Morocco - Second Urban Development Project

Document of The World Bank 'S FOR OFFICIAL USE ONLY No. 3118-MOR KINGDOM OF MOROCCO SECOND URBAN DEVELOPMENT PROJECT STAFF APPRAISAL REPORT December 15, 1980 Urban Projects Department [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.  CURRENCY EQUIVALENT Currency Unit = Dirham (DH) US$1 = DH 3.80 MEASURES AND EQUIVALENTS 1 meter (m) 2 = 39.37 inches (in) 1 square meter (m ) = 10.9 square feet (sq ft) 1 kilometer (km) = 0.62 mil1 (mi) 1 hectare (ha) = 10,000 or 2.471 acres 1 acre = 4,047 m or 0.405 ha 1 liter (1) = 0.264 US gallons 1 liter per capita per day (lpcd) = 0.264 US gallons per capita per day ABBREVIATIONS AND ACRONYMS GOM Government of Morocco MF Ministry of Finance MHAT Minis try of Housing and Regional Development MEN Minis-try of Education MJS Ministry of Youth and Sports MSP Ministry of Health CDG "Caisse de Depot et Gestion" BCP "Banque Centrale Populaire" CIH "Credit Immobilier et Hotelier" FEC "Fonds d'Equipement Communal" ODI "Office pour le Developpement Industriel" ONEP "Office National de l'Eau Potable" ONE "Office National de l'Electricite" ERAC "Etablissement Regional d'Amenagement et de Construction" FNAET "Fonds National d'Achat et d'Equipement des Terrains" RADEM Meknes Public Utility Agency RAK Kenitra Public Utility Agency PTU Project Technical Unit HB Rousing Bureau FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY MOROCCO: SECOND URBAN DEVELOPMENT PROJECT STAFF APPRAISAL REPORT Table of Contents Page No. I. SECTOR BACKGROUND ...................................... 1 - Urbanization Trends. 1 - Urban Administration .. 1 - Urban Conditions and Policies . 2 - New Responses to Urban Needs and Bank Strategy 4 - Bank Involvement in Urban Projects . . 5 II. THE PROJECT ............................................ 7 A. Summary Features .................................. 7 B. Detailed Description ..... ......................... 8 - Slum Upgrading Program ..... ............ 8 - Sites and Services Program ......... .. ......... 14 - Small-Scale Enterprises Program ............... 16 - Improvement in Municipal Services Program ..... 19 III. PROJECT COSTS, FINANCING AND IMPLEMENTATION .... ........ 20 A. Cost Estimates ................... ................. 20 B. Financing ..................... .................... 21 C. Implementation Schedule ............ .. ........... 23 D. Design and Construction Control .......... ....... 24 E. Procurement .................... ................... 24 F. Disbursement .................... .................. 25 G. Accounts and Audits .............. .. ............... 26 H. Supervision .................... ................... 27 IV. ORGANIZATION AND MANAGEMENT ............................ 27 A. General Features .................................. 27 B. Main Agencies ................... .................. 29 - The Permanent Unit of the Project Steering Committee .......... ......................... 29 - The Ministry of Housing and Regional Development 31 - The Project Municipalities of Meknes and Kenitra 33 - The "Banque Centrale Populaire' . . ............... 35 This report is based on the findings of an appraisal mission to Morocco in April 1980. Mission members included Gianni Brizzi (Mission leader), Arnaud Guinard, Jeffrey Racki (IBRD), Michel Baron, Jean-Francois Dreau, Isaac Nahmias (Consultants). This report was prepared by Gianni Brizzi, Arnaud Guinard and Jeffrey Racki. 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 (Continued) Page No. V. FINANCIAL ASPECTS ...................................... 36 A. Cost Recovery .................. 36 B. Lending Conditions to Beneficiaries .... ........... 38 C. Pricing of Residential and Industrial Plots ....... 39 D. Affordability Analysis ............................ 39 VI. PROJECT JUSTIFICATION AND RISKS ........................ 42 A. Project Benefits .................................. 42 - Slum Upgrading and Sites and Services Program.. 42 - Employment .................................... 43 - Improvement in Municipal Services Program ..... 44 B. Urban 'Poverty Impact .............. .. .............. 44 C. Project Risks ..................................... 44 VII. AGREEMENTS TO BE REACHED AND RECOMMENDATIONS .... ....... 