Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY CONFIDENTIAL Report No. 1310-TO RETURN TO REPORTS DESK WITHIN ONE WEEK THE ECONOMY OF TOGO A BASIC ECONOMIC REPORT Volume I SUMMARY AND CONCLUSIONS April 1977 Western Africa Region 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 Bnk authorization. FOR OFFICIAL USE ONLY CONFIDENTIAL INTRODUCTORY NOTE This volume contains a summary of a basic economic report, The Economy of Togo, which was based on the findings of an IBRD mission to Togo in March/April 1976. Such reports are prepared at four- to five-year inter- vals - frequently in relation to the preparation of medium-term development plans - and are intended to provide an assessment by the Bank of countries' long-term development prospects and development strategies within an histor- ical perspective. Basic reports include a review of the structural features of an economy and an evaluation of prospects, policies and priorities in the principal economic sectors. For additional information on the analysis underlying the findings and recommendations presented in this summary volume, the reader is invited to refer to the Main Report (Volume II) and the Statis- tical Appendix (Volume III). Since the mission's return from Togo there has been a decline in the current and forecast price of phosphate, the country's principal export commodity, while public recurrent and capital expenditures including debt service have continued at high levels. As noted in paragraphs 64 and 68, the country's generally favorable real long-term growth prospects would be jeopardized unless steps are taken to restore financial equilibrium, which has traditionally been a strong point in Togolese economic policies. 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. TABLE OF CONTENTS ECONOMIC STRUCTURE AND HISTORICAL DEVELOPMENT 1 Pre-Independence Developments 1 Structural Features of Togo's Economy and Society 1 Economic Position at Independence 3 Record Since 1960 3 ISSUES AND OPPORTUNITIES FOR LONG-TERM DEVELOPMENT 7 Role of Mining and Mineral Processing 7 Problems and Constraints 8 Population 9 Employment 9 Investment Strategy 10 The Third Five-Year Development Plan 11 Plan Targets 11 SECTOR DEVELOPMENT STRATEGIES 14 Agriculture 14 Manufacturing and Small-Scale Enterprise 16 Mining, Mineral Processing and Larger-Scale Enterprise 18 Tourism 20 Transport 21 Power and Water Supply 22 Health and Education 23 PROSPECTS FOR ECONOMIC GROWTH AND DEVELOPMENT 25 Economic Growth 25 Investment and Finance 26 Summary of Recommended Policies and Priorities 30 Annex 1: SELECTED ECONOMIC TRENDS, 1960-75 Annex 2: MACRO-ECONOMIC STRUCTURE, 1966-80 LIST OF TABLES Table Page 1 GDP Growth Objectives, 1971-80 12 2 Planned Investments, 1966-80 12 3 Public Finance Profile, 1966-80 28 4 Summary Balance of Payments, 1966-80 29 5 Proposal for a Revised Investment Program 31 ABBREVIATIONS AND ACRONYMS BCEAO Banque Centrale des Etats de l'Afrique de l'Ouest BOAD Banque Ouest Africaine de Developpement CEAO Communaute Economique de l'Afrique de l'Ouest CEB Communaute Electrique du Benin CEDEAO Communaute Economique des Etats de l'Afrique de l'Ouest CFT Chemins de Fer du Togo CIMAO Societe des Ciments de l'Afrique de l'Ouest CTMB Compagnie Togolaise des Mines du Benin ECOWAS Economic Community of West African States (CEDEAO) OCAM Organisation Commune Africaine et Malgache OPAT Office des Produits Agricoles du Togo OPT Office Togolaise des Phosphates RPT Rassemblement du Peuple Togolais SORAD Societe Regionale d'Amenagement et de Developpement UMOA Union Monetaire Ouest Africaine 18RD 2238Rз APR1L 19J7 � U Р Р Е R V О L Т А i�� �� -___ % J i��-'-� г � � DAPANGO I � � �S ,4 V А N N А � то�о ``.` R Е с iorv , TRANSPORTATION ,1 i� NETWORK и'� SANSANNE- '� � л MANGO •� г � /��� � \ с) �-`_ i к А R А��� ��, � клиое 1 � � `�R Е 1ОN� �! ` иiАмтосои �� ` �� Коитео PAGOUDA ) �EiAO г•`� �AMAKARA L. 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TSEViE ePi'� � ëlsswV �^GUINEA,�/VO�%А^ч\� N1GFq1A ` \ J�I у�Аи ANFOUIN� - г 1 т �.. . �Z �'2/ �.J 51ERq4 � ANEHO � LEONE � < 1VORY1 i г� J О ° • l1BER1A �COAST� и f �'Wo-o � � ' а �- гN А7[AN1/C OCEAN О ЮGUINE �Р LOME pf вЕN _� ~ ��i6 слвои5 ECONOMIC STRUCTURE AND HISTORICAL DEVELOPMENT 1. Togo achieved rapid economic growth in the past; since 1960 real GNP per capita rose at an annual average rate of 4 percent, which has been one of the highest growth rates in Africa. 1/ Togo's record of growth was accomplished against considerable odds. In the late 1950's Togo ranked among the poorest LDCs with an estimated per capita income of $70, and immediate prospects were considered quite limited in view of the country's historical development and economic structure at that time. Pre-Independence Develcpments 2. The general structure of the economy at independence in April 1960 was not greatly different from what it had been some 30 years earlier when tropical export crops were developed and a basic transport infrastructure had already been -in use for several years. Successive changes in political status prior to independence - the League of Nations mandate in 1919, UN trusteeship in 1946, in. 1956 a republic within the French Union - did not alter the determinants of economic activity significantly until the 1950's when there was an acceleration of French aid. Togolese exports consisted mainly of cocoa, palm products and cotton which were introduced in the early 20th Century, and of coffee, which was introduced in the 1930's. While cocoa exports tended to decline, coffee, copra and manioc showed some expansion, but overall there was very limited development in the pre-independence era. 3. From the 1930's to the mid-50's imports and exports of goods and services were broadly in balance, which implies that net capital flows were negligible during that period. During the last decade before independence GDP growth may have been on the order of 5 percent per year, which was stimulated by export growth of about 7 percent per year, while investments of perhaps 5 percent of GEP were financed primarily by French aid. Efforts were also made to develop human resources, and the primary school enrollment rate rose to about 45 percent by 1960 versus 10 percent in the late 1940's, while health standards also improved. French budgetary support was a normal feature of the pre-independence budget for almost every year. Structural Features of Togo's Economy and Society 4. As Togo is a small, elongated country with long borders, trade has traditionally figured prominently in overall economic activity. A diversi- fied geography and climate present a variety of ecological conditions and constraints for agriculture. Of the total land area, 50 percent is considered 1/ Togo's real per capita GNP growth rate over the 1960-74 period (4.4 percent) is the second highest among African nations of over one million inhabitants (following Libya), exceeding the Ivory Coast (3.5 percent), Nigeria (2.9 percent), Benin (0.7 percent), etc. - 2 - cultivable but only 11 percent is presently cultivated, mostly by small farmers using traditional methods. However, variations in soil quality in combination with limited availability of water, irregular patterns of rain- fall and prevalence of riverblindness are among the serious obstacles to increased production of cash and food crops. These constraints have limited agricultural diversification and more balanced regional development. Togo's mineral resources have not been fully explored. Phosphate and limestone deposits in the South - exploited only after independence - are of high-grade quality, and the phosphate deposits are among the richest in the world. 5. Togo's population was estimated to be 2.2 million at the beginning of 1975, with an estimated rate of growth of 2.7 percen per year since 1960. The overall population density of 34 inhabitants per km hides large reg onal and interregional differences - the density reaches about 200-300 per km in the north (Kara Region) due to the presencl of potable water, while the Cen- tral Region has only 15 inhabitants per km . The overpopulation in the north and in portions of the Maritime Region may be alleviated by the opening up of new land to production and resettlement schemes. This will be especially important for regions where the overpopulation is.absolute, i.e., where soil depletion and other ecological factors such as rainfall do not permit a substantial expansion of agricultural production even with further intensi- fication efforts. Traditional land rights of various tribes and lack of communication infrastructure have been serious obstacles to mobility, but a land tenure law adopted in 1974 should clarify land rights and facilitate new settlements in areas with rural development potential. There are many ethnic groups with different languages, religious and social patterns in Togo, but the Ewe in the South (44 percent of the population) and the Kabres in the North (23 percent of the population) are the most important groups. While interregional migration has remained low, rural-urban migration has acceler- ated in recent years; however, urbanization is still low (about 15 percent of total population). Average per capita income in the southern regions, where the most important natural resources and growth sectors are heavily concen- trated, is about twice as high as it is in the North. 6. Because of the League of Nations mandate and subsequently UN trus- teeship status, Togo could not follow discriminatory trade and tariff prac- tices, nor could France impose them. At independence in 1960 the Togolese "open door" was as much a result of historical precedent as an explicit policy aimed at benefitting from the country's geographic position. A non-discriminatory tariff structure was a feature of Togolese commercial policy, which distinguished it from many other West African countries and which has influenced post-independence developments. Togo's pre-independence past, especially her strong links with first Germany and then France, also helps to explain the diversified sources of foreign assistance which have been made available to the country. Trade has been an important activity historically, with a high degree of commercialization prevailing since the turn of this century. Low tariffs have benefitted Togo's foreign trade and the country's position as an important regional commercial entrepot. The geographic distribution of foreign trade was heavily concentrated, first on Germany and later on France. Unrecorded border trade has always constituted - 3 - a feature of Togo's open economy, comprising both exports and imports of local agricultural products and consumer and intermediate goods from overseas. The magnitude and direction of unrecorded trade are determined by differences in consumer and producer prices among neighboring countries and foreign exchange rate differentials. Economic Position at Independence 7. At independence the country had a predominantly rural economy; over 80 percent of the population was employed in agriculture, producing largely for personal consumption. Agricultural production contributed about 60 percent of GDP and consisted mainly of food products. The secondary sector was embryonic, comprising mainly food processing and artisan activity and accounting for an estimated 10 percent of GDP. Installed electric generating capacity amounted to. only some 2,200 kw, supplying Lome with a miniscule 5 million Kwh per year. The "port" of Lome consisted of a 500-meter pier from which goods were located onto and unloaded from ships anchored offshore. Overland trade and international movements of labor had traditionally been important in economic activity, and trade and other service sector activities were estimated to account for approximately 30 percent of GDP. By indepen- dence, Togo's GDP was about $100 million, and at that time the country ranked only slightly above the poorest francophone countries of West and Central Africa. Record Since 1960 8. By the end of 1975 GDP per capita had risen to about $290, a deep- water port.was operating at high capacity, road and air transport facilities had been substantially improved, and electric power was being provided in sufficient quantities at at lower cost from the Volta River Authority through the tripartite Benin Electricity Community. Growth of some 6-7 percent per year in real terms was mainly attributable to the start-up and expansion of phosphate mining, but was also facilitated by a rising level of investment, and increased service sector activities including continued transit trade in consumer and agricultural goods, notably cocoa, with neighboring countries. Overall agricultural development had lagged for a number of reasons: few projects, low investment and current expenditure from both domestic and for- eign sources, inadequate extension services, insufficient technical assis- tance, and conservative producer prices, as well as drought towards the end of the period. Phosphate mining, which began shortly after independence, not only contributed to the growth of output and exports, but also provided a substantial and fast-expanding source of new foreign exchange earnings and public revenues, particularly in recent years, which in turn permitted higher levels of both imports and Government services. Economic growth, moderate price increases generally below inflation rates, and expanding domestic re- source mobilization - primarily through growing public and para-fiscal sav- ings - are in the main indicators of Togo's favorable economic performance. Thoughout most of the period, the Government pursued basically prudent finan- cial policies and kept debt service at manageable levels, but foreign borrow- ing rose fast in 1974/75. A rising inflow of foreign funds from diversified public and private sources helped finance the balance of payments resource gap and permitted an adequate level of foreign reserves. 