Cameroon - Rural Development Fund Project

Document of The World Bank FILE C O P Y FOR OFFICIAL USE ONLY Report No. P-2052-CM REPORT AND RECOMMENDATION OF THE PRESIDENT INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF CAMEROON FOR A RURAL DEVELOPMENT FUND PROJECT June 20, 1977 ITis document has a restricted distirbution 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. |  CAMEROON RURAL DEVELOPMENT FUND PROJECT CURRENCY EQUIVALENTS CURRENCY UNIT - CFA Franc (CFAF) US$1 = CFAF 245 1/ CFAF 1,000 = US$4.1 CFAF 1,000,000 = US$4,082 1/ Floating exchange rate. ABBREVIATIONS CAMDEV - Cameroon Development Corporation FONADER - Fonds National de Developpement Rural FSAR - Fonds Special d'Actions Rurales RDF - Rural Development Fund RMWA - Regional Mission in Western Africa (IDA) SAFACAM - Societe Africaine Forestiere et Agricole-Cameroun SEMRY - Societe d'Expansion et de Modernisation de la Riziculture de Yagoua SOCAPALM - Societe Camerounaise de Palmeraies FISCAL YEAR July 1 to June 30  FOR OFFICIAL USE ONLY CAMEROON RURAL DEVELOPMENT FUND PROJECT CREDIT AND PROJECT SUMtMARY Borrower: United Republic of Cameroon Amount: US$7.0 million equivalent Terms: Standard Project Description: The proposed project would help establish a structure for channeling and monitoring the effective use of funds for small-scale and repeat- able rural development projects geared to improv- ing productive activities as well as infrastruc- ture. Project activities would concentrate on the four Northern Province Departments of Diamare, Margui-Wandala, Mayo-Danay, and Logone et Chari. The project would be implemented over a four-year period and consist of: a) improving about 300 ha of bottomland near Moulvouday for rice cultivation; b) developing irrigated market gardening (onions and vegetables) in a 250-ha area near Maroua by providing loans and technical assistance to about 60 subsistence farmers; c) developing commercial stall fattening of steers by providing credit facilities and technical assistance to about 2,000 families in the Mandara mountains area; d) constructing 10 small dams in the Mandara mountains for human and animal water supply; e) increasing and improving village water supply on the Diamare Plain by: (i) rehabilitating about 600 existing open wells, and capping 60 of them; (ii) drilling about 430 bore- holes; and (iii) equipping about 490 water points with hand- or pedal-operated pumps; f) providing funds for as-yet-unidentified sub- projects; and g) providing for technical assistance, on-the- job training of local personnel, project monitoring, carrying out a survey of water- borne diseases in the project area, prepara- tion of further sub-projects and a follow- up RDF project, and supporting services. r This document has a rtricted distriliution and may be used by recipients only in the performance of their oMcial dutie. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - PROJECT COST SUMMARY (In MSid-1977 Terms) Percentage of Foreign Total Local Foreign Total Exchange Base Cost ------US$ Thousand------ Bottomland Development 303.0 251.0 554.0 45 7.0 Market Gardening 63.0 85.0 148.0 58 1.8 Stall Fattening 357.0 34.0 391.0 9 4.9 Small Dams 748.0 876.0 1,624.0 54 20.4 Open Wells 730.0 950.0 1,680.0 57 20.9 Pumps Installation 192.0 431.0 623.0 69 7.7 Boreholes Unit 280.0 976.0 1,256.0 78 13.9 Unidentified 249.0 249.0 498.0 50 6.2 Project Supporting Services 688.0 878.0 1,566.0 56 17.2 Total Base Cost 3,610.0 4,730.0 8,340.0 57 100.0 Physical Contingencies (10%) 370.0 470.0 840.0 57 Expected Price Increases (15%) 610.0 800.0 1,420.0 57 Total Project Cost 4,600.0 6,000.0 10,600.0 57 Of which Taxes 940.0 - 940.0 TOTAL NET OF TAXES 3,660.0 6,000.0 9,660.0 PROPOSED FINANCING PLAN (US$ 000) IDA Government Beneficiaries Total Civil Works 515 345 - 860 Vehicles and Equipment 2,420 370 60 2,850 Operating Costs 945 625 5 1,575 Local Personnel - 1,180 - 1,180 Expatriate Staff 1,380 - - 1,380 Unidentified 290 210 - 500 Base Costs 5,550 2,730 65 8,345 Unallocated 1,450 790 15 2,255 Total (including,taxes) 7,000 3,520 80 10,600 Total (excluding taxes) 7,000 2,580 80 9,660 Percentage of Total Project Cost 66 33 1 100 Percentage of Total Project Cost Net of Taxes 72 27 1 100  Estimated Disbursement of IDA Credit Amount in US$ Million IDA Fiscal Year 1978 1979 1980 1981 1982 Annual 1.20 1.60 1.80 1.60 0.80 Cumulative 1.20 2.80 4.60 6.20 7.0 Expatriate Staff and Consulting Services Total expatriate staff and consulting services would amount to about 225 man-months at a total cost of US$1.4 million (excluding contingencies) and an average cost of US$5,900 per man-month (in- cluding benefits and allowances) for expatriate staff, and US$8,300 per man-month (including travel expenses) for short-term consultants. The services of expatriate staff and consultants would be obtained in accordance with Bank Group guidelines for consulting services. Rate of Return The overall economic rate of return for the three productive sub-projects, which together involve nearly one-third of total project cost, is esti- mated at 18 percent, including their share of the cost of supporting services. Appraisal Report Appraisal of a Rural Development Fund Project, Cameroon No. 1479-CM dated May 26, 1977.   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF CAMEROON FOR A RURAL DEVELOPMENT FUND PROJECT 1. I submit the following report and recommendation on a proposed development credit to the United Republic of Cameroon, for the equivalent of US$7.0 million on standard IDA terms to help finance a rural development fund project. PART I - THE ECONOMY 1/ 2. A report, "Proposals for a Medium-Term Public Development Program, A Special Study, Cameroon" (No. 1097a-CM), was distributed to the Executive Directors on May 11, 1976. In October and November 1976, an economic mission visited Cameroon and its findings are incorporated below; a report is in preparation. Economic Potential 3. Cameroon has a population of about 7.3 million (mid-1975) and covers an area of 475,000 km2. The country's natural resources are varied, but not always easily accessible. Soils and climatic conditions permit culti- vation of a wider range of crops than is commonly found in West Africa, and the forest areas of the southeast contain large untapped timber resources. The north holds promising potential for livestock development. 4. The main opportunities for development in Cameroon lie in the expansion of agricultural production, including forestry, and the processing of agricultural and forestry products for export. A bauxite project is in the early stages of preparation, and offshore oil and gas exploration is also being carried out and has yielded some promising results. 