Upper Volta - Rural Roads Project

CfRCULATING COPY FILE COPY CIRCEG S DTSESK TO BE RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use Report No. P-1628a-UV REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UPPER VOLTA FOR A RURAL ROADS PROJECT June 16, 1975 This report was prepared for official use only by the Bank Group. It may not be published, qL:oted or cited without Bank Group authorization. The Bank Group does not accept re.;ponsibility for the accuracy or completeness of the report.  Currency Equivalents Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 225 CFAF 1 million = US$4,4h40 Fiscal Year: January 1 - December 31 System of Weights and Measures: Metric Metric = British/AS Equivalents 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 2 = 0.62 mile (mi) 1 square Idlometer (km ) = 0.386 square miles (sq mi) 1 metric ton (m ton) 2,204 pounds (lb) Abbreviations and Acronyms AAVV Autorite pour l'Am6nagement des Vallees des Voltas DPW - Directorate of Public Works DRF - Drought Relief Fund FAC - Fonds d'Aide et de Cooperation FED - Fonds Europeen de Developpement HAER - Service de l'Hydraulique et de l'Amenagement des Espaces Ruraux MPW - Ministry of Public Works, Transport, and Urban DevelopmenL ORD - Organisme Regional de D6veloppement RDF - Rural Development Fund RMWA - Regional Mission in Western Africa SERS - Service d'Entretien des Routes Secondaires UNDP - United Nations Development Programme USAID - United States Agency for International Development  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF UPPER VOLTA FOR A RURAL ROADS 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$7.5 million on standard IDA terms to help finance a rural roads project. PART I: THE ECONOMY 2. The basic problems of economic development in Upper Volta 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 March/April 1974; its draft report was discussed with Government for comments and will be distributed to the Executive Directors shortly. The mission's main findings are incorporated in this report. Background 3. With a GDP per capita of about US$70 in 1972, Upper Volta is one of the 25 "least developed countries" identified by the United Nations. The country's economic structure is typical of a situation of extreme under- development: agriculture and livestock provide a living for over 90 percent of the population, but, with very low productivity, account directly for less than 50 percent of GDP; manufacturing, closely linked to agriculture, provides only 10 percent of GDP; the remainder comes from the service sector, which includes the Government; exports, usually a dominant growth factor in most African countries, represent only between 7 and 9 percent of GDP; despite modest investment rates (8 to 10 percent), the resource gap was about 8 per- cent of GDP until 1971, nearly doubled in 1972, and reached an unusually high level of 20 percent of GDP in 1973. 4. A number of years of sparse rainfall since 1968 culminating in a severe drought in 1973 have resulted in a serious setback in agricultural production and overall economic stagnation. This is all the more serious be- cause in the years since 1960 growth had been very limited, probably not exceeding one percent per year per head. Compared to 1969/70 agricultural production declined by 15 percent in 1970/71 and by 17 percent in 1972/73. The most serious crop failures and livestock losses occurred in the northern and central parts of the country, thus accentuating existing income dispari- ties between regions. Emergency food imports were about 40,000 tons in  - 2 - 1971/72, 60,000 tons in 1972/73, and over 100,000 tons in 1973/74. Climatic conditions in 1974 were normal, and crop production for 1974/75 should regain the levels achieved in 1969/70. The drought has brought out more clearly than ever the basic problem facing Upper Volta's rural sector: uneven popula- tion distribution with respect to available resources throughout the country and excessive population pressure in the central region (the Mossi Plateau); about 61 percent of the total population, or 3.5 million people, live in this region which comprises only 32 percent of the total area and is much less favorably endowed than the south and southwestern regions from the view- point of both rainfall and soil quality. This explains why the bulk of the migrants to other parts of the country and to neighboring countries come from this region. Financial Developments 5. Despite the persistently large trade deficit, the overall balance of payments has been in surplus over the six years, 1968-73. Even in 1974, the Central Bank's provisional figures show a surplus of US$10 million. Net foreign assets tripled between 1968 and the middle of 1974 to reach over US$70 million or about 8 months worth of imports of goods and non-factor services. This was made possible by the increasing flows of both external aid and private transfers, mainly Voltaic workers' remittances from the Ivory Coast. In February 1974, the prices of refined petroleum products doubled at delivery point in Upper Volta. Though consumption of petroleum products is small, representing 6 percent of total imports (1972) and a very low percentage of all the inputs used in the economy, they are the only source of modern energy in the country and, therefore, little room exists for reducing consumption. The hydroelectric potential is under study, but seems to be very limited. Higher petroleum prices, combined with other rises, particularly in import prices and in local wages, have set the economy on an inflationary path, which is in sharp contrast with the past. As a result of these develop- ments, effective April 1, 1974 most workers received wage increases ranging from 3 percent to as much as 38 percent. 