Cameroon - Second Livestock Development Project

Document of FIUE COI"" The World Bank FOR OFFICIAL USE ONLY Report No. P-2748-CM REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF CAMEROON FOR A SECOND LIVESTOCK DEVELOPMENT PROJECT April 2, 1980 This document has a reshticted 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.  UNITED REPUBLIC OF CANEROON SECOND LIVESTOCK DEVELOPMENT PROJECT CURRENCY EQUIVALENTS Currency Unit CFA Franc (CFAF) US$1 - CFAF 210 1/ CFAF 1,000 = US$4.8 CFAF 1,000,000 = FF 4,762 1/ Floating Exchange Late. ABBREVIATIONS CZV - Centre Zootechnique et Veterinaire FONADER - Fonds National de D1veloppement Rural (National Fund for ]ural Development) FRG - Federal Republic of Germany MINEL - Ministere de l'Elevage et des Industries Animales PCU - Project Coordination Unit SODEPA - Societe de D6veloppement et d'Exploitation des Productions Animlales FISCAL YEAR July 1L - June 30  FOR OFFICIAL USE ONLY UNITED REPUBLIC OF CAMEROON SECOND LIVESTOCK DEVELOPMENT PROJECT CREDIT AND PROJECT SUIMARY Borrower: United Republic of Cameroon Beneficiary: FONADER/SODEPA/MINEL Amount: US$16.0 million IDA Credit Terms: Standard IDA terms Relending Terms: US$9.1 million of the proceeds of the proposed IDA credit would be relent to FONADER--Cameroon's National Fund for Rural Development--for 18 years, including a 4-year grace period, at an interest rate of 5 percent per year. Onlending terms to sub-borrowers vary from three to ten years, including one to four years of grace, at interest rates varying from 8 to 10 percent per year. FONADER's weighted average on-lending rate would be 9.7 percent per year. Project Description: The proposed project, to be implemented over a four- year period, would: (i) provide credit for investment and working capital through FONADER: for producers in the northwestern and southern coastal zones for pig breeding and fattening (200 loans), broiler production (100 loans), egg and cockerel production (100 loans), and cattle production on small mixed farms (500 loans); for private cattle breeding and fattening ranches in the tsetse cleared areas of the Adamaoua Plateau (100 loans), Dumbo and Ndokayo (40 loans) and small ranches in the North-West Province (30 loans); and for small-scale agricultural- ists (800 producers in 40 groups) in production lines consistent with land use plans for the northeast part of the tsetse cleared zone; (ii) complete the eradication of tsetse flies in the target area under the first project (800 ha) by clearing 276,000 ha in addition to the 524,000 ha already cleared; and implement a second program covering about 163,000 ha, in order to return 1.3 million ha of grass- land to traditional producers at full program comple- tion, and prevent the infestation of a further 900.000 ha which are at present jeopardized; r 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.  (iii) strengthen MINEL's veterinary field services to ensure adequate disease prevention and control; (iv) strengthen SODEPA by extending technical assistance contracts for staff to complete the construction of and manage the two slaughterhouses, and for a finan- cial controller to improve SODEPA's financial control capacity; by providing for a ranch management specialist; and by the provision of civil works, equipment and vehicles for SODEPA's ranches and slaughterhouses; (v) improve the training program for NfINEL veterinary field service staff, SODEPA agents in slaughterhouse management and financial operations, FONADER staff in supervision of credit, and MINEL staff in methods of tsetse eradication, surveying and perimeter maintenance; (vi) establish a Project Coordination Unit (PCU) under MINEL with overall responsibilities for project activities headed by a Project Coordinator; and (vii) provide funds for the preparation of a possible follow- up project. Benefits and Risks: The project vwould assist the second phase of the Government's long-term "Meat Plan" aimed at increasing the supply of meat for domestic consumption and improv- ing the econcmic well-being of the livestock producers who would receive credit, use improved animal health and husbandry services and graze their animals in areas freed of tsetse flies. Additional annual meat marketed at full development after 8 years would be about 4,600 tons, plus egg and milk. Other benefits would include the strengthening of government institutions responsible for administration and policy making in the livestock sector. The proposed project has an overall managerial risk with regard to implementation and specific risks for particular components. To help reduce the risk of less than satisfactory overall project management, a central Project Coordination Unit will be established to coordinate, monitor and evaluate all project activi- ties. The success of the credit program will depend on adequate appraisal and supervision of sub-loans  - iii - on the part of FONADER; credit specialists to be recruited internationally will assist in developing improved procedures and staff training in this area. The risk of the tsetse eradication program is that reinfestation of areas already cleared would occur as a result of incomplete eradication efforts and poor maintenance of protection barriers. Precautionary measures such as frequent resurveying and supplementary spraying in addition to close monitoring of animals re-entering the zone have been envisaged to minimize this risk. Finally, improved and better endowed veteri- nary field services should help minimize the risk of insufficient or delayed upgrading of the health status of animals, which would result in lower than anticipated meat production and supply.  - iv - Estimated Costs: Foreign as US$ million % of Foreign Local Total Total FONADER 3.5 5.6 9.1 38 SODEPA 2.8 1.8 4.6 61 MINEL 12.4 4.2 16.6 75 Total base cost 18.7 11.6 30.3 62 Physical contingencies 1.3 1.3 2.6 50 Price contingencies 3.6 3.4 7.0 51 Total cost (including taxes) 23.6 16.3 39.9 59 Taxes - 3.9 3.9 _ Total cost (net of taxes) 23.6 12.4 36.0 66 Financing Plan: US$ million Foreign Local Total IDA 15.2 0.8 16.0 FRG 8.4 0.6 9.0 Government - 12.6 12.6 Ranchers/Farmers - 2.3 2.3 23.6 16.3 39.9 Estimated Disbursements: US$ million FY81 FY82 FY83 FY84 FY85 Annual 3.6 4.2 4.1 3.5 0.6 Cumulative 3.6 7.8 11.9 15.4 16.0 Rate of Return: 16 percent Staff Appraisal Report: Report No. 2690-CM, dated March 18, 1980. Maps: IBRD 14521R - Location of project activities. IBRD 14522R - Tsetse fly eradication project area.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE UNITED REPUBLIC OF CA-IEROON FOR A SECOND LIVESTOCK DEVELOPIENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the United Republic of Cameroon for the equivalent of US$16.0 million on standard IDA terms to help finance a Second Livestock Development Project. The Federal Republic of Germany (FRG) would participate in the financing of the project with a grant of US$1 million equivalent and a loan of US$8 million equivalent. The FRG loan will be on terms similar to IDA's. PART I - THE ECONOMfY 1/ 2. A report entitled "United Republic of Cameroon Economic Memorandum" (No. 1798-CM), was distributed to the Executive Directors on April 5, 1978. Its principal findings and conclusions, updated by missions that visited Cameroon in April and June 1979, are incorporated in the following paragraphs. Annex I provides basic country data. Background 3. Cameroon is one of Africa's most diversified countries with a wide range of ecological conditions, ethnic groups and cultures. Cameroon was a federation until the United Republic, which unified the anglophone western and francophone eastern parts of the country, was established in 1972. The Government has concentrated on the establishment and maintenance of national unity between the eastern and relatively small western parts of the country and between the sahelian zone in the north with Miuslim traditions and the southern tropical regions. 4. Cameroon has a population of 7.9 million (1978) and covers an area of 475,000 km2. The main opportunities for development lie in the expansion of agricultural production, including forestry, and the processing of agricultural and forestry products for export. Soils and climatic condi- tions permit cultivation of a wide range of crops, and the southeast contains large untapped timber resources. The north holds promising potential for livestock development. Cameroon became an oil producer and exported nearly 250,000 tons of crude petroleum in 1978. Beginning in 1979, crude oil exports reached a rate of about 270,000 tons every two months or 1.6 million tons per year. Trade, transportation and transit services are other important economic activities. Cameroon's main economic centers are separated by vast areas of 1/ This section of the report is substantially the same as that of the second HEVECAM rubber project which was approved by the Executive Direc- tors on January 15, 1980 (Report No. P-2672-CM dated December 21, 1979).  - 2- low population density; furthermore, the country's transport facilities also serve landlocked Chad. As a result, a large port and adequate inland trans- portation infrastructure are essential for promoting agriculture, forestry and industry, and strengthening Cameroon's role as a regional trade center. Past Performance 5. GDP growth was nearly 4.5 percent per year during both the Second Five Year Plan (1966-71) and the Third Plan (1971-76), and accelerated to 7.9 percent during 1977/78, the first two years of the Fourth Plan. Population growth is estimated at about 1.8 percent per year in the 1960s, about 1.9 percent until the mid-1970s and about 2.3 percent from 1975 to 1980. Per capita GNP reached about US$460 in 1978. 