Tanzania - National Maize Project

CIRCULATING COPY F1LE COPY TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1729-TA REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A NATIONAL MAIZE PROJECT December 10, 1975 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 It may not be published, quoted or cited without Bank Group authorization.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 EQUIVALENTS (as at November 1, 1975) Tanzania Sh = US$0.12 US$1.00 = T Sh 8.05 (The Tanzania Shilling is officially valued at a fixed rate of 9.66 T Sh to the SDR. The US Dollar/Tanzania Shilling exchange rate is there- fore subject to change. Conversions in this report were made at US$1.00 to T Sh 8.05, which is close to the short-term average exchange rate.) TANZANIA FISCAL YEAR July 1st - June 30th  REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A NATIONAL MAIZE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the United Republic of Tanzania for the equivalent of US$18.0 million on standard IDA terms to help finance a National Maize Project. Part of the proceeds of the Credit would be relent to the Tanzania Rural Development Bank (TRDB) for 20 years including five years grace with interest at four percent per annum. TRDB would onlend these funds at 8-1/2 percent. The Arab Bank for Economic Development in Africa (ABEDIA) has approved a loan to the United Republic of Tanzania of US$5 million equivalent for 20 years, including five years grace, at an interest rate of two percent per annum to support the project. PART I - THE ECONOMY General 2. The last full economic report on Tanzania (AE-26) was distributed to the Executive Directors on May 22 and June 22, 1972. This was followed by an Economic Updating Report (30-TA) distributed on December 11, 1972. A basic economic mission is scheduled for 1976. An agricultural sector report was issued on December 10, 1974. An industry and mining sector report and a report on the fiscal aspects of Tanzania's recent decentral- ization of Government were distributed in April 1975. The Consultative Group for East Africa met in April 1975 to discuss ihe progress and pros- pects of the Tanzanian economy and the need for additional resources to support the Government's development program. Country data are provided in Annex I. Tanzania is one of the 25 least developed countries as defined by the United Nations. 3. The TANU Party, under the leadership of President Nyerere, has been the guiding force in Tanzania's political evolution since the 1950's. Over the years following independence the political leadership has developed a philosophy of egalitarian socialism which has been articulated in many documents, most central of which is the Arusha Declaration of 1967. In restructuring the political, economic and social life of the country the leadership has introduced an impressive series of far-reaching institutional reforms. For the past decade Tanzania's social and economic policy has been guided by three fundamental objectives; (a) the achievement of a parti- cipatory, decentralized socialist economic order; (b) the eradication of absolute poverty and progress toward greater income equality; and (c) more rapid long-term economic growth with full participation of all regions  - 2 - and population groups in the development process. Some of the Govern- ment's most significant decisions have been in the area of incomes policy; however, while considerable progress has been made toward reducing inequality within the category of employed workers, large gaps still exist between urban and rural standards of living. 4. Tanzania is one of the three Partner States belonging to the East African Community. The 1967 Treaty for East African Cooperation is one of the most far-reaching and comprehensive economic cooperation agree- ments in existence among sovereign states. However, in practice the degree of economic integration and cooperation among the Partner States is much less than what was envisaged in the Treaty. Political developments in the Partner States have created tensions within the Community and impaired the growth of interstate trade. These difficulties have been compounded by the balance of payments crisis which currently faces all three Partner States. 5. Between 1968 and 1973, Tanzania's GDP increased 4.6 percent per year in real terms. Exports of goods and services in constant prices grew 2.8 percent per year during the same period. Domestic savings were main- tained at about 18 percent of GDP. Investment increased from 19 percent of GDP to 23 percent with public sector investment rising to 80 percent of the total investment in 1973. Annual price increases were moderate to low. Current Government receipts more than doubled, but current expenditures increased at similar rates so that budgetary savings stagnated. Although the level of domestic savings and investment were substantial, the growth of GDP was probably not commensurate with the investment effort. This was largely due to the high proportion of investment that went into slow gestation infrastructure and social services, and to the difficulties encountered in expanding production in agriculture. The stagnation of agricultural export volumes and very slow growth in food production were the most worrisome problems. However, prudent domestic financial manage- ment, and an increasing inflow of external aid on concessionary terms, together with a rather sharp terms of trade improvement in 1973, made it possible to maintain a high investment rate. Reserves at the end of 1973 stood at a healthy $145 million which was then the equivalent of four months' imports. Indeed, the economy appeared in relatively good shape before the events of the winter of 1973-74. 6. Events occurred then which resulted in a drastic change in the overall balance of payments of Tanzania. Import prices rose sharply and in 1973 and 1974 rains failed in many parts of the country necessitating substantial increases in imports of basic food items. As a result, Tanzania's foreign exchange reserves declined by about $90 million in 1974 to a level representing about three weeks' imports and have remained at about the same level since. Tanzania has been able to cover the 1975 foreign exchange gap by curtailing imports to the bare minimum and by securing substantial program-type assistance including a $30 million Program Loan (No. 1063 TA) from the Bank and drawings on the second IMF credit tranche and the IMF special oil facility approved in August 1975.  - 3 - 7. In order to close the gap in the longer term the Government has begun a program of investment restructuring, improvements in the incentive framework, administrative changes, and reduction in the rate of growth of consumption. Under this program, the Government is reallo- cating public investment from infrastructure development to the directly productive sectors of agriculture, industry and mining. Actual public investment for directly productive sectors is estimated at 41 percent of the total in 1974-75 and it is planned to rise to 48 percent in 1975-76. Although the Government has made substantial progress in this endeavor, high level manpower constraints have inhibited both project preparation and execution. The single largest economic weakness is the slow growth of agricultural production. Several steps have been taken to increase output. The Government has raised producer prices to levels approaching world parity so as to provide greater incentive. The steeply progressive export tax on coffee, which had an average rate of 30 percent, has been reduced to an ad valorem rate of 12-1/2 percent to provide further in- centives to farmers. The overall planning capability of the Ministry of Agriculture is being improved and a project coordination unit to improve implementation has been established in the Ministry. The negative impact of villagization on output is being reduced through more careful planning. The Government is reducing unnecessary non-development related recurrent expenditure and is using taxation and wage/price controls to reduce the rate of growth of private consumption. The Government's progress in implementing policies and programs designed to close the balance of pay- ments gap in accordance with understandings relating to the program loan was the subject of a memorandum (see M75-687) from the Secretary to the Executive Directors dated September 25, 1975. 