Benin - Second Feeder Roads Project

Document of F COPY The World Bank FILE Ov FOR OFFICIAL USE ONLY Repot No. P-2921-BEN REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT PEOPLE'S REPUBLIC OF BENIN FOR A SECOND FEEDER ROADS PROJECT December 4, 1980 This document has a restricted distrlbution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disctosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) 1/ US$1.00 - CFAF 210 CFAF 1 Million US$4.762 FISCAL YEAR January 1 - December 31 LIST OF ABBREVIATIONS AND ACRONYMS CARDER Centre d'Action Regionale pour le Developpement Economique Rural DRDR Division des Routes de Desserte Rurale DRP Direction des Routes et Ponts ITC Inter-ministerial Technical Committee MDRAC Ministere du Developpement Rural et de l'Action Cooperative MTPCH Ministere des Travaux Publics, de la Construction et de l'Habitat SONAGRI Societe Nationale pour la Production Agricole UNCDF United Nations Capital Development Fund MEASURES 1 kilometer (km) = 0.62 mile 1 square kilometer (km2) - 0.39 square mile 1 square meter (m2) - 10.76 square feet 1/ The CFA Franc (CFAF) is tied to the French Franc (FF) in the ratio of FF 1 to CFAF 50. The French Franc is currently floating.  FOR CIFFICIAL USE ONLY BENIN SECOND FEEDER ROAD PROJECT Credit and Project Summary Borrower: People's Republic of Benin Amount: SDR 5.5 million (US$7.0 million equivalent) Terms: Standard IDA terms Project Description: The proposed credit would finance a three-year program of feeder road construction and maintenance which is now estimated to comprise: (a) construction by force account of about 700 km of feeder roads; (b) maintenance of about 1,200 km of feeder roads; and technical assistance to the Feeder Roacds Division within the Ministry of Public Works for carrying out civil works, project monitoring, staff training and the preparation of future feeder roads programs. Benefits and Risks: Project benefits would accrue to farmers who will have year-round access to markets for their surplus production, and transporters in the form of savings from reduced vehicle operating costs. Institutional strengthening would also be a major benefit. Project risks are limited. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   - ii - Estimated Costs (net of taxes): US$ Million Local Foreign Total A. Feeder Road Improvement 3.0 2.2 5.2 - Equipment 0.3 1.3 1.6 - Materials 0.8 0.9 1.7 - Local staff 1.9 0.0 1.9 B. Feeder Road Maintenance 0.4 0.4 0.8 - Equipment 0.0 0.3 0.3 - Materials 0.1 0.1 0.2 - Local staff 0.3 0.0 0.3 C. Technical Assistance 0.2 0.9 1.1 TOTAL 3.6 3.5 7.1 D. Contingencies 0.9 0.7 1.6 - Physical 0.4 0.3 0.7 - Price 0.5 0.4 0.9 GRAND TOTAL 4.5 4.2 8.7 Financing Plan: The proposed credit of US$7.0 million would finance 80 percent of total project cost net of taxes, i.e., all the foreign cost and about 62 percent of local costs. The Government would finance the balance of US$1.7 million. (In US$ Million) Estimated Disbursements: FY81 FY82 FY83 FY84 Annual 1.0 2.5 2.0 1.5 Cumulative 1.0 3.5 5.5 7.0 Economic Rate of Return: About 20 percent. Staff Appraisal Report No.: 3050/BEN December 1, 1980   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE PEOPLE'S REPUBLIC OF BENIN FOR A SECOND FEEDER ROADS PROJECT 1. I submit the following report and recommendation on a proposed development credit to the People's Republic of Benin for an amount in various currencies equivalent to Special Drawing Rights 5.5 million (US$7.0 million) on standard IDA terms to help finance a Second Feeder Roads Project. PART I - THE ECONOMY 2. The latest economic report on Benin (Report No. 2079-BEN, issued in May 1979) was the result of a basic economic mission which visited the country in fall 1977. The paragraphs below are based on this report, but include updated information. Annex I provides basic country data. Introduction 3. After independence in 1960, a period of instability' characterized by frequent changes in Government prevailed until the revolution in 1972 which brought to power the military Government of President Kerekou. The new regime took immediately steps to replace the foreign domination of the modern sector and strengthen the Government's involvement in the agricul- tural sector. These measures initially disrupted the economyr since there was an inadequate number of trained Beninese to replace the departing expatriates. However, the Government also pursued conservative financial policies which resulted in budgetary surpluses and the maintenance of,the debt service ratio at less than 7 percent. 4. Benin has now enjoyed a comparatively long period of political stability under a tight, centrally controlled one-party system. Following the adoption of a new constitution Lieutenant Colonel M. Kerekou was recently confirmed President of the Republic for a three-year term by a newly elected National Assembly. Mr. Kerekou has in turn appointed a civilian dominated Government. 5. The nation is poised for a period of moderate growth propelled by major investments in the industrial sector. But Benin's near term prospects should be assessed with caution because they are dependent oln a few key factors: strength of the Nigeria and Niger markets, success of key indus- trial projects and continuation of a prudent budgetary policy. Recent Economic Development 6. With a population of 3.3 million people and a GNP per capita of $230 (1979) per annum, Benin remains one of the least developed countries as defined by the U.N. Over the 1975-79 period, the country enjoyed an average  - 2 - real GDP growth rate of 3.7 percent and a sound public finance position. Exports are limited (US$130 million per annum) and little diversified (mainly oil palm products, cotton, and cocoa). A large resource gap, 20 percent of GDP, is shown over the 1972-78 period according to Central Bank statistics. The gap is, in fact, smaller due to the substantial volume of informal, unrecorded