5. Commerce, transportation and transit services are other important economic activities. Cameroon's main economic centers are separated by vast underpopulated areas. The country moreover serves as a main export route for landlocked Chad. As a result, large investments in port and inland transport infrastructure are essential to promoting agriculture, forestry and industry, and strengthening Cameroon's role as a regional trade center. 1/ Parts I and II are largely the same as the corresponding sections of the Second SOCAPALM Project President's Report, dated March 16, 1977.  -2- Past Performance 6. During the first decade of independence (1960-1970), the Govern- ment's primary objective was to unify the nation and to ease serious internal political and social tensions. Output of agriculture and industry grew rapidly and, along with high world prices for cocoa and coffee, resulted in a 7 percent per annum real growth rate. Gross investment averaged about 14 percent of GDP, slightly over half in the public sector with the largest part devoted to the transportation network, the most immediate development con- straint. A major effort was also directed at expanding education and diver- sifying agriculture. Significant increases in fiscal revenues combined with stringent expenditure controls produced sizeable budget surpluses that made it possible to accumulate reserves and to finance a large part (up to 40 percent) of public investment out of local revenues. However, this policy also imposed excessive restraint on much needed current expenditure in such areas as road maintenance, public health, and education. 7. During the period 1971-1976, growth of real GDP slowed to less than 3 percent per annum. This was caused by factors largely outside Cameroon's control such as: (i) low export prices for cocoa and coffee during 1971 and 1972; (ii) several years of drought in the north; (iii) a drastic decline in domestic and foreign private investment, triggered primarily by the relative stagnation of the agricultural sector and by the completion of the most obvious import substitution projects during the preceding decade; (iv) a drop in 1975 in world demand for both cocoa and timber; and finally (v) rapidly rising import prices. 8. The Government reacted to these developments by stepping up public investment, which has increased by 50 percent to reach annual averages of about US$190 million in constant 1974 dollars during the Third Development Plan (1972-1976). At the same time, greater emphasis has been placed on agri- cultural output. Within a public investment program averaging 9 percent of GDP, rural development has comprised about 18 percent, transport and communi- cations 42 percent, energy 6 percent, and education 9 percent. Since nearly 75 percent of public investment has been in sectors where its contribution to domestic output is both indirect and delayed, the impact of this substantial investment effort on economic growth was limited during the Third Plan period. In addition, physical realizations have been in many cases less than projected due largely to substantial cost increases and the subsequent need to either reduce the scope of projects or defer them. 9. The balance of payments has not been a major constraint until re- cent years; however, imports increased rapidly in 1974 and 1975 as a result of worldwide inflation and heavy public development expenditure, especially in capital goods. At the same time agricultural exports declined, particu- larly exports of timber, causing a sizeable current account deficit in 1975. Together with a decline in private capital inflows this resulted in a fall in reserves from a level equal to nearly three months of import requirements in 1970 to one-half month at the end of 1975. Thanks mainly to considerably improved export demand and higher prices, especially for coffee and timber, by  - 3 - May 1976 gross reserves had recovered to the absolute level of 1972 and 1973. However, because of continuing international inflation, Cameroon's official gross international reserves, at end-1976, still covered less than one month of import requirements, a low level by usual international stan- dards but still acceptable in the "Banque des Etats de l'Afrique Centrale" (BEAC) monetary union arrangements. Prospects and Development Strategy 10. Cameroon's development effort over the next five years will be carried out under the Fourth Plan (1977-1981). A Bank economic mission discussed its recommendations on the level and composition of public invest- ment with the Government in November 1975 and agreed on overall priorities. It is anticipated that short- and medium-term growth of GDP will be 5 to 6 percent per annum in real terms, slightly lower than achieved during the 1960s. However, if the Government can maintain a high volume of public investment and further expand and diversify the country's production base, higher rates of growth can be attained in the early 1980s. With this goal in mind, the new Five-Year Plan has set a very ambitious public investment target of over US$2.0 billion in constant 1974 dollars or two and one-half times that achieved during the preceding plan period. The Plan gives in- creasing emphasis to the development of directly productive sectors, par- ticularly agriculture. The share of transport infrastructure investments is declining somewhat but remains high in absolute figures, while invest- ments in electric energy will increase. Social investments, particularly for sports and administrative buildings, see their importance considerably reduced. These changes in sectoral priorities are very much in line with the recommendations of the 1975 economic mission. 11. To ensure that appropriate priorities will in fact be achieved, the Government will need to strengthen its ability to choose, prepare, and implement projects, particularly in the rural and transport sectors. Some progress is being made in this direction. Special planning units are grad- ually being established within the technical ministries. A Government-owned consulting firm, the "Societe d'Etudes pour le Developpement de l'Afrique," was created under the Ministry of Economy and Planning to accelerate project preparation. Commercially-oriented public corporations are also serving to strengthen the project implementation capacity of the public sector. Never- theless, further improvements are needed, particularly in the management of public corporations and in strengthening and coordinating rural development institutions. A recently approved Technical Assistance Credit will assist efforts recently undertaken by the Government in these fields by providing technical assistance experts, training local staff, and financing high priority studies and project preparation in key economic sectors. 