Madagascar - Sixth Highway Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY __ ___ Report No. P-3556-MAG REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED SDR 41.7 MILLION CREDIT (US$45.0 MILLION EQUIVALP TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR A SIXTH HIGHWAY PROJECT June 2, 1983 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 Currency Unit = Malagasy Franc (FMG) US$1 = FMG 375 FMG 1,000 = US$2.67 FMG 1,000,000 = US$2,670 Weights and Measures 1 meter (m) = 3.28 feet 1 kilometer = 0.62 mile 1 square kilometer (km2) = 0.386 square mile 1 square meter (m2) = 10.76 sauare feet 1 hectare (ha) = 0.01 km = 2.25 acres 1 metric ton (m/ton) = 2,204 pounds (lbs) Abbreviations AfDF - African Development Fund BADEA - Arab Bank for Economic Development in Africa BNI - National Industrial Development Bank (Bankin' Ny Indostria) CATP - MTP Training School (Centre d'Application des Travaux Publics) CCCE - Caisse Centrale de Cooperation Economique (France) CCM - National Tender Board (Commission Centrale des March4s) DPCH - Road Maintenance Division (Direction des Ponts-et-Chaussees) DGE - Directorate of Works (Direction Generale de l'Equipement) DGP - Directorate General of Planning (Direction Gengrale du Plan) DI - Division of Infrastructure (Direction de l'Infrastructure) DMAT - Equipment Division (Direction du Matgriel) EDF - European Development Fund (EEC) FAC - Fonds d'Aide et de Cooperation (France) IFAD - International Fund for Agricultural Development LESP - National Technical College (Etablissement d'Enseignement Supgrieur Polytechnique) LNTPB - National Soils Laboratory (Laboratoire National des Travaux Publics et du Batiment) MIC - Ministry of Industry and Commerce (Ministere de l'Industrie et du Commerce) MPARA - Ministry of Agricultural Production and Agrarian Reform (Ministere de la Production Agricole et de la Reforme Agraire) MTP - Ministry of Public Works (Ministgre des Travaux Publics) MTRT - Ministry of Transport, Supplies and Tourism (Ministare des Transports, du Ravitaillement et du Tourisme) RN - National Road (Route Nationale) vpd - Vehicles per Day Fiscal Year January 1 - December 31  FOR OFFICIAL USE ONLY MADAGASCAR SIXTH HIGHWAY PROJECT CREDIT AND PROJECT SUMMARY Borrower: Democratic Republic of Madagascar Beneficiaries: Ministry of Public Works (MTP) and Ministry of Transport, Supplies and Tourism (MTRT). Amount: SDR 41.7 million (US$45.0 million). Terms: Standard IDA terms. Project Description: Objectives: The proposed project will continue and expand efforts to improve the condition of the road network started under the Fourth and Fifth Highway Projects. Its principal objectives are to (i) permit efficient and reliable transportation on the country's high priority roads by improving their condition; (ii) continue the strengthening of the road administration's capacity to maintain the road network and repair the Government's equipment pool; (iii) improve transport coordination and planning; and (iv) begin rehabilitation of the country's commercial vehicle fleet. Components: (a) a three-year maintenance and rehabilitation program (1984-1986) consisting of (i) spot improvement, rehabilitation, and maintenance of about 2,470 km of rural and feeder roads (including about 300 km in the area of the Highlands Rice Project), (ii) patching and resealing of about 2,500 km of paved roads, (iii) routine maintenance on the entire "economic" road network of 10,000 km, and (iv) the rehabilitation of about 280 km of RN 4 and RN 7; 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 - (b) improvement of the National Soils Laboratory; (c) training of Ministry of Public Works and the Ministry of Transport, Supplies and Tourism personnel; (d) assistance in the rehabilitation of the road transport industry through the financing of spare parts; and (e) consulting services for supervision and management of works, preinvestment and management studies, and technical assistance for the National Soils Laboratory, for staff training and for transport coordination. Benefits: Maintenance of the economic road network which carries about 90 percent of the total traffic in the country and rehabilitation of the principal north-south axis traversing the most populous region of the country and linking the major centers of economic activity; support to specific institution building and policy reforms; and encouragement of and support to fostering efficiency and competition within the country's road transport industry. Risks: The main risks associated with the project arise from the possible shortage of local counterpart funds for the maintenance component and from NITP's capability to manage and execute force account works. These risks should be mitigated by the establishment of a financing mechanism to ensure adequate, timely and easily accessible funds for road maintenance, by using contractors to carry out part of the civil works and through the technical assistance provided.  - iii - Estimated Project Costs: ------------US$ Million---------- Local Foreign Total I. Rehabilitation and Maintenerace Program 15.53 29.79 45.32 a) Maintenance by Contractor (470 km) ( 2.05) ( 4.77) ( 6.82) b) Maintenance by Force account ( 7.05) (10.02) (17.07) c) Rehabilitation and Supervision of RN 4 and RN 7 (280 km) ( 6.43) (15.00) (21.43) II. LNTPB Equipment 0.09 0.83 0.92 III. Training 0.12 0.85 0.97 IV. Road Transport Industry 1.50 10.00 11.50 V. Consulting Services 1.13 6.75 7.88 Base Cost 18.37 48.22 66.59 Contingencies Physical 1.24 3.71 4.95 Price 2.55 7.64 10.19 Total Project Cost 22.16 59.57 81.73 Financing Plan: ----------(US$ million)--------- Local Foreign Total IDA 45.0 45.0 AfDF 6.0 13.2 19.2 IFAD 1.4 1.4 Government/BNI 16.1 - 16.1 Total 22.1 59.6 81.7  - iv - Estimated Disbursement: --- US$Million------ Fiscal Year Annual Cumulative 1984 3.5 3.5 1985 14.0 17.5 1986 13.0 30.5 1987 13.5 44.0 1988 1.0 45.0 Economic Rate of Return: 42 percent on 90 percent of project costs for which benefits have been quantified. Staff Appraisal Report: No. 4399 a -NAG. Map: IBRD 16909  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO TEIE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR A SIXTHI HIGHWAY PROJECT 1. I submit the following report and recommendation on a proposed Development credit to the Democratic Republic of Madagascar for SDR 41.7 million (US$45.0 million equivalent) to help finance a Sixth Highway Project. The International Fund for Agricultural Development (IFAD) has agreed to cofinance with a credit of US$1.4 million for technical assistance on standard IFAD terms. The African Development Fund has agreed to cofinance with a credit of 16 million Units of Account (equivalent to about US$19.2 million) on standard AfDF terms. PART I - THE ECONOMY 2. A report entitled "Madagascar - Economic Memorandum" dated November 3, 1981 has been distributed to the Executive Directors. An economic updating mission visited Madagascar in November/December 1982, and its Report MAG (83-4) entitled "Current economic Situation and Prospects" dated March 20, 1983, was distributed to participants of the Madagascar Consultative Group MIeeting April 27-29, 1983. 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$315 in 1982, 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 considerable 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 population lives in rural areas, and agricultural products account for about 80 percent of the country's export earnings. Total exports accounted for only about 16 percent of GDP in 1974-81, a rather low share in comparison with most low income developing countries.  - 2 - 4. Mladagascar's development over the past decade has been disappointing. With a population growth around 2.8 percent per annum, real per capita GDP decreased by about 1.5 percent per annum; in 1982 per capita real income was probably about 25 percent below its 1972 level. During the years 1972-1978, the years immediately following the Revolution, when the country left the Franc zone and greatly reduced the closeness of its ties with France, successive governments embarked on wide-ranging changes in the economy by taking over nearly all large enterprises and considerably extending control over economic activities, especially agricultural commerce. There followed a period of economic stagnation, during which, public finance and balance of payments management remained however, cautious and conservative. 5. In 1978 the present Government adopted a significant new economic policy orientation in undertaking a large expansion in public sector investment with greatly increased reliance on external sources for its financing. Investment outlays increased in volume terms by about 13 percent per annum between 1978-80 and the share of investment in GDP, which had been about 14 percent since the early 1970s rose to around 21 percent in 1979 and 1980. The increased investment and the attendant imports coincided with virtually stagnant export earnings and a deterioration in the terms of trade, so that Madagascar's balance of payments deteriorated very sharply in 1979 and 1980 and the resource gap reached almost 17 percent of GDP. General government and state enterprises accounted for nearly all the increased investment expenditures and the overall budget deficit increased dramatically. 6. The benefits of the surge of investment were at best short-lived. There was a growth of real GDP of almost 10 percent in 1979 covering all sectors, mainly because of higher imports of raw materials and spare parts, the jump in activities associated with the higher investment level, and because of good weather benefitting agriculture. However external payments already began to run into difficulties in 1980 and foreign exchange shortages grew increasingly severe through 1981 and 1982. Domestic savings declined continuously from around 11 percent in 1976 to 3.2 percent in 1982, a large part of the decline being due to the deterioration in the terms of trade. 7. The performance of the agricultural sector from 1979 on was less disappointing than in the immediately preceding years, but nevertheless unsatisfactory. Output grew by 7 percent in 1979 and except for a drop of 1.5 percent in 1981 continued to grow by 2.5 percent p.a. In 1982 output was at its highest level in seven years, but still below the levels in 1974 and 1975. Much of the result of 1979 was due to exceptionally favorable weather. Since then the weather has been poorer and there have been shortages of inputs such as fertilizers, pesticides and improved varieties of seeds. The production of rice, the staple of the Malagasy diet, varied little between 1979 and 1982, with slight declines in 1981 and 1982, in 1982 due to an important extent to the effects of the severe cyclones. There were considerable differences amongst other crops. Most export crops had somewhat higher outputs in 1982 than in 1979. In the case of coffee the increase was only about 2.5 percent, but output reached the highest level so far obtained. Cloves went through a peak of the clove cycle, beginning at the trough in 1979, almost tripling in 1980 and  - 3 - declining slightly thereafter. Vanilla also picked up from a very low level in 1979 and almost doubled by 1982. These three crops accounted for over 70 percent of merchandise exports. A number of minor crops were mainly responsible for the overall agricultural growth of 1982, although their outputs had fluctuated before that. Notable among these were manioc, potatoes, and pulses. However cotton production, which, from 1979 on, had been consistently lower than in any year since 1972, reached a new low in 1982. 