exports, primarily to Nigeria. Also, an important part of the remaining shortfall is financed by a sustained inflow of workers' remittances and capital grants. Therefore, medium- and long-term borrowing makes up for only about 13 percent of the actual resource gap. 7. Agriculture, which employs about 70 percent of the population and generates 39 percent of GDP, has not substantially increased its output over the past decade. With respect to export crops, cotton peaked in 1972 at 50,000 tons but has since fallen to around 15,000-20,000 tons. Palm oil production continued to increase until the mid-1970s, but output has been reduced since a severe drought in 1976. Institutional changes, insufficient farmgate prices, lack of financial resources and the absence of technical assistance are the main reasons for the unsatisfactory performance of export crops. Foodcrop production, although beset by many of these problems has fared somewhat better with sustained demand from Nigeria. The situation of the sector in general is slowly improving under renewed Government support through producer price increases and less interference with market forces, and better climatic conditions. 8. The industrial sector is still undeveloped due to a lack of skilled manpower, smallness of the local market and institutional con- straints. It employs less than 2 percent of the labor force, contributes 11 percent to GDP (1979) and consists mostly of agricultural processing and import-substitution activities. The sector achieved an 11 percent annual growth rate during 1972-76, but slowed down to 4 percent during 1977-1979 because of a fall-off in demand from the Nigerian market. Currently, Benin is beginning to exploit its natural resources through several major indus- trial projects, the Onigbolo cement factory (limestone), the Save sugar plant and the Seme offshore oil field. 9. The tertiary sector (mainly transport and commerce) accounts for 41 percent of GDP (1979) and employs almost 40 percent of the labor force. The port of Cotonou has traditionally provided access to the sea for land- locked Niger and the western part of Nigeria. The Niger traffic through Cotonou Port rose from 180,000 tons in 1973 to 529,000 tons in 1977, and total transit traffic including Nigerian traffic rose to a peak level of 900,000 tons in 1979. 10. There has been a significant improvement in the central Govern- ment's current financial situation over the last decade. The chronic cur- rent budget deficits of the 1960's, financed by French Treasury trans- fers, were eliminated during the first half of the seventies. During 1976-78 the budget registered current surpluses averaging a high 23 percent of current revenues. The Government has controlled the growth of current expenditures, which did not increase in real terms during the 1972-77  - 3 - period. The 1976-77 surplus was due to the sudden rise of tax revenues resulting from the growing transit trade to Nigeria and also, to a lesser extent, to the development of Beninese industrial activities. Some level- ling off or decline in public revenues related to the Nigeria trade, com- bined with expected heavy demands on the Treasury for investment projects, will probably tighten the budget in coming years. In 1979, Government resources were mobilized for an accelerated implementation of the large projects and a deficit equivalent to 12 percent of total revenues opened up. 11. Prices have been kept under control and the overall rate of in- flation has been limited to 8-9 percent in 1978-79. The increaSed economic activity induced by the start-up of major industrial projects is likely to exert continuous pressure on prices in the next few years, with an inflation rate of 10-11 percent projected for 1981-82. 12. The Government is committed to broad-based socio-economic policies, but a key concern hitherto has been to keep wages and salaries Low because of limited public revenues. In real terms, both public and private sector salaries have declined. Cash incomes of the farmers may have increased slightly, the losses resulting from the drop in cotton production probably having been made up by increased exports of maize to Nigeria. Thus, Benin is one of the few countries in Africa where the urban-rural income gap has not widened in recent years. Education is one of the Government's top priorities. It is in the process of implementing reforms aimed at both adjusting the education system to the needs of the country, and reducing the high cost of formal education which absorbs 33 percent of the Government's recurrent budget. Health facilities are still poor, and the social indica- tors for Benin (literacy, life expectancy, etc.) remain well below the average for low-income developing countries. The 1978-80 Development Plan 13. A Three-year Plan (1978-80) was issued in October 1977, setting out the Government's economic goals. Its stated objectives are to raise the general standard of living, to achieve independent national direction of economic policies, and to promote broad participation in the conception and implementation of economic and social changes. Investment allocation proposed in the Plan favors large-scale projects. The major items are: the Cotonou Port extension (US$50 million), financed by IDA and seven other agencies; a 40,000-ton sugar project at Save (US$210 million); a 500,000-ton cement plant at Onigbolo (US$159 million); and the Seme offshore oil produc- tion project (US$120 million), estimated to yield about 11 to 20 million barrels. These projects together account for some 50 percent of the invest- ment foreseen in the Plan. Work on Cotonou Port is far advanced. The sugar and cement projects are joint ventures with the Nigerian Government, with Nigerian marketing and financing guarantees. The production of sugar, cement and oil should commence around 1982. 