9. Togo's foreign trade underwent major changes in the past. First, the country's export concentration, and thus its exposure to widely fluc- tuating world market conditions, accelerated rapidly. Second, -the share of agricultural products in total exports declined from 100 percent during the pre-independence period to about 40 percent in recent years. However, this shift in the composition of exports is almost exclusively due to phosphate sales and does not reflect a broad-based diversification in non-agricultural exports. Finally, the direction of Togo's foreign trade changed significantly, away from France toward other countries of the European Communities and Japan. While trade remains concentrated with the European Communities, the risks associated with concentration have been somewhat offset by the EC Stabex arrangement, which offers some protection against severe shortfalls of exports to EEC. Including estimated unrecorded border trade with Ghana and Benin, African countries together ranked second in Togo's total foreign trade. Recently Togo made special efforts to further diversify its export outlets, especially for phosphates, for instance through sales to Canada, China, some Middle Eastern and Eastern European countries. 10. Compared with other West African countries, Togo has enjoyed rela- tive political stability ever since its independence. In 1963 a military coup made M.N. Grounitzky president. After a transitional period, the military took power formally, with General Eyadema, a Kabre from the Kara Region in the North, becoming president in 1967. His Government's aim is to build a modern nation with a one-party system - the Rassemblement du Peuple Togolais (RPT). The country is well-managed compared with many African nations. The composition of the Government generally reflects a careful balance of regional representation, and the civil service has been left basically intact since independence. There is, however, a concentra- tion of economic decision-making at the highest political level and a lack of coordination among ministries and public agencies, partly due to a pro- liferation of public institutions. 11. One of the Government's main socio-political objectives is to overcome the long-standing North-South rivalry, accentuated by the regional imbalances in resource endowment and development, and to achieve unity among the various ethnic groups. The Government is determined to progressively eliminate regional and tribal differences and feels that this objective will not only enhance political and social stability but economic equity as well. 12. In the field of education, there has been a considerable expansion of school enrollment since independence. With a current enrollment ratio of about 65 percent (vs. 10 percent in the late 1940's), Togo now belongs to the small group of West African countries, such as the Ivory Coast and Ghana, where universal primary schooling appears feasible in the coming years, but regional imbalances and inequalities based on sex remain. Little weight has been put so far on basic education for adults or on training young people for work in agriculture and the informal rural and urban sectors where a great majority of the labor force will continue to work in the future. However, Togo has established a university, which is still small but expanding rapidly. -5- 13. Togo's active -oopulation is estimated at about 40 percent of total population. Although the agricultural sector still claims about 75 percent of the total labor force, salaried employment in the modern sector (6 percent of the active population in 1975) more than doubled during the past decade, due in almost equal measure to both the public and private sectors. The number of job-seeking dropouts exceeded in the past the number of jobs created for skilled and unskilled workers. While seasonal and structural underemployment is more widespread in rural areas, unemployment is basically an urban phenomenon - possibly in the neighborhood of 10 percent in urban areas and largely the result of the rural exodus. The traditional extended family system in Togo seems to mitigate adverse effects of underemployment and unemployment. 14. Women have traditionally played a dominant and unique role in Togo's domestic trade. The "queens of the market" are engaged in the trade of most consumer goods, including foodstuffs. An estimated 90 percent of all Togolese merchants are women. Although most of the "revendeuses" are illiterate, they have an intrinsic business sense in trading activities which has greatly added to family incomes and supplemented farm revenues. Togo's flourishing tertiary sector is partly the result of this extraordinary socio- economic phenomenon. In the rural sector, women's lives center around home, field and market. Due to their prominent position in commerce and trade, women have considerable freedom of movement and relative economic importance, and have played a significant role in the political process. Still, the access of women to education, while improving rapidly, is quite limited, which means that large numbers of girls and women are not acquiring the skills, even functional literacy, that are needed in a modernizing society. 15. Other fields of human resources development include health and nutrition. The major health problems in Togo are still the infectious and parasitical diseases, but great strides have been made in the past to estab- lish a basic health infrastructure. Overall caloric figures do not indicate a national nutrition deficit, but regional disparities are substantial and the seasonal availability of food variable. 16. Institutional social and political stability, combined with prudent economic and financial management, has helped to attract foreign public and private capital despite the small size of the country. The Government has pursued a generally liberal economic philosophy favoring private initiative and investment, and because of the importance of trade, free markets prevail in broad segments of the economy. Moreover, as a logical consequence of its geographic position and its small domestic market, regional cooperation has historically been a vital element of the country's development strategy. Its principal goals are (a) to overcome the constraints of the small domestic market; (b) to preserve, at least in the short and medium term, the trade advantages of its liberal open door policy; and (c) to expand its economic ties with the two neighboring anglophone countries, Ghana and Nigeria. Thus, Togo has actively promoi:ed regional integration both on project and sector levels (e.g., CIMAO, CEB) which offer substantial advantages to the country and in the framework of regional groupings (e.g., ECOWAS), and is pursuing possibilities for further regional cooperation in other sectors. Togo is - 6 - also a member of other regional and sub-regional African organizations such as OCAM and the Conseil de l'Entente. Togo, together with Nigeria, was the chief promoter of the Economic Community of West African States (ECOWAS), established in 1975. The Nigerian and Ghanaian markets will become increas- ingly important to the Togolese economy, and ECOWAS is the first regional grouping which provides the institutional framework for closer multi-lateral cooperation between countries with fundamentally different economic, monetary and administrative systems. Togo did not join the smaller West African Economic Community (CEAO) created in 1973, or any of its predecessors, but rather opted for an observer status. 17. Togo is a member of the West African Monetary Union (UMOA), which has been an important factor in maintaining financial stability through the regulation of credit expansion and in attracting foreign capital through the guarantee of the CFA franc and freedom of transfers within the Franc Area. However, reforms toward a larger degree of monetary autonomy have become increasingly urgent, and in 1973 the UM0A countries renegotiated the Cooperation Agreement with France and restructured the UMOA system to make it more responsive to their needs for economic development, integration and Africanization. A West African Regional Development Bank (BOAD), headquar- tered in Lome, was also established in 1975 to promote development and re- gional integration within the Monetary Union by funding priority national and regional projects. 18. As indicated earlier, in the late 1950's equilibrium in the central Government budget was maintained by current transfers from France, but by the mid-1960's Togo had already managed to achieve a small current surplus. During most of the period from 1960 to 1975, Togo maintained a sound overall financial situation, with substantial success in the mobilization of both domestic and foreign financial resources, significant contributions to the financing of its public investments, and preservation of adequate reserves, and access to short-term external credit facilities such as BCEAO, IMF and the EC Stabex help to meet the swings unavoidable in an open economy. Phosphate revenues were, of course, the major new addition to domestic fi- nancial resources, but their greatest impact did not come until the 1970's, and in the 1960's Togolese policies and performance in raising and managing other revenues, particularly through the Togo Agricultural Products Agency (OPAT), were also quite effective. The public sector as a whole, includ- ing Central Government as well as parafiscal agencies, tapped an increasing share of available resources throughout the period. New tax measures and structural changes in the tax system - such as a special export tax, a number of modifications to make the tax system more progressive, and taxation of public enterprises - yielded increased revenues. While current expenditures grew at an accelerating rate, partly due to inflationary conditions, they still climbed less rapidly than revenues. Public enterprises and agencies have become increasingly important sources of public savings, especially after the commodity price hikes in the 1970's and CTMB's nationalization. Their combined savings nearly equalled average 1971-75 budgetary savings. Overall, national savings as a proportion of GNP averaged about 9 to 10 percent during the 1960's and rose to 16 percent in 1971-75. - 7 - ISSUES AND OPPORTUNITIES FOR LONG-TERM DEVELOPMENT 19. The foregoing summary of Togo's recent economic history and struc- ture brings out a number of elements which are favorable for continued long- run economic expansion., The country's economic and social infrastructure has been upgraded; public policies have provided an environment to stimulate growth in domestic and foreign trade of goods and services; the basis for public revenues and foreign exchange earnings has been broadened, particu- larly as a result of phosphate mining; and Togo has increased its absorptive capacity and maintained its attractiveness for foreign assistance and capital inflows. 20. Togo emerged as a net gainer from the changes in world economic conditions of 1973/74 because of a dramatic increase in phosphate prices. However, most recently market conditions deteriorated and there was a slump in phosphate exports and deterioration of the terms of trade with adverse effects on Togo's economic and financial position. Yet public current expenditures, especially on expanding government employment, and investment outlays continued to grow, partly on the basis of decisions made during the past phosphate boom, while there has been a tendency to enter into uncertain or costly ventures. Role of Mining and Mineral Processing 21. Some decisions have already been made which will shape the course of development of Togo's small economy during the coming ten years, especially in the mining sector where large-scale capital-intensive projects have been committed or are under consideration. Chief among these was the agreement in 1976 between Ghana, the Ivory Coast and Togo to proceed with a $284 million investment in the production of cement clinker from Togolese limestone depos- its to supply the markets of the three countries. The project comprises an industrial complex, township, and the expansion of rail and port facilities and will be constructed during 1977-80. Execution of the CDMAO project will substantially raise imports and capital inflows during the construction period but will not contribute directly to gross domestic product and exports until the early 1980's. In fact, although the increase in indirect demand associated with the construction phase during the next four years should add to the growth of the services sector, it also could put pressure on supplies of local and foreign consumer goods and hence on domestic prices, as well as the balance of payments. Also in the mining sector there are good medium-term possibilities to lower costs and raise production of phosphate rock, while the Government is reviewing proposals to move into phosphatic fertilizer production in the 1980's. Since Togo has generally followed sound policies in the development and marketing of mining production and the phosphate enterprise is a well-managed and profitable undertaking, these projects offer good potential for long-run growth in exports, net foreign exchange earnings and sources of Government revenue. 