Madagascar - Second Village Livestock and Rural Development Project

Document of The World Bank FILE Copy FOR OFFICIAL USE ONLY Report No. P-3136-MAG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR A SECOND VILLAGE LIVESTOCK AND RURAL DEVELOPMENT PROJECT February 2, 1982 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Calendar 1980 December 1981 Unit 5 Malagasy Franc (FMG) - Malagasy Franc (FMG) US$1.00 - FMG 213 - FMG 278 FMG 1,000 = US$4.70 - S$3.59 FMG 1,000,000 - US$4,700 - US$3,590 (The cost estimates are based on US$1 - FMG 275) ABBREVIATIONS BNI - The Industrial Bank of Madagascar BTM - National Bank for Rural Development DEP - Directorate of Studies and Programming of MDRRA FAFIFAMA - Livestock Development Agency for Western Madagascar FOFIFA - Center for Agricultural Research and Rural Development IFAD - International Fund for Agricultural Development MDRRA - Ministry of Rural Development and Agrarian Reform OMBY - State Farm SPA - Animal Production Service of MDRRA SECIAM, SEVIMA and SOFIRAC - Parastatal meat processing companies Government and FAFIFAMA Fiscal Year January 1 - December 31  FOR OFFICIAL USE ONLY MADAGASCAR SECOND VILLAGE LIVESTOCK AND RURAL DEVELOPMENT PROJECT Credit and Project Summary Borrower: Democratic Republic of Madagascar Beneficiaries: Ministry of Rural Development and Agrarian Reform (MDRRA) and the Livestock Development Agency for Western Madagascar (FAFIFAMA) Amount: - SDR 12.8 million (US$15.0 million equivalent) Terms: Standard Onlending: The Government would pass approximately US$11 million of the proceeds of the credit to FAFIFAMA as a grant. Project: (i) Objectives: The project would support the Government's Description efforts to increase beef production and to improve the productivity of the sector through animal health programs, the provision of veterinary inputs, technical assistance and research. (ii) Main Project Components: The project components are: (a) In Mahajanga province, continuation and extension of the basic animal health program; a pilot animal production program together with related development of rural roads and water supply; and management assistance to FAFIFAMA; (b) In the livestock sub-sector, imports of veterinary supplies and of equipment for producing vaccines; technical assistance to improve the sub-sector's organization and institutions; applied research; studies, documentation and training. (iii) Benefits: The Project would continue the animal health program developed in 527 villages in the Mahajanga region under the first project and extend the program to an additional 824 villages, leading to a substantial increase in livestock production. About 120,000 livestock producers in Mahajanga Province, many of whom are below the relative poverty level, would benefit directly. Development of all-weather roads and water supply for villages in the pilot production area would bring important economic and social benefits to up to 36,000 people, mostly poor. The sub-sector components would benefit livestock producers throughout the country. (iv) Risks: Project risks mainly relate to the livestock sub- sector components. They include management and organiza- tional uncertainties, and the extent of Government com- mitment to reorganization of the subsector. However, the Government has recently accorded a higher priority to the development of the subsector, which augurs well for the implementation of the project. 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 - Project Costs: % of Total Project Component Local Foreign Total Base Costs ($ million) In Mahajanga province Basic Animal Health Program 3.6 3.0 6.6 37 Pilot Animal Production Program 1.0 1.0 2.0 11 Road Construction and Maintenance 0.8 1.7 2.5 14 Water Supply Construction and Maintenance 0.7 0.5 1.2 7 Support for FAFIFAMA 0.3 0.3 0.6 3 Sub-Total 6.4 6.5 12.9 72 In the Livestock Sub-sector Import of Veterinary Products - 3.0 3.0 17 Import of Laboratory Equipment - 0.1 0.1 1 Studies, documentation and training 0.5 1.2 1.7 9 Institutional Support, Applied Research 0.1 0.1 0.2 1 Sub-Total 0.6 4.4 5.0 28 Total base costs (no customs 7.0 10.9 17.9 100 duties or taxes applicable) Contingencies Physical 0.6 0.9 1.5 9 Price 3.6 2.8 6.4 35 Sub-Total 4.2 3.7 8.0 44 Total Project Costs 11.1 14.7 25.8 144 Financing Plan: IDA Credit 5.3 9.7 15.0 58 IFAD loan 3.0 5.0 8.0 31 Government 2.8 - 2.8 11 Total 11.1 14.7 25.8 100 Estimated Disbursements: FY83 FY84 FY85 FY86 FY87 FY88 ($ million) Annual 0.7 2.7 3.9 3.7 2.5 1.5 Cumulative 0.7 3.4 7.3 11.0 13.5 15.0 Rate of Return: 34 percent Staff Appraisal Report: No. 3482-MAG, January 27, 1982 Map: IBRD 15637  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR A SECOND VILLAGE LIVESTOCK AND RURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Democratic Republic of Madagascar of SDR 12.8 million ($15.0 million equivalent) on standard IDA terms to help finance a Second Village Livestock and Rural Development Project to be implemented by the Ministry of Rural Development and Agrarian Reform and the Livestock Development Agency for Western Madagascar also known as FAFIFAMA. The project is expected to be jointly financed with the International Fund for Agricultural Development (IFAD), with a loan of $8.0 million for 50 years, with 10 years grace, at 1 percent interest per annum. PART I - THE ECONOMY 2. A report entitled "Madagascar - Economic Memorandum", dated November 3, 1981 has been distributed to the Executive Directors. Country data sheets are provided in Annex I to this report. 3. Madagascar, with a population of 8.7 million and a per capita GNP of about US$290 in 1979, is among the poorest countries in the world. It is a sparsely populated country (about 14 persons per square kilometer) with less than 20 percent of the population living in urban areas. Although generally well endowed with natural resources and a variety of soils, there are consider- able regional variations in ecology and climate. The central plateau, the most economically advanced region, has a subtropical to temperate climate, the south is the poorest region with an arid climate and infertile soils, the eastern region has a tropical climate and although rich agriculturally, crops are frequently devastated by cyclones. Agriculture accounts for about 35 percent of GDP; about 85 percent of the national labor force is engaged in agricultural activity, and agricultural products account for about 80 percent of the country-s export earnings. 4. Madagascar's development over the past decade has been disappointing. With a population growth around 2.8 percent per annum, real per capita GDP has decreased by about 1.5 percent per annum; in 1980 per capita real income was probably about 14 percent below its 1970 level. Even with sluggish and erratic development, Madagascar-s policies until 1978 had been characterized by cautious and conservative public finance and balance of payments management. In 1979 and 1980 Government undertook a very large program of public investment with a marked shift to dependence on external sources for its financing. The volume of fixed capital formation increased by about 70 percent in 1979, and in 1980 was still 60 percent above the 1978 level. The share of investment in GDP which had been around 14 percent since the early 1970s rose to around 21 percent in 1979 and 1980. The increased investment thrust and the attendant  - 2 - import needs coincided with almost stagnant export earnings and a deterioration in terms of trade, so that Madagascar's balance of payments position deteri- orated very sharply in 1979 and 1980. General Government and state enterprises accounted for virtually all of the increased investment expenditures so that the budget expenditures and the overall budget deficits increased dramatically in 1979 and 1980. 5. Overall output growth has continued to be very erratic over recent years. Real GDP declined by about 2.6 percent in 1978, increased by about 10 percent in 1979 and then increased by less than 1 percent in 1980. The short- lived spurt of growth in 1979 was due to increased activities associated with the investment boom and to improved weather conditions benefiting agricultural production but already in 1980 agricultural and manufacturing production were adversely affected by inadequate supplies of necessary inputs and raw materiais. 6. Agricultural output grew on average by about 1 percent between 1977 and 1980, thus continuing the very sluggish development which has characterized Madagascar's agriculture since the early 1970s. Output in 1978 was seriously affected by the prolonged drought conditions which had prevailed since 1976 and declined by about 6.5 percent. With improved weather conditions in 1979 output increased by about 7 percent but in 1980 is estimated to have grown by only about 2.5 percent and preliminary indications are that output in 1981 is likely to show virtually no expansion. Production of rice, the principal staple food, has virtually stagnated over recent years; production in 1979 was about 5 per- cent below its 1977 level. Domestic production has failed to keep pace with domestic needs, especially to satisfy the growing urban population, and imports of rice have grown rapidly from about 60,000 tons in 1975 to about 250,000 tons in 1980. Production of coffee, Madagascar's major export commodity, which had risen steadily during the first half of the 1970s, declined sharply in 1976 and 1977, mainly due to unfavorable weather, and then increased moderately in 1978 and 1979. Production in 1979, about 81,000 tons, was still somewhat below its mid-1970s level. Production of cloves, Madagascar's second most important foreign exchange earner, is subject to a four to five year production cycle; the peak production reached in 1979 showed only a modest increase over the previous level in 1974. Vanilla production dropped sharply between 1977 and 1979 due to the combined effects of poor maintenance, prolonged unfavorable weather condi- tions and competition from synthetic substitutes in international markets. 7. Growth of manufacturing output has continued to be slow and erratic; real value added in the sector increased by about 4 percent in 1978, by about 13 percent in 1979 and then decreased by about 3 percent in 1980. Food processing (including beverages) and textile production are the dominant activities, accounting respectively for about 35 percent and 21 percent of the sector's value added. Output of the food and beverage industries grew on average by about 2 percent per annum over the 1977-80 period. Textile production, which increased by about 9 percent in 1979, decreased by about 5 percent in 1980, in which year production was affected by reduced raw material supplies and by machinery maintenance problems. The only industries which have shown a regular growth of output over recent years were cement, tobacco, leather goods (mainly shoes) and paper products. The combined share of these industries in total manufacturing value added in 1979 was just over 15 percent. The manufacturing sector has been generally operating at a low level of  - 3 - capacity utilization over recent years. Due to marked scarcities of imported raw materials and spare parts in 1980 and 1981, the dislocations to production have become increasingly severe. 8. Madagascar's fiscal situation has deteriorated dramatically since 1978, due to sharply rising current expenditures and increased Government spending on capital investment. The current budget surplus, which used to be substantial, turned to a deficit as revenues failed to keep pace with the growth of expenditures. Furthermore, as Government intensified its efforts to raise investment levels and stimulate the economy, public investment expendi- ture rose from 16 billion FMG in 1977 to 105 billion FMG ($497 million) in 1980. Outlays on the consumer subsidy for rice increased from about 4 billion FMG in 1975 to nearly 12 billion FMG ($57 million) in 1980. The overall Treasury deficit increased from about 4.5 percent of GDP in 1978 to about 18.5 percent in 1980. While borrowing from external sources was greatly expanded in both 1979 and 1980, the budget deficits were financed primarily by borrowing from the Central Bank, which provided about two thirds of the financing of the 1980 deficit. 9. Monetary and credit developments over recent years largely reflect the Government's deficit financing needs. Domestic credit increased from about 126 billion FMG ($536 million) at end of 1977 to about 329 billion FMG ($1,460 million)at end 1980. Most of this expansion was accounted for by Government borrowing from the Central Bank, whose share of domestic credit rose from about 23 percent in 1977 to about 55 percent in 1980. Despite a significant reduction in net foreign assets, money supply grew by over 20 percent per annum during the 1977-1980 period. Available price information for Madagascar is fragmentary. There is a wide-ranging system of controlled prices which appears to have become inoperative with most goods selling at prices well above control levels. A price index for low income families shows an acceleration of price increases to about 18 percent in 1980 compared to about 14 percent in 1979 and an annual average increase of about 4.5 percent from 1975 to 1978. 10. Madagascar's balance of payments position deteriorated dramatically over the 1977-80 period. The current account deficit, which had averaged around FMG 8 billion ($33 million) from 1975 to 1977, rapidly increased to about FMG 109 billion ($515 million) in 1980, i.e., from less than 2 percent of GDP to around 16 percent of GDP. From 1977 to 1980 the import bill virtu- ally doubled while export earnings increased by only around 3 percent. The overall balance which had been in surplus by about FMG 3 billion in 1977 was in deficit by about FMG 59 billion in 1980. Transactions with the rest of the world have been financed by a total exhaustion of reserves, an unprecedented increase in foreign borrowing and by incurring substantial arrears on external payments obligations. The increased import bill has been the most striking feature of recent balance of payments developments. Average import prices increased substantially (over 40 percent) during the 1977-80 period and import volume showed approximately the same proportionate increase. While nearly all categories of imports increased, imports of capital goods grew at a particu- larly rapid rate and accounted for approximately half of the increase in the import bill between 1977 and 1980. The very modest growth in export earnings between 1977 and 1980 reflected continued inertia in export volume and fairly stationary world prices for Madagascar's principal exports.  - 4 - 11. The development of the Malagasy economy has been constrained over many years by a number of basic weaknesses, e.g. low productivity in agriculture, slow growth in major primary exports and inadequate domestic savings. The sharp deterioration in Madagascar s economic and financial situation in 1979 and 1980 reflects these continuing problems. The significant shifts in government policy through a greater openness to external finance and, also in pushing vigorously for a higher level of investment have been accompanied by continued sluggish export performance and deterioration in the terms of trade. The import bill has been swollen not only by imports of capital goods but also by a growing import of consumer goods, especially rice, for which domestic production and distribution weaknesses are a serious problem. The country is well endowed with natural resources and the administrative cadres are rela- tively well trained. A more effective use of these resources will depend, however, on a lasting correction to the serious imbalances which exist on both balance of payments and government budget accounts. 12. In June 1980 the Government concluded a Stand-by agreement with the IMF which aimed to restore balance of payments and budgetary equilibrium. Some of the individual policy measures in this program were implemented, e.g. measures to increase government revenues, but efforts to limit government expenditures were not successful and the program was suspended. A new Stand- by agreement was concluded in April 1981. This provided SDR 109 million (US$130 million) to be drawn before end June 1982. The Stand-by agreement placed limits on public expenditure, government borrowing from the Central Bank and new external borrowing, and entailed a reduction in external payments arrears. Implementation of the Stand-by agreement proceeded successfully up to July 1981, but unanticipated shortfalls in export earnings, due in large measure to weak world coffee prices and a smaller than expected inflow of new capital from international commercial banks, made it increasingly difficult for Madagascar to meet the Stand-by performance conditions. After July 1981 further drawings under the Stand-by were suspended but negotiations with the IMF have continued to explore ways in which, through supplementary actions on the part of the Madagascar authorities, a new Stand-by agreement could be concluded. 13. These stabilization measures need to be complemented by measures to enhance the long-term viability of the economy. A Plan for the period 1981-86 is currently in preparation. The Plan envisages a much more vigorous effort in export expansion and an action program for greater self-sufficiency in food production and supply of raw materials. Administrative steps have already been taken to strengthen regional economic planning and the operations of government enterprises. Priority is to be attached to a rehabilitation and greater utilization of the existing capital stock with limited new investment largely concentrated in production sectors. Madagascar has formally requested non-project assistance from the Worid Bank and discussions have been initiated to identify a program of structural adjustment and policy reform which such assistance might appropriately support.  - 5 - 14. With the shift in government policy to a greater reliance on foreign financing, Madagascar's external public debt has increased substantially over recent years. Total external debt (outstanding and disbursed) at end 1980 amounted to about $1,035 million, compared to about $245 million at end 1977. There has been a greater diversification in sources of external financing but average terms have hardened significantly. Consequently, the debt service ratio has risen from around 4 percent in 1977 to about 12 percent in 1980 and is likely to be around 30 percent in 1981. Madagascar now faces a rising debt servicing burden in the next few years. A Paris Club meeting took place between April 29-30, 1981, as a result of which Madagascar obtained debt rescheduling of about $36 miliion covering the period January 1, 1981 to June 30, 1982. In view of these developments improved debt management by the Government would be an essential component of our future dialogue with Madagascar. 15. The World Bank group provided about 45 percent of the concessionary assistance which Madagascar received between 1975 and 1979. Over the same period, however, around 40 percent of external public borrowing has been from non-concessionary sources. Increased external financing on a concessionary basis will be required to support the Government's economic restructuring and development efforts and to ensure a continued capacity to service external debt. Given Madagascar's poverty and current resource constraints, IDA should continue to contribute to local cost financing. PART II - BANK GROUP OPERATIONS IN MADAGASCAR 16. IDA credits to Madagascar amount to US$255.15 million and SDR $36 million, and Bank loans total US$31.21 million. Since 1975 about 50 percent of Bank Group lending has been for transport, 12 percent for electric power, 21 percent for agriculture, 10 percent for industry, technical assistance, water and petroleum, and 7 percent for education. IFC's first investment was in 1977 for the expansion of a textile mill. In 1980 IFC made a $1.25 million loan for the Bata shoe manufacturing company in Antananarivo, and other projects are under preparation. Annex II contains a sumiary statement of Bank loans, IDA credits and IFC investments as of September 30, 1981, as well as notes on the execution of-ongoing projects. 17. Bank Group assistance to Madagascar has been concentrated on the key areas of infrastructure (including urban and social infrastructure), agricul- ture, energy and industry. In infrastructure, four projects have been for the construction of all-weather highway links between the island's different regions and a fifth project for road maintenance. There have been projects for improving Madagascar's main port of Toamasina, and to support the railwayIs modernization efforts. Urban infrastructure development includes a first water supply and sanitation project for the capital city of Antananarivo for which a $20.5 miilion credit was signed in May 1980. In the social sectors, education has been the major recipient of Bank assistance with two credits totaling $18.8 million. In addition, studies for urban development financed  - 6 - by the UNDP with the Bank as Executing Agency have led to preparation of a project for urban development. Support for general industrial promotion is being provided through a $5.0 million credit for industrial credit (BNI) signed in May 1980. A credit of SDR 9.4 million for a technical assistance and training project in accounting and audit was signed in June 1981. 18. Bank Group lending for agriculture consists of two livestock develop- ment projects, three irrigation projects, two forestry projects and an agricul- tural credit project. A $2.3 million technical assistance credit to prepare a project in the Plain of Antananarivo area was signed in January, 1981. We expect agriculture to continue to absorb a large proportion of Bank Group lending in line with Government strategy to expand agricultural production. An agricultural institutions technical assistance project and a project to assist the rehabilitation of rice production in the Lake Alaotra area have been appraised. Further rural develoment and crop production projects are being prepared. 19. Energy projects have also received growing Bank Group attention: IDA is financing part of the cost of the large Andekaleka hydroelectric project, for which there is also substantial bilateral assistance. A $12.5 million credit for petroleum exploration is supporting the Government's efforts to develop a domestic supply of hydrocarbons and to improve planning of the energy sector. A second petroleum exploration project is under prepara- tion. 20. In the past, problems have arisen in the execution of several projects. The main problems encountered included execution delays, cost overruns, deficiencies in management and inadequate financial performance of project agencies. The Morondava irrigation project of June 1972 had to be substantially reduced, and the Government and the Association agreed on a plan of action to deal with the management and financial problems affecting the project. This plan was only partially complied with and the credit has been closed as of December 31, 1981. The first Village Livestock project was delayed by institutional problems. The credit was renegotiated in 1977 and since then implementation has been satisfactory. On the other hand, the first Mangoro Forestry project was very effectively executed and cost estimates were in line with forecasts. The road construction component of the fourth highway project is nearly completed and the maintenance studies have been completed, although there was a delay in the start of the highway maintenance training program. The Government has now agreed that training consultants be employed, and construction of the training facilities has begtm. Construction under the fifth highway project is ready to start. 21. Since the start of our program in Madagascar, four projects, all of which included technical assistance, have been completed and audited by the Operations Evaluation Department. The Audit Report No. 1622 of December 1976 on the Lac Alaotra project concluded that the project was generally successful. However, the Impact Evaluation Report No. 3600 of August 1981 concluded that earlier assessments of project performance were overoptimistic, and that the actual economic rate of return was probably negative. The Audit Report No. 1559 of April 1977 on the Beef Cattle Development Project concluded that the Project had contributed little to Madagascar(paragraph 41).  - 7 - 22. The Audit Report No. 2143 of July 1978 concluded that the Third Highway project was well justified and had a good rate of return despite substantial cost overruns. Report No. 2299 of December 1978 concluded that the physical objectives of the Tamatave Port Project were satisfactorily achieved but pointed out that the institutional objective was not accomplished during project implementation because of inadequacies in the staffing of the port authority. With the exception of the port project, the technical assist- ance components of all four projects were executed satisfactorily. PART III - THE AGRICULTURAL SECTOR IN MADAGASCAR General 23. About 85 percent of Madagascar's roughly 8.7 million inhabitants live in rural areas, half of them below the poverty level. Agriculture, contributing about 40 percent of GDP, and about 80 percent of export earnings, directly supports over 80 percent of the population. Rice is the major food crop. Coffee accounts for almost half of Madagascar's exports. Cloves, pepper and vanilla are the other major export crops. Madagascar has a substan- tial potential for agricultural growth which a combination of policy reforms and investment could allow it to exploit. However, over the last decade, the performance of the sector has been poor, with the average rate of growth in output somewhat less than the population growth rate: from being a net exporter of rice, Madagascar now imports over 200,000 tons per year. The livestock subsector which accounts for about 10 percent of agricultural output is reviewed below. 24. The Ministry of Rural Development and Agrarian Reform (MDRRA) is responsible for rural development programs. MDRRA's centralized directorates are largely responsible for planning and supervision, while field staff are managed by a decentralized hierarchy from the province level downwards. About 35 parastatal agencies operate under MDRRA, including the Livestock Development Agency for Western Madagascar (FAFIFAMA), which was established in 1974 to implement the first Village Livestock project in Mahajanga province. The semi-autonomous Center for Agricultural Research and Rural Development (FOFIFA) is responsible for all agricultural research, including livestock research. FOFIFA reports to the Ministry of Higher Education and Scientific Research, which is also responsible for university level training in agricul- ture, while MDRRA is responsible for secondary level training of agricultural staff. The Livestock Subsector 25. Madagascar has good potential for livestock production, particularly for cattle. There are an estimated 42,000 km of natural pasture and the island is free of many cattle diseases common in continental Africa. In 1978 the national herd was estimated at ten million cattle, two million sheep and  - 8 - goats and one million pigs. Virtually all production comes from the tradi- tional sector. Despite the potential, the subsector has performed poorly over the last decade. The size of the cattle herd remained static between 1973 and 1978; the sheep and goat herd showed only a modest increase. Cattle produc- tivity has not increased and pig productivity is low because of poor genetic material and insufficient feed supply. Constraints at the production level have been compounded by the Government's pricing and marketing policies. The profitable beef export trade has been curtailed to divert beef to urban consumers and exporting firms have been operating well below capacity. Sub-sector policies and institutions generally require a major re-examination if the livestock potential of the country is to be developed. 26. Cattle Husbandry. Cattle raising has long been a vital economic activity in Madagascar, especially in the savannah lands in the west of the country, the provinces of Mahajanga and Toliary, which have two-thirds of the country's cattle. Cattle are an important source of nutrition and are widely used for draft and transport. Great social significance is attached to livestock ownership. Most livestock farmers have between 15 and 70 head, although herds of several hundred cattle are known. The total annual extrac- tion rate is about 9 percent, corresponding to 900,000 head or about 115,000 tons of beef (dressed carcass) a year. Milk production was estimated at 38.0 million liters in 1979. 27. Cattle production is almost entirely in the private sector, except for a few state ranches. In general, husbandry remains traditional using extensive techniques with virtually no movement towards more intensive, higher productivity methods. Cattle usually graze unherded on communal lands during the rainy season and are brought close to the villages in the dry season. More intensive systems are found on the central plateau where cattle, many of which are brought up from the breeding grounds on the west of the island, are fattened for the dominant market of Antananarivo. Madagascar is free of many of the diseases which afflict livestock in Africa. Anthrax, blackleg and tuberculosis, however, are widespread and veterinary services reach only around half the herd, while parasitic infection kills about half of all calves in some regions. Thus, although animal health problems are less intractable than in many developing countries, controllable diseases go untreated and more effective animal health programs could greatly improve production. 