14. Based upon an analysis of the major projects and Benin's financing possibilities, Bank staff estimate that only 70 percent of the planned US$1.1 billion investment will materialize, and will be disbursed over five  - 4 - years (1978-82) rather than three. This would push the overall public investment rate to 19 percent of GDP on average over the 1978-83 period, compared with the 10 percent over the 1972-77 period. Facts confirm these estimates; the rate of implementation of the Plan's first two years 1978 and 1979 has been below 40 percent of the objectives. Major difficulties include inadequate project preparation and coordination, delays in obtaining foreign financial commitments, and insufficient control over project execu- tion. For 1980, the implementation ratio is projected at 50 percent. Prospects 15. The medium-term outlook for economic growth in Benin is moderately optimistic. Real GDP growth during 1979-85 is expected to average 5-6 percent per annum. The downside risks to Benin's economy are the reliance on Nigerian demand and the negative impact of problems which may arise in implementing the large projects. The benefits from these projects are, in turn, dependent upon price agreements (specifically with Nigeria in the case of cement and sugar). Benin's agricultural growth prospects will, moreover, depend on effective pricing and marketing policies in the rural sector. In the long term, Benin's growth potential will be limited by a poor resource base to perhaps 4 percent per year, and even the achievement of this rate will depend on the ability of Government to channel resources and orient programs (in social and economic infrastructure, training, marketing, etc.) to the development of food and cash crops. 16. Benin's public finance and balance of payments situation may fluctuate more over the next five years than has been the case in the preceding half-decade. In the mid-1970's, conservative public policies led to budget surpluses and a stable trend in foreign reserves. This partly reflected, however, the lack of sizable new initiatives in public invest- ment. The situation is now changed with the implementation of the Three Year Plan which places heavy demands on the Treasury for counterpart funding, and steps up the pace of capital and intermediate goods imports matched by foreign financial inflows. The balance of payments will undergo fluctuations between now and 1985 under the impact of the major projects. Since the large projects underway will heavily influence the trade balance and public finances, their succesful implementation is essential for Benin's medium-term outlook. 17. Benin's total external debt (including undisbursed), which until the end of 1979 had remained relatively low (amounting to US$293 million with a debt service equivalent to 7 percent of the country's exports), is expected to rise substantially as investments increase and borrowing conditions harden. The debt service ratio is projected to reach 22-27 percent of exports in the mid-1980's. This ratio is high, but up to 80 percent of the debt service is accounted for by the large projects, two of which are guaranteed by Nigeria. Nevertheless, this points up Benin's vulnerability. Were any of the major projects to encounter serious problems (cost overruns, inefficient management, or unprofitable pricing agreements with Nigeria) then the debt burden could quickly become unmanage- able. The low level of Benin's traditional exports does not permit much flexibility in this respect.  - 5 - 18. In view of the country's low per capita income, the growing need for external funding of priority projects in an expanding economy, and Benin-s narrow export base, it will be necessary to increase the volume of foreign financing on concessionary terms. Benin is expected to be able to finance no more than 10-15 percent of its overall public invest- ment programs thus foreign donors should continue to provide a large share of total project costs, including the financing of local costs. PART II - BANK GROUP OPERATIONS IN BENIN 19. To date the Bank Group has extended ten credits to Benin including two supplementary credits totalling US$77.8 million. Three of the credits were for agriculture (17 percent of total lending), four for highway con- struction and maintenance (51 percent), and one each for port expansion, education and small-scale industries development. Annex II contains a sum- mary statement of Bank Group operations in Benin as well as notes on the execution of ongoing projects. 20. IDA's first operation in Benin was the HINVI Agricultural Deve- lopment Project (FY69) which provided for oil palm plantings and foodcrop development. The project was satisfactorily completed in 1974. As stated in the Project Performance Audit Report (M78-451 of May 19, 1978) poor rainfall delayed palm tree development while foodcrop production. remained below appraisal estimates mostly because of labor constraints. To over- come this difficulty, an accelerated program of ox-drawn cultivation was initiated. Animal traction expanded rapidly resulting in substantial increases in maize yields. The project was successful in assisting SONADER, the executing agency, to continue its good performance and supporting cooper- ative developments. The second agricultural credit, the Zou-Borgou Cotton Project (FY72) has also been completed (Project Performance Audit Report M78-353, April 20, 1978). This operation aimed at expanding cotton and foodcrop production in the Zou-Borgou provinces. Due to organizational upheavals, the project failed to achieve its objective of increasing cotton production. Foodcrops, on the other hand, have been expanding mostly due to growing demand from neighboring Nigeria. While the OED Report does not conclude that a larger maize component in the project would have made it successful, experience suggests that agricultural packages should be more diversified, by combining export cash crops and staple food crops with the latter included not only to satisfy farmers subsistance neecls, but to supply domestic markets and sometimes also those of neighboring countries and provide an important measure of flexibility to the implementing agency The third project in the agricultural sector was the Technical Assistance Project (FY77) designed to strengthen the country-s agricultural institu- tions and to prepare follow-up rural development projects to the Zou-Borgou project. The first of these is the Borgou Province Rural Development Project which is closely linked to the proposed project and is scheduled for Board consideration in 1981. A project focusing on the Zou Province :Ls planned for FY83.  - 6 - 21. The Bank Group's involvement in the transport sector in Benin began in 1969, when the Bank acted as Executing Agency for a UNDP "Land Transport Study." This study led to the financing of a four-year Highway Maintenance Project in FY69. The Project Performance Audit for this project (Report No. M77-758) of October 25, 1977 indicated that significant strengthening of the Government department then responsible for maintenance operations occurred under the project. The Second Highway Project (FY73), co-financed by USAID, comprised the reconstruction of 320 km (Parakou-Malanville) and short sections (between Godomey and Bohicon) of Benin's north south trunk road, the continu- ation of the road maintenance program initiated under the first project, and training. The project was satisfactorily completed. The rate of return of the Parakou-Malanville road is estimated at 16 percent versus 13 percent at appraisal and 30 percent versus 19 percent at appraisal when including benefits to Niger from its transit traffic. The Third Highway Project (FY78) provided for further rehabilitation of a 107 km section of the Godomey- Bohicon road and the expansion of the maintenance program, including the elimination of the backlog in resurfacing bituminous laterite roads. The implementation is proceeding satisfactorily after initial delays. Some cost overruns have been incurred. A First Feeder Road Project was approved in FY77. Details on its execution are given in paragraphs 30 to 32 below. The proposed project is a follow up to this project. A Port Project was ap- proved in 1978 and its major objective is to raise the cargo handling capacity of the port by providing additional berth (660 m), storage capacity, and technical assistance to improve the port operations. Project execution is progressing satisfactorily. Final cost is expected, however, to be higher than estimated at appraisal. The Government is seeking additional financing from the co-financiers. A Fourth Highway Project to be submitted to the Executive Directors later in FY81 would aim at improving the efficiency of routine and periodic maintenance and continuing the elimination of the backlog maintenance of laterite roads. 22. The First Education Project (FY74) emphasized the non-formal sector. Its aim was to train rural youth and upgrade the country's voca- tional training capacity. This project is proceeding satisfactorily. The Second Education Project (scheduled for FY82) would consist of training for primary, secondary, and technical school teachers and the production of didactic materials. 23. In FY80, IDA granted a credit to the Banque Beninoise pour le Developpement (BBD) which is the national development bank providing medium and long-term loans to both the public and private sectors. The project is aimed at providing BBD's the resources it needs to finance small- and medium-scale enterprises up to 1982; and strengthening BBD's management and capacity to promote small- and medium-size investments. 24. In the future, in addition to the rural development and highway projects mentioned in paragraphs 20 and 21, IDA plans to participate in the exploitation of an off-shore oil field at Seme and the urban development of Cotonou.  - 7 - PART III - ROADS IN BENIN 25. Benin's transport system is well developed. Cotonou, the capi- tal, is the focal point of a route which begins at the port and extends the length of Benin to landlocked Niger and Upper Volta, and comprises 440 km of railway (Cotonou - Parakou) and 320 km of road (Parakou - Malanville). Benin's road network consists of 7,300 km of classified and unclassified roads of which 900 km are paved, 2,700 km are laterite-surfaced and 3,700 km are rural earth roads. Rural roads are generally in poor shape. Half are unimproved mere tracks which are impassable to four-wheel-drive vehicles during most of the rainy season. 26. The Directorate of Roads and Bridges (DRP) of the Ministry of Public Works, Construction and Housing (MTPCH) is responsible for road construction and the maintenance of 3,800 km of interstate, national and secondary roads, and some 1,200 km of feeder roads. While the responsi- bility for maintaining the remainder of the (mostly unclassified) network nominally lies with the IMinistry of Interior and local authorities, this will gradually be assumed by DRP. 27. The General Studies and New Works Division in the DRIP is respon- sible for preparation and supervision of new projects. Most projects financed by foreign aid agencies are prepared and supervised by consultants. The country lacks local contracting organizations of sufficient capability, and major works are undertaken by foreign contractors. However, improvements to secondary roads under the Third Highway Project, and of feeder roads under the Zou-Borgou Cotton and First Feeder Roads Projects, have been carried out by force account by DRP. 28. Main roads maintenance has improved over the years, but is still hampered by understaffing, shortage of equipment, poor equipment maintenance and insufficient local funds. Feeder road maintenance is being reorganized under the DRP since underfunded local authority efforts have rarely been able to assure all-weather utilization of feeder roads. The proposed project would, inter alia, provide DRP with the short-term capacity.to give financial support and supervision to labor-intensive maintenance work carried out by workers to be drawn from the local communities, while a new organization of road maintenance activities is being established in conjunction with the proposed Fourth Highway Project. 