1/ 6. Most agricultural crops, livestock, fishing and forestry experienced high growth rates during 1966-71 thanks to favorable supply and demand condi- tions including high producer prices, high domestic income growth and rapid economic expansion abroad. Lower agricultural growth during 1971-76 was due in part to the decrease in output of two major commercial crops, cocoa and arabica coffee. Important factors in this decline were the decline in rela- tive competitiveness of producer pr:ices with food cash crop prices and the termination of the foreign supported fertilizer subsidy program for arabica coffee. The decline in cocoa and arabica coffee output was not fully offset by growth in other important commercial crops including cotton, rubber, and oil palm. Growth in forestry production dropped during 1971-76 because of reduced Western European demand and some transportation bottlenecks. 7. 1Manufacturing and mining grew at about 10 percent per year during 1966-71 mainly on account of the rapid development of import substitution industries, particularly manufactured consumer goods. The lower manu- facturing growth experienced during 1971-76 was due to the slowdown in new import substitution activities and to slower income growth because of the deteriorating terms of trade. 8. Since 1976, Cameroon experienced rapid growth in most major sectors. Agricultural growth was helped by recovery in cocoa production as farmers responded to higher producer prices and in forestry production. The construc- tion industry grew by 15 percent per year during 1977/78 as large investments were undertaken for the implementation of the plan. The rapid increase in income and the high rate of economic activities led to substantial growth in most other sectors particularly food crops, trade, transport and other services. Investment and Savings 9.. During the Second Plan period (1966-71), the investment rate, in- cluding increase in stocks, exceeded 16 percent of GDP, and gross domestic savings and gross national savings were respectively 13.4 and 12.6 percent 1/ This reflects the revisions incorporated in the new series of national income statistics compiled by the Government with the assistance of the UN Economic Commission for Africa.  -3- of GDP. Foreign resources financed about 33 percent of investment during this period. During the Third Plan period, despite slow income growth, the investment rate increased to 18.1 percent of GDP. Gross domestic savings and gross national savings rose to 16.4 percent and 13.9 percent of GDP, but debt service increased by 60 percent from a small base. External resources therefore continued to finance about one-third of total investment during this period. The higher savings rate in a period of slow output growth was made possible by a drastic reduction in the real growth of consumption, particu- larly private consumption, to less than 2 percent per annum. One of the prices paid for the substantial improvement in savings during the Third Plan was, however, a limitation on farmers' earnings in tree crops, providing insufficient incentives for farmers to obtain more output from the existing trees and to make new plantings to maintain and expand production capacity -- a situation that has serious implications for the longer term future of these crops. The maintenance of a high investment rate during this period was offset by a decline in the efficiency of investment. Some reduction in capital productivity was attributable to projects, such as in oil exploration and transport infrastructure, which would lead to production increases only a number of years later, and social infrastructure investments, which would improve welfare but have a limited impact on output. During 1977/78, the investment rate reached an average of 22.8 percent of GDP. Due largely to the record cocoa and coffee export prices, gross domestic savings and gross national savings increased further to 19.9 and 19 percent respectively of GDP. As a result, external resources financed only about one-fourth of total investment during these two years. Public Finance and Balance of Payments 10. Budgetary revenue amounted to about 17 percent of GDP during each of the past two plan periods, respectively, while public savings after debt service as a percentage of total public investment declined from about 39 percent in 1966-71 to about 36 percent in 1971-76. During 1977/78, the share of budgetary revenue in GDP increased to an average of 19.4 percent. The balance of payments did not become a problem until 1974-76. Imports increased rapidly in 1975 and 1976 as a result of world-wide inflation and heavy public development expenditure, especially in capital goods, and the decline in agricultural exports, particularly exports of cocoa and timber, resulted in sizeable current account deficits. The bulk of the current account deficits was financed by net capital inflows but a substantial drawdown of inter- national reserves also took place in 1975. Therefore, net official inter- national reserves decreased from more than two months of imports in 1974 to less than one month in 1975. In 1977-79, exports rose substantially (at an average annual rate of 21 percent) but imports also increased (annual average rate of 23 percent) because of economic recovery and expanded investment. Gross official international reserves were rebuilt in 1976-79, in part by the use of IMF credit (Oil Facility and Compensatory Financing in 1976), but net official international reserves continued to be less than one month of imports at mid-1979. This was a low level by international standards but still acceptable considering Cameroon's membership in the Central African Monetary Union.  - 4- Development Issues and Prospects 13. Cameroon's main medium- and long-term potential lies in the develop- ment of a diversified agricultural sector relying upon export crop production to generate foreign exchange and domestic food crop production to meet the needs of a growing urban population. Realizing this potential depends upon an appropriate mix of public intervention and policy measures aiming at stimulat- ing private initiative. Factors that further complicate the agricultural development effort in Cameroon are the dispersion of its main economic and population centers, its regional and institutional diversity, the competition between export and cash food crops for the dwindling agricultural labor in some parts of the country, the dependence of a substantial part of public revenue and savings on cocoa and coffee, and the limited availability of skilled agricultural agents and administrators. Through its technical assis- tance and education projects and through its normal project work, the Bank is supporting Cameroon's effort in manpower training and development in the agricultural services, as well as in other sectors. In industry the Govern- ment has moved to channel more financial resources for investment directly through the public sector, in addition to the indirect support provided by tax incentives and other measures, which have been in existence for many years. The Government has actively participated in a Bank study of the manufacturing sector whose results will help to identify bottlenecks and opportunities to develop existing as well as new industrial activities. 12. The outlook for agricultural and industrial growth during 1979-81 is quite favorable. It is based on the maintenance of cocoa output at about 110,000 tons; recovery of robusta coffee; continuing expansion for arabica coffee; increased production of most other commercial and food crops, as well as of livestock; and expansion of commercial forestry production. Growth of industrial production is expected to derive from existing and expanded manu- facturing facilities (particularly for food, beverages and construction materials), some new industrial projects, as well as from crude oil and new mining ventures. Given the stepped-up production and investment activities, a high growth rate is expected also for construction and services. 13. Long-term growth could be somewhat constrained by a worsening of the terms of trade, which will make it difficult to sustain in ensuing years the high investment rate planned for the 1976-81 period, and by the need for prudent debt management to ensure the country's long-term borrowing capacity. Growth prospects will be greatly influenced by the extent to which Cameroon succeeds in the difficult task of maintaining and expanding the country's main traditional export crops, and the large-scale development of still unexploited forestry resources. Results of studies on the forestry potential, forestry sector development policy, investment plans and transport requirements, many of which are part of Bank projects, will support the latter development. In addition, there are still uncertain indications for the exploitation of iron ore, but with heavy investment requirements and long lead times to establish commerciall> viab!e export operations, production could probably not begin until the early 1990s.  -5- Fourth Development Plan (1976-81) 14. Cameroon is implementing its Fourth Economic and Social Development Plan. Private investment is encouraged, under Government guidelines, to expand production capacity in agriculture, forestry, mining and manufac- turing. A part of financing of private investment activities, however, will be publicly guaranteed borrowing. Planned investment of some US$3.1 billion (in 1974/75 prices) is about 80 percent higher in real terms than the estimated level achieved during the last Plan period and almost triple previ- ous Plan expenditures in nominal terms. Public investment is expected to account for 73 percent of total investment. However, the efficiency of public investment in Cameroon is very much dependent on national institutional and managerial capabilities; and furthermore the level of investment in the future needs to be adapted carefully (a) to other claims on available resources to maintain the pace of economic activity, such as adequate producer prices to give farmers incentives for production and new plantings, as well as prudent financial policies to take account of (b) the heavy dependence of public revenue and savings on cocoa and coffee export prices; (c) the rise in import prices, which is expected to continue; and (d) the requirement to keep supple- mentary borrowing on commercial terms at prudent levels to maintain Cameroon s long-term capacity to borrow. External Borrowing, Creditworthiness, and Performance 15. In the first two years of the Fourth Plan period (July 1976 - June 1978), with the favorable terms of trade, public savings after debt service financed more than half of total public investment. However, in the last three years (July 1978 - June 1981), public savings after debt service are not expected to finance as high a share of total public investment and Cameroon will thus have to rely increasingly on external financing for the bulk of its public investment. Foreign official lenders should thus continue to finance a high proportion of total project costs of externally financed projects, including local costs in appropriate cases. Net disbursements on public medium- and long-term loans during the first two years of the Fourth Plan were about US$240 million per year. During the last three years, net inflows from disbursements on public external loans are projected at US$380 million per year, while the required level during the Fifth Plan is of the order of US$530 million per year. Such levels of disbursements will require new public loan commitments of about US$470 million per year during 1978-1981 as compared with the average of US$400 million during the first two years of the Fourth Plan, and new commitments of US$610 million per year during the Fifth Plan. The share of private financing in new commitments would remain substantial--some 36-38 percent of total commitments, in view of the likely availability of financing from official sources--although not as high as during 1976-1978 (45 percent). However, the terms of financing on borrowing from official sources can on average be expected to harden. Consequently, debt service payments will continue to build up quite rapidly. During this period, Cameroon's export prospects and world market prices are reasonably favorable. The debt service ratio, which was 7.5 percent in 1978, is pro- jected to reach 12 percent in 1981 and 16 percent in 1986. These export prospects depend to a substantial extent on a considerably optimistic outlook for timber production and export, but the assumptions for the oil sector could  -6- be on the conservative side. Cameroon is thus judged to be creditworthy for Bank financing on the basis of its ability to maintain productivity in the utilization of the country's resources and its favorable potential to further diversify the economy. However, in view of the country's record of performance as well as the need to maintain debt service within the range mentioned above, foreign donors should be prepared to provide some 50 percent of public capital assistance on concessionary terms. PART II - BANK GROUP OPERATIONS IN CAMEROON 16. The Bank Group's commitments in Cameroon now amount to US$524 million and cover 33 projects: fifteen in agriculture, eleven in trans- portation, three in education, two in public utilities, one small- and medium- scale enterprises project, and one technical assistance project. Transport represents the largest share (49 percent) of past commitments, followed by agriculture (37 percent). Annex II contains a summary statement of Bank loans and IDA credits as of January 31, 1980, and includes notes on ongoing proj- ects. Although delays and setbacks have been occasionally encountered in the execution of projects, the Government has consistently shown willingness to collaborate with the Bank in finding solutions to such problems. 17. For the future, the Bank Group's strategy is to support the Govern- ment in its effort to increase agricuiltural production, including export- oriented crops, and in the process create productive employment in rural areas; upgrade and improve the operation and maintenance of the country's infrastructure; stimulate investment by local entrepreneurs and increase employment in urban areas; and enhance the efficiency of Cameroon's institu- tions. 18. The Government rightly attaches priority to the balanced regional development of agricultural resources, and to the improvement of conditions in the rural sector parallel with prcmotion of plantation agriculture, in- cluding smallholder schemes. Bank Group assistance to Cameroon in agriculture is designed to support these policy objectives. The Bank helped the Govern- ment create an effective and well-managed plantation sector by financing oil palm and rubber plantations in the south and west. The first rubber project approved in 1975 is completed and the second project approved by the Board in January 1980 will help further the development of the southwest coastal region. The second SOCAPALM and CAMDEV projects are follow-up operations to successful oil palm and rubber projects in the western coastal regions. At the same time the Bank has assisted, with two SEMRY projects, in promoting smallholder rice irrigation in the north. The ongoing cocoa project is aimed at modernizing smallholder cocoa growing and raising rural productivity in areas south and west of Yaounde. Rural development projects in populated but poor regions are being established with the assistance of the Bank. The Plaine des M'Bo Rural Development Project is financing studies and trial activities to establish whether a full-scale rural development program can be launched. The ZAPI-East Integrated Rural Development Project supports ZAPI's ongoing integrated rural development activities as well as an expansion of  -7- ZAPI's activities in eastern Cameroon. The Western Highlands Rural Development Project provides a package of inputs, techniques and infrastructure aimed at improving productivity for the agricultural economy of the western part of the country. The Rural Development Fund Project is designed to help the Government establish the machinery for processing and implementing small-scale rural development schemes - initially in the north. The objective of a rural development project that is proposed for the northern region will be to establish planning and coordination capabilities at the provincial level, as well as to finance crop diversification, reforestation, small-scale irrigation and rural water supply. The Government's objectives in its rural development policies are to improve income distribution, to achieve a better balance in regional development and to promote essential foodstuff production. The Bank Group intends to increase lending for agriculture to support these efforts. As a corollary, the second phase of a livestock development program which began in 1974 is presented in this report and would comprise continued tsetse eradication, credit and training schemes for traditional herdsmen and farmers, and refurbished veterinary field services to remove constraints on animal productivity. 19. Recognizing the crucial importance of transportation to economic growth in Cameroon and in neighboring countries, the Government has devoted the largest portion of public investment to this sector. The Bank Group, together with other development institutions, has substantially aided develop- ment of adequate transport facilities. The First and Second Highway Projects were designed to help complete the country's basic trunk road system. The latter project encountered severe cost overruns which were partly alle- viated by a Supplementary Credit approved in March 1976 as well as by the elimination of the reconstruction of the Garoua-Figuil section from the project. This section is being financed under the third Highway project. A Feeder Roads Project approved in 1977 will establish institutions for feeder road administration and maintenance in addition to providing the necessary resources for a feeder road program to support high priority agricultural/ rural development projects. The Fourth Highway Project which became effective in November 1979, will concentrate on road maintenance and rehabilitation and includes funds for feasibility studies for the construction of a two-lane heavy duty road between Yaounde and Douala. The Fourth Railway Project, which was signed in August 1979, will help finance the new.Douala marshalling yard, maintenance facilities at Yaounde, railway equlpment, and technical assistance for improvements in operations, management and training. Given projected traffic increases, and the backlog of required investments in the transport sector, substantial capital outlays are still necessary - particularly for the expansion of the Port of Douala, which is being assisted by a Bank loan and IDA credit, and for related facilities such as those being financed by the Fourth Railway Project. Future road investments could possibly include financing of strategic international access routes, but should place greater emphasis on road maintenance and on developing the network of forestry, feeder and farm access roads. 20. In other sectors, the Small- and Medium-Scale Enterprise Project, approved in 1975, focuses mainly on developing local entrepreneurship and a second project is under preparation. A Third Education Project, approved in April 1976, places special emphasis on rural education and training. The Second Water Supply Project, signed in December 1979, will provide water  -8- to 13 secondary centers, reinforce and expand water supply systems in Douala and Yaounde, and includes financing for sewerage and drainage master plan studies for these two cities. At the same time an urban project is being prepared which is designed to upgrade several low-income settlements and develop sites and services in Douala and Yaounde. 