8. The drop in industrial production, including mining, has been especially sharp. Industrial output reached its peak in 1979, in which year it grew by 12.8 percent, the highest annual growth rate ever achieved by the sector. After that, it fell slightly in 1980 (-3 percent), and then precipitously in 1981 (-34 percent). The decline continued in 1982 (-6 percent), so that production at end 1982 had dropped to 70 percent of the level in 1979, lower than in any year of the 1970s. Output in every branch of production was lower in 1982 than in 1979, with the exception of petroleum products, which reached a peak in 1980. A particularly serious aspect was that the output of some basic consumption items (soap, shoes, matches, batteries) had dropped by well over one half since 1979. 9. The central government's finances in 1978-82 clearly reflect the investment boom and the subsequent efforts to restore equilibrium. Total expenditures more than doubled between 1978 and 1980 and declined slightly in 1981 and 1982, when the inflation rate was much higher. The overall deficit swung from 4 percent of GDP in 1978 to a peak of 18 percent in 1981 and then down to 9 percent in 1982. The recurrent budget contributed little to the swings since expenditures and revenues moved roughly in line. The main cause was the capital budget, which more than quadrupled between 1978 and 1980 and declined by 57 percent from 1980 to 1982. However, other government expenditures, mostly Treasury on-lending and general government expenditures from the export crop stabilisation funds, have grown continuously and in 1982 exceeded capital expenditure. Despite considerable growth in nominal terms, both revenues and recurrent expenditures generally declined in real terms, after 1980. The growth of revenues, which averaged 11 percent p.a. from 1978-82, has been greatly slowed by the deterioration of the economic situation, although a number of measures were taken to increase taxation in 1982. The growth of recurrent expenditures in nominal terms was kept down to an average of 10 percent p.a. by the Government's efforts to abide by the Stand-by agreement with the IMF. 10. The investment boom and the ensuing stabilization policies are also reflected in the money and credit figures for the years 1978-82. The net foreign asset position of the monetary system deteriorated rapidly in 1979 and 1980 and more slowly in the next two years. Net domestic credit rose by about 50 percent in both 1979 and 1980, but by only 51 percent from 1980 to 1982. The expansion was overwhelmingly in net government borrowing from the central bank; at end 1982 it was 58 percent of total net domestic credit, as compared to 31 percent at end 1978. Long term foreign borrowing rose from less than 2 percent of the monetary system's liabilities to 19 percent, the greater part of the increase in 1981-82 being due to the rescheduling of external debt.  -4- 11. Available price information indicates accelerating inflation over the last year or two. The official cost of living index for Antananarivo, which is likely to understate the actual price rises, showed an 18 percent increase in 1980 and about 31 percent in 1981 and 1982. The implicit GDP deflator shows a parallel development with a 15 percent increase in 1980, a 25 perc:nt increase in 1981, and a 34 percent increase in 1982. 12. The balance of payments has also been affected by the investment spending of 1978-80, but the sluggishness of exports and the difficulties in reducing imports have made restoration of external equilibrium especially difficult. In 1978 the current account deficit, which had averaged around FMIG 19 billion (US$85 million) in the immediately preceding years, began to rise rapidly to reach FIG 127.5 billion (US$603 million) in 1980, i.e. from less than 2 percent of GDP to over 18 percent. The overall account had been roughly in balance in 1978 but was in deficit by FMG 53 billion (US$251 million) in 1980. Transactions with the rest of the world had been financed by a total exhaustion of reserves, an unprecedented degree of foreign borrowing, and by incurring substantial arrears on external payments obligations. The Government began to take strong measures to restore equilibrium in 1981 and 1982, notably by tightly restricting imports and by negotiating arrangements with the IMF and the Paris Club. It succeeded in reducing the overall deficit to FMG 31.4 billion (US$90 million) in 1982, thanks to the agreements reached with the IMF and the Paris Club as well as some exceptional balance of payments financing, but it failed to improve significantly the current account, whose deficit in 1982 was still US$350 million. 13. The main reason for the failure to improve the current account was that capital goods imports, which were tied to the existing financing arrangements and on-going projects, continued at very high levels through 1981 and 1982. Imports had increased roughly 90 percent in dollar terms between 1978 and 1980 and, while all categories had increased, the growth of imports of capital goods was particularly marked, accounting for about half the total increase. The total volume of imports grew by 33 percent in this period, but price increases were also substantial, increasing at roughly the same rate. The foreign exchange shortages that began in 1980 and grew much worse in 1981-82 obliged the Government to restrict imports where it could. The categories of raw materials and spare parts and of non-food consumer goods suffered most, though the Government ensured that energy imports covered essential needs. Food imports increased because bad weather, including serious floods, reduced the rice harvests. The sluggish export performance aggravated difficulties. During 1978-1982 the volume of exports stagnated. Coffee, the main export, was seriously affected by the international market situation, first by a drop in prices in 1981 and then by the ICO quota restrictions. Earnings from the other two main exports, cloves and vanilla, were also constrained by world demand. 14. The IMF Board approved its first Stand-by arrangement with Madagascar in June 1980, but, since the Government failed to limit its expenditures sufficiently, the program was suspended, though some of the other measures in the program had been implemented e.g. increasing revenues. A second Stand-by agreement was concluded in April 1982 providing for drawings of SDR 109 million  (US$130 million) by June 1982. This agreement too had to be suspended because unanticipated shortfalls in export earnings and smaller inflows of capital from commercial banks than expected made it impossible for the Government to abide by the program for more than part of the period. A third Stand-by agreement, for the period to June 1983, was approved by the IMF Board in July 1982. This arrangement makes available SDR 51 million (US$57 million) in addition to SDR 22 million (US$24.6 million) under the CFF. Like the previous arrangements it places restrictions on the Government's spending and borrowing from the Central Bank, on external loans of less than 10 years' maturity, and has targets for the reduction of external payments arrears. It also provides for devaluation of the Malagasy Franc, which, having been pegged to the French Franc until it was pegged to a basket of currencies in April 1982, had already depreciated about 50 percent against the dollar since April 1981. The exchange rate in February 1983 was FMG 400 to the US dollar, as compared to an average of FMG 272 in 1981 and FMG 375 in 1982. 15. The growth of Madagascar's external indebtedness and the considerable hardening of average terms have made good debt management crucial. Total external debt (outstanding and disbursed) at end 1982 was US$1,258 million as compared to US$244 million at end 1977. The debt service ratio has risen from around 4 percent in 1977 to about 45 percent after rescheduling in 1982 and the ratio can be expected to rise still further in the next three years if there is no further rescheduling. Madagascar now faces a rising debt servicing burden in the next few years. A Paris Club meeting took place in April 1981, as a result of which Madagascar obtained debt rescheduling of about US$36 million covering the period January 1, 1981 to June 30, 1982. In July 1982 the Paris Club approved a further rescheduling of maturities falling due in the period to end June 1983. Approximately US$115 million (of which US$24 million short-term) of maturities were rescheduled. A London Club meeting in March 1983 resulted in rescheduling of outstanding commercial bank loans, although the amounts and conditions are not yet known. 16. The economic crisis and the greater dependence on external donors have prompted the Government to question many of its policies and to appreciate that a sustained improvement in the economy's performance requires considerable policy reform and a more systematic approach to the balance of payments and public investment. Of the weaknesses underlying the economy the most harmful has been the persistent low productivity of agriculture, the result of many complex factors among which are the lack of price incentives, inefficient state marketing, and shortages of inputs. In industry, commerce and transport price controls and shortages of inputs have posed equally serious problems, which are compounded by uncertainties over the role of the private sector. The Government's domestic expenditure emphasized for a while increasing public employment, the social sectors, and investment, so that the shares of economic activities and of materials and services in expenditures declined seriously. One especially grave consequence has been inadequate maintenance, and hence a deterioration, of infrastructure, particularly of roads. On most of these points the Government has either begun to take action or is working out new policies. A major step has been the preparation of a public investment program for 1983-85. This program, apart from bringing government investments in line  -6- with projected resource availabilities and ensuring a degree of coordination between ministries and agencies that has been lacking in the past, emphasizes rehabilitation and maintenance rather than new investments. 