22. However, while opportunities continue to exist for real long-term growth in the mining sector, the short- and medium-term world market outlook - 8 - does not presage a return to the exceptional price levels experienced in 1974/75. International prices have already dropped to half the peak level of $67 per ton attained in 1975, and on the basis of projections of world supply and demand (which cannot, of course, predict short-term disturbances or conditions in specialized markets) prices are unlikely to exceed $40 per ton before the end of the 1970's. Moreover, proven phosphate ore reserves are limited and, according to present estimates, would be depleted in thirty to forty years at present maximum rates of exploitation. Finally and most importantly, even though mining and ore processing were and will continue to be the best presently-known options to strengthen the public revenue base and foreign exchange earnings potential of the economy, adoption of such a strategy cannot by itself resolve the country's fundamental economic and social issues and objectives, but can only help provide the resources needed to tackle them. Problems and Constraints 23. Important development problems and constraints that were experi- enced in the past and need to be attacked through an appropriate development strategy include: a. the allocation of scarce resources in accordance with the Government's own policy statements and development priori- ties, coherent criteria are needed in the allocation of both current and capital expenditure if the Government expects to achieve its social and economic goals while maintaining financial stability; b. the neglect of the agricultural sector - a broader-based development covering all rural areas of the country, with increased emphasis on employment creation and more equity, which is clearly needed to mitigate adverse effects of the dualistic economic structure which evolved in the past; c. further diversification, again with emphasis on agricul- ture, to reduce the country's exposure to a few highly volatile world markets which have caused disruptive short-term swings in economic conditions; d. improved monitoring and a coherent central economic and financial planning policy to increase efficiency and ensure coordinated development actions of all agencies in the proliferating public and fiscal sectors; e. rapid adaptation of economic and financial management (e.g., in terms of procedures and institutions) to an evolving economy in which structural changes are taking place through large-scale investments and rising domestic demand; and - 9 - f. in particular, and in the short run, a restoration of financial equilibrium in the public sector seriously threatened by heavy Government spending, the utilization of available short-term credit facilities, and a spurt in foreign borrowing. On the basis of the development plan and other policy declarations, Gov- ernment actions to address these problems can reasonably be expected. Certainly, the outlook f-or sustained long-term growth is largely contingent upon continuation of a sound strategy which has generally encouraged the exploitation of comparative advantage and until recently avoided excessive public expenditure on projects with low returns. Clearly in the small Togolese economy only a few important investment and policy decisions can alter the outlook for better or worse over a short period of time. Population 24. Underlying determinants of the long-run outlook are, of course, the growth and structure of the population and the prospects for manpower supply and demand. With an assumed average population growth rate of about 2.8 percent per year (the median projection), the country's population would reach 3.5 million persons by 1990 and a population density of 62 inhabitants per km - high by present African standards but lower, for example, than the present estimated densii:y of 74 in Nigeria. Improvements in health care will bring a decline in mortality rates, while birth rates are unlikely to go down commensurately. These trends, coupled with the high percentage of children under 15 years of age, will place a heavy burden on social services and create demands for employment during the coming decade. The urban popula- tion, especially that ol Lome, will continue to grow faster than rural, but overall the urban population is not expected to exceed 20 percent of the total, compared with 15 percent in 1975 which was roughly half the urban rate in Senegal in that year. The pressure for higher urban expenditures will thus continue, but should be less than in many other countries in Africa, permitting comparatively more funds to be channeled into rural development. Employment 25. The outlook for employment, especially in modern salaried activi- ties, is more troublesome and indeed is the most compelling argument for programs and policies to raise output, productivity and incomes in the rural economy; to encourage small-scale enterprise in services, trade, repair, maintenance, consumer goods, etc.; to orient the educational system towards the requirements of the labor market for practical skills and aptitudes; and to seek the application of labor-intensive methods. According to estimates in the Third Development Plan, about 17,000 jobs (of which 12,000 in the public sector) were created between 1970-75, and at the end of the period salaried employment in the public and modern private sectors amounted to 50,000 persons out of a total active population of 892,00, or out of an active non-agricultural population of 200,000. Between 1975 and 1980, assuming all planned projects are implemented, it is estimated that 23,000 - 10 - job opportunities will become available (of which 5,500 through turnover and Togolization and 17,500 in new positions). Based on these projections, by 1980 salaried employment in modern activities would represent about 7 per- cent of the active population and 30 percent of the active non-agricultural population. In relation to the output of the formal educational system, Togolese estimates imply a large excess supply of unskilled workers, some surplus of high-level manpower, and deficits in middle-level and skilled blue- and white-collar workers. Longer-term projections are not available, but it is already clear that financial resources and policies will, in the long term, need to be concentrated on the creation of productive employment opportunities if the situation is to be significantly improved. Investment Strategy 26. When there is a scarcity of capital or foreign exchange, an invest- ment policy which concentrates heavily on industry and basic infrastructure is likely to inhibit balanced socio-economic development, contrary to the Government's stated goal to extend development throughout the country and to all segments of the population. The seriousness of this problem will be lessened to the extent that foreign capital on reasonable terms is not otherwise made available; that export-oriented industries create indirect local demand for goods and services which can be met in large part from domestic supplies, thereby increasing incomes and employment through suc- cessive rounds of spending; and that new investments in import substitution can provide goods at competitive prices. However, in Togo's open economy, much of the demand created by investment in industry and construction is likely to leak into imports, while underutilization of existing capacity and the high capital costs per unit of output of some recent investments result in domestic prices that are higher than those of equivalent imports. Under these circumstances, the mission supports an overall development strategy which orients the allocation of resources towards: a. public services and facilities required to support di- rectly productive investments; b. rehabilitation and expansion of production facilities in agriculture particularly for cocoa, coffee and cotton in association with food crops, and projects are already planned in these areas; c. diversification into new economic activities with actual or potential comparative advantages, such as clinker and fertilizer and selected tourism projects; d. the encouragement of small-scale enterprise; and e. international regional cooperation to overcome disecono- mies of scale in the small domestic market in such fields as clinker, fertilizer, power, transportation, tourism and other service sector activities. - 11 - The Third Five-Year Development Plan 27. The Third Development Plan (1976-80) was adopted in May 1976 - after the mission's visit - with publication of underlying sector analyses and technical annexes. Due to the recent extraordinary swings and the structural changes expected in the economy, forward planning has become even more complex, and certain financial and conceptual revisions now seem necessary. However, the Plan remains indicative, and the Government felt that in its present form it serves as a general framework for economic management and constitutes a basis for implementing the country's develop- ment strategy. The Plan covers the overall economy, including macro-economic forecasts and estimates for the private sector, and is thus much more than a public sector investment program. Yet even for the public sector, the Plan does not indentify investment priorities or specify the criteria which would permit the selection of alternatives in case of cost underestimates or revenue overestimates. Although the Plan does not set specific priorities, the Government has taken a number of steps to improve the monitoring and control of the Third Plan execution. One step is the preparation of annual "development budgets" which include all projects financed from budgetary and foreign sources. These development budgets constitute in fact "tranches annuelles" of the invesitment plan. A second measure is the periodic review of Plan implementation to help revise the Plan, and the Government already intends to refine the quantitative analysis of the Third Plan during forth- coming reviews. Finally, the Government has decided to set up a forecasting department to follow more closely short-term fiscal and balance-of-payments developments. This would permit the authorities to make adjustments more quickly and improve the link between economic and financial management and longer-term planning. These steps should help make the Plan an aid to eco- nomic management, although a clearer ranking of priorities would facilitate informed annual budgeting decisions. Plan Targets 28. The Third Plan candidly reviews the results of the previous two planning exercises and sets out a reorientation of the development strategy which is more focussed on the shortcomings and development obstacles of the past, and the mission supports the considerable emphasis it gives to agri- culture, regional programs, human resources and the development of water resources. The qualitative and quantitative Plan targets are influenced by an earlier 20-year perspective plan (1965-85) and by projects in the pipeline or already negotiated. The real growth target of 8 percent p.a. is based mainly on anticipated growth in agriculture, industry and mining. The total planned investment rate is about 25 percent of GDP (CFAF 251 billion), substantially above the 19 percent investment rate for 1971-75, but CIMAO investment, which is "domestic" in the sense that it is located in Togo but in which the Ivory Coast and Ghana are equal partners, will account for about one-third of the total. Exact comparisons are difficult because of the need to adjust some investment cost estimates for price contingencies, but in current prices public and para-public investment excluding CI14AO is planned to be about 2-1/2 times the amount realized during 1971-75, which was in fact - 12 - more than 2-1/2 times the amount realized in 1966-70. 