Togo - Maritime Region Rural Development Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY E JL'TU TR I Report No.P-1823-TO REPORTS DS REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A MARITIM3 REGION RURAL DEVELOPMENT PROJECT Miay 24, 1976 This document has a restnicted distribution and may be used by recipients only in the performance of their official duties. Its couteulls may not otherwise be disclosed without World Bank authorzation.  CURRENCY EQUIVALENTS 11 Currency Unit = CFA franc (CFAF) Present Rate US$ 1.00 = CFAF 225 CFAF 100 = us$ o. 444 Fiscal Year = January 1 through December 31 1/ The CFA franc is tied to the French franc in a ratio of 50 CFA francs to 1 French franc. The French franc is currently floating. ABBREVIATIONS BCEAO = Banque Centrale des Etats de l'Afrique de l'Ouest CIMAO = Ciments de l'Afrique de l'Ouest CNCA = Caisse Nationale de Credit Agricole FAC = Fonds d'Aide et de Cooperation (France) FED = Fonds Europe'en de D6veloppement MDR = Ministere du D6veloppement Rural M4ER = Ministere de 1'Equipement Rural OPAT = Office des Produits Agricoles Togolais RMWA = Resident Mission West Africa (World Bank) SONAPH = Soci6t6 Nationale du Palmier a Huile SORAD = Societe' R6gionale d'Am6nagement et de D6veloppement SOTOCO = Societe Togolaise du Coton SRCC Socie6te pour la Renovation du Caf'e et du Cacao  FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECIUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A MARITIME REGION RURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit for I:he Republic of Togo for the equivalent of US$9.5 mil- lion on standard IDA terms to help finance an integrated rural development project in the Maritime Region in the south of Togo. The Fonds d'Aide et de Cooperation (FAC) of France is expected to provide co-financing for the project in the form of a grant of an amount equivalent to US$2.2 million. PART I - THE ECONOMY 2. The most recent economic report on Togo, Report No. 458a-TO "Current Economic Situation and ]'rospects of Togo" was issued on December 30, 1974. A basic economic mission visited Togo in March/April 1976. Its main findings are incorporated below. Annex I contains basic country data. 3. Togo's long-term annual average growth of GNP per capita has been one of the highest in Africa - more than 4 percent during 1960-73. From 1966 to 1970, GDP growth in real terms was steady, averaging 6 percent, yearly. The sustained expansion of Togo's economy was due, in great part, to a vigorous expansion of external commerce which, in turn, was spurred on by favorable market conditions for two of the country's principal exports, cocoa and coffee. With its low-tariff structure - a legacy from trusteeship days - Togo developed into an important regional commercial entrepot and, with fast commercial growth, accumulated substantial foreign reserves. Between 1965 and 1970, 'Cogolese exports increased by 22 percent a year in current prices. During this same period, imports - particularly of consumer goods of which a high percentage were subsequently re-exported - also rose sharply. 4. In the early 1970's economic growth slowed down. Adverse weather conditions affected agr-icultural production, particularly during the years 1971-73; a sizable reduction in border trade, coupled with unfavorable market conditions for Togo's main exports led to a deterioration of the balance of payments. In 1974, however, there was a marked improvement of Togo's financial and economic position. The 1974 trade balance showed a sizable surplus for the first time since 1969 due to substantially higher world market prices for the country's principal export commodities, especially phosphate; in fact, frorn 1971 to 1975, the country's economic development was mainly sustained by the expansion of the industrial and mining sector and to a lesser extent the service sector. Togo's 1975 per capita GNP is tentatively estimated at $250. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  5. The Togolese Government has generally followed prudent financial policies which have led to substantial budgetary savings during periods of high export growth. For instance, budgetary revenues rose from about 13 percent of GDP during 1966-72 to nearly 19 percent in 1974/75, and budgetary savings increased from an average of 2.2 percent (1966-72) to 3.7 percent of GDP in 1974/75. Selected tax increases as well as public savings generated through the Office des Produits Agricoles Togolais (OPAT) as a result of favorable world market prices for coffee and cocoa, have helped improve domestic resource mobilization. However, average export prices and volume both fell in late 1975 and early 1976 and, due to slacken- ing world demand, phosphate sales, in particular, dropped significantly. Foreign exchange reserves which rose to record highs of seven months of imports during 1974 decreased to the equivalent of less than three months' import requirements in November 1975. Togo's market-oriented economy has historically shown the capacity to adjust rapidly to swings in agricul- ture and trade, but the magnitude of the recent fluctuation in phosphate earnings was unprecedented. The Government has had to review expenditure plans which were based on expectations of high phosphate revenues, and is taking steps to restrain expenditures including decisions to freeze new hirings during the current fiscal year and to postpone or slow down public investment. Moreover, it has the capacity to adjust further, if necessary, through use of short-term credit and financing facilities to which recourse is generally unconditional from BCEAO, the IMF, and the European Community's Stabex arrangement. 