17. Circumstances have overcome the Malagasy authorities' preference for minimizing the country's dependence on the outside world. One aspect of this change is an emphasis on exports, both traditional and new, in place of the earlier tendency to give them low priority. It does not, however, appear possible to increase export earnings rapidly in the medium term. Relations with external donors and financial agencies have also undergone considerable change as is demonstrated by the preparation of the Stand-by arrangements and the debt reschedulings. Further steps have included the decision to open a Bank Resident mission in the country (the resident representative took up his post in March 1983) and the holding of a Donors' meeting in June 1982 to close a financing gap for the year. It was then agreed to establish a Consultative Group chaired by the Bank, which first met in April 1983. The public investment program and a Government statement of policy reforms, proposed or already being implemented, were presented to the CG meeting. 18. 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 19. IDA credits to Madagascar amount to US$343.89 million, and Bank loans total US$32.58 million. Since 1975, about 36 percent of Bank Group lending has been for transport, 29 percent for agriculture, 18 percent for electric power and petroleum, 7 percent for industry and water, 5 percent for technical assistance and 5 percent for education. IFC's first investment was in 1977 for the expansion of a textile mill. In 1980 IFC made a US$1.25 million loan for the Bata shoe manufacturing company in Antananarivo and an investment of US$7.44 million for the Pecheries de Nossi-Be; other projects are under preparation. Annex II contains a summary statement of Bank loans, IDA credits and IFC investments as of March 31, 1983, as well as notes on the execution of ongoing projects. 20. Bank Group assistance to Madagascar has been concentrated on the key areas of infrastructure (including urban and social infrastructure), agriculture and energy. In infrastructure, four projects have provided for the construction of all-weather highway links between the island's different regions and one project for road maintenance. There have been projects to improve Madagascar's main port of Toamasina, and to support the railway's modernization efforts.  - 7 - Urban infrastructure development has benefitted from a water supply and sanitation project for the capital city of Antananarivo for which a US$20.5 million credit was signed in May 1980. In the social sectors, education has been the major recipient of Bank assistance with two credits totaling US$18.8 million. In addition, studies for urban development financed by the UNDP with the Bank as Executing Agency have led to preparation of a project for urban development. We began lending to the industrial sector with a first US$5 million DFC credit to the Industrial Development Bank of Madagascar (BNI) in May 1980. In addition, a credit of SDR 9.4 million for an accounting and audit project was signed in June 1981. 21. Bank Group lending for agriculture consists of three livestock development projects, three irrigation projects, two forestry projects, an agricultural credit project and a rice intensification project. A US$2.3 million technical assistance credit to prepare projects in the Plain of Antananarivo area was signed in January, 1981, and a US$5.7 million technical assistance credit for an Agriculture Institutions project was signed in June 1982. We expect agriculture to continue to absorb a large share of Bank Group lending, in line with Government strategy to expand agricultural production. Further rural development and crop production projects, including one for cotton, are being prepared. 22. Energy projects have also received growing Bank Group attention; IDA participated with several co-lenders in the financing of the large Andekaleka hydroelectric project, which was successfully completed in June 1982. A US$12.5 million credit for petroleum exploration promotion is supporting the Government's efforts to develop a domestic supply of hydrocarbons and to improve planning in the energy sector. The Tsimiroro heavy oil exploration project was approved by the Executive Directors on November 16, 1982. 23. In the past, problems have arisen in the execution of several projects. The main problems encountered included delays, cost overruns, deficiencies in management and inadequate.financial performance of project agencies. The first Village Livestock project was delayed by institutional problems. The credit was renegotiated in 1977, and since then implementation has been reasonably satisfactory. The road construction component and maintenance studies of the Fourth Highway project are nearly completed. Construction under the Fifth Highway project has begun. Disbursements under the Second Railway Project are almost completed. However, disbursement of the railway credit was suspended on June 25, 1982 pending government action to correct major deficiencies affecting the railway's operations. They were resumed in December 1982, after the Goverment had implemented a satisfactory financial recovery program. 24. 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 first 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 had been  - 8 - 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. 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 conci"ded 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 assistance components of all four projects were executed satisfactorily. 25. In fiscal years 1980-82, disbursements for Madagascar totalled about US$70 million compared to new commitments of US$96.5 million. In the same period, the average annual disbursement rate (rate of disbursement to undisbursed balance) was 20 percent. This is about average for countries of the Eastern Africa Region. Disbursement performance in general is satisfactory. PART III. THE TRANSPORT SECTOR General 26. Madagascar's transport system comprises nearly 50,000 km of roads of which about 4,900 km are paved; two unconnected railway systems totalling 860 km; 4 main ports and 11 lighterage ports of some significance; and 56 airfields. The only navigable waterway is the Pangalanes Canal along the east coast. The system is inadequate in that it fails to provide access to some productive areas of the country. In addition most existing transport infrastructure has been poorly maintained over the last decade. As a result of the poor condition of the surface transport infrastructure, Madagascar has developed an air transport network that is denser than that of most comparable countries in East Africa as well as an extensive system of ports and coastal shipping. A Transport Sector Memorandum (TSM) was issued in February 1983 (Report No 4057-MAG). Railway 27. The railways are operated by the Reseau National des Chemins de Fer Malagasy (RNCFM). The rolling stock and locomotive fleet are generally adequate for present traffic, but their condition is poor and productivity is low due to maintenance and operational problems. The track is also in very poor condition. Progressive renewal of the locomotives and wagon fleet and rehabilitation of the track have been carried out under two projects supported by the Bank Group. RNCFM has also been plagued by financial problems which resulted in a credit suspension by the Association. The Government mounted a financial recovery program, including (i) complete financial autonomy for the railway, (ii) reimbursement of Government arrears and appropriate procedures for payment of current bills, and (iii) tariff increases. The Association resumed disbursement following introduction of this program.  -9- Air Transport 28. International air services are provided by foreign carriers and by Air Madagascar, the national airline, which has a monopoly on domestic service. Air Madagascar's financial condition has drastically deteriorated in recent years, in large part because of service provided to many small airports which do not generate enough revenues to cover the cost of the service. Air Madagascar is required to provide this service for social reasons; without it these areas would be isolated. In the past Air Madagascar was able to use the profits from its international routes to subsidize domestic service. However, due to rising costs and a declining load factor, it is no longer able to do so. To improve the situation, in 1982 service was terminated at 12 small airports, and tariffs were increased in October 1982 and again in early 1983. Other measures being considered include (i) the Government sharing Air Madagascar's deficits, (ii) abandoning unprofitable services as other transport alternatives become available, and (iii) studying the viability and alternatives of continuing long-distance international services. Ports and Coastal Shipping 29. Madagascar relies almost exclusively on shipping for foreign trade, while coastal shipping is important as the only means of transporting freight between many areas of the country with no access to all-weather roads. The four main ports are Toamasina (66 percent of the traffic), Mahajanga (11 percent), and Antsiranana and Toliara (4 percent each). Most imports and exports pass through Toamasina which is adequately equipped to handle present traffic. ! Equipment in the secondary ports, on the other hand, is generally old and in poor condition. Port traffic has stagnated due to the economic slowdown over the past decade. As a result, there is considerable overcapacity in the ports, especially Toamasina. FAC is carrying out a study on ports and coastal shipping, the purpose of which is to introduce more effective and economic use of infrastructure and to consolidate operations. In view of this overcapacity, in the short to medium term it appears that investment should be limited to selective rehabilitation and modernization for specific and well-justified reasons, e.g., to handle container traffic. The Road Subsector 30. The road network comprises 49,650 km of roads, of which about 4,890 km are paved, 5,260 km are engineered earth and gravel roads, and 39,500 km are feeder roads and tracks. The main road in the network is the north-south axis--RN 4 and RN 7--stretching from the regional center and port of Mahajanga in the north, to Antananarivo in the center and continuing to Fianarantsoa in the south-central region. As a result chiefly of a lack of maintenance, and to a lesser degree of overloading of trucks, the road network is in poor condition. About 80 percent of the paved roads show signs of deterioration; of these fully 50 percent require full rehabilitation to restore the pavement to serviceable condition while 30 percent require