1/ Public investment and savings are both projected to rise. Qualitatively, the Plan maintains the objectives of internal and external financial stability, increased national autonomy, more balanced regional development and the promotion of human resources. The following table shows the composition of planned growth compared with the mission's estimates for the past. The principal change is accelerated growth of agriculture. Table 1: GDP GROWTH OBJECTIVES, 1975-80 Plan Growth Targets 1976-80 (Annual Estimated Actual Growth Rates Average Rate, %) 1966/68 - 1973/75 (% p.a.) in constant prices in current prices in constant prices Primary Sector 5.2 4.4 2.3 Secondary Sector 9.6 16.2 5.1 Tertiary Sector 9.0 15.1 8.6 GDP 8.0 11.4 5.4 29. The composition of Plan investments is as follows: Table 2: PLANNED INVESTMENT 1966-80 1976-80 1971-75 1966-70 CFAF % of % of total % of total billion total actual (planned) actual (planned) 1. Infrastructure 81.3 33 48 (50) 58 (66) 2. Primary Sector 56.2 22 6 (15) 14 (13) 3. Secondary/Tertiary Sectors 75.1 30 30 (20) 16 (10) 4. Human Resources 21.2 8 14 (11) 7 (8) 5. Administration 16.8 7 2 _4) 5 _3) 250.6 100 100 100 100 100 1/ See Table 8.6 in the Main Report. - 13 - These data, together with qualitative statements on development strategies, indicate the Government's sector priorities. First, the priority given to infrastructure remains high but is much less than in the past. Second, in- creased emphasis is given to directly productive sectors, especially industry and mining (CIMAO). Third, excluding CIMAO, agricultural development ranks high on the Government's priority list, especially for food crop develop- ment. Fourth, the bulk of allocations for human resources will be devoted to education and health. Finally, administrative investments are inflated by defense equipment ouilays which - in economic terms - are consumption. Relatively large amounts have also been allocated for studies, research and experimentation to help expand further the country's absorptive capacity. Transportation investments are intended to lay the basis for directly pro- ductive regional links. Planned outlays for water resources development are reflected in various subsector programs. 30. Togolese development programs have traditionally contained elements to promote huhan well-being (e.g. in education and health, including policies on employment and Togolization), but these factors have been given more em- phasis in the new Plan. Thus, the Plan incorporates the recommendations of the new Basic Education Reform, a long-term undertaking, but to be implemented starting with the Third Plan. Improvements in health conditions are planned through a variety of measures which include increased outlays for preventive medicine, control of riverblindness, and improvement of nutrition levels through rural development and food crop promotion. The Plan also attacks a variety of socio-econonic problems that have been created by the imbalances in the labor market and the exodus from rural areas through the reorientation of the education system towards economic needs, the promotion of labor-inten- sive programs, the search for more labor-intensive techniques, and actions to achieve more balanced regional development. Finally, a strong participation of nationals in economic life is a stated objective. However, expatriates have not had as pervasive an influence on the overall economy in other African nations, the Togolization is already a reality in most important areas of decision making. 31. As noted above, the Third Plan gives added emphasis to a more balanced regional development, and the Government makes special efforts to develop less privileged areas, especially in the North. Many of the Plan projects and programs have a regional orientation, which is intended to dis- tribute the benefits of economic growth, integrate the nation and discourage the rural exodus. The Plan contains some large projects, e.g., in agro- industry, intended to improve regional balance, but these will need careful study to ensure that they are adapted to the proposed locations. Changes in producer price policy could also improve both incentives and income distribution. 32. Finally, Togo intends to pursue its successful policy of multina- tional regional cooperation. Opportunities at the project level include a second stage expansion of CIMAO and a possible extension of the intercon- necting power grid. The multi-state riverblindness campaign includes Togo especially to improve conditions in the poor northern parts of the country. The Government has also partcipated in studies and discussions concerning intra-regional transport links. - 14 - SECTOR DEVELOPMENT STRATEGIES Agriculture 33. Although there are severe institutional and policy issues to be resolved and water constraints to be overcome, the country's agricultural potential, if systematically exploited, could provide food self-sufficiency as well as cash crop exports. These issues and the prospects of achieving increased agricultural production and improved regional balance are sum- marized below. 34. The Government's basic decision to restore the productivity of traditional export crops in which the country enjoys comparative advantage and to put less emphasis on diversification where obvious limitations exist is generally sound. There are important constraints to regional development which must be taken into consideration, such as high population density and resultant soil depletion in the Kara and Maritime Regions, a low water table in large parts of the Central Region, and onchocerciasis in parts of the Kara and Savannah Regions. Thus, although a large part of the country's cultivable area is not yet exploited, the option of extension of cultivated area, which apparently exists at the national level, is not necessarily applicable within particular regions. In the Kara Region and large parts of the Savannah and Maritime Regions, for example, reduction in agricultural underemployment and improvements in productivity must be achieved through intensification of existing farms, using improved varieties, and cultural practices and modern inputs such as fertilizers and pesticides. Extension into new lands will only be possible through the settlement of neighboring areas after the solu- tion of disease and water problems. 35. The problem of water is sufficiently important in all regions to justify the high priority it is accorded in the Plan. Water for human and animal consumption is needed particularly in the Central and Northern Maritime Regions, but there are technical problems surrounding proposals for the con- struction of wells, while the specifics of proposed retention dams have not been fully investigated. Development of water for irrigation and hydroelec- tric power is also proposed in a strategy which includes three growth poles and agro-industrial projects. However, large-scale agro-industrial complexes may encounter constraints in organization and infrastructure and should be carefully evaluated since there is virtually no relevant experience in Togo. Moreover, before costly full water control efforts justified only by irriga- tion are undertaken, the potential for simpler, less expensive approaches such as the development of low land areas or flood control for single season irrigation (both being investigated under the IDA Maritime Project) should be exploited. 36. Another important constraint to agricultural and regional develop- ment is the condition of feeder roads. Construction in the past has been financed by various sources, such as OPAT and foreign donors on a crop-by- crop basis. There is no overall planning mechanism to coordinate the needs - 15 - of various regional and sectoral production programs and maintenance is virtually nonexistent. To avoid further proliferation of responsibility and capacity in this field which has resulted from ad hoc decisions in the context of specific agricultural projects, a comprehensive national program with strong emphasis on adequate financing for maintenance is required. 37. In lightly settled areas the average area per active agricultural worker is between 1/2 and 1 ha. Although the lack of regional market op- portunities and the low level of monetization of the sector may be partly responsible for such a low level of land utilization, an additional factor could be a temporary shortage of labor related to seasonal peak demand and rainfall patterns. Thus in these areas, particularly parts of the Central Region, agricultural underemployment during a large part of the year might be related to the inability to provide sufficient labor at key points in the crop cycle, such as land preparation. Breaking these bottlenecks could be the key element to increasing rural productivity and income potential in these areas. In areas such as the north where farm animals are available, the preferable solution to the problem would be through the promotion of animal traction. However, constraints of either grazing land availability, disease, or sociological aversion may make rapid advances in this field difficult in some areas. The G6vernment appears ready to attempt to solve the problem through a major mechanization program; 400 tractors and sets of implements have recently been imported, apparently to be operated by the SORADs or the specialized corporations. But such a program is likely to face serious organizational and economic obstacles and should be tested against alternative approaches of selective mechanization. Such an experiment will be carried out, using power tillers for lowland rice cultivation, in the context of the Maritime Regional Rural Development Project. 38. Perhaps the most important issue facing the sector is the need to attack urgent institutional problems which are the outgrowth of a prolifera- tion of agricultural organizations. The achievement of production increases will require the strengthening of extension services. Coherent planning and policy formulation will depend on better coordination between the various agencies. Special attention should be given to enlarging the sector's ab- sorptive capacity. The Ministry of Rural Development must have the capacity to design projects which would integrate the programs of the specialized corporations into coherent regional development programs. In order to make widespread improvements in rural incomes, preference should be given to programs promoting smallholder development over costly large-scale irrigation projects or agricultural estates. 39. Greater budgetary allocations should be made, especially for recurrent costs such as maintenance. Notwithstanding declarations of high priority, the agricultural sector has been allocated only 13 percent and 15 percent of total investment under the first and second development plans respectively. In the framework of tighter control over and coordination among public agencies and enterprises, OPAT's financial, investment and producer price policies should be better coordinated with other public sector activities designed to favor rural development. Periodic review of pricing - 16 - and costing in the agricultural sector and for specific crops is needed to help the Government formulate policies to stimulate output, raise rural incomes and mobilize savings. 40. Recent producer price increases have begun to improve the situation for most crops although considerable discrepancies still exist. For example, calculations of the net farmgate value for cocoa show that, at 1976 producer prices, the farmer could expect net income of 36 percent of that value in 1976 and about 60 percent by 1985. For the coffee farmer, the corresponding figures are 29 percent and 26 percent. While these calculations are based on projected world market prices and not on values actually received by Togo, the implication is clear. When combined with the difference in incentive to the farmer, defined as the net return per man-day (CFAF 450 for cocoa and CFAF 315 for coffee), these figures appear to support an increase in the coffee producer price relative to that for cocoa. Similar calculations of net farmgate value, at current producer prices and levels of input subsidies would imply a need for an increase in the producer price of cotton. 