mostly to cotton areas. Elsewhere, cropping techniques are still primitive, slash and burn cultivation is predominant and yields are below those of some of the neighboring countries. All the above result in a negative impact on the preservation of natural resources because of excessive deforestation and soil erosion. 5. Agricultural services are presently supported through six regional rural development projects financed by external donors, including two with IDA participation. Each covers one of the six ddparteents (ex-provinces) of the country and is implemented by a Regional Rural Development Agency (CARDER). Some of these projects have started operating only recently; others are almost at the end of their externally-financed periods. With the projects being foreign- financed and donor-driven, the government has had little control over the objectives and administration of field agricultural services. Also, the CARDERs  have become involved in a number of activities which would be better entrusted to private sector operators. Overall, these services have not been tailored to the real needs of the farmers or herders, especially of women farmers, or always been responsive to environmental considerations. Due to past mismanagement, staff lack training and their numbers are excessive. Agricultural research has been conducted in isolation from extension and from farmers, without ciear policies or correct priorities, and with emphasis on export crops. 6. Government policy has recently evolved from a centralized, marxist approach to a liberal market-oriented economy. State agencies and enterprises are withdrawing from commercial and production activities. HDRAC is at the vanguard of change in the process of redefining its policies, objectives and action plan within the framework of the wider government reform. A workshop was organized by MDRAC in July 1990, with the participation of ministry staff and representatives of donor agencies and professional groups in which a wide consensus was reached in favor of a smaller public service base while giving greater scope to the provision of services to agriculture by the private sector. 7. The Food and Agriculture Organization of the United Nations (FAO) has completed several studies of the reorganization of MDRAC, the CARDERs and seed farms. The recommendations of the studies, including tie reduction of staff of these institutions by more than 602, have been widely accepted by Government on condition that funds be made available for an adequate compensation of civil servants to be laid off. The recommendations are also welcomed by other donors. 8. Proiect obiectives. The main objectives of the proposed project would be to assist the Government, within a three-year period, to begin restructuring Benin's agricultural institutions. The project aims to (a) organize MDRAC around its priority objectives of establishing, budgeting for and monttoring Bonin's rural development policies, programs and legislation, collecting and diffusing information relevant to the rural population and implementing applied research; and (b) improve the efficiency of agricultural and livestock services, reduce their cost and transfer to the private sector services which are not of a public nature, thus making remaining public services more responsive to environmental and farmer needs, including those of women and transient herders. The project would support increasing the involvement of farmer organizations in the supervision and, later, management and partial financing of field agricultural services so that these services better respond to real farmer needs. Better linkages would be built between extension, research and farmers, and between cropping and livestock activities. 9. Proiect description. The project would restructure the country's agricultural institutions, including the central sexvices of MDRAC, research and development and seed production stations, and the six CARDERs, while limiting their operations to those normally undertaken by the public administration. The project is estimated to cost the equivalent of US$29.6 million. It would be financed through a credit from IDA (US$12.3 million equivalent) and grants from French assistance (FF 20 million--US$3.5 million equivalent), the European Development Fund (US$ 2.9 million equivalent), German Technical Cooperation (DM1.8 mlUlion--US$l million equivalent), the International Fund for Agricultural Development (US$3.7 million equivalent), UNDP (US$1.5 million) and the Government (US$4.8 million dollar equivalent). The restructuring would entail a reduction of about 632 of MDRAC and CARDER staff, mainly among the two lowest staff grades.  - 3 - CcGpensation would be paid for these redundancies from funds outside the project. The project would accomplish these objectives through a combination of policy reforms and investment. 