29. Foreign sources (multilateral and bilateral) have contributed about 85 percent of the funds for road construction over the last decade. Road maintenance funds are mainly local. Periodic and routine maintenance are financed by a Road Fund set up in 1970 for road maintenance and road-related studies. The Road Fund draws its resources from a portion of taxes levied on sales of gasoline and diesel fuel and contributions from general revenues. However, funds become available only after long delays, not allowing the budget to be fully spent and no provision is made for equipment renewal. The Government has indicated that it would in the future make quarterly alloca- tions to the Road Fund to improve liquidity. Also the Ministry of Public Works' 1981 budget would include a provision for equipment renewal. Additional revenue sources for road maintenance funding are also being explored including  - 8 - increasing the fuel tax contribution to the Road Fund and providing for a small levy for feeder road maintenance in the official pricing schedules of cash crops. 30. Feeder road construction and maintenance is of high priority for Benin's Government and development of the network is primarily being supported by IDA, the European Development Fund (EDF) and the United Nations Capital Development Fund (UNCDF). The IDA-financed First Feeder Roads Project (FY77) was conceived as the first phase of a feeder roads improve- ment and maintenance program. The project has succeeded in establishing an effective Feeder Roads Division (Division des Routes de Desserte Rurale-DRDR) within the Ministry of Public Works which has set up an efficient system of data collection (on population, agricultural production and social infra- structure) for the evaluation and selection of roads to be improved. An Inter-Ministerial Technical Committee (ITC) grouping representatives from the Ministries in charge of public works, rural development, finance and plan, which was also established under the project and is entrusted with the final selection from the roads proposed by the DRDR, has effectively assumed its coordinating role. 31. The first project which was intended to test three different methods of executing feeder road works, has helped demonstrate that construction by labor-intensive methods is competitive with equipment-intensive methods. After one year of operation, the output by the labor brigades was on target (45 km per annum), the output of the heavy brigade (135 km per annum) reached 90 percent of appraisal estimates, while the output of the intermediate brigade (75 km per annum) reached about 70 percent. The shortfall of the intermediate brigade stemmed largely from the difficulties inherent in orga- nizing mechanized works in conjunction with labor-intensive ones; mechanized brigades initially experienced fuel and spare parts supply problems which were later overcome; by contrast, labor-based methods proved relatively insensitive to the supply and repair problems, and labor has been readily available at the prevailing wages paid by DRDR and its productivity is good. Construction costs per kilometer were slightly less for the labor-intensive than inter- mediate or fully mechanized units. 32. Based on the assumption of immediate start-up of works and an average annual output of about 300 km, the 4 brigades established under the first project were expected to improve a total of 845 km and maintain 425 km over the 3-year project period. Contrary to - in retrospect - overoptimistic appraisal assumptions, it took 18 months before the project reached full operating speed. This delay was due to cumbersome administrative procedures and the pilot nature of the project. During this period the exchange rate of the US dollar with respect to the CFAF deteriorated significantly and infla- tion was of the order of 18 percent. As a result of this and of cost in- creases over the appraisal estimates, only 300 km of roads were constructed with available credit funds. Some of the factors affecting the cost of road construction will obviously have an effect on the economic rate of return of the project, estimated at 18 percent at the time of appraisal, but they should not reduce it by more than half, since most of the equipment procured under the project retains more than half of its economic life and the initial cost  - 9- of setting up the institutional framework for feeder roads construction and maintenance should be spread over more than the first three years of the program. The proposed follow-up project provides for a second tranche of the road improvement and maintenance program, based on the criteria for road selection developed under the first project. It is estimated that about 700 km of feeder roads would be improved and 1,200 km maintained during the three-year implementation period of the proposed project. 