6. Over the past six years the Treasury's liquidity position has re- mained comfortable as a result of three factors: a policy of strict budget- ary austerity applied since 1967 by the military regime, the continuation of French budget subsidies, surpluses accruing from autonomous public institu- tions, especially the Price Stabilization Fund for Agricultural Products and special aid received in connection with the drought. The Government's current budget turned from a deficit of CFAF 200 million in 1966 into a sur- plus of CFAF 300 million in 1967, and since then a surplus of between CFAF 300 and 900 million has been generated every year. The Government was thus able to liquidate the stock of unpaid bills by 1969, and the public sector as a whole has been able to gradually build up substantial reserves with the Central Bank. These were negative in 1966 and close to CFAF 10 billion or 4-5 months of imports in mid-1974.  -3- 7. This remarkable financial performance has been achieved at a cost, however, with undesirable consequences that have, to some degree, hindered economic development in three related ways: first, by excessively cutting back operating funds of the Government's economic services; second, by limiting Government agencies capacity to participate in the financing of new development projects; third, by making more difficult the needed follow-up on a number of projects financed largely by external aid. Thus, while it is essential for a country like Upper Volta to control carefully current expen- ditures, it would seem nevertheless that the time is opportune now for a more aggressive and development-oriented expenditure policy. The first manifest example of this new orientation is the establishment of a new entity, the Caisse Nationale de Depots et d'Investissements, which is designed to mobilize savings from both public and private bodies and channel them into economically and financially profitable undertakings. This institution started operations in January, 1975 and has already committed CFAF 2.5 billion for development projects mainly in the industrial and public utilities sectors and the roads sector. Foreign Aid 8. Over the 12 years from 1960 to 1972, foreign aid disbursements totalled about CFAF 91 billion ($360 million) or an annual average of $30 million. About 90 percent of total aid disbursements have been grants and the remainder loans, of which 90 percent on concessionary terms. Capi- tal aid has constituted the largest component accounting for about 65 per- cent of total aid, followed by technical assistance (20 percent). 9. Foreign sources have financed more than two-thirds of total actual investment expenditures under the first Development Plan (1967-70), and are expected to finance about four-fifths of total estimated investment (CFAF 63.2 billion) under the second Development Plan (1972-76). The major 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 have provided between 1960 and 1972 about 75 per- cent of all foreign aid to Upper Volta, principally in the form of grants. French aid has been quite diversified; for example for the period 1969-73, about half the total was capital aid for specific projects; one fourth, technical assistance; the remainder, "equipment grants" to the Government's budget. French capital aid in 1972 was distributed as follows: infrastruc- ture (65 percent), production development, i.e., agriculture (26 percent), general studies (16 percent), and social equipment (15 percent). FED aid has been entirely grant, mainly for capital projects. Highest priority was given to agriculture (52 percent) and social sectors (42 percent) in the first FED (1958-1963); to road construction (about half) in the second FED (1964-68); to some large agro-industrial projects, such as the sugar plant at Banfora in the third FED (1969-74). IDA is gradually becoming one of the main sources of aid with total commitments as of May 31, 1975, of $39.7 million (not including this project). Other aid agencies and countries with sizeable programs now include UNDP, USAID, and the Federal Republic of Germany.  -4- 10. Outstanding external public debt at the end of 1973 was US$120 million, including an undisbursed amount of US$89 million. This figure includes a loan of $44.5 million from the People's Republic of China. The status and terms of this loan are not known as yet. The ratio of debt service payments to exports of goods and non-factor services was about 6 percent in 1973, and is not expected to vary much in the near future. The Association's share of total external debt (including undisbursed) at the end of 1974 was about 18%. The Association only began lending to Upper Volta in 1969 and therefore its share in debt service is still insignificant. Development Policies and Prospects 11. The three plans, 1966-1970, 1971 (interim), and 1972-76 undertaken so far have generally been well conceived, well oriented documents taking a realistic view of the country's meager resource base. As the First Plan, the current Plan (1972-76) is essentially a set of sectoral projects, and its target is very moderate, i.e., an annual real growth rate of GDP of 3.5 percent. The Plan correctly assigns highest priority to rural development and in this sector, specific attention is paid to a program for the development of the river valleys following the Riverblindness eradication campaign that effectively started at the end of 1974. The Government also attaches high priority to the exploitation of manganese deposits in the northern regions, an undertaking that would require construction of a rail link of 350 Km. between Ouagadougou and the prospective mine at Tambao. For the first two years of the Plan, 1972 and 1973, financing commitments reached almost 100 percent of targets, while projects execution met about three-fourths of the objective, which should be considered as a relatively good performance. Ex- ternal financing of capital expenditure has apparently not been the major obstacle in carrying out the Plan so far; on the other hand, lack of operat- ing funds, limited administration capacity, inadequate preparation of pro- jects, and most recently adverse external factors as diverse as drought, world inflation, and delays in deliveries of material and equipment from overseas, are very real obstacles to the smooth execution of projects. 