8. The program of economic restructuring initiated by the Tanzanian Government to cope with the economic crisis will generate benefits which will be spread out in time. Viewed negatively this means that the immediate barometers of economic health, such as the balance of payments, will re- main weak in the short run. The positive corollary is that Tanzania will have a basically stronger economy at the end of the restructuring process. The crisis acted as a catalyst in inducing significant policy shifts which were diagnosed as necessary beforehand but which did not command urgency until it struck. Not only did this hasten reallocation in the current Development Budget and Annual Plan, but it is also likely to have a subs- tantial impact on the forthcoming Third Five-Year Plan. For the long run the most encouraging aspect of the Government's response was the demons- tration that Tanzania retains the ability to push through necessary but unpopular policy measures over a wide front. It is this characteristic of a "hard state", together with the basically sound program of economic restructuring, which holds promise for the future. 9. The Tanzanian balance of payments will remain under severe pressure until more of the favorable balance of payments effects of recent policy changes can make an impact. Accordingly, Tanzania will require additional balance of payments assistance in 1976 and 1977. A gap of about $100 million is anticipated in 1976 after allowance for the  - 4 - balance of the IMF second credit tranche (paragraph 6 above) has been made. In this connection, an appraisal mission for a proposed second Bank Program Loan recently returned from Tanzania. In addition, a con- tinued capital inflow in excess of the foreign exchange component of high priority projects will also be required if Tanzania is to achieve its devel- opment targets. Financing of some local expenditures will, therefore, be justified. 10. In terms of debt outstanding and disbursed, the Bank Group is Tanzania's second largest creditor after the People's Republic of China. Other major lenders are Sweden, Canada, Denmark, the Netherlands and the Federal Republic of Germany. The current low overall debt service ratio of about 7 percent is expected to rise to about 11 percent by 1980 and remain at about that level throughout the 1980's. Including a notional one-third share of the debt of the East African Community Corporations, the IBRD is presently holding 13 percent of Tanzania's outstanding external debt and IDA 10 percent; the IBRD share is expected to rise to about 23 percent in the next five years, and IDA share to rise to about 13 percent. Debt service payments to the Bank are about 13 percent of total debt service payments; the corresponding share for IDA is about 3 percent. These two figures are projected to rise to about 25 percent and 3 percent, respectively, by 1980. The debt service ratio of Bank. loans to exports is expected to rise to about 2 percent by 1980. The Bank's exposure is high because several major donors are now making their aid available either on grant basis or very concessional terms and because as a result of prudent debt management suppliers' credits have been kept to a minimum. The average interest rate on loans to Tanzania outstanding at December 31, 1974 amounted to only 2.4 percent and the average term was 22 years. PART II - BANK GROUP OPERATIONS IN TANZANIA 11. Tanzania joined the Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1963, 21 credits and nine Bank loans amounting to $320.8 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of nine loans, totaling $229.8 million, which have been extended for the development of common services operated regionally by Tanzania, Kenya and Uganda through their asso- ciations in the East African Community. The only IFC investments in Tanzania to date, totaling $4.7 million, were made in the Kilombero Sugar Company in 1960 and 1964. This Company encountered financial difficulties and in 1969 IFC and other investors sold their interest in the Company to the Government. Annex II contains summary statements of Bank loans and IDA credits to Tanzania and the East African Community organizations as of October 31, 1975 and notes on the execution of on-going projects. 12. In keeping with Tanzania's overall development strategy our lending operations are increasingly focusing on the rural sector and directly productive projects. Up to the end of FY72 10 out of 14 loans  - 5- and credits made directly to Tanzania had been for infrastructure. Of the 14 Tanzania operations approved since then all but three, Urban Sites and Services (Credit No. 495 TA), Highway Maintenance (Credit No. 507 TA) and Education IV (Credit No. 371 TA), were for directly productive projects. These projects are supporting both the agriculture and industrial sectors including an Integrated Rural Development Project (Credit No. 508 TA) and our first direct lending for an industrial project (Mwanza Textiles Loan No. 1128 TA). In addition, a project to support fisheries development is expected to be ready for consideration by the Executive Directors in the near future. A proposed forestry project, a project to support selected industries and related estate development at Morogoro.and a proposed second rural development project have recently been appraised in the field. A third power project is expected to be presented tc the Executive Directors for their consideration in the near future and a proposed water supply project is currently being appraised in the field. In view of Tanzania's continuing balance of payments difficulties a mission recently visited the country to appraise a second program loan. 13. While it should be borne in mind that over one half of total Bank Group lending to Tanzania has been approved in the last two fiscal years and that initial start-up difficulties are perhaps inevitable, the project implementation difficulties referred to in Annex II of this report have been greater than anticipated. Some of these problems stem from the scarcity of suitably trained and qualified manpower, some reflect the understandable reluctance and apprehension of an essentially conservative traditional sector to adopt the new "technology" and others are undoubtedly a reflection of the strains created in a society which is attempting a unique traverse from one set of economic, institutional and political rules to another. The Government has become extremely conscious of these imple- mentation issues and is taking steps to resolve these problems. An earlier reluctance to recruit technical assistance for planning and implementation has been replaced by a greater willingness to utilize such assistance whenever it is demonstrably necessary. A technical assistance project designed to strengthen project preparation and implementation was recently approved by the Executive Directors. At the request of the Government about 10 technical staff have been supplied by ADS and a Bank staff member has recently been seconded to the newly established Project Implementation Unit in the Ministry of Agriculture. In a longer term attempt to alleviate the human resource constraints our lending is expected to increasingly emphasize formal and non-formal training. Furthermore, a conscious attempt is being made to develop more simple and less complex projects. 