resurfacing to avoid further  - 10 - deterioration and costly repairs. Most earth and gravel roads are in an equally poor state. Many of them are impassable during the rainy season and some have deteriorated so badly that the areas they serve are becoming isolated. Road Use 31. The growth of the vehicle fleet has slowed considerably in the past several years due to the stagnation of the economy and the shortage of foreign exchange to buy new vehicles. Imports of new vehicles and spare parts decreased significantly after 1980; as a result only 50 percent of the motor vehicle fleet is operational. Traffic has generally remained constant since 1978 and has decreased on some secondary roads. The average daily traffic (based on regular traffic counts) ranges from about 1,000 vehicles on paved roads near main cities to about 20 vehicles on earth roads. Administration, Staffing, Training and Construction 32. In principle the Ministry of Public Works (MTP) is responsible only for national roads, while the regional administrations are responsible for regional roads and communities for the feeder roads and tracks. In practice, however, ITTP's assistance is sought for all significant maintenance and improvement works on the entire 50,000 km network. This overextension of MTP is one of the problems impeding adequate road maintenance. To alleviate this problem, the Government has selected, with the Association's assistance, a limited network --the "Economic Road Network"-- for the maintenance and rehabilitation of which MTP will be responsible. This network of about 10,000 km includes 4,300 km of paved roads (about 90 percent of the country's paved roads); 3,300 km of engineered earth roads (60 percent) and 2,400 km of feeder roads. These roads are the most heavily used in the country, carrying about 90 percent of the traffic, and are essential to the country's economic development. In the short to medium term the maintenance and improvement of the remaining 40,000 km of roads and tracks will be carried out as appropriate and economically justified under rural agricultural, health and sanitation projects with technical assistance from M4TP. The improved tracks will gradually be transferred to MTP's responsibility as its capacity increases. A study will be carried out under the proposed project to determine the appropriate means and organization to maintain and improve these roads. 33. MlTP's technical operations are grouped under the Directorate of Works and include (i) the Division of Infrastructure (DI), which is in charge of design and construction; (ii) the Road Maintenance Division (DPCH), which plans and executes road maintenance operations; and the Equipment Division (DMAT) which is responsible for the purchase, storage and maintenance of equipment, spare parts, materials and supplies, and for the operation of workshops. While still relatively new, this organization appears well-adapted to MTP's needs and has begun to yield operational improvements. A shortage of qualified and experienced staff at all levels is hampering maintenance operations. Engineers and technicians, employed by MTP, receive practical training at MTP's training  - 11 - cetnter (CATP) which is being rehabilitated and equipped under the ongoing Fourth Highway Project. 1. additLon, consultants are training 32 Malagasy instructors to carry out training among MTP staff. The proposed project will continue and expand the program at MTP's training center. 34. The Division of Infrastructure (DI) is responsible for feasibility studies, final engineering and construction supervision. Most design construction supervision is carried out by foreign consulting firms and their affiliates. A Government-owned consulting firm, DINIKA, participates in road construction design and supervision in joint ventures with foreign firms. MTP's national soils laboratory, LNTPB, conducts soils investigations for construction of civil structures, assists consulting firms and DI in designing and supervising these works, and carries out research on the use of local materials for construction of these structures. Under the proposed project, LNTPB's activities will be expanded to assist DPCH in executing road maintenance operations. To improve LNTPB's efficiency, the Government has agreed to establish LNTPB as a separate legal entity, under the responsibility of MTP, to be operated on a commercial basis with complete financial autonomy by December 31, 1983 (Section 3.10, draft Development Credit Agreement). 35. Major construction works are carried out almost exclusively by foreign contractors and their affiliates. A Government-owned firm has participated in some of these works but has experienced managerial and other difficulties; arrangements are being made for it to enter into joint ventures with foreign firms. Two domestic private contractors compete successfully in building construction; they will be encouraged to participate in the construction of workshop facilities under the proposed project. Delays have been encountered in implementing construction works because of the lengthy and cumbersome procedures of the National Tender Board (CCM) which is responsible for all procurement matters. Although MTP recently shortened its internal procurement system, improvement is still needed in the overall system. The Government, therefore, has agreed to shorten the procedures by ensuring that (i) a CCM representative assist MTP in the preparation of bids, (ii) all interested Government officials attend CCM's decision meetings, and (iii) duly authorized representatives from all ministries and agencies concerned gather at one meeting during which the contract documents will be agreed for the final signature; contracts will then be approved within 15 days of this meeting. Maintenance 36. During the past decade the Government has concentrated on extending the road network by building new access roads to regional economic centers but has paid little attention to maintenance. The Government recently decided to reorient its policy and focus most of its manpower and financial resources in the subsector on rehabilitation and maintenance, specifically on the "economic road network" (para. 32). The Government, with assistance from the Association, has improved its maintenance operations. MTP has been reorganized and a central unit (DPCH) given overall responsibility for maintenance of national roads.  - 12 - Road maintenance equipment has been regrouped at the regional level, and regional engineers have been made accountable to DPCII for the carrying out of maintenance operations. Equipment, spare parts, materials and supplies are being provided under the Fourth and Fifth Highway Projects. To maintain this equipment, five workshops are being equipped and improved. The prL posed project will continue to build on these efforts. 37. Road maintenance is financed from the general budget while new construction is financed from the investment budget which comes mainly from external sources. Since 1975, an average of FMG 1.9 billion (US$5.1 million) per year has been allocated to road maintenance, well below the US$11.8 million minimum FMG 5 billion required under the Credit Agreement of the Fifth Highway Project to adequately maintain the entire network. This requirement was not met due to misallocation of resources. In addition, these funds were often disbursed late, thereby interrupting and delaying the works. Therefore, the Government has agreed to establish a financing mechanism to ensure adequate and timely funding for road maintenance operations. As a means to implement this mechanism, and until a road fund can be established, the Government will make FMG 5 billion (US$13.3 million equivalent) available to MTP in 1984 for road maintenance operations, and by January 31, 1984 will open a "Caisse d'Avance" (revolving fund) in its Treasury, with an initial deposit of FMG 600 million (US$1.6 million) to be replenished quarterly, which will be used exclusively for road maintenance. By December 31, 1984 the Government will establish a Road Fund in the Central Bank. The national petroleum company, SOLIMA, will deposit monthly and in approximately equal installments, revenues from taxes and duties on motor fuel into this account. The Government will ensure that for 1985 and 1986, a minimum of F4G 5 billion is deposited into the Road Fund, taking into account domestic inflation and the volume of maintenance operations. By January 1, 1985, the Government will establish a new "Caisse d'Avance" under the same conditions as the previous one except that this "Caisse d'Avance" will be in the Central Bank and will be replenished from the Road Fund. In order that provision be made for financing road maintenance after project implementation, the Government and the Association will exchange views by December 31, 1986 on the estimated funds required for road maintenance for the next three years. The Government will take the measures necessary to ensure that such funds will be available to MTP as and when they are needed (Section 4.02, draft Development Credit Agreement). Sector Management, Planning and Coordination 38. While several ministries and Government agencies have some responsibility for managing the sector, the two most important are the Ministries of Public Works (MTP) and of Transport, Supplies and Tourism (MTRT). MTP is responsible for planning, building and maintaining highways, ports and airports; MTRT is responsible for transport operations in all modes, management of the ports (except Toamasina) and airports, and oversight functions for RNCFM, port of Toamasina, Air Madagascar and the state shipping companies. Others with significant responsibility in the sector are the Ministries of Industry and Commerce and of Agriculture, the Army and the Directorate of Planning (DGP). The fragmentation of responsibility has made transport planning and coordination  - 13 - difficult and ineffective. Overall sectoral planning theoretically is in the hands of the Planning and Programming Unit in MTRT. It has been unsuccessful because its staff is too small and inexperienced, and it has been accorded too low a status in MTRT. Under the proposed project this unit will be upgraded and provided with technical experts to help it perform its important task (para. 65). 