12. Foreign capital and technical assistance will continue to play a decisive role in the development of Upper Volta. The economic mission's estimates show that a moderate increase in the real value of foreign aid, relative to the 1972 level, should occur over the next six years (1975-1980), and that this should be sufficient to meet the costs of economic expansion at a rate -- about 2 percent per annum of GDP growth per capita in real terms -- which is considered consistent with the country's absorptive capacity in the medium run. However, if this aid is to be truly effective, there will be need for better coordination within the Government and for some relaxation of present budgetary limits over development expenditures. On the other hand, foreign aid should continue to be provided on concessionary terms, in view of the present level of poverty of the country and its limited growth poten- tial. External debt service at present absorbs about 6 percent of Upper Volta's export earnings, and although this figure is fairly low in absolute terms, it is high in relation to the country's very limited savings capacity. Although Upper Volta should be expected to make a more significant contribu- tion to the financing of public investment, this will necessarily remain modest, and external lending agencies must continue to finance a high pro- portion of total costs, including local costs of development projects.  - 5 - PART II: BANK GROUP OPERATIONS 13. To date the Bank Group's contribution to Upper Volta's development has consisted of eight IDA projects totaling $39.7 million on which a little over US$7.65 million has so far been disbursed (Annex II). The first tele- communications project, for which a credit of US$0.8 million was made in 1969, was completed in September of 1974. The West Volta Cotton project, for which a credit of US$6.2 million was made in 1970, has not proceeded as well as planned mainly because of drought conditions which led farmers to favor food crops over cotton growing. Linked with this was a credit of US$2.8 million approved in 1972 for upgrading to gravelled surface two roads in the project area; an increase of US$1.35 million in the amount of this credit was approved by the Executive Directors in March 1974 to take into account increases in project cost due to currency realignments and to cost overruns on the road construction component. The rural development fund project, for which a credit of US$2.2 million was approved in 1972, is now making some progress after a slow start resulting from delays over project prefinancing and staff appointments; a similar project for Drought Relief (US$2.0 million) was approved in December of 1972. Further 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. The Bougouriba rural development project (US$8 million credit approved in June 1974) has been delayed by difficulties in recruiting expatriate staff, but these are being overcome, and the project should be started satisfactorily in the near future. Finally, the Livestock Development Project (US$9.0 million) was approved by the Executive Directors on May 27, 1975. 14. 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 livestock on which the bulk of the population depend for a livelihood. Some basic infrastructure is required for the operation of the economy, and the IDA projects for telecommunications, and road construction and road better- ment are designed to help in providing this. For the rest, IDA lending is directed primarily to 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. Within this broad strategy, the campaign for the control of riverblindness in the Volta River Basin, for which the Bank has been mobilizing the necessary external financing, 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 eventual financing of suitable projects in this field. Meanwhile, a special unit has been created with the assist- ance of the French Government to prepare schemes for the development of some of the river valleys. 15. In addition to the proposed project, a number of projects are under consideration for IDA financing. Consultants are currently preparing and  -6- evaluating the West Volta Cotton Project with a view to the preparation of a follow-up project which would probably take the form of an integrated rural development project. A second Rural Development Fund operation and additional highway financing based on studies carried out under the earlier project (Credit 316 UV) are further possibilities for the next two years. PART III: ROAD SECTOR Roads and Agricultural Development 16. As stated previously (para. 3), the country's economy depends on agriculture which provides a livelihood for more than 90 percent of the population. Agricultural development is however limited by three major factors: sparse rainfall, ranging from 1,000-1,300 mm annually in the south to only about 500-800 mm in the north; generally poor soils, except for some regions in the south and west; and the prevalence of debilitating diseases, in particular bilharzia and onchocerciasis (Riverblindness), which affect large segments of the population. In addition to the constraints imposed by nature, one of the primary factors inhibiting the development of agricultural production is the poor condition (due primarily to inadequate maintenance) and in many cases the total absence, of rural roads. The Marketing System 17. Agricultural production falls into two main categories, crops grown for export, mainly cotton and groundnuts, and those grown for domestic