Tanzania - Second Education Project

RESTRICTED Report No. P-687 FILE COPY 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 The report may not be published nor may it be quoted as representing their views.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 T HE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A SECOND EDUCATION PROJECT April 16, 1969  IT1ERNATICNAL DEVELOFMENT ASSOCIATION REPORT AND RECOPIENDATIONT OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOIEiqTT CREDIT TO THE UNITED REPUBLIC OF TANZAVIA FOR A SECOND EDUCATION PROJECT 1. *I submit the following report and recommendation on a proposed deve'lop- ment credit in an amount in various currencies equivalent to $5.0 million to the United Republic of Tanzania. PART I - HISTORICAL 2. The first IDA credit to Tanzania in December 1963 was for the expansion of secondary schools. That project was completed satisfactorily by December 1967 and in November 1967 the Government applied to the Association for a second education credit. The project was appraised in Nay/June 1968, after the Govern- ment had supplied additional information, and negotiations were held in Novem- ber 1968. As negotiated the project consisted of the construction and equipping of three new secondary schools, extensions to 25 existing schools, extensions to three teacher training colleges and training of practical subjects, teachers at Dar es Salaam Teacher Training College. The proposed financing would have been an IDA credit of $5.0 million supplemented by a Bank loan of $1.7 million. The Government was reluctant to incur a Bank loan for the project and decided to explore with bilateral sources the possibility of finance and concessional terms. The quest was successful: Denmark and Norway have agreed to finance two of the three new secondary schools, obviating the need for the Bank loan. 3. The Tanzania delegation to negotiate the credit consisted of Messrs. I.M. Kaduma, Director of Development Finance, the Treasury; A.C. Mwingira) Acting Principal Secretary, Ministry of Education; B.N. Makani, Senior State Attorney; J.J. Kinunda, Senior Education Officer; and E.K. P1Mamafupa, Education Counselor, Tanzania Embassy, Washington, D.C. 4. The proposed credit would bring total IDA financing in Tanzania to $40.9 million. Total Bank financing amounts to $12.2 million. The following is a summary statement of Bank loans and IDA credits to Tanzania as at March 31, 1969: Amount (US $ million) No. Year Borrower Purpose Bank IDA Undisbursed 45-TA 1963 Tanzania Education 4.6 48-TA 1964 Tanzania Roads 14.0 1.9 80-TA 1966 Tanzania Agricultural Credit 5.0 1.8 518-TA 1967 Tanzania Electric Power 5.2 3.9 Supply Co., Ltd.* 115-TA 1968 Tanzania Supplementary Roads 3.0 3.0 132-TA 1968 Tanzania Ranch Development 1.3 1.3 1h2-TA 1969 Tanzania Second Highway 8.0 8.0 586-TA 1969 Tanzania Second Highway 7.0 7.0 Total (less cancellations) 12.2 of which has been sold .1 Total now held by Bank and IDA 12.1 35.9 Total undisbursed 10.9 16.0 26.9 = = _ * Successor to Tanganyika Electric Supply Co., Ltd.  - 2 - 5. Progress under the 1964 Roads Crerit (48-TA) has improved during the last year with a resultant acceleration in disbursements. Disbursements from the SupDlementary Roads Credit (115-TA) have been held up by delays in recruiting experts to be financed under the credit for thle staffing and training program of the Roads and Aerodromas Division of the Ministry of Communications, Labour and Works. Recruitment of these experts is now in process. Disbursements under the Power Loan (518-TA) have been slow because suppliers of ecliipment have not required deposits against orders. Equipment is being delivered in Tanzania as scheduled and the rate of disbursements is now reflecting the physical progress on the project. 6. In addition to the above loans an' credits, the Bank has made three loans for common services in East Africa. All three loans are guaranteed by Tanzania jointly and severally with Kenya and Ugarda. The United Kingdom is also guarantor for the first of these loans. The following is a summary state- ment of these loans as at March 31, 1969: Amount (Us $ million) No. Year orrower Purpose Bank Undisbursed 'l10-EA 1955 East African Railways and Community* Harbors 24.0 428-EA 1965 East African Railways and Community* Harbors 38.0 7.4 483-EA 1967 East African Posts Telecommunications 13.0 7.1 and Telecommunica- tions Corporation* Total 75.0 of which has been repaid to Bank and others 14.0 Total now outstanding 61.0 Amount sold: 23.8 of which has been repaid 13.9 9.9 Total nlow held by Bank 51.1 Total undisbursed 14.5 * As successor to EACSA (East African Common Services Authority) 7. No other loans or credits to Tanzania are planned for consideration for the balance of the fiscal year. Negotiations began on April 11, 1969 for a proposed loan of $35 million for the East African Harbours Corporation '968-73 investment program. The proposed loan would be guaranteed by Tanzania jointly and severally with Kenya and Uganda. A loan for the East African Railways Corporation, for which Tanzania, jointly and severally with Kenya and Uganda, would also be guarantor is under active consideration. 8. IFC has made two investments in Kilombero Sugar Company, Ltd. in 1960 and 1964 amournting to $3.7 million in loans and $0.7 million in shares. On February 25, 1969 the Board of Directors of IFC approved the sale of IFC's interest on terms specified in the agreement reached between the investors in the company and the Goverrment on February 3.  