21. All these projects include, as needed, training, technical assis- tance, and other provisions necessary for strengthening institutions and improving sector policies. The Technical Assistance Project approved in June 1977 is helping to support Government services in several key Ministries involved in investment planning, policy analysis and project processing and a second project is in preparation. To help achieve the Government's priorities, the Bank's lending strategy will continue to emphasize strengthening the institutional framework, particularly sector planning, and project preparation and implementation in transportation and rural and urban development. The Bank will continue to assist the Government in developing its policies toward newer sectors of activity and will begin to prepare an energy sector study in this fiscal year. The Bank carried out a study of the industrial sector and, in conjunction with the International Telecommunications Union, a telecom- munications sector study and has also conducted field studies for a forestry sector survey. Projects were tentatively identified from these investiga- tions. 22. During the second half of the sixties, overall disbursements of official development assistance to-Cameroon amounted to about US$40-45 million a year. While at the beginning of this period 65 percent of aid funds were grants, the proportion of loans slowly increased. A major part of external assistance was provided by France and was concentrated in infrastructure and the productive sectors. The European Development Fund and European Investment Bank directed their lending mainly to agriculture, with infrastructure next in magnitude. Bank and IDA disbursements were small during this period. Since 1972 overall disbursements of foreign aid increased to about US$90 million per year with one-fifth as grants. The Bank and IDA's share of these inflows amounted to about 23 percent and lending to Cameroon has been closely coordi- nated with other donors; in 15 of our 33 projects, joint or parallel co- financing arrangements have been made and co-financing for several future projects is being actively sought. 23. Public debt outstanding and disbursed as of December 31, 1978, amounted to US$1,153.4 million and is projected to reach US$3.1 billion in 1983. By 1985, annual foreign aid disbursements may amount to over US$500 million. At end-1978, IBRD loans accounted for 8.9 percent of Cameroon's public debt outstanding and disbursed, and 13 percent of its public debt er-vice. IDA credits accounted for 9.3 percent of public debt outstanding and 5.S percellt of public debt service. The Bank and IDA are expected to account for about 20 percent of total public debt and 11 percent of public debt service in 1985. 24. In October 1974, Cameroon became IFC's 100th member. IFC's first operation in Cameroon, a US$380,000 underwriting to bring domestic share- holders in.to a previously wholly foreign-owned shoe manufacturing company,  -9- was approved in May 1975. In September 1976, the IFC Board approved an equity investment of about US$800,000 in a foreign-owned rubber estate (SAFACAM), which is currently the second largest rubber producer in Cameroon. The investment will assist in the rehabilitation and diversification of an existing estate that will produce rubber for export and palm oil for the domestic market. The operation will also facilitate participation of domestic shareholders in the estate. In November 1977, the Board approved a third operation, an investment of up to US$125,000 in the share capital of a promo- tional company for maize development. No commitment has yet been made on this investment since the original technical partner has been replaced and major changes have been made in the arrangements expected earlier. The Board approved a second equity investment of US$390,000 equivalent in SAFACAM in September 1978. The increased capitalization is required to finance the construction of a palm oil pressing mill. Cameroonian participation again increased with this operation. The Societe Nationale d'Investissement, a national development bank, is doubling its share in SAFACAM. In April 1979, the Board approved an IFC investment of US$7.93 million consisting of US$7 million loan and US$0.93 million equivalent in equity in a Cameroonian alumi- num producing company, ALUCAM, to help expand the company's production capac- ity. Annex II contains a summary statement of IFC investments in the country as of January 31, 1980. Total commitments currently held by IFC in Cameroon amount to US$9.28 million of which US$7.00 million represent a loan and US$2.28 million equity participations. PART III - THE LIVESTOCK SECTOR 25. Agriculture plays an important role in the economy of Cameroon. It contributes about 40 percent of GNP, 70 percent of the country's export earnings and employs about 74 percent of the total labor force. Moreover, it provides a livelihood to about three-quarters of the total population of Cameroon. Within this sector, recorded livestock production (cattle, swine and poultry) accounts for about 9 percent of agricultural output. Close to 90 percent of the agricultural land is grazing land. Livestock production constitutes the main economic activity of the population living in the Adam- aoua Plateau and the northern and north-western parts of the country. Rural per capita incomes vary considerably between regions, the main distinction being between the forested areas in the south, US$90-160, and the northern savannah areas, US$70-90, where income is less than a third of the national average. 26. The livestock population comprises about 3 million cattle, 4 million sheep and goats, 0.9 million pigs and about 10 million poultry. About 75 percent of the cattle are kept in the northern zone and on the Adamaoua Plateau, while pigs and poultry are concentrated in the southern and western  - 10 - zones. The productivity of the herds is low, with annual off-take rates of 10 percent for cattle, 30 percent for sheep and goats, 60 percent for pigs and about 100 percent for poultry, while annual growth rates are 2 percent for cattle, 3 percent for sheep and goats, and 5 percent for pigs and poultry. Total annual meat production is currently about 105,000 tons and estimated meat consumption per capita is about 21 kg in urban centers compared to 11.5 kg for rural dwellers. Productivity is constrained primarily by inadequate feeding, poor animal health and the widespread use of traditional but ineffi- cient livestock raising systems. 27. A major objective of the First Livestock Project (Loan 983-CM), was to explore the possibility of establishing settled ranches on leased land. It was realized that settled ranches would enable the major constraints such as feed shortage, uncontrolled burning, disease and the need to practice transhumance to be overcome. The provision of credit under the first project encouraged some herdsmen to settle on ranches of up to 1,000 ha each. Although these ranches have not been operating for sufficiently long periods to fully assess their technical performance, results to date are most encouraging and indicate that settLement is proving successful in solving the main problems that restrict production. However, a general health hazard continues to exist and a major constraint on animal productivity in the Adamaoua Plateau is trypanosomiasis--a disease transmitted by tsetse flies. Tsetse fly infestations have a dual effect in retarding productivity--they spread disease and force migration from infested areas thereby eventually over-crowding tsetse free areas. This situation is presently aggravated in the Adamaoua Plateau by a southeast:ward advance of these flies (predominantly Glossina morsitans) and the further degradation of available grazing grounds. 28. The main constraint on pig production is the inefficiency of the breeds used, and the scarcity of balanced feeds and veterinary attention. Traditional units are small--only one or two breeding pigs per producer, producing less than six piglets per sow per year. The small amount of quality pork that is produced comes from fattening improved breeds, kept under con- fined modern conditions. The producers doing this supply the modern market for special cuts of pork in the main cities of Douala and Yaounde. FONADER is assisting this sector in its effort to modernize through the provision of credit. However, because of the limited managerial experience of producers, efforts are being made to keep the scale of operations within bounds that are likely to be successful, and to offer as much technical advice as possible. Almost all rural families keep fowl for house consumption and occasional marketing. Attempts have been made to improve the productivity if these flocks through the introduction of high performance breeding stock, but the traditional production system is not commercially competitive. A rela- tively few large-scale poultry producers, located near Yaounde and Douala, use imported modern equipment and day-old chicks, and serve the modern urban market on a regular basis. However, the management requirements and health risks of these enterprises with flocks of up to 10,000 birds are very high. An intermediate technology, using predominantly locally-produced inputs is technically feasible and would be competitive in providing fowl and eggs to traditional markets.  - 11 - Institutions Serving Livestock Development 29. Overall responsibility for the development of the livestock sector rests with the IMinistry of Animal Breeding and Industries (MINEL). In addi- tion to policy and planning functions performed in Yaounde, NINEL is respon- sible for animal production, veterinary field services and the technical training of agents in the veterinary field service. MINEL also operates several livestock production stations whose role is to provide production inputs to the traditional sector. These stations, however, currently produce below capacity and frequently supply substandard products, the main difficulty being lack of efficient management. Other donors are currently in the process of aiding the production stations. MIINEL also has overall responsibility for the Special Mission for the Eradication of Glossines, which was organized in 1974 under the first Livestock Development Project for the tsetse eradication campaign in the Adamaoua Plateau. 