con- sumption, primarily cereals; the mechanism for marketing and price-setting varies according to these categories. In the case of export commodities, producer prices and exporter margins are officially set by the Caisse de Stabilisation des Prix des Produits (CSPP), and the products are marketed mainly by private traders who are licensed by CSPP, and who sell to exporters. The impact that may be expected from road improvement in this case is limited to the savings in transport costs. With respect to the marketing of cereals, total production of which accounts for about 80 percent of the country's agri- cultural output, the situation is different and road improvement would have a much wider impact. Minimum producer prices for cereals are set by the Ministry of Finance prior to the marketing season, but except for this restriction, products are sold freely. Private traders predominate and competition prevails in the most accessible areas. In regions where poor road conditions allow limited access, the pattern is different; in such cases, the unreliability of transport and the resulting high costs of the service tends to discourage traders from collecting produce, and farmers are conse- quently less inclined to generate marketable surpluses. The lack of competi- tion means that the few traders who do enter these areas to collect produce derive high profit margins. In these circumstances, road improvement should both increase producer prices commensurate with the reduction of transport costs to the market and generate substantial production increases.  -7- Highway Network and Traffic 18. For administrative purposes, the road system is divided into two categories: classified (about 8,700 km) which are grouped into national, departmental, and regional roads; and unclassified (about 7,800 km) which consist only of tracks. Functionally, the system is divided into trunk roads and rural roads. For the purpose of this project, the rural network consists of departmental and regional roads, and tracks. 19. The network of trunk roads (about 4,450 km, of which 575 km paved) radiates from the capital city Ouagadougou and the main commercial center Bobo-Dioulasso, and is generally adequate for current needs. The majority of the unpaved roads are gravel-surfaced and are considered to be of all- weather standard, but sections are often closed to heavy traffic for short periods after major rains. The rural roads are essentially dry-weather facilities which become impassable during the rains; a large number of these roads have deteriorated over the past decade due to lack of proper mainte- nance. Road Transport Industry 20. The road transport industry is highly fragmented, consisting of one large fleet operator and many very small firms or owner-operators. The industry is supervised by the Transport Division of the Ministry of Public Works, Transport, and Urban Development (NPW) but there are at present no significant barriers to entry or other regulations inhibiting growth. The bulk of goods traffic in the country is carried by an estimated 8,100 heavy vehicles; on rural roads, small vehicles continue to account for much of the commercial traffic. Highway Administration 21. Within the Ministry of Public Works, Transport and Urban Develop- ment (MPW), the Directorate of Public Works (DPW) is responsible for the planning, design, construction, and maintenance of roads and bridges. DPW is divided into four divisions for planning and design of new works; mainte- nance of national roads; equipment and mechanical workshops; and the newly established division for rural roads (SERS). DPW also operates a technical training school in Ouagadougou (Centre de Formation des Techniciens des Travaux Publics) for foremen, mechanics, and operators. 22. DPW's maintenance division which is responsible for national roads has been supported over the past several years by about US$5.0 million worth of highway equipment provided by FAC which covers most of its needs. Mainte- nance of rural roads is the responsibility of local authorities, but they have had neither the funds, equipment, nor personnel necessary to undertake the work required. Responsibility for these roads has now been taken over by SERS (established in January 1975).  - 8 - 23. SERS has four sections for administration, studies, construction and improvement, and maintenance. SERS will rely for the establishment of priorities of rural road construction and planning of annual programs on a Bureau of Planning and Programming (Development Credit Agreement Section 3.02) to be created within DPW. The Bureau will serve as a liaison between the Ministry of Public Works and the Ministry of Planning, and will be respon- sible for the country's entire road network, primarily for: (i) collecting and evaluating traffic and inventory data on a permanent basis; (ii) formulating and coordinating with the various Government agencies the priorities for road improvement; and (iii) analyzing sector issues for developing transport policy recommendations and future investment plans. The Government has requested the United Nations Development Programme (UNDP) to help establish the Bureau, and to provide two experts for about three years, as well as overseas fellow- ships for local staff. UNDP has indicated its willingness in principle to provide this assistance, and would wish the Bank Group to act as executing agency. Early establishment of the unit is important to improving DPW's insti- tutional capacity. Assurances were obtained from Government at negotiations that the Bureau will be established not later than June 30, 1976 (Development Credit Agreement Section 3.02), the expected starting date for the physical implementat'on of the project. The receipt of a firm commitment from the UIDP or such other source of technical assistance as shall be acceptable to the Association to provide the borrower with the technical assistance needed to establish and maintain the Bureau of Planning and Programming referred to above, is a condition of effectiveness of the project. (Development Credit Agreement, Section 6.01). 