39. In the past, intermodal coordination was not considered of great importance since the transport systems operated relatively independently. However, as the subsectors have developed, intermodal planning and coordination have become indispensable. The proliferation of transport organizations and the continously expanding role of the public sector have led to duplication of activities, overlapping functions and conflicting objectives of different organizations. A unit will be set up to plan and coordinate transport activities to avoid waste and duplication (para. 65). Beyond that, the Directorate General of Planning was transferred to the Presidency from the Ministry of Finance, and the accompanying elevation in status of that agency should benefit overall transport planning. Sector Investment 40. During implementation of the 1978-80 plan the Government made substantial investments in the road network, air transport facilities, and in trucks, ships and aircraft. While transport's share (27 percent) of total investment outlays was not excessive, the apportionment among modes has resulted in overcapacity in some areas (coastal shipping, ports) and undercapacity in others (road transport). Moreover, these purchases of equipment have contributed to the increase in the country's debt and have burdened the finances of some of the transport parastatals. More significantly, the maintenance of infrastructure and equipment was neglected with a consequent deterioration in quality and a rise in the cost of transport services. In view of the failure of controls over investments and the poor economic outlook, the Government, with the Association's support, has embarked on a program of economic reform, including the preparation of a 1983-85 public investment program with improved controls over investment. 41. Under the proposed investment program about 26 percent of total investment outlays of FMG 396 billion (US$1.0 billion) is allocated to the transport sector. Of transport's share, 68 percent is for road transport, 13 percent for rail, 12 percent for air and 7 percent for ports and shipping. Both the overall size and subsectoral composition of the new transport plan are more in line with the needs and constraints of the country than previous plans. Given the financial constraints, a number of the small sub-programs or projects not included in the proposed project and which do not have any other source of foreign assistance will have to be deferred or phased out. The Government has agreed to exchange views with the Association on its program of new highway investments by September 30 of each year during the execution of the project (Section 3.09, draft Development Credit Agreement).  - 14 - Road Transport Industry 42. The country's total vehicle fleet is estimated at 30,000 vehicles, of which 13,000 are light vehicles and 17,000 commercial vehicles (11,000 utility, 1,000 buses and 5,000 heavy trucks). The main element of this fleet is the heavy trucks, 2,000 of which are owned by the Government and 3,000 by the private sector. The private sector of the industry has been relegated to a secondary position in the allocation of scarce foreign exchange for new vehicles and spare parts. As a result more than half the heavy truck fleet is out of service for lack of spare parts. A recent FAC report of the sector estimated emergency spare parts needs, i.e., what is needed to overcome the maintenance backlog and to put the entire motor vehicle fleet back in operation, at US$20 million, of which US$10 million is the minimum required for the truck fleet in private hands. It was also estimated that the normal recurrent needs for the total fleet are US$20 million for spare parts of which US$15 million is required for commercial vehicles, both public and private. The proposed project will include a scheme to help meet the emergency needs of the private road transport sector (para. 61). At the same time the Government has agreed to ensure that each year during the execution of the project a quota in foreign exchange of at least US$15 million equivalent is made available to commercial transport enterprises to import the spare parts required by them to operate efficiently (Section 4.03 (b), draft Development Credit Agreement). During the last year of project implementation and not later than December 31, 1986, the Government will exchange views with the Association on its estimated import programs for spare parts for commercial transport entreprises for the next three years (Section 4.03 (c), draft Development Credit Agreement). 43. Passenger transport is regulated by MTRT. Rates are not reviewed frequently enough to reflect changes in operating costs. MITRT's planning unit (para. 65) would carry out a national transport planning study which will include recommendations on road user charges and fuel prices and taxes, as well as the cost and structure of road passenger services. The study, whose terms of reference would be approved by the Association, would be completed by December 31, 1984. After submission of the study and its recommendations to the Association, the Government would promptly take appropriate action taking into account the Association's comments (Section 3.08, draft Development Credit Agreement). Traffic Regulations and Safety 44. The enforcement of regulations governing truck weight and dimensions is lax, but the Government has agreed to act immediately to ensure that the importation of vehicles is limited to those that fall within the legal weight and dimension specifications for road use (Section 4.03 (d), draft Development Credit Agreement). The Minister of Public works will have the sole authority to approve the technical aspects of import licenses for trucks, assembly licenses and road licenses for these trucks. Laws governing road safety are adequate but enforcement is lacking. The Government will prepare by December 31, 1983 an action plan for road safety and taking into account the Association comments, implement this plan not later than June 30, 1984 (Section 4.04, draft Development Credit Agreement).  - 15 - Transport Policy and Issues 45. In order to reassess the situation and help the Government reorient its sectoral policy framework, a transport sector review was carried out in 1982 and based on its findings and discussions with the Government, a Transport Sector Memorandum (TSM) was issued in February 1983. It identified the following areas as those deserving urgent attention: need for financial recovery, need to enhance the efficiency of the road transport industry, improvement of pricing policy in the sector, need to shift emphasis from construction to rehabilitation and maintenance, improvement of sector planning and coordination, and need for increased manpower training and technical assistance. While the dialogue induced by the TSM has brought about substantial change in government's strategy in the sector -- such as increasing transport tariffs, shifting emphasis from new construction to rehabilitation and maintenance, and concentrating operations on a limited priority road network -- further action on these issues (some of which are discussed below) is still necessary and will be taken under the proposed project. 46. Government has already stated its intention to enable the private transporters to compete on equal terms with the public sector. Its agreement to the proposed US$10 million allocation under the credit for spare parts purchases exclusively for private transporters is a first indicator of this seriousness. By December 31, 1984, government will remove all restrictions on the selection of routes and commodities to be transported by private transporters and will deregulate all tariffs for road transport, unless otherwise agreed by the Association on the basis of reasons satisfactory to the Association resulting from the study referred to in para. 65 (Section 4.07, draft Development Credit Agreement). Further increases in tariffs for road transport are needed to correct the serious imbalance between costs and tariffs. During negotiations the Government informed the Association that tariffs for road transport will be increased by 40 percent before July 15, 1983 and government agreed to consider this event as a condition of effectiveness of the Development Credit Agreement (Section 6.01, draft Development Credit Agreement). Another increase in tariffs for road transport to a level acceptable to the Association taking into account price variations, will take place not later than March 31, 1984 (Section 4.06, draft Development Credit Agreement). Previous Bank Group Assistance in the Sector 47. Bank Group lending to the transport sector has amounted to US$134.4 million for eight projects. Lending has comprised five highway projects with a total of US$104 million, two railway projects (US$19 million) and a port project (US$11.4 million). Further, several Bank Group agricultural projects have included feeder roads. The focus of the first three Bank Group projects in the highway subsector was on helping the Government pursue its objective of providing better road access to regional economic centers. The three projects financed the construction to paved standards of a total of 708 km of roads. Project Performance Audit Reports (PPARs) for the three projects indicate that recalculated ERRs for individual roads are generally acceptable. The most  - 16 - important lesson from the three projects, identified by the PPAR for the Third Highway Project, is that lack of training and maintenance components under these three projects was an important shortcoming in the Bank Group's assistance to Madagascar for highway development. 48. The Association's attention subsequently shifted from expansion and improvement of the road network to road maintenance and institution building. The ongoing Fourth Highway Project was designed to improve road maintenance activities, institution building and staff training through a study to evaluate road maintenance needs (equipment and personnel), procurement of road maintenance equipment and weig'nbridges, and initiation of a training program, in addition to the construction to gravel standards of a 370 km secondary road and reconstruction to paved standard of a 67 km section of Pi 1. The Fifth Highway Project, designed to strengthen road maintenance operations, includes procurement of additional road maintenance equipment, improvement of workshops and road regravelling operations, as well as construction of bridges and drainage structures on a 165 km road and rehabilitation of sections of RN 4 and RN 7. 49. The execution of the Fourth and Fifth Highway projects has, however, been hampered by poor organization and frequent changes in the management and staff of MTP, cumbersome administrative procedures, lack of experienced personnel, and shortage of funds. As a result, the projects have been delayed by three years and one year, respectively. To solve these problems, the Government has put in place a more efficient organization, stabilized MTP's management, and shortened some administrative procedures. These measures have significantly improved the implementation of the projects. Delays also resulted from insufficient allocation of foreign exchange by the Government to contractors, suppliers and consultants working under Association projects. To eliminate this problem, the Government has agreed to ensure that all authorizations required for the importation of goods under the project are given within two weeks of its approval of related contracts and before notification of said contracts (Section 3.03 (c), draft Development Credit Agreement). 