41. Subsidized input prices represent an important element of the Gov- ernment's strategy for improving production by encouraging the use of modern inputs. Farmers are currently charged only about 50 percent of the value of insecticides and pay about 25 percent of total fertilizer costs. Over the long run, this policy may result in over-utilization of the subsidized inputs, logistics problems, and financial difficulties. However, in view of the current level of utilization - less than 10 percent of Togo's crop area is estimated to have received any fertilizer in 1976 - these problems must be considered minor. In addition, the cost of input subsidies for cash crops (the major users of modern inputs) is more than covered by the taxation implicit in relatively low producer prices. Input subsidy reduction and compensating farmgate price rises would increase the sensitivity of farmer incomes to yield variations. Therefore, Government is likely to continue subsidizing modern inputs for the time being, though agricultural input and output price policy should be re-evaluated periodically. Manufacturing and Small-Scale Enterprise 42. The issues facing Togo in the further development of manufacturing and small-scale enterprises are set out in the new Development Plan. It refers to such important problems as small markets and difficulties in supply and in organization and management, but there is some ambiguity between the stated policy - which the mission supports - of giving high priority to improving the productivity of established enterprises and the proposed level of direct Government participation in new ventures. The Government should adhere to its objective of encouraging new industrial investments to develop autonomously, as projects and sources of finance take shape, and concentrate on maintaining an appropriate framework of policies. This strategy need not exclude the initiation of studies by the Government's own services or those of foreign donors or investors to identify potential investment oppor- tunities. - 17 - 43. The principal pending issue with which the authorities must cope during the coming five years is the expiration of tax exemptions under the Investment Code and the adaptation of the manufacturing sector to a reduction in preferences. The Government has publicized the expiration dates to the firms concerned and can take a determined stance in negotiations, since the companies have sufficient time to adapt to a more competitive environment. To facilitate the adaptation of manufacturing enterprises to the removal of fiscal incentives, the Government will need to make further progress in the application of policies to expand markets, especially for exports, and to keep the costs of labor and domestically produced inputs at reasonable levels. The new Plan emphasizes the importance of such policies, but should perhaps focus more sharply on a program of action to achive them. Such a program could begin with a systematic evaluation of the protective effects of the existing tariff and duty structure on enterprise and products to judge whether revisions are possible that would (a) help to maintain prices of Togolese products at competitive levels, (b) guide new investment into activities in which Togo has a comparative advantage, and (c) minimize losses in revenues. Rigorous pursuit of international regional cooperation could help to expand markets. The Government's proposals for regional decentralization of industry are not likely to be viable if based on domestic markets and must be linked primarily to measures for export promotion; their success will also be closely linked to the development of agriculture in each region and the growth of small-scale enterprises. 44. The Government has declared promotion of small- and medium-sized enterprises a priority objective in the Third Plan. Such a promotion program would help improve inccme distribution, foster Togolization of the economy, and provide jobs, especially in urban areas. Given the high share of value added in the informal sector, the contribution to growth could be substantial in relation to the size of invested funds. A stocktaking and restructuring of the promotion policies at the beginning of the Third Plan is appropriate because (a) increased opportunities for small-scale enterprises will develop in the environment of a. growing economy particularly as satellite industries of a few large industrial enterprises; (b) new BCEAO rules are aimed at providing support for investment financing and re-purchase of enterprises; (c) some experience has, already been gained with individual projects and with foreign loans and technical assistance; and (d) ongoing projects in other West African countries are sufficiently advanced to provide results which may be of help in Togo. To make its promotion efforts more effective, the Government should reinforce the institutional links between organizations engaged in financial and technical assistance and more forcefully pursue the program toward specific sub-sectors in order, through specialization and simplification of procedures, to achieve savings in loan processing and con- trol cost. The Government could consider expansion of its promotion program in less advanced regions with the help of a more regionalized banking network, but should first reappraise the experience gained with the industrial estate in Lome. - 18 - Mining, Mineral Processing and Larger-Scale Enterprises 45. Togo's phosphate mining and beneficiation enterprise,-CTMB, is the nation's largest industrial company and it has been a successful and well- managed export operation since its inception in 1961 and after its nation- alization in 1974. The principal issues this ongoing public enterprise will need to address in the coming years are: (a) the maintenance of adequate cash flow under changing world market conditions and (b) the decision whether and when to move into the production of intermediate phosphatic fertilizers. The importance of net phosphate revenues to the Togolese economy is obvious from the size of the contribution of phosphate earnings to the Government budget: for the three years 1974-76, consolidated average CTMB/OTP pre-tax profits were equivalent to approximately 45 percent of total budgetary revenues. The scope of revenue maximization for CTMB has been analyzed by the mission on the basis of financial statements and production and sales data. As a small seller in the world market, Togo, of course, would not affect international prices, and even at low prices of $35-30 per ton the country is justified in pursuing an aggressive marketing policy, particularly to find alternatives to the traditional European markets. Moreover, Togo rock is a high-grade rock which should always find a strong position in the export market. CTMB also has an opportunity to increase output and efficiency at relatively low cost through a recovery process which is now being tested and which would also reduce pollution of the coast. 46. As to the longer-term strategic issue of whether and when to move into the production of fertilizer intermediates, the Third Plan does not include any project but only provision for studies although proposals for a fertilizer factory were submitted by two foreign firms. Special consideration is now being given to market and long-term supply and financing arrangements. The current investment estimates would be about CFAF 70 billion ($310 mil- lion) and no arrangements would be made for financing until the results of an independent evaluation had been considered by the Government. 47. In relation to Togo's economy, the sheer size of the CIMAO under- taking is extraordinary and will dramatically change the balance of payments, investment rate and industrial value added. Planned investment alone is equivalent to total 1971-75 public investment and about one third of 1976-80 public investment. Gross export earnings from goods and services will be increased some 30-40 percent; gross inflows of capital will be about three times the annual average of the past five years; and during the construction period average annual imports will be equal to some 40 percent of merchandise imports in recent years. The incremental capital/output ratio of the project is unfavorably high, but the annual per capita returns are substantial. Domestic value added will increase GDP at factor cost by 5 percent, or by about CFAF 2,500 per person per year in constant 1975 prices. Because of capital charges, the net direct benefits to the economy will, of course, be much less. Estimated Government revenues and wage and salary payments to Togolese workers will be only on the order of CFAF 1.5-1.7 billion per year. However, in addition to these direct financial returns, the project will replace clinker imports of about CFAF 2-3 billion per year during the 1980's. - 19 - Moreover, payments by CIMAO for the services of the railroad and port will strengthen the financial performance of these facilities, while maintenance of the township will add considerably to the social benefits. Only about 600 employees are required for CIMA0 and related infrastructure operations (i.e., about $475,000 investment per job), but during the construction phase new employment for 2,500-3,000 persons will be created, equivalent to 6 percent of the present salaried work force in the modern sector. The economic return on the project for Togo is estimated to be on the order of 15-20 percent, substantially higher than the return on the project as an entity on its own. 48. While Togo has made pragmatic and financially justified decisions on phosphate mining and the development of cement clinker, the one-million ton oil refinery under construction is likely to require high consumer prices and/or government subsLdies for a number of years, unless it gets preferen- tial prices either for the import of crude oil or the export of its products. The decision to establish the refinery appears to have been based on the Government's desire to be independent of foreign sources of refined products, on expectations of a vary rapid rise in domestic consumption and on expected outlets for Togolese products in Africa. Togolese energy consumption is projected to increase at a rapid rate, more than 16 percent p.a. between 1976 and 1985, with 30 percent p.a. annual growth in the 1976-80 period if presently planned projects are executed on time. However, even if energy use triples through 1980, the maximum annual demand for petroleum products would only be about 250,000 tons and only 400,000 tons in the following five-year period, assuming increased use of hydro-power. Taking into account anticipated future demand for all types of refinery products, about 70% of refinery output would have to be exported by 1980 and 50% by 1985 (on the basis of existing purchase agreements at prevailing European export rates). The annual subsidy required by the refinery in 1980 will be in the range of $7 million or CFAF 1.5 billion, and, unless the world price of refined prod- ucts rises relative to that of crude, substantial subsidies will be needed in 1985. The mediocre outlook for this project suggests that Togo should avoid entering into large-scale processing activities unless it can secure satisfactory terms for financing and, as needed, for export to foreign markets. 49. In summary, public policy options regarding the industrial sector can be classified as follows: First, in the case of domestic resource-based export activities, it would seem appropriate to follow a strategy which seeks to maximize net export earnings and public revenues, which are the main benefits from these undertakings. In a small country, successful application of this policy to large projects will earn high per capita returns. Togo's experience with phosphate mining provides evidence of this. Second, activi- ties which process imports for re-export should generally be left to the private sector, with minimal inducements to entrepreneurs who are willing to take the risks involved and possess the necessary specialized technical or marketing skills. The opportunities for tax recovery are virtually nil, and increased employment and private incomes are the main potential benefits from this type of activity, which is extremely hazardous for direct Government participation. Third, pure import substituting activities require careful - 20 - economic evaluation, applying international prices to both inputs and out- puts. There is considerable danger that foreign exchange savings from reduced imports of final goods will be offset by intermediate and capital goods imports. If domestic prices are high to ensure financial profitabil- ity, the Togolese consumer bears the burden. Thus, such import-substituting activities should in an appropriate time period be exposed to competitive market forces through eventual termination of privileges now in effect to protect these activities. Finally, it may be useful to develop small-scale enterprises on a sector-by-sector basis, providing the support and technical assistance appropriate to each type of activity. Even so, such activities are likely to require some subsidization, particularly through training scheme, technical assistance, and initial credit endowments. Togolese policy is moving in this direction, but a number of institutional and other issues remain to be resolved. Tourism 50. Togo's physical resources and geographical location provide signif- icant aspects for the development of tourism. Togo's size and proximity to Ghana and Benin make it possible for tourists to take short excursions at minimal cost to attractions in the interior and in neighboring countries. These excursions, often desired by tourists but costly elsewhere in Africa, give Togo a comparative advantage, which is further enhanced by the country's air transport policy of encouraging charter operations. Although several small hotels are privately owned, the investment climate in Togo has not attracted many private investors due to the lack of incentives and long-term hotel credit and the inherent risks of investing in an infant industry. As a result of public investments, the hotel industry has expanded rapidly in recent years. Foreign exchange receipts from tourism have increased steadily in recent years, and tourism has become the fourth largest source of gross foreign exchange earnings, while net foreign exchange earnings are estimated at more than two thirds of gross receipts. Employment creation is another important benefit generated by the tourism industry. Including indirect jobs (i.e., taxi drivers, shopkeepers, artisans), about 6,500 people earn their living from tourism and associated activities. Nevertheless, while there was a favorable market response to the opening of the Tropicana tourism complex, a major development on the coast near Lome, the overall growth of demand has not kept pace with the expansion of urban hotel facilities. Moreover, a proliferation of hotel ownership among various public agencies has impeded the formation of an overall development strategy and investment policy for the tourism sector. 