24. Most of DPW's foreign assistance staff is provided by FAC; there are at present 31 FAC experts at various levels, including three Division Chiefs, some accountants, and several highway technicians supplementing the 84 local staff. The Government is presently making a major effort to train Voltaics to take over positions in DPW now held by forelgn staff. Financing Highway Maintenance 25. Maintenance of national roads is financed through allocations frorm a Road Fund established in 1968, as well as through supplementary appropria- tions from the current budget, and by contributions from FAC. Total alloca-- tions to DPW Lor this purpose ranged from CFAF 550 million (US$2.5 million equivalent) in 1968 to CFAF 693 million (US$3.1 million equivalent) in 1974. 26. According to the law establishing the Road Fund, 59 percent of all Government revenue from taxes, duties, and other levies on gasoline and diesel- oil are to be allocated to the Fund and used exclusively on the national net- work. Revenues increased from US$5.2 million equivalent in 1970 to US$6.1 million equivalent in 1974, representing about 10 percent of the current budget. However, the Ministry of Finance, in line with its general policy of fiscal austerity, has not been making allocations to the Road Fund as stipulated by law, and between 1970-74, allocations ranged between only 46 percent and 57 percent of the revenues accruing to the Fund. The reduced allocations have not been detrimental to the national road network and the Association feels that they were justified given the priorities created as a result of the drought.  27. For maintenance of rural roads, the annual allocation to DPEW on termination of the proposed project should be about CFAF 200 million (US$0.9 million) to assure effective operations. This additional expenditure for maintenance of rural roads would not appear to be an excessive burden on public finances and could be met from the revenues from fuel taxes which, as indicated above, are only partly used for the maintenance of national roads. During nego- tiations Government agreed to allocate CFAF 200 milllon for rural road maintenance in the first year after project completion, and that this amount will be aug- mented in line with cost increases, and adjusted to reflect the evolution of maintenance requirements on the rural road network (Development Credit Agree- ment, Section 4.04). Although the initial financing requirements of the feeder road maintenance program will not initially be an unbearable burden on public finances, it is not negligible in comparison to the requirements of the national network and could conceivably increase very substantially as the scope of the feeder road operation increases. Alternative sources of revenues should there- fore be sought. They could possibly come from the budget of the local communi- ties who will directly benefit from the feeder road improvement maintenance program, or alternatively the local communities could participate in the execution of the work through self help programs. In addition to providing relief to the public finances these alternatives would ensure that local communities are committed to the feeder road program. The Government will review these alternative financing methods and discuss its findings with IDA no later than June 30, 1976. The Road Construction Industry 28. Since 1968, an average of about CFAF 2.5 billion (US$11 million equivalent) has been spent on road investments. All major contracts have been carried out by foreign firms, many of which operate throughout West Africa. There is only one local contractor of any importance involved in road construction works, and his firm's activities are limited to supply and haulage of materials, and construction of culverts. On the other hand, 15 domestic entrepreneurs who have the potential to carry out some of the civil works called for in the project, had contracts with DPW in 1973. The Government will use local contractors as widely as possible in carrying out the annual rural roads improvement program (see para. 36). Training of Local Entrepreneurs 29. To help develop the domestic industry, the Government in 1970 created the Office de Promotion de }'Entreprise Voltaique (OPEV) and gave it responsibility for training and assisting the management of small- and medium-sized domestic enterprises. OPEV has a training center which provides courses in accounting, management and elementary technology for home construc- tion; about 275 Voltaics have been trained so far. 30. Since its creation, OPEV received technical and financial assistance from France through AFCOPA (Association Francaise de Formation de Cooperation  - 10 - et de Promotion Artisanale) (CFAF 180 million); from Germany (DM 925,000 or CFAF 85 million); and as of February 1975, from UNIDO (US$530,000 or CFAF 119 million). PART IV: THE PROJECT 31. A report entitled "Appraisal of a Rural Road Project" (No. 738-UV) is being circulated separately. A credit and project summary, including a breakdown of costs is contained in Annex III, and the project area is shown on the attached map (IBRD 11504). The project is based on a study financed by FAC and carried out by BCEOM (France) in 1972 and on additional project prep- aration done by RMWA. A field appraisal took place in December 1974 and negotiations were held in Ouagadougou from May 21, 1975 through May 24, 1975. The Voltaic delegation was led by His Excellency, MIahamadou Ouedrago, Minister of Public Works, Transport and Urban Development. The Project Area 32. The proposed project is concentrated in the West and South of the country, on the Mossi Plateau and in the Sahelian area. There is a marked regional bias towards the agricultural development frontiers in the areas of the West Volta, the White Volta and Banfora and Bougouriba. There are 2,100 km of existing rural roads to be maintained under the project and 1,200 km of roads to be improved. Project Description The proposed project would cover a three-year period and consist of: (a) Improving and subsequent maintenance of about 1,200 km of rural roads, and maintenance of about 2,100 km of existing rural roads; (b) strengthening of SERS through technical assistance to MPW for implementation of the above road program, and procurement of highway equipment; and (c) consulting services for an evaluation study of the impact and effectiveness of road components included in agricul- tural and rural development projects financed by the Association over the past five years.  