6. The lot of city dwellers employed in commerce, industry, construc- tion and the Government -- particularly in Lome -- has improved considerably in recent years, but much of Togo's rural population has remained untouched by the modern sector's economic expansion. To improve conditions in the countryside the Government is accelerating lhe promotion of food crops and important cash crops like cocoa, coffee and cotton, especially in less developed regions of the country. The Government's growing concern with social equity is shown by its policy to distribute more widely the benefits of economic growth. For instance it raised producer prices and selectively increased minimum wages and salary levels -- especially for lower-paid staff -- and abolished the regressive head tax. 7. Togo's longer-term development outlook is favorable with prospects for GDI' growth during the next decade of about 6 percent per year and further improvement in income distribution and employment. The new long-term Development Plan, which is now being finalized, assesses the physical and institutional bottlenecks to future growth with considerable realism, although financial targets have had to be revised in the light of recent price movements. Its strategy is designed to further diversify the economy and exploit natural resources, to rehabilitate and expand both food and cash crop production, to further improve the country's infrastructure  - 3 - in order to lay the ground for new, directly productive investments, and to promote internationaL regional cooperation. The Government's longer- term development policy gives emphasis to equity and employment, includ- ing a basic education reform, rural development programs and extension of the feeder road network, promotion of small- and medium-scale indige- nous enterprises and the search for more labor-intensive techniques. Nevertheless, some realLocation of current and capital expenditures towards the rural sector may alSo be needed to achieve the Government's objectives in this sector. 8. In the early seventies, total aid inflow averaged $20 million per year, with France (FAC), the European Community (FED) and Germany providing the bulk of external assistance, primarily for infrastructure projects. New commitments on a nunber of projects have already been secured and, on the basis of known plans of aid donors, we expect an increase of the inflow of foreign assistance, at least in nominal terms, during the next few years. The Bank Group will become a major donor in the near future, particularly as a result of the planned financing of the CIMAO project. As in the past, average foreign assistance is tentatively estimated to finance about 70 per- cent of public investment. Given the expected higher level of public in- vestment, such a financing pattern will require continued efforts by the Togolese Government to mobilize increasing amounts of domestic resources in line with the expected expansion of the country's economic base. Tradi- tional donors are likely to provide relatively large amounts for public investments, but Togo has already begun to diversify its sources of assis- tance by approaching OPEC and other Western and Eastern countries. 9. In the past, aid to Togo has been provided on relatively soft terms with grants accounting for about 75 percent of foreign assistance. As of December 31, 1975, the country's external public debt including undisbursed amounted to US$121 million (excluding a line of credit from the People's Republic of China of about US$54 million) most of which was incurred at low interest rates and with repayment periods of more than 10 years. More recently, the share of suppliers' credits and commercial borrowing has increased. Average debt service payments amounted to about 6 percent of exports from 1971 to 1975 but this ratio will go up in 1976 due to increased borrowing in recent years. However, given Togo's good longer-term economic prospects, the Government should be able to keep debt service within manageable limits and sustain a moderate amount of foreign borrowing on conventional terms. Still, in view of the country's low per capita income, the growing need for external funding of priority projects in an expanding economy, and Togo's exposure to widely fluctuating world market conditions, the major part of foreign financing necessary to sustain economic growth should continue to be provided on concessionary terms. Because Togo is expected to be able to finance about 30 percent of its public investment programs, foreign donors should continue to provide on average 70 percent of total project costs including -- in appropriate cases -- some financing of local costs.  - 4 - PART II - BANK GROUP OPERATIONS IN TOGO 10. To date the Bank Group has extended three credits to Togo totallng US$18.4 million. Two of these were for road projects: the first for highway maintenance and the second for highway construction. The third credit was for an agricultural project. Annex II contains a summary statement of IDA Credits to Togo as of April 30, 1976 as well as notes on the execution of the three projects. 11. The Highway Maintenance Project, the Bank Group's first lending operation in Togo, was satisfactorily completed in June 1975. The Second Highway Project evolved from preinvestment studies financed under the first project and provides for the construction or upgrading of three highways and the continuation of the maintenance program. This project is progressing satisfactorily although due to inflation the scope of the road construction component had to be reduced. 12. The agricultural project for which a credit was approved in 1974, covers part of a long-range program for the development of the Plateau region's coffee and cocoa potential. This project, which includes planting and maintenance of 4,400 ha of cocoa and 4,000 ha of coffee, is also pro- ceeding well with planting a year ahead of forecasts. 13. Most of the Bank Group's future operations activities would involve agriculture or rural-development oriented transportation projects. A third highway project, concentrating on secondary road construction in the coffee and cocoa planting areas, was appraised earlier this year. A cotton areas development project is under preparation. A follow-up to the first (coffee and cocoa) agricultural project is also being considered. A first education project was recently identified by UNESCO. 14. Togo will be the host country for one of the largest industrial ventures so far in West Africa, a US$285 million CIMAO clinker project, which would be financed by the Bank and seven other official aid agencies. This project, which is jointly sponsored by the Togolese, Ivorian and Ghanaian Governments, is expected to be presented to the Executive Directors before the end of the current fiscal year. PART III - The AGRICULTURAL SECTOR 15. Agriculture is vital to the Togolese economy. It employs some 80 percent of the active population and provides over one third of the country's total export earnings.  16. Togo's approximately 300,000 farm families work holdings that average 2-5 ha. Cultivation is usually by traditional techniques and yields are low. The main export crops are cocoa and coffee - which together account for 75 percent of agricultural exports - cotton, groundnuts and copra. Despite the importance of cocoa and coffee, staples such as yams, maize, rice and sorghum account for over 80 percent of agricultural output, the bulk of which is for subsistence. 17. Responsibilit:y for the agricultural sector is now shared by two ministries: the Ministry of Rural Development (MDR), which Is essentially concerned with policy formulation and program coordination; and the Ministry of Rural Equipment (MER), which Is concerned primarlly with major Infrastruc- ture development, such as irrigation works and rural roads. 18. The executioni of development projects is entrusted to autonomous public corporations whJch are regionally or product oriented. The SORADS (Societes Reglonales d'Amenagement et de Developpement), which were set up In 1966-1967, are responsible for all development activities and provide extension services and agricultural inputs to farmers in Togo's five adminis- trative regions. They also act as intermediaries between growers' associations and credit institutions. The SORADS' effectiveness has been undercut by the lack of clearly defined programs, shortage of trained manpower, inadequate management and limited financing. A number of responsibilities have recently been taken over by specialized corporations: SRCC for coffee and cocoa, SONAPH for oilpalm, TOGOFRUIT for fruits, SOTOCO for cotton, TOGOGRAIN for foodgrains. The responsibilities of these entities range from the supply of inputs and the provision of extension services to primary marketing and processing. This has led to some duplication between the role of the specialized corporations and the SORADS. The Government is now considering the regrouping of all extension activities under a uniEied service, attached to the MDR, but decentralized at the regional level. Technical support, training, marketing and processing for specific crops would still be supplied by the specialized corporations (already reporting to the MDR). THE SORADS, which have been assigned to the MER, would ultimately concentrate on rural engineering and infrastructure activities. The objectives of this reorganization are sound but there Is no timetable as yet for its implementation. 