14. The difficulties facing the East African Community Corporations referred to in paragraph 4 above have affected the Bank's lending program for the Community. The. East African Railways Corporation (EARC) has been the most severely affected. As a result of long delays by the Partner States in approving increases in tarrifs and restrictions on the inter- state transfer of corporate funds, EARC was unable to order essential spare parts and supplies with the result that its operational capacity has deteriorated considerably. In July 1974 the Partner States agreed, with the Bank assistance, on a package of financial measures to rehabilitate  - 6 - the EARC including interstate transfer of funds and injection of additional capital. However, this agreement was never fully implemented and as a result disbursements under Loan No. 674 EA (East African Railways III) were suspended in February 1975. 15. A Bank mission which visited East Africa in July 1975 was able, after meeting the Heads of State and other important officials in the three countries, to bring about an understanding on both the short- and long-term problems of the East African Community. On the general question of the future of the EAC, a decision was made to review various aspects of regional cooperation as now incorporated in the 1967 Treaty. It is anticipated that this review would begin before the end of the year and take 18-24 months to complete and would be undertaken by a commission consisting of nominated representatives from each member country. To address the immediate financial and managerial problems, that will remain pending the agreement on a long range reform of the Treaty, the Partner States reached three major accords. To deal with the transfer problem, an agreement was reached on the mechanism for the transfer of funds from the regions to the Corporation headquarters. To ensure a workable plan for railway decentralization, a draft Consultancy Services Agreement on studying decentralization was adopted and will be financed under Loan No. 674 EA (the suspension of which has been lifted). Finally, the Partner States approved the appointment of financial consultants to undertake a study of the assets, liabilities, debts and financial con- dition of each of the three Corporations on a regional basis. This is viewed as a necessary step in providing the basis for the decentralization of the Corporations and is being financed by the UK. 16. It is expected that this broad agreement between the Partner States will provide a basis on which the Community can efficiently operate. Payment for past due loans has been received and all the actions reviewed above have been initiated. It would, however, be unrealistic to expect that decentralization of the Community structures will now proceed smoothly and without difficulties. There are fundamental differences in political outlook and development strategies between the Partner States and mutual suspicions of intent will undoubtedly continue. The newly agreed transfer formula (paragraph 15 above) is inevitably open to misinterpretation and goodwill will be required on all sides if it is to be successfully im- plemented. The dangers implicit in the possibility of operating diffi- culties growing in other Corporations is also recognized. However, a strong desire to retain control of the situation is also evident. The Bank's role as an "honest broker" has been accepted and endorsed by the Partner States and this role could be used effectively to help in the smooth transition in the Community's structure.  -7- PART III - THE RURAL AND AGRICULTURAI SECTOR General Background 17. Agriculture and related activities constitute the largest single sector in the Tanzanian economy. Roughly 40 percent of GDP is derived from the sector of which 50 percent constitutes subsistence production. Agricultural exports which account for 80 percent of total exports, include mainly sisal, cotton, cashewnuts and coffee. About 94 percent of the population live in rural areas and 90 percent of the economically active people are engaged in agriculture. 18. Most production is from smallholdings using family labor. Large-scale agriculture is represented by a small number of private estates and some state farms producing sisal, coffee, tea, wheat, rice and livestock. Estate production has diminished in importance and the state farm program remains small. Tanzania's national herd, the second largest in Africa, is grazed extensively over the 40 percent of the country which is free from tsetse fly infestation. It is largely managed along traditional lines. There is limited use of oxen for cultivation, mainly in the western cotton areas. Major food crops in Tanzania are maize, millet, sorghum, paddy, potatoes, cassava, bananas and beans. These are produced predominantly by smallholders who use most of their production for subsistence. Agricultural output has stagnated in recent years (paragraph 5 above). Food crop production has failed to keep pace with the expanding population, and Tanzania has become increasingly dependent on imports of maize, rice and wheat. The deteriorating food balance position was seriously aggravated by the poor,drought affected harvests of 1973, and again in 1974 (paragraph 6 above) when some 440,000 tons of grain were imported. Agricultural Development Strategy 19. The Government recognizes that agriculture will continue to be the main source of employment and has been trying to devise a strategy which will bring about improvement in output, incomes and the living conditions of the agricultural population. The major aim is to make significant progress towards socialist organization of rural activity, based on village cooperatives and maximization of the use of labor. State farms fill a need for larger scale production units, but the approach to mechanization is cautious and in general based on proven viability. Agri- cultural production is to be increased within a framework of crop priorities based on production possibilities, market prospects, and a desire for in- creased self-sufficiency. 