10. On-lending would be done through financial intermediaries acceptable to IDA and would be subject to regular monitoring. The funds would be passed on to these intermediaries at the BCEAO rediscounting rate and on-lent to the final borrowers at prevailing market rates. The exchange risk would be borne by the State, and the risk of non-recovery would be borne by the intermediary. 11. The agricultural policy measures, spelled out in a Letter of Rural Development Policy of the Government, would consist of thes Ca) new statutes for MDRAC and the CARDERs; (b) personnel management regulations which would help prerserve institutional memory and justify the expenditure on training financed by the project; Cc) updated cooperative legislation; (d) release of some 3,800 MDRAC and CARDER staff; (e) privatization of seed farms; (f) preparation of a code for veterinarians; (g) privatization of the State enterprise for veterinary pharmaceutical imports; (h) taxation of imported meats; and (i) a health services action plan for the livestock sector. 12. Proiect investments would comprises (a) restructuring NDRAC's central services around fewer staff (560 instead cf 1200) and more direct lines of responsibility; (b) restructuring the CARDERs with a transfer of some activities to the private sector, improvement of agricultural extension and of management advice to village groups, and reduction of staff from 4,910 to 1,750; (c) training in management, farmer needs and motivations and environmental concerns for staff remaining in the MDRAC and CARDERs; (d) strengthening research sad development in the farmers' own environment and with their participation; (e) equipment and operating funds for seed production; (f) restructuring the central and regional livestock services; tg) facilitating the return of a part of the MDRAC and CARDER personnel to private sector activities by means of training and credit components; (h) technical assistance; and (i) legal and technical studies. 13. Lessons from experience. Lessons learnt from earlier agricultural services projects in Benin and in Africa have helped improve the design of the project towards a better understanding of farmer needs and their environment, a better separation of public and private sector responsibilities and activities and a more efficient decentralization of public sector activities. 14. Rationale for IDA involvement. The project would be consistent with the Government's development priorities and IDA's lending strategy which aims at promoting sustainable growth through increases in production and export earnings. The proposed project is nationwide in scope and forms a key component in Benin's structural adjustment program. It would facilitate the transfer to the private sector of activities which presently burden the national budget while providing an efficient institutional framework for other agricultural projects. IDA has experience of collaboration with the CARDERs and is the sole donor that has taken the initiative of funding projects of national scope in Benin outside the cotton sector. IDA is also well placed to help strengthen extension and research- development services as part of its Africa Agricultural Services Initiative. 15. Aareements reached. Conditions for credit effectiveness would be the (a) performance of the essential tasks preparatory to the reorganization of the MDRAC  - 4 - and the CARDERs; (b) arrival in Cotonou of key consultants; tc) budgeting by the Governtaent of the funds to compensate for the release of redundant staff; and (d) appointment of independent external auditors. Other key agreements reached at negotiations comprise the privatization of the seed farms, the implementation of a livestock health services action plan and conditions pertaining to the provision of sub-loans. 16. Environmental imnact. The project would have no direct impact, positive or negative, on the environment. However, the project would provide a tool for the implementation of a natural resources project under preparation and for the promotion of sustainable farming practices, including integrated stock raising and crop farming. Staff would be trained to better take into consideration environmental factors. Research and development operations would make both staff and villagers more aware of methods available for preserving their land and forest assets. 17. Benefits. The project would yield two kinds of benefitst (a) for farmers and herders, (i) the introduction of services better targeted at their real needs; and (ii) the development of private initiatives to provide inputs, equipment maintenance, marketing and other services more effectively than public sector agencies; and (b) for the State, (i) a significant reduction in budget costs; and (ii) better control over its the planning and monitoring of its activities in the rural areas. The social justification of the project lies in the emphasis it places on food crops to enhance the country's food security and on the poorest farmers, women and young people. 