12. Even assuming these improvements take place, absorptive capacity is likely to limit the rate of investment in the high priority sectors. With respect to the overall investment level, financial considerations also sug- gest that public investment during the Fourth Plan is unlikely to exceed US$1.3 billion in constant 1974 dollars, or some US$400 million per year  in current dollars. Budgetary revenues have reached about 17 percent of GDP and cannot be expected to increase much faster than the economy as a whole. Current expenditures, on the contrary, will expand more rapidly as a result of recent increases in public investment in transport, education, and health. Furthermore, public debt charges will grow rapidly, particularly those of public enterprises, and will absorb an increasing share of public savings. Consequently, in the next five years, public savings after debt service will probably not exceed US$100 million per year, or some 25 percent of total public irnvestment, as compared with 38 percent over the past few years. Cameroon will thus have to rely on external financing for the bulk of its public investment. 13. An increasing reliance on foreign borrowing during a period of relatively slow economic growth, and unfavorable terms of trade, will re- quire careful foreign debt management. However, on the reasonable assump- tion that at least 50 percent of foreign public capital inflow will be on concessionary terms, the foreign debt service ratio could be maintained below 10 percent by 1980. Cameroon's proven ability to make effective use of external resources, and the Government's dedication to development are reasons for added external support. To avoid further rapid buildup of debt service, lenders, including the Bank Group, should provide a large part of their assistance on concessionary terms. Furthermore, local resources including local borrowing are only expected to cover 30 percent of all Plan outlays after debt service and many projects will not attract any foreign funds. Under these circumstances, foreign lenders should be prepared to finance more than two-thirds of total project costs. PART II - BANK GROUP OPERATIONS IN CAMEROON 14. The Bank Group's commitments in Cameroon now amount to US$276.5 million and cover twenty-one projects: eight in agriculture, seven in trans- portation, three in education, one in public utilities, one small- and medium- scale enterprise project, and one technical assistance project. Transporta- tion represents the largest share (49 percent) of our past commitments fol- lowed by agriculture (33 percent). Annex II contains a summary statement of Bank loans and IDA credits as of March 31, 1977 and includes notes on on- going projects. Although delays and setbacks have been occasionally encoun- tered in the execution of projects, the Government has consistently shown willingness to collaborate with the Bank in finding solutions to such prob- lems. 15. For the future, the Bank Group's strategy is to support the Govern- ment in its effort to increase agricultural production, including export- oriented crops, and in the process create productive employment in rural areas; to upgrade and improve the operation and maintenance of the country's infrastructure; to stimulate investment by local entrepreneurs and increase employment in urban areas; and to increase the efficiency of Cameroon's in- stitutions.  16. Bank Group assistance to Cameroon supports the priority the Gov- ernment rightly attaches to the regional distribution of agricultural devel- opment and to a sound balance between improving conditions in the traditional sector and promoting plantation agriculture, including smallholder schemes. Thus we have helped the Government create an effective and well-managed plantation sector by financing oil palm and rubber plantations in the east and west. At the same time, we have helped promote smallholder rice irriga- tion and livestock in the north. The ongoing cocoa project is helping to modernize cocoa growing by smallholders and to raise rural productivity in areas south and west of the capital. The rubber project approved in June 1975 is helping develop the southwest coastal region. Rural development projects in populated but poor regions are being established with the assis- tance of the Bank. The Plaine des M'Bo Rural Development Project, which has been recently approved by the Board, will help finance studies and three-year trial activities required before a full-scale rural development program can be launched. The Rural Development Fund Project presented in this report is designed to help the Government establish the machinery for processing and implementing small-scale rural development schemes. Field appraisals for the Zapi-East Integrated Rural Development Project and for the Western Highlands Rural Development Project have recently been completed and the projects are scheduled to be presented to the Board during FY78. The recently approved Second SOCAPALM Project is a follow-up to a successful oil palm project (SOCAPALM I), which has been completed, and is a first step in promoting smallholder oil palm plantations in Cameroon. Also scheduled for presentation to the Board in FY78 is a tree crop estate and smallholder development project in the west, a follow-up of the Bank Group financed CAMDEV project. Besides promoting much needed foodstuffs production, increased Bank Group lending for agriculture will support the Government's effort to focus on rural development in order to improve income distribution and to achieve a better balance in regional development. 17. Recognizing the crucial importance of transportation to economic growth in Cameroon and in neighboring countries, the Government has devoted the largest portion of public investment to this sector. The Bank Group, together with bilateral institutions, has substantially aided development of adequate transport facilities. The Second Highway Project of 1973 was designed to help complete the country's basic trunk road system. The proj- ect has encountered severe cost overruns partly alleviated by a Supplemen- tary Credit approved in March 1976. The Second Railway Project of 1974 has focused on track improvement and expansion of the equipment needed to maintain and augment the railway's overall carrying capacity. Given pro- jected sharp traffic increases, and the backlog of required investments, substantial capital outlays are still necessary particularly for the expan- sion of the port of Douala, which will be assisted by a recently approved Bank loan and IDA credit, and some related facilities such as a railway station and marshalling yard to be built outside the port area. An engi- neering loan, approved in May 1976, will help complete the engineering of this station and marshalling yard. Improvement of the Douala-Yaounde trans- port corridor will also require substantial investment. A study financed by  - 6 - the Bank and designed to help determine an economically optimal investment strategy for this corridor is in the process of completion. Its principal recommendations and a proposed investment package are being discussed between the Government and a number of aid-giving agencies. Future road investments should mainly be for road maintenance and feeder roads to provide links to local markets and facilitate exploitation of Cameroon's forests. In other sectors, the Small- and Medium-Scale Enterprise Project, approved in 1975, focuses mainly on developing local entrepreneurship. A Third Education Project, approved in April 1976, places special emphasis on rural education and training. 