20. Until recently priority was given to the expansion of selected export activities including cotton, livestock, flue-cured tobacco, and cashewnuts as well as import substitution activities such as sugar and dairy production. However, within an overall policy framework of according  -8- greater emphasis to the productivity of the agriculture sector (paragraph 7 above), and as a response to the drought and food crisis of 1974 when output of maize declined by 30 percent, the Government is now giving highest priority to self-sufficiency in food production. The Government and TANU party have mounted a massive effort to mobilize peasants to grow more food under the campaign slogan "farming as a matter of life and death." In addition, the increase in producer prices of May, November 1974 and September 1975 (129 percent for maize, 70 percent for wheat, 77 percent for paddy and 132 percent for sorghum), the reform of the coffee export tax structure, and the formation of a permanent Agricultural Price Review Commission constitute major rationalizations of production incen- tives in agriculture and further evidence of the Government's newly found recognition of the importance of agricultural pricing policy. In light of the critical economic difficulties facing the country, and in an attempt to generate a quick production response, the Government is now placing greater emphasis on production rather than social aspects of new rural development projects and intends, initially, to concentrate on areas of high agricultural potential. This change in emphasis was one of the major recommendations of the Bank's Agriculture sector report dated December 10, 1974. Greater attention is also being given to problems of implementation which have been especially acute in agriculture. A special project imple- mentation unit has been established within the Ministry of Agriculture and a substantial amount of technical assistance has been recruited. The Government is also exploring ways of alleviating constraints which are presently inhibiting the distribution of production inputs and the marketing of crops. Although it is still too early to judge the indi- cations are that these policy actions will result in a significant pro- duction response. Rural Organization 21. In order to make the Government more responsive to rural needs and better able to promote rural development, the administrative structure and many of the functions of Government were decentralized to the 21 Regions and nearly 80 Districts in July 1972. The Regions are now primarily responsible for promoting and coordinating development programs within their respective areas. The relevant centralized functional minis- tries are responsible for providing necessary technical support. Each district and region is expected to have its own development plan and budget and to direct all development staff and activities within its jurisdiction. Although progress has been inevitably patchy, reflecting the local avail- ability of the required expertise, the new structure has already demonstrated its potential to take initiatives and to more effectively promote develop- ment programs. It is also apparent that the lack of adequate support from the central technical ministries, for example in the extension services which generally lack adequate training and logistical support, is inhibiting the effectiveness of the regional development activities.  -9 - 22. The Arusha Declaration of 1967 identified the ujamaa village as a means of effecting self-reliance and a community approach to devel- opment. The Government sees villagization as the only effective way to deliver essential economic and social services to a widely scattered rural population. In early 1974 the Government decided to rapidly increase the pace of villagization and it is currently estimated that about 70 percent of the rural population, almost 9 million people, are now villagized. Despite the crash nature of the 1974 villagization effort, it does not appear that the short run production effects have been as severe as some observers had feared. While production declines can be expected almost all of the resettled farmers were evidently able to plant their crops, indeed they were required to lo so by the the Government. In some areas of the country, however, there has Deen, during the 1974/75 cropping season, a substantial shift away from cash or export crops, particularly from cotton to food crops. Because of the emphasis on self-sufficiency in food production, 1975 has been a period of consolidation for the villagization movement. The Government has also relaxed its emphasis on communal farming in the new villages and farming on individual plots on "block farming" is the norm. The Government is aware that inadequately planned and poorly coordinated villagization has had a negative impact on agricultural production but the decision was made to complete the process in as short time as possible and the resettlement is now largely an accomplished fact. The long-term potential of the new villages remains of course to be seen. Increased demands for social as well as economic services may be anticipated, and indeed are already in evidence. The Government's ability to respond to these demands and to encourage the new village communities to engage in self-help activities when the Government cannot provide the services will be critical to the success of villagization. Maize Production 23. Tanzania's traditional staple maize is produced almost entirely on a smallholder basis. It is particularly important since it is the only food crop marketed commercially on a national scale and in the event of general reduction in food production, unsatisfied demand for other staples increases the demand for maize. In the context of the Government's reordered agricultural priorities (paragraph 20 above) increased maize production has been given prime importance in the Government's "farming as a matter of life and death" campaign. The producer price of maize, which has been increased by nearly 130 percent over the last two years, now approaches import parity (81 percent). In addition and in order to generate a comprehensive and coherent effort to expand maize production the Government has developed a National Maize Production Program. 24. The National Maize Production Program was initiated in 1973. This program, executed by the regional authorities (paragraph 21 above), with the technical support of the Ministry of Agriculture, consisted in 1973 and 1974 of the free distribution of inputs (mainly fertilizer, seed and insecticides) to farmers in the newly-formed villages. In 1974, the  - 10 - program was extended to 13 regions, and appears to have reached approxi- mately 25,000 farmers or 150,000 people. The program, however, suffered from delays in input distribution, a poorly organized and badly informed extension service and from lack of effective management. Consequently, the program did not achieve its aim and it appears that the increased maize production in 1975 resulted mainly from the increase in the maize producer price and the Government's measures to encourage an increase in the area under maize. 25. The Government in preparation for the 1975/76 cropping season has taken, and is planning, a number of measures to consolidate, strengthen and improve the effectiveness of its maize production program paying special attention to increasing yields per area cropped. Extension services are being strengthened through training, a clearer definition of responsibilities and the provision of extension aids. Distribution of farm inputs and the marketing of maize will be improved by the provision of additinnal transport and storage facilities; steps are being taken to expand and improve research activities; and the Government has initiated actions designed to clarify and improve the effectiveness of its input subsidy scheme. 