Upper Volta - Bougouriba Agricultural Development Project

CIRCULATING COPY TO. BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1359a-UV REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UPPER VOLTA FOR AN AGRICULTURAL DEVELOPMENT PROJECT May 15, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report.  CURRENCY' EQUIVALENT Unit = CFA Franc (CFAF) US$1.00 n CFAF 250 CFAF 1 US$0.004 CFAF 1,000 US$4.00 CFAF 1,000,000 - us$41,oo Fiscal Year a Calendar Year  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UPPER VOLTA FOR AN AGRICULTURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Upper Volta for the equivalent of US$8.0 million on standard IDA terms to help finance an agricultural devel- opment project. PART I: THE ECONOMY 2. The basic problems of economic development in Upper Voita were set out in a report entitled "The Economic Development of Upper Volta" dated November 27, 1970 (R70-237 and R71-2). An updating memorandum of January 13, 1972, was distributed to the Executive Directors on March 2, 1972 (R72-47). An economic mission visited Upper Volta in April this year and is preparing a report. Its preliminary findings do not substantially alter the conclusions of previous reports. In particular, the mission has tentatively concluded that higher petroleum prices, while not likely to have a significantly disruptive impact on the economy unless physical shortages develop, will add a further difficulty to an already difficult situation at a time when the country is being severely affected by other factors, notably the droughts and the increase in import prices in general. Annex I contains country data, including data on foreign aid. Background 3. Upper Volta has been classified by the United Nations as one of the 25 "least developed countries" in the world. The country suffers from a number of serious growth constraints: distance from overseas suppliers and markets, limited domestic markets and marketing facilities, generally poor soils and unfavorable climatic conditions, lack of water and so far of exploitable mineral resources, prevalence of endemic diseases, uneven popu- lation distribution in relation to available resources, and low levels of education and technical ability, particularly in the rural areas. The country's poverty is reflected most acutely in an insufficient nutrition levei, with animal protein intake only half that of neighboring Mali and Niger. 4. Upper Volta's economy is and will remain for a long time almost entirely dependent on agriculture and livestock which provide a living for 95% of the population. Productivity in these sectors is very low, however, and together they account directly for only a little over one third of CDP. A further 10 percent of GDP comes from the manufacturing sector which is closely linked to agriculture. A succession of droughts in the past few  -2- years has caused a severe setback in agricultural production (cotton, food crops, and Livestock), with consequent adverse effects on exports, and has contributed iargely to the stagnation of the economy. Wqith popula,ion grow- ing at the rate of about 1.8 percent a year, real GDP per capita has remained virtually unchanged since the early 1960's. It has most probably declined for large sections of the population in the central and northern regions. 5. The 1972 and 1973 droughts have aggravated an already critical situa- tion, particularly in the northern part of the country. Food production dropped 8 percent compared with 1971, and it is feared that the loss of cattle may have been of the order of 15 percent of the national herd. Emergency food imports reached some 60,000 tons in 1973 and requirements for 1974 could amount to as much as twice that volume. 6. Because of the limited economic opportunities at home, particularly in rural areas, young people frequently choose to migrate nore or less per- manently to coastal countries, where wages are much higher than in Upper Volta. It is estimated that over half-a-million Voltaics have permanent or seasonal jobs in neighboring countries, mainly in the Ivorv Coast. Their contribution to Upper Volta's balance of payments in the form of private transfers is very substantial, but the rural economy of the country is thus drained of some of its most dynamic elements. Public Finance 7. Economic development has been further hampered by poor management of public finances during the first years of independence to the extent that by the end of 1965 the Government was heavily in debt on short-term account and could no longer pay the salaries of its employees. The military Govern- me-ft which assumed pow-er in 1966 gave fir,st priority to the adoption and im- ?i.Lianration O.f a rical stabilization program aimed at reducing outstanding 1ebt9 and at bringing public expenditures and income into better balance. AS a result the Government has been abLe to repay all its short-term debt and has accuinulated relatively large liq:uid reserves. This restrictive pci _y and the growing flows of both externai aid and workers' remittances a':e also resulted in accumulation of Large foreign assets, currently equiv- al. n: to 6-7 months' imports. However, this has been achieved partly at the COst of cutting back development expendicures, and a number of projects largely .