18. In all our projects, we include, as needed, training, technical assistance, and other provisions necessary for strengthening institutions and improving sector policies. The recently approved Technical Assistance Project would help to strengthen Government services in several key minis- tries involved in investment planning, policy analysis and project processing. In addition, through our economic work we will continue to advise the author- ities, at their request, on development questions in general, and on partic- ular matters such as economic management, problems of urban migration, and manpower development. To help achieve the Government's priorities and to support our future lending strategy will require continuing emphasis on strengthening the institutional framework, particularly concerning project planning preparation and implementation in transportation and rural and urban development. 19. During the second half of the sixties, overall disbursements of foreign aid to Cameroon amounted to about US$40-45 million a year. While at the beginning of this period 65 percent of aid funds were grants, the proportion of loans slowly increased. A major part of external assistance was provided by France and was concentrated in infrastructure and productive sectors. The European Development Fund and European Investment Bank directed their lending mainly to agriculture, with infrastructure in second place. Bank Group disbursements were small during this period. From 1972 to 1974 overall disbursements of foreign aid increased to about US$60 million with one-third as grants. The Bank Group's share of these inflows amounted to about 25 percent. Our lending to Cameroon has been closely coordinated with other donors; in eleven of our twenty-one projects, joint or parallel co- financing arrangements have been made. 20. Public debt outstanding and disbursed as of December 31, 1975 amounted to US$362 million and is projected to reach US$1.5 billion in 1981. Public debt service as a proportion of export earnings amounted to 5.4 percent in 1975 and is projected to reach 9.5 percent in 1981. At that time annual foreign aid disbursements may be over US$400 million with only 9 percent con- sisting of grants. At end-1975 IBRD debt accounted for 13.7 percent of all public debt outstanding and disbursed, and 10.6 percent of public debt ser- vice. IDA credits accounted for 25 percent of public debt outstanding and 0.1 percent of public debt service. The Bank Group is expected to account for about 25 percent of total public debt and 14 percent of public debt ser- vice in 1980.  - 7 - 21. In October 1974, Cameroon became IFC's 100th member. IFC's first operation in Cameroon, a US$450,000 underwriting to bring domestic share- holders into a previously wholly foreign-owned shoe manufacturing company, was approved in May 1975. In September 1976, the IFC Board approved an equity investment of nearly US$900,000 in a foreign-owned rubber estate (SAFACAM). The investment will assist in the rehabilitation and diversi- fication of an existing estate by producing rubber for export and palm oil for the domestic market. The operation will also facilitate participation by domestic shareholders. PART III - THE AGRICULTURAL SECTOR Main Features and Recent Developments 22. Agriculture, including forestry and livestock, plays a major role in the Cameroon economy, providing a livelihood for about 85 percent of the population and accounting for 35-40 percent of GDP and over 75 percent of the value of exports. The agricultural sector can be divided in two major sub- sectors: traditional agriculture and industrial plantations. The tradi- tional subsector accounts for over 85 percent of agricultural output. It comprises some one million smallholdings of about two hectares each, using family labor. Smallholders produce foodcrops for subsistence and for the local market, and cocoa, coffee, cotton and groundnuts for export. Cattle- raising, mainly by nomadic and semi-nomadic pastoralists in northern Cameroon and the north-central Adamaoua plateau, accounts for about 15 percent of the production of the traditional subsector. The industrial plantation subsector comprises several large Government-owned and a few private industrial estates (foreign-owned) producing mainly palm oil largely for domestic consumption and rubber for export. 23. Production of foodstuffs has expanded over the past five years at an annual rate of about 3.5 percent, ahead of population growth. But this has been due mainly to a rapid growth in the output of vegetables in response to growing urban demand, as against stagnation in the output of traditional staples such as maize (in the west), plantains, yams, cassava and cocoyams (in the center south) and millet and sorghum in the north. Marketing of food crops is almost exclusively in the hands of private traders, most of whom operate over limited areas with a small turnover. Storage facilities are inadequate. 24. The national livestock herd is estimated at 3 million cattle, 3 million sheep and goats, 0.5 million pigs and 8 million poultry. Annual meat production from the national herd is estimated at 80,000 tons. In the past, this was supplemented by imports of live animals from Chad, but recently these cattle have been diverted to Nigeria, so that without an increase in local production, annual per capita meat consumption has probably fallen from  - 8 - its previous level of about 11 kg. Market price increases for beef and cattle over the last two years have been about fifteen percent per year. Price controls have been established by the Government, but have so far been ineffective. 