33. As stated in para. 7, the situation of the agricultural sector which constitutes the basis for the justification of the proposed project is improving. Cotton production reached 24,000 tons in 1979/80, due to renewed Government support through extension and increases in producer prices and improved rainfall. Maize has increasingly been grown as cash crop in response to growing domestic demand and border trade especially with Nigeria. To a lesser extent, this has also applied to sorghum. Pro- duction of rice which like wheat is a major food import, and of groundnuts have been increasing steadily. It is expected that with the implementation of projects such as the Borgou and Zou Provinces Rural Development Projects which have been submitted by the Government to IDA for possible financiing, the positive trends which are now apparent will continue. The objective of these two projects would be to strengthen the institutions in charge oif agriculture, rebuild an extension service capable of regaining the farmers' confidence and provide the farmers with the essential inputs and infrastructure that they seriously lack now. The proposed feeder roads project would help improve rural road transport infrastructure in the Borgou province and ol-her priority areas. PART IV - THE PROJECT 34. The proposed project was prepared by the Feeder Roads Division of the Ministry of Public Works with the assistance of consultants, financed under the First Feeder Roads Project (Credit 717-BEN) and the Technical Assistance Project (Credit 716-BEN). The project was appraised in April 1980 by RMWA. A post-appraisal took place in May 1980. Negotiations were held in Washington in November 1980. The Beninese delegation was led by the Minister of Public Works Construction and Housing. The Staff Appraisal Report No. 3050-BEN of December 1, 1980 is being circulated to the Executive Directors separately. Annex III contains supplementary project data. Project Description 35. The proposed project would consist of a three-year slice of the program for the improvement and subsequent maintenance by force account of the country's feeder road network including the strengthening of the DRDR. Physical targets would be the construction of about 700 km of feeder roads and maintenance of about 1,200 km. The project would be executed by the Ministry of Public Works through its DRDR. Its implementation is scheduled to start in December 1980 and to be completed by November 1983.  - 10 - 36. The project would provide for: (a) highway maintenance equipment and spare parts, materials and supplies; (b) operation of the feeder road brigades; and (c) technical assistance to DRDR in the implementation of the improvement and maintenance programs, in training its staff, and for studies and future program preparation. 37. The road improvement program would provide for the construction of 700 km of roads of which about 300 km in support of the envisaged Borgou Province Rural Development Project. The improvement works would consist of roadway shaping, provision of selected material and construction of drainage systems. The project would provide for the establishment of two new labor- intensive brigades in addition to the two existing ones. The existing inter- mediate brigade would be dismantled and its equipment used to strengthen the existing mechanized brigade and to establish a maintenance brigade. 38. The work program for the 1980/81 work season has been approved by the Interministerial Technical Committee (ITC) and the Association. The program for 1981/82 and each year thereafter once adopted by the ITC would be submitted to the Association for approval no later than 3 months before the scheduled start of the work (draft Development Credit Agreement, Section 3.03 (b)). The roads included in the program were selected on the basis of their importance for existing or planned agricultural activities. Criteria for final road selection and design and maintenance standards were confirmed during negotiations and incorporated in a Supplemental Letter (draft Develop- ment Credit Agreement, Section 3.03 (a)). All roads to be proposed to the Association for improvement shall have an economic rate of return of not less than 10 percent. 39. The project would provide for initial maintenance of the roads improved under the project. Maintenance activities would be carried out by the new maintenance brigade to be established under the proposed project and the special feeder road maintenance teams which are being organized in each highway maintenance subdivision. Equipment maintenance would be per- formed in existing maintenance shops and in mobile workshops. The maintenance work and feeder road improvement would be closely coordinated by DRP. 40. The technical assistance provided under the First Feeder Roads Project - two engineers, one transport economist, three road technicians and one accountant - would continue through the first year of the proposed project (draft Development Credit Agreement, Section 3.02 (a)). Phasing out of this assistance is then expected to begin, Beninese counterpart staff having been on the job since early 1980. The main object of the technical assistance would be the consolidation of the procedures introduced in the  - 11 - DRDR under the First Feeder Roads Project for administering, implementing and supervising the work. Local personnel would receive mostly on-the-job training. Technical assistance would amount to 10 man-years. nTe average man-month cost is estimated at US$10,200 including fees, outstation allowance, local and international transport, housing and subsistence and company over- head and profits. Services of an economist would be provided through a Dutch volunteer. 41. By May 31, 1983, DRDR's planning and evaluation unit would carry out a pilot study designed to monitor the socio-economic impact of selected roads improved under the First and proposed Second Feeder Roads Projects and would inform the Association of the findings of the study (draft Development Credit Agreement Section 3.08). This would consist of regular traffic counts, origin and destination surveys, monitoring of population movements, cropping patterns, marketing activities and utilization of social service facilities in the road zones of influence. Project Costs and Financing 42. Project costs (net of taxes) are estimated at US$8.7 million with a foreign exchange component of US$4.3 million (49 percent). The proposed credit of US$7.0 million would finance 80 percent of total project cost (net of taxes) i.e. all of the foreign cost and US$2.7 million equivalent (about 60 