-,.anced by external assistance have been heid up because of the Government's .e-r- restrictive budgets. The recent economic mission found the Government now readier to adopt a more aggressive and development-oriented expenditure poiicy. Foreign Aid 8. Foreign sources have financed more than two-thirds of total invest- ment expenditures effected under the first Development Plan (1967-70). The principal sources of aid have been the "Fonds d'Aide et de Cooperation" (FAC) of France and the "Fonds Europeen de Developpement" (FED) of the  European Economic Community. These two agencies together lhave so far provided about 80 percent of all foreign aid to Upper Volta, principally in the form of grants. About half of it was capital aid and one fourth technical assistance and the remainder mainly food aid and recurrent cost financing. A substantial part of French grants (a third in 1972) was for assistance to the public administration; the rest was distributed (almost equally in 1972) between projects in agriculture, road maintenance, educa- tion, and telecommunications. FED's contributions were primarily for water supply (urban as well as rural) and for roads. For the 1965-71 period, the concessionary element for aid commitments was over 90 percent. This ratio has not significantly changed in the more recent years. This reflects the conviction of aid donors that Upper Volta needs the softest possible terms in foreign assistance. 9. In addition to this development aid, the international community has assisted in alleviating the problems created by the drought situation in Upper Volta and the other five sahelian countries affected (Chad, Mali, Mauritania, Niger and Senegal). The emergency relief effort and the other actions which have been taken to help these countries were described in detaii in the documents concerning the Drought Relief Fund Project (R73-112). Prospects 10. The second five-year Development Plan (1972-76) was approved in June 1972. Like the previous plan it is essentially a list of projects to be undertaken over the next five years. The new plan does, however, give increased attention to the problem of planning recurrent costs and the nec- essity of a closer cooperation than in the past between the Ministries of Finance and Planning. Proposed total investments amount to an average of about US$40 million per year. A minimum per capita GDP growth of 3 percent per year in current prices (or about 0.5 percent in real terms) was contem- plated. 11. On the basis of past experience, it is difficult to say whether the planned investment level would be sufficient to achieve the growth tar- get, especially because of the impact of unpredictable exogenous factors, particularly weather conditions. The Government has been successful in mobilizing external aid, but it is doubtful whether a marked increase in the planned investment target would be compatible with Upper Volta's absorp- tive capacity. The Government is hoping to interest foreign investors in the exploitation of the country's mineral deposits, particularly the man- ganese deposit near Tambao, but the economic viability of such an invest- ment is uncertain in view of the heavy transport costs involved. The Tambao project is currently under review by the Bank and other aid agencies. On the other hand, agriculture should benefit substantially from the interna- tional campaign for the eradication of riverblindness, planned to start in late 1974. Large fertile areas amounting to up to 1,000,000 ha currently uninhabited because of prevalence of this disease should eventually become available for resettlement, and in view of the scarcity of good agricultural land, development of these areas should yield high returns.  - 4 - 12. Foreign capital and technical aid will continue to play a decisive role in the development of Upper Volta, but if this aid is to be truly effec- tive , there will be need for better coordination within the Government and for some relaxation of present budgetary controls over development expendi- tures, possibly linked with additional revenue measures to cover the increase in recurrent costs. In addition, there seems to be scope for better coordina- tion of capital and technical assistance projects as well as for closer coop- eration among aid donors. 