30. Two other major specialized agencies outside the direct control of MINEL serve the livestock sector. First, the Societe de Developpement et d'Exploitation des Productions Animales (SODEPA), created in 1974 in connec- tion with the First Livestock Development Project as.a state-owned company, is responsible for the establishment and management of three large state cattle ranches and two slaughterhouses. In addition, it was to provide supporting services for other agencies in the livestock industry, such as the technical supervision of credit extended to the traditional sector and the training of extension agents, herdsmen and farmers, but these objectives were not fully met. Second, the Fonds National de Developpement Rural (FONADER) was created in 1973 before the inception of the First Livestock Development Project with the dual role of (a) providing credit to farmers and groups of farmers, and (b) appraising, financing and supervising a wide variety of rural development projects. FONADER was the administrative agency for livestock credit under the First Livestock Development Project and provided funds for the establishment of private cattle fattening ranches and for the incorpora- tion of livestock on crop farms. Government is taking steps to transform FONADER into an agricultural development bank which is scheduled to be com- pleted by July 1980. Livestock Development Strategy 31. The Government's livestock development policy (the "Meat Plan") evolved simultaneously with the preparation of the First Livestock Development Project which became effective in 1974. This policy was designed to increase local meat supply for domestic consumption through improvements in the tradi- tional sector and the development of parastatal ranches. In line with these policies, the Bank's first livestock project in Cameroon was designed to: (i) assist herdsmen and farmers to increase productivity by providing credit for the development of settled ranches and beef fattening enterprises; (ii) establish three government ranches of 20,000 ha each, to demonstrate new production systems and provide good quality breeding and fattening stock to the traditional sector; (iii) construct two new slaughterhouses and provide credit to private butchers; (iv) eradicate tsetse flies from a 800,000 ha tract of potential pasture land in the Adamaoua Plateau; and (v) provide  - 12 - technical assistance for the development of an embryonic extension service and training for slaughterhouse and credit managers. 32. It was recognized that the project would be innovative, involving technical risks. Moreover, since it was the first Bank assisted livestock project in Cameroon and only the fourth Cameroon agricultural project financed by the Bank, a potential management risk existed. Therefore, the project was designed to be, in effect, a large scale pilot project, testing implementation alternatives and production systems whose relative efficiencies would be evaluated and used as a basis for follow-up projects. This pilot approach was particularly evident in the agreement to test parastatal ranching on a restricted scale (on three ranches compared with six originally proposed in the preparation report), and to test the feasibility of extending credit for livestock production to private graziers and small mixed-crop farmers. 33. The credit program administered by FONADER was fully subscribed, with loan applications considerably exceeding estimates. On-farm investments followed appraisal estimates closely, and repayment of annual installments was close to 100 percent, demonstrating the feasibility of Government's prime objective of encouraging production in the traditional sector. Credit admin- istration proved to be overly centralized, however, resulting in delays in disbursing loan funds, and inadequate sub-loan appraisal. Nonetheless, the credit program as a whole was adequately completed, with virtually no cost overruns. A reorganization study recently carried out by Caisse Nationale de Credit Agricole of France recommended the introduction of a new cost account- ing system which FONADER is now implementing. FONADER management has indi- cated that the system would be operational by July 1980. The second project would also provide for measures to improve the technical supervision of sub-borrowers. 34. The three tsetse eradication campaigns, 1976/77, 1977/78 and 1978/79, .succeeded in clearing about 524,000 ha or about two-thirds of the original 800,000 ha target. Infestations proved to be more dense and geographically widespread than originally foreseen, necessitating a heavier spraying effort. Part of the fly-freed zone is now being resettled; moreover, the technical feasibility of the eradication program was established. The Special Mission for the Eradication of Glossines, located in the project area, demonstrated competence in the field work despite administrative and financial difficulties arising from remote administration by MINEL in Yaounde. Delays in the provi- sion of operating funds and deliveries of sprays and other crucial inputs impaired the mission's day-to-day operations. To minimize these problems under the proposed second project, the Government has agreed that MINEL would establish a new system for channelling funds and materials to the Special Mis- sion in the field (Section 3.01 (f)_of the draft Development Credit Agreement). 35. Construction of the two slaughterhouses was severely retarded by the bankruptcy of the contractor initially selected through international competi- tive bidding. the construction of one slaughterhouse is virtually completed but requires some minor civil works and equipment installation. The second slaughterhouse has remained at about 60 percent of completion for several  - 13 - months due to disputes between SODEPA and the second contractor. As it appears unlikely that the present contractor will be able to complete the work, provision would be made in the proposed project to enable SODEPA to complete the slaughterhouses. 36. SODEPA's investment program for the establishment of three ranches has been practically completed. While ranch infrastructure was completed satisfactorily, the beginning of SODEPA's operations lagged behind schedule. Cattle prices rose more rapidly than expected and, as a result, the targets for stocking the ranches with cattle could not be achieved because of lack of funds. Furthermore, targeted production coefficients were not reached. Ranch revenues fell below appraisal expectations while headquarters staffing levels and operating costs were much higher than planned. Delays in the generation of income from the slaughterhouse and ranches, meant that SODEPA's cash flow - projected to be positive during the second project year - remained negative during the first five years. SODEPA's cumulative deficit amounted to about CFAF 440 million (US$2 million) by mid-78. Thus, it was evident that SODEPA's earning power as forecast at appraisal was too optimistic. The Government was, therefore, obliged to provide extraordinary financing such as additional funding and reallocation of investment funds to operating expendi- tures to maintain SODEPA's solvency. Government has confirmed that it would transform SODEPA's current long-term debt into grants, and owing to the long-term objectives of SODEPA, would transfer funds under the proposed project as a grant. The additional demands on SODEPA's management created by these financial and administrative problems during the start-off period of operations were so heavy that other functions assigned to it in the areas of training, monitoring and evaluation of field activities, and financial manage- ment and control were severely hampered. Consequently, SODEPA's financial, production and other key project data became available too slowly--despite the presence of competent technical advisors--to initiate a timely re-appraisal of performance and policy. 37. Costs under the first project exceeded project estimates by about CFAF 1.6 billion (US$7.3 million), or 45 percent above appraisal estimates, as of D-ecember 31, 1979. The greatest over-expenditure (US$4.5 million) was incurred on the tsetse component, owing specially to heavier than expected infestation resulting in higher spraying costs, and the FRG provided funds to finance the overrun. However, some savings (US$0.5 million) were realized on civil works, vehicles and equipment for SODEPA. Over-expenditure on SODEPA's operating costs was US$2.7 million (400 percent over appraisal estimate) primarily from higher personnel costs. 38. The experience with the first pilot project showed that a credit program in the traditional livestock sector could be administered successfully by FONADER and that beneficiaries of sub-loans were willing to modify tradi- tional production methods. An expanded second credit tranche is, therefore, proposed to be implemented through FONADER's field offices. Parastatal ranching, on the other hand, has not proven to be as efficient technically as expected. Low production coefficients and high investment and operating costs have made financial viability unlikely. Under these circumstances a redeploy- ment of ranch resources, possibly transferring part of them to the private sector, would be desirable. Recognizing this, SODEPA is studying alternative options with the Bank for a more economic and efficient use of resources and  - 14 - improved technical performance. Government has agreed to finalize a detailed program including a timetable for its execution, acceptable to IDA, by not later than June 30, 1980 for achieving a more efficient and economic use of resources of the three SODEPA ranches at Faro, Dumbo and Ndokayo (Section 3.08 of the draft Development Credit Agreement). 