Niger - Public Works and Employment Project

Document of The World Bank FOR OFFICIAL USE ONLY Report NoP-5387NIR MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF US$20.0 MILLION TO THE REPUBLIC OF NIGER FOR A PUBLIC WORKS AND EMPLOYMENT PROJECT JANUARY 11, 1991 This document has a restricted distribution and may be used by recipients only i-n the perfenmance o, their official duties. Its contents may not otherwise be disclosed without World Bank authorizatiom  CURRENCY EQUIVALENTS Currency unit CFA Franc (CFAF) US$1.0 CFAF 250 CFAF 1 million US$2,500 SYSTEM OF WEIGHTS AND MEASURES: METRIC FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS CNREF Commission Nationale des Reformes Economiques et Financieres DSD Direction de la Statistique et de la Demographie GTZ Deutsche Gesellschaft fur Technische Zussemmenarbeit (Germany/Allemagne) KfW Kreditanstalt far Wiederaufbau (Germany/Allemagne) PACSA Programme d'Attenuation des Couls Sociaux de l'Ajustement PESAP Public Enterprise Sectoral Adjustment Program SAL Structural Adjustment Loan SDA Social Dimensions of Adjustment UNDP United Nations Development Program This report is based on the findings of a World Bank mission consisting of Messrs. Leslie Pean (Economist, Mission Leader), Jean-Marie Lantran (Civil Engineer), and Magatte Wade (Consultant), who visited Niger in July 1990 to appraise the Project. Francis Mody and Pierre Nignon provided support for the subprojects' economic analysis. Mr. Patrick Canel was the Lead Advisor for the operation. Mrs. Katherine Marshall and Mr. Peter Watson are the Department Director and managing Division Chief, respectively for the operation. The report was typed by Mrs. Malissa Ngo Van Duc.  FOR OFFICIAL USE ONLY REPUBLIC OF NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Niger Beneficiary: Ministry of Plan Aimount: US$20.0 million T'erms: Standard, with 40 years maturity Onlending Terms: Not applicable Financing Plan: Government: US$ 3.3 million IDA: US$20.0 million Other: US$10.0 million TOTAL: US$33.3 million 2conomic Rate of Return: Not calculated Staff Appraisal Report: Report No. 9032-NIR Map: IBRD No. 16779-R E 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 PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF US$20.0 MILLION TO THE REPUBLIC OF NIGER FOR A PUBLIC WORKS AND EMPLOYMENT PROJECT 1. The following memorandum and recommendation on a proposed development credit to the Republic of Niger for US$20.0 million equivalent is submitted for approval. The proposed Credit would be on standard IDA terms with 40 years maturity and would help finance a public works and employment project. Government will contribute US$3.3 million or 10 percent of project costs, and other donors would contribute US$10.0 million or 30 percent of project costs. I. Country Policies and Bank Group's Assistance Strategy Background 2. Economic Structure. Niger is a country of 7.5 million inhabitants with a per capita GDP estimated at $280 in 1988, making it one of the poorest countries in the world. Its social indicators are among the lowest in Sahelian countries. Since 1965, per capita incomes have declined by an average of 2 percent per annum, with an average one percent growth of GDP and a rapidly rising population (3.2 percent p.a.). The critical constraints to long term development in Niger are: (i) its weak natural resource base due to fragile and degrading arable land, low rainfall and periodic drought, and sustained neglect; (ii) a very weak human resource base; (iii) overdependence on a single export - uranium; (iv) an interventionist approach to governing which has impeded broad based development, and slowed the formal economy in developing its natural markets in Nigeria. 3. The economy is natural resource based, consisting of agriculture (20 percent of GDP), livestock (14 percent), and uranium mining (6 percent). Like other Sahelian countries, GDP growth is highly volatile since cereal production depends on unreliable rainfall patterns. The formal sector consists of a relatively inefficient public sector (Government and public enterprises) and a small and declining modern private sector. The informal sector, consisting of the rural economy, small-scale artisanal and service activities, and influential traditional traders is closely integrated with the economy of northern Nigeria. Uranium exports have accounted for 80 percent of Niger's export revenues during 1975-89. A uranium price boom in the late 1970s caused rapid GDP growth and permitted heavy external borrowing to finance a major expansion of public enterprises and public sector investment in large and often uneconomic projects. In the early 1980s, a dramatic fall in uranium export earnings and the failure of Government to curb public spending in a timely fashion left Niger with a budget deficit of 10 percent of GDP, a balance of payments deficit of 22 percent of GDP, a portfolio of uneconomic investments, and rapidly rising debt service. 4. Economic Performance and Adjustment in the 1980s. Faced with an economic crisis, in 1982 the Government launched a macroeconomic stabilization and adjustment program. This was supported by the IMF with a series of Standby Agreements beginning in 1983, followed by a Structural Adjustment Facility (SAF)  - 2 - in 1987 and an Enhanced Structural Adjustment Facility (ESAF) in 1988. IDA has supported these efforts with a Structural Adjustment Credit (SAL) in 1986 and a Public Enterprise Sectoral Adjustment Credit (PESAP) in 1987. Niger also res- cheduled its external debt with the Paris Club every year between 1982 and 1986, 1988 and 1990, and also with the London Club in 1L983-85 and 1989. 5. The stabilization and adjustment program focussed on reducing internal and external deficits, improving public resource management, restructuring the public enterprise sector, and reducing the excessive government control in the economy. The public investment program was refocussed towards rehabilitation of existing assets and the social sectors. Performance under these programs has been mixed. In the public enterprise sector, reforms were introduced to reduce the size and improve the performance of the public enterprise sector. Several public enterprises were liquidated or privatized, and the largest ones have been the subject of restructuring programs. Progress has been made in reducing the sector's demand for public resources such that the budgetary subsidies declined by 60 percent between 1981 and 1988. Progress towards economic liberalization has been achieved by scrapping various state monopolies, easing or eliminating price controls and import restrictions, liberalizing cereals marketing and abolishing export taxes on agro-pastoral products. 