26. Under the National Maize Program, inputs were provided free in 1973 and 1974 since most participating farmers had only very limited financial resources and all previous attempts to institute a credit system for small-scale food crop production had failed. Support for a subsidy scheme was a major recommendation of the recent Bank Agriculture sector report on Tanzania (paragraph 2 above). Although the Government has increased the producer price of maize considerably, it was concluded that additional financial incentives were required if traditional farmers were to be encouraged to adopt new input packages in the initial stages. Furthermore, given the current manpower and institutional constraints in Tanzania, it is not considered possible to assist a significant number of farmers, and hence obtain a large production response, if inputs are pro- vided through institutional credit. In order to ensure that subsidized inputs are not wasted or extravagantly used by participating farmers, the Government has fixed the level of subsidies for the current 1975/76 cropping season at 75 percent of total cost rather than at 100 percent as was the case in the previous two years. Although this requirement for a cash payment means that some farmers will inevitably be excluded, this procedure is considered essential to ensure the efficient use of ferti- lizers. In addition, while continued subsidization of certain farm inputs remains justified subsidy levels and methods of cost recovery have to be reviewed with the objective of gradually reducing the cost to the Treasury (which could amount to as much as T Shs 270 million, $40 million, per year by 1980 if no progress were made in phasing out the subsidy) and eventually eliminating the subsidies. The introduction of the cash payment by farmers of 25 percent of input costs represents a step in that direction. The Government intends to review the level of subsidies each year with a view to gradually phasing them out as farmers  realize the potential of the new input packages and their incomes grow. The Government would consult IDA as part of its maize input price reviews (Section 3.02(a) draft Development Credit Agreement). PART IV - THE PROJECT 27. The National Maize Project has been developed as a response both to the food crisis facing Tanzania and to some oE the recommendations contained in the Bank's Agriculture and Rural Sector Report. In view of the urgent need to increase maize production the project was simultaneously prepared and appraised by the Bank's Regional Mission in East Africa in close cooperation with the Government. Negotiations for the proposed Credit were held in Washington in late November 1975. The Tanzania dele- gation was headed by Mr. Mushi, Principal Secretary, Ministry of Agriculture. 28. An appraisal report entitled Tanzania National Maize Project No.897a-TA, dated December 8, 1975, is being circulated separately to the Executive Directors. A Credit and Project Summary is provided as Annex III to this report. The project, which forms the focus of Tanzania's 1975/76 - 1978/79 maize production program, is fully in accordance with the Govern- ment's policies for this sector. It comprises: (a) Provision of maize seed, fertilizers, insecticides and herbicides to participating villages. It is expected that participating villages would ultimately number about 950 in 13 of the Borrower's 21 regions. In line with the Government's policy of securing as quick a production response as possible, and in accordance with the conclusions of the recent Agriculture Sector Report, participating villages would be selected on the basis of the highest maize production potent:ial. The project regions would include virtually all high potential maize growing areas of Tanzania. (b) The strengthening of extension services through staff training and the provision of adequate transport and extension aids. (c) The improvement of the distribution of farm inputs and maize marketing through the provision of required trans- portation and storage facilities at the village and regional level. (d) Assistance for maize research and for preparation of related projects including a national agriculture development program and the establishnent of a national food grain reserve.  - 12 - (e) The establishment of a Project Servicing Unit, including support for key personnel and the provision of necessary vehicles and a light aircraft, to be responsible for overall project implementation. (f) A pilot scheme to develop methods of improving oxen utilization and for proving suitable ox drawn equipment. 29. The Project would initially provide three standard maize pro- duction improvement packages for all Project areas. Maize production recommendations would be continually reviewed as information becomes available from Project field trials and demonstrations, and as changes occur in the price relatiohship between maize and purchased inputs. Revised recommendations would be incorporated in Project annual work programs (paragraph 35 below). The three maize production packages would consist of (a) Intensive extension to improve time and density of planting using composite seed, and improved weeding and pest control; (b) When Package 1 had been adopted satisfactorily and village maize yields had risen to about 1,500 kg/ha, compared with current levels of about 1100 kg/ha, fertilizers would be introduced equivalent to 50 kg/ha triple super-phosphate, and 100 kg/ha sulphate of ammonia. Some villages in high altitude areas would use hybrid rather than composite seed; (c) In areas most suited to maize production, some villages would move into Package 3 which would use the equivalent of an additional 50 kg/1a sulphate of ammonia, and in most cases hybrid rather than composite seed. Generally, Project villages would move from Package 1 to Package 3 in a sequential manner. This arrangement would ensure an improvement in husbandry standards before introducing fertilizer, and an increase in village incomes from which purchases of fertilizer could be met. However, as little is known about farmers' adoption behaviour, the sequence of introduction of the Packages could be experimented with. Some villages are already at a stage similar to Packages 2 and 3. These would be assisted to improve further their present production levels. 30. Senior agriculture staff from the regions concerned would give short courses in maize agronomy and extension methods to all field assistants and assistant field officers at their local rural training centers (RTC). To assist in arranging suitable training courses in maize, the International Maize and Wheat Improvement Center (CIMMYT) in Mexico would provide a senior training officer for a period of about four weeks. Courses in organization and management would be arranged for all regional and district agricultural development officers, regional,.Pro- ject coordinators and district supervisors. In addition, management seminars for regional and district staff would be arranged to ensure an exchange of views and experience between participating regions. Two maize demonstration plots would be planted annually in each Project village. One plot would be planted and managed by the village school,  - 13 - while the other would be the responsibility of a progressive farmer selected by the village committee. In both cases, the necessary inputs and technical advice would be provided free by the Project. 