Project Execution 34. Physical execution of the project is expected to start in mid-1976, and to take about three years to complete. DPW will be responsible for over- all execution. SERS will submit to the Director of DPW annual work programs prepared by the Bureau of Planning and Programming in coordination with SERS' studies group. DPW will present this program for approval to an Interministerial Technical Committee (ITC) which the Government plans to create shortly. It is intended that ITC will be chaired by the Minister of Public Works and consist of representatives of Ministries and local agencies which have a direct interest in rural roads; ITC will be similar to a committee which was created for the Drought Relief Fund project, and which is functioning satisfactorily. The Government has provided assurances at Credit negotiations that ITC will be established not later than June 30, 1976 (Development Credit Agreement, Section 3.04(a)). Once SERS' annual program is adopted by ITC, it will be submitted to the Association-for approval; the Association will satisfy itself that the roads selected for improvement meet agreed criteria (Development Credit Agree- ment, Section 3.04(b)). 35. In order to create a legal basis for budgetary appropriations for improvement and maintenance works, all roads included in the project which are not yet classified must be upgraded into this category. Accordingly, the Government provided assurances at negotiations that it will fulfill the required administrative and legal procedures for classifying such roads. (Development Credit Agreement, Section 4.03). 36. Road improvement and maintenance works will be carried out by SERS' own forces, with some support provided by contractors and community self- help programs. In view of the scattered nature of the operations and the flexibility required in conducting them, this method of execution is expected to provide the lowest cost solution. Contractors (most likely small domestic entrepreneurs) would be involved in the construction of minor works, mainly drainage and crossing structures, and in haulage of road surfacing materials. (See para. 41). 37. Regarding the proposed community action programs, basically similar labor-intensive work methods were used extensively in execution of the RDF/DRF projects, but the degree of participation of the population as well as the technical results were uneven among the various project areas. In the present project, labor-intensive activity can be applied most effectively in day-to-day patching and repairs, clearing of ditches and culverts, and minor earthworks. The extent to which SERS intends to make use of labor-intensive methods, local contractors and self-help schemes will be described in the work program to be submitted to the Association for its approval (para. 34). 38. Consultants should be engaged in time to permit them to a start on the evaluation study not later than September 1976. (Development Credit Agree- ment, Section 3.03). SERS will be assisted by the Bureau of Planning and Programming in supervising the study.  - 12 - Training 39. Although the proposed project does not finance a specific training component, it does provide a medium for the development of a wide range of technical skills. To carry out the project SERS will require about 120 foremen, mechanics, plant operators, equipment overseers, and laborers; these personnel would all be recruited and trained locally at DPS's technical training school in Ouagadougou (Centre de Formation des Techniciens des Travaux Publics). In addition, the duties of the technical assistance experts under the project would include on-the-job training of qualified local counterparts. Cost Estimates and Financial Arrangements 40. The total cost of the project net of taxes but including con- tingencies is US$8.5 million. The proposed Credit of US$7.5 million will finance 88 percent of total project costs net of taxes, i.e., all the foreign costs (US$6.8 million) and US$0.9 million equivalent of the local costs. The remaining local costs of the project (US$1 million equivalent) plus about US$1.7 million equivalent in taxes, will be provided by the Government. Procurement and Disbursement 41. Equipment, materials, and spare parts and supplies amounting to US$4.1 million will be procured on the basis of international competitive bidding in accordance with Bank Group guidelines. Items which would not be bulked into packages costing US$40,000 equivalent or less and which would not be sufficient to attract the interest of foreign bidders could be purchased through local suppliers in accordance with Government competitive bidding procedures acceptable to the Association. Manufactured items in this category are available from local representatives of international suppliers, service is adequate and prices are competitive, the total amount of such purchases would not exceed US$250,000. Contracts for selected minor works (mainly drainage and crossing structures) and haulage of materials, will be awarded on the basis of competitive bidding advertized locally following procedures which are acceptable to IDA. A small part of project cost (US$0.7 million) would be for staff salaries and operating costs which are not suitable for competitive bid-- ding. Studies will be executed by consultants selected in agreement with, and under terms of reference and conditions satisfactory to the Association. 