28. Cattle trading at the primary and intermediate level is mostly in the hands of private individuals, beginning with the bush traders. Trade is governed by licensing to prevent movement of stolen cattle and to raise revenue. Trade is concentrated on finished animals and immature cattle for draft and rearing; trade in breeding animals is virtually unknown. During the 1970s the Government became involved in the wholesale trade by nationalizing the major meat processing and export companies. These parastatals have to compete with private wholesale butchers but not with each other, as parastatals may buy only within their own zones, although there are some indications that the zones as presently drawn may not always promote efficiency, and may limit the supply of beef for export. This question will be examined further by a study financed under the present project.  - 9 - 29. Parastatal involvement in marketing was extended in 1977 when the Government gave a monopoly for the wholesale meat supply of Antananarivo to a parastatal, the state farm known as OMBY. However with meat prices fixed at unrealistically low levels OMBY incurred severe losses, and was unable to meet demand. The Government abolished the monopoly in July 1980. Wholesale beef supply to the capital is now shared between the private sector, OMBY and local community institutions. Elsewhere in Madagascar the wholesale trade remains in private hands, except for the town of Mahajanga, where FAFIFAMA has a monopoly. At the wholesale price set by the local government, this supply has also been unprofitable to FAFIFAMA. 30. Meat Processing and Retailing. There is a well-developed network of slaughterhouses and meat plants in the principal urban areas. However, some of the existing plants are obsolete and there are major management problems. Newer plants have achieved higher standards but financial constraints have kept operations well below capacity. In the capital, attempts to control retail prices led to the rise of an unofficial parallel market. During 1981 price controls were effectively dismantled. Elsewhere in the country, the retail meat trade is generally in the hands of private butchers who are often cattle traders also. Total domestic meat consumption is probably around 110,000 tons (dressed carcass weight), of which some 60,000 tons are traded. Consumption in the capital, stimulated by artificially low prices, is estimated at 16,000 tons, equivalent to 10-15 kg per head of deboned beef, which is higher than elsewhere in Africa. 31. Prices. Cattle prices are determined by the market. There have been rapid increases over the last few years fuelled by both domestic and export demand. Meat prices are by law subject to control at both whole- sale and retail levels. In most areas prices are set at levels sufficient to allow reasonable margins to suppliers. However, official meat prices in Antananarivo were kept fairly static throughout the 1970s in the face of rising production costs. Supplies were insufficient, and a large parallel market emerged, offering beef at up to double official prices. In 1980 the Government recognized the need to redefine its pricing policy for the capital. As an interim measure, official retail prices were doubled. Subsequently the Government has adopted a pragmatic approach by allowing private butchers to sell beef at uncontrolled prices in Antananarivo provided that the meat has been prepared under sanitary conditions. The Government would discuss meat pricing policy annually with IDA. (Draft Development Credit Agreement, Section 5.04.) 32. Exports. The export trade is controlled by the major meat process- ing firms. Malagasy beef has preferential access to the EEC under the Lome convention, for 7,500 tons a year, at prices usually above world market prices. However, competition between export and domestic buyers in the early 1970s caused a steep rise in cattle prices and led the Government-to limit exports. As a result, exports declined from 9,900 tons in 1972 to 2,000 tons in 1976. Since then the Government has made a series of increases in quotas, but exports have picked up only slowly, to reach 5,000 tons in 1979, probably due to production constraints in the exporting firms. However, two new export operations have started in the last two years, and beef exports (four percent  - 10 - of total merchandise exports in 1979) are a central feature of Government policy for the sub-sector. 33. Hides. Hide production is estimated at 250,000 hides yearly, well below theoretical availability. Proposals for the development of the industry include a rural training and marketing scheme, and building three new tanneries to raise processing capacity to 600,000 hides. The viability of these proposals would depend on a successful reorganization of hide collec- tion. Institutions in the Subsector 34. Numerous institutions operate in the livestock subsector, including eight administrative services and some 15 parastatal bodies each with separate statutes. However no one agency has overall responsibility for all subsector institutions; the subsector suffers from poor management and inadequate coordination among the agencies involved. MDRRA has two branches responsible for livestock development at the level of central Government: the Animal Production Service (SPA) and the Directorate of Studies and Programming (DEP). SPA, with 43 professionals and about 150 support staff, has responsibi- lity for: (i) advising on livestock policy and meat pricing, (ii) sanitary control of meat imports and exports, (iii) investment planning and monitoring, (iv) providing technical advice to the veterinary service and the parastatals, and (v) orientation of animal production research. SPA's task of planning and coordination has been hampered by the fact that certain sub-sector parastatals are supervised by the Ministry of Economy and Commerce, while the research institution, FOFIFA, comes under the Ministry of Higher Education and Scienti- fic Research. SPA also faces problems because the DEP, which has responsibi- lity for project preparation, has not always coordinated its work with SPA. The Ministry of Finance and Planning assists in price formulation for the capital, and supervises the financial performance of subsector parastatals. 35. The MDRRA was reorganized in 1979, when responsibility for livestock and veterinary services in the provinces was decentralized to MDRRA's regional services. At field level there is an extensive veterinary system of about 200 units, which are relatively well staffed with veterinary technicians and vaccinators. The service provides both prophylaxis, especially a cattle vaccination program, and treatment. The veterinary services face serious problems: (i) there are serious constraints in the supply of vaccines from the Antananarivo Veterinary Laboratory, due to shortage of equipment and materials; (ii) the shortage of foreign exchange has led to critical shortages of imported veterinary products at the operational level; and (iii) decentraliza- tion has led to long lines of communication from the SPA through the decentralized hierarchy to field staff, making coordination of health programs more difficult, and slowing response to disease outbreaks.  - 11 - 36. Research. FOFIFA's livestock research program concentrates mainly on animal health protection and is particularly directed toward traditional producers. It is also responsible for the Central Livestock Laboratory, Madagascar's sole producer of vaccines against cattle diseases. FOFIFA is carrying out studies on pasture management and fodder crops, and a modest selection and cross-breeding program is underway. FOFIFA has inadequate financial and personnel resources, and its research is not clearly directed towards local needs; it also lacks records of the extensive research carried out in previous years. A study, to be financed under the project, will locate and assemble such documentation. A paper setting priorities for livestock research will be prepared and submitted to IDA by December 31, 1982 (draft Development Credit Agreement, Section 5.06). In mid-1981 the Government announced the formal transfer of FOFIFA from the Ministry of Higher Education to the MDRRA. This transfer, when completed, should allow the research program to be satisfactorily reoriented. 37. Sub-Sector Parastatals. Much of the Government's direct interven- tion in the subsector is through the medium of parastatal organizations, some of which were originally private companies, and others established for specific purposes. Parastatals are involved mainly in processing, and dominate meat exports. A few parastatals have a production role, but parastatal involvement in marketing is limited. The parastatals in the sub-sector share a number of problems, including the lack of a coherent overall strategy for the sub-sector, and a shortage of experienced management. Investments have not been planned properly, the parastatals are loosely organized, their relations with each other and their supervising ministries are not clearly defined, and their functions have been frequently changed in response to shifts in Government policy. Almost all the parastatals run deficits. Studies under the project will review the role and organization of the parastatals. 38. Subsector Issues. Over the last few years a number of serious constraints on the development of the livestock sub-sector have arisen. At the same time the Government has recently taken a number of important steps towards improving subsector performance, particularly in the de facto liberalization of meat marketing and pricing (para. 31). The importance the Government attaches to livestock development was underlined in the "Agri- cultural Policy Paper" produced in 1980 in preparation for the forthcoming 1981-86 national plan. This document gives priority to beef exports, to be attained by improved animal health and husbandry programs, and by reducing domestic demand through increasing supply of other types of meat. There is thus evidence that the Government has begun a basic rethinking of its approach to the subsector. However in other areas the Government still has to take major initiatives to remove constraints. These areas include sub-sector organization, policy formulation and the poor performance of the parastatals. In order to explore in depth proposed Government policy initiatives and administrative measures an intensive policy dialogue was conducted during negotiations which gave evidence of a substantial commitment by Government to reorganization and restructuring in the sub-sector. Sub-sector organization is to be improved by reinforcement of the role of the MDRRA and especially of the SPA in planning for and supervising the sub-sector, and strengthening of  - 12 - that role by the permanent attribution to the MDRRA of the supervision of all parastatals in the livestock subsector, including the meat processing para- statals (draft Development Credit Agreement, Section 5.12). The responsibility of the SPA for the decentralized veterinary service would be extended to the vetting of annual work programs and supervision of their implementation. A five year plan for the veterinary services would be prepared by December 1982 (draft Development Credit Agreement, Section 5.05). On the critical question of the formulation of a coherent policy and investment program, a draft Action Program prepared by the Government was discussed. This program is aimed at achieving self-sufficiency in animal protein and expanding beef exports in the medium-term to 10,500 tonnes annually. Areas to which attention would be particularly directed include: upgrading of animal health programs, inten- sificiation of animal husbandry through improved feeding and genetic improve- ments, and diversification into short-cycle production. Major steps to be taken to implement the program include: the creation of a number of "develop- ment centers" which would act as model farms, provide breeding stock, demon- strate techniques, etc.; action on marketing, particularly the reorganization of parastatal interventions; reorientation of research toward production; improvement of credit programs for short-cycle production; and more effective sub-sector management and supervision of parastatals. 39. Finally, on the survey of parastatal performance, the consolidation of supervision responsibility will provide the opportunity for coordination of parastatals' activities. The specific problems of these organizations and their role in the subsector as a whole would be the subject of a major study under the Project. Terms of reference for all studies would be approved by IDA, and both the reports and Government proposals for action thereon would be discussed with IDA (draft Development Credit Agreement, Section 4.06). 40. The exchange of views on livestock policy, begun at negotiations, will continue annually during project implementation, supported by measures under the Project (draft Development Credit Agreement, Section 5.04). The major policy issues on which IDA and the Government are concentrating include meat pricing, institutional arrangements for marketing, stimulation of exports, rationalization of processing capacity, development of hide production, the organization of the veterinary services, livestock research priorities, the role and organization of livestock parastatals, and institutional respon- sibility for subsector planning and coordination. Prior Bank Group Involvement in the Sub-sector 41. The Beef Cattle Development Project (Loan 585-MAG) was the first agricultural project in Madagascar to receive Bank Group assistance. The $2.8 million Loan of 1969 was fully disbursed in 1975. The project was designed to establish six cattle ranches in areas with proven livestock potential, as the first step in modernizing the livestock subsector in Madagascar. The Govern- ment created a parastatal, OMBY, to implement the project. Only four ranches were set up and, overall, the project achieved only about 65 percent of the physical targets set at appraisal. Political, technical and managerial problems impaired implementation throughout. Audit Report No. 1559 of April 1977 drew a number of lessons: project preparation should have taken greater account of sociological implications and local conditions; a survey of the  - 13 - local cattle market was clearly desirable but had not been done; the feasibi- lity assumptions were too optimistic; greater provision should have been made for research, training and technical assistance. In addition, the Government and the Bank had different perceptions of the demonstration value of the ranching concept and its replicability. Based on this experience, livestock development in Madagascar now emphasizes rural development and livestock promotion based on the traditional, extensive system, instead of enclave ranching. 