45 ANNEXES 1. Project Detailed Cost Estimates 2. Schedule of Expenditures by Project Component 3. Project Imp:Lementation Schedule 4. Project Technical Unit and Housing Bureau: Schedu.Le of Staff Recruitment 5. Project Sources and Application of Funds 6. Selected Documents and Data Available in the Project File MAPS 1. IBRD 15133 - Meknes - Location of Project Sites 2. IBRD 15134 Meknes - Bordj Moulay Omar Upgrading Site 3. IBRD 15135 -- Meknes - Sidi Baba Upgrading Site 4. IBRD 15136 - Kenitra - Location of Project Sites 5. IBRD 15137 - Kenitra - Saknia South Sites and Services 6. IBRD 15138 - Kenitra - Saknia Upgrading Site IL  I. SECTOR BACKGROUND Urbanization Trends 1.01 Morocco's population at the beginning of 1980 numbered some 19.5 million people of whom about 41% or 8 million lived in urban areas. Largely as a result of rural immigration, the urban population is estimated to have grown at an average rate of some 5% per annum during the last decade, almost double that of the overall population (3%). Despite Government efforts to improve living conditions in the countryside, it is expected that the above pattern will continue over the next 10 years and that the urban population will reach 15 million or 50% of total population by the end of the 80s. Like most countries in Africa, Morocco is encountering great difficulties in pro- viding job opportunities, shelter and basic services to an increasing number of young urban dwellers and unskilled rural migrants. The magnitude of this problem is illustrated by the fact that over 2 million people, or about 28% of the urban population, have incomes below the 1979 Bank-defined absolute urban poverty threshold of US$400 (DH 1,516). 1.02 Two-thirds of Morocco's urban population live in the central and northwestern part of the country (the Casablanca/Rabat/Fez area), where most of the industry and modern agriculture is also located. Historically, the concentration of urban population has been in large centers, mainly along the Northwestern Atlantic coast. More recently, many mid-sized cities have also experienced fast increases under the pressure of rural immigration and natural population growth. The inability of local governments to manage the rapid pace of growth has resulted in a proliferation of haphazard shanty towns, which are now a common feature of most Moroccan cities, and which call for a comprehensive nationwide urban upgrading policy. Urban Administration 1.03 Morocco is divided into 36 provinces or prefectures. These in turn are divided into rural and urban communes. The province is under the Ministry of Interior and is headed by a Governor who represents the King. The Governor is responsible not only for maintaining law and order but also for supervising and coordinating the activities of all central government agencies operating within his jurisdiction as well as local governments. The provincial assembly contains representatives of professional organizations and members elected by the communes; it is responsible for approving budgetary expenditures. . 1.04 Communes are the basic local government units. They are governed by an elected council chaired by a President who is responsible for executing Council decisions as well as representing the Local Collectivity in all civil and administrative functions. Central control of the Communes by the Ministry of Interior is carried out through a local executive official ("Pasha" or "Khalifa"), who represents the Governor and is specifically charged with ensuring proper application of regulations. The 1976 Communal Charter ("Loi Organique des Collectivites Locales et des Finances Locales") gives the communes very broad powers in formulating the economic and social  - 2- development plan and the level and organization of public services. However, in practice, these poujers are severely limited by the lack of qualified staff to implement development programs and by dependence on Government for budget funding. The direct linancial resources of the Local Collectivities amount to about 50% and cons:ist mainly of local property taxes ("taxe urbaine" and "taxe d'edilite"). The remaining resources come from Government subsidies. In order to finance capital expenditures the Communes may borrow from local financial institutions and in particular from the Communal Infrastructure Fund ("Fonds d'Equipernent Communal" - FEC), managed by the "Caisse de Depots et Gestion" (CDG). So far borrowing has been very limited. All borrowing must be reviewed and authorized by the Ministry of Interior. Urban Conditions and Policies 1.05 Responsibil:Lty for meeting the needs of the growing urban population is shared by central and local government institutions. The central admin- istration finances the delivery of most social services such as education and health, including soc-ial housing. Local provincial Delegations of the various Ministries ensure the implementation and administration of government action at local level. Loca:L Government is generally responsible for providing adequate environmenta:L services such as sewerage, garbage collection and solid waste disposal. Water and power supply are either provided by the National Utility Agencies (ONEP' and ONE), or in major cities, by local autonomous utility agencies ("Regies"). 1.06 Housing. Over the last decade, Morocco's private and public housing production lagged behi.nd the increase in urban population. As a consequence, it is estimated that some 25% of the urban population lives in squatter settlements and another 10% in aged structures deteriorated beyond repair. The new cheapest housing units cost about DH 40,000 or US$10,800 and are beyond the reach of 50% of urban households. 