25. Although forest accounts for 37 percent of Cameroon's total land area, the forestry sector contributes less than 3 percent to GDP, 8 percent to exports, and 7 percent to employment. Better utilization of Cameroon's vast forest resources calls for improved inventory statistics, construction of feeder roads, encouragement of local wood processing, and appropriate concession and fiscal policies. Studies financed by the Bank Group under the Second Highway Project (Credit 429-CM and Loan 935-CM) are designed to assist Government efforts in these fields. 26. There are marked regional disparities in farm incomes stemming basically from differences in farm size due to population pressure and the type of cash crops grown. Per capita farm incomes are the highest in the cocoa and coffee producing areas of the south, about US$130 per capita, whereas in the northern highlands they are as low as US$40. Institutions 27. The National Fund for Rural Development (FONADER), an agricultural credit institution, will play a key role in the execution of the project presented in this report. FONADER was created in 1973 in the wake of the liquidation of five experimental provincial development agencies. It was given the dual role of: (i) providing credit to farmers, precooperatives, and cooperatives, and (ii) appraising, financing and supervising a wide var- iety of rural development programs, from pesticide and fertilizer supply, to village water supply and irrigation projects. FONADER operates from its Yaounde headquarters, relying on the departmental field services of the min- istries concerned for the basic evaluation and implementation tasks. The shortcomings of assuming such widespread responsibilities from a narrow base have now become apparent; a reorganization plan has been outlined and is presently under review by the Government. This plan suggests concentrating FONADER's activities on agricultural credit operations with corollary changes in its financial and organizational structure, such as the opening of regional offices. In addition, a detailed organization study, to be financed by the European Development Fund (EDF), is about to get underway. The Government has agreed to consult with IDA prior to implementing any measures that would affect FONADER's administrative organization, operational policies, or finan- cial resources so as to ensure that such measures would not adversely affect the objectives and activities of the proposed project (Section 4.04 of the draft Development Credit Agreement). 28. Agricultural services are provided by a variety of governmental services and publicly-owned organizations. The Ministries of Agriculture and Livestock have primary responsibility for most aspects of agricultural and animal production, respectively. Agricultural research is largely under- taken by the recently established National Organization for Scientific and  - 9 - Technical Research (ONAREST) and coordinated by the Ministry of Economy and IPlanning. Responsibility for agricultural training is divided between the Ministries of Agriculture and Education. The Ministries of Agriculture and Livestock have provincial and departmental services that include representa- tives of various ministerial directorates (e.g. Rural Engineering, Coopera- tives, Veterinary Services). These services enjoy a high degree of opera- tional autonomy but are burdened by a number of shortcomings including management, communication, and coordination problems as well as manpower and budgetary constraints. A number of publicly-owned companies and devel- opment agencies have also been established for specific agricultural pro- grams or projects. Examples are the "Societe Camerounaise de Palmeraies" (oil palm) the "Societe de Developpement du Coton" (cotton), and the "Societe d'Expansion et de Modernisation de la Riziculture de Yagoua" (SEMRY), an irrigated rice development institution. Agricultural Development Stratgey 29. Cameroon's Fourth Plan (1977-1981) gives increasing emphasis to directly productive sectors. Projected public investment in agricultural development would represent some 17 percent of the Plan's total capital expenditure. At the same time, recurrent expenditures for rural develop- ment services are projected to grow by 6.7 percent per annum in real terms over the Plan period. 30. Implicit in the Fourth Plan is a two-pronged agricultural devel- opment strategy. Because of the need for increased export revenues and to utilize fully the technical and managerial experience already acquired by existing organizations, about a quarter of the total projected investment will be for further expansion of plantation agriculture, including promo- tion of smallholder schemes, and for the development of modern ranch programs. The rest of the investment program is intended to promote and improve pro- duction in the traditional sector through a variety of means, such as in- tegrated regional development, settlement schemes, and specific crop and livestock promotion. It is recognized that rural development requires many relatively small and localized supporting activities in such fields as self- help efforts by the local population, credit for individual producers, rural water supply, and small-scale irrigation projects. The project presented in this report is designed to meet these needs by helping develop the required technical and managerial capabilities and financing a first stage program of selected activities. PART IV - THE PROJECT Background 31. The Government of Cameroon has requested IDA assistance to set up a Rural Development Fund (RDF) and finance as a first step a group of high priority small-scale rural development schemes. The project was identified by an RMWA mission in late-1975, and prepared by RMWA missions in April and August 1976. An IDA mission appraised the project in October/November 1976.  - 10 - A report entitled "Appraisal of a Rural Development Fund Project - Cameroon" (No. 1479-CM dated May 26, 1977) is being circulated separately. Negotia- tions for the proposed Credit were held in Washington from May 3 to 6, 1977 with a Cameroonian delegation headed by His Excellency, Mr. Benoit Bindzi, Ambassador of the United Republic of Cameroon to the United States. Purpose 32. The proposed project is intended to develop and strengthen Cameroonian institutions involved with programming, implementing and super- vising rural development projects. To this end, the proposed project would help establish a much needed structure for channeling and monitoring the effective use of funds for small-scale and repeatable rural development projects geared to improving productive activities as well as infrastruc- ture. These objectives conform with Cameroon's agricultural development strategy as presented in the Fourth Development Plan (1977-1981). Project Description 33. The proposed project would concentrate on the four Northern Prov- ince Departments of Diamare, Margui-Wandala, Mayo-Danay, and Logone et Chari. It would be