13. In view of the level of poverty of the country, its limnited growth potential, and the added uncertainties connected with the prolonged drought, foreign aid should continue to be provided on concessionary terms. External debt service at present absorbs about 4.4 percent of Upper Volta's export earn- ings, and although this figure is fairly low in absolute terms, it is high in relation to the country's very limited savings capacity. Equally, although Upper Volta should be expected to make a more significant contribution to the financing of public investment, this will necessarily remain modest, and ex- ternal lending agencies must continue to finance a high proportion of local costs if development projects are to move forward. PART II: BANK GROUP OPE'RATI-NS 14. To date the Bank Group's contribution to Upper Volta's development has consisted of seven projects on which little over US$3 million has so far been disbursed (Annex II). The first telecommunications project, for which an IDA credit of US$0.8 million was made in 1969, was initially delayed by difficulties in recruiting expatriate experts, but is now proceeding satis- factorily and is expecred tc be conpleted shortly. The lWest Volta cotton project, tfor which an IDA creidic of 0 S$6.2 millior, was made ir, 1970, is also oceecing satisfactor iLy, although drought conditions have kept production thas far below expectations. An IDrA credi.. cf US$2.8 million was approved in 1972 for a cottori road project which was designed to complement the West Volta cotton prolect by upgrading to gravelled surface two roads in the project area. A intcrease of US$1.35 million in the amount of this credit was recently &z-)zpoved by the Executive Directors to take into account increases in project c.i.t due to currency realignments and to cost: overrurns on the road construction component. The rural. development fund project, for which an IDA credit of LTS$2.2 million was ap-,roved in 1972, is now making some progress after a slow start resultingr from delays over project prefinancing and staff appointments. IDA credits of US$2 85 million for an education project and US$4.5 million for a second telecommunications project were approved in June 1973, and the projects are now getting underway. In the context of the Drought Relief Fund Project, an IDA credit of US$2.0 million was approved for Upper Volta to finance sub- projects aimed at alleviating the effects of the drought. 15. The Bank Group's strategy in Upper Volta is dictated by the extreme poverty of the country and the need to raise productivity in agriculture and animal husbandry on which the bulk of the population depend for a livelihood.  -5- A certain minimal infrastructure is required for the operation of the economy, and the IDA projects for telecommunications and a possible second road project are designed to help in providing this. For the rest, IDA lending is directed primarily to the rural sector for projects in agriculture, education and rural village improvements with special emphasis on operations which will favor movements of people away from the overpopulated Central plateau with poor soils to the Southwest where ecological conditions are much better. W4ithin this broad strategy, the campaign for the control of riverblindness in the Volta River Basins, for which the Bank is engaged in mobilizing the necessary financing on an international basis, should open up new opportunities for investment in land settlement and agricultural development, and the Bank Group stands ready to assist in the identification, preparation and even- tual financing of suitable projects in this field. Meanwhile, a special unit has been created with the assistance of the French Government to prepare schemes for the development of some of the river valleys. 16. In addition to the proposed project, a number of projects are under consideration for IDA financing. A FAC-financed study to determine the feasiblity of a livestock project is presently underway, and the Bank Group's PMWA is actively participating in its preparation. The Bank Group is also considering steps to be taken to prepare a rice project in the western part of the country. Road studies financed under Credit 316-UV are expected to start soon and may result in a second road project in due course. 17. Upper Volta remains one of the countries in which external assis- tance is limited at present more by shortage of adequately-prepared projects than by shortage of external funds. The Bank Group has been a relatively small source of aid to'date by comparison with FAC and FED. However, since FAC and FED aid is mainly in the form of grants, the Bank Group's share in Upper Volta's total external debt outstanding at the end of 1973 amounts to 19.0 percent. Its share in the debt service is still negligible. Bank Group commitments over the next five years are expected to increase significantly both in absolute and relative terms and would amount to about one-fourth or total aid flows to Upper Volta. This should put the Bank Group at par with the other two main donors, FAC and FED. PART III - THE AGRICULTURAL SECTOR 18. Economic progress in Upper Volta depends largely on the performa-ce of its agricultural sector which provides a livelihood for about 95 percent of the population and accounts for practically all exports. The development of the agricultural sector raises the issue of striking an appropriate balance between food crops and cash crops and between crops and livestock, and of defining means to achieve this balance. In addition, agricultural develop- ment will require improvements in transportation, an adequate system of extension services and rural education, the control of endemic diseases and a better geographical distribution of the population in relation to available resources. The Bank Group's strategy for lending to Upper Volta in this  - 6 - sector, of which the proposed project is a part., is designed to assist the Government in its efforts to expand food crop and cotton production, asso- ciate crop cultivation with livestock raising where possible, and undertake a variety of small low-cost projects (e.g., roads, wells, small dams, soil conservation) likely to lead to small but rapidly-forthcoming imnprovements in the productivity and livirng conditions of large numbers of farmers. 