39. Experience with three annual campaigns under the first project showed that a tsetse eradication program could be implemented and serve as a basis for an expanded trypanosomiasis control program for subsequent years. Components for support of animal health and production services would assist pastoralists to make efficient use of cleared areas. The project would provide assistance in land use planning for the freed zone on the basis of a land use survey shortly to be completed by the FRG. Results of the implemen- tation of the first project have furthermore shown that coordination between executing agencies has been difficult and that a monitoring and evaluation system should be developed to allow adjustments as needed during project execution. Therefore, under the second project it is proposed to establish a central project coordination unit with overall coordinating and monitoring functions to ensure efficient execution of all project components. PART IV - THE PROJECT 40. The proposed project was prepared in 1978 by the consulting firm employed by Government to manage the First Livestock Development Project. Appraisal took place in February/Mlarch 1979 at which time some of the pre- paration report proposals were significantly altered because new information became available on SODEPA's financial situation and the technical performance of its ranches. Tentative agreement on some new proposals for SODEPA's ranches was reached with Government during a supervision mission of the first project in November 1979. Thus, the proposed project takes full account of the experience gained under the first project, and its objectives conform with the Government's current livestock development strategy. Negotiations took place in March 1980. The Cameroonian delegation was led by H.E. Benoit Bindzi, Ambassador to the United States, and included the Director General of FONADER and SODEPA. The Staff Appraisal Report No. 2690-CM is being circu- lated separately. Project Objectives and Description 41. The project would support the second phase of Cameroon's "Meat Plan" through three major production components: a diversified credit program, continued eradication of tsetse flies from the grazing area of the Adamaoua Plateau, and a strengthening of veterinary field services. It would also support formal and informal training, and institutional reforms in aid of the productive components. Provisions for the strengthening of monitoring and evaluation of project components would improve the managerial capabilities of executing institutions, help to ensure effective project implementation and thereby enhance the Government's capacity to undertake subsequent phases of the Meat Plan. The project would also assist in completing some activities not fully executed during the first project, i.e. tsetse fly eradication, slaughterhouse construction and training. Specifically, the project would:  - 15- (i) provide investment and working capital credit through FONADER: for producers in the northwestern and southern coastal zone for pig breeding and fattening (200 loans), broiler production (100 loans), eggs and cockerel production (100 loans), and cattle production on small mixed farms (500 loans); for private cattle breeding and fattening ranches in the tsetse cleared areas of the Adamaoua Plateau (100 loans), Dumbo and Ndokayo (40 loans) and small ranches in the North-Wlest Province (30 loans); and for small-scale agriculturalists (800 producers in 40 groups) in production lines consistent with land use plans for the northeast part of the tsetse cleared zone; (ii) complete the eradication of tsetse flies in the target area under the first project (800,000 ha) by clearing 276,000 ha; and implement a second stage tsetse fly eradication program covering about 163,000 ha, in order to return 1.3 million ha of grassland to traditional producers at program completion; (iii) strengthen MIINEL's veterinary field services in the Adamaoua Plateau to ensure adequate disease prevention and control; (iv) strengthen SODEPA by extending technical assistance contracts for staff to supervise the completion of slaughterhouse con- struction and to manage them, and for a financial controller to improve SODEPA's financial control capacity; by providing for a ranch management specialist and by provision of civil works, equipment and vehicles for SODEPA's slaughterhouses and ranches; (v) improve the program of formal and in-service training for MINEL veterinary field service staff; implement an in-service training program for SODEPA agents in slaughterhouse management and operation; FONADER agents in credit supervision and monitoring; and MINEL staff assigned to the Special Mission in tsetse eradication, survey and perimeter maintenance; (vi) establish a Project Coordination Unit (PCU)--headed by a Project Coordinator--within MINEL with overall responsibilities for project activities; and (vii) provide funds for the preparation of a possible follow-up project, in the event of a satisfactory evaluation of the proposed second project in its third project year. Project Implementation 42. The project would mainly be executed within the institutional frame- work developed during the first project with such adaptations as now seem necessary, based on the experience described above. A project coordination unit (PCU) reporting directly to the Secretary General of MINEL would be responsible for overall project coordination, and the monitoring and evalua- tion of project activities. It would consist of an internationally recruited  - 16 - Project Coordinator, a training specialist to advise on all aspects of train- ing under the proposed project, and support staff. The Project Coordinator, after consulting with executing agencies, would design a detailed program for regular project monitoring and evaluation, thus allowing periodic adjustments in implementation if necessary. Reporting to the financing agencies would also be the responsibility of the PCU. Employment of the Project Coordinator would be a condition of credit effectiveness. (Section 6.01 (a) of the draft Development Credit Agreement). 43. FONADER's field offices would continue to administer a credit program for individual ranches and farmers (as described in para. 41 (i) above). FONADER's technical capabilities in the field would be strengthened to correct operating weaknesses revealed during the first project, so that its dependence on other agencies for technical support would be reduced. FONADER would utilize technical staff to properly identify, prepare, evaluate and supervise credits including two specialists whose expertise is in short supply in Cameroon. An internationally recruited specialist in pig and poultry production would be attached to FONADER's Bamenda office with responsibility for implementing the pig and poultry component. He would be assisted by five Cameroonian technicians financed by and seconded to FONADER for this purpose. An internationally recruited cattle specialist stationed at Ngaoundere would appraise loans for cattle breeding and fattening, assisted by four Cameroonian technicians also seconded to FONADER. Over the four-year project period, about 1,100 loans are expected to be made. US$9.1 million of the proceeds of the proposed credit would be relent to FONADER for 18 years, including a four-year grace period, at an interest rate of 5 percent per year, under a subsidiary financing agreement to be entered into between Government and FONADER on terms and conditions approved by IDA (Section 3.01 (c) of the draft Development Credit Agreement). On-lending conditions to sub-borrowers vary from three to ten years, including one to four years of grace, at interest rates ranging from 8 to 10 percent per year. FONADER's weighted average on-lending rate of 9.7 percent per year, which is close to the average recent and projected rate of inflation in Cameroon, would provide a margin to FONADER sufficient to cover operating costs and provisions for default. IDA would continue, during the course of supervision and sectoral dialogue, to encourage Government to adjust this rate structure in line with prevailing economic and financial conditions. The proposed project attaches the highest priority, however, to making FONADER's organization, staffing and lending procedures more efficient. SODEPA would continue to provide sub-leases to ranchers and farmers settling on its land and receiving credits from FONADER. Credit made available under the project would be for up to 80 percent of fixed investments and additional working capital. FONADER would also procure stocks of veteri- nary medicines and supplies for use by credit recipients. 44. MINEL's Special Mission, established under the first project would continue to be responsible for executing the tsetse eradication and control program including surveys for perimeter definition and defence of these perimeters. The habitat of tsetse flies--covering about 20 percent of the total area infested--would be sprayed from helicopters in two annual campaigns with the insecticides used during the first project. Provision is made for a third year's spraying in the event that the limits of infestation advance  - 17 - beyond those currently foreseen. Surveys to establish the limits of infesta- tion would be conducted during the first project year and would be repeated to assure that re-infestation was not occurring. A perimeter along the northern boundary to the freed zone would be defined and maintained by ground spraying crews. In the first project, no major ecological disruption ws.3 experienced as a result of insecticide applications. However, although not included in project costs, the FRG would finance continued surveillance of the campaign to detect possible environmental side effects. This information, as well as economic and technical data, would be used by the Special Mission to evaluate and possibly adjust the longer-term anti-trypanosomiasis program. The Special Mission would continue to be headed by a Cameroonian veterinarian, assisted by an operations controller and a veterinarian from the FRG, and supported by internationally recruited specialists on short-term consultancy contracts. The expatriate experts would help administer the annual campaigns and ground spraying, as well as survey activities, while training Cameroonian staff on the job for work at various levels of responsibility, following a program agreed with IDA. In order to further strengthen the administrative and financial support for the Special Mission, Government would locate the mis- sion's imprest account in Ngaoundere, would ensure auditing of the mission accounts, and would channel funds and materials to the Special Mission on the basis of an agreed budget and timetable. 