6. Since 1984, the economic situation has continued to deteriorate due to a 25 percent decline in uranium earnings, worsening terms of trade (at an average of 3 percent per annum), and the effects of the rapid macroeconomic adjustment in Nigeria. GDP growth averaged only 0.5 percent per annum in 1985- 89, and has fluctuated widely during the period reflecting the variability of rainfall and the resulting volatility of rural sector production which averaged 1.1 percent growth in 1985-89. The industrial sector (including mining and manufacturing) has stagnated with an annual growth rate of 0.5 percent, while services (principally government) increased by 5 percent per annum in 1985-89. Gross domestic savings have stagnated at the low level of 5.5 percent of GDP during 1985-1989. Fixed capital investment has declined from a record high of 28 percent of GDP in 1980 to about 10 percent in 1988. Private investment fell from about 10 percent of GDP in 1980 to virtually zero in 1989. Foreign direct private investment, at 2 percent of GDP in 1980 has been negative since 1984 as foreign companies have disinvested. Public invest.ment has also declined sharply during the 1980s from 18.5 percent of GDP in 1980 to 7.5 percent in 1988. Key macroeconomic indicators are presented in ScheduLe E. 7. Export receipts declined by 35 percent between 1980 and 1988 with uranium exports (75 percent of total exports in L988) down by 25 percent. The other main exports of livestock and cowpeas declirLed dramatically in 1984/85 due to extended drought, but by 1989 had recovered to early-80s levels. Imports, largely of capital goods, declined by 35 percent in real terms in the 1980s, reflecting the stagnation of economic activity and the loss of export earnings. As a result of falling imports, the balance of payments improved from 1982-1988, with the current account deficit (excluding official transfers) declining from 22 to 9 percent of GDP. 8. Social Development: All social indicators give a grim picture in Niger but are unreliable for determining trends. Overall food security and nutritional status are closely linked to weather patterns, which, since the last  - 3 - major drought in 1984/85, have been relatively favorable with crop production above average. However, with declining per capita incomes, poverty and malnutrition levels have at best remained constant and more likely have worsened in the 1980s. Early evidence on the effects of the economic reform programs on the rural poor suggests that there has been little discernible improvement at the household level. Climatic factors (e.g., rainfall patterns) are the critical variable for subsistence farming, while the services provided by the Government have not been able to keep up with the increasing demand. The social effects of Niger's economic problems are most visible at the urban level, where population growth and a shrinking modern sector have caused rising unemployment. The rapid growth of the informal sector is both a result and a mitigating factor in the process. 9. Recent Economic Developments. The Nigerien economy remains in recession. In 1988, GDP grew by 7.5 percent because of abundant harvests following the best rainy season on record. However, GDP in 1989 is estimated to have declined by 3 percent due to a 20 percent decline in agricultural production caused by poor weather conditions and a 14 percent decline in uranium export earnings. Capital goods imports declined because of the delays in implementation of the public investment program, and the external current account deficit increased slightly to 10 percent of GDP in 1989. Because of delays in implementing the adjustment program, non-project assistance declined to 60 percent of its 1988 level, resulting in an overall balance of payments deficit of about one percent of GDP in 1989, down from the surplus of about two percent recorded in 1988. On the fiscal side, revenue performance remained weak in 1989, with budgetary tax revenues falling below 8 percent of GDP. The civil service wage bill rose 7 percent, while priority operations and maintenance items were cut. The current budget deficit grew and domestic financing (through central bank borrowing and the build up of domestic arrears) increased by 50 percent. 10. Major progress has been made during 1989 and 1990 to reduce Niger's debt burden. As a result of debt forgiveness by official creditors, Niger's total outstanding debt decreased by 21.6 percent in 1989. In December 1990, Niger became the first country to be approved for use of the IDA debt reduction facility, in an amount of up to US$ 10 million. These funds combined with co- financing from France and Switzerland are expected to lead to the elimination of at least 70 percent of Niger's total outstanding commercial debt amounting to US$ 111 million by the end March 1991. The operation is part of a broader debt strategy which is expected to lead to a decline in the ratio of debt service (before rescheduling) to exports from 48 percent in 1989 to 38 percent in 1993 and 20 percent by 1998. 11. Recent Political Developments. After 13 years of firm rule, President Kountche was succeeded, on his death in November 1987, by President Ali Saibou. Although closely associated with the former regime, President Saibou's accession represented a fundamental political change. President Saibou released political prisoners, dismantled the secret police and introduced a more open system of government with a new constitution for which a referendum was held in September 1989. A National Assembly based on a single party was elected by universal suffrage in December 1989 and President Saibou returned to power. 12. Social and political developments in 1990 are, however, a major source of uncertainty. In early February 1990, an anti-government demonstration  - 4 - by students resulted in several deaths and injuries. In March 1990, a cabinet reshuffle improved the balance of representation throughout the government and political systems. However, anti-government demonstrations, organized by the country's labor unions and University student organizations, continued and culminated in a week long general strike in November 1990. Subsequently, Government accepted the demands of opposition. by committing itself to the introduction of multi-party democracy and the holding of a National Conference to broaden the political and economic debate among all sections of the society. A timetable has now been established which will lead to the revision of the constitution, the establishment of political parties and the elections later in 1991. While Government has repeatedly affirmed its continued willingness to implement economic reforms as agreed in the PFP, the political situation has visibly slowed progress in the last year, and there is considerable uncertainty whether the agreed program can be implemented in future in the current politically volatile environment. Growth Prospects and Medium Term Economic Outlook 13. With limited natural resources and chronic balance of payments deficits, Niger will remain vulnerable to external factors such as rainfall patterns and the price of uranium. In the face of such constraints and uncertainties, and in the absence of a major increase in the price of uranium or a sizable new mineral discovery, Niger's macroeconomic prospects will depend critically on the vigor with which the Government implements adjustment programs to improve the incentives framework and maintain aid flows. The possible sources of growth in Niger include: agriculture - subsistence cereals, export crops (such as cowpeas), higher value vegetables; livestock products; small scale artisanal products such as artifacts and agricultural implements; tourism and ancillary services; and small scale mining. Much of Niger's growth potential lies in exploiting better its geo-economic position vis i vis Nigeria, through trade and factor market integration. Workers' remittances from the coastal countries could also represent an increasingly important source of income. Improving the incentives framework is necessary to slow the fall in per capita incomes, but is alone not sufficient to ensure a sustained increase in GDP. Program assistance is needed to maintain a minimum level of current development-oriented expenditure and finance accelerated human resources development, the key to raising labor productivity and long term economic growth. 