42. First Village Livestock and Rural Development Project (Credit 506-MAG). The first Village Livestock project, for which an IDA Credit of $9.6 million was approved in 1974, sought to improve livestock production through support services to villagers rather than through state ranches. FAFIFAMA was established to provide improved veterinary and extension services, as well as rural infrastructure, in about 500 villages in Mahajanga province. The project also included pilot livestock development schemes: an extension program for livestock development and food crops, a village beef cattle fattening program and a pig development program. 43. Project implementation initially encountered serious delays, due largely to problems concerning the power and responsibilities given to FAFIFAMA by the statutes under which it had been created, and the role it was to play in the sub-sector. These problems led to a revision of FAFIFAMA's legal status and a renegotiation of the IDA credit in 1977. As of October 1981, total disbursements under the project amounted to $6.6 million, about 70 percent of the total credit. Remaining funds are expected to be fully disbursed during 1982. Project execution in Mahajanga province is proceeding satisfactorily: revised construction targets have been met, and in general FAFIFAMA has developed into an effective institution. The objectives of the animal health component are being achieved and the cattle vaccination campaign has grown steadily, exceed- ing project targets. Principal constraints have been a shortage of veterinary products due to the country-s overall import difficulties, and the inability of the Antananarivo veterinary laboratory to produce enough vaccine when needed: in September, 1981 the disbursement schedule was amended to allow the use of $250,000 for urgent import of veterinary products for FAFIFAMA. The water and road components have been implemented adequately, although FAFIFAMA has lacked adequate trained staff, so that maintenance after construction has been inadequate. The social infrastructure program is virtually complete: the most successful component has been the construction of schools, most of which are well built and utilized, although implementation of the rural health program has been less successful. 44. The cattle fattening and crop extension programs under the pro- ject, carried out by OMBY in the Middle West Region between Antananarivo and Mahajanga, have been poorly implemented mainly due to lack of management attention. Fewer farmers than planned have participated. Under these circumstances, Government decided that the component should receive no support beyond the four-year development period, which ended in 1979. The pilot pig fattening component finally got underway on a modest scale in 1980. The future of these programs will be thoroughly reviewed in the context of the development of the region as a whole as part of the feasibility study now underway for a possible mixed farming project in the Middle West Region.  - 14 - 45. The major lesson of the first Village Livestock project has been the soundness of the design of the animal health program, and in particular the appropriateness of the village vaccinator system, which has both ensured acceptance of the program and established good communications between FAFIFAMA and the villagers. The primary lesson from the pilot programs is that such schemes require a high level of management and technical input. The failure of management of these programs was compounded by the lack of a clear develop- ment policy for the Middle West. The proposed second Village Livestock and Rural Development project incorporates these lessons by pursuing the successful animal health program. PART IV - THE PROJECT Background 46. The Mahajanga components of the proposed Project were prepared by FAFIFAMA with the help of consultants. The project was appraised in July 1980. Negotiations were held in Washington from December 7 to 11, 1981; the Malagasy delegation was led by the Secretary General of the Ministry of Finance and Planning, and included the Secretary General of the MDRRA, the Director General of FAFIFAMA, and the Chief of the Animal Production Service. A Staff Appraisal Report entitled "Madagascar: Second Village Livestock and Rural Development Project", No. 3482-MAG, is being distributed separately. A map of Madagascar showing the project area is attached. 47. The Project Area. The production-oriented components of the project would be carried out in Mahajanga province. This is one of the least developed regions of Madagascar, but potential for livestock development and increased cropping is good, as the soils are generally rich and the climate favorable. The area is characterized by a wide variety of production systems from extensive herding to mixed farming. The area population, about 1.1 million, is scattered. There are few towns, and most people live in small villages, close to subsistence level. Poor communications are a constraint to development; few roads are passable year-round, which hampers extension efforts, limits social and economic services, and makes marketing of crops difficult. Most families in the area cultivate some rice or cassava on plots that are typically less than one hectare. There are significant regional variations within the area: in the north cash crops (rice, cotton, nuts, tobacco and sugar cane) are becoming increasingly important; in the south, cattle production is the principal source of livelihood. The area is one of the principal breeding and fattening regions of Madagascar. It has over 3 million head of cattle, about a third of the national herd. Small herds predominate, usually about 15 head. The main problems facing livestock producers are poor animal health, poor quality of fodder during the dry season, and inadequate drinking water for cattle on rangeland.  - 15 - Project Objectives and Description 48. The main project objectives are to increase Madagascar's meat production and thereby both to raise incomes for poor livestock owners and to increase exports, to strengthen livestock institutions and to support changes in policy for the sub-sector. The main emphasis in Project design is on expanding output through maintenance and extension of animal health programs, both in the region covered by the First Village Livestock and Rural Development Project and throughout the country, through imports of essential veterinary products and equipment for the national veterinary service. This emphasis reflects experience under the first project that animal health programs have great potential for raising productivity cheaply and simply under traditional husbandry systems. However, in the long run Madagascar must turn to more intensive production systems: under the proposed Project several systems are to be tested, mainly with smallholders who keep most of the nation's cattle at present and on whose response the success of intensification efforts in the future will largely depend. Under the Project, assistance would also be provided to support improvements in the management of the sub-sector. The Project will also help to develop rural infrastructure in Mahajanga. 49. Specifically the Project would comprise the following elements: I. At the provincial level (Mahajanga Province): (a) continuation and extension of FAFIFAMA's basic animal health program; (b) a pilot animal production program in selected areas; (c) development of rural roads and water supply for villages involved in the pilot program; (d) management and material support for the project implementing agency (FAFIFAMA); II. At the national level: (e) imports of veterinary products and equipment; (f) technical assistance, studies and training to improve the organization of the livestock sub-sector and its institutions; and (g) support for applied research in the livestock sub-sector. Project costs are shown in the Credit and Project Summary (page ii). The Mahajanga Provincial Program 50. Basic Animal Health Program. The intensive veterinary and extension service set up under the first project would be continued and extended to reach the whole of Mahajanga province by 1985. Activities would include  - 16 - vaccination against blackleg and anthrax, and treatment of parasites in cattle, as well as animal health services for other livestock. It is expected that the number of cattle vaccinated each year would increase from 1.7 million before the project to 2.7 million at the completion of the project. Antipara- sitic treatment would reach 22 percent of calves from the present 10 percent in the area as a whole during the project. As under the first project, the vaccinators at field level would be selected by their community and would serve their home area, after appropriate training. The main investments would be for construction of veterinary and vaccination centers; provision of veterinary equipment and products and vehicles; and financing of incremental staff salaries and other development costs. As the production increases from animal health programs are not immediate, the development costs of the con- tinuing program would also be financed: this would be done on a declining basis, on the assumption that the development period from first introduction of the program to first substantial production increase is five years. 51. Pilot Animal Production Program. The program would consist of: (a) A pilot scheme to explore means of intensifying animal husbandry in mixed-farming areas. The scheme would be carried out in about 40 communities selected after socioeconomic and technical surveys, and would use basic animal husbandry techniques not currently practised in the area. Monitoring would provide information for a possible follow-up project. (b) A steer fattening program based on pasture and locally-produced fodder to test the technical and economic viability ot tattening for commercial and small-holder producers. The commercial scheme would complement the pasture trials undertaken under the first project. Under the smallholder scheme, FAFIFAMA would promote the development of a market in unfinished animals, provide extension services, and subsequently buy the finished animals at a guaranteed minimum price. 52. Rural Development. Up to 100 km of all-weather roads would be constructed by FAFIFAMA, since the pilot production scheme would require access from the primary road system to participating villages, and since the development of a rural road network in the province is an important priority for rural development. FAFIFAMA would also maintain the roads and those established under the first project. Lack of year-round access to water is also a critical constraint to intensification efforts in the region. Therefore about 35 surface water storage points would be developed in the communities covered by the pilot scheme. In addition, up to 80 wells would be developed to provide permanent sources of drinking water for human consumption. Provision of roads and water supply as part of the project would do much to enhance the attractiveness of the animal husbandry intensification scheme. The roads and water supply facilities to be constructed under the project would be identified in FAFIFAMA-s annual work programs, which would be approved by the Association (draft Project Agreement, Section 3.05). The villages benefitting from the component would be required to contribute 20 percent of the total investment and maintenance costs (draft Development Credit Agreement, Section 5.02); their contribution would be made in kind. They would carry out simple maintenance under supervision of FAFIFAMA. FAFIFAMA would be responsible for major maintenance.  - 17 - 53. Management and Material Support to FAFIFAMA. FAFIFAMA performed well during implementation of the first project (paragraph 45). Senior management are generally technically competent. Middle management staff need strengthening, but field personnel are generally good and adequate for their levels of responsibility. However, extension of FAFIFAMA'S responsibilities will require reinforcement of its management and technical capability. Support to FAFIFAMA would be provided under the proposed project in four specific areas: (a) a permanent in-house training program would be establish- ed for administrative and technical staff with assistance from consultants; (b) a data collection, management information, and monitoring system would be set up for FAFIFAMA, headed by a sociologist/economist and with assistance from consultants; (c) specialized training in cattle marketing and in meat processing and marketing would be provided by a consultant; (d) FAFIFAMA's public works department would be strengthened by providing twelve staff- months' services of an internationally recruited hydrogeologist over four years, by overseas and in-service training, and by purchase of spare parts and tools. The National Program 54. Veterinary Imports. This component is designed to assist the national effort to safeguard existing herds through support to the veterinary service. This service performs an invaluable role through a vaccination campaign reaching over half the national cattle herd, and through prophylactic treatments essential to preserving the stock and preventing the spread of disease, which affects over a million cattle annually (see paragraph 27). An interruption in animal health cover would create a critically dangerous situation for the herds outside the area covered by the project animal health program, and also lead to risk of the transmission of disease to Mahajanga province itself. 55. The operations of the veterinary service, however, are constrained by two critical shortages. First, stocks of veterinary products in Madagascar are almost exhausted. These products, mainly antibiotics and dosages against internal parasites, have to be imported and in Madagascar's current situation very little foreign exchange is available for these imports. The inter- ministerial committee which budgets foreign exchange has not been able to allocate more than the equivalent of $700,000 in 1981, compared with needs of $2.2 million equivalent. For this reason, veterinary product imports costing up to about $3.5 million would be financed under the Project over three years beginning in the first year of the project. Each year the Government would finance a certain initial level of imports, and project support would be provided above this level, on a declining scale as Madagascar's foreign exchange management and reserves improve. Government would meet the full foreign exchange needs for veterinary products from the fourth year (draft Development Credit Agreement, Section 5.11(a) and Schedule 1, category 6)). 