19. Increasing food crop production must continue to receive high prior- ity since, even with a large proportion of cultivated land under cereals, Upper Volta's cereal import requirements average aboult 30,000 tons annually under normal climatic conditions. The recent droug1hts have contributed to aggra- vate this situation. Cereal yields are low, averaging only about 620 kg/ha in good rainfall years, and reflect poor soil and climatic conditions, dete- rioration of soils due to high population densit-ies, overcultivation and overgrazing, limited use of improved varieties of the main cereals, sorghum, maize and millet, and insufficient application of modern cultivation techni- ques, such as insecticides, fertilizer and draft animals. The on-going IDA- financed projects in the rural sector and the proposed project are expected to help deal with some of these problems. 20. The number of cash crops which give satisfactory yields in Upper Volta's arid climate and which can bear the high cost of transportation to world markets is limited. Research might lead to the development of better- adapted varieties. Currently, however, cottonl is the most suitable cash crop in rainfed areas. The country's potential for cotton production appears to be about 120,000 tons of seed cotton annually, and the Government aims at reaching this level by 1980. This may be somewhat optimistic, but production has already risen from an average of 2,500 tons in the late 1950's to 30,000 tons in the late 1960's. Tnis increase has been made possible by a relatively efficient system of extension services combined with the fact that farmers are hard-working and receptive to new techniques and price incentives. The West Vclta Cotton Project is already contributing to the Government's efforts to raise cotton yields and production. Cotton production in the project area in 1970, 1971 and 1972 as a proportion of 1969 production (an exceptional year) was 91 percent, 118 percent and 134 percent respectively, whereas cOt-ron production in non-project areas was on'ly 37 percent, 35 percent and 52 ;ercent- Cotton production in the project area now constitutes about 75 percent of total cotton production in Upper Volta. The proposed project is to Duild on the progress achieved under the West Volta Cotton Project. 21. Far more attention will have to be given to the livestock sector which has been greatly neglected in the past and shows many signs of serious deterioration. Cattle exports have been declining (from 75 percent of total exports in 1966 to 36 percent in 1971) due to droughts, diseases, poor herd management, and the unsatisfactory organization of veterinary and marketing services. If this situation continues, increased domestic consumption could eliminate cattle exports by 1985. A possible livestock project in the Bobo- Dioulasso area was identified recently by PMWA, and a FAC-financed study is  - 7 - presently underway to determine its feasibility. Such a project could prove to be an important step in halting the deterioration of the sector. The proposed project also includes a livestock component consisting of the pro- vision of veterinary services and especially prophylactic vaccinations to all livestock in the project area. 22. Rural development in Upper Volta is hampered by the inadequacy of the transportation network. Local communities are expected to maintain secondary and tertiary roads, which are often little more than earth tracks, but they often lack the resources to do so, and the roads are passable only during the dry season. It is often difficult to supply densely-populated areas with food, drugs and public services. The improvement of transport links between villages and main towns is therefore an important component of the proposed project. 23. For the rural population to take full advantage of agricultural extension services, it needs training and education. Much effort has been put into agricultural extension, but the conventional system of education is both very costly and insufficiently adapted to the needs of rural life. The Government has long recognized that rural areas need a more relevant and less costly type of education. Soon after independence, it established a system of non-formal rural training through Rural Education Centers. The IDA-financed Education Project aims in part at increasing the scope and improving the quality of rural education and complements a similar FED- financed project. The proposed project includes important technical assis- tance and training components. 