14. The PFP projects growth in the medium term of about three percent per annum. This level of growth would barely stabilize per capita income, but itself would be a major accomplishment to achieve, requiring sustained commitment to policy reform as outlined in the PFP. These policies include continued price and trade liberalization combined with tight monetary and fiscal policies, and wage restraint. Effective implementation of the reform program will require consensus for the future of Niger among the different regional, economic and political groups. The growth projections are also based on relatively optimistic assumptions about external factors (rainfall, uranium prices, and economic conditions in Nigeria) and remain highly sensitive to them. A continued decline in uranium earnings would have an important ripple effect in the economy due to the impact on government revenues, other industries (e.g., transport, cement, electricity), and the demand for government services.  - 5 - Central Development Issues 15. Niger's overarching development objective must be to reverse disturbing trends of declining per capita incomes and levels of social welfare in the face of one of the poorest natural and human resource bases in Africa. Achieving positive per capita income growth in Niger will take a long time and require sustained assistance from the international community. The challenge is even more difficult due to the continuing decline of the uranium sector which will contribute less to the economy and to public revenues, and will have adverse effects throughout the economy. The key issues are: (i) to improve the efficiency of resource use in the public and private sectors through policy reform; and (ii) to promote long term development through investment in critical sectors, notably human resources and agriculture/natural resource management. Stated government policy for the medium term calls for continued macroeconomic adjustment, as outlined in the Fourth-Year PFP (1990-1992) which was presented to the Board in September 1990. The IMF Board subsequently approved the second year ESAF, and the Nigerien authorities successfully negotiated with the Paris Club for debt rescheduling. Key issues addressed in the PFP are: civil service reforma, the wage bill, trade reform and the financial sector. 16. Public Resource Management. Given the importance of the public sector in the economy, improved public resource management is necessary to enhance the efficiency of resource use and direct resources towards priority sectors. The key issues in public resource management are: improving domestic resource mobilization in which Niger's tax ratio at eight percent, is among the lowest: in Africa due to a shrinking formal sector tax base; restructuring current expenditure which is out of balance with Niger's resource position and the targets of the adjustment program. Operations and maintenance outlays are underEunded, as are primary education and basic health care. Priority has been given to paying the civil service wage bill, which has increased by about 6 percent per annum from 1984-1989, at the expense of all other expenditure categories. Civil service reform including wage cuts and civil service downsizing will be necessary to ensure that resources are available to recruit in priLority areas (health and education); improving public investment, which has stagnated since 1984, is needed to increase the investment rate and to ensure that :Lnvestment is redirected towards the social sectors and to the maintenance of existing infrastructure in preference to new investment. 17. Debt and Aid Flows. In addition to the debt reduction initiatives, Niger will need to continue to benefit from rescheduling on terms comparable to Toronto terms by all official creditors and all those commercial banks who decide not to participate in the ongoing debt reduction initiative. Maintaining overseas development assistance on which Niger is heavily dependent (averaging about 17 percent of GDP during 1985-89), is necessary to sustain investment and economic activity. As a resource poor country, Niger will continue to receive substantial aid flows to support its development and adjustment efforts. The principal factors determining access to aid flows are absorptive capacity for investments and the implementation of a sound adjustment program as a basis for non-project assistance. 18. Private Sector Development. The private sector, which constitutes over 75 percent of GDP with more than 70 percent in the informal sector, will have to be the principal source of sustained growth. The informal sector is  - 6 - highly integrated with the economy of northern Nigeria, is relatively diversified, and appears to have largely adjusted to the economic changes in Nigeria (such as the depreciation of the naira during 1987-89). The magnitude of informal sector activity in Niger is imperfectly understood since a large proportion of trade with Nigeria takes place unofficially. The formal private sector is relatively small, with a few large companies and a number of medium scale enterprises, but contributes a disproportionate level of government revenue. Government-induced constraints, such as labor legislation and price controls, as well as the high cost structure induced by the overvalued exchange rate of the CFAF, have made adjustment to a changing economic environment difficult for the formal sector and have led to its contraction. Very little is known about migration to the coastal countries and the importance of remittances in household budgets. Migration to Nigeria has traditionally provided a safety valve when natural or economic crises occur and may well represent an important source of investment capital for the informal sector. The principal issue with respect to the private sector is to create a more favorable enabling environment which will: encourage the informal sector to expand, modernize, and participate more fully in the modern economy; promote regional integration by increasing commodity trade and factor movement with neighboring countries; and reduce constraints to private sector activity. Niger's adjustment efforts to date have included economic liberalization reforms, but further effort is needed in this area. 19. Financial Sector. Niger's financial sector is in crisis due largely to the virtual collapse of the public sector financial institutions which dominated the banking system. A small private banking sector is in relatively good health but serves a market restricted to the major cities. Weak management and government interference with consequently poor financial performance led to the liquidation of the agricultural credit bank (CNCA) in 1988, and the bankruptcy of the housing finance institution (Credit du Niger) and the liquidation of the Development Bank of Niger (BDRN) in 1990. The BDRN was Niger's main commercial bank: it held about 50 percent of total deposits and extended more than 65 percent of short term credit: in the economy. Improving the performance of the financial sector will require: implementing the recently announced WAMU-wide banking sector reforms; rigorous collection of BDRN bad debts; and ensuring that the capital structure of the newly established bank (SONIBANK) is predominantly private sector. Reforms are also needed to encourage the development of both formal and informal private financial systems to make financial markets more competitive and responsive. 