implemented over a four-year period and consist of: (a) improving about 300 ha of bottomland near Moulvouday for rice cultivation; (b) developing irrigated market gardening (onions and vegetables) in a 250-ha area near Maroua by providing loans and technical assistance to about 60 subsistence farmers; (c) developing commercial stall fattening of steers by providing credit facilities and technical assistance to about 2,000 farmers in the Mandara mountains area; (d) constructing 10 small dams in the Mandara moun- tains for human and animal water supply; (e) increasing and improving village water supply on the Diamare Plain by: (i) rehabilitating about 600 existing open wells and capping 60 of them; (ii) drilling about 430 boreholes; and (iii) equip- ping about 490 water points with hand- or pedal- operated pumps; (f) providing funds (some US$500,000) for as-yet-uniden- tified sub-projects; and  - 11 - (g) providing for technical assistance, on-the-job training of local personnel, project monitoring, carrying out a survey of waterborne diseases in the project area, preparation of further sub- projects and of a follow-up RDF project, and supporting services. Project Implementation 34. The Government would create within FONADER a Rural Development Fund unit, to be denominated "Fonds Special d'Actions Rurales" (FSAR), which would assume overall responsibility for project execution. FSAR would have operational autonomy and be responsible for: channeling project funds to executing agencies and units; overall project supervision; establishing annual programs, budgets and reports; procurement; preparing sub-projects to be financed out of the provision for unidentified projects; and preparing a follow-up RDF project. A condition of effectiveness of the proposed credit is that FSAR has been established under terms and conditions satisfactory to IDA (Section 6.01 (a) of the draft Development Credit Agreement). FSAR would be staffed with a Cameroonian Director, an internationally recruited chief Operations Officer, an accountant and supporting staff. Responsibility for executing the investments would be assigned to several Government technical services and agencies as follows: (i) the Rural Engineering Service of the Ministry of Agriculture for well construction, pump installation, small dams construction; (ii) SEMRY for bottomland development; (iii) the Hydrogeological Service of the Ministry of Mines and Energy for borehole drilling; (iv) the Community Development Service of the Ministry of Agriculture for assisting in recruitment and organization of unskilled labor for the small dams construc- tion and voluntary labor for the bottomland works; and (v) the Agricultural and Livestock Extension Services of the Ministries of Agriculture and Live- stock, respectively, which would assist FSAR in implementing the Market Gar- dening and Stall Fattening sub-projects. Not later than December 31, 1977, FONADER would, on behalf of FSAR enter into operational arrangements, satis- factory to IDA, with each of the ministries concerned, to define in detail their respective roles in the execution of the proposed project (Section 3.01(d) and (c) of the draft Development Credit Agreement). 35. Key project staff would be: (i) the FSAR Director; (ii) the FSAR Chief Operations Officer; (iii) the Credit Manager; (iv) the Credit Specialist; (v) the Maintenance Engineer for the village water supply program; (vi) the Small Dams Construction Engineer; (vii) the Borehole Unit Manager; (viii) the Borehole Drilling Instructor; (ix) the four Open Wells Brigade Heads; and (x) the FSAR Accountant. The FSAR Director, the Credit Manager and the Accountant would be Cameroonians recruited by FONADER and appointed after consultation with IDA. A number of well qualified Cameroonian technicians operating in the project area -- the Borehole Unit Manager at the Hydrogeological Service in Garoua, and four Open Wells Brigade Heads in the Northern Region's Rural Engineering Service -- would be assigned by their respective Ministries to relevant project implementation units.  - 12 - The remaining key project staff would need experience and technical qual- ifications currently unavailable or in critically short supply in Cameroon, and would therefore be internationally recruited. If requested by the Gov- ernment, the Agricultural Projects Management Unit of IDA's Western Africa Regional Office would assist in recruitment. The expatriate staff would not only provide on-the-job technical training to local personnel, but they would also ensure that senior local staff be given a thorough grounding in essential management matters, such as work planning and supervision, budgeting, procure- ment, and control of stocks. Provisions on these matters would be included in the terms of reference of the expatriate staff. Assurances were obtained that: (i) all key expatriate project staff would be employed under terms of reference and would have qualifications and experience satisfactory to IDA, and (ii) the FSAR Director, the Credit Manager and the Accountant would be appointed after consultation with IDA. Appointment of the FSAR Director and of the FSAR Chief Operations Officer would be a condition of effectiveness of the proposed Credit (Section 6.01(b) of the draft Development Credit Agreement). 36. FSAR would submit annual project implementation programs and bud- gets to IDA for approval not later than December 31, 1977 in respect of the project activities to be carried out until June 30, 1978 and not later than April 30, for the following fiscal years (Section 3.10 of the draft Development Credit Agreement). FSAR would introduce before March 31, 1978, a monitoring and reporting system satisfactory to IDA, and would be responsi- ble for timely reporting thereafter. Assurances to this effect were obtained (Section 3.11 of the draft Development Credit Agreement). 