42. Credit funds will be disbursed as follows: (a) 100 percent of c.i.fL. costs (Bobo-Dioulasso or Ouadougou) of imported equipment, spare parts, and materials; (b) 100 percent of foreign expenditures for consulting services and technical assistance;  - 13 - (c) 50 percent of total expenditures (net of taxes) for direct operating costs for betterment and maintenance works by SERS' forces; and (d) 80 percent of total costs (net of taxes) of works by contractors. Benefits and Justification 43. The economic justification of the project rests on two complemen- tary factors: favorable conditions for road construction and low traffic volumes. The first element results from the generally easy terrain in the country and the abundance of natural construction materials which make it possible to achieve major road improvements at very low cost. Traffic volume is low and goods generally move in small vehicles, thus transport costs are high; as a result, any road improvement tends to have a substantial impact on the level of transport costs. The combined effect of the above factors implies that relatively small expenditures on improvement and maintenance of rural roads can be expected to have a significant impact on transport condi- tions and in turn on agricultural production. 44. Institution-building is of primary importance, and the component included in the project represents a major benefit which cannot be quantified. It consists of: (i) establishment within DPW of a division for improving and maintaining rural roads; and (ii) establishment of an ITC for coordinating the development of agriculture and of rural roads. Also a Bureau of Planning and Programming would be created at the level of the DPW. 45. The overall economic justification for the improvement works will become available only as project execution progresses and specific roads are selected; for roads which have been identified, a rate of return of between 10 percent and 18 percent has been ascertained. All roads selected will have to yield an economic rate of return of at least 10 percent. 46. The economic justification of the maintenance component of the project is based on vehicle operating cost savings only. It ignores any attributable indirect benefits resulting from induced agricultural develop- ment. The computed economic return is therefore very conservative, ranging between 10-18 percent, depending on assumptions made about the rate of road deterioration with no maintenance.  - 14 - PART V: LEGAL INSTRUMENTS AND AUTHORITY 47. The draft Development Credit Agreement between the Association and the Republic of Upper Volta, the recommendation of the Committee provided for in Article V, section 1(d) of the Articles of Agreement of the Association and the text of a Resolution approving the proposed Development Credit, are being distributed to the Executive Directors separately. 48. The draft Development Credit Agreement conforms to the normal pattern for credits for highway projects. Special features of interest are referred to in paragraphs 23 through 38 of this report. The receipt of a firm commitment from the UNDP or such other source of technical assistance as shall be acceptable to the Association to provide the borrower with the technical assistance needed to establish and maintain the Bureau of Planning and Programming referred to above, is a condition of effectiveness of the Project (Development Credit Agreement, Section 6.01). 49. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI: RECOMMENDATION 50. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments June 16, 1975 By B. Chadenet  ANNEX I page 1 of 3 pagea OW0RY DATA - UPR VOLTA PaPIATION M5I?T 2t, 00 ko 2 5 61 dlli~~~~on (ald-1972 ) 57 Per helof arabi lend SOCIAL INDICAYORS Upper Volta HS fe- hur ntris. mm P5R CAPIU us* (ATn5 &ASI,) 70 j 70 180o Z 260 I DMDGRAPHIC Crude birth ratO (per thousand) L 9 49 504 50 /c 4 d 1 lc.d 4. Crude death rate (per thousand ) 31 2 29 27 23 c 22 Infant mortality rate (Per thoasand live birth.) 182 ..9 156Ij Lif e OXPcta.cy at birth (yar) 32 35 .d 37 /c.d 41 /.d 4 2 Grosa reproduction rate /2 3.2 7..d 3.3 L1d 2 9 380 Population growth rete a 1.9 2.1 E 21 f 1 9 7 21 Populotion growth rate - arban h 8 Age structure (percimt) 5d 0-11 L2A 43 49 48 42 15-61h 55 ( 54 149 51 /1 5i' 6c end over 3 1k 3 2 5 Age depeodency ratio A 0. 0.9 1.0 1.0 0.9 icononic dependency ratio 0.9 0.9 1.0 1.6 I.? Urban population as peromnt of tota1 CSL 11 10 /JL 29 a FeilY plsnningl No of accptors umalative (thua.) No. of asirs (5 of marriad easen) Total labor force (thounda) 2,500 3,000 0 2,800 530 4p 1,600 /d., Percentage ewploy.d in agriculture 9? 89 /d .. 85 1 73 Percentage unaoP10yed 92 3 /d d 73 INCOMN DISTRIWJTt1ON Peracnt of national inoame roceined by highest 5% Percent of national income reosid by highest 20% Peroent of national income received by lowest 20%. Per.ont of national incose received by lowest 10% IUSIRTIb OM OPF LAND ORgRSH3P owianmd by top lC5 of owners % owmed by enalleat 10% of omasra IEALIN SDM MUTRITION Population par physician 64 000 t 92,760 41,490 17,210 14940 Pon:latian par nurding pereon 1,110 ! 4,230 3,860 4,320 2,410 PoPulation per hospita1 bed 1,810 ,. 