20. Uranium sector. Although the role of the uranium sector has diminished during the 1980s, this sector remains of crucial importance to the economy as it accounts for about 8 percent of GDP, 75 percent of export proceeds, and some 15 percent of Government revenue. Since the cost of production, including the indirect subsidies paid by the two uranium mining companies to the public electricity and transport companies, is higher than the negotiated contract price, which itself is some 40 percent above world market prices, production costs will need to be reduced substantially in order to ensure the sector's survival. Areas of cost savings are wages and salaries, electricity, transportation, hospital administration and mining town management fees, and debt reduction consistent with Niger's overall debt management strategy. These cost savings will unavoidably have trickle down effects on the Government budget and  several parastatals and will need to be dealt with in the context of overall public resource management. 21. Human Resources Development. Niger ranks among the bottom five countries in the world for all social indicators. Progress in this area will be both an effect and a driving force in improving the welfare of Niger's population. Significant and sustained improvement in human resource development is crucial for both long term growth within Niger and, in the absence of employment opportunities at home, to improve the chances for migrants to find gainf'ul employment in the coastal countries. The key issues in the development of hunman resources are: (a) to lower the growth rate of population from its current level of 3.2 percent; (b) to improve the coverage of primary health care; and (c) to increase the level of basic education. 22. Reversing the decline in per capita income will require slowing the rate of growth of population, which on present trends will rise to more than 10 million by 2000 from the 7.5 million in 1989. Population pressures are evident both in urban areas and in arable rural areas where population densities have doubled in the last 25 years. Food production in Niger will be unable to keep pace with the growing population as cultivation expands into more and more margiLnal areas and as fallow cycles are further reduced. The rapid rate of population growth will also erode the delivery of services in education and health unless increased resources are made available for these sectors. Reducing fert:Llity rates is also essential to improve the health and economic status of womeni. The Government is aware of the importance of population efforts, and is currently preparing a Population Action Program with support from several mult:Llateral agencies including IDA. Family planning will be given a major thrust through expanding public sector family planning delivery channels and deveLoping alternative channels to service delivery using community-based distribution and encouraging private sector and NGO agents. 23. In the health sector, the principal issues are to reduce infant and maternal mortality, reduce the incidence of endemic diseases (such as malaria), and improve infant and child nutrition levels which have been falling. Safe motherhood programs should be an integral part of health strategy which should result in increased life expectancy from the low level of 44 years. Improvement in these areas will also help reduce fertility rates, and ultimately slow down population growth rates. Although stated government policy favors preventive medicine and primary health care over higher cost curative medicine, actual expenditure in the health sector does not reflect these priorities. A key element in restructuring government expenditure will therefore need to be to refocus actual expenditures towards basic health care services. Encouragement and support should also be given to private sector and non-government delivery of primary health care. 24. The principal issue in the education sector is how to raise significantly the level of primary school enrollment in the face of constrained resources and a rapidly rising school age population. Improving the very low rate of female enrollment is also critical to improve equity, enhance the productivity of women, reduce fertility and mortality rates, and promote key development objectives in family welfare (e.g., nutrition). Both supply - i.e., physical access to primary schools, and demand - family attitudes and preferences, contribute to the very low rate of female enrollment, especially in  - 8 - the rural areas. Expanding the primary education system must therefore be complemented with specific efforts to promote female enrollment and encourage parents to send girls to school. Government strategy aims to increase primary enrollment from 29 percent in 1989 (the rate for girls is 20 percent) to 40 percent in 1995/96, with the ultimate goal of universal primary education. Such a target requires the number of pupils enrolled to increase by 80 percent by 1995. The principal instruments towards achieving this target will be: (i) increasing the efficiency of resource use by lowering unit costs; (ii) increasing the flow of resources to primary education; and (iii) improving the quality and relevance of the education system. 25. Natural Resource Management and Agriculture. Subsistence agriculture and livestock are the foundation of the Niger's rural economy. The natural resource base is threatened by environmental degradation, thus undermining the livelihood of the vast majority of the 85 percent of Niger's population. Priority objectives in the rural sector in Niger are to slow down or reverse present environmental trends, maintain existing levels of per capita production to help achieve food security, and provide a modest source of economic growth. The key issues are: (i) environmental management; (ii) food security and (iii) the incentive structure for farmers; and (iii) delivery of public services. 26. The trends induced by the growing population coupled with periodic droughts include: more extensive agricultural exploitation resulting in deteriorating land management; declining fallow periods and yields; movement into marginal areas; encroachment by agriculturalists in traditional livestock areas; soil erosion; watershed degradation; and pressure on woodland resources for household energy. Priority needs to be given to improved natural resource management for which local populations must take primary responsibility. Existing rules of land use which do not ensure security of land tenure, are a major impediment to improved natural resource management. Work is currently underway to prepare a "Rural Code" which is designed to establish a legal and social framework for determining land use patterns and rights. However, the adoption and introduction of such a global instrument may take a number of years. In the interim, short and medium term actions can be taken to improve land tenure and the willingness of farmers to invest in resource management. Specifically, legislation should be enacted to cover grazing, water, and forest resource rights, and to improve conflict resolution between agriculturalists and pastoralists. Techniques to improve water harvesting, soil stabilization and natural fertilization need to be disseminated. 