37. FSAR would also be charged, during the first project year, with the identification and preparation of small rural projects yet to be identi- fied and for the financing of which US$0.5 million has been provided under the proposed project. The Directorate of Studies and Projects in the Ministry of Agriculture would assist FSAR in this preparatory work. Proposals for sub- projects to be financed under the above provision should meet the following basic criteria: that they (i) benefit a large number of rural inhabitants; and (ii) be of small scale, requiring simple implementation arrangements, taking full advantage of the existing Government's services. Fully appraised and well justified proposals for yet unidentified sub-projects would be sub- mitted with all supporting documentation to IDA for approval (Section 3.08 of the draft Development Credit Agreement). FSAR would also be responsible for initiating preparation of a follow-up RDF project. Control of Potential Project-Related Health Hazards 38. It can be anticipated that the construction of water reservoirs under the bottomland development and the small dam sub-projects would bring about some health problems. The spread of waterborne diseases, especially schistosomiasis, is likely to occur. The Government health services and the community development agents involved with the project would advise the  - 13 - population on the adoption of precautionary measures. A surveillance mecha- nism to monitor the health situation and identify the need and feasibility of control actions would be set up by the Government health services in the small bottomland development and dams sub-project area. The Government has agreed to set up such a surveillance mechanism not later than April 30, 1979 (Sec- tion 3.09 of the draft Development Credit Agreement). 39. In addition, the project would finance a health survey of the proj- ect area to assess the available health infrastructure, the epidemiological situation and the management and budgetary constraints of the health services. The survey would provide the data base for the design of appropriate health actions in the Mandara mountains, and would assist the Government in adjust- ing its health strategy in the Northern Province. Project Cost and Financing 40. Project costs for the four-year project period are estimated at US$10.6 million equivalent (mid-1977 prices), including sales and excise taxes of US$0.9 million, with a foreign exchange component of 57 percent. Cost estimates include physical contingencies of 10 percent of base cost (US$0.8 million) and provision for expected price increases of 17 percent of base cost (US$1.4 million). Base cost is made up as follows: bottomland development US$0.6 million; market gardening US$0.1 million; stall fattening US$0.4 mil- lion; provision for unidentified projects US$0.5 million; small dams US$1.6 million; village wells, pumps and boreholes US$3.6 million; and project supporting services US$1.6 million. 41. The proposed IDA credit of US$7.0 million would finance 72 percent of total project costs net of taxes and duties, covering the equivalent of the foreign exchange cost (US$6.0 million) and US$1.0 million of local costs. The financing of local costs in Cameroon is justified for the reasons discussed in para. 13. The balance of project costs net of taxes and duties would be met by the Government (US$2.6 million), and by beneficiaries (US$0.1 million) in the market gardening and stall fattening sub-projects. Farmers in the bottom- land development sub-project would also contribute by providing unpaid volun- tary labor of about US$30,000 equivalent that is not included in the project cost estimates. 42. The IDA credit and Government contribution, except for salaries of local personnel which would continue to be directly paid, would be passed on as grants to an account opened by FONADER in the name of FSAR. The funds would be channeled by FSAR to the services or units in charge of sub-project execution on the basis of approved annual implementation programs and budgets. Each executing service or unit would be required to maintain individual sub- project accounts. The Government's annual contribution to the RDF project would be separately shown in the budget and the funds would be transferred in quarterly installments to the FSAR account. A condition of effectiveness of the proposed credit would be that the Government had made an advance pay- ment of CFAF 50 million (US$200,000 equivalent) into the FSAR account, which  - 14 - would constitute a revolving fund to be administered by FSAR for prefinanc- ing project expenditures (Section 6.01(c) of the draft Development Credit Agreement). Terms and Conditions of Farmer Credit 43. Loans to farmers under the market gardening and stall fattening sub-projects would be for four years and two years respectively with a mini- mum rate of interest of 10 percent per annum (Schedule 4 to the draft Devel- opment Credit Agreement). Pumps to be provided on credit under the market gardening sub-project would only involve hand- or pedal-operated pumps. Motor pumps would not be financed, as their introduction would create social prob- lems such as displacement of manual labor. Cost Recovery 44. The possibility of repeating activities such as those supported under the proposed project, especially village water supplies, depends on success in recovering the largest possible share of investment and mainte- nance costs from the beneficiaries and the local communities involved. To this effect, the Government would implement, under terms and conditions satisfactory to IDA a pilot cost recovery scheme along the following lines: (i) in the bottomland development sub-project, investment and maintenance costs of water control works would be recovered from the beneficiaries in accordance with the provisions of the land use regulations (cahiers des charges) currently enforced in the SEMRY project (Credit 302 CM) to the satisfaction of IDA; (ii) in the small dams sub-project, the maintenance costs of the dams would be covered by the beneficiaries and the local com- munities involved; the beneficiaries would provide the labor required for periodic cleaning and weeding of the reservoirs; the local communities would make adequate budget appropriations to cover related monetary expend- itures; (iii) in the village wells, pumps and boreholes sub-projects the beneficiaries and their communities would (a) provide a contribution to investment costs estimated at the equivalent of the whole of initial pump capital cost; and (b) cover the costs of operating, maintaining and replac- ing the facilities. The Government would submit to IDA for approval not later than April 30, 1978 i.e. together with the first village water sup- ply investment program, the specific measures required for implementing and monitoring the pilot cost-recovery scheme. By June 30, 1980, the Gov- ernment and IDA would review progress in the pilot cost-recovery scheme and discuss possible improvements (Sections 3.15 and 3.16 of the raft Develop- ment Credit Agreement). Procurement and Disbursement 45. Except for items specified below, procurement would be through in- ternational competitive bidding (ICB) following Bank group guidelines. The cost of civil works, vehicles and equipment to be procured through ICB would  - 15 - total about US$3.6 million. To the extent feasible, purchases of vehicles, equipment and materials would be grouped for purposes of bidding so as to permit bulk procurement. Locally manufactured goods would be allowed a preference of 15 percent or the level of applicable import duty, whichever is lower, when comparing domestic with foreign bids. Contracts for US$100,000 equivalent or less , which should together not exceed US$1.1 million, would not be large enough to attract international bids and would be awarded under local competitive bidding procedures acceptable to IDA. Ten small dams would be constructed over a four-year period in remote areas. Given the low cost per dam (about US$45,000), such construction works would not be attractive to contractors and would therefore be carried out on force account by the Rural Engineering Service. Expatriate staff and consulting services costing about US$1.7 million would be obtained according to Bank group Guidelines for Consulting Services. 