1,670 I, 1,380 /v 2,790 /I 730 /v Per capita calorie supply as % of raquirmanta Zi 85 /k 82 92 d9 97 Par capita protein eupply, total (graa per dayTL 66, 7i 66 69 75 64 Of which, animal and puls. 22 m 23 , 44 j 28 ^ Death rate 1-h year. a 223.8 EWOATION !" uMd /8 primary school enrofleent r.tio 8 13 20 15 /4 Adjuated Zeaecondary school *nrollmont ratio 1 1 2 2 7 Year. of aAhowling provided, firat and second level 13 12 12 14 13 Vocational enoollnt as % of sec. school enrollment 21 15 40 5/a 12 Adult literacy rate S 5 /a.z.a. 10 /.a..aa 10 am NoUSw3 "rarg No. of persons per rio (urban) Peront of occupied unita witbout piped eater Access to electricity (as S of total population) Percent of tural pepulation connected to *leatricity CONSDWHTIcO Idro -raciv-rs per 1000 pepultion 1 16 12 17 69 Passenger cara per 1000 population 0.4 1 1 1 / 11 Electric powar ceneption (kwh p.c.) 2 A 5 8 62 84 Newsprint oonsouption p.c. kg per year 1.3 0.08 Notes Figurea rfar rither to the l-test pariode or to ea*oont of nvirontal temperature, body weigbta, and the latest years. Latet periodr refer in principle to diatribution by go end ex af national populations. the years 1956-60 or l966-70, the latest years in prin- & Protein staard (requir_ nta) for all countries as astab- ciple to 1960 and 1970. liehed by USDA Zoononio Research Ssrvice provide for a minimo. / l The Per Capita GNP estimate is at ar ket prices for allowanco of 60 gram of total protein per dy, and 20 greas of ycora other then 19O,calculated by the ase conversion animal and pulase protein, of bhish 10 gres ahould be nirnl technique aa the 1972 World Bwnk Atla. protein The. etandards are somebat lmosr tb n tbose of 75 /2 Average number of daughters per aenan of reproductiv r w- of total protain NdW 23 gre.. of animal ptotin Yr ano age, average for the world, proposed by ?AO in the Third World Pood Z) Pcpulation growth rates are for the decades ending in Survy. 1960 and 1970. Soam tudies haea augeated that crde death rates of children ZL RatiO of population ander 25 and 65 and over t-o popula- agea I through 4 may be ueed a. a first approximation inden of tion of ages 15-64 for age dependency ratio and to labor mlontrition. force of agea 15-64 for econonio dependency ratio. /8 Percantage enrolled of oor"eaponding population of chool age F FiO reference standards repreaent physiologioal re- as defined fw each oountry. quiresants for noreal activity and health, taking ^ 19721 ab 1960-61; L 1965-70; / Batieate; / 1968; /f 1960-72 Z& 1960-71; h 52 citieel /i Over 10,000 population; . Cap-Ve rt gion nd the cities of Seint-lZuie, Thies, Kaolock, Diourbl and Ziguinchar; a 1961; /I 15-59 years; /E 60 end over; n Ratio of population under 15 end 65 and over to total labor force; o Ratio of population under 15 mad 59 end over to total labor fore; & 19711 & 1959j & Six urban communes and eight localitiee which can be coneidered aa urban; a 1970-7l; t 1963; IN Including midwives, assistant nurses and aaeistant tidwives; , Government hospital establiehshents; / 1964-66; x 1965; Z 1969; a 15 year and over; an Definition not available; Zab Nmployment in egriculture including livestock amounts to 96 percent of labor force; / I. urban area, about 20 percent. o Senegal has been selected as the objective country for Upper Volta einc. ite ONP is about three times that of Upper Volte's; they both are in the ease geographical area, Sahalian region, share a .*iollr monetAry systes, and have the sese economic growth rate in th. period 1960-71, and the sam liteamcy ratio 5 - 10 percent &a well. 82 March 13, 197(  ANNEX I Page 2 of 3 pages ECONOMIC INDICATORS GROSS NATIONAL PROMICT IN 1973/a ANNUAL RATE OF GRO'WTH (%, constant prices) US$ M3.n. % 1950 -60 1960 -75 GOP at Market Prices 425.6 100.0 3.7 2.2 2.3 Gross Domestic Investment 59.0 13.9 4.5 2.6 1.7 Gross Natiornal Saving -9.3 -2.2 Current Account Balanice -67.9 -15.9 Exports of Goods, NFS 32-3 7.6 1.1 3.5 5.8 Imports of Goods, NFS 100.2 23.5 0.4 2.6 1.9 OtUTPUT, LABOR F'ORCE AND PRODUCTIVITY IN' ]972 Value Added Labor Force V. A. Per Worker US. Mln. % '000 % US $ % Agriculture 144.4 41.3 2,792 96.4 58 45 Industry 63.3 18.1 25 0.8 2 013 1 572 Services 141.7 40.6 81 2.8 1,778 1,389 Unallocated /b .. Total7Xverage 349.4 100.0 100.5 =7 100.0 GOVEERNtSNT FlNA!iCE General Government CFAF Billion) % of GDP 179 973 1975 1969-7 Current Receipts 12.2' 12.2 11.8 Current Ex'e'v.dture 10.5 10.5 9.8 Curreat Surpluls -' 1.7 2.1 Capital Expendit`ras 1.3 1.3 1.2 Ex-ternal Assistance (net) 0.7 0.7 0.6 hiO,'EY, CPEDIT and PRIOCSS 1965 1969 1970 1971 1972 1973 1974 Y illion CFAFoutstanding end periodt Money and Quasi Money 6.41 8.07 9.37 9.93 9.9ut 14.-2 17-53 Bank credit to Public Sector 0.13 -2.24 -5.84 -4.45 -5.14 -6.13 -9.27 Bank Credit to Private Sector 4.03 5.69 5.63 6.11 7.31 9.16 . (Percentages or Index Numbers) Money and Quasi Money as % of GDP 7.6 10.L8 10.8 10.1 14.. General Price lndex (1963 = 100) 108.3 110.2 119.0 123 136-3 Annual percentage changes ins General Price Index 1.8 8.o 3.4 10.7 Bank credit to Public Sector . -71.1 -15.9 -15.5 -19.3 -51.2 Bank credit to Private Sector -1.1 8.5 19.6 25.3 67.9 NOTE: All convwrsions to dollars irn this table are at the average exchange rate prevailirng during the period ,Ccovqred /a Eonomic d.ta Sheet, IBRD Lb Total labor force; unemployed are allocated to sector of their normal occcupation. "Unallocated" consists mainly of unenployed workers seeking their first job. not available not applicable  ANNEX I Page 3 of 3 pages TRADE PAYHZNTS AND CAPITAL FLO'S BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1969-72)/b 1970 1972 1973 US $ Mln % (Millions US $) Exports of Goods, NFS 32.0 43.3 52.3 Livestock,and Livestock Products 7.9 43 Imports of Goods, NFS -70.6 -116.8 4148.3 1) Live Animals 6.7 37 Resource Gap (deficit = -) ~~~~~~ ~~ -~m 2') Me'At O.A 4 Resource Cap (deficit 3-T -)6O70.5 .-96.0 3) Hides and Skins 0.4 2 Interest Payments (net) 0.4 -1.6 -0.8 Cotton 4.7 26 Workers' Remittances 17.3 25.0 28.5 1) Seed 0.4 2 Other Factor Payments (net) * * . 2) Ginned 4.3 24 Cther private Transfcrs (neta 7.6 8.2 15.3 All other commodities 5.6 31 Balance on Current Account -14.0 - 9T