19. Agricultural credit is extended by the Calsse Nationale du Credit Agricole (CNCA), which was set up in 1967. Most of CNCA's loans to farmers have been channeled through the product-oriented corporations or the SORADS. Inadequate credit policy and weak management resulted in a high percentage of defaults and arrears, but a new management installed in 1974 should improve operations considerably. 20. Prominent among Togolese agricultural Institutions Is the Office des Prodults Agricoles du Togo (OPAT), which has broad marketing and price stabilization functions for export crops. On its recommendation, the Govern- ment sets farmgate prices to be paid for these crops. OPAT purchases the crops from farmers through a network of licensed buying agents. OPAT has,  -6 - over the years, generated sizable public savings which are used to finance development in general, while direct contributions to agricultural invest- ments were modest. 21. Growth in the agricultural sector has lagged behind the rest of the economy. While GDP growth in real terms averaged 6 percent from 1966 to 1970 agricultural production inicreased only at about 3.5 percent per year. In the early seventies growth of agricultural output probably declined further. Difficult agro-climatic conditions in many parts of the country have been partially responsible for the sector's slow development. In the coastal plateau of the southeast, for example, rainfall is only half what it is in the coastal areas of most other West African states. This climatological quirk has limnited the range of crops which can be economically cultivated in the region and has held down yields for those crops which are grown. Besides, high population density and overcropping have caused severe depletion and erosion of soils, further limiting agricultural potential. Kaincope disease, by attacking coconut plantations, has partially destroyed the coastal zone main export crop. In Togo's northern savannah and Lama Kara regions, agricul- tural growth has been limited by the prolonged Sahelian drought, the presence of onchocerciasis in otherwise agriculturally promising river valleys and the exhaustion of soils in the densely settled Lama Kara hill country. 22. Lack of investment and limited absorptive capacity in the agricul- tural sector during the 1960's hindered the country's rural development. In recent years, however, the Government has become increasingly aware of the priority of the agriculture sector for the country's socio-economic development. The third Development Plan (1976-80) now in the final stages of preparation, calls for substantial improvements in agricultural perfor- muance both in industrial and food crops. For industrial crops, the Govern- ment's objectives are to restore traditional exports, and to diversify into new products. A major program [or coffee and cocoa rehabilitation began in 1974 with IDA assistance (Credit 503-TO), and should begin yielding results by the end of the decade. A five-year cotton program to increase production from 12,000 to 42,000 tons per annum has been submitted to the Bank Group for con- sideration. There is scope for rehabilitation of traditional copra production, and possibilities for developmenit of other products, such as sugarcane, tobacco and cashew nuts, are being examined. For food crops, the Government hopes to slow down imports and to reach self-sufficiency in the eighties. Recent in- creases in official farmgate prices for export crops, higher producer prices resulting from increased urban dlemand for foodcrops, improved credit and sup- port facilities for organized farmers, and easier access to markets would help- achiieve these objectives. The Government is also providing additional incentives by subsidizing farm i-nputs, principally fertilizer, for which the farmers are currently charged about 50 percent of actual cost. The Govern- ment considers these subsidies as necessary to encourage the use of improved technologies, but it has agreed to consult annually with IDA on prices for fertilizers and pesticides, for the purpose of following a price policy aiming at progressively reflecting the full cost of these inputs in the prices charged to farmers (section 4.04 of the Credit Agreement).  -7 - 23. The basis of agricultural growth should be both improvement of yields and expansion of cropped areas. Area increases can partially be achieved through double-cropping, intercropping or decreasing fallow. But substantial efforts will have to be made to bring new land into produc- tion. Some of this land will be found in areas to be freed of onchocerciasis under the ongoing regional program; studies on the preparation of projects for the development of these areas would be included in this project. It is also envisaged that additional output would come from water resource development. Water for human and animal consumption - crucial to opening up areas in the Central Region and the northern part of the Maritime Region - would be devel- oped under the proposed project through construction of wells and small water-retention dams. The Government also envisages relatively ambitious irrigation schemes on the Zio-Haho, Mono, and Oti rivers, but there is scope for simpler, less expensive approaches, including the development of lowland areas for rainfed rice and other crops, and low cost gravity irrigation for which good potential exists. The proposed project would test these simpler approaches to the deveLopment of the Maritime Region. 