51. The Third Plan foresees tourism investment of more than CFAF 20 billion. Current plant targets, which would almost double existing capacity, appear high when viewed against the expected tourism demand. By far the largest investment is planned for the construction of an 800-bed hotel in Lome next to the Party Congress Hall. The investment cost per bed of this hotel is more than four times the current cost per bed of a luxury hotel in West Africa. Even allowing contingencies for future price escalation and making other favorable assumptions, it appears that a justification for this - 21 - project on the basis of financial and economic rates of return cannot be made. In light of the presently low hotel occupandy rates in Lome and the interior, the Government may wish to consider carefully a more appropriate phasing and funding of new hotel investments to ensure adequate returns. In summary, efforts should be made to strengthen the organization of the sector and increase the profitability of facilities. More specifically, Government action in a number of fields should help achieve these objectives, includ- ing: (a) a review and ,possible revision of Plan targets in line with future demand, (b) a centralized decision-making process to coordinate investments, (c) vigorous efforts to preserve the coast from further erosion caused by the Lome Port facilities, and (d) an increase in the promotional budget. Transport 52. Togo's transport system, which was rudimentary in the early 1960's, has been improved and expanded. It now consists of 7,400 km of roads, 490 km of railway, the deep-water port of Lome, a phosphate wharf at Kpeme, and a modern international airport at Lome. Of the primary highway network, 1,100 km - three times the 1970 length - is paved. The approximate size of the vehicle fleet is 14,000 units, i.e., one vehicle per 150 inhabitants, with an average of about 2,000 new registrations annually, or a net growth rate of approximately 8 percent per year. CFT's railway lines are in adequate physical condition, but traffic has been declining. Between 1970 and 1975 port traffic increased by about 75 percent and both passenger and freight traffic at the Lome airport almost quadrupled. Investment expenditure in the transport sector between 1971 and 1975 amounted to CFAF 15.0 billion, or about 25 percent of total investment for the period. During the 1976-80 Plan period, proposed Investment in transportation amounts to almost CFAF 35 billion, of which more than half is for the highway subsector. The main Plan objectives for the transport sector are: (a) completion of the ongoing port expansion, (b) construction of new railway lines for industrial projects and reinforcement of the competitive position of the railroad vis-a-vis other modes; (c) creation of an efficient and adequately maintained road network and reorganization of the public Road Transport Service to achieve better coordination between road transport and other modes; and (d) improvement of the Lome airport and the five regional airports and feasibility studies for new airport construction. Apart from the regional air transport objectives, which are out of proportion with the size of the country and its available resources, these objectives seem to be listed in the right order of priority and are basically sound. In fact, since early 1976 the Government appears to have reduced its air transport investment proposals. On the other hand, there has been new interest and new proposals to develop infrastructure for international traffic, expanding access to the Port of Lome not only to Upper Volta but also to Mali and Niger, which could lead to the misallocation of regional resources. 53. Despite achievements and generally sound sector poicies, the trans- port sector still faces a number of issues which deserve closer attention. First, there is a need to redress the imbalance of maintenance expenditures between the rural and primary/secondary road networks. Highway maintenance - 22 - expenditures, which increased by 18 percent per year during 1971-75, are considered adequate for the primary and secondary ioads but appear insuffi- cient for the rural (tertiary) network. Second, the railroad company, CFT, is overstaffed and operating deficits will continue to require budgetary subsidies of about $1 million by 1980. There is therefore both scope and need for raising CFT's efficiency and profitability through gradual staff reduction via attrition and reassignments and eventually phasing out per- manently uneconomic lines. Major rehabilitation or extension work should be preceded by feasibility studies establishing the economic and financial justification. Third, Togo's long-term transport development is linked in large part to the future of international traffic within the region but it would seem that, on the basis of existing capacities and projected demand, a major expansion program to service other countries can hardly be justified. Fourth, concerning the creation of a joint public-private transport company (Togo-Route) there is a danger of over-capacity in what historically has been an activity guided by a large amount of competition. Before moving into this field, the Government should undertake a thorough investigation of the road transport industry and the best way of meeting expected demand. Fifth, as mentioned in connection with tourism, the erosion caused by the port con- struction has washed away much of the country's beach surface. To preserve transport investments and tourism assets, the Government has commissioned a study to curb the erosion and has foreseen CFAF 500 million for rehabilita- tion. Finally, and more generally, the institutions involved in transport planning and administration are still young, and the personnel require addi- tional training and experience to help them gain authority. In order to achieve effective coordination of investments and policies there is a need to strengthen the overall transport planning organization. Ultimately this could also help in coordinating the project-by-project efforts of foreign aid donors and channel resources to a coherent, integrated program for the transport sector. Power and Water Supply 54. Togo's growth in power consumption has been one of the highest in francophone West Africa, averaging nearly 20 percent per year since the early 1960's. No exploitable oil, coal or uranium deposits have been found in Togo so far, and the small area and the flatness of the country explain the scarcity of large hydroelectric sites. Demand from industrial projects will rapidly increase Togo's power requirements, possibly to four times the present level by the mid-1980's, and the Government has commissioned a study on power supply alternatives that could satisfy Togo's demand within an interconnected system. In particular, the maximum supply of power from the Benin Electric Community is likely to be reached by 1980, under present agreements. Togo's power policy as outlined in the Third Plan is of a long-term nature, exceeding the five-year period 1976-80. Thus, two hydro projects for the Kara and Mono rivers have been retained in the Plan, with investment expected to start by 1979-80, but detailed studies have not yet been completed. If implemented, these projects would not only help to relieve a future constraint in power supply, but would also have potential benefits through agriculture and water resource development. The Plan also gives high - 23 - priority to regional electrification programs. Togo's power policy - and in a wider sense, energy strategy - faces some crucial issues with far-reaching effects on the country's future development. Decisions have to be made soon on investment or purchasing arrangements to satisfy future demand. Various national and international solutions need to be evaluated, and a timetable established. The tariff structure should also be reviewed since rates have been unchanged for nearly a decade, while costs have declined for some sources and increased for others. The justification of regional electrification programs and the planned link of CTMB's to CEB's grid needs to be evaluated in view of likely higher tariffs and import costs, while studies are also needed for investment proposals such as the Mono River project. Of particular importance would be inclusion among the alternatives of an interconiecting project linking Ghana, Togo, Benin and Nigeria, which appears to have poten- tially high savings. 55. Piped water supply is currently provided to about 15 percent of the population in seven urban centers. The rest of the population relies on shallow wells, rivers and streams, most of which are polluted and unreliable during the dry season. The Third Plan attaches high priority to water devel- opment and control for multiple purposes, and contains general but basically sound policy guidelines for urban and rural water system development. The most important issues concerning the water sector are an assessment of Togo's water resources in relation to long-term multi-sector requirements, an analysis of the sector's organization, a review of tariff, investment and financial policies, and a training program to ensure adequate manpower supply. Health and Education 56. The First Plan included the establishment of a basic health infra- structure. The Second Plan emphasized the decentralization of health ser- vices, but the Maritime Region continues to have a disproportionate share of health facilities, and continued decentralization is a Government priority for 1976-80. Other priorities center on preventive versus curative medicine, maternal and child care, improved water supply and sewerage, and the training of medical personnel. With a wider distribution of medical infrastructure and the need to ensure adequate provision of supplies, the Government will have to reach a better balance between personnel and material expenditures. The training of more para-medical as opposed to highly-qualified staff might encourage the relocation of trained personnel to the rural areas at a reason- able cost. As the health network is expanded and improved, several foresee- able obstacles will have to be overcome: delivery systems will have to be improved as supplies are sent to areas further from Lome, greater incentives will have to be given to staff in order to encourage relocation outside of towns, and improved health education will have to reach greater numbers of Togolese women through programs which emphasize preventive medicine, nutri- tion and child-spacing. 