18. Risks. The principal risks are: (a) a temporary negative impact on agricultural production, particularly cotton, during the transfer of certain services to the private sector; (b) management of the civil service that does not meet project criteria; and (c) a limited capacity of training centers to ensure timely execution of the training programs planned. The measures designed to reduce these risks include training and credit for a large number of civil servants to be made redundant, the temporary retention of certain activities under the CARDERs, and the medium-term capacity of village groups to take on the task of providing essential services to cotton producers, the introduction of new personnel regulations and the possibility of extending the project if necessary to enable training programs to be completed. 19. Recommendation. I am satisfied that the proposed credit complies with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President by Wilfried P. Thalwitz Attachments Washington, D.C. June 3, 1991  -5- Schedule A REPUBLIC OF BENIN AGRICULTURAL SERVICES RESTRUCTURING PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Proiect Costs Local Foreign Total 2 of ------(USS million) ----- Base Cost Restructuring of MDRAC 1.1 2.0 3.1 11.7 Restructuring of the CARDERs 4.4 4.0 8.4 32.4 Training 1.6 0.4 2.0 7.7 Research/development 2.0 1.4 3.4 12.8 Seed production 1.3 0.1 1.4 5.4 Livestock services 1.2 0.7 1.9 7.4 Reinsertion of personnel 2.8 0.3 3.1 12.0 Management support 0.2 2.0 2.2 8.4 Studies 0.2 0.4 0.6 2.3 Total Base Cost 14.8 11.3 26.1 100.0 Physical contingencies 1.2 1.0 2.2 8.4 Financial contingencies 0.6 0.7 1.3 4.9 TOTAL PROJECT COST 16.6 13.0 29.6 113.3 Financing Plan US$million 2 IDA 12.3 41.5 French Assistance 3.2 10.8 EDF 2.9 9.8 GTZ 0.9 3.0 IFAD 4.0 13.5 UNDP 1.5 5.1 Government 4.9 16.5 TOTAL 29.6 100.0  -7- Schedule B Page 1 of 2 REPUBLIC OF BLNIN AGRICULTURAL SERVICES AND RESTRUCTURING PROJECT PROCUREMENT METHOD AND DISBURSEMENTS Procurement Arrangements Procurement Method Project Component ICB LCB Other N.A. Total Cost -------------------C(USS '000)- Vehicles 4.1 4.1 (1.9) (1.9) Equipment 2.3 0.9 3.2 (1.5) (0.6) (2.1) Civil Works 2.7 2.7 (2.3) (2.3) Technical Assistance 2.1 2.1 (0.6) (0.6) Training 4.3 4.3 (1.9) (1.9) Credit 2.4 2.4 (0.8) (0.8) Incremental Operating Costs 10.1 10.1 (2.7) (2.7) TOTAL 6.4 3.6 7.1 12.5 29.6 (IDA share) (3.4) (2.9) (2.5) (3.5) (12.3) Note: Procurement under other donors" financing would be made under the donors procurement procedures.  Schedule B Page 2 of 2 Disbursement Amount Percentage Category (US$ million) Financed b- IDA Vehicles 1.7 100t Equipment 1.9 100? Civil works 2.0 100? Technical Assistance 0.5 1OOS Training 1.4 100? Credit 0.7 100? 0 & M 2.4 80? first year 50? second year 20X thereafter Unallocated 1.7 Total 12c3 Estimated Disbursements of IDA Credit IDA Fiscal Year 92 93 94 95 9 --------------(SDR million)--------------- Annual 0.7 2.4 2.8 2.4 1.0 Cumulative 0.7 3.1 5.9 8.3 9.3  -9- Schedule C REPUBLIC OF BENIN AGRICULTURAL SERVICES AND RESTRUCTURING PROJECT Timetable of Key Proiect Processing Events (a) Time taken to prepare: 2 years (b) Prepared by: GcGernment, FAO/CP (c) First IDA missions February 89 (d) Appraisal Departure: October 1990 (e) Negotiations; May 1991 (f) Planned Date of Effectiveness: September 1991 (g) List of relevant PCRs and PPARs: Borgou I  - 11 - Schedule D Page 1 of 2 STATUS OF BANK GROUP OPERATIONS IN BENIN SUMW ARY STATEMENT OF LOANS AND IDA CREDITS (As of May 8. 1991) Amount In USS eli lIon (less cancellation) Loan or Fiscal Undis- Closing Credit No. Yeor Borrover Purpose Bank IDA bursed Date Credits 26 Credit(s) closed 211.04 C13140-SEN 1983 REPUBLIC OF BENIN RURAL DEVT III (ZOU) 20.00 8.42 12/81/91 (R) C1530-BEN 1984 REPUBLIC OF BENIN OIL. II DEV. PROJECT 18.00 .86 02/28/91 (R) C16300-BEN 1986 REPUBLIC OF BENIN TECHNICAL ASSISTANCE 5.00 2.86 98/31/92 (R) C17210-BEN 1988 REPUBLIC OF DENIN WATER lI 10.00 5.42 12/81/93 C17480-8EN 1987 REPUBLIC OF BENIN PUBLIC ENTERPRISES 16.00 18.74 86/80/05 C18070-BEN 1987 REPUBLIC OF BENIN TRANSP. INFRAST. 19.50 11.64 03/31/95 C18770-BEN 1988 REPUBLIC OF BENIN BORCOU RO. I1 21.00 6.27 12/31/92 C19800-BEN 1989 REPUBLIC OF BENIN TELECOMMUNICATIONS 18.00 11.42 12/31/93 C20310-BEN 1989 REPUBLIC OF BENIN HEALTH SERVICES DEV 10.6" 14.39 09/30/97 C20880-BEN 1990 REPUBLIC OF BENIN RURAL CREDIT 2.50 1.97 12/al/95 TOTAL number Credits - 10 145.89 77.27 TOTAL c*c 857.24 of which repaid - 14.95 TOTAL held by Dank & IDA 342.29 Amount sold of which repaid Total undisbursed 70.49 C202SO-BEN 1989 REPUBLIC OF BENIN SAL I 46.90 .00 12/81/90 (R) Total REPUBLIC OF BENIN 45.00 .00 Notes: _________________ * Not yet effective cc Not yet VSgned 0*c Total Approved, Repsyments, and Outstanding balance represent both active and lnactive Loans and Credits. (R) indicates formally revised Closing Date. (S) indicates SAL/SECAL Loans and Credits. The Net Approved and Sank Repayments are historical value, all other are market value. The Slgning, Effective, and Closing dates are based upon the Loan Department official data and are not taken from the Task Budget file.  - 12 - Schedule D 8. STATEMENT OF IFC OPERATIONS (As of may 8, 1991) NONE  _ j MALI___/ N I GE R -I f</~~>~,,_-_ g >)/;