45. Clearing tsetse flies from the Adamaoua Plateau would remove the major constraint on herd growth and would enable families to return from overcrowded and overgrazed adjacent zones. In early 1979, for example, some 160 families owning about 100,000 animals had already registered with the governmental committee in charge of re-entry and had established their trans- humant rights to the land involved. In addition, MINEL's Veterinary Field Services in the Plateau would be re-equipped and strengthened as resettlement progressed. These conditions would be a strong incentive for pastoralists to resettle. The FRG and the Association would continue to cooperate with the Government in using the results of the land use study underway to direct the repopulation of the freed zone. A land use planner to be recruited interna- tionally would work with Cameroonian authorities in Ngaoundere to implement a land use plan for the tsetse freed area that used the results of the study conducted by the FRG. MINEL's services comprise veterinary services and animal husbandry extension delivered through existing Centre Zootechnique et Veterinaire (CZV), some of which would be refurbished under the project and would expand to include 4 special CZV's to serve as posts for the control of animals re-entering the tsetse freed zone. 46. SODEPA would continue to have major responsibilities for slaughter- houses and ranch management, including a role in support of training, and its land allocation function under the credit program. Technical assis- tance for these tasks will be provided as mentioned in para 41 (iv). Irrespective of the Government's ultimate decision on whether to develop and continue running its parastatal ranches, or to make some other arrangement for use of the land, responsibility for executing the decision would remain with SODEPA. An internationally recruited ranch management specialist would assist in executing the program for ranch resource redeployment, and the  - 18 - financial controller currently in post would help manage ranch finances. Funds would be provided under the project for the purchase of replacement equipment and vehicles and drugs and medicines. One ranch site would also be used for practical retraining of I'INEL field staff in animal health and animal husbandry practices. Activities at the Jakiri ranch and station, which SODEPA administers parallel with MINEL's training school, include demonstrating beef cattle ranching, dairying, pig and poultry production to newly recruited and existing MINEL field staff. This I-raining activity would be strengthened under the project. The program would be closely coordinated with the Jakiri veterinary training institute, and be under the direction of an interna- tionally recruited director who would have joint responsibilities for the station and school. Training 47. Selected staff of all executing agencies under the project would receive either in-service or formal training in support of project activities. Appropriate MINEL field staff would be retrained at centers supported by project funds for this purpose. A program of in-service training for operat- ing staff of the Special lission would be designed and implemented by senior Mission personnel. Internationally recruited staff would, as part of their terms of reference, train in-service local staff assigned to their respective functions. Finally, the PCU would include a training specialist responsible for advising on and monitoring training activities in all project components. Project Costs and Financing 48. The total cost of the project, net of taxes, is estimated at US$36.0 million of which US$23.6 million (66 percent) represent foreign exchange costs. Government taxes and duties on goods, services and salaries amount to US$3.9 million. Project costs are based on mid-1979 prices; physical contingencies of 10 to 15 percent and price contingencies of 10 to 12 percent per annum have been used. Costs include a provision for retroactive financing of about US$1.3 million, required to cover expenditures from October 1, 1979 on the insecticides needed for the 1979/80 tsetse eradication campaign. The proposed IDA credit would provide for 35 man-years of technical assistance for 10 specialists during the life of the project at an average cost of US$9,400 per man-month of base costs or US$10,800 including contingencies. In addition, the FRG would provide free of charge seven man-years for services of three specialists for the tsetse eradication program. 49. The Federal Republic of Germany (FRG) would participate in project financing with US$9.0 million (25 percent of project costs net of taxes), of which US$1 million would be in the form of a grant and US$8 million as a loan on terms similar to IDA's. Thus, together with the proposed IDA Credit of US$16.0 million (45 percent of project costs net of taxes), external financing would cover the project's foreign exchange component and about 11 percent of local costs net of taxes. Herdsmen and farmers would provide US$2.3 million as equity participation, while Government would cover the remaining local costs of US$8.7 million (25 percent of project costs net of taxes), in addition to US$3.9 million of taxes.  - 19 - Procurement and Disbursement 50. Contracts for US$100,000 or more totalling about US$4 million, principally for the purchase of vehicles and equipment for MINEL and SODEPA, would be awarded on the basis of international competitive bidding in accor- dance with IDA guidelines, except for the purchase of equipment to complete the Douala slaughterhouse. Such equipment, valued at about US$0.4 million, would be purchased from the original supplier to maintain standardization. Insecticides worth US$2.6 million for the 1980/81 and 1981/82 spraying cam- paign would be procured from the same suppliers who provided them for the first project, but suppliers of potential substitute insecticides would be invited to submit proposals to have new products tested for possible use. The balance of insecticide requirements worth about US$1.3 million would be procured through limited international tendering which would allow for new products--found suitable after field testing--to be considered. Contracts for goods valued between US$30,000 and US$100,000, totalling approximately US$3.5 million, would be procured on the basis of local competitive bidding procedures acceptable to IDA, while individual contracts of less than US$30,000, for a total of about US$0.5 million, would be procured on the basis of at least three quotations. Orders would be grouped whenever practicable in order to derive maximum benefit from bulk procurement. Goods financed through FONADER credits for livestock and farm development would be procured through regular commercial channels (US$11.4 million). Contracts for remodeling and construction of buildings totalling about US$4 million would be too small and dispersed to attract international bidders and consequently would be awarded following local competitive bidding procedures acceptable to IDA. Items included in operating costs (US$2 million), to be financed by Government, do not lend themselves to bidding procedures. The helicopter services for spraying and the technical assistance for tsetse eradication, both involving costs of about US$5.3 million, would be financed by FRG which would apply its own rules on procurement. Domestically manufactured goods will be allowed a preference of 15 percent or the level of applicable duty, whichever is less, comparing domestic bids with those of foreign manufacturers. 51. The IDA Credit would be disbursed over 4-1/2 years to cover the following expenditures: (i) by FONADER: 25 percent of sub-loans to livestock owners, mixed-crop farmers and small farmers (US$2.3 million), 80 percent of total expenditures on vehicles and equipment for credit administration and for technical assistance (US$0.9 million); (ii) by SODEPA: 60 percent of total expenditures for civil works (US$0.65 million) and 80 percent of total expen- ditures on vehicles, equipment, and veterinary supplies and for technical assistance (US$2.35 million); (iii) by MINEL: (a) on tsetse fly extermina- tion: 100 percent of foreign expenditures for insecticides (US$3.9 million), 50 percent of total expenditures on vehicles, equipment, and fixed-wing aircraft hire cost (US$0.3 million), and 60 percent of total expenditures for civil works (US$0.1 million); (b) on veterinary field services: 60 percent of total expenditures for civil works (US$1.4 million) and 80 percent of total expenditures on vehicles and veterinary equipment (US$0.4 million); (c) on training: 60 percent of total expenditures on civil works (US$0.1 million) and 80 percent of total expenditures on vehicles, equipment and technical  - 20 - assistance (US$0.5 million); and (d) on project coordination and monitoring: 80 percent of total expenditures on vehicles and equipment and for technical assistance and preparation of a possible follow-up project (US$1.65 million). The disbursement percentages for vehicles, equipment, veterinary