57. Togo has made great strides in increasing school enrollment, e.g., primary school enrollment doubled in the past ten years (from 156,000 students in 1965/66 to 330,000 in 1974/75). The current problems of the education and training systems center on a still-high illiteracy rate of about 80 percent, - 24 - an uneven regional distribution of primary school enrollment, low enrollment of women, high repeater and drop-out rates, and an inadequate linkage between education and the labor market. The Government is trying to correct the im- balances through a national education reform. The far-reaching qualitative changes contained in the reform will be costly and take time. Therefore, the Government considers the Third Plan the first phase of a long-term program for introducing innovations into the education system. While supporting the need for an education reform,-the mission believes that adjustments are needed in the implementation of the proposals as currently envisaged. For instance, the objective of universal education for children ages 3 to 15 years of age appears to be a social priority rather than an economic need. The desire to enroll all children at such an early age must be weighted against the cost of expanding kindergarten facilities, enlarging training schools and increasing the number of teachers. Regarding the objective of universal secondary edu- cation, the extension of mandatory education through lower secondary school will further widen the gap between job-seekers and job opportunities. New promotion rules include the elimination of entrance exams to lower secondary school and the reduction of repetition. These policies concerning promotion and repetition raise questions about the qualifications of the education system's output, and they presumably increase the need for more remedial instruction at each level of education. The education reform aims at in- creasing job-related training in conformity with labor market demand, which should result in an adequate output of skilled manpower in the 1980's. However, if total enrollment in lower secondary school increases, as planned in the reform, the global excess supply of manpower for wage employment will worsen considerably and a vast majority of young graduates will have to return to the rural sector or work in informal urban jobs. Furthermore, measures must be adopted to ensure curricular and professional inputs by relevant technical ministries. The reform is also directed toward reducing the participation of parents in the financing of public education, which has been a unique feature of the Togolese education system. In 1974 parents contributed one fifth of the recurrent costs of primary education and almost two fifths of recurrent costs of general secondary education. According to the reform proposals, parents will no longer pay for teaching materials or part of teachers' salaries. This policy could have an unfavorable impact on parents' commitment to their children's education, would increase even further the demand for secondary ecucation, and would place a heavy finan- cial burden on the Government. Even if parents continued to participate in financing, education expenditures could exceed 30 percent of the Central Government's current budget by 1980. 58. With the implementation of the education reform, the need for bet- ter career guidance and manpower planning will become essential. Increased educational opportunities may create rising expectations concerning employ- ment in the modern sector which will make it more difficult to integrate school-leavers into the informal urban and rural sectors. Training of high- level manpower is increasing rapidly and a significant number of Togolese are studying abroad. This output should meet global requirements during the coming years, including a gradual Togolization of jobs held by about 1,000 expatriates in both the public and private sectors, but there will be imbalances among individual professions. Output of middle-level manpower and skilled workers will probably fall short of demand during the Plan period. - 25 - 59. Several priorities in the Third Plan have direct relevance to the needs of women. The provision of health services is especially important to women, and the goal of universal primary education should ensure women's fuller participation in formal education. A national program of functional literacy for women would help increase the productivity of women and girls in the rural areas. Togo has already initiated one objective of the Inter- national Women's Year. A National Commission was created in April 1975 to study the promotion and protection of women. Its specific tasks are to consider the contributions of women to development, orient and evaluate Governmental efforts towards the promotion of women, and coordinate actions in the field of women's programs. Organizations such as the National Com- mission, if adequately equipped, could provide technical assistance to project preparation. This expertise is especially important to foreign- financed projects in which women's components can be identified and devel- oped by Togolese counterparts who are more familiar with traditional needs and attitudes. PROSPECTS FOR ECONOMIC GROWTH AND DEVELOPMENT Economic Growth 60. The following paragraphs summarize the mission's views on prospec- tive growth trends, based for the medium term on evaluation of the effects of presently-known projects and proposals in such key areas of economic activity as cash and food crops, mining, industry, public administration and tourism. The overall estimates through 1980 are derived from the aggregation of proj- ect and microeconomic data, while beyond 1980 this outlook is adjusted to take into account historical trends and anticipated structural changes in the country's economy and social framework. To maintain comparability with Togolese planning periods, the reference year for our projections is 1975, which was characterized by quite good average export prices but by a level of phosphate production substantially below installed capacity. It is im- portant to recall that phosphate prices dropped during 1976 and are expected to remain lower than in 1975 during the next five years, while phosphate pro- duction can and is expected to be expanded at relatively low cost by utilizing existing capacity. Dua to the low volume and high price of phosphate exports in 1975, the real rates of growth of output and exports during 1976-80 should be higher than the nominal growth of income (export earnings and public revenues) derived from the phosphate sector. Furthermore, projected rates of world inflation combined with the recent depreciation in the CFA franc vis-a-vis other currencies mean that the cost of imports to Togo is likely to increase relative to the average value of exports, e.g., that the country's effective purchasing power, represented by gross domestic income (GDY) 1/, will grow more slowly than the country's real production of goods and services. I/ Gross domestic income is gross domestic product adjusted for changes in the terms of trade. - 26 - 61. Although the present economic picture is somewhat marred by heavy short-term foreign debt contracted in 1975 as phosphate revenues fell, the outlook for real growth of the Togolese economy is favorable over the next decade in virtually all sectors. In agriculture average annual growth of 5 percent per annum could be achieved if cash crop and food crop projects which are committed or in an advanced stage of preparation are executed on schedule. Moreover, the outlook for prices for Togo's export crops has improved markedly, and the probability of achieving higher growth in output could be enhanced by passing more of the benefits from higher prices to Togolese farmers. In mining and manufacturing real growth on the order of 9 percent p.a. seems feasible. By 1980 phosphate production is expected to recover to more than 2.5 million tons per year, while rising domestic demand and the application of policies discussed in the previous section of this report should permit better utilization of capacity in existing manufacturing enterprises and a sizeable expansion in output of medium- and small-scale activities. In the 1960's industrial output will be boosted by the start-up of CIMAO, the addition of capacity in phosphates and possibly the initiation of fertilizer production. Real growth in public and private services will also accelerate in response to the growth in demand anticipated during 1976- 80, particularly in construction, housing, public.and private transportation, and general commerce. Finally, real growth in tourism is likely to be faster than in the past, especially due to more business and commercial visitors. 62. For the economy as a whole, the mission believes that average annual growth of 7 percent in real GDP is a reasonable approximation of the achievable long-term growth path during the rest of this decade and most of the 1980's, compared to 6.7 percent over the past 15 years. Short-term factors could, of course, cause fluctuations around this trend, and indeed financial problems are likely to constitute an obstacle to rapid real growth in the beginning of the period. Furthermore, because of the deterioration in the terms of trade since 1975, the mission's projection of gross domestic income (GDY) of less than 5 percent per year between 1975 and 1980 is much below the Third Plan growth target of about 8 percent p.a. Without adjust- ments in policies mentioned below, this difference would result in a wider gap between investment and savings, requiring more reliance on foreign capital, perhaps beyond the capacity of Togo to borrow or the availability of funds on reasonable terms. Investment and Finance 63. The Togolese authorities derived their forecast of total investment in the Third Plan (CFAF 250 billion) by adding up the investment costs of project proposals for which the planners had or could develop cost estimates, including projects in the private sector. It is already known that the costs of some important public projects will be higher and that private investment was underestimated to the extent that it omitted household investment and increases in stocks. According to the mission's calculations, the cost of implementing the plan proposals, including the addition of revised estimates of total private investment, would be between 15 and 20 percent higher than the CFAF 250 billion Plan estimate. These adjustments should raise the average - 27 - investment rate to 30 percent or more of prospective GDP, compared with 19 percent during 1971-75, a period when savings were particularly high because of the phosphate boom. 64. To evaluate financial requirements during the Plan period, the mission assumed an average investment rate of 25 percent of GDP in current prices, which coincidentally is the target rate of the Plan itself but which implies lower implementation of public sector projects because of the under- estimates of Plan investment described above. The hypothesis of 25 percent in effect corresponds to an extrapolation of the 1971-75 investment rate, increased by the estimated investment cost of CIMAO, and an incremental capital output ratio of 3.5:1. The mission concludes that with no further deterioration in the phosphate price and with prudent fiscal and monetary policies this investment rate could be achieved but would still require a large expansion in foreign capital inflows on favorable terms. If short- run financial difficulties are not resolved or if disbursements of foreign aid are less or on harder terms than expected, further reductions in public investments would be called for. 65. Even with an investment rate of 25 percent, the mission's projec- tions of public revenue and expenditure during 1976-80 result in a lower share of domestic financing of public investment than is foreseen in the Third Plan. With respect to public revenues the principal assumptions underlying the mission's forecasts are (a) successful efforts to maintain the historical responsiveness of tax revenues to increases in national income; (b) an average phosphate price of $38 per ton during 1976-80; (c) a reduc- tion of the historical elasticity of import duties with respect to imports because of the expectation of more tax-exempt imports in total imports; and (d) a producer price policy which gives the Togolese farmer a larger share of export revenues, which are expected to increase, particularly for cocoa and coffee. These assumptions would raise the average share of current budgetary revenues in GDP above the 1971-75 level, but it would still be substantially less than the 29 percent forecast in the Third Plan. On the current expendi- ture side, there will clearly be pressure to expand spending above past rates, given the rising cost of debt service and the need to maintain public pro- grams, especially in agrLculture, and investments already near completion. However, with lower than expected current revenues and improved procedures to control expenditure, the mission has assumed the Government could restrain current spending, including debt service, to an average rate of 20 percent of GDP during the Third Plan period, which again is below the Plan figure. - 28 - Table 3: PUBLIC FINANCE PROFILE, 196.6-1980 (as % of GDP in current prices) a/!b 1966-70 71-75 76-80- 76-80- 1. Current revenues 11.1 15.5 23.0 29.4 2. Current expenditure, incl. debt service 9.0 12.4 20.0 21.4 3. Balance (investable savings) 2.1 3.1 3.0 8.0 4. Budgetary savings (3+7) 2.7 3.9 6.7 11.7 5. Other public savings 0.8 3.0 2.0 6.0 6. Total public savings (4+5) 3.5 6.9 8.7 17.7 7. Debt service 0.6 0.8 3.7 3.7 8. Net public savings (6-7) 2.9 6.1 5.0 14.0 a/ Tentative mission estimates (assumed GDP growth rate of 13 percent in current prices). b/ Plan data (assumed GDP growth rate of 13 percent in current prices). SOURCE: Data provided by the Togolese authorities and mission estimates. 