50. The First Railway Project financed a modest increase in capacity and improvements in management and operations. It also included the setting up of a planning unit in the MTRT. The project had to be reduced in scope due to cost overruns and was completed three years behind schedule; the recalculated rate of return was less than 10 percent. The ongoing Second Railway Project provides replacement of outdated equipment, track renewal, and improvement of telecommunications and workshops. The credit was suspended in June 1982 for non-compliance with covenants concerning tariff adjustments but the suspension was lifted in December 1982. The remaining credit funds are being used for technical assistance to improve financial management and training for a new financial directorate and feasibility studies be carried out on two lines whose economic viability is in question. The port project provided for extension of the port of Toamasina, creation of a port authority and training. The physical components were satisfactorily carried out, but the revised rate of return was only 7 percent due to the decline in traffic since 1972. Institution building eventually contributed to more efficient management.  - 17 - PART IV - THE PROJECT 51. The project was appraised in November/December 1982. A Staff Appraisal Report entitled "Democratic Republic of Madagascar - Sixth Highway Project" (No. 4399 a-MAG) dated June 2, 1983 is being distributed separately. A supplementary project data sheet is attached at Annex III. Negotiations were held in Washington, D.C. from May 19 to 27, 1983. The Government delegation was led by Lieutenant Colonel Victor Ramahatra, Minister of Public Works. Project Background 52. At appraisal a program for the rehabilitation and maintenance of the road network and for the rehabilitation of the road transport industry was designed to meet urgent transport needs of the county. The cost of the program was estimated at US$100 million. Given the resource constraints facing the Government, it was agreed to define a priority project that could be financed with resources already known to be available. It is believed that additional financing will be available in the near future. The project presented below is self-contained; it is designed so that as additional financing becomes available the elements can be easily expanded. Project Objectives 53. The proposed project will continue and expand efforts to improve the condition of the road network started under the Fourth and Fifth Highway Projects. Its principal objectives are to (i) permit efficient and reliable transportation on the country's high priority roads by improving their condition and arresting further deterioration, thus reducing a major bottleneck to economic development; (ii) continue the strengthening of the road administration's capacity to maintain the road network and repair the Government's equipment pool; (iii) improve transport coordination and planning; and (iv) begin rehabilitation of the country's commercial vehicle fleet. Project Description 54. The proposed project would include: (a) a three-year rehabilitation and maintenance program (1984-86) consisting of spot improvement, rehabilitation and maintenance of about 2,470 km of rural and feeder roads (including about 300 km in the area of the Highlands Rice Project), patching and resealing of about 2,500 km of paved roads, routine maintenance of the entire economic network of 10,000 km, and the rehabilitation of about 280 km of Route Nationale 4 and Route Nationale 7;  - 18 - (b) improvement of the National Soils Laboratory (LNTPB); (c) training of personnel of the Ministries of Public Works and of Transport, Supplies and Tourism; (d) assisLance in the rehabilitation of the road transport industry through the financing of spare parts; and (e) consulting services for supervision and management of works, preinvestment and management studies, and technical assistance for the National Soils Laboratory, for training and for improvement of transport coordination. 55. Road Rehabilitation and Maintenance Program: The three-year road maintenance program (1984-86) would concentrate on the rehabilitation and maintenance of the 10,000 km "economic road network" (para. 32). To reach a double objective of increasing MTP's capacity to effectively carry out road maintenance operations and making the network passable year round in the near term, the maintenance operations will be carried out simultaneously by force account and contractors; the rehabilitation of RN 4 and RN 7 will be carried out exclusively by contractors. 56. Maintenance Operations: About 2,470 km of rural and feeder roads have been preselected for maintenance. These roads are located mainly in areas of agricultural and industrial development and will include about 300 km of roads located within the zone of the Highlands Rice Project which was appraised by IDA for financing by the International Fund for Agricultural Development (IFAD). The list of roads to be maintained by contractor and by force account during the first year of project implementation were agreed upon at negotiations; in subsequent years the Government and the Association will agree on a list of roads six months before the start of works (Section 3.07, draft Development Credit Agreement). Specific works to be carried out on these roads include (i) spot improvements, (ii) regrading and regravelling, and (iii) improvement of drainage structures. 57. In addition to maintenance works on rural and feeder roads, DPCH will carry out patching and resealing operations on 2,500 km of paved roads, and labor-intensive routine maintenance operations on the remainder of the economic network. These works will be carried out by seven multi-purpose brigades, one of which would be based in each of the six regions and the special division of Tolagnaro (Section 4.05, draft Development Credit Agreement), and 42 labor-intensive teams corresponding to the subdivisions of the road maintenance organization. Most of the equipment and tools for the brigades and teams and five workshops have been or are being provided under the Fourth and Fifth Highway Projects. The proposed project will provide two more workshops and their equipment, the list of which was discussed and agreed during negotiations.  - 19 - 58. Rehabilitation of RN 4 and RN 7: RN 4 and RN 7 constitute the major road axis (1,100 km) in the country. Under the Fifth Highway Project, about 200 km of this road are being rehabilitated. The proposed project would continue these efforts by providing for rehabilitation of an additional 280 km. This road axis, built to paved standards in the 1950s as a low volume road (50 vpd to 100 vpd) and now carrying from 200 vpd to 1,000 vpd, has deteriorated to the extent that reconstruction of the pavement is necessary. The proposed improvements would consist of (i) improvement of drainage structures and shoulders, (ii) widening of some sections, (iii) rebuilding of subgrades, and (iv) construction of a new base course. * 59. improvement of the National Soils Laboratory: LNTPB, the national soils laboratory, is carrying out research on the utilization of construction materials. It is also conducting soils investigations for the design and construction supervision of civil engineering structures including roads, bridges and buildings. The Government has called upon the laboratory to join DPCH in planning and executing road maintenance programs. During the past two years LNTPB has received support from UNDP and FAC in the form of equipment and technical assistance. The project will continue and expand this support by providing supplementary equipment and qualified personnel. The list of equipment has been discussed and agreed during negotiations. 60. Training of MTP and MTRT Personnel: The three-year (1984-1986) training program would provide for retraining of about 730 MTP employees already in place, and the recruitment and training of about 185 new employees (engineers, technicians, mechanics, operators, drivers and administrative personnel). The project will also provide training for about 10 transport professionals and technicians of MTRT. The program will be run by the training center in Antananarivo, CATP, headed by a competent Malagasy professional; instruction will consist of classroom and field training with greater emphasis on the latter. Malagasy instructors will receive on-the-job training at CATP; they and successful trainees needing additional instruction will be granted fellowships for short courses abroad or organized in the country. The Fourth Highway Project helped finance the reconstruction of CATP, training equipment and technical assistance. The proposed project will provide for additional equipment and expenses to implement the training program. 61. Rehiabiiitation ot the Road Transport Industry: In order to help rehabilitate the private transport industry, the proposed project will include a pilot scheme to provide US$10 million in foreign exchange to meet the emergency needs for spare parts (see para. 42). This component of the credit would be channelled through the Bankin' Ny Indostria (BNI), Madagascar's industrial bank, or through any other bank acceptable to the Association as a "managed fund" under a subsidiary agreement between the Government and BNI or the bank under consideration. BNI or the bank would implement the pilot scheme following procedures and criteria acceptable to the Association (Section 3.01 (b) and Schedule 4, draft Development Credit Agreement). The signing of a subsidiary agreement, acceptable to the Association, would be a condition of disbursement of credit funds under this component of the proposed project (Schedule 1, draft Development Credit Agreement). BNI was considered because it has a competent staff and is already familiar with the Association's procedures through an ongoing DFC operation (Credit 977-MAG).  - 20 - 62. BNI would allocate foreign exchange to distributors of utility vehicles (trucks, buses and vans) on the basis of their share of the market as determined by their turnover during the previous five years and the composition of the utility vehicle fleet they service. The initial allocation of the credit among the distributors will be reviewed after one year in relatijn to the rate of disbursements. BNI will retain an administrative fee of 3.5 percent and deposit the balance in a special account which will be used for the financing of local costs of the project. BNI will be responsible for reviewing and approving the distributors' requests; ensuring that adequate procurement procedures have been followed; maintaining, with the participation of the distributors, a monthly list recording sales under the project; and monitoring the sales by the distributors and the use of spare parts by the truckers through regular spot checks (Schedule 4, draft Development Credit Agreement). 