24. The Maritime Region lies along the coast of the Bight of Benin. It includes the capital city Lome. The area is divided into several ecological zones ranging from the agriculturally poor coastal sands in the south, where rainfall is marginal, to the more bountiful savannah area in the north, where rainfall is highest. The region supports 37 percent of the country's popula- tion while covering onLy 10 percent of the total area. The main problems encountered in the Maritime Region are over-population, low incomes, soil depletion, the Kaincope disease which has ravaged coconut production, poor farmer support serviceS and inadequate infrastructure. PART IV: THE PROJECT 25. The proposed project is described in detail in the report entitled "Appraisal of Togo MarLtime Region Rural Development Project" dated May 24, 1976 which is being distributed separately to the Executive Directors. Annex III contains a credit and project summary. The project was identified by an RMWA mission in July 1973. Studies, financed by UNDP (for feasibility) and FAC (for soil maps), were carried out by consultants in May-June 1974. The project was appraised in October 1975. Negotiations of the Credit took place in Washington in early May. The Togolese delegation was headed by Mr. Dogo, Minister of Planning, and included representatives of the principal project executing entities (SOEAD Maritime and CNCA), and the FAC. 26. The proposed project would be the first phase (1976-81) of an integrated rural development program for the Maritime Region. It would comprise four main components. The first - farm development and farmer support services - would include the provision of extension services and other inputs for onfarm development geared to the potential of the different ecolo- gical zones in the regjion. The second would comprise the strengthening of the SORAD Maritime's capacity through provision for additional staff, train- ing and physical facilities, and of CNCA through the creation of an agency in the proj ect area to handle the credit facilities to be made available to farmers. The third element would be the construction or improvement of  - 8 - supporting infrastructure, most notably the construction of 300 km of feeder and secondary roads, sundry wells, dams, markets, dispensaries and stores. Finally, the project would include studies for the development of a gravity irrigation scheme and for the formulation of investment proposals for the areas in the north of the country to be cleared of onchocerciasis under the ongoing international program, and field trials for restoring depleted soils and testing the resistance of coconut hybrids to Kaincope disease. 27. The project would encourage the adoption of improved farming tech- niques including the use of improved varieties, fertilizers, pest control and improved crop husbandry. Emphasis would be placed on crop diversi- fication to include cotton production in rotation with maize and legumes in the upland areas while in the lowlands some 3,000 ha would be opened up for rice cultivation. An interesting feature of the project would be the assis- tance given to the formation of grower associations through which credit and inputs would be channeled. These associations would later form cooperatives which would eventually assume responsibility for procurement and distribution of project-financed goods and services. Project Implementation 28. The project would be carried out by SORAD Maritime excluding the credit component which would be implemented by CNCA, and the well component and onchocerciasis studies which would be implemented by the Ministries of Public Works and Plan respectively. SORAD has agreed with SOTOCO on the transfer to the SORAD of the support services to cotton growers in the north of the region normally handled by SOTOCO. The Government intends to unify all extension services under the MDR at some future date. In such an event IDA's concern would be to safeguard the management of the project by maintaining the cohesion of the project implementation team. Thus the Government has agreed to consult with IDA prior to any reorganization of extension services which may affect the project (Section 4.05 of the Credit Agreement). Project-related operations would form the bulk of SORAD's activities during the implementation period. To ensure efficient execution of the Project, the Government has given assurances that during the implementation period SORAD would not undertake any additional activities beyond the scope of the Project except with IDA's prior agreement (Section 3.09 of the Credit Agreement). 