9. Negotiations continue between the Government and the two British banks and other claimants, under the 1967 Nationalization Act., PART II - DESCRIPTION OF THE FROPOSED CREDIT 10. BORRGWER: The United Republic of Tanzania AMOUNT: US $5.0 million equivalent in various currencies. PURPOSE: To help finance the construction of one new secondary school, expansion of 24 secondary schools and of three teacher training colleges, and construction and remodeling of staff housing. AMORTIZATION: In 50 years including a 10-year period of grace, through semi-annual installments of 1/2 of 1% from June 15, 1979 through December 15, 1988 and of 1-1/2% from June 15, 1989 through December 15, 2018. SERVICE CHARGE: 3/4 of 1% per annum. PART III - THE PROJECT 11. An appraisal report entitled "Second Education Project - Tanzania"1 (TO 696a dated April 14, 1969) is attached. The proposed project consists of (i) the construction and equipment of one new secondary school, (ii) extensions to 24 secondary schools, (iii) extensions to two primary teacher training col- leges, (iv) extensions to one secondary teacher training college, (v) construc- tion of 63 staff houses at 14 secondary schools and 2 primary teacher training colleges, (vi) remodeling of 9 staff houses at 2 secondary schools, and (vii) consulting services for the above works. 12. At the time of negotiations the Government of Tanzania agreed to obtain from bilateral sources the services of 10 specialist teachers in agri- culture, commercial and technical education with qualifications and experience satisfactory to the Association. This recruiting is in process. 13. The total cost of the proposed project is estimated at $7.2 million based on estimates prepared by the appraisal mission and Government architects. The detailed engineering and supervision of construction would be carried out by consultants, and construction contracts and purchases of equipment would be arranged on the basis of international competitive bidding. 14. The proposed external financing would cover 70 percent of expenditures on the project or $5.0 million, whichever would be the lower. The proposed credit would cover the estimated foreign exchange component of the project amounting to $3.3 million, as well as $1.7 million of local costs for the reasons set forth in paragraph 21 below.  PART IV - LEGAL INSTRUCiMENTS AND AUTHORITY 15. The Draft Development Credit Agreement between the United Republic of Tanzania and the Association, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement and the text of a Resolution approving the proposed Development Credit are being distributed to the Excecutive Directors separately. 16. The Draft Development Credit Agreement conforms substantially to the pattern of agreements used for education projects. PART V - THE ECONOMY 17. A memorandum entitled "Recent Developments in the East African Community, Kenya, Tanzania and Uganda (AF-7h) was distributed to the Ececutive Directors on April 4, 1968 (R 68-52). 18. An account of the performance of the eccnomy in 1968 was given in my Report and Recommendation to the Executive Directors on a loan and credit to Tanzania for a Second Highway project (Report No. P-669 of February 4, 1969). That account, based on provisional information, showed that the economy may have grown by about 5 percent in 1968, thus representing a. slight improvement over the previous year. More recent, although still provisional, information indicates that agricultural output was lower than originally estimated and also that minerel output, particularly of diamonds, was lower. In view of this, the growth rate may have been somewhat below 5 percent. 19. Tanzania's present Five-year Plan will end on June 30, 1969 and a new plan will be launched; a Bank economic mission is scheduled to visit Tanzania in August this year to review the new plan and assess orospects for the future. It is estimated that, despite the lag in the preparation and execution of projects in the first 2-3 years of the current Plan, investment may reach about 85 percent of the targets; in physical terms the achievement may be 70 to 75 percent of the targets. 20. In 1968 the longstanding surplus on the merchandise account of Tanzania's balance of payments turned into a deficit. This was largely due to a steep rise in imports, particularly of capital goods, without a corresponding increase in exports. The deficit in the current accuant was offset, to some extent, by a significant rise in invisible receipts, especially from tourism and international freight movements arising from Zambian trade. Long-term capital inflows more than offset the deficit on the current account; convertible foreign assets of the Bank of Tanzania rose to $85.7 million at the end of 1968 - an increase of about $11.9 million over the amount a year earlier. 21. It is estimated that domestic resources have financed about 60 percent of the public sector investment program during the period 196h-68. However, investment in the early years of the Plan were limited by the slow preparation and execution of projects. As a result of the improvement in this respect which has recently been achieved, Tanzania's ability to make good use of  external aid is likely to be substantially increased. With P. higher level of investment, domestic savings will prove increasingly inadequate, and the financing of a proportion of the local costs of high priority projects is justified so long as the Government makes effective efforts to maximize its own contribution. The proposed credit would cover, in addition to the foreign exchange cost, about 43 percent of the local expenditure required for the project. 22. The servicing of Tanzania's external debt, including its share of the East African Community debt, absorbed only 4.5 percent of its foreign exchange earnings in 1967. A tentative estimate of the debt service ratio for 1968 is about 6 percent. While the burden of debt service is still relatively lao, the poverty of the country (per capita income of $65 in 1967), the prospects for slow growth in export earnings, and the probability that external finance for the Common Services will be provided only on conventional terms, justifies lending for national projects, as far as possible, on con- cessionary terms. PART VI - C0iPLIANCE WITH ARTICLES 23. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VII - RECO11ENDATION 24. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachment April 16, 1969