27. Despite the reforms that have already been introduced to liberalize the cereals market, and as part of efforts to create an enabling environment, further reform is needed to improve the incentive structure facing farmers and pastoralist. The continued existence of agricultural parastatals (e.g., RINI - rice milling and OPVN - food stock manager), the lack of adequate pricing information for farmers, and political interference in local structures (such as cooperatives), has slowed down the development of an enabling environment in the rural economy. Cooperative reform should focus on eliminating political and administrative interference and improved training for cooperative management. In the irrigated sector, continued efforts shouLd be made to encourage the private and cooperative sectors by reducing the role of the state in managing irrigation schemes. Better dissemination of market and pricing information is needed, and official prices for cotton will need to continue to be adjusted to  - 9 - fluctuations in world market prices. In addition, the development of autonomous rural associations, capable, of channeling savings and extending loans for viable operations need to be promoted and encouraged. 28. Delivery of Public Services. Government services need to be improved to be more responsive to the needs of farmers and livestock owners. The national agricultural research structure needs to be strengthened to improve research priority setting, research programming, budgeting and financial management as well as research staff planning and training. Research priorities should be directed towards farming systems and natural resource management and away from single crop productivity research. The link between research and extension services must be significantly improved for dissemination of research results. Agricultural services at the regional and sub-regional level are starved of resources and cannot provide even a basic level of service to farmers. Bank Group Assistance Strategy Past IDA Assistance 29. Since 1985, the principal objectives of IDA strategy for Niger have been to support the Government's efforts to adjust to the economic difficulties engendered by the slump in uranium prices, improve the management of public resources, liberalize economic activity and strengthen the basis for long-term growth. IDA has supported the Government's reform program through adjustment and investment operations which focussed on sectoral expenditure programs and policy reform. IDA investment projects also supported long-term growth in priority areas (such as primary education, preventative health care and agricultural research), and maintenance and rehabilitation of existing assets. Adjustment lending (SAL I and the Public Enterprise Sectoral Adjustment Program (PESAP)) have represented 50 percent of IDA commitments in Niger during FY86-90. The adjustment program supported by the PESAP, especially since the death of President Kountche, has highlighted the difficulties in deepening the reform process. Reforms which affect powerful interests in the public and private sectors have been more difficult to achieve. 30. Project lending has financed a full range of projects in infra- structure, education, health, agriculture (rainfed, irrigated, and livestock), industry and energy. Since 1980, the commitment of IDA resources for investment projects has steadily increased, averaging 1-2 projects per year, and, as of mid- FY91, there are thirteen ongoing projects with undisbursed commitments of about US$120 million. In education, good progress has been made in supporting a redir- ection of public resources towards primary education, and establishing the basis for more rapid growth in primary school enrollment ratios. In transport, implementation of physical investment programs has been successful. Project implementation in most other sectors (agriculture, health, industrial finance) has 'been poor, in terms of physical progress and development of sustainable, replicable systems. Such performance is not limited to IDA projects and is a general reflection of weak administrative capacity coupled with the difficulty to identify economically sound projects. The single IFC investment (a Wheat Milling Company) is performing poorly and is currently being restructured. A lack of more extensive involvement by the IFC in Niger results from a combination of natural and policy-induced constraints which affect private sector investment.  - 10 - Composition of IDA Lending, FY86-90 US$ million Percent Agriculture 29.2 10.3 Human Resources 46.2 16.4 (Education) (18.4) (6.5) (Health) (27.8) (9.9) Energy 31.5 11.2 Transport 30.0 10.6 Adjustment Lending 140.0 49.6 Technical Assistance 5.5 1.9 Total Commitments 282.4 100.0 Country Strategy and Priorities 31. Despite Niger's natural constraints to growth, IDA activities in Niger are focussed on the most important actions to reverse the past downward trend in per capita incomes and improve social indicators, including: (a) supporting institutional and incentive policy reforms aimed at promoting efficient growth of private sector production; (b) supporting reforms designed to increase the efficiency of public resource use; and (c) addressing long-term human capital and natural resource issues. The central theme of IDA strategy, by trying to reverse the decline in per capita income, is to achieve long term poverty alleviation, food security and improved nutritional status. In Niger, as in other Sahelian countries, poverty and food insecuritv are pervasive problems affecting the vast majority of people. The low absolute levels of per capita income, coupled with the fact that the bulk of the population live by subsistence agriculture or livestock, mean that poverty alleviation will depend far more on broad-based growth and the expansion of basic services than on targeted programs of assistance. 32. Proposed Lending Program. The pace of IDA lending is linked to Government's ability to implement successfully the macroeconomic and sectoral reform programs set out in the Fourth Year PFP. These reforms are an essential prerequisite for the resumption of longer-term growth, and hence the lending program has been structured to encourage timely act:ion on Government's part. The lending program potentially includes adjustment operations that will be available to support the implementation of reforms. It also includes investments in the core sectors of human resources, agriculture (including the environment), and infrastructure maintenance, which could proceed even in the absence of reforms. The pace and volume of lending would thus reflect government's willingness and ability to implement reforms. In parallel, IDA, together with other donors, will seek to help the Government develop the institutional capacity to speed up the adjustment process. 