24. Disease and malnutrition seriously affect human beings. Malaria, onchocerciasis, kwashiorkor (a children's disease caused by malnutrition), bilharzia, trypanosomiasis, and trachoma are prevalent. As some of these are water-borne diseases, the provision of more dependable and cleaner water supplies envisaged under the proposed project should help to alleviate the distress caused by these diseases in the project area. Similar provision will have to be made in subsequent agricultural development projects. 25. In many areas of Upper Volta, land is becoming less productive as a result of continiued use of traditional agricultural techniques and soils are deteriorating under a shortened fallow period. However, the Government has become aware of the relatively good and so far little exploited agricuitural potential in the southwestern part of the country. In this zone, substantial areas are free of onchocerciasis and conditions are suitable for a wide range of crops, and especially for sorghum, and for maize and rice. High-yielding varieties of the latter crops are available. The southwest is also very suit- able for livestock raising. The proposed project is located in this area. As the onchocerciasis control campaign progresses, additional areas which are presently uninhabitable because of the prevalence of this disease will become available for settlement and agricultural development and should help reiieve the population pressure on less productive land elsewhere.  - 8 - 26. The major responsibility for rural development in Upper Volta rests with the Ministry of Planning, Rural Development, Environment and Tourism. The Banque Nationale de Developpement provides credit to farmers. The Ministry of Public Works is responsible for infrastructure, in particular roads. To take into account the diversity of conditions in various parts of the country, the Government in 1966 created regional development agencies (Organismes Regionaux de Developpement - ORD), of which there are now eleven. ORD's are responsible for all rural development activities in their respective areas. The scope of their activities has in practice been limited to providing agricultural exten- sion, credit and marketing services; and rural infrastructure (roads, wells, warehouses and dams) in collaboration with, and under the supervision of, the five technical departments responsible for rural development in the Milnistry of Planning, Rural Development, Environment and Tourism and the Ministry of Public Works. IMost of the ORD's have been financed with external assistance and managed by foreign development companies. 27. The Government of Upper Volta has long been aware of the need to reorganize its rural development services to ensure more effective coopera- tion among the four technical departments of the Ministry of Planning, Rural Development, Environment and Tourism and between the MIinistry and other gov- ernment agencies and to achieve a better integration of OPD activities into national priorities. The nee.d for such a reorganization is becoming more urgent now, given the increase in the number of ongoing and potential agri- cultural development projects and their growinlg complexity. IDA has therefore proposed, and the Government has agreed, to undertake such a reorganization no later than six months after the signing of the Development Credit Agree- ment. The principal features of this reorganizationi are: (a) creating, under the direct responsibiLity of the Minister for Planning, Rural DIevelopment, Environment and Tourism, a onit to control and coord:inate the activities of the ORD's and the Technical Departments responsible for rural develripment in the Ministry, to implement the reform of th-e ORD's, to review development programs, to supervise and evaluate ongoing projects or programs, and to provide ORD's with technical assistance for project execution and evaluation; and (b) providing the Directors of the ORD's with the powers and responsibilities necessary for them to satisfactorily execute projects and programs.  PART IV: THE PROJECT 28. The proposed project was prepared by the Compagnie Internationale du Developpement Rural (CIDR) with funds provided under Credit 225-UV, the ongoing West Volta cotton project, and appraised by a Bank mission in April- May 1973. Negotiations were held in Washington from April 8 to 12, 1974. The delegation of the Republic of Upper Volta was headed by H. E. Mr. Antoine Dakoure, Minister of Planning, Rural Development, Environment and Tourism and consisted of Messrs. Yaya Konate, Advisor to the Minister, Charles Coulibaly, Director of the West Volta Cotton Project, Hama Diallo, Ministry of Planning, and Dicko, Ministry of Finance. A report entitled "Appraisal of Bougouriba Agricultural Development Project - Upper Volta "(No. 297-UV) is being circulated separately to the Executive Directors. A Credit and Project Summary is provided at Annex III. 29. Tne proposed project is to some degree similar to the West Volta cotton project but is more