31. For the transport of the estimated project input requirements and incremental maize production, an additional 90 or so seven and ten-ton trucks would be required. These would be provided under the Project. About 530 villages would be provided with stores of about 200 tons capacity. Stores of this size would be expensive if constructed by contractors. Consequently, the Project would provide construction materials and technical advice, while construction would be carried out by villagers on a self-help basis. The cost of materials for each village store constructed in this manner would be about US$6,000. There is a need also for additional regional storage for maize and farm inputs. The Project would support the construction of storage facilities for about 34,000 tons of farm inputs and 80,000 tons of maize. The precise location of the new regional storage would be determined during project implementation.. 32. A pilot scheme to develop methods of inmproving oxen utili- zation and for proving suitable ox-drawn equipment would be carried out in up to twenty selected villages located in those Project regions where oxen use is most common. Such villages would be provided with an experienced oxen trainer for two years, and up to ten sets of ox- drawn equipment, each including a cart, harrow, plough and cultivator. In addition, the Project would provide oxen to four mechanized agri- culture centers which are being established with UNDP/FAO assistance. The animals would be used for the development anc! testing of new ox- drawn implements, in particular a maize planter mnd interrow cultivator. 33. Government recognizes the need to estaVlish a national grain reserve, for which maize is the most important commodity, and for expanding and modernizing the milling and storage facilities of the National Milling Corporation (NMC). The Project would provide up to 60 man-months of consultancy services to carry out the required pre-investment work and prepare detailed investmient proposals for implementation of a national grain reserve program and for developing NMC's storage and milling facilities. US$180,000 would also be provided over a three-year period for agro-economic surveys, crop trials, land use planning and transport and allowances for the Ministry of Agricul- ture's planning staff and consultants. A long-term national agri- cultural development program would be prepared which is compatible with Tanzania's regional approach to implementing its development effort and directed mainly towards those researc'h, extension and investment activities that are better carried out at a national rather than a regional level.  - 14 - Organization 34. The regional administrations (paragraph 21 above) would assume responsibility for coordination of implementation activities at the local level. They would be primarily responsible for the selection of project villages and the provision of extension services. Each region would appoint a Project Coordinator who would be assisted in each district by a Project Supervisor. It would be a condition of credit effectiveness that these personnel had been appointed (Section 6.01(d) draft Development Credit Agreement). The National Milling Corporation (NMC), which is responsible in Tanzania for purchasing, processing and marketing maize, rice and wheat would, with the regional cooperative unions and primary societies, assume responsibility for the transportation and national and regional storage component. Village level stores would be built on a self-help basis with materials supplied under the project. 35. In order to coordinate overall project activities and to ensure the necessary technical support to the regions a Project Servicing Unit (PSU) would be established within the Crop Production Division of the Borrower's Ministry of Agriculture. PSU would be responsible for control- ling project finances and procurement, providing technical support to regional staff, organizing training programs, coordinating maize production programs, preparing annual work programs which would in turn be approved by the Project Steering Committee (below) and the Association (Section 3.05 draft Development Credit Agreement), and monitoring project progress. PSU would be headed by a Project Manager and would include an Extension Specialist, a Farm Management Specialist, a Financial Controller and a Procurement and Distribution Officer. Appointments to these positions, all of whom, with the exception of the Project Manager, are expected to be inter- nationally recruited, would be made after consultation with the Association (Schedule 2, Part El, draft Development Credit Agreement). In order to ensure overall policy review, guidance and coordination, a Project Steering Committee consisting of senior representatives of concerned government agencies would be established (Section 3.04 draft Development Credit Agree- ment). Costs and Financing 36. The total cost of the project, including taxes (which are expected to be less than one percent of total costs), is estimated at US$38.1 million. The foreign exchange component wculd amount to US$24.4 million or 63 percent of total costs. Details of project cost are included in Annex III. The proposed IDA credit of $18 million would finance 47 percent of project costs. The Arab Bank for Economic Development in Africa (ABEDIA) has approved a con- tribution of $5 million,or 13 percent of total costs,towards the project on a parallel basis. The ABEDIA Loan will be for 20 years, including five years grace, at 2 percent per annum. It would be a condition of Credit effectiveness that conditions precedent to the effectiveness of the ABEDIA agreement had been fulfilled (Section 6.01(b) draft Development Credit Agreement. The  - 15 - Government and farmers would contribute $15.1 million or 40 percent of project costs out of which $6.4 million, representing the cost of on-farm inputs in the first year, are being met from the proceeds of a $12 million USAID agriculture sector loan made in 1975. Onlending and Channeling of Funds 37. Funds for storage and transport ($7.0 million from IDA and $3.3 million from ABEDIA) would be onlent to Tanzania Rural Development Bank for 20 years, including five years of grace, at an interest of 4 percent per annum. TRDB would onlend these funds to the National Milling Corporation, regional cooperative unions, and village cooperatives at 8-1/2 percent for 10 years in the case of storage facilities and for 3 years in the case of trucks. The onlending rate is in line with that being levied for other recently approved Bank Group supported projects in the Agriculture sector and is one percentage point higher than the existing rate for long-term loans charged by TRDB. The 4-1/2 percent margin that TRDB would derive from onlending is sufficient to defray the costs of credit administration and would provide for an accumulation of further funds for relending to priority rural sector projects. 