33. As currently programmed, the lending program for 1991-95 tentatively totals US$343.9 million. This represents the upper limit for lending that the Bank would be able to undertake in Niger on the assumption that economic policy reforms are implemented. In the event of slippage or failure to implement reforms, the lending for adjustment operations would not take place. The current  - 11 - program consists of two Structural Adjustment credits, one hybrid adjustment operation in human resources, and six investment credits focussing principally on the long term issues of population, education and agriculture. Approximately 30 percent of the proposed allocation would be non-project resources (SALs US$87 million, non-project portion of hybrid US$10 million). 34. Adlustment programs supported by IDA and cofinancing resources would be intended to prevent the most harmful effects of disorderly adjustment. By sustaining non-durable imports at minimum acceptable levels, by promoting investment and expenditure in the social sectors and improving the conditions for economic activity, adjustment programs help cushion the poorest segments of society. While political difficulties stand in the way of economic adjustment, the pace of adjustment lending is likely to be slowed considerably. It is currently envisaged that a proposed second Structural Adjustment Credit (SAL II) could focus on public resource management, the financial sector, trade and private sector incentives, and, if appropriate, efforts to restructure the uranium sector. During the design of SAL II, specific attention will be given to ccmponents that are aimed at protecting the poorest groups in Niger in collaboration with the Bank/UNDP Social Dimensions of Adjustment Program. A financial/private sector project is included in the reserve program. 35. Debt Restructuring is an integral element of the adjustment process and development assistance to Niger, to reduce debt service from the present unsustainable levels. IDA will continue to support debt relief efforts through the Special Program of Assistance (SPA), and as indicated above through use of the IDA Debt Reduction Facility to support Niger's efforts to eliminate all medium term public and publicly guaranteed commercial debt. 36. The forthcoming Education Sector Project (hybrid) which was appraised in July 1989 addresses public resource and policy issues. This hybrid would help ensure that sufficient resources flow to primary education by reducing unit costs and by slowing the growth of public financed secondary and tertiary education. Specific efforts are also being made to ensure increasing enrollment of girls in the primary education system. The program also includes a functional literacy component directed towards women, based on pilot programs tested by UNICEF. These changes are necessary to make the education system a better and more equitable instrument of development. The protests of students and other groups has Led Government to review the policy package which will require strong political commitment to implement. If agreement can be reached on the policy reforms, Board presentation would be scheduled for late FY91. 37. IDA Investment Lending focusses on human resources and agriculture, which are the key to long term development and economic growth, are given priority in the proposed lending program. A Population and Health Project under preparation would assist Government to implement its national population program and continue primary health activities started under the first Health project. A follow up Education investment project would continue support for primary education. 38. The Private Sector Irrigation project would support recent government initiatives to promote smaller scale private sector management of irrigated agriculture, away from the larger public sector managed schemes. Agricultural Services would provide investment and technical resources to develop extension  - 12 - services in support of the agriculture and natural resources management strategy. A Natural Resources Management project is proposed to build on the experience of ongoing projects with important environmental components such as the Small Rural Operations and the Household Energy Project. IDA would also support further reforms in the agriculture sector including giving local communities autonomy to manage natural resources, improving land tenure in certain areas (grazing land and bottomlands), and introducing the Rural Code. Institutional changes will be aimed at improving government services (primarily research and extension) and cooperative development. 39. A Local Government project to strengthen institutional capacity and support policy changes at the local government level is proposed. Such policy and administrative reforms are needed to support the Government's stated policies of decentralization and will involve clarifying financial relationships with the central government to give greater autonomy and a greater proportion of available resources to local governments. The infrastructure sector consumes a very large portion of the investment budget and has growing recurrent budget implications. There are also a number of distortions in pricing and competition in the transport industry, which raise financial transport costs well above their economic levels. A Transport Sector Project aims to tackle these issues. The Public Works and Employment Project aims to improve the maintenance of public works and improve the implementation rate of the Public Investment Program through employment generating labor-intensive activities. Programs of Special Emphasis 40. The Programs of Special Emphasis (PSEs) are an integral part of IDA's assistance program_in Niger. Food Security issues are addressed through IDA's agricultural strategy which is aimed at improving rural sector productivity through research and extension, assessing the adequacy of early warning systems, identifying vulnerable groups, analyzing household coping strategies and assessing emergency preparedness. IDA will continue to focus on cereals and food aid policy, while deferring to other donors to provide food aid in response to short term food crises due to drought or other natural causes. The ESW program includes sector work to further investigate food security issues. Women in Development issues are being addressed in the ongoing and proposed education and health operations in the human resources sector which include specific elements to improve female access to education and health facilities. The ongoing Small Rural Operations project also includes environmental management and productivity components designed for women's groups. Environmental issues are tackled on several fronts: natural resource management is an integral part of IDA agricultural strategy and is prominent in the ongoing Household Energy and Small Rural Operations projects. The Population Project is aimed at slowing population growth, critical for long term sustainable natural resource use. An in-house environmental strategy paper will be prepared in FY92 in order to identify more clearly the appropriate role for IDA beyond thesea two areas. International Finance Corporation 41. Given the present difficulties of the modern sector in Niger, there are limited opportunities for large scale IFC investment in the medium term. However, initiatives such as the African Development Facility (APDF) and the Africa Enterprise Fund (AEF) for which four investment inquiries have been  - 13 - received from Niger, offer opportunities for the IFC to support the development of smULll and medium scale enterprises. IFC's strategy will also be to support large and medium scale