63. Technical Assistance: In view of MTP's still limited capabilities, consultants would be engaged to supervise rehabilitation works on RN 4 and RN 7 and will lead DI teams in the supervision of spot improvement and maintenance works on rural and feeder roads carried out by contractors. In addition, construction experts will be provided to manage the seven multi-purpose brigades; the experts will be engaged under a two-year management contract between MTP and qualified contractors. The project would also include two preinvestment studies: one for a future paved road maintenance and strengthening program and the other for the development of the feeder road network. The terms of reference for the studies were discussed and agreed upon at negotiations. 64. MTP is seriously handicapped by the shortage of qualified, experienced personnel especially at the management level. While training will be carried out under the proposed project, experts will also be provided to assist in efficient management and execution of the current and planned operations; they include: (i) two experts to serve as line managers for three years to assist MTP with technical operations and road maintenance operations; (ii) seven experts for two and a half years each and one for four years to assist in running the training program; and (iii) three experts (10 man-years) to assist in the improvement of LNTPB operations. A study will also be carried out to assess and make recommendations for further improvement of MTP's organization to carry out efficient road operations and set up an organization to assist rural communities in the improvement and maintenance of rural and feeder roads. The terms of reference of the technical assistance and the study were discussed and agreed at negotiations. 65. Transport Planning and Coordination: Under the project, a high-level transport planning unit will be established within MTRT by December 31, 1983 to plan and coordinate investment with MTRT and other agencies in the sector (Section 3.08 (a), draft Development Credit Agreement). The unit will carry out planning studies which are financed by FAC and additional modal studies to complete a national transport plan. IDA and FAC will strengthen the unit with the provision of two transport experts for two years, one of which would be seconded by IDA, and the training of the unit's staff through courses at CATP and, when necessary, through fellowships for specialized studies abroad. The  - 21 - Government will provide the Association with qualifications of candidates for fellowships and the type and cost of training, institutions selected and probable assignments of the trainees upon their return (Section 3.06, draft Development Credit Agreement). The terms of reference for the technical assistance and studies were discussed and agreed upon at negotiations. Project Cost 66. The total project cost, net of taxes, is estimated at US$81.7 million equivalent, with local costs of about US$22.1 million equivalent (27 percent) and foreign costs of about US$59.6 million (73 percent). Taxes are estimated at US$11.6 million. Base costs are at May 1983 prices; physical contingencies of about 10 percent, and price contingencies of about 20 percent have been added to all components except the road transport industry pilot scheme and labor in the maintenance program by force account. Price contingencies are based on recent estimates of inflation rates as follows: 8.0 percent in 1983, 7.5 percent in 1984, 7.0 percent in 1985 and 6 percent thereafter. The same percentages for local and foreign costs were used under the assumption that the differential inflation of Madagascar will be compensated by exchange rate adjustments. Financing Plan 67. The project would be financed on a parallel basis by the Government of Madagascar (US$16.1 million), the Association (US$45.0 million), AfDF (US$19.2 million) and IFAD (US$1.4 million). AfDF and the Government will finance the rehabilitation and supervision of construction on about 180 km of RN 7; IFAD will finance part of the foreign cost of consulting services and technical assistance for the rehabilitation and maintenance of rural and feeder roads; the Association and the Government will finance the remaining costs of the project. In addition, the Government will finance any taxes it includes in any contract under the project. Additional funds are needed to contribute to the financing of the balance of the US$100 million program, which includes additional rehabilitation of RN 4 and RN 7. Such financing is expected to be available from the European Development Fund (E.D.F.) and the Kreditanstalt fUr Wiederaufbau (KfW, Federal Republic of Germany) for rehabilitation. Other contributions for road rehabilitation may come from the UK for bridges and bridge repairs and from FAC for technical assistance and studies. Project Implementation and Procurement 68. The project will be implemented by the MTP through its DGE except for the improvement of transport planning and coordination which will be implemented by MTRT, and assistance to the road transport industry, which will be implemented by BNI or another bank acceptable to the Association. Road rehabilitation and maintenance operations and technical assistance services will start in January 1984 and take about 36 months to complete. Procurement of spare parts for truckers will be spread over about two years starting near the  - 22 - end of 1983. Pre-investment studies and the study for the improvement of MTP's organization and management will start in January 1984 and take about two years and eight months, respectively, to complete. The project is expected to be completed by December 1987. 69. CiviL works for road rehabilitation and maintenance to be carried out by contractors will be awarded on the basis of international competitive bidding (ICB) in accordance with Bank Group guidelines after suitable prequalification. Small civil works amounting to an aggregate cost of no more than US$1.0 million may be carried out through amendment to contracts being executed under the Fifth Highway Project. The two workshops to be constructed (US$2.5 million) are at opposite ends of the country and unlikely to attract foreign contractors and their construction will be carried out by contractors on the basis of local competitive bidding procedures which are acceptable to the Association. Qualified domestic civil works contractors would be allowed a preferential margin of 7.5 percent over the bid price of competing foreign contractors. Equipment, spare parts, tools, materials and supplies for rehabilitation and maintenance will be provided on the basis of ICB following Bank Group guidelines. However, individual items or groups of items costing under US$50,000 and totalling no more than US$500,000 may be procured on the basis of quotations obtained locally. Consulting firms and individual experts will be selected following the Bank Group's guidelines. 70. The US$10 million line of credit for the rehabilitation of the road transport industry will finance the foreign exchange cost of spare parts to be purchased by distributors of utility vehicles on the basis of approved letters of credit issued by BNI or other approved bank. The spare parts would be grouped in lots of US$250,000 and purchased from foreign suppliers in accordance with established commercial practices in Madagascar. Direct purchase will be required for proprietary spare parts; all other items (tires and routine maintenance items) would be procured on the basis of limited international tendering, requiring price quotations from not less than three suppliers. Disbursements 71. The proposed IDA Credit of SDR 41.7 million (US$45 million equivalent) would be disbursed against 100 percent of foreign expenditures for civil works contracts if payable exclusively or partially in currencies other than FMG and 70 percent of total expenditures for civil works contracts payable exclusively in FMG; 100 percent of foreign expenditures for consultant services, technical assistance and fellowships; 100 percent of the foreign cost of directly imported equipment, spare parts, materials and supplies, or 70 percent of the cost if purchased locally; and 100 percent of the foreign cost of directly imported spare parts for the private road transport industry. Disbursements are expected to begin in the third quarter of FY1984; the Completion Date is December 31, 1987 and the Closing Date June 30, 1988.  - 23 - Project Accounts, Audit and Reporting 72. Separate accounts for each project component would be maintained by MTP and would be made available for inspection by the Association during project supervision (Section 4.01 (a) and (b), draft Development Credit Agreement). Project accounts would be audited annually by the Auditing Department in the Ministry of Finance, which is acceptable to the Association. If the Auditing Department is unable to perform this task, it would be carried out by independent auditors acceptable to the Association. Audited reports would be submitted to the Association for review within six months following the end of each fiscal year (Section 4.01 (b), draft Development Credit Agreement). BNI or the bank considered in para. 61 for the private transport pilot scheme will also submit annual audited reports prepared by qualified auditors (Schedule 4, para. 3 (b), draft Development Credit Agreement). Within six months of the Closing Date, the Government would prepare and submit to the Association a project completion report (Section 3.04 (d), draft Development Credit Agreement). Benefits and Beneficiaries 73. Since the economic network includes all classifications of roads, from trunk to feeder roads, throughout the country, the benefits from improved maintenance would accrue to the whole range of users and communities. The rehabilitation of RN 4 and RN 7 would have a direct impact on an area of high economic activity where about one third of the population lives. RN 4 links Antananarivo, the capital, with the port of Mahajanga, the second most important port in the country, and therefore is an alternate supply route to the capital. RN 7 connects the capital to the industrial city of Antsirabe, continuing south to Fianarantsoa, a regional center and hub of an important agricultural region. The provision of foreign exchange for spare parts for private truckers would benefit producers, consumers and the entire economy, as well as the truckers themselves, since the shortage of spare parts has severely reduced transport capacity. 