56. A list of veterinary products to be imported during each year would be sent to IDA for its approval by December 31 of the preceding year, and disbursements would be made against this component only after approval of the list. By March 31 of each year, the Government would also submit a report on utilization of the products imported in the previous year. (Draft Development  - 18 - Credit Agreement, Section 5.11(b) and (c)). Veterinary products would be sold to users at a price covering full costs (draft Development Credit Agreement, Section 5.07). Second, the local production of essential vaccines has been severely constrained by lack of certain equipment and materials for the veterinary laboratory; about $100,000 will be provided under the Project to finance such imports. 57. Technical assistance to the livestock sub-sector. This component, to be carried out under the supervision of SPA, would assist the Government's effort to resolve key issues in the organization of the sub-sector through: (a) a study of the problem of the meat supply to Antananarivo which has long been a preoccupation in sub-sectoral management; (b) a thoroughgoing review of the role of key government institutions and major parastatals, and an examination of their performance, by means of management and financial audits to be performed by consultants, leading to proposals for rationalization and restructuring, and to the design and implementation of new procedures; (c) design and implementation of a training program for managers in the sub-sector; and (d) provision of material support to reinforce the SPA in its tasks of planning and supervision for the sub-sector. A total of 60 staff-weeks of internationally recruited consultant services would be provided. About $500,000 would be provided for other studies in the livestock sector (including for preparation of future projects), for identifying and assembling documents on livestock research relevant to Madagascar, and for scholarships and training in livestock subjects. 58. Applied Research. The project would provide funds to support applied research; cross-breeding experiments carried out by FOFIFA have shown good potential for producing dual purpose (meat/milk) cattle, and would be extended. A program for the component would be sent to IDA for approval by December 31, 1982 (draft Development Credit Agreement, Section 4.07). Project Costs 59. Total project costs are estimated at about $25.8 million, of which $14.7 millidn or 57 percent represents foreign exchange costs. Taxes included in the costs are negligible since virtually all items would be exempt from import duties. A detailed cost table for the project is given in the credit and project sumary. Consultant costs have been estimated at $12,500 per staff month, which is comparable with current experience in the sector. Physical contingencies of 10 percent were applied to costs other than technical assistance; price contingencies were calculated at 15 percent per annum for local costs and at rates varying from 8.5 percent in 1982 to 6 percent in 1986 for foreign costs. Financing Plan 60. The project would be financed by the Government of Madagascar, IDA and IFAD, in the proportions of 11 percent, 58 percent and 31 percent respec- tively. The proposed IDA credit of SDR 12.8 million ($15.0 million equivalent) would be made to the Government of Madagascar on standard IDA terms. It is expected that IFAD would contribute, on a joint basis, $8.0 million: IDA and IFAD together would finance the full foreign exchange cost and nearly 75  - 19 - percent of local cost. The IFAD loan is expected to be for 50 years, with 10 years grace, at 1 percent interest. Effectiveness of the IFAD loan would be a condition of effectiveness for the IDA credit (draft Development Credit Agree- ment, Section 7.01). The Government would grant to FAFIFAMA funds necessary to carry out the Mahajanga components, including about $16.5 million from the proceeds of the IDA credit and the IFAD loan. Signing of a subsidiary agreement between the Government and FAFIFAMA, satisfactory to IDA, would be a condition of effectiveness of the IDA credit (draft Development Credit Agree- ment, Section 7.01). Implementation 61. MDRRA would have overall responsibility for the livestock sub-sector components, which it would implement through SPA. FAFIFAMA would be respon- sible for implementation of the Mahajanga province components, under general supervision of MDRRA. The project would be completed by June 30, 1987, and the closing date for the credit would be December 31, 1987. 62. Government intends to take action on a number of issues affecting FAFIFAMA's responsibility for implementation: (a) FAFIFAMA is at present responsible for animal health and produc- tion activities throughout Mahajanga province, and will remain so during project implementation. The Government would review its decision to transfer this responsibility to the decen- tralized services of the MDRRA at project completion (draft Development Credit Agreement, Section 5.09). (b) A number of veterinary workers in the Mahajanga province are currently employed by the decentralized services of MDRRA. These workers will be transferred to FAFIFAMA by December 1982 (draft Development Credit Agreement, Section 5.08). (c) FAFIFAMA's structure would be studied under the technical assistance component. No change in its legal status, structure or responsibilities would be made without prior consultation with IDA. However, technical amendments need to be made to FAFIFAMA's statutes to allow it to carry out the project; this would be a condition of effectiveness (draft Development Credit Agreement, Sections 5.10 and 7.01(c)). (d) A recent law requiring civil servants formerly seconded to parastatals to resign from Government service to join the employment of a parastatal has, although not yet implemented, created uncertainty among FAFIFAMA employees. FAFIFAMA would review its employment policy with a view to retaining the services of staff formerly seconded and submit recommenda- tions to IDA for comment. The Government would take appropri- ate actions by December 31, 1982 (draft Project Agreement, Section 3.04).  - 20 - (e) FAFIFAMA would submit to IDA, for its review, the draft annual work program for the Mahajanga components and related draft budget, not later than August 1 of each year preceding the year of the program. The final program and budget would be forwarded to IDA by November 1 of each year, for approval by IDA, as a condition of disbursement (draft Project Agreement, Section 3.05, draft Development Credit Agreement, Schedule 1, paragraph 4 (ii)). FAFIFAMA would also submit a program for staff training by December 31, 1982 (draft Project Agreement, Section 3.08). (f) FAFIFAMA has a separate Commercial Department, set up in 1977 to buy cattle and to process them for the local and export trade. This Department has been quite successful, processing around 2,500 tons of beef in 1980. However, the price set by the local authorities for domestic sales has been too low and the Department has so far traded at a loss. In 1978 and 1979, funds were transferred from FAFIFAMA's development operations to cover the Commercial Department deficit. This practice has now ceased. The Commercial Department will continue to keep separate accounts, and, starting July 1, 1983, any balances due will be settled at the end of each month (draft Project Agreement, Section 4.03). 63. SPA is responsible for the import and distribution of veterinary products, and performs these tasks adequately. it would implement the import component of the project, following its normal procedures, anm would report annually on the utilization of veterinary imports. It wouio also import veterinary equipment and materials for FOFIFA's Veterinary Laboratory, and monitor production and distribution of locally produced vaccines (draft Development Credit Agreement Section 5.13). SPA would prepare a program for the meat supply, parastatals and other studies, and terms of reference for consultant assistance, and submit them for IDA's approval prior to implementa- tion (draft Development Credit Agreement, Section 4.02 and 4.06). A detailed proposal for the applied research program would also be prepared by SPA and submitted to IDA for approval (draft Development Credit Agreement, Section 4.07). Procurement 64. Contracts for the supply of vehicles, equipment and veterinary products exceeding $120,000 would be awarded after international competitive bidding in accordance with IDA guidelines. Such contracts are expected to total $7.0 million. Contracts for civil works estimated at $0.8 million would be advertised locally as they are small and unlikely to attract international firms. Road and water supply works construction and maintenance estimated at $5.3 million would be carried out on force account by FAFIFAMA's public works department. Contracts for materials and equipment costing less than $120,000 but more than $40,000 (totalling $2.3 million) would follow local competitive bidding procedures, which are acceptable, while items costing less than  - 21 - $40,000 could be procured through local shopping. Where appropriate orders would be grouped in order to obtain most competitive prices. Consultants whose cost is estimated at $2.6 million, would be recruited in accordance with the Bank Group Guidelines and on terms and conditions acceptable to IDA (draft Development Credit Agreement, Section 4.02 and draft Project Agreement, Section 2.02). Disbursements 65. The IDA credit and the IFAD loan would be disbursed jointly in a proportion of 65 to 35, over about six years, against 100 percent of foreign expenditures or 90 percent of local expenditures for vehicles, equipment, veterinary products and agricultural inputs (Mahajanga component); 100 percent of foreign expenditures on veterinary products (livestock component); 100 percent of foreign expenditures and 85 percent of local expenditures on civil works; 85 percent of total expenditures on incremental salaries, fuel and other operating costs for components other than the animal health program; on a declining scale from 85 percent to 55 percent over five years for incre- mental salaries, fuel and other operating costs for the animal health program, in order to phase out financing of the ongoing program as the development period is completed; and 100 percent of total expenditures on technical services. Disbursements would be fully documented, except for local operating expenditures for the Mahajanga components which would be disbursed against statements of expenditure certified by the Director General and the Financial Director of FAFIFAMA. The statements would be retained by FAFIFAMA and made available for inspection by IDA in the course of project supervision. Accounts and Audit 66. Separate accounts would be kept by FAFIFAMA for the project activi- ties in Mahajanga and by SPA for the sub-sectoral components. Under the first project FAFIFAMA's accounts were satisfactorily kept although staff shortages have led to delays. FAFIFAMA is currently recruiting extra staff and the proposed Project provides for assistance in developing more streamlined accounting systems. The project accounts would be audited annually by independent auditors acceptable to IDA, in accordance with appropriate auditing principles. The present auditors of FAFIFAMA would, under expanded terms of reference, be acceptable auditors of project accounts. They would be requested to report on the adequacy of systems of accounting and internal controls, and to make recommendations for improvement as necessary. They would also be asked to verify the statements of expenditure under the project. Benefits and Risks 67. About 74,000 livestock producers would be expected to benefit from the effects of the extension of the animal health program, in addition to the estimated 47,000 who already benefit from the ongoing program. Many of these producers depend mainly on their livestock, and most are near to or below the poverty level. Typical smallholder herds are projected to increase by about 30 percent, to about 30 head per smallholder, by the twelfth year from the start of the project, due to the reduced mortality brought about by the animal health program. The road construction and water supply components would bring economic and social benefits, and would also permit the more rapid development of extension programs. The import of veterinary products and  - 22 - equipment should make a major contribution to maintaining and improving productivity of the national herd. Indirect benefits are anticipated from the component designed to improve subsector management. 68. The economic rate of return for the Mahajanga animal health com- ponent of the project has been calculated from the additional meat production expected over the life of the project, assumed to be 30 years. On this basis, the rate of return would be 36 percent. The rate of return to the infrastruc- ture components is 11.1 percent for roads and 12.7 percent for water supply. The overall rate of return to all three productive components is 34 percent. The project is not very sensitive to changes in real costs and benefits: if benefits were to be delayed by two years or costs were to double, the rate of return would still be over 20 percent. 69. The animal health program in Mahajanga is subject to little risk, as it is the second phase of a program which is already operating success- fully and its technical value has been well demonstrated. The pilot animal production scheme is largely founded on well-known techniques, and the socio- economic risks which may exist are acceptable in a pilot project. The com- ponents in the sub-sector at national level are exposed to more serious risk. The poor organization and supervision of the veterinary service might limit the effectiveness of the veterinary products to be imported. However, the import component would undoubtedly relieve a very critical situation which threatens hundreds of thousands of livestock producers, many of whom rely on their herds as their major productive asset while the implementation of the new supervision structure for the veterinary service should increase effective- ness in the field. Finally, the Project as a whole depends for success on new policy orientations from the Government and the implementation of a coherent production strategy. The incremental Project production would only be avail- able for export if the Government maintains its export-oriented policy and backs it up with practical measures to control domestic demand. The components designed to improve organization in the sub-sector could only succeed if there is a high-level commitment to a reorganization. The Government has however accorded a high priority in recent policy statements to development of the sub-sector and particularly to its export earning potential. It has backed up this policy with action on critical constraints. The Project itself would help to maintain this momentum by practical help to reorganize the sub-sector and to raise productivity, and by providing a forum for a dialogue on policy. PART V - LEGAL INSTRUMENTS AND AUTHORITY 70. The draft Development Credit Agreement between the Democratic Republic of Madagascar and the Association, the Project Agreement between the Association and FAFIFAMA, and the Recommendations of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors.  - 23 - 71. Special conditions of the credit are listed in Section III of Annex III of this Report. Conditions of effectiveness are (i) the effectiveness of the IFAD loan agreement, (ii) the signing of a subsidiary agreement between Government and FAFIFAMA, and (iii) the amendment of FAFIFAMA's statutes to give it power to implement the project. 72. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 73. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen President Attachments February 2, 1982   - 24 - AOX I TABLE 3A MADAGASCAR - SOCIAL INDICATORS DATA SHEET MADAGASCAR REFERENCE GROUPS (VEWIEGTED AVW2fS LAND AREA (THOUSAND SQ. KM.) - MOST RECtNT RSTIfATI&ik TOTAL 57. 0 MOST RECENT LOW INCE KIDDWi lMCH! AGRICULTURAL 369.3 1960 /b 1970 /b ESTINATE /b AFRICA SOUTH OF SARA AFRICA SOUTH Of SAHAR GNP PER CAPITA (US$) 130.0 190.0 290.0 t 238.3 794.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 40.4 72.5 93.8 70.5 707.5 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (THOUSANDS) 5474.0 6785.0 8480.0 URBAN POPULATION (PERCENT OF TOTAL) 10.6 14.1 17.9 17.5 27.7 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 15.5 STATIONARY POPULATION (MILLIONS) 45.0 YEAR STATIONARY POPULATION IS REACHED 2110 POPULATION DENSITY PER SQ. KM. 9.3 11.6 14.4 27.7 55.0 PER SQ. KM. AGRICULTURAL LAND 15.0 18.0 22.3 73.7 130.7 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 41.6 42.8 43.6 44.8 46.0 15-64 YRS. 55.2 53.9 53.1 52.4 51.2 65 YRS. AND AbOVE 3.2 3.3 3.3 2.9 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 2.1 2.5/e 2.6 2.8 URBAN 4.9 5.0 5.1 6.5 5.1 CRUDE BIRTH RATE (PER THOUSAND) 46.6 45.2 45.7 46.9 46.9 CRUDE DEATH RATE (PER THOUSAND) 27.0 21.7 18.0 19.3 15.6 GROSS REPRODUCTION RATE 3.0 3.0 3.2 3.1 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OF MARRIED WOMEN) .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 89.0 102.0 96.0 89.5 89.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 106.0 108.0 115.0 90.2 92.3 PROTEINS (GRAMS PER DAY) 60.0 60.0 60.0 52.7 52.8 OF WHICH ANIMAL AND PULSE 18.0 17.0 15.0 17.8 16.1 CHILD (AGES 1-4) MORTALITY RATE 41.0 31.3 25.4 27.3 20.2 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.2 42.5 46.9 45.8 50.8 INFANT MORTALITY RATE (PER THOUSAND) .. 177.0/c ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 11.0 26.0 23.9 27.4 URBAN .. 67.0 76.0 55.0 74.3 RURAL - 1.0 16.0 18.5 12.6 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 26.2 URBAN .. 88.0 .. 63.5 RURAL * -* 9.0 20.3 POPULATION PER PHYSICIAN 8901.1 10172.4 10242.3 31911.8 1384.1 POPULATION PER NURSING PERSON 3105.0 3353.9 3470.2 3674.9 2896.6 POPULATION PER HOSPITAL BED TOTAL 469.0 354.4 402.3 1238.8 1028.4 URBAN 115.0 214.8 239.4 272.8 423.0 RURAL 761.0 475.3 517.9 1745.2 3543.2 ADMISSIONS PER HOSPITAL BED .. HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.8 4.7 URBAN 5.3 5.0 RURAL 5.9 4.7 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. URBAN .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. 5.0 URBAN .. RURAL ..  - 25 - ANNEX I Paxe 2 TABLE 3A ADAGASCAR - SOCIAL INDICATO01 DATA SHEET MADAGASCAR REnRERNCE GOUPS (WEIGHTED AVE ES NOST RECENT LOV INCCHE KIDDLE INCOME 1960 /b 1970 /b ESTIMATE lb APRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 52.0 88.0 94.0 56.4 73.7 MALE 58.0 95.0 100.0 70.7 96.8 FEMALE 45.0 81.0 87.0 50.1 79.0 SECONDARY: TOTAL 4,0 11.0 12.0 10.0 16.2 KALE 5.0 13.0 14.0 13.6 25.3 FEMALE 3.0 9.0 10.0 6.6 14.8 VOCATIONAL ENROL. (X OF SECONDARY) 9.0 9.0 .. 8.0 5.3 PUPIL-TEACHER RATIO PRIMARY 70.0 65.0 55.0 46.5 36.2 SECONDARY 24.0 20.0 *. 25.5 23.6 ADULT LITERACY RATE (PERCENT) .. 39.0 50.0 25.5 CONS LPTION PASSgNCgR CARS PER THOUSAND POPULATION 4.0 6.8 7.1 2.9 32.3 RADIO RECEIVERS PER THOUSAND POPULATION 15.0 79.7 127.0 32.8 69.0 TV RECEIVERS PER THOUSAND POPULATION .. 0.5 1.5 1.9 8.0 NEWSPAPER (-DAILY CENERAL INTEREST') CIRCULATION PER THOUSAND POPULATION 8.0 7.8 9.0 2.8 20.2 CINEMA ANNUAL ATTENDANCE PER CAPITA 0.5 0.7 0.4 1.2 0.7 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3046.1 3619.9 4321.3 FEMALE (PERCENT) 46.9 46.1 45.4 34.1 36.7 AGRICULTURE (PERCENT) 92.8 90.0 87.4 80.0 56.6 INDUSTRY (PERCENT) 2.0 3.0 3.9 8.6 17.5 PARTICIPATION RATE (PERCENT) TOTAL 55.6 53.4 51.0 41.7 37.2 MALE 60.7 58.8 56.6 54.3 47.1 FEKALE 50.9 48.2 45.5 29.2 27.5 ECONOMIC DEPENDENCY RATIO 0.8 0.9 0.9 1.2 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 41.0/d HIGHEST 20 PERCENT OF HOUSEHOLDS 60. 17 . LOWEST 20 PERCENT OF HOUSEHOLDS 5.27-d LOWEST 40 PERCENT OF HOUSEHOLDS 13.07 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 150.0 136.0 381.2 RURAL .. .. 86.0 84.5 156.2 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 135.0 99.1 334.3 RURAL .. .. 86.0 61.2 137.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 50.0 39.7 RURAL .. .. 50.0 68.8 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic meens. 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 etimate, between 1976 and 1979. /c 1965-66; /d Population; /e Recent population growth estimate is 2.81 for 1975-79. A The updated 1980 GNP per capita and population estimates to be shown in the 1981 World Bank Atlas are $350 (at 1978-80 prices) and 8714.0 thousands. May, 1981  -26 - ANNEX I Pass 3 OEpIXITIOMS OP SOCIAL. IMIICATORS Metes; Although the date art drew from sucsg raly Judged the metauthoritative ted reIilxi, it ehould also be noted thtr they may our be inter- eationl,ip cemperale because of the lack of eteodrdiesd deieitoes ae _cetpte usd by different o.tuarise Ie tol..leeie the data. The date Arc,cos thelee..s. usful to describe order of ageitede, ldirats treede, ada chr..oterise certeo _aJor dif fer-ee b.twec couetriea. Trhe ref.erectgroPs ere (1) the ea- couetpgrou o- f the ebJot)o c-try sad (2) A to..etry groop with ecmemher highe eveagslcm thao the... cutry grouP of the bjAot couty (se.ePt fer "Capiasi Surplue oil feportere" grouP whore Middle Itooso Nlrth Africe red triddl' tact Is chast h.c.u.e of etroaer acto-cultur-al effisities). In rho ref eosc grouP deto ths ovo.egs ore populstice vightd arithmetic a-e fcc each irdicaro ted shov cely the maoIty ofthe cerrios to A grou P has dats fer that tidi.trr. Slteo the cov-raga ct ocerrios -ate the riccr depeeds cc the availohility of dare and ismt -if.-. ceutien met ha emerised ie relatieg ove.ege o- f ceo iedicstr te ecthar. Trhese -vArage ore rely ceef1 ito coprieg the value of eindicator at a ttma -ma the cue..try sad esfaranc groups. LAMD AgRA (thougmed eq.he.) Pcpcl1rior ret Opia ted -t coral oche, otd rural - Populatice(otl Tetal - Total eurfce urn comrIisin 1uad are a.d iluld vabr.ura, .da rr IdIvided by the :epective uomh of hosPital htds Agricultural - te=timt of sgricultur.. Ites used temprarily or petmarstly av1blohi It pohlit aed private eeralar epeci.eiiead hospitaladre fer crops, PAstrs soke aed hitch.e gardee or to lie fell; i97g data. hbhilitatiotreter . Hpitels are estahlieh-ttr permecily s,ta.ffed by rt least ore phyeiciar. Etbtalishcotr pro-idirg priecipally c..to- GOP Pfl CAPITA (US$ - GRP per caiaesiae orcrret merhet Pic.e, ca- dial rare r oct lerlded. RuraI hospitals, boh-o.. icoude health calat.d by some I. acvese eahode World Bak Arias (1977-79 basis); 1960, eud edre courses tot petmacetly eef fed by A phyotiar- (bct bya 1970, and 1979 data. medical.. usistot, curse, idwfe, etc.) which offer it-patien -c- dance a,da provide a limited ceeg of medical focilitiee. Per etti- OfligY CONSUMPTION PuR CAPITA - Ana1e ronmtorf comrcia1 enery (rea tcIcelpurpret ohr .hcpitals inclds WHO. ecialgnrlhospitals, end Ilgaite, peroem.erur1 gee ada hydro-, -.lea ada genthersa tIer- ted rue haspita1% uI or. rural hasp ircia ada edica-ad metero-iry ericiey) in kflcgram of cou equivalent Per capita; 1960, 1970, Ada 1979 cere S. pecielteed heep itele ar iecladd cely ceder tetl data. Adelesi.es Ott Hcecir1 ted - Total tumba of edisei.o. tc or discharges ftom hospitals divided bY the rosher of beds. POPUfLATION AMD VITAL STATISTICS Tetal Peotlatice. Mid-Tear (thousend. - A. of July 1; 1960, 1970,. ad 1979 HfOUSING data. ARegVSs f cehld (percc -Per h-usehld)- -oa.uhc da rural- Rebmo oenloice (rtesotof tota) - srti at ucha tc total poptleti-a A houshol ceitofagupof individuas t:hsoeive qutre different defini Ttioso bohe area me pffect cmperebility ef fare ada their sic -.eI.. A bcardrr or lodger may or may mat he macladed to imeg octr~ime;ti1960. i970, ted 1979 data, the ha..eehold for etatietiral purposes. Populatio in year 2000 - Curemar PeP.leties ProJectices Are hose.d ce 1900 he fP_reu. Par ecm i l re,a rurlccpd ceetua total ~pap tic hyagaesned their mreiyaaftlity -acs dveliege repeotive1y. D-el1ies. enclda ec--peteet st-ut-r end Prejeatita psramcre for meorlity cotta coepein of thre lvsneo-oooPidprs :Ieg lif eopectmy or birth iecreaetg itb otoury's per capita itoom Aoc,,, tc flootricito (peruro dblia) oa, re.a I ua leve,fada feml life sepacctr..y srbilieing at 77.3 years. Th Pe- Coaventice d.. lg eatch lecltricity iie qater anpercentage mattes for fertility rare alma hove tb.sa levels aeoieg decli to i of total, oche, cAd r-1e Oteliets re-p-tivsly. fertility ..c.ordieg to Iacom leve sod past femily pleeiog parfersatot Eachfceuctry is the .a...ig.da Oct of thes t -ebonitioc of merraliry EDUCATION St fetlity trends fer projete puepoosP Adjusted fecul...t Octico feti_nr ouretatiom _ le a tarionary pcpulatiou there Is -a greeh siee Primay eho - rrl 1sl cud femlecrs toa,maetd femal the birth rats Is equa rethe death rate, end also rho Ae t-turrurey- etrol_at o lletea the primary Ir_1 enpecetags. of respective mains ceouset. Th~~is Isahieved eay After fertility races deoliee to primary school-eepplcos oal alfscide gd6l th elcmn sn fti a edetica rar, when each un-rriut years hut adjusted for differeer lengths uf Primary -dau.atle; for of e trpleoeeitsef eatly. ,The, sttoeypple swsootiswth urive..a.. actioc enrollmet may acned 10f petrect etimated en the haste of the peJorted ohroaisrice of the pepultanltsneompuinrehsteaveheficlncclg. inrho year 2000.a.da the rate of decliut of fertility race t rueplacs racudary sohaul - total, solo .da fsm1l - Computed e above; s_codary met level. sd_tiot requioaet leat four years of approvd primary tsrci Tear staticeat rouletton is reaocbd - The year h.e etaticeary pepulotiot pro-idre ge..e.al, v-raine.ol or teacher trainig ieatrcti.e. for pupib sine hoe been reached, usuall of 12 tc 17 years ci ge;_crrepondene ort t geesrolp Pepul tiot Rameity -ccided. Per s. he. - itd-y-n pepulccioe pre sqoore kilomtcr (100 hectrare) of Vocet4unlanole (percect of earCedary) - Vuca ticeal iestituti..e tcts1 are; 1960, 1970 end 1979 data. intlud. ehia,idsra,u te pogram which operate tedaped- Per se k. ha ercircl ad-Copted et ahav foe egiutoa -od eatyoradprtetof scnay ietitotie. eely; 1960, 1970 aed 1979 dote Poril-teacher ratic p- crmc. da secodary - Total trdaste enr1lda ito PPeolarc be Orutens. (tera-e - Chilidrae (D-14 pyrs), worki.g-asa (15- petIury oud encuedary tavel divided bp eomhers of tsch.re in rho 64 year),-d retired (65 year aad over As perct.tege of mid-yea pupo- ourr"anig evl.1 lain I0O 1970~.end 1979 data Adult licareor rts fp,rcert .-t li :terataduts (this to read ad orite) PeaulatietOrceth Rat (earcenti- total - Annua grcvb rters ef total mid- sper_reerg.ouf tote1 adult poplait g 15 years and ever. .year ppuleti.n. 0 c 1950-60. 196.0-70 a.d 1970-79. Polatice Growh Rate (Prcnt _ Aube - Aneul arceh rates cf orhb .e.r.- CONSUMPTION latie.. for 1950-6a, 1960-70. cod 1970-79. P-_ese A re( fea rhuea.da pouulatien) - Pa.ssege core cmprisemee Crude Birth Rts. (e_tc h_c.and) - nA-I lIve hirtha Per- rho..ced of mid-year caetaIng las th.r sight per..c.e; -lrdeseblacs hearses sed population; i960, 1970. ee 1979 data, militar vhils Crude DM_s ..th .ceI .ee homd) - A-nua deaths Per thouaa.da of aid-year Radi Raeier (ee thousand oucuettee) - All typre uf receivers for radin puueIe;. 1960, 1970, seA 1979 data, broadAstsc gnera1 public Per rhasoda ef ppulatiet; seludesen Gross Rordrad J-io Rte -Avrg ooe f daughters a ta ill hear In Icens recivers in cetn.e. and Ic years whenrgsrtino i her marm rapruducIve Perio if she en Ptee pr.eta. spci. fer- sets as ito effect; data fo.r recen Y-ae may our be repsrahleic til =Ityete;usaly .five-yea:aarg. en: ding ito 1960. 1970,. ed 1979. Aet coctreies s.lhc icnig Pemily Plsemiea -Accerters. Aaen (touans A-1Aea tmbor of acceptosTVRcevr (pre thousad ecpultrine - TV rece.ivers fur broadcast te cf birth-retied devices ceder auspirse of national femil~ ~ ~~~Yplngperam. geVaRal puh I Per thousand populacine; aecides enicenee TV reaier Pomily Plennito - Users (eercm r c married usen) P_tcnrgs ef maried ino ers and in years whoa registrati.on f TV eats ta In efft. woanof ohild-hborig ag 5. yan th. use birth--et-r1 devices te " Neee Circl ie fet thausnad r.oelatioe - Sftew the veag- ir- elI meried wome ito -em eg groYp. coleti.Ce of deiygmaa iTers eaae" defined at aprdaical publicatice dscted primarily to cecrdiag genera Tes. It Is cons idered PRM AND NMTITION to ha "daily" if it appears at leas.t four time A seek. lade of Pedroductio ptt= pita (1969-7~1-tl0G( - Index of per -cpita -eJa Ciea"ealAtneo eec Cenits per Tea - heed en the aenhe ef pr.ducc of Allfn edce.Peuciesde eda fftendo and inhresldd duin the year, including daiseicto te driv- in t.em. Is on Alander year hears. Cuaditiescever primr"ea (e.g.&sgr sad eietts instea of sua)wihAre edible end c-otain etrienes (e.g. rcff. us ad tea ar elded). Aggregate prodatice ef each coutry Is base.d on LABOR PORICE eatitoo., aegeproducer price n Igt; 1961-65, 1970,.ed 1979 data. Tetal Labor PrrsW Itho.. !ndt- ttmialyative peesoes incldieg Per carrie enerir of olm (trrent of ruieat)-Computd froe armed f_eco andotmp0yd but mlAding hooseviv-, etdetta,er, eeg qeivelent of mar foud supplies aveilahlr in reentry Per ..pir. revring pupulutice of all age.t ef leitl... in veour ruins t prday. Available spplies comprise domeetir prductice, imparts lees net cepa-ble; 1960. 