projects as investment opportunities arise. A possibility lies in petroleum exploration and exploitation based on good prospects for oil in the Agadem Basin in north-eastern Niger. Investment would consist of drilling and the infrastructure necessary to export the oil to Nigeria. Economic and Sector Work 42. The ESW program will aim at providing the analytical underpinning of the country strategy. It seeks to support three key areas of the country strategy: (i) public resource management; (ii) agricultural growth and environment; (iii) medium and long term social and human resource development. Key studies planned include a Public Expenditure Review (FY 92) which will aim at determining the medium term expenditure profile for both recurrent and investment expenditure. The Review will also take into account the ripple effect on public finances of the expected decline in uranium earnings. Sector work in agriculture will focus on food security, cereals marketing, incentives and private sector growth opportunities and natural resource management. In the human resource development sector work will be undertaken on labor markets, health financing and alternative delivery channels for family planning. Collaboration with the IMF, Donors and Non-Government Organizations 43. The PFP is the principle vehicle for IDA/IMF collaboration and provides the umbrella for donor assistance. IDA will work closely with the IMF to ensure consistency in policy reforms and will continue to promote donor cooperation at both the overall macroeconomic level and the specific sector level. The lending program, which potentially includes three adjustment operations, is designed to provide cofinancing vehicles for the transfer of non- project resources under the Special Program of Assistance (SPA). IDA will take the lead in organizing donors' meetings in the context of the SPA to mobilize resources to support the adjustment programs and will work with the UNDP in preparing future sectoral Round Tables. Through Public Investment Reviews (PIRs), IDA will aim to ensure that projects financed by other donors respect the criteria established under the adjustment program. 44. The role and impact of Non-Government Organizations (NGOs) in Niger has been more limited than in many sub-Saharan countries. Government control and the political nature of many organizations (e.g., the cooperatives, the Societe de Developpement, the Samariya, Women's Association of Niger) has slowed down the creation of grassroots domestic NGOs. In number, the international NGOs are well represented (about forty). IDA is actively seeking to cooperate more fully with NGOs particularly in the design of sub-projects under the Small Rural Operations project. In other critical areas, such as family planning activities and primary health care, the role of NGOs is an explicit element in the IDA dialogue, but further work is needed to generalize stated government policy that NGOs are important for development. II. The Public Works and Employment Proiect 45. Project Objectives. The main objectives of the project are: (a) to create, at least temporarily, substantial new employment in urban areas as  - 14 - rapidly as possible using the private sector, thereby stimulating small local private contractors and consulting firms; (b) to improve, through execution of the works financed by the project, the individual skills of the workers who will be employed, and the corporate competitiveness of the firms that will carry out works so as to develop their capacity to respond to increased opportunities for sustained employment after completion of the project; (c) to demonstrate the feasibility of labor-intensive projects and test the procedures that will enable the public sector to commission such projects that are economically and socially useful; and (d) to review existing public works programs and recast them with the intent of speeding up their implementation and overall performance. In pursuing these objectives, the following conditions should be fulfilled: (i) avoiding any increase in civil service employment; (ii) combining low cost and high visibility; (iii) supporting, but not replacing, other development programs; and (iv) using transparent but expeditious and flexible procedures for subproject bidding, appraisal, contracting, and disbursements. 46. Project Description. The components of the proposed project are: (a) a program of public facility and infrastructure rehabilitation and maintenance in urban areas to be carried out under labor-intensive schemes by local contractors; (b) a package of services related to work organization, management, and labor force training to be offered on a voluntary basis to local contractors who will be awarded contracts under component (a); (c) a supervision and monitoring component in order to monitor closely the progress of the project and to prepare the transition toward locally supported employment of the target group; (d) a selective audit of the public works program to identify bottlenecks and design system improvements; and (e) a package of consultant services related to a training program for the beneficiaries and engineering firms on the preparation of feasibility studies and technical project proposals; a program aimed at increasing grassroots participation in urban infrastructure maintenance; and the preparatory work for the establishment of a mutual guarantee company. The project will make a contribution to the development of the Nigerien contracting and engineering consultancy industries, through increasing the demand for contractors and providing technical and managerial training and through the extensive use of local consultants for project preparation and supervision. The implementing arrangements are critical for effective fulfillment of the project's objectives. An Executing Agency has been created to execute component (a) of the project. It will serve as a model for other public agencies in terms of achieving low costs and efficient-work methods. The Executing Agency has private legal status and is led by a manager recruited from the private sector. The Agency will have a small staff including an Executive Director assisted by one Financial Director and one Technical Director. The activities of the Executing Agency will be guided by a Procedures Manual outlining the policies and procedures to be followed in the conduct of its activities. Such an agency will be able to avoid the cumbersome, slow, and inefficient procedures that public institutions are obliged to follow in calling for bids, awarding contracts, and disbursing, which result in de facto discrimination against small contractors. The other components will be executed by the Unite de Coordination of the Ministere du Plan et de la Cooperation. 47. The project, to be carried out over t:hree years, provides funds for labor-intensive civil works, equipment, training, technical assistance, and incremental operating costs. The total cost of the project is estimated at US$33.3 million equivalent, with a foreign exchange component of US$5.7 million  - 15 - (17 percent). The subprojects to be executed by the Executing Agency that are financed under the Credit will be exempted from duties and taxes. A US$3.3 million contribution--10 percent of project costs--will be provided from government budgetary resources, as agreed upon at negotiations. These funds will be channelled through the Executing Agency and will be used to execute subprojects selected by the Agency. Cofinancing totalling US$10 million equivalent (30 percent of project costs) is being assumed by other donors. A breakdown of costs and the financing plan are shown in Schedule A. Amounts and methods of procurement and of IDA 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 Niger are given in Schedules C and D, respectively. A map is attached. The Staff Appraisal Report No. 9032-NIR dated January 11, 1991 is also attached. 