percent) of local costs. The Government's contribution would amount to US$1.7 million equivalent. Base cost estimates are based on 1980 prices. Average cost of improving roads is about US$11,200 per km. The Government has given assurances that it would provide to DRDR on a monthly basis beginning in December 1980, an amount of $175,000 equivalent to ensure continued operation of the existing feeder roads brigades until funds from the proposed credit become available. The Government has further provided assurances that it would promptly make available to DRDR as needed, Govern- ment's contribution to project financing. A Special Account, with an initial deposit by IDA equivalent to US$300,000 would be established as under the First Feeder Roads Project. The Special Account would be replenished by IDA with amounts equal to the payments made out of the Special Account for expenditures eligible for financing by the Association (draft Development Credit Agreement, Section 2.02). 43. The Government would establish and maintain the necessary accounts and records for the project in accordance with accepted accounting practices. Assurances have been obtained from the Government that project accounts would be audited by auditors acceptable to the Association; the project accounts and the audit would be submitted to the Association for review and comments within six months of the end of each fiscal year; and the accounts and the audit report would be of such a scope and in such detail as the Association may reasonably request (draft Development Credit Agreement, Section 4.01(c)).  - 12 - Procurement and Disbursement 44. All civil works would be carried out by force account. Equipment and vehicles valued at US$ 1.1 million would be procured on the basis of in- ternational competitive bidding in accordance with the Association's guide- lines. In bid evaluation, due consideration would be given to standardization of the new equipment with existing equipment. Goods manufactured locally would be given a preference of up to 15 percent. Fuel, lubricants, construc- tion materials and handtools valued at US$ 1.6 million may be procured on the basis of local procedures acceptable to the Association. Contracts for the purchase of spare parts and office supplies estimated to cost not more than the equivalent of US$50,000 each may be procured on the basis of local proce- dures acceptable to the Association. The aggregate amount for such contracts shall not exceed the equivalent of US$0-5 million. 45. The IDA credit would be disbursed over a three year period to cover: (a) 100 percent of the cost of equipment, vehicles, handtools, spares, fuel and lubricants; (b) 60 percent of the local personnel salaries and the cost of materials for road construction and maintenance; (c) 70 percent of the office supply and equipment costs and hire charges; (d) 90 percent of the technical assistance cost. It is recommended that IDA provide for retroactive financing from December 1980 for up to US$0.7 million to cover the eligible operating expenditures of the field brigades and the DRDR. Economic Justification 46. The economic justification of the project is based on increased agricultural production resulting from both improved accessibility and some complementary agricultural investments such as the envisaged Borgou Province Rural Development Project. The overall rate of return is estimated at 19 percent. Rates of return of the roads retained vary between 10 and 34 percent; all roads to be included in the project would have to yield a minimum 10 percent rate of return. Project benefits would accrue to farmers who would have year-round access to markets for their surplus production, to transporters from savings on reduced vehicle operating costs and from better vehicle utilization made possible by the road improvements. Greater reliance on labor-intensive construction methods would provide a larger number of communities, from which labor is drawn, with the cash-earnings that would allow farm households to pay for the improved agricultural tools and inputs needed for more intensive exploitation of their lands. The economy as a whole would benefit from reduced grain imports and extra foreign exchange earnings from increased production of traditional export crops. Unquantified social benefits and benefits from institution-building would also represent a significant addition to the quantified economic benefits.  - 13 - Project Risks 47. The risks that the project would experience the implementation problems of the First Feeder Roads Project are limited. These difficulties proved to be essentially start-up problems. Since the institutions have been established and are performing effectively, the technical assistance is in place, and most of the equipment delivered, the roads are now being built on schedule and within unit cost estimates. The proposed project is expected to further improve DRDR operations. Risks associated with the quality of road maintenance after project completion, the level of producer prices set by the Government for different agricultural products, the adequacy of input supplies and extension services are limited. The project includes an initial maintenance component and technical assistance for developing appropriate maintenance procedures. After several years of stagnating producer prices, Benin has in the past year, increased producer prices for cotton, maize and rice, and implicitly accepted "free" local market prices for foodcrops. Adequate supply of inputs and appropriate extension support will be provided through planned rural development projects. the sensitivity analysis shows that even with a drop in incremental production of 50 percent, the project would still yield a rate of return in excess of 10 percent. PART V - LEGAL INSTRUMENTS AND AUTHORITY 48. The draft Development Credit Agreement between the People's Republic of Benin and the Association and the Recommendation of the Commit- tee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. 