1970 ada 1979data. eperta, end changes in stck. Het euPPlina _.I. animal feed, seeds, Pale frrse) - 1Pea labor force as Perrentag of tetl lhr ferre. qentities udIt fend p...e.sieg, n cssi itrh e.Rqia Agrcutue ne ta) - Laher fcrce Ineing, frestry, benting end met aeetimated by PAO based ce physingicl needs f or tona eotn- fishing sa Per..eetage of coral labor furce; 1960. 1970 AMd 1979 data. nipy "d health cetoidering beicste eprtr ody weights, age Industry (pernt) - Labor f.r.e in mining, entrrnmwfacturieg and sm distributi-on f popultin, and a11wieg 10 peren for .E ve ts or d elcririop, eater and tog s eraug of rural labor force; 1960, huoeAhald level; 196!1-6, 19)0, and 1977 dars. 1970 AMa 1979 daca. Per o.Pit. euralr of Prcrta (seemP..pe dar rrl et fpecpia PriialyRr rret) ptt1- ttl ae.aatl -Peetlcipatle or es spply of fend per day. get sapply of forod Ie defled as shov.Ru. activity ae r optda t.tetal.male end femal eber ferc.Ass qoiem tr for all oun..tries atablishd hy RSDA erevide for minie pecnaeof totel, male ad f ale popelatine ef all ages respectively; elvnsof h0 Veem of total p-ctee par dey sad 20 Arem of tomal -an 1960. 1970,. ada1979date.-These are hasd en Ito's pa-ticiptiot, reiss poise protein, of which 10 grac shoud ha animal prutei. Thaa eud- reflecting age-sntrucur of the ppletie.. ted leg time trend. A arder lse then thoes of 75 rAma of total protnia end 23 sAtsoef fem estisett are fr omatiteal -.urce. anima ptrie As an ovoueg fee the world,I proPosed hy lAO It the Third oEn2-ic ReeD" ncy Ratic -.Ratir of pupuleelce ceded 15 usd 65 sadcs World Food Survy; 1961-65. 1970 ada 1977 dare. tc rho tota lhJr, force Par cait pretsia enl frm _im_l sa ous_ - Prutcie eapply of fend de- C1rived from animals Andpoises It gr par day 1961-65, 1970 and 1977.dsta. I2MrOf DISTRCIIIOs Childleans1-6) arrmlty Rae for thoe-d) - dAtal darhe per thoumad it Pa -etee ofrivte I-tm (both in ...h ed kind) - Ra..iv-d hy riohast .g. group 1-4 years, te rhildre ito this age gruep; for meet developing true- 5 Perrr _trices 20p et' pourest 20 peret, end pooret 60 percent tries date derived from life thlea; 1960, 1970 end 1979 date, of housho1ds.o'tOP MSA2.TH POVERTY TARGET GPROUPS lf Enrer1tesa at glirth (yearn) - Averag nobr of years of life remaining The fl11ain satietee are vary appreao aa so- of preerty level, athrh 1960, 1970 en t1979 data. end ehnuld be iute"rprtrd with coeciderable cmtia.. indent Mortality RAts fre chaused) - Ane1 deathe of iefatis under toneya Eeimetod Aboluts Povrty Iecom Lvel (00 e aia)-ubnad rurl ufae a tl,uaa live:_ births.. Aboelute povrty ittm lew1 is that incm eve heln which a miiAel Acest aeWtr(tercentb- of -er.-I)tithi coe.so. a ua -ft-tritinally Adequate diet pluaaseta --o-rd require tnt In eat ma tar e rely (includes ctreated suface mtacre or etrntda hot cecett ntad affordable. Eatimated Raativ- Povety I-om Lav-l (U Per ,Rentl - urban an rurl1 mata such aefthatifree prtcted berhales, springs, and eaitry malls) as-ura relative paverty Incom ie Ie no-third of -vrgs Per caPita pe...etagno of their.. r1epetiveo p rputarir2s. It an frhe am a- p i personal i-m ef rho reentry. Urbn reve Is derived fro the rura feoisied ur btadpes lacthied -b.-. ourmr then20mter from. a. --I mah-lvo witb adjuamet1for higher oest of living in urban are.- b reamas-ableoc-es woud imply chat tho housewife or masher of the h-cehld en ua ecerc uuain(crbanan rua)th r raalte dc ect hove to sPeed a dipreportiete purr of rho day ito fetching the -` A..sa. to Ea..rera Direousl (Orret ofpoltle url rhc!ndma Sthr ofpel rce.ubn d rural)serve 1by srrt dicurn a percentages of the ir -ep-c tire Rpopltin E .. tatet diepesl may iacluds th uleeiaad dipama1, sith or erthaut uetmtet, of homa -arrte Sonec n -uia1 Rera Drisis .d ete-vtot by eater-hares system or the use of pit pririne .da 5tl toeemic Analysis sAd PoeciesDpartmnt P Pulti ea yyicia - Ppuletien dividedby utbec qf practicing physi- May 1961 oleas qualified tee a aia.cot toiesty lvl 2Perlarn te Atrin ere - Popelatiot divided by etbte of prac.ticing male and tale graduate uee practical aree...n.d as.sistentnus.  - 27 - Annex I Page 4 MADAGASCAR - ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1979 ANNUAL RATE OF GROWTH 1/ US$ Mln. _ 1975-79 GNP at Market Prices 2,768.0 100.00 1.5 Gross Domestic Investment 619.1 22.4 4.6 Gross Domestic Saving 281.6 10.2 -17.5 Current Account Balance -434.8 -15.7 - Exports of Goods, NFS 482.3 17.4 -7.3 Imports of Goods, NFS 819.9 29.6 5.4 OUTPUT LABOUR FORCE AND PRODUCTIVITY IN 1979 Value added 2/ Labour Force 3/ VA Per Worker US$ Mln. Z US$ Mln X US$ Mln % Agriculture 961.4 34.2 3.79 88.8 253.7 38.5 Industry 551.0 19.6 0.19 4.4 2,900.0 440.2 Services 1,134.8 40.3 0.29 6.8 3,913.1 594.0 Unallocated 165.9 4/ 5.9 Total 2,813.1 100.0 4.27 100.0 658.8 100.0 GOVERNMENT FINANCE Central Government FMG Bln X of GDP 1979 1980 1979 1977-79 Current Receipts 114.1 126.3 19.1 20.1 Current Expenditures 131.8 148.8 21.6 20.5 Current Deficit -17.7 -22.5 -2.5 -0.4 Capital Expenditures 55.0 105.7 9.6 6.1 Foreign financing (net) 30.9 42.3 5.2 2.8 MONEY, CREDIT and PRICES 1976 1977 1978 1979 1980 (Million FMG Outstanding at the End of the Period) Money and Quasi Money 100.2 122.0 143.0 180.6 207.8 Bank Credit to public sector 19.5 29.0 49.9 100.5 186.0 Bank Credit to state enterprises and private sector 82.2 95.8 100.7 120.6 139.2 (Percentage or Index Numbers) Money and Quasi Money as X of GDP 23.7 26.5 29.8. 30.1 - GDP Price Deflator (1978 - 100) 88.1 93.7.0 100.0.8 112.9 Annual percentage changes in GDP Price Deflator 11.4 6.41 6.7.8 12.9 - Bank Credit to public sector 58.5 48.7 72.1 100.4 85.1 Bank Credit to State enterprises and private sector 4.8 16.5 5.1 19.8 15.4 Note: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ Based on 1978 prices seeries 2/ At market prices 3/ Total labour force 4/ Import duties February 4, 1982  - 28 - Annex I Page 5 MADAGASCAR - TRADE PAYMENT AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1976-79) 1978 1979 1980 1/ US$ mln. X (US$ Million) Coffee 156.1 44.8 Vanilla 27.1 7.8 Cloves 46.2 13.2 Meat and meat products 9.8 2.8 Exports of Goods, f.o.b. 405.5 411.8 420.7 Fish and shellfish 15.6 4.5 Imports of Goods, f.o.b. 404.2 674.1 723.1 Sugar 7.3 2.1 Resource Balance 1.3 -262.3 302.4 Petroleum products 11.2 3.2 Chromite 10.7 3.1 Services (net) -144.4 -248.2 -286.8 Other commodities 64.7 18.5 Freight and insurance -81.1 -137.7 -144.3 Total 348.7 100.0 Others -54.4 -87.9 -102.7 Investment income -8.9 -22.6 -39.8 EXTERNAL DEBT, DECEMBER 31, 1979 Transfers (net) 60.7 70.0 72.9 US$ Mln. Private 8.4 7.0 7.1 Public 52.3 63.0 65.8 Public Debt, incl. guaranteed 1.035 Non-Guaranteed Private Debt Current account balance -82.4 -440.5 -516.3 Total Outstanding & Disbursed 1.035 Direct foreign investment -6.2 -6.6 -6.6 DEBT SERVICE RATIO FOR 1980 4/ Net MLT borrowing: 22.6 145.2 199.2 Disbursements 27.5 154.2 - Amortization -4.9 -9.0 - Public Debt, incl. guaranteed 12.4 Other capital (net)2/ 59.0 95.9 100.3 Non-Guaranteed Private Debt - Change in reserves 7.1 206.0 223.4 Total outstanding & Disbursed 12.4 (increase -) IERD/IDA LENDING, September 30, 1981) MEMO ITEMS US$ million SDR million SDR allocation - 4.7 4.7 IBRD IDA IBRD IDA Foreign assets (net)3/ 64.0 - - Outstanding & . 4 4.8 Disbursed 30.94 150.37. - - RATE OF EXCHANGE 1978 1979 1980 Undisbursed 0.27 99.40. - 36.2 Outstanding incl. US$1.00 = FMG 225.64 212.72 211.30 Undisbursed 31.21 249.77 - 36.2 FMG 1 = US$ 0.0044 0.0047 .0047 1/ Provisional estimates from the Central Bank of Madagascar. 2/ Includes SDR allocations, state and private short-term capital, and errors and omissions. 3/ Net foreign assets of the banking system. 4/ Debt service payments as % of exports of goods and services. February 4, 1982  - 29 - ANNEX II Page 1 of 8 STATUS UF BANK GROUP OPERATIONS IN THE DEMOCRATIC REPUBLIC OF MADAGASCAR A. Statement of bank Loans and IDA Credits (as of September 30, 1981) 1/ Loan or US$ Million Credit (net of cancellations) Number Year Borrower Purpose Bank IDA Undisbursed Seven Credits and four Loans have have been fully disbursed 25.83 64.25 -- CR 322-MAG 1972 Madagascar Morondava Irrig. 15.30 1.19 Ce 5Ub-MAG 1974 Village Livestock 9.60 3.00 LN 1065-MAG 1974 Forestry I 6.75 0.27 CA o41-MAG 1976 Highways IV 22.00 10.49 CR 663-MAG 1976 E.ducation 1I 14.U0 2/ 7.05 Ci 817-MAG 1978 Andekaleka Hydroelectric 43.00 3/ 18.66 CR d81-MAG 1979 Mangoky - Agriculture 12.0U 6.41 CR 9U3-MAG 1979 Railways II 13.00 1.80 CR 938-MAG 1979 Highways V 24.UU 24.00 CR 977-MAG 1980 Industrial Bank - BNI 5.00 5.00 CR 1UU2-MAC 198U Water/Sanitation 20.50 20.50 CR 1U16-MAG 19d0 Petroleum Exploration 12.50 11.3U TOTAL 32.58 255.15 1U9.63 of which has been repaid 1.37 5.38 TOTAL now outstanding 31.21 249.77 Amount sold of which nas been repaid - - TOTAL now held by Bank and IDA 31.21 249.77 249.77 TUTAL undisbursed 0.27 109.63 99.67 B. SDR denominated IDA Credits (as of September 3U, 1961) 1/ Amount less cancellation (SDR million) Credit Number Year Borrower Purpose Amount Undisbursed 1Ub4-MAG 19d1 Madagascar Agricultural Credit 8.7 8.5 1U86-MAG 19d1 Madagascar Plain Antananarivo TA 1.8 1.8 1155-MAU 1981 Madagascar Accounting and Audit 9.4 4/ 9.4 libl-MAG 1981 Madagascar Forestry II 16.3 4/ 16.3 TOTAL 36.2 36.0 of which has been repaid - TOTAL now outstandin6 36.2 36.0 Amount sold of which has been repaid - fOTAL now held 3b.2 36.0 TUTAL undisbursed - 36.0 C. Statement of IFC Investments (as of September 30, 1981) Loan Equity Total (USS Million) 1977 Sotema - Textile Mill at Majunga 11.00 0.29 11.29 19dU Bata - Snoe Manufacturing in Antananarivo 1.25 - 1.25 12.54 1/ Prior to exchange adjustments. 2/ Including a Norwegian grant participation of USS7.0 million. 3/ Including a supplemental credit of USE10.U million of 1980. 4/ Nut yet effective.  - 30 - ANNEX II Page 2 of 8 D. STATUS OF PROJECTS IN EXECUTION AS OF SEPTEMBER 3Qa 1981 1/ Credit No 322-MAG: Morondava Irrigation and Rural Development Project; US$15.3 million Credit of June 30, 1972; Date of Effectiveness: April 30, 1973; Closing Date: December 31, 1981. Initially, the project was to rehabilitate and extend, in the Morondava area, existing irrigation systems, and develop 9,300 ha (4,700 ha for smallholder rice, 2,700 ha for a tobacco state farm and 1,900 ha for a cotton state farm); village development, roads, schools and health facilities were included. The project as revised and substantially reduced in February 1976 will complete major civil works envisaged at appraisal, implement on-farm development works on 2,500 ha of rice areas, establish an applied research station, and provide agricultural support services, roads and health facilities. Major civil works (including construction of a diversion weir at Dabara, rehabilitation of the Dabara and the North Canal, construction of secondary irrigation and drainage canals and construction of the 8.1 km road between Mahabo and Ankilivalo) are completed satisfactorily. However, SODEMO, the agency responsible for on-farm development and agricultural services, faces serious management and financial problems and as a result, agricultural production is poorly organized, and yields are very low. The Government and IDA have agreed on a plan of action to clarify SODEMO's responsibilities. A financial plan and measures to improve its overall management have also been adopted, but this will require careful monitoring in the coming months. Significant progress has been made in updating of accounts. Audit of past accounts by consultants has been completed and submitted to the Government. The closing date was extended to allow SODEMO time to carry out the project as revised and to permit land development, of which less than 50 percent has been completed. The closing date will not be further extended. The credit account will remain open until March 31, 1982 to receive disbursement requests for expenditures/commitments made before December 31, 1981. 1/ These notes are designed to inform the Executive Directors about the progress of projects in execution, and in particular to report any problems which are being encountered and the action taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weak- nesses in project execution.  - 31 - ANNEX II Page 3 of 8 Credit No 506-MAG: Village Livestock and Rural Development Project: US$9.6 million Credit of August 21, 1974; Date of Effectiveness: June 17, 1975; Closing date: June 30, 1982. The project encountered serious problems in the initial years and, principally because of legal and organizational difficulties, little progress was made. Following significant changes in institutional and management arran- gements, the credit agreement was extensively amended; the Amended Agreement became effective September 1, 1977. The project's main situation is much improved. FAFIFAMA, the principal project implementing agency, is now well-established, fully staffed and operational. Implementation of the project's most important component - the development of veterinary and livestock services for village producers - is proceeding well. Pasture improvement experiments are being undertaken. Schools and health centers are being constructed, and the Ministry of Health is preparing a utilization plan for the health centers. The development of water points and road improvement continue satisfactorily. Cooperation with fokonolona institutions in all aspects of FAFIFAMA's work is good. In the middle west, OMBY continues to provide services to villages surrounding the ranches established under the IBRD-financed Beef Cattle Development Project. The pilot program and cattle share fattening programs have begun but action is limited to construction of some buildings. Financing and administration arrangements have been worked out. The study of cattle marketing and meat prices has been completed and submitted to Government for review. To assist the Government in financing emergency imports of veterinary products, the Association has agreed to reallocate credit funds and to extend the closing date by six months to June 30, 1982. Loan No 1065-MAG: Mangoro Forestry Project; US$6.75 milion Loan and US$6.75 Credit No 525-MAG: million Credit both of December 23, 1974; Date of Effectiveness. July 8, 1975; Closing date: December 31, 1981 The project supported the planting of 35,000 ha of pine plantations as part of an overall planting program of 96,000 ha, which will eventually supply a forest products industry in the Mangoro Valley. The planting program is ahead of schedule and cost estimates are in line with forecasts, despite a reorganization of the project which entaiis more building and infrastructure than originally estimated, and the need for more intensive soil preparation than foreseen at appraisal. Technical difficulties which occurred in the early stages of the project have been resolved. The project was closed on December 31, 1981, but withdrawal requests will be accepted until March 31, 1982, on commitments made before December 31, 1981. (See also Second Mangoro Forestry Project, page 8 of this Annex).  - 32 - ANNEX II Page 4 of 8 Credit No 641-MAG: Fourth Highway Project; US$22.0 million Credit of June 23, 1976; Date of Effectiveness: August 19, 1976; Closing Date: December 31, 1982 The project assists the Government in the construction of two major roads with a view to reducing transport costs and providing access to areas with a high agricultural potential. It also includes training and strengthen- ing of the country-s road maintenance administration. Project implementation is satisfactory. However, start of the training program for personnel in the Ministry of Public Works on highway maintenance has been delayed due to lack of training facilities. Bids for construction of these facilities were received and the contract has been awarded to the lowest bidder, SARD. Con- struction works are expected to start shortly. Part of the consultant's team (Louis Berger) has already arrived and training has started, although at a reduced scale at the existing training facilities. Credit No 663-NAG: Second Education Project; US$14.0 million Credit of December 10, 1976; Date of Effectiveness: August 15, 1977; Closing Date: December 31, 1982 The project is designed to assist the Government in decentralizing the educational system and to improve the quality of basic education. It incldes five Regional Education Centres and vehicles for school inspectorate, one Teaching Materials Production Centre and funds for textbook development, technical assistance and fellowships. Norway took a 50 percent participation in the proJect under an agreement signed on December 16, 1977. Architectural design work on all proect nstitutions is now complete. Detailed operational planning for the Teaching Materials Production Centre is being carried out. The two key technical advisors for this Centre, pro- vided by the Organization for Rehabilitation through Training have been in Madagascar since September 1977. The second thase of the ORT program is under active preparation. ArcHitectural work has generally been well executed although this has taken much loger than expected. Construction of one of the project's regional education centers is now completed and the remaining four centers are also nearing completion. The teaching aid production center is expected to be completed within six months. Progress has also been made with respect to the software components of the project including the completion of evaluation of the educational system, decentralization of education administra- tion and a sector survey. The credit closing date has been postponed to December 31, 1982 to allow additional time for project completion.  - 33 - ANNEX II Page 5 of 8 Credit No 817-MAG: Andekaleka Hydroelectric Project; US$43.0 million Credit of June 19,.1978 (including a Supplementary Credit of US$10 million of May 8, 1980); Date ot Effectiveness: May 30, 1979; Closing Date: December 31, 1983. The project is financed by nine co-lenders, and represents the largest single project ever undertaken by Madagascar. The project would meet the growth in electricity demand until 1992 in the Antananarivo area and provide for strengthening of JIRAMA, concrete diversion dam and an intake structure; a 4-km tunnel, underground power house, tail-race and access tunnels; two turbines and two generators; electrical and mechanical equipment; a transmis- sion line to Antananarivo; engineering services; preiiminary investigation and design for a storage resevoir; and technical assistance and training for JIRAMA staff. Contracts have been awarded for the civil works and all major equipment and supplies. Total project costs are now estimated at about 20 percent higher than at appraisal. However, even at the higher cost, the project is still the least-cost solution for the supply of power in Madagascar. The civil works were temporarily halted in March 1981 by contractor Skanska due to a lack of supplies caused by the unrealiability of the railways. An interim co-lender's meeting was held on May 4, 1981 during which an emergency plan of action was adopted. It is envisaged that the project will be completed by July 1982. Credit No 881-MAG: Mangoky Agricultural Development Project; US$12.0 million Credit of May 17, 1979; Date of Effectiveness: March 11, 1980; Closing Date: June 30, 1983 The project will support the development of about 3,700 ha for production of rice and cotton, to be farmed by about 3,200 families. It will complete an irrigation system serving about 10,000 ha in the Lower Mangoky Valley which has been under development since the early 1960s. These invest- ments are based on a long-term master plan for the region which aims ultimately to bring about 100,000 ha of land into production The project will be imple- mented over a five-year period and will comprise: development of irrigation and drainage networks, and road infrastructure for 3,300 ha including produc- tion of concrete canal segments; improvement of water supply for about 400 ha of traditional rice fields; consultant services for design and supervision; applied agricultural research; social infrastructure; training and project preparation for agriculture and rural development projects. IFAD is financing about 25 percent of the total project cost. Civil works have been delayed because of lack of cement, delays in land-levelling and grading due to breakdown of equipment, and lack of spare parts; low output of the concrete canal factory is due to poor management, past cement shortage and lack of reinforcement steel. The quality of SAMANGOKY management has deteriorated, due to strikes and other labor problems, precipit- ating the resignation of the General Manager in December 1980. SAMAMGOKY has been unable to obtain a foreign exchange allocation for importation of equip-  - 34 - ANNEX II Page 6 of 8 ment and materials due to shortage of Government foreign exchange. However, a new Director General and a Technical Director for the project have been appointed. Both are acceptabie to IDA. Credit No 938-MAG: Fifth Highway Project; US$24.0 million Credit of July 30, 1979; Date of Effectiveness: March 17, 1980; Closing Date: June 30, 1983. The project will help prevent further deterioration of the paved highway network, thus reducing transport cost and avoiding early and costly reconstruction works. It would also increase the maintenance capacity to the Ministry of Public Works and provide for an all-weather road connection between the regional district of Antomboka and the capital, Antananarivo. Co-financing is provided by a European Economic Community Special Action Account credit of US$10 million. Due to inefficiencies at the highway admini- stration progress so far has been slow, implementation is already about 2 years behind schedule. However, the contract for construction of bridges and approaches is about to be awarded and physical execution of the project is now getting underway. High bids for this contract have resulted in a cost overrun of US$6 million. The African Development Bank has indicated interest in financing the cost overrun. Credit No 903-MAG: Second Railway Project; US$13.0 million Credit of June 25, 1979 Date of Effectiveness: April 30, 1980; Closing Date: June 30, 1984. The objectives of the project are to help the Malagasy railway company renew and modernize its facilities improve the reliability and efficiency of its operations and improve its financial management and account- ing methods. The French Caisse Centrale de Cooperation Economique provided US$20.5 million in co-financing. The railway has been experiencing major difficulties for some time due to: i) fuel problems; ii) Government intervention in Railway operations; iii) increased derailments; iv) deteriorating financial situation; and most recently, v) Government dismissal of the Director General and the Technical Director of the railway company. A recovery program including short-term technical assistance for the railway has been adopted, following discussions with Malagasy officials. Credit No 977-MAG: Bankin'ny Indostria (BNI) Project; US$5.0 million Credit of May 8, 1980; Date of Effectiveness: February 24, 1981; Closing Date: December 31, 1984. The project supports Madagascar's industrial sector and BNI's crucial development role by providing BNI with part of its foreign exchange requirements to finance projects in the artisanal/small-scale and medium-scale enterprise sectors and by strengthening BNI itself through technical assistance.  - 35 - ANNEX II Page 7 of 8 Credit No 1002-MAG: Antananarivo Water and Sanitation Project; US$20.5 million Credit of May 8, 1980; Date of Effectiveness: December 17, 1980; Closing Date: December 31, 1985. The project will increase access to treated water for the Antananarivo urban population and improve sanitation conditions. Detailed designs of the water supply works has been completed and tender documents have been issued. Detailed design of the sanitation component is expected to be completed by the end of 1981. Construction work on the water supply component will commence as soon as bid evaluation is completed and the contract awarded. Credit No 1016-MAG: Petroleum Exploration Promotion Project; US$12.5 million Credit of May 8, 1980; Date of Effectiveness: August 20 1980; Closing Date: December 31, 1983. The project supports the Government's efforts to develop a domestic supply of hydrocarbons and improve planning of the energy sector. Implementation of the project is progressing satisfactorily. Geological and legal consultants were employed to assist the Government in preparing data with a view to promoting exploration by interested oil companies. Two oil companies have signed an agreement to undertake exploration. Two mere are actively negotiating. Other studies and technical assistance provided in the project are proceeding satisfactorily, including preparation of a second project to study the feasibility of exploiting the Tsimiroro heavy oil deposits, Credit No 1064-MAG: National Bank for Rural Development (BTM) Project; US$11.5 million Credit of January 7, 1981; Date of Effectiveness: August 17, 1981; Closing Date: June 30, 1984. The project supports the Government's policy to extend credit for smallholder agricultural development through BTM. However, the reluctance of smallholders to request loans, and the inability of BTM to make further loans due to previous loans not having been repaid, have slowed the granting of loans to smallholders. Unless some remedial action is taken, it is unlikely that BTM will be able to utilize the full amount of the credit before the closing date of June 30, 1984. BTM has tentatively suggested that part of the credit be used for the importation of fertilizer. If fertilizer were made available, smallholders would be more willing to take out credit and BTM to reschedule old loans if the reason for previous late payment has been caused through no fault of the smallholder, e.g. drought. Procurement for mobile banks and recruitment of consultants for two studies are proceeding slowly.  - 36 - ANNEX II Page 8 of 8 Credit No 1086-MAG: Plain of Antananarivo (Technical Assistance) Project; US$2.3 million Credit of January 30, 1981; Date of Effectiveness: October 16, 1981; Closing Date: December 31, 1983. The project would support the Government s efforts to institute a multisectoral approach to an integrated flood control and development program for the Plain of Antananarivo area; it would also contribute to strengthening the coordinating role of the Directorate General of Planning of the Ministry of Finance in the development of the Plain of Antananarivo. Credit No 1155-MAG: Audit and Accounting Project; US$11.5 million Credit of June 11, 1981; Expected Date or Effectiveness: April 12, 1982; Closing Date: March 31, 1988. The project includes measures to develop a suitable legislative framework for the accounting and auditing sector and aims to increse the level of expertise in these professions through training. Credit No 1161-MAG: Second Mangoro Forestry Project, US$20.0 million Credit of October 29, 1981; Expected Date ot Effectiveness: March 1, 1982; Closing Date: December 31, 1984. The project will continue the reforestation program begun under the first project, and will assist the Government's efforts to establish a forestry industrial complex in the Mangoro Valley. Recently problems have arisen due to indications that plantation yields are substantially below expectations.  - 37 - ANNEX III Page 1 of 2 MADAGASCAR SECOND VILLAGE LIVESTOCK AND RURAL DEVELOPMENT PROJECT Supplementary Project Data Sheet Section I - Timetable of Key Events: (a) Time taken to prepare project: 1-1/2 years (b) Project prepared by: Government and IDA (c) Initial discussion with IDA: September 1979 (d) Departure of appraisal mission: July 1980 (e) Negotiations: December 1981 (f) Planned date of effectiveness: September 1982 Section II - Special Implementation Action: None. Section III - Special Conditions: A. Conditions of Effectiveness: (i) Effectiveness of the IFAD loan agreement (paragraph 60). (ii) Signing of the subsidiary agreement between the Government and FAFIFAMA (paragraph 60). (iii) Amendment of FAFIFAMA-s statutes (paragraph 62 (c)). B. Other Major Conditions: (i) The Government would discuss livestock sub-sector policy and meat pricing policy annually with IDA (paragraphs 31 and 40), (ii) A policy paper for livestock research would be sent to IDA for comment by December, 1982 (paragraph 36).  - 38 - ANNEX III Page 2 of 2 (iii) FAFIFAMA would prepare and submit to IDA an annual work program and budget not later than August 1 of each year (paragraph 62(e)), starting in 1982. (iv) FAFIFAMA's status and structure would not be modified without prior consultation with IDA (paragraph 62(c)). (v) The Government would finance full needs of veterinary imports from 1985 (paragraph 55), and ensure that pricing of veterinary products would be based on full cost recovery (paragraph 56), (vi) The Government would establish a system of cost recovery for road and water supply works through a minimum 20 percent user contribution towards the capital and maintenance costs (paragraph 52).   IBRD 15637 4 441 4b' 4il 5S MARCH 1981 MADAGASCAR 12' SECOND VILLAGE LIVESTOCK $ NTSERANANA AND RURAL DEVELMENT PROJECT DEUK/EE MPOJET `'EFA'GF VILL'EOIS ET D VLCPPMENT k(Ae4L MAHAJANGA FARITANY I FAR/TANY OE MAHAJAANGA NOSSI-8E SAEn lobe FIVONORONANA RECEIVING INTENSIFIED VETERINARY SEIWICE UNDER CR3EDIT 50W. MAG I,I YFIVOtNDRONANA AVANT rENEFICIE D'ENCADREMENr vErrRhINARE INTENIF )ANS Le + VoIW-O1 CADRE DUI CRED/r 5CE - MAG PILOT DEVELOPMENT PROGRAMS - MIDDLE WEST UNDER CREDIT S06- MAG / PROGRAMMES PILOTES DUI MO YEN - QUEST DANT LE CADRtE DUI CREDIT 506 MAC * ODMBY STATE RANCHES I RANCHES DE LA FERMES DET DAIR* Y I' POPOSED PAIFAM CATTLE FATTENING FARM OF AE