46. The proceeds of the IDA credit would be disbursed to cover, net of taxes and duties: (i) 60 percent of civil works, defined as construc- tion costs of the bottomland sub-project, construction costs and access roads for the small dams sub-project, and construction of FSAR offices and workshop rehabilitation at Maroua -- US$0.5 million; (ii) 100 percent of foreign expenditures, or 85 percent of local costs if procured locally, of vehicles and equipment -- US$2.4 million; (iii) 60 percent of operating costs, other than local personnel -- US$1.0 million; and (iv) 100 percent of expatriate staff costs, including benefits and housing allowances -- US$1.4 million. An amount of US$1.7 million, which includes US$0.3 mil- lion for as-yet-unidentified projects, would be left unallocated. Dis- bursements against (i), (ii), and (iv) above would be fully documented. Disbursements against (iii) would be made on the basis of statements of expenditures certified by the FSAR Director and FONADER's Director General with the supporting documentation retained by FSAR and made available for inspection during IDA project supervision missions. Benefits and Justification 47. The project is expected to have a major institutional impact. FONADER would be strengthened by: (i) the creation of the FSAR unit, which would provide a much needed fund-channeling mechanism for rural investment; (ii) the development of preparation, implementation and supervision capabil- ities for rural development and small farmer credit projects; and (iii) the implementation of a reporting and monitoring system, as well as accounting and procurement procedures, that could become of general application in the future. The regional field services of the Ministries of Agriculture, Live- stock and Mines and Energy would be strengthened and would acquire on-the- job experience in the implementation of simple, repeatable rural works. 48. Bottomland development, market gardening and stall fattening would provide substantial direct benefits for about 2,400 farm families. Net cash return per man-day would increase for bottomland development from the equiv- alent of US$4.90 to US$10.0, for market gardening from the equivalent of US$1.30 to US$5.70 and for stall fattening from the equivalent of US$0.60 to US$1.08, thus offering good incentives to participating farmers. Economic  - 16 - rates of return have been estimated at 22 percent for bottomland development, 20 percent for market gardening, and 34 percent for stall fattening. The overall rate of return for these sub-projects, which together involve nearly one-third of total project cost, is 26 percent, or 18 percent including their share of the cost of supporting services. 49. The major benefit from the village water supply component would be an improvement in the quality of life for about 120,000 rural families. The project would improve water quality and thereby contribute to reducing health hazards, increase daily overall availability from 15 to 25 liters per capita, and greatly reduce the burden of carrying water over long distances, a particular benefit to rural women. Risks 50. Given the current shortage of qualified supervisory personnel and the fact that rural construction works are limited to the dry season, the success of the RDF project would depend on the timely recruitment of key project staff; special efforts, including recourse to the Western Africa Region's Agricultural Projects Management Unit if requested by the Government, would therefore be made for this purpose. In assessing the merit of the bottomland development scheme, the incidence of low rainfall years has been accounted for by lowering the projected paddy yields; moreover, the possible spread of waterborne diseases would be closely monitored. For the small dams sub-project, the risk of further spreading of endemic waterborne diseases would be closely monitored. Steps would be taken under the project to re- strict direct animal access to water, and to advise villagers in proper water use. A health survey of the project area would be carried out. In the stall fattening scheme credit recovery could be somewhat risky, since fattened cattle could be sold in non-controlled markets. However, the influence of traditional leaders and community pressure for repayment by participating farmers is expected to be considerable. These circumstances and the fact that the credit scheme would provide farmers with a unique opportunity to start diversifying their activities and substantially increasing their income would tend to counter possible credit recovery problems. Finally, since the pro- posed RDF project would consist of at least five independent sub-projects, the failure of one component would not have serious repercussions on the others. PART V - LEGAL INSTRUMENTS AND AUTHORITY 51. The draft Development Credit Agreement between the United Republic of Cameroon and the Association, the Recommendation of the Committee provided in Article V, Section I (d) of the Articles of Agreement of the Association, and the text of a draft resolution approving the proposed credit are being distributed to the Executive Directors separately. 52. Features of the draft Development Credit Agreement of special in- terest are referred to in Section III of Annex III. Special conditions of effectiveness of the proposed Development Credit Agreement would be that:  - 17 - (i) the Government has formally created the FSAR (ii) the FSAR Director and the FSAR Chief Operations Officer have been appointed and (iii) the Govern- ment has made an advance payment of CFAF 50 million (US$200,000 equivalent) into the FSAR account to set up a revolving fund (Section 6.01 of the draft Development Credit Agreement). 53. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 54. I recommend that the Executive Directors approve the proposed Development Credit. Robert S. McNamara President Attachments June 20, 1977   ANlNEX I TABLE 3A Page 1 of I. pagTes CAMEROON - SOCIAL INOICATORS DATA SHEET LAND AREA ETHCU KM21 ---- -------- -