38. Funds for on-farm maize inputs, consultancy services, staff salaries, training, and equipment, materials and vehicles other than for marketing and storage, would be retained by the Government. Maize inputs would be sold to village cooperatives at subsidized prices (paragraph 26 above). In order to ensure the timely availability of funds, including subsidy funds, to meet on-farm input expenditures incurred by the PSU, a Maize Production Inputs Account, to be used exclusively to make pay- ments for the purchase of maize production inputs under the Project, would be established by the Borrower (Section 3.02(b) draft Development Credit Agreement). All proceeds of the sale of maize production inputs under the Project would be paid into the Account as well as such amounts sufficient to enable the PSU to meet expected purchases of maize inputs for each calendar quarter (Section 3.02(c) of the draft Development Credit Agreement). It would be a condition of Credit effectiveness that such an account had been established (Section 6.01(e) draft Development Credit Agreement). Procurement 39. Procurement of all goods, works and services costing in excess of $120,000 and financed by the Credit and ABEDIA Loan would be on the basis of international competitive bidding in accordance with the Association's guide- lines. Local manufacturers would be allowed a preference of 15 percent or the existing rate of duty, whichever is lower. With respect to materials for self-help village construction ($4.3 million), if in the view of the PSU and regional autorities, construction would be facilitated by procuring necessary materials through normal commercial channels close to the place  - 16 - of use of such materials, they shall be so procured and the Borrower shall then procure an equivalent additional amount (expected to be about $1 million) through international competitive bidding (paragraph 3(b), Schedule 3, draft Development Credit Agreement). Contracts for goods and equipment, such as office equipment, bicycles, and services costing less than $120,000 are, in view of their small size, not expected to attract international interest and would be let following competitive bidding in accordance with the Government's normal procurement procedures,which are satisfactory. Thirteen film vans are expected to be purchased at a special discount from UNESCO through the Audio- Visual Institute in Dar es Salaam. Maize seed ($1.4 million) mainly consisting of local varieties would be procured from the domestic seeds industry. Civil works contracts for regional and National Milling Corporation storage totalling $4.5 million would be let after inter- national competitive bidding. For these contracts local contractors would be allowed a 7-1/2 percent preference. Disbursement 40. A schedule of estimated disbursements is included in Annex III. The Association would disburse 100 percent of foreign expenditures on imported incremental maize production inputs (IDA would finance only the amount of inputs which exceed the quantities of such inputs pur- chased and delivered in the previous year) and 80 percent of total expenditures on such items when they are locally produced, 100 percent of foreign expenditures on imported equipment and materials, or 80 per- cent of total expenditures when such items were locally procured; 80 percent of the construction costs of storage facilities for regional and National Milling Corporation's storage; 100 percent of foreign ex- penditures on consultantst services and PSU expatriate staff; and 80 percent of salaries of PSU supporting staff and regional project staff, operating costs of project vehicles and local staff training. It is proposed that up to $300,000 be disbursed retroactively to cover the costs of consultancy services and project unit salaries and equipment since July 1, 1975. These expenditures have been incurred by the Government in view of the urgent need to increase maize production and in an effort to minimize start-up delays. 41. It is expected that ABEDIA would disburse 100 percent of foreign expenditures on imported vehicles or 85 percent of total expenditures when such items were locally produced; 90 percent of total expenditures for the purchase, operation and maintenance of the light aircraft; 100 percent of foreign expenditures for tarpaulins, platform scales and safes or 85 percent of total expenditures when such items were locally procured and 100 percent of the foreign expenditures on overseas training of staff. Up to $200,000 of the ABEDIA loan would be disbursed retroactively to cover the costs of  - 17 - vehicles purchased since July 1, 1975. The Association would review and process documentation relating to procurement and disbursement on behalf of ABEDIA. Benefits 42. The project would increase maize production by about 20,000 tons in year one rising to about 195,000 tons annually at full develop- ment in 1982. This level should be sufficient for Tanzania to attain self-sufficiency in an average year and would imply annual net foreign exchange savings of about $10 million. During the project period the Government plans to establish a national maize reserve of about 90,000 tons and any project production in excess of requirements would be channeled into this reserve. Estimated increases in average annual cash incomes of participating farm families would amount to about 20 percent or $32. The project's internal rate of economic return is estimated at 37 percent. The project is expected to have positive ecological effects. The small amounts of DDT expected to be used under the project are not expected to be harmful but the project would experiment with substitutes as they become available. Risks 43. The proposed project faces a number of risks. The project is part of a large and widespread program necessarily involving a large number of entities and, as such, organizational difficulties can inevitably be expected to occur. There is some uncertainty about the extent to which farmers would be willing to purchase fertilizers and other inputs and to apply the recommended production methods. The technical response of maize yields to the various input packages is also not absolutely certain in all project areas. Furthermore, only limited experience is so far available concerning the operation of the new villages. In designing the project, care has been taken to minimize the impact of these potential difficulties and to ensure maximum flexibility in the light of changing circumstances. In order to simplify bureaucratic procedures responsibility for procurement, coordination, planning and technical support has, as far as possible, been centralized in the Project Servicing Unit. Furthermore, a substantial amount of technical assistance has been assigned to the Unit and efforts have been made to recruit key staff well in advance of project implementation. For example, the Project Manager and his Deputy are already in post. In addition, it would be a condition of credit effectiveness that key Project Servicing Unit staff had been appointed (Section 6.01(c) of the draft Development Credit Agreement). A substantial research element has been included in the project and it is expected that the composition of the input packages and the technical advice given to farmers will be constantly adapted and revised in the light of experience. Even if incremental output from the project were 30 percent  - 18 - below expectation, the project would still show a rate of return of 16 percent. PART V - LEGAL INSTRUMENTS AND AUTHORITY 44. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the recommendation of the Committee referred to in Article V, Section l(d) of the Articles of Agreement of the Association and the draft resolution approving the proposed credit are being distributed to the Executive Directors separately. The draft Development Credit Agreement follows the form previously used for this type of project. 