comprehensive. It will include not only addi- tional cotton development, agricultural credit, extension services and feeder road improvements, as does the ongoing project, but also food crop and live- stock development, well construction, intensive staff training and applied research. The Project Area 30. The Bougouriba ORD lies in the southwest of Upper Volta and com- prises about 6% of the total area of the country. With an average annual rainfall above 1,000 mm, climatic conditions are suitable for the cultiva- tion of a variety of crops, including cotton, groundnuts, traditional cereals and rice; and as soils are generally fertile and groundwater supplies rela- tively plentiful, the potential for agricultural development is promising in comparison with other regions of the country. The population of the Bougouriba ORD is estimated at 360,000 or approximately 7% of the total population. Migration into the ORD from the more densely-populated Mossi plateau is growing, and people from the plateau represent about 14% of the ORD's population. There are about 42,000 farms and 750 villages in the ORD, and cultivated land totals 200,000 ha or some 10% of total cultivated land in Upper Volta. Gross income per farm family is low, varying from CFAF 26,000 to CFAF 68,000 annually (equivalent to US$104 and US$272 respectively). Project Description 31. The proposed project, to be carried out over a four-year period, will be the first major effort to develop the natural and human resources of the Bougouriba ORD and will concentrate on the areas presently free of onchocerciasis. The project consists of the following major components: (a) providing technical assistance to the Ministry of Planning, Rural Development, Environment and Tourism;  - 10 - (b) providing the lBourgouriba ORD with the staff, housing, offices, equipment, vehicles and funds necessary to implement an effective development program; (c) providing about 16,000 farm families with the extension and other support services needed to increase their pro- duction and income; (d) providing participating farmers with seasonal credit for the purchase of insecticides and fertilizer and medium- term credit for farm implements; (e) providing efficient veterinary services for the ORD, whose role would primarily be to execute programs of prophylactic vaccinations to reduce the currently high livestock mortality rate; (f) creating a training center with teaching facilities for project staff and farmers; (g) creating a research station to carry out adaptive research and operate a seed multiplication unit; (h) improving domestic water supplies through a well digging and rehabilitation program covering about 120 wells; (i) carrying out the studies and surveys needed for the improvement of the road network of the project area; (j) improving about 660 kms of secondary and tertiary roads; and (1k.) establishing a topograph-ic unit to map out and prepare plans for the development of land for settlement by migrants. 32. The oroject is expected to result in annual increases in the pro- da2c-ion of cotton (8,800 tons), sorghun (1$300 tons), maize (5,000 tons), groulidnuts (2'50 tone), rice (300 tons) and meat (1,500 tons). Most of the additional cotton produced is expected to be exported, as will about 30% of the meat. Cereal production increases would help reduce imports. Organization and Management 33. The project will be executed by the Bougouriba ORD. The project manager will be the Director of the Bougouriba ORD whom the Government has already appointed. Due to the acute shortage of managerial skills in Upper Volta, it is likely that several of the senior staff neded will have to be recruited abroad. The appointment of the ORD Deputy Director and the Ac- countant would be a condition of effectiveness of the proposed credit.  Marketing Arrangements and Prices 34. Agricultural crops would be marketed as follows: (a) food crops (sorghum, maize, rice) would be sold by farmers at markets, to wholesalers, or to the ORD; (b) cotton would be marketed through the Association en Participation (see para. 36). 35. Marketing arrangements for food crops are generally poor, and the Office National des Cereales which has been charged with improving the system has failed to achieve any marked improvements. Project staff would carefully monitor the food crop marketing system with a view to intervening directly if necessary. Such intervention would be in accordance with Gov- ernment policy which strongly encourages marketing of food crops by ORD's to enable them to generate income and eventually become self-supporting. 36. The marketing arrangements for cotton are regulated by a contract of Association en Participation (AP) between the Government and the Compagnie Francaise pour le Developpement des Fibres Textiles (CFDT). Under this agree- ment, CFDT collects seed cotton, processes it and exports lint, and some cot- ton seed. The Caisse de Stabilisation des Prix des Produits (CSPP) markets most of the remaining cotton seed, but it has not carried out this task very effectively. In order to avoid the dispersion of cotton marketing efforts and to increase their effectiveness, the Government has agreed to make CFDT responsible for both lint and cotton seed marketing in view of its wide experience in this field and the contacts that it has developed all over the world. 