66. The profile of Togo's balance of payments will, of course, look dramatically different during the next five years since there will be a massive rise in CIMAO and related imports without the emergence of CIMAO exports until 1980. Moreover, because of the oil refinery the value of energy imports will be about twenty times recent average annual levels, mostly offset, however, by new exports of refined products. Phosphate exports will be much less than in the recent boom years, but should recover steadily from the 1975-76 level, while exports of domestically produced cocoa and coffee should show substantial gains in value during the first two years and some growth in volume in later years. Overall, the mission estimates that the current deficit in the balance of payments will widen from the average of about 3 percent of GDP experienced in the last two five-year planning periods to about 13 percent during the Third Plan, or about CFAF 25 billion per year. When further allowance is made for repayments of principal on short- and long-term foreign loans and for the maintenance of foreign exchange reserves at adequate levels, the total average annual gross inflow of foreign capital, including grants, would need to be on the order of CFAF 32 billion per year, a very high amount, but of which almost 40 percent will be directly contrib- uted by the financing of CIMAO. When capital imports for CIMAO are deducted, the average annual gross inflows required would be on the order of CFAF 20 billion, which compares with average annual inflows of grants during 1971-75 of about CFAF 6 billion and loan commitments (disbursements were substantially less), also around CFAF 6 billion per year. - 29 - Table 4: SUMMARY BALANCE OF PAYMENTS, 1966-1980 (as % of GDP in current prices) a/ 1966-70 1971-75- 1976-80- 1. Exports (goods) 24.6 24.5 26.7 2. Imports (goods) 24.4 24.9 36.5 3. Trade Balance (1-2) 0.2 -0.4 -9.8 4. Service Balance -3.0 -2.6 -3.2 5. Resource Balance -1.1 -2.2 -10.5 6. Current Account Balance (3-4) -2.8 -3.0 -13.0 7. Transfers (net) 5.3 6.7 5.0 8. Capital (net) -0.2 -3.4 b/ 11.0 c/ 9. Monetary/SDR Movements (increase -) -1.7 1.0 -0.5 10. Errors and Omissions -0.6 -1.3 -2.5 d/ a/ Tentative mission estimates (assumed GDP growth of 13% in current prices). b/ Includes compensation payments for CTMB nationalization. c/ Of which CIMAO is about 6-7% of the 1976-80 GDP. d/ Includes outflow of about 1.2% of GDP for debt service related to short- term debt. SOURCE: Statistical Appendix. 67. To test the financial capacity of Togo to absorb such a large amount of foreign capital, the mission made projections of debt service, assuming about half the projected capital inflow would consist of grants and half of foreign borrowing, of which in turn 30 percent is assumed to come from inter- national organizations, 30 percent from private lenders, and 40 percent from governments. Because repayments of such new borrowing would not begin to fall due until 1979/80, when exports are also projected to rise substantially, the burden of debt service in the 1980's would be on the order of 10 percent of the value of exports of goods and services and 12 percent of government revenues, which is a high but manageable burden for Togo. However, alter- native sensitivity runs were made which show that (a) if phosphate prices were 15 percent lower or (b) if 50 percent of the assumed grant financing were replaced by borrowing from commercial sources, debt service would exceed levels prudent for a small economy heavily dependent on foreign markets. A policy to try to compensate for shortfalls in grants or concessionary aid with foreign private borrowing would thus pose dangers for the economy, although the long-term outlook provides some justification for limited borrowing on conventional terms. 68. The immediate financial outlook is, unfortunately, more difficult, and unless the Government can restore public savings, the level of new foreign capital inflows, the public investment program and the rate of growth will - 30 - all be jeopardized. Following the increases in the resources of the Govern- ment-owned phosphate marketing enterprise, the Government sharply raised total expenditures in 1975 and 1976, but with the deterioration-in phosphate revenues in 1976 a large overall treasury deficit is expected, which is likely to require the use of available Government reserves and credit fa- cilities. Budgetary equilibrium could be restored in 1977, assuming that phosphate revenues recover to approximately CFAF 14 billion (implying a phosphate price of some $35 per ton and sales of about 2.5 million tons) and provided total public expenditures are frozen at the 1976 level. However, because the Government also incurred heavy medium-term foreign borrowing on commercial terms in the past two years, while some repayments of short-term credit will be necessary, debt service will constitute a much heavier burden on financial resources in 1977/78 (perhaps on the order of 20 percent of export earnings) than in the medium- to long-term future. As a result debt service will absorb a higher proportion of the net funds available to the public sector (either because of less net income from public enterprises or higher direct budgetary expenditure), and to maintain overall balance the Government should be prepared to make reductions in other items of public expenditure. Summary of Recommended Policies and Priorities 69. Togo has experienced rapid growth in the past, and throughout most of the period its financial policies have generally been prudent. The future pattern of development may be broadly painted as one in which large mineral- based enterprises with dramatic impact on financial flows are superimposed on a small open economy in which most of the population is engaged in agri- culture and where market-oriented policies have long favored an active trad- ing community. The central long-term issues are the orientation of expected new resources to the economic and social development of the rural sector and to other activities with potentially high employment possibilities and the preservation of the benefits from Togo's traditional commercial vocation. Opportunities in new branches of industry and tourism should certainly con- tinue to be explored, but at the present time the Government should give pri- ority to expanding the use of existing capacity and to improving competitive- ness and efficiency. Achievement of a broader-based pattern of development will require not only the direct allocation of public current and capital funds to projects and programs in productive undertakings, but also the adoption of price, monetary, fiscal and balance-of-payments policies, at least, to prevent a potential deterioration in the relative position of the rural sector and, at best, to improve the prospects for greater productivity and higher incomes in agriculture. Programs in education, health and economic infrastructure should be geared to the same broad objectives. However, pressure will be exerted on public sector demand by the additional current expenditure required to service and maintain new facilities and programs. Therefore, the mission recommends that recurrent costs be thoroughly evaluated and that their level be made an explicit investment criterion. 70. Even with sound domestic financial policies, the limits on domestic resources make foreign capital the sole practical means of financing larger - 31 - development programs. 'A considerable responsibility is placed on foreign sources of finance to adjust terms and conditions to Togolese circumstances. Due to the country's favorable development outlook .and expanding absorptive capacity, there are good prospects for Togo to attract increasing amounts of foreign capital from more diversified sources, but short-term financial and debt service problems must be resolved before Togo can risk further borrowing on market terms to supplement scarce concessional aid. Ultimately, adequate external funding can only be achieved if the country participates in the financing of investment by mobilizing public and private savings and prepares timely priority projects that justify the use of scarce resources. 71. The choice of projects and sector programs is, finally, the over- riding issue in the Third Plan. As a first practical step, the investment program should be reviewed to take into account up-to-date cost estimates and to better reflect the Plan's own stated development priorities. The Government should then prepare a Plan including a "hard core" tranche and optional projects, corresponding to possible variations in the availability of funds. The outline of an investment program which reflects the mission's assessment of potential financial resources is as follows: Table 5: PROPOSAL FOR A REVISED INVESTMENT PROGRAM Total for 1976-80 (CFAF billions) Plan cost basis Revised cost basis 1. Total Plan investment 250 a/ 290 2. Investment program adjusted for cost increases and resource availabilities 190 210 b/ 3. Estimated hard-core program (noyau garanti) 160 180 4. Contingency program (tranche optionnelle) 30 30 a! Plan document. b/ Mission estimate. The hard-core program would consist of high-priority projects, while lower- priority projects would be retained in the contingency program that could be moved to later periods in case of shortfalls in financial resources. The mission's views on project priorities have been set forth in the review of sector development strategies summarized in this volume and, more fully, in the sector annexes to Volume II of this report. Generally, emphasis should be placed on projects to expand agricultural output and incomes, while new - 32 - projects in industry should be consistent with the Plan's objectives of continuing open and regionally-oriented policies. Major agro-industrial schemes and hotel expansions could impose a heavy financial burden on the economy without commensurate benefits in expanding output or employment. The choice of projects in economic and social infrastructure should be guided by the objectives of improving productivity in the poorer regions of the country and employment prospects of school leavers, but the urgency of maintaining financial stability during the next few years requires that particular attention be given to the level of recurrent costs. Limitations on the supply of water and power could impose significant constraints on future development, and high priority is justifiably given to studies of alterna- tives now being undertaken. Togo appears to enjoy comparative advantage in the production of clinker and phosphate fertilizers, and investments in these activities in the 1980's could strengthen the foundation for sustained long-term growth. If these projects prove to be viable, high investment and capital imports would be a significant feature of Togo's pattern of develop- ment for many years to come. ANNEX I SELECTED ECONOMIC TRENDS 1960-75 Annual Average Growth Rates (%) - GDP (in current prices) a/ 10.9 - Lome: African Consumer Price Index 4.3* - Lome: European Consumer Price Index 4.8* - International Price Index 4.7 - Recorded Merchandise Exports (value) 14.3 - Export Price Index (recorded exports) 4.5* - Recorded Merchandise Imports (value) 11.9 - Foreign Assets (net) 14.0* - Exports of Cocoa (volume) 5.2 - Exports of Cocoa (value) 11.6 - Exports of Coffee (volume) 2.0 - Exports of Coffee (value) 5.7 - Exports of Phosphate (volume) 18.5* - Exports of Phosphate (value) 28.8* - Current Budget Revenues 14.3 - Current Budget Expenditures 12.7 - OPAT Trading Profits 22.7* - Credit to the Private Sector 15.3 - Money and Quasi-money 17.6* - Debt Outstanding and Disbursed 13.6* - Power Consumption 17.5 a! Estimated average annual GDP growth rate of 6-7% in constant prices. * Shorter-term average growth figure because of incomplete data for the entire 1960-75 period. ANNEX 2 MACRO-ECONOMIC STRUCTURE, 1966-80 (% of GDP) 1966-70 1971-75 1976-80 Sector Contribution to GDP Agriculture 43 30 36 Industry 20 27 30 of which: Mining 6 12 Services 37 43 44 GDP Composition and Balance of Payments Consumption 88 83 85 Investment 13 19 25 Exports (Goods & NFS) 25 27 30 of which: Goods 25 25 27 Imports (Goods & NFS) 26 29 40 Trade Balance 0.2 -0.4 -9.8 Resource Balance -1.1 -2.2 -10.5 Current Account Balance -2.8 -3.0 -13.0 Transfers (net) 5.3 6.7 5.0 Capital (net) -0.2 -3.4 11.0 Monetary/SDR Movements (increase = -) -1.7 1.0 -0.5 Errors and Omissions -0.6 -1.3 -2.5 Plan Investment 1976-80 Public Investment 7.9 12.6 21.0 22.0 Domestic Financing 2.9 6.1 5.0 14.0 Foreign Financing 5.4 6.6 16.0 8.0 Aid Commitments 7.4 11.9 16.1 Savings Current Revenues 11.1 15.5 23.0 29.4 Current Expenditures (incl. debt service) 9.0 12.4 20.0 21.4 Gross Public Savings 3.5 6.9 8.7 17.7 Gross National Savings 10.6 16.0 12.0 Gross Domestic Savings 12.3 16.8 14.5 Monetary and Other Indicators Foreign Assets (net) 12 10 Credit to Government -5 -2 Credit to Private Sector 10 14 Money and Quasi-money 14 20 Debt Service Ratio as % of exports 2.2 4.3 13.3 as % of budget revenues 5.4 5.2 16.8 Index 1970 1975 1980 Terms of Trade (1970 = 100) 100 154 111
Группа Всемирного банка · Pre-2003 Economic or Sector Report
Togo - The Economy : A Basic Econonomic Report (Vol. 1 of 3) : The Summary and Conclusions
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