74. The main benefit of the project would be a reduction in vehicle operating costs, which would accrue to owners and operators of commercial vehicles, both public and private. It is expected that producers and customers alike would benefit from the resulting reduced transport costs since freight tariffs, while in principle regulated by the Government, are in practice set by competition. Improved road maintenance will also allow better access to productive areas, provide cheaper and more reliable transport, arrest the deterioration of roads and improve ITP's capacity to maintain roads. Important benefits not quantified in the economic evaluation include reduced freight damage, accidents and travel time, and better access to social and medical services. The provision of year-round access to areas where transport was previously restricted will encourage increases in agricultural production since transport will no longer be a bottleneck on the movement of inputs and outputs.  - 24 - Economic Analysis 75. Except for technical assistance and training, the other components of the project have been individually analyzed to assess their benefits. Separate economic analyses were done for paved and earth (rural and feee:r) roads. For paved roads the overall ERR is 179 percent, with ERRs ranging trom 27 percent to 356 percent on the individual sections. Proposed works on rural and feeder roads consist of spot improvements, regravelling and improvement of drainage structures. Of the 2,900 km included in the proposed project, about 900 km have been selected for the first year's program. The economic analysis yields an ERR of 16 percent for these roads. For the remaining 2,000 km of roads in this component, only those demonstrating an ERR of greater than 12 percent would be considered for the second and third year programs. The sections of RN 4 and RN 7 to be rehabilitated were analyzed according to their level of deterioration and traffic levels; required improvements range from pavement strengthening to complete reconstruction. The various sections of RN 4 and RN 7 have ERRs ranging from 13 percent to 157 percent, with the weighted average being 49 percent. The spare parts for the private road transporters would allow better utilization of the existing utility vehicle fleet. The overall economic rate of return for the project is 42 percent for all the quantitatively analyzed components (about 90 percent) of total project costs. Risks 76. The main risk associated with the project is that the Gove2nment would not provide adequate local funds on time for the maintenance component. To overcome this risk the Government has agreed to establish a road fund and allocate fixed amounts for road maintenance during project implementation. The other major risk concerns MTP's capability to manage and execute force account works and the possibility of poor quality work which would reduce the economic life of the roads and, consequently, the benefits. The project includes contractors to carry out part of the civil works and technical assistance to reduce this risk as much as possible. PART V - LEGAL INSTRUMENTS AND AUTHORITY 77. The draft Development Credit Agreement between the Democratic Republic of Madagascar and the Association and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association are being distributed separately to the Executive Directors. Special conditions of the credit are listed in Section III of Annex III to this Report. A condition of Credit effectiveness would be an increase of tariffs for road transport by 40 percent (para. 46). 78. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.  - 25 - PART VI - RECOMHENDATION 79. I recommend that the Executive Directors approve the proposed credit. A.W. Clausen President * Attachments June 2, 1983 ,  - 26 - Pae of 5 TABLE 3A MADAGASCAR - SOCIAL INDICATORS DATA SHEET MADAGASCAR REFERENCE GROUPS (WEIGHTED AVERAGES AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 58? .0O MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTURAL 370.0 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA GNP PER CAP'TA (US1) 150.0 220.0 350.0 250.8 1053.2 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 38.5 68.7 89.1 66.5 610.1 POPULATION AND VITAL STATISTICS POPUIATION, MID-YEAR (THOUSANDS) 5474.0 6785.0 8714.0 URBAN POPULATION (PERCENT OF TOTAL) 10.6 14.8 17.7 17.8 28.3 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 16.1 STATIONARY POPULATION (MILLIONS) 51.1 YEAR STATIONARY POPULATION IS REACHED 2110 POPULATION DENSITY PER SQ. K1. 9.3 11.6 14.4 27.7 54.7 PER SQ. KM. AGRICULTURAL LAND 14.9 18.7 22.9 86.7 129.9 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 41.6 42.8 43.7 44.8 46.0 15-64 YRS. 55.2 53.9 53.0 52.3 51.1 65 YES. AND ABOVE 3.2 3.3 3.3 2.9 2.8 POPULATION GROWTH RATE (PERCENT) TOTAL 1.8 2.1 2.5/c 2.7 2.8 URBAN 4.9 5.4 4.3 6.2 5.2 CRUDE BIRTH RATE (PER THOUSAND) 46.7 45.2 46.7 47.3 47.2 CRUDE DEATH RATE (PER THOUSAND) 26.6 21.9 17.9 19.5 15.7 GROSS REPRODUCTION RATE 3.0 3.0 3.2 3.2 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) USERS (PERCENT OP MARRIED WOMEN) .. .. FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 89.0 102.0 94.0 88.7 90.7 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 100.5 105.8 110.8/d 90.2 93.9 PROTEINS (GRAMS PER DAY) 57.4 58.6 58.6/d 53.1 54.8 OF WHICH ANIMAL AND PULSE 17.3 16.7 15.3/i 18.4 17.0 CHILD (AGES 1-4) MORTALITY RATE 21.1 15.7 11.1 26.7 23.9 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 37.2 42.2 47.1 45.6 51.0 INFANT MORTALITY RATE (PER THOUSAND) 108.9 89.2 71.3 129.9 118.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 11.0 25.0/e 23.9 URBAN .. 67.0 76.0/1e 54.9 RURAL .. 1.0 14.0/e 18.5 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL .. .. .. 25.8 URBAN .. 88.0 .. 63.1 RURAL .. .. 9.0/e 20.2 POPULATION PER PHYSICIAN 8900.8 10172.4 10242.3/d 32097.3 14185.2 POPULATION PER NURSING PERSON 3105.1/f 3353.9 2298.9/i 3264.6 2213.2 POPULATION PER HOSPITAL BED TOTAL 423.9 354.4 402.3/d 1225.0 1036.4 URBAN 150.51f 214.8 239.4/i 249.5 430.8 RURAL 760.2/f 475.3 517.9/d 1712.1 3678.6 ADMISSIONS PER HOSPITAL BED .. .. HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL .. 5.8 4.7/e URBAN .. 5.3 5.0.. RURAL 5.9 4.7/e AVERAGE NUMBER OF PERSONS PER ROOM TOTAL .. .. URBAN .. .. RURAL .. .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL .. .. URBAN .. .. RURAL .. .. ..  - 27 - Page 2 of 5 TABLE 3A MADAGASCAR - SOCIAL INDICATORS DA"A SHEET MADAGASCAR REFERENCE GROUPS (WEIGHTED AVEPAGES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b ESTIMATE /b AFRICA SOUTH OF SAHARA AFRICA SOUTH OF SAHARA EDUCATION ADJUSTEI ENROLLMENT RATIOS PRIMARY: TOTAL 52.0 88.0 100.0 63.2 83.3 MALE 58.0 95.0 .. 72.7 96.1 FEMLALE 45.0 81.0 .. 50.3 80.4 SECONDARY: TOTAL 4.0 11.0 12.0/e 10.2 15.3 MALE 5.0 13.0 14.0/e 13.2 19.4 FEHALE 3.0 9.0 lo.O/ 6.6 11.3 VOCATIONAL ENROL. (X OF SECONDARY) 9.1 8.7 .. 7.9 4.7 PUPIL-TEACHER RATIO PRIMARY 69.9 65.0 54.8 47.4 38.6 SECONDARY 24.2 19.8 .. 26.2 23.4 ADULT LITERACY RATE (PERCENT) .. 39.0 50.0/d 34.0 35.6 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 4.0 6.8 7.1/d 3.0 31.9 RADIO RECEIVERS PER THOUSAND POPULATION 15.0 79.7 135.6 34.8 71.8 TV RECEIVERS PER THOUSAND POPULATION .. 0.5 1.5/d 1.7 17.9 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 7.7 7.8 9.0/j 2.9 19.1 CINEMA ANNUAL ATTENDANCE PER CAPITA 0.5/f 0.7 0.4/1 1.1 0.6 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3046.0 3619.9 4423.3 FEMALE (PERCENT) 46.9 46.1 44.6 34.1 36.5 AGRICULTURE (PERCENT) 93.0 90.0 90.0 78.4 56.5 INDUSTRY (PEaCENT) 2.0 3.0 3.0 9.2 17.7 PARTICIPATION RATE (PERCENT) TOTAL 55.6 53.4 50.8 41.4 37.0 MALE 60.7 58.8 56.4 53.9 46.9 FEMALE 50.9 48.2 45.2 29.1 27.2 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/h HIGHEST 20 PERCENT OF HOUSEHOLDS 60.1/h . LOWEST 20 PERCENT OF HOUSEHOLDS 5.27i . LOWEST 40 PERCENT OF HOUSEHOLDS 13.0/b POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAFITA) URBAN .. .. 150.0/d 134.3 507.0 RURAL .. .. 86.0/d 82.9 200.6 ESTLMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. .. 135.O/d 96.4 523.9 RURAL .. .. 86.0/- 60.4 203.6 ESTIMATED POPULATION BELOW ABSOLUTE POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 50.O/d 39.3 RURAL .. .. 50.0/ 69.0 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1978 and 1980. /c Recent population growth estimate is 2.8% for 1975-79; /d 1977; /e 1975; /f 1962; /1 1974; /h Population. may, 1982  -28 - ".. of 5 ONtaC- Although the data ens dran free 6 e .o.eenrally judged tba mae auhrttteadrIbe it should alo I. notedhC cha by nap out be Intr- botiomelly -up-rbl.e benausa of the leak of steodaordtgd degintiune u-d concpt. u..S by difftroetutuu-i.. in otat the dn.- Th. aute r.oe tbglees, vogf4l to detonne 004or. g1 vwtffuig joduogi ttgf4, aw0 chgfetrtzeg ceft.n eajor differeores bst..e.c. ue........ rho r-ferec Smup. .c. (ll th. sawe o.uoty rgaop of the subject Oouufry .od (2) . count ry gr...p trOth euteuhat high-r -ver.g. i...-cu thaccb ....try group of the sublect country (eufgpt loo '5136' 101Wa 01l ZXporter" group oherc Aiddle 1-05 Ifoth Ofoho- ad 001dbl fact" Ia h..-e becaus of etrooge ..ao-o-cutu1 alfLiciuteal. Ic ch. -ef-eac group dots the a-eags. are poitl h clgtd erIth-tlc oas. for ...h lodi-c-r and shon only h.. majority of the -ouurise to a group he. dat. for that ihAi.ator. Sit- the c.-raoe of -outri.. aing the indi-ttors dep..d. on che -ollobillly of deco acdIs u unfom catonea be ousrcleed to renIg vrages of oce iadloalor to anot her. Chataerge are only usefu.1l In . cup.rng the -ila of usldnur -a acanane th. ....try sad ref.r....Se cupe. ARE Ichousod eq.k.) Puua Ptor H-iustta Bra - tcol,i urhac. and rurl -POylatuo tutl. oral. - Tct01 ourfgoe ores .oeprielg lead aca. od icleedoocore; 1979 dota. urboo, acd rura1 divIdd by cheir r-Poot incree of h.upite1 teds * dri-ulurl..I - fEticacs of arclua rgo used cesporooly or peresoently avIa L.1 public ond private ... eo1 aed epeoiallced h.pitta1 .ndr- for crops,pcr, eurht ... tbicotan garden or nu lie 7011l0; 1979 dato. hoblliteloin. -ctcrs. Hospitals ore vllteh-t. pereccly seeffed hy at lecet ace phyccoish. .tebl let_ Ar pro-ldlog prlooip.lly ...u -07 PER0 CAPITA, (U001 - GNIP per uaplt. eetCI..a at carrent market prlogo-i- diL care or not luoluded. furoL tca .aLa. hocevr. Itotud. heolth culoted by st oor tot aoda.,Acid Book Atlas (1978-80 ooial; 19h0. .od andloel .e..ter out p.reeOeoay erff.d by a physicIan (but by5 17,. ad lOf0t dc. edloal e... en fre cdelfe, tct.( hiob off.r It-po".tlece o- dotlue and pro-id.c lialtd range of aed-Iun fctiLtto,n. for -tatt- lNtRlY CONSUupTION PfR CAPITA - doaalo-I uptoof ooeseernta1etergy I(00 dual uroe rtaovoyiel icolud. WHfe prlfoip./gener-i hospitfols and litboito, P-,hOL-, naturol gou nd. hydon-, nooarad %.ut1n,-aI 01c-ud001 hopto lo-al or o-Al.. oayt.L. and edtc-I 004 nac-ety Orlolcy)' ItAlgaeof coaI equl-O... per u-plte; 1909, 1907. 004 S197 -oenrre. pcalod hoapicle arei Itldod uoiy under tl i