37. Producer prices for cereals and meat have risen very substantially reflecting the present drought conditions. They are expected to remain high because of the cereals and meat shortages in Upper Volta and in West Africa in general. Producer prices for cotton which are established yearly by Government decree have increased only slightly between 1964 and October 1973, and therefore decreased in real terms. These prices were increased slightly in October 1973. The Government has informed us that it intends to increase prices further to CFAF 40 per kg for first quality and CFAF 33 per kg for second quality for the 1974 crop, and if world market prices remain favorable, to CFAP 45/kg in 1975 for first quality and CFAF 50/kg in 1976, the dif- ferential between first and second quality prices remaining unchanged. Assurances were obtained that the level of cotton producer prices would be the subject of annual consultations between the Government and the Association, as would the level of subsidies for fertilizers and insecticides to be provided to farmers (para 38).  - 12 - Farmers' Credit 38. Under the project, farmers will be eligible for credit on inputs and equipment. To promote their use the Governiment feels it necessary that inputs be sold to farmers below cost. In 1974 the cost of cotton fertilizer to farmers will be CFAF 33/kg versus a farmgate cost of CFAF 79/kg, and the cost of insecticides CFAF 420/liter versus CFAFI 740/liter. Assurances were obtained that the level of these subsidies wou]ld be subject to annual con- sultations between the Government and the Association. 39. At present, down-payment conditions and terms of equipment credits are too stringent, and are a constraint on farm development; BND requires a deposit of between 35% and 50% and repayment over one or two years. Under the proposed project, credit distribution and recovery would be carefully supervised by extension staff; it would therefore be feasible to facilitate farmers' access to equipment by easing the credit terms. Assurances were obtained that farmers with a pair of oxen woulcd be eligible for equipment credit and that the down-payment would be reduced to 15% of total equipment cost. The Government also intends to extend the repayment period, which ranges from 12 to 24 mnonths at present. Equipment would not be subsidized. Proposed Financing 40. The total cost of the project, excludirng import duties and US$1.2 million in local taxes, is estimated at US$9.0 million, with an estimated foreign exchange component of US$5.4 million or 60% of the total. The proposed credit of US$8.0 million woula finance 89 percent of total project costs excluding taxes. The Goveniment would contribute the US$1.2 million of taxes, the Banque Nationale de Developpement: US$650,000 equivalent, and participating farmers about US$350,000. 41. In t.he past Government rhas not always met its share of project cost financinC on time. To improve the funding procedure, Government has agreed to create a development fund wlhich would be credited with a levy assessed on cotton seed produced and marketed. This levy would be deducted ffro'm th;e AP's revenues on cotton seed and lint sales. The levy would be ca:izulated to meet at first the Government's entire contribution to the West; Volta Cotton Project and the proposed project, and subsequent to the completion of these projects, to pay for the extension and other services provided by the Government. The creation of this fund would be a condition of effectiveness of the proposed credit. Procurement and Disbursement 42. International competitive bidding in accordance with IDA guide- lines would be used for vehicles (US$330,000), equipment needed for the wells and road programs (US$340,000) and farm implements (US$270,000). Local manu- facturers would have a 15% preference. Contracts for the construction of  - 13 - houses and stores (US$890,000) would be let through competitive bidding advertised locally, as the dispersion of the works involved makes it unlikely that firms not already operating in Upper Volta or in neighboring countries would be interested in bidding for these contracts. Foreign companies, how- ever, would not be excluded from bidding. Domestic contractors would have a 7.5? preference. Vaccines and drugs for the veterinary program (US$65,000) would be obtained directly from the Laboratoire de Recherche Veterinaire de Dakar the products of which have been proven in Upper 'Volta. The studies for the roads (US$180,000) would be prepared by internationally-recruited consultants in accordance with IDA guidelines. Farm inputs (US$800,000) would be procured through established local procedures. The bulk of the remainder (US$5.5 million) covers staff salaries and operating expenses during project implementation, and there would be an estimated US$1.9 mil- lion unallocated. Contracts costing less than US$20,000 would be let on the basis of quotations obtained from local suppliers. 