1.07 Overall housing production over the last decade has been limited by the inability of the Moroccan cities to provide serviced land for housing development, as well as by inadequate Government policies in housing construc- tion and finance. Despite considerable Government efforts, during the 60s and the 70s, public housing construction failed to achieve any significant social and economic impact. This was mainly due to costly design and construction standards resulting in much lower levels of production than could have been achieved with thE same total investment. Moreover, because of these standards, the social housing program benefitted mainly middle-income house- holds which could have afforded private sector housing. The private sector in turn has operated n3ainly in the more profitable market of high and medium- high income housing where returns are commensurate with those of other invest- ment sectors. In the absence of any significant amount of housing being produced for low-income groups, a substantial housing stock has developed in the form of squatter s.ettlements. However, the illegal nature of this process  - 3 - as well as financial constraints have prevented municipalities from upgrading infrastructure and the lack of secure tenure has discouraged residents from improving their dweilings. 1.08 The Government-owned "Credit Immobilier et Hotelier" (CIH) is the only financial institution responsible for conventional housing finance in Morocco. Its interest rates range from 8% to 13% according to the type and size of the house. The loan repayment period is 10 years. A special housing finance program ("Habitation a Bon Marche" - HBM) aimed at lower income groups is administered by the "Banque Centrale Populaire" (BCP) - also Government- owned - on behalf of CIH. HBM's interest rates are 6 and 7%, according to the type of housing, and the repayment period is 20 years. Moreover, in the early 70s, GOM promoted a housing savings and loan program to be implemented by several commercial banks. Only BCP has been active in this program, but its efforts have been largely ineffective because of unfavorable terms (2.75% to 5% interest on deposit, 10.5% interest on borrowings). Despite the exist- ing credit facilities, only 10% of private sector dwelling units constructed during the 1973-77 five-year economic plan period benefitted from bank finan- cing; the remainder having been entirely financed by the households themselves through accumulated savings or non-banking borrowings. This is primarily because, as a result of current banking practices in Morocco, most urban households either do not qualify for conventional housing loans or find the restrictive lending conditions of the HBM program unsuitable. Several studies are now being prepared by GOM and the above financial institutions to address the problem of setting up a more attractive system of housing savings and loans within the framework of a national plan for the mobiliza- tion of national savings. 1.09 Infrastructure Services. Access to basic utilities by the low- income urban population constitutes an acute problem in most Moroccan cities. In 1971, the time of the latest survey, 48% of urban households were without water connections, 32% without electricity and 45% without sanitary installa- tions. This situation has probably worsened in recent years because of the rapid increase of the low-income urban population and the spread of squatter settlements. 1.10 Because of their limited financial resources and cost recovery poli- cies, municipalities and utility agencies have in the past primarily extended their services to central and higher income peripheral areas. However, local administrations are increasingly sensitive to the need for extending municipal services and infrastructure, particularly to squatter settlements in order to achieve a better integration of these areas into the city and to prevent major health hazards. The improvement of municipal services such as road maintenance, garbage collection and solid waste disposal would depend on the development of adequate municipal financial resources as well as on the strengthening of municipal organization and management. A technical assistance program to strengthen local governments is being implemented by the Ministry of Interior with the assistance of the French Government. A more extensive provision of utilities would require increased coordination between the municipal authori- ties and the utility agencies, revised municipal regulations and appropriate  - 4 - credit to households. Even though many households could afford to pay for the use of water and sewerage facilities, they lack the initial capital (e.g., DH 2,000 or US$526 per connection for water) required to make the necessary connections and install sanitary fittings. 1.11 Social Services. Provision of social services such as education and health in urban areas is on the average adequate. The distribution of these services remains, however, uneven and is part