supplies, fixed-wing aircraft hire cost, and technical assistance represent the esti- mated foreign exchange components of total expenditures. US$1.45 million would be unallocated. Disbursements for sub-loans made by FONADER would be against certified statements of expenditure, with supporting documentation retained by FONADER for examination during supervision, and all other dis- bursement claims would be fully documented. While the FRG would disburse directly for salaries and operating costs of technical assistance staff used in tsetse eradication campaigns and for the helicopter spraying, it would disburse pari passu with IDA for the private sector credit scheme in the ratio of 2:1. A condition of disbursement for the credit and tsetse eradication components would be that the FRG loan for these elements is effective and that arrangements satisfactory to IDA for the technical assistance to be provided by the FRG in their respect have been made (Paragraphs 4(b) and (c), Schedule 1 of the draft Development Credit Agreement). Reports and Auditing 52. Project executing agencies--FONADER, SODEPA, MINEL, and the Special Mission--would keep separate accounts which would be audited by independent auditors acceptable to IDA and submitted to IDA annually except for MINEL's current budget which would be subject to standard government audit procedures. The auditor's report on FONADER project accounts - for the six types of subloans to livestock owners, mixed-crop farmers and small farmers - would include a special opinion on the documentation supporting the statement of expenditures against which IDA had reimbursed funds to cover 25 percent of the sub-loans. Project Benefits 53. The principal benefit of the project for consumers would be an increase in meat supply from all livestock sources of about 4,600 tons per year at full development in project year eight. The principal benefits for producers would be in the form of higher incomes, both because existing enterprises would become more productive and because new livestock production alternatives would be introduced0 Financial rates of return from these improved activities would range from 15 percent for cattle ranching to over 36 percent for eggs, cockerel and crop production. Less quantifiable indirect benefits would also be realized such as the arrest of the advance of the tsetse fly which would protect agricualtural land from the threat of infesta- tion; furthermore the project would assist in expanding the herd the herd through improved cattle breeding and would enlarge meat distribution which would further stimulate rural employment and income opportunities. Another and long-lasting benefit would be the strengthening of government institutions in administrative and policy-making i-unctions.  - 21 - 54. The three directly productive components of the project, accounting for about 75 percent of project costs, have an estimated overall economic rate of return of 18 percent. Of these, the traditional sector credit program, accounting for 33 percent of project costs, has an estimated economic rate of return of 19 percent; the tsetse eradication program, taking all actual costs incurred from the first project and 80 percent of the proposed project cost into account, has an estimated economic rate of return of 17 percent; and the program to improve veterinary field services, accounting for 10 percent of project costs, has an estimated economic rate of return of 20 percent. When all costs including those for MINEL and SODEPA headquarters as well as project overheads are accounted for, the project shows an estimated overall economic rate of return of 16 percent. In spite of these favorable economic rates of return and good financial rates of return for producers, Government's cumula- tive cash flow would be negative throughout the disbursement period and for at least a 14-year period after that. IDA would continue a dialogue with the Government, encouraging it to consider practical means through which some of the economic benefits of the project could be recaptured to offset recurrent costs. Project Risks 55. The proposed project has an overall management risk with regard to project execution and specific risks associated with its major individual components. To make project management more effective, the PCU would undertake the development of a monitoring and evaluation system which would permit a periodic reassessment of project implementation. The success of the credit program, in particular that for pigs and poultry, will depend to a large extent on the development of adequate appraisal and supervision techniques of sub-loans managed by FONADER. To minimize this risk, internationally recruited credit production specialists for each of the two FONADER field offices together with suitable Cameroonian staff would develop and implement a system that would fulfill this function. In addition, the number of sub-loans to be extended would initially be small to allow for a period of in-service training of local staff and the operation of the appraisal and supervision systems under FONADER's newly decentralized organization. 56. The continuing effectiveness of the tsetse eradication program depends on the timely availability of spray materials and careful follow-up with ground crews. To minimize such problems in the proposed extension of the program Government has agreed to change the administrative financial system for the Special Mfission to eliminate these delays. Mloreover, cattle re-entering the cleared zone will pass through appropriately located control posts staffed by trained veterinary field service staff. A system of resur- vey, local extermination, and strong barrier maintenance also provided for in the proposed project would be vital to reduce the risk of reinfestation.  - 22 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 57. The draft Development Credit Agreement between the United Republic of Cameroon and the International Development Association, the draft Project Agree- ments between IDA and SODEPA and between IDA and FONADER, and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 58. Special conditions of the project are listed in Section III of Annex III. 59. Conditions of credit effectiveness would be that the Project Coordinator be employed and in post and that a subsidiary financing agreement be entered into between Government and FONADER (Section 6.01 of the draft Development Credit Agreement). 60. A condition of disbursement for the credit and tsetse eradication components would be that the FRG loan for these elements is effective and that arrangements satisfactory to IDA for the technical assistance to be provided by the FRG in their respect have been made (Paragraphs 4 (b) and (c), Schedule 1 of the draft Development Credit Agreement). 61. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOIMENDATION 62. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President Attachments April 2 , 1980  - 23- ANNEX I TABLE 3A Page 1 of 5 pages CA^EROON - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AyERAGES - MOST RECENT ESTIMATE) - SAME SAME NEXT HIGHER MoST RECENT GEOGRAPHIC INCOnE LDCOME 1960 lb 1970 /b ESTLMATE /b BEGION Ic GROUP /d GELOUP Ye EDUCAT ION ADJUSTED ENROLLM(ENT RATIOS PRIMAPRY: TOTAL 65.0 107.0 120.0 59.0 82.7 102.5 MALE 87.0 124.0 133.0 64.2 87.3 108.6 FEMALE 43.0 91.0 106.0 44.2 75.8 97.1 SECONDARY: TOTAL 2.0 9.0 17.0 9.0 21.4 33.5 MALE 4.0 13.0 23.0 12.0 33.0 38.4 FENALE 1.0 5.0 11.0 4.4 15.5 30.7 VOCATIONAL ENROL. (2i OF SECONDARY) 23.0 23.0 23.0 7.0 9.8 11.5 PUPLL-TEAcER RATIO PRIMARY 48.0 51.0 42.2 34.1 35.8 SECONDARY ,, 24.0 23.0 22.9 23.4 22.9 ADULT LITERACY RATE (PERCENT) 19.0 12.0 .. 20.8 54.0 64.0 CONSUMPTION PASSENGER CARS PER TROUSAND POPULATION 3.0 6.0 7.8 4.0 9.3 13.5 RADIO RECEIVERS PER THOUSAND POPULATION 3.0 36.0 96.0 44.3 76.9 122.7 TV RECEIVERS PEP THOUSAND POPULATION .. .. .. 2.9 13.5 38.3 NEWSPAPER ("DAILY GENERAL INrTEREST) CIRCULATION PER THOUSAND POPULATION 2.0/h 3.0 3.9 5.6 18.3 40.0 CINEMA ANNU'AL ATTENDANCE PER CAPITA 0.1 .. 1.0 0.4 2.5 3.7 LABOR FORCE TOTAL LABCR FORCE (TROUSANDS) 2230.0 2560.0 2783.0 FEMALE (PERCENT) .. .. 40.0 31.9 29.2 25.0 AGRICULTURE (PERCENT) 78.5 75.9 73.8 77.6 62.7 43.5 INDUSTRY (PERCENT) 4.6 6.0 6.3 7.9 11.9 21.5 PARTICIPATION RATE (PERCENT) TOTAL 39.3 37.8 35.7 40.8 37.1 33.5 MALE .. .. 45.6 53.9 48.8 48.0 FEMALE .. .. 26.9 25.6 20.4 16.8 ECONOMIC DEPENDENCY RATIO 1.0 1.2 1.3 1.2 1.4 1.4 INCOME DISTRIBUTION PERCENT OF PRIYATE INCOME RECE7VED BY HIGHEST 5 PERCENT OF HOUSEHOLDS .. .. .. .. 15.2 20.8 HIGHEST 20 PERCENT OF HOUSEHOLDS .. .. .. .. 48.2 52.1 LOWEST 20 PERCENT OF HOUSEHOLDS .. .. .. .. 6.3 3.9 LOWEST 40 PERCENT OF HOUSEHOLDS .. .. .. .. 16.3 12.6 POVERTY TARGET GROUPS ESTLMATED ABSOLUTE POvERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 189.0 187.6 241.3 270.0 RURAL ,. .. 88.0 96.8 136.6 183.3 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER-CAPITA) URBAN .. .. .. 138.4 179.7 282.5 RURAL .. .. .. 71.0 103.7 248.9 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCt)ME LEVEL (PERCENT) URBAN .. .. 15.0 34.5 24.8 20.5 RU,RAL *- *- 40.0 48.7 37.5 35.3 Not available Not applicable. NOTES Ia The adjusted group averages for each indicator are population-veighted geometric means, excluding the extreme values of the Indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not utLiform. /b Unless otherwise noted, daca for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1974 and 1977. /c Africa South of Sahara; /d Lower Middle Income ($281-550 per capita. 1976); /e Intermediate Middle Income ($551-1135 per cipita, 1976); /f 1962, including ex-South Cameroons under British Administra- tion; /R West Cameroon only; lh 1964-1966; /i 1960-65; /i Fiscal year July-June. Most Recent Estimate of GNP per capita is for 1978. August, 1979  -24-- ANNEX I Page 2 of 5 pages TABLE 3A CAMEROON - SOCIAL INDICATORS DATA SHEE- ROON ~~~~REFERENC_ GROUPS (AO.IUSTEI) A