49. Special conditions of the project are listed in Section III of Annex IV. 50. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATIONS 51. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments Washington, D.C. December 4, 1980  - 14 - AnnexI Page I TABLE 3A BENIN - SOCIAL INDICATORS DATA SHEET BENIN REFERENCE GROUPS (WEIGHTED AVE9AGES LAND ARFA (THOUSAND SQ. KM.) - MO5T RECENT ESTIMATE)- TOTAL 112.6 AGRICULTURAL 33.0 MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA GNP PER CAPITA (US$) 90.0 130.0 230.0 228.9 726.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 39.0 42.0 56.0 80.0 699.4 POPULATION AND VITAL STATISTICS OPULATION, MID-YEAR (MILLIONS) 2.1 2.6 3.3 URBAN POPULATION (PERCENT OF TOTAL) 9.5 12.6 14.0 17.3 28.9 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 6.0 STATIONARY POPULATION (MILLIONS) 15.0 YEAR STATIONARY POPULATION IS REACHED 2160 POPULATION DENSITY PER SQ. RH. 19.0 23.0 29.0 27.4 61.7 PER SQ. KM. AGRICULTURAL LAND 62.0 77.0 97.0 82.6 126.0 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 44.2 44.9 46.0 44.9 45.5 15-64 YRS. 53.2 52.6 51.3 52.2 51.6 65 YRS. AND ABOVE 2.6 2.5 2.7 2.8 2.8 POPULATION GROWTH R4TE (PERCENT) TOTAL 2.2 2.6 2.8 2.7 2.7 URBAN 6.0 5.5 4.2 6.8 4.9 CRUDE BIRTH RATE (PER THOUSAND) 51.0 49.0 49.0 47.4 46.8 CRUDE DEATH RATE <PER THOUSAND) 27.0 22.0 19.0 19.6 16.4 GROSS REPRODUCTION RATE 3.3 3.3 3.3 3.2 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 95.0 101.0 92.0 91.8 94.0 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 93.0 96.0 98.0 90.2 92.7 PROTEINS (CRAMS PER DAY) 51.0 53.0 51.0 53.0 53.0 OF WHICH ANIMAL AND PULSE 14.0 15.0 13.0 18.4 15.6 CHILD (AGES 1-4) MORTALITY RATE 41.0 32.0 27.0 27.7 21.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.0 42.0 46.0 45.3 50.1 INFANT MORTALITY RATE (PER THOUSAND) 206.0 .. ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. .. 20.0 23.2 31.0 URBAN .. .. 42.0 58.0 66.8 RURAL .. .. 16.0 16.8 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. 14.0 .. 28.9 URBAN .. 83.0 .. 67.0 RURAL .. 1.0 POPULATION PER PHYSICIAN 47000.0 28920.0 26908.0 30910.4 14508.2 POPULATION PER NURSING PERSON .. 2910.0 3007.0 5793.2 3279.5 POPULATION PER HOSPITAL BED TOTAL 748.0 847.0 736.0 1198.9 1141.5 URBAN .. .. 209.0 RURAL .. .. 3876.0 ADMISSIONS PER HOSPITAL BED .. 30.2 17.7 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. .. URBAN .. .. RURAL .. .. AVERAGE NUMBER OF PERSOITS PER ROOM TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN .. .. RURAL .. ..  - 15 - Annex I Pane 2 TABLE 3A BENIN - SOCIAL INDICATORS DATA SHEET BENIN REFERENCE GROUPS (WEIGHIED AVEMGES - MOST RECENT ESIIMATE) MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 lb ESTIMATE /b AFRICA SOUTH OF SAHARA AFEICA SOUTH OF SAHARA EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 26.0 40.0 58.0 57.7 61.7 MALE 38.0 56.0 80.0 74.2 69.2 FEMALE 15.0 25.0 37.0 54.1 51.4 SECONDARY: TOTAL 2.0 5.0 11.0 10.0 20.6 MALE 2.0 8.0 16.0 13.7 29.2 FEMALE 1.0 3.0 6.0 7.1 14.7 VOCATIONAL ENROL. (2 OF SECONDARY) 13.0 4.1 2.1 6.8 7.0 PUPIL-TEACHER RATIO PRIMARY 41.0 44.0 48.0 45.0 36.6 SECONDARY 23.0 26.0 31.0 25.2 24.3 ADULT LITERACY RATE (PERCENT) 8.0 .. .. 25.5 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 1.0 4.0 5.4 3.6 38.8 RADIO RECEIVERS PER THOUSAND POPULATION 12.0 32.0 48.0 31.5 83.5 TV RECEIVERS PER THOUSAND POPULATION .. .. 0.1 1.8 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 2.0 1.0 0.3 4.6 24.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 0.2 0.4 .. .. 0.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 1048.9 1285.7 1530.2 FEMALE (PERCENT) 45.1 44.9 44.9 33.5 38.1 AGRICULTURE (PERCENT) 54.0 49.7 47.0 80.7 54.3 INDUSTRY (PERCENT) 8.9 11.8 46.0 8.1 17.8 PARTICIPATION RATE (PERCENT) TOTAL 51.2 49.0 46.4 42.2 38.8 MALE 57.1 54.9 51.0 55.1 48.4 FEMALE 45.5 43.3 42.1 29.5 29.4 ECONOMIC DEPENDENCY RATIO 0.9 1.0 1.1 1.2 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 31.4/c HIGHEST 20 PERCENT OF HOUSEHOLDS 51.7/c LOWEST 20 PERCENT OF HOUSEHOLDS 5. ... LOWEST 40 PERCENT OF HOUSEHOLDS 15.B/. POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 138.2 RURAL .. .. 84.0 86.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. 107.0 RURAL .. .. 82.0 65.0 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. RURAL .. .. 55.0 66.9 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970 between 1969 and 1971; and for Most Recent Estimate, betveen 1974 and 1978. /c Population. April, 1980  - 16 - ANNEX I Page 3 DEFINITIONS OF SOCIAL ISDICATORS No-eu Although the data are drest Iron sources .enerally judged the mos authorittiae and reliable, it uvould also be noted chat they nap tno be inter- vatiocalip comparable hecouse of the lack of scooardloded definitions ood taocepts used by different counts les in collootnlg the data. The dota are, tone- theless, useful to describe erdero af naguitudo, indicate t_endo, and charatterlee ternain _ojur differesces bandee countrles. the otefreoc4 groups am (I) thc ssn oaatru group ut the ubjec counry sod (2) a country group with somewhat highle average income thls the country group of tbe nuljeutcountry (eI cept for "Capital Surplus 011 Etytriers" roup hore `Middle IllcN.e North Africa and Middle Ea-s" is chosen because of stronger socbo-cultaral affuctiem). Is she reference group data .r . averafes ace population neLghted erithmtir mean fur each indicator and showon eeshen at leant tall cf the countries inagroup baa data for ifah indi,ator. Since the corage of coinrtn- aong the lodttanors depe-du on the aeailatility of dofa and is noe nifotpA , cat nion must he exercised is relating averages of -oe indicator to ansther Thse averages are anly useful is tosparlig the value of eve indicator at a time among the country and reference group, LAND AREA (thousnod sqAkm) ruOst ou rer chy