45. Features of the draft Development Credit Agreement of special interest are referred to in paragraphs 26, 34, 35, 36, 38, 39 and 43 of this report. Special conditions of Credit effectiveness include the establishment and staffing of the Project Servicing Unit, the appointment of the Regional Maize Coordinators and District Maize Supervisors, the opening of a Maize Production Inputs Account, the establishment of the Project Steering Committee and the fulfillment of conditions precedent to the effectiveness of the ABEDIA Loan Agreement (Section 6.01 of the draft Development Credit Agreement.) 46. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 47. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments December 10, 1975 Washington, D. C.  ANNEX I Pap 1 of 3 papas taWY DA?A -TNZa AREA MmgnS5 3XIMz 91.5,087 1a4.z.nu.a..im (mid-1973) 14.7 /a Per buof arable land GNP PER CAPITA US$ (ATIAS BASIS) a . 120 !~ 170 A. 310 430j /b DEMORAPHIC'-,2 Cru 'ErFth r.te (P., thousand) 46 0 u82 35 ruFSfdethrrate(per thousand~ 256 ad 1 8 Innfant mortality rate (per thousand live births) 225 26-6 55 3 lif epeatany at birth (years) 384j 13 4.9 /. 65 65 a- Gross reproduction rate/2 .3 2 . Z-a 2.41.6~ Population growth rate 472.:2 3.0 3:246 Population growth rate - urban5 i L Age structure (percent) '2 d ..' a O 15t 50Li s t 5 65 and over , 1O s . 0.9 Ago dependency ratio 0.8 d 91 s . Economic d,P-enAcoCY MAic /j121'11 c j 11 Urban praptlation as perccant of total 4. /c.d. 7 jn. 10 L.a. /1,2 No. of users (9 of earred ,,o-,n) ....L Total labor foraa (thousands) 4.,900 4L 5,600 /4c,.0A 1,0 ' 290L Percentage siployadin agriculture 89 ~j 91 7j 8 c i 7L Paroattaga uon,eplyand ...1. 8 L INGOG DISTRISU71ta PareraT of n-atio-nal inooma rnaaived by highest 5% .31.L 15Lf 28I percent of nati-ati-boo- tasi,ed by nigh.ut 20% . 003 67 Peroent of ntional inoama r ao~eid by lowest 20% .5/5. 10 L37~t Paroant of national banns reonived by loweut 4.0% . U 5. 21. 7ot ii 7 mSTImTOwNu OF LAND OWINESHIP 2 5owned by top 10% of nanro .... 28 HEALTH AND NUTRITION2790 650 Population per physician 20,000 /4d 7910/ 650~ 1,870 L ,0 g Population per nursing perso 8,771. o 6,530 .& 3,700 ~' 1,360 & 1,110 population per hospital bedso 530 4g ~ 700 tfl 810 - 1,050 290 /&_g per ospito coljon supply as 9 of requirements 69 Lt 73 101 103 9.L Poe aepita protein supply, total (grms per dsyYj1 1. T . 1 651.9 L DOf whioh, animsl snd pulse 22 Lx 23 29 19 20 a Deth rate 1-4. years /7......64 . EDUCATION 2 76 8/ 94 Adjusted 8 prisa.ry school enrollment ratio 25 375 67L8a Adjusted saoiay .hool ercllment ratio 3d 9L& 1.13 Tsara f anooing provided, first and esaond level 13 13 13 12 13 L Vocational enr oliset as 9 of sea. sahool enrollment 23 hIa 2 J1.ab 15 Io 7 Adult fl.tarcay rota 9 4.19 g 4 354,,,,ad 92 8 fl pg No. of persons per room (urban) 18't . . Peceet oocpid units withoot piped water ..30 /e.o *.8 so 65 Anoass to a reotetot (as 9 of total population) 4....8 130.1 Percent of rural population connected to e1eatricity .....10 31 CONSUHMPTON 6LiZ 2 Radio- receivers Per 1000 population 2 l4 1/ 07/ o Pasnger rar o,pe 1000 PoPulation 3. P 'a.a 2L3 33. Elec~tric pear aonsusption (kwh p.o.) 1i5 1d 31 lb 78 Lb' 392 41Th j5 Neasprint -osuPtion P.c. kg Per Year 0.1 El 0.1 0.6 /fl 3.3 / ~ 2.9La Noten, Fig-rs re-mfer either in the latest periods or io anon o niroonantal temperatue, body caligts, and the latent yearo. Latent periods refer in prinaiple to distribution by age end eta of nati-na popalatiose. the yearn 19056-60 or 1966-70; the latent ymr in prn AjProtein standards (reQuirmsents) for all nountrites at esteb- .iple to 1960 and 1970. lisbed by iSDA Kaou-onm R-eaarah Service provide for a mininaa I lThe Per Capita aNP estimate to at maket prioro for alowancm of 60 greet of total protein ptr day, and 20 gram of ycra other than 1960,calculated by the ban convermion aimal end pulse protein, of wbiab 10 grams should be anml.l tochniquie as the 1972 World Bank Atlas. protein. Theteastandards are soseahat lmowr thantoeof7 /2 Average nanher of daughters per woman of reproductive grame of total protein and 23 Fete of animal protein at an age. average for the world, proposed by PAO In the@ Third World Food zi Populatton grosith mien ar for the decaden ending in Sarvey'. 1960 and 1970. a Sass etdiee have euggested that.crude deeth ratee of childrnn /L atio of population under 15 and 65 and over to popula- age 1 through 1. may be used ats first approinmation index of lion of agos 15-6i for age dependenay ratio and to labor malioutritioi. force of ages 15-61. for eoononio dependenay ratio. /8 Fernatae enrolled of marreaponding population of achool age L FAO refer,ence staodordn represwt phyrsiological re- am defined far mah o0antry. quira_ato fo rnmal activity and health, taking aExcluding forests and pastures; LA 1972; IA 1957; Id. Mainland Tanzani.; /. 1967; If UN estirste, 1965-70. Went Malaysia; /h 1960-72; Aj 15 gnaetted townships, 1957-67; 4I 2,000 or mer inhabitasnta; ak Seoul City and -uicipolities of 5,000 or sur ichabitsnta; /I African population; /. 1969; A~ 1973; /- 1971; La 33 goo.:tntd townnoips; La i6 gaetLted tosmnshipa; /r Gasetted armas of 10,000 or mare inhabil,ants; L 1970-75 UN stisote; /t Households; La Fatis of population under 15 and 65 and over to total-laborlorae; /v Number on the register, sot all working ic the country; /v 1971.; /x 1961-63; ls~DaEstimate;i Ia 1961.66; /da, 1968; oh Secondary -chosling in-ludee teacher-training at the third level; /5 eiition unkowow; _551.5 years and over; '7i 1966;/af 195, Zan zibar; lea 19-62-69; /.h Including vehicles operated tw' pollee and other govecnusotal seaurity oriuations; let Regi.sterd only; /a,j 1963; /5k Water piped inaida; /L~ 10 years and over; /5m 1962; /5.161 -bniWr outside Id SUNWiti te; /R Munter of roses includes rose use d only for prof6sional or b.niness purposes; lar 1-cbodlug light conmercia1 vehicles. a- M yalasi Is selected an the sbi-acive country because its population to csnparhlt in sins and its ec.onoic d-vlopsent Os --vrei stops aosad. R7 Septenher 16, 1975  ANOVE I Tager20o 3 Pages SflONOMIO fflVIDPMENP DATA (A.mount.s In millions of U2.S. dollars) Actual Projected 19 67- 1973 - 19 75 - 1981 - 17 95 18 a 973 19 74 195 1761 9 1972 .1974 1.980 19859 5 98 NATIONAL ACCOUNT(S ___ ___ 1___ ____ __- At 1973 Prices and Exchange Rates Average Annual Growth Rates As Percent of GOY Domestic Product 1819.2 1863.9 1952.4 2035.2 2450.1 4.9 2.5 4.6 5T.4 100.0 104.1 104.0 .,alris from Terms of Trade() - -29.1 -77.6 -70.1 -95.0 - -4.1 -4.0 Gross Domestic Income lrr~~~~1=92 IuTr.s8 f - MMW. I rI 'M3. 2 , 4.5 0.9 4.7 5.4 Irn-. rm. rum Lmport (incl. NiFS) 519.8 517.4 419.1 424.3 527.4 6.8 -0.5 4.7 6.5 28.6 22.4 22.4 Exorts imot capacity) 417.0 309.5 276.9 314.1 384.3 2.6 -25.6 4.4 7.1 22.9 14.8 16.3 Resource Gap 102.8 207.9 fTM i T!7l -.T. -377 -7T -fl Consumption Expenditures 1538.6 1635.4 .1597.1 1637.6 1941.2 4.8 6.3 4.0 5.3 84.6 85.2 82.4 Investment . (mnci. stocks) 406.6 407.3 419.8 437.6 557.1 8.4 0.2 5.8 5.6 22.4 22.4 23.7 Domestic Savings 280.6 199.4 277.6 327.5 414.0 2.7 -28.9 8.3 4.3 15.4 14.8 17.6 National Savings 286.8 207.1 270.3 323.9 374.1 3.4 -27.8 6.7 3.9 1.5.8 14.4 15.9 MERCHANDISE TRADE Annual Data at Current Prices As Percent of Total Tmports il 17 = ia I Vi I/) L5 Capital goods 125.2 135.1 185.7 168.6 191.0 329.6 29.4 25.7 29.3 Tntermediate goods i3.fuels) 154.4 169.4 189.2 209.1 225.8 378.2 36.8 31.9 33.7 Fuiels and related materials 41.3 53.1 148.5 170.4 194.9 301.1 11.6 26.0 26.8 of which: Petroleum (41.3) (53.1) (148.5) (170.4) (194.9) (301.1) (11.6) (26.0) (28.8) Consumption goods 82.9 102.2 215.1 108.0 76.0 114.8 22.2 16.5 10.2 ToGtal Merch. TTmpor-ts (cif) - . 43Th 71U3