Central African Republic - Highway Project

RESTRICTED FILE COPY Report No. P-6 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE CENTRAL AFRICAN REPUBLIC FOR A HIGHWAY PROJECT March 13, 1969  LJTERNFATIO+JAL DEVELOP`ENT ASSOCIATION aEPORT AND RECO1:ENDATION OF THF PREETBENT TO THE EXECUTIVE DIEECTORS QOI A PROPOSED CREDIT TO THE CENTTRAL lAFICAN IEPUBLIC FOR A EIGHT'AY PROJECT 1. I submit the following report and recoamuendation on a pro- posed credit in an amount in various currencies equivalent to US %$4.2 million to the Central African Pepublic to assist in financing a high- Tray project. PART I - HISTORICAL 2. In 1966 the Government of the Central African Republic (CAR) requested IDA assistance in financing the reconstruction of the Bangui- M'Baiki road. ',,ile detailed engineering work financed by FED had al- ready been carried out by consultants in 19615/66, it had to be supple- mented by further engineering wcrk carried out by the Department of Public Works (O)P,zf and economic studies prepared by consultants who wfere engaged at IDA's expense in 1967/68. IDA pre-appraisal and ap- praisal missions visited the country in October 196? and in February and October 1968. Negotiations with a delegation from the CAR headed by Mr. Auguste Nbongo, tlhe Minister of Public 7,orks, were completed in Wlashington on January 31. 3. The proposed credit would be the first operation of the Bank Group in the CAR. IDA has under consideration a road maintenance pro- ject and the improvement of the Sibut-Bambari road; the Bank is Execut- ing Agency for a UiDP--financed feasibility study of both projects, which is expected to be completed in 1969/70. The Bank is also Executing Agency for another UNDIM-financed survey of the transportation require- ments of the southern regions of the CAR and Cameroon. Projects in other sectors (agriculture and education) are at a preliminary stage of preparation and consideration. PART II - DESCRLPTION CF THiE PROPOSED CREDIT 4. Borrower: The Central African Republic Amount: US $4.2 million equivalent in various currencies Purpose: To assist in financing: (i) the campletion of detailed engineer- ing and reconstruction of the Bangui- MlBailk road (about 102 km. ) and en- gineering supervision of these works; and  (ii) the procurement of highway mainte- nance equipment and spare parts re- quired for the adequate maintenance of the project road. Amortization: In 50 years, including a 10-year period of grace, through semi-annual installments of 1/2 of 1 percent from September 1, 1979 through March 1, 1989, and 1 and 1/2 percent from September 1, 1989 through March 2019. Service Charge: 3/4 of 1 percent per annum. PART III - THE PROJECT 5. A report (PTR-la) entitled "Appraisal of a Highway Project" is attached. The transportation program of the CAR has three major objectives: (i) to improve the internal road and river transport system, particularly in areas potentially promising but presently underdeveloped like the Lobaye and the Haute-Sangha pro- vinces; (ii) to improve the existing international transport system providing access to the sea; and (iii) to rehabilitate the road maintenance system which has deteriorated sharply in the first years after indepen- dence. The proposed Bangui-XIBaiki road project corresponds to the first objective; the latter two are the object of the UNDP financed study. 6. The proposed project consists of the completion of the de- tailed engineering and reconstruction of the Bangui-M)Baiki road, and the provision of equipment to maintain the road. The Bangui-MJBaiki road connects Bangui, the capital city and major industrial and trade center in the CAR, with the Lobaye province, one of the most active and potentially the most promising region of the CAR. The road may also be the first section of a future transport link between Bangui and Cameroon. The Lobaye province is the main producer of coffee, rubber and timber. This province and other regions east of M'Baiki possess vast timber resources which have long remained virtually unex- ploited. With the gradual depletion of timber stands in the coastal  - 3 - countries, several logging companies are planning to transfer their activities to the CAR, and in the long run, logging operations and wood processing are likely to become the major industry and an im- portant source of foreign exchange earnings for the country. 7. Traffic on the Bangui-MHBaiki road wias estimated at 80 ve- hicles per day in 1968, and is expected to increase rapidly in the near future as a result of new agricultural developments in the region and additional economic activities linked with the expansion of logging ope- rations. The economic return based on savings on vehicle operating costs only, is estimated at between 10 and 14 percent, depending on various assumptions concerning traffic growJth. 8. Total cost of the project is estimated at US $5.6 million. The proposed credit of US $4.2 million wauld finance the estimated foreign exchange cost of the project (i.e. 75 percent of the total cost). It is proposed to provide financing in an amount equivalent to US $23,000 for soil and topographic surveys and other preparatory work carriod out by the DPl^ or consultants after January 1, 1968. 9. The Department of Public Jorks would be responsible for the supervision of the construction works and the maintenance of the road. Construction contracts and procurement of maintenance equipment would be submitted to international competitive bidding. The project is ex- pected to be completed by January 31, 1972. PART IV - LEGAL IN3TRUMEE4TS AND AUTHORITY 10. The draft Development Credit Agreement between the Association aad the Central African Repuolic, the Recomnendation of the Committee provided for in Article V, Section.l (d), of the Articles of Agreement and the text of a Resolution approving the proposed De- velopment Credit are being distributed to the Executive Directors separately. The provisiorsof the draft Development Credit Agreement follow the usual pattern in similar projects. PART V - THE ECONOff 11. A report on "The Economy of the central Alfrican Republic" (AI4a) dated February 28, 1969 is being distributed separately. 12. The CAR is at present at a very early stage of development mainly because of its remote geographic position and its relatively sparse population. However, its resources in agriculture, forestry and certain minerals provide the potential for gradually accelerat- ing economic growthA in the future. Per capita income is about $110.  - b - Export receipts depend mainly on cotton, diamonds and coffee. NIanu- facturing is very limited and the transport sector is in urgent need of maintenance work and improvement. The level of education and skills is still very low. 13. The Economic report concludes that the performance of the economy has improved considerably in the last few years, largely as a result of successful measures encouraging farmers to revive the pro- duction of cotton which had lagged badly since independence, owJing to a reaction against virtually enforced cultivation in the colonial pe- riod. In addition, manufacturing output has grown and logging opera- tions are starting on a larger scale. In the future further growth can be expected from the expansion of the agricultural and forestry sectors, and, to a lesser extent, from mining. 14. Although the fiscal burden in the country is one of the highest in Africa (19 percent of GDP), this has not enabled the CAR to contribute significantly to the development effort through ordi- nary budget surpluses. In recent years, public savings have even been negative and government deposits -with the Central Bank and the French treasury have almost been depleted. Since further tax in- creases would act as disincentives to production, and larger expendi- tures are needed for the maintenance of the basic economic infrastruc- ture and of high priority projects, there is little scope for budget- ary contributions to the development effort. Houever, the Government should scrutinize carefully the composition of current expenditures. 15. Financing should bo confined to IDA operations as long as the precarious budgetary situation persists and until some of the potential for increased exports and growith has been realized. - PART VI - COIvLIPICE 'T1TH ARTICLES CF AGPEIENT 16. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association. PART VII - RECOTIMNDATION 17. I recommend that the Executive Directors approve the pro- posed Development Credit. Attachment Robert S. McNamara President lIarch 13, 1969