43. The road improvement program (US$520,000 net of equipment costs) would be carried out by force account. This program which would be executed at different times and in different locations would not be suitable for letting to private contractors. 44. Disbursements from the proposed credit would cover: (i) 100% of the foreign exchange cost of vehicles, equipment, sprayers, veterinary drugs, studies, scholarships, special staff training or 87% of total expenditures for these items; and (ii) 87% of salaries, building costs and operating expenses. The proposed credit is expected to be fully disbursed by December 31, 1978. A schedule of estimated disbursements is included in Annex III. Economic Benefits 45. Assuming a ten-year project life, the economic rate of return of the project is estimated at 68%. This high rate of return is primarily due to projected increases in the prices of cotton, cereals and meat which more than offset likely increases in the cost of inputs. The economic rates of return of the agricultural and livestock components considered separately are estimated at 74% and 56% respectively. 46. Most of the project-induced cotton production would be exported, and project-induced cereal production would substitute for imports that would otherwise be required. About 30% of meat produced would be exported. On this basis, the annual net foreign exchange gain to Upper Volta is estimated to amount to about US$5.3 million after 1978/1979. This compares with the estimated foreign exchange component of the proposed project of US$5.4 million. 47. Farmers' annual net income after taxes and purchase of inputs is expected to increase on average by CFAF 60,000 by the fourth year (US$3.8 million for the project area).  - 14 - 48. The project would have no negative irmact on Government finances, as the Government would only contribute an amount equivalent to the taxes included in project cost. After project development Government revenues would be significant and consist of taxes on project-induced cattle production, the Association en Participation's profits on cotton operations attributable to the project area, income taxes levied on staff employed by the project, and taxes on gasoline and other rnaterials used in project operations. The Gov- ernment would be able to sustain project activities from its revenues once the proposed credit is fully disbursed. 49. The project's indirect benefits would also be substantial. It would directly affect some 16,000 families and another 16,000 families would receive benefits from improved water supplies and better access to health facilities and other social services. In total some 360,000 people would be affected in one way or another by project activities. With the considerable increase in farmers' cash incomes rural trade and small industries would be stimulated. 50. The project's long-run benefits wouLd extend beyond the project area. The project would be the vehicle for a reorganization of rural devel- opment institutions in the country, including the Ministry of Planning, Rural Development, Environment and Tourism and the ORI)'s. Arrangements for the marketing of cotton seed would be improved. Firnally, the project would hopefully serve as a model for future rural development projects. PART V: LEGAL INSTRUMENTS AND AtUHORITY 51. Tha 6tiaft Devrelopment Credit Agreement between the Republic of Upper Volta and the Association, the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles cif Agreement of the Association and the text of a draft resolution approving the proposed credit are being distributed to hne Executive Directors separately. The draft Development Credit Agreement conforms generally to the pattern of credit agreements for agricultural development projects. '2. T am satisfied that thre proposed credit would comply with the Articles of Agreement of the Association.  - 15 - PART VI; RECOMMENDATION 53. I recomuend that the Executive Directors approve the proposed credit. Robert S. McNamara Pres ideit Attachments: 3 Washington, D.C. Hay 15, 1974   ANNEX I Page 1 of 3 pages COUNTRY DATA UPPER VOLTA APRA POPULATION DENSITY 2007~o kmD2 5.52mllion (mid-l97ffi)/ 20 Per kmn (1973) 57 Per km2of arable land SOCIAL INDICATORS Reference Countries Mali NiRr France 1960 1971 i11 GNP PER CAPITA US$ (ATLAS BASIS) 70 70 100 3,360 DEMOGRAPHIC Crude birth rate (per thousand) 49 (1965-70) 60-65 50 16.6 Crude death rate (per thousand) 29 (1965-70) 35-40 28 11.9 Infant mortality rate (per thousand live births)270 (1970) 120 200 15.1 Life expectancy at birth (years) .. 37 35 71.5 Gross reproduction rate 3.5 1.2 Population growth rate 1.8 (1960-71) 2.1 2.2 0.9 Population growth rate - urban 3.9 (1960-70) ... . 2.4 Age structure (percent) (1971) 0-14z 45.4 % 49.5 44.6 B/ 23.7 15-64 51.8 , 47.3 52.9 62.9 65 and over 2.8 % 3.3 2.5 13.4 Denendency ratio 0.93 : 1 1.12 1 0.89 1 0.9 : I Urban population as percent of total 11.1 9 (1971) or 4.4 % (1971) 7.1 4.3 70.0