48. Agreed Actions. The Executing Agency was created prior to negotiations and its statutes and bylaws have been approved by IDA. During negotiations, agreements with the Government were reached on the detailed operational guidelines of the agency, including, inter alia, the eligibility criteria of the subprojects to be included in the program and the procurement procedures. The following actions, aimed at ensuring rapid start-up of the project, will be conditions of effectiveness: (a) the Executing Agency will be staffed by a Director General, a Technical Director, and a Financial Director with qualifications and experience acceptable to the Association; (b) the Executing Agency shall have selected subprojects whose aggregate estimated cost is equivalent to US$4.25 million or more, and the Association shall have approved the selection of such subprojects; (c) a Convention has been signed by the Borrower and the Executing Agency; (d) the Executing Agency has prequalified an initial list of enterprises and engineering firms; and (e) the Executing Agency has selected auditors acceptable to the Association. A condition of disbursement after January 31, 1993, will be that the management of the operations of the Executing Agency, the performance by the Executing Agency of its obligations under the Convention (including procurement procedures), and the performance by the Executing Agency (and Implementing Enterprises) of their respective obligations under Subproject Agreements have been found satisfactory after review by the Association and the Borrower. 49. Benefits. The project is justified by its economic benefits, its impact on poverty alleviation and indirectly securing other development/adjustment objectives. First, economic rates of return have been calculated at 26 percent and 51 percent for removal of sand from public faciLities and pavement rehabilitation subprojects. Second, the project has been designed to have a substantial impact on poverty alleviation, in addition to its economic benefits. The ultimate beneficiaries will be the low-paid temporary workers in the building and construction trades. Since these workers tend to spend their wages close to home, substantial multiplier effects on the local economy can be expected. These benefits are likely to be more pronounced since the building and construction trades have a greater facility than other industries to take on additional labor rapidly in response to changes in demand. Third, the project will alleviate the difficulties faced by the Government in carrying out its adjustment program by helping to create a favorable socio- political climate. While the project is not expected to create permanent jobs, it will provide a minimum of 12,000 man-years of temporary employment. To the extent that the minimum wage (SMIG) is actually not generally honored by the  - 16 - small firms in the construction industry, wages in small and medium enterprises average half the SMIG, the project may well create over 24,000 new temporary jobs, at an average direct cost of US$1,008 per man-year. 50. Risks. The main risks arise from possible inability of Niger's economy to develop enough stable job opportunities during the period of program execution, leading to pressure from the Government to extend the program beyond its initial period. This risk cannot be addressed within the proposed project but should be alleviated if the ongoing adjustment process is implemented successfully. Another risk is that the continuation of employment for those who would benefit from the program should not take the form of their being hired by local governments when the program ends. Such continuation of employment would jeopardize previous efforts of public sector management improvement, including restrictions on personnel hiring, implemented during the recent years by the central and local governments. Lastly, the control of proper use of funds is more difficult with such a program than with regular investment projects. The implementing arrangements have been carefully designed to minimize this risk. 51. Recommendation. I am satisfied that the proposed Credit will comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed Credit. Barber B. Conable President Attachments Washington, D.C. January 11, 1991  - 17 - SCHEDULE A NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT ESTIMATED COSTS AND FINANCING PLAN LOCAL FOREIGN TOTAL | FOREIGN (_ USS million) Component (a): Labor-intensive Civil 22.65 3.38 26.03 13% Works Component (b): Services to 1.01 0.49 1.60 32X Contractors Component (c): Monitoring 0.48 0.32 0.80 40% Contract Management Study 0.00 0.30 0.30 100% Mutual Guarantee Co. 0.00 0.10 0.10 100% Training Program for Beneficiaries 0.06 0.20 0.26 80% Grassroot Participation Program 0.10 - 0.10 - Executing Agency Operating Costs 1.74 0.10 1.84 5% PPF and Executing Agency Capital 1.28 0.48 1.76 27% Buidget _ Base Costs 27.30 6.38 32.88 16% Price Contingencies 0.34 0.28 0.62 44% Total Project Costs (1) 27.64 6.e8 33.30 17% (1) Numbers may not add due to rounding. Financing Plan X OF LOCAL FOREIGN TOTAL TOTAL I ~~~PROJECT COST (USS million) Government 3.3 3.3 10% IDA 15.6 4.4 20.0 60% Other donors (OPEC fund, KfW) (to 8.7 1.3 10.0 30% be determined) Total Project Costs 27. 6.7 33.3 100%  - 18 - SCHEDULE B NIGER PUBLIC WORKS AND EMPLOYMENT' PROJECT PROCUREMENT METHOD AND DISBURSEMENTS (1) PROCUREMENT METHOD PROJECT ELEMENT _ IC8 LCB CONS. N.A. TOTAL Civil Works 0.00 28.03 26.03 (12.73) (2L (12.73) Services to Contractors 1. 0s 1. 0 _ __ _ (1. 0) (1. 60) Monitoring 0 80 0.80 _ (0 80) (0. 80) Contract Management Study 0.30 0.30 (0. 30) (0.30) Mutual Guarantee Co. 0.10 0.10 _________ (0 . 10) (0. 10) Training Program for Beneficiaries 0.25 0.26 _ (0. 25) (0.25) Grassroot Participation Program 0.10 0.10 ________(0.10) (0.10) Executing Agency Operating 1.84 1.84 Costs _ (1.84) (1.84) PPF and Executing Agency 0.28 1.50 1.78 Equitpment (0.26) _ (1.50) (1.72) TOTAL 0.00 26.26 2.96 3.44 32.68 _____________________________________ _______ (12.99) (2. 9g (3.44) (19.38) (1) Figures exclude price contingencies. (2) Figures in parentheses are the respective amounts financed by IDA. Estimated Disbursements FY91 FY92 FY93 T Total 2.0 8.9 9.1 Cumulative 2.0 10.9 20.0  - 19 - SCHEDULE C NIGER PUBLIC WORKS AND EMPLOYMENT PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS al) Time taken to prepare 10 months }b) Prepared by Government with IDA assistance (c) First IDA mission February 1990 (d) Appraisal Mission Departure June 1990 () Negotiations November 1990 (f) Planned Date of Effectiveness May 5, 1991  20 - SCHEDULE D - 20 - ~~~~~Page 1 of 3 kun!T rite,tj f I l/9' Ia4 jl..z .SO Status Of Bank Groun ODerationS R1 NISER PFDBR.25 - Su;ry ctatient !.Of Loans and IDA Credits (LOA dataas of 121,301090 - MIS data as of 4"li/l91' Amount in US$ mJllion (less cancellatilos) Lean