29. The present Director of the SORAD would be the project manager. To assist him, the project would provide for the appointment of an administrative and financial director, a technical director, and a chief of the engineering unit responsible for infrastructure development. The Government has agreed to appoint Togolese counterparts to the expatriate experts who would fill the first two of these positions, with a view to replacing them eventually (Section 3.04(b) of the Credit Agreement). A training specialist would be appointed and required to draw up a comprehensive training program for discussion with IDA before the end of 1976 (Section 3.05 of the Credit Agreement). 30. To ensure effective input supply to farmers, a special unit would be staffed and equipped under the project within the SORAD. By the fourth year of the project there would be a review of the activities of this unit in order to appraise the prospects for operating the unit on a commercial 1)asis for the  - 9 - benefit of farmers' cooperatives (Section 3.07 (b) of the Credit Agreement). A monitoring unit, equipped and staffed under the project, would serve as an "early warning" system to detect problems which may develop with any of the project's components and thus allow either corrective action or changes in relative emphasis (Section 3.08(b) of the Credit Agreement). The project would provide for consultant support to help design the monitoring program and evaluate project progress. 31. Credit to farmers would be provided through their respective grower associations by CNCA. CNCA is not adequately equipped and staffed at present and therefore a credit agency would be established under the project as a branch of CNCA in the Maritime Region. To head this agency, the Government would appoint an experienced credit specialist. Although administratively responsible to CNCA, the head of the agency would work closely with SORAD's management (Section 3.11 of the Credit Agreement). 32. The project would provide for consultants to assist in c:arrying out coconut field trials, and conducting studies for irrigation and for the develop- ment of areas to be freed of onchocerciasis. The Government has agreed that the consultants' qualifications, experience and the terms of employment would be acceptable to the Association (Section 3.08 of the Credit Agreement). Cost Estimates and Financing Arrangements 33. The estimated total cost of the project is US$15.7 million, includ- ing taxes of US$1.8 million. The foreign exchange component would be about US$9.3 million, or about 67 percent of costs net of taxes. The proposed IDA credit of US$9.5 million would finance about 68 percent of project costs net of taxes and duties. FAC co-financing of US$2.2 million would cover 16 percent of net project costs. Thus, while the amount of the IDA credit would be about equivalent to the projec:'s foreign exchange costs, IDA and FAC together would finance the foreign exchange costs and about half of local costs. The Govern- ment and participating farmers would finance 12 percent (US$1.6 million) and 4 percent (US$0.5 million) respectively, of net project costs. 34. Project funds (proceeds of the IDA credit, FAC grant and Government contribution) amounting t:o US$8.6 million would be channeled to SORAD to cover construction costs for buildings, roads and water supply infrastructure etc.; and to cover the cost of vehicles and equipment, costs of personnel and other operating expenses, and t:he costs of irrigation studies and consulting services for coconut development and for project monitoring and evaluation. To assure availability of financing for SORAD expenditures prior to credit disbursements, a special project account. would be established for SORAD. The Government would make an initial deposit cf US$0.3 million in this account to cover initial operating expenditures. Reimbursements from IDA and FAC, and such other funds as would be requested quarterly by SORAD as advances for project expenditures, would replenish this fund (Section 3.02 (b) of the Credit Agreement). Except for the costs of rice land preparation and irrigation water for vegetable growing which would be fully charged to beneficiaries (but which would represent a minor portion of project costs), costs incurred by SORAD would be for services and investments which are normally financed out of the general budget and are thus not directly recoverable from users.  - 10 - 35. The Government would make available US$1.3 million to CNCA as equity, of which US$0.7 million would finance the construction of a building and operating costs for the new credit branch necessary to serve the expanding credit requirements of the project area. The remainder (US$0.6 million) would feed a revolving fund for the purchase of seasonal inputs. To enable the beginning of operations, the Government would deposit US$0.13 million in the fund, which would be replenished through payments from the IDA Credit and the FAC grant for the costs of incremental project input requirements, payments by farmers for inputs, and Government subsidies for the difference between the delivered cost of farm inputs and the price paid by farmers. CNCA would further receive US$0.6 million (including US$0.4 million on-lent from the proceeds of the Credit) as a 15-year loan at 5.5 percent (the Central Bank rediscount rate for agricultural credit). 36. CNCA, with the assistance of SORAD, would provide credit, in kind, to the farmers through the grower associations. Seasonal inputs would be made available on credit to be repaid at harvest time. Credit for group-owned equipment and material for village stores would be for a four-year term; and credit for coconut development would be for 12 years including a 7-year grace period. The rate of interest for all credit would be 8 percent per annum plus a one-time commission of 3 percent of the principal to build up a special reserve for bad debts. This would result in an effective lending rate over the life of sub-loans of about 11 percent for seasonal and medium-term credit and about 9 percent for long-term credit. 37. The US$0.3 million of project funds allocated for studies in the areas to be freed of onchocerciasis, would be financed from the proposed credit US$0.4 million of project funds would be used to cover the costs of project monitoring and evaluation. The balance of about US$3.9 million would be ear- marked as a contingency reserve. Procurement 38. Contracts for the supply of goods other than rock phosphate, which are estimated to cost US$50,000 or more each, would be awarded on the basis of international competitive bidding in accordance with IDA guidelines (total cost about US$3.4 million). Domestically manufactured goods would be allowed a preference of 15 percent, or the level of applicable duty, whichever is less, when comparing domestic bids with those of foreign manufacturers. Supply contracts valued at less than US$50,000 (the number of which would be mini- mized by bulking procurement and which would total about US$200,000) would be let after competitive bidding in accordance with local procedures as would contracts for the construction of 90 km of secondary roads (total cost about US$1.7 million) and of various project buildings, dispensaries and rural markets which would be individually small and widely dispersed (total cost about US$0.9 million). IDA staff have reviewed the local procedures, which are acceptable; there would be adequate competition. Rock phosphate, costing about US$0.1 million, would be procured at reasonable prices from Government mines. Small items costing less than US$10,000 and which would total about US$100,000 could be awarded after solicitation of quotations from at least three suppliers. Inputs purchased directly by farmers and which would total  - 11 - about US$0.5 million would be obtained through local shopping. SORAD, which would be adequately equipped under the project, would construct or improve about 210 km cf feeder roads and build two earth dams on force account for an estimated total cost of US$1.7 million. The project well component (costing about US$1.8 million spread over flve years), would be carried out on force account by the well brigade of the Ministry of Public Works which is competent and sufficiently equipped. Disbursements 39. The proceeds of the Credit would be disbursed against costs in- curred in the five-year period between signing and mid-1981. The FAC grant would also cover five years, but would include start-up costs, primarily the salaries of key personnel beginning earlier in 1976. From the date of credit signature the IDA Credit and FAC grant would be disbursed pari passu and generally cover all items at the same ratio of 4:1 except for studies and consultant services, and for Infrastructure, where FAC participation would be 15 percent and 11 percent, respectively. The onchocerciasis study would be financed by IDA only. The IDA credit would be disbursed to cover: (a) 80 percent of foreign expenditures or 60 percent of total expenditures for Incremental fertilizer, pesti- cides and imported seeds, and equipment for farmer groups (US$0.77 million); (b) 80 percent of forelgn expenditures or 60 percent of total expenditures for building construction, the procurement of equipment, vehicles and office fur- nishings; in,-remental staff salaries and training grants and other incremental costs of SORAD Maritime and CNCA (US$3.28 million); (c) 60 percent of total expenditures for infrastructure construction (US$2.25 million); (d) 100 percent of total expenditures of consultant services for the planning of development for areas to be freed from onchoceirciasis (USO.3 million); (e) 80 percent o:E total costs of consultants' services for other studies, and project monitoring and eval- uation (US$0.52 million); and (f) US$2.38 would be held as a contingency reserve.  - 12 - Disbursements would be against contracts and certified statements of expend- iture prepared by the SORAD Maritime and CNCA. The following conditions of disbursements would apply: (a) for power tillers in addition to the initial ten, that the Association has agreed to the purchase of such additional tillers; (b) for pumps under Part A.3 of the Project, that the Borrower has given satisfactory assurances to the Association that water charges are collected; and (c) for fertilizers and pesticides, that the Borrower has made the required payments to the Revolving Fund as described in para. 22 (Paragraph 4 of Schedule 1 to the Credit Agree- ment). Economic Return 40. The economic rate of return of the project would be 37 percent over 15 years (30 years for coconut plantings). Sensitivity analysis shows that a 25-percent decrease in benefits would reduce the economic rate of return to 21 percent while cost increases of 15 percent would reduce it to 29 percent. Separate rates of return calculated for the six production components range from 13 percent for coconuts to 52 percent for vegetables. 41. The project's direct benefits would be an increase in foodcrop production which should, in turn, result in higher incomes for some 20,000 farm families expected to participate in the project. Overall, the net farm income of participant families would approximately double from about US$80 to US$170 in the poorest areas and from about US$190 to US$350 for the majority of families. Inc:reases in cotton and groundnut exports and savings in foodgrain imports would improve the foreign exchange position. The project would also raise the general level of economic activity in the area by increasing the spending power of beneficiaries and thus their contribution to public revenue through indirect taxes. The project would have other important non-quantifiable social, institutional and ecological benefits. Improved health services would benefit about 150,000 people and about 44,000 people would benefit from water supply. The project would pro- vide increased seasonal employment of family and hired labor. By strength- ening SORAD's and CNCA's management, the project would contribute to the capacity of these agencies to plan and carry out other rural development projects. The project's attempt to rehabilitate depleted land would be of great importance for the over-populated coastal plateau. Risks 42. The project would represent the first major Bank Group involvement in upland annual crop production in a two-season rainfall area of West Africa. Throughout most of the region the principal crops in such areas are tree crops, and agricultural research has concentrated on these primarily export  - 13 - crops. Even where technology packages for food crops have been developed (as in Togo), the period and scale of testing at the farmer level has been limited. Further, greater total rainfall and longer duration of the combined rainy seasons than is found in areas further north where a single peak rain- fall occurs, give an apparent advantage in the growing of food crops. But this may not be significant as the second rainy season is often too short to guarantee profitable crops. Given these circumstances, the assumptions concerning yield increments at the farm level, and farmer response to the proposed innovations, are less firm than for other annual crop projects in West Africa; hence the risks involved must be considered substantial. None- theless, these risks are worth taking because there are no alternatives for developing agricultural production and raising rural incomes in this most densely populated area of the country. PART V: LEGAL INSTRUMENTS AND AUTHORITY 43. The draft Development Credit Agreement (Maritime Region Rural Development Project) between the Republic of Togo and the Association, the Report of the Committee provided for in Article V Section l(d) of the Articles of Agreement of the Association and the text of a draft resolution approving the proposed Development Credit, are being distributed separately to the Executive Directors. 44. The special features of the Credit Agreement are referred to in paragraphs 22, and 28 through 36 of this Report. The following are addi- tional conditions of efifectiveness: (a) notification of signature of an agreement between Govern- ment and FAC; (b) signature of a subsidiary loan agreement acceptable to IDA between Government and CNCA; (c) appointment cf the technical director, administrative and financial director, and head of the credit agency; (d) establishment. of a revolving fund for CNCA with an initial deposit by Government of CFAF 30 million; and (e) establishment, of a project account for SORAD with an initial deposit by the Government of CFAF 70 million.  - 14 - 47. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI: RECOMMENDATIONS 48. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President by J. Burke Knapp Attachments Washington, D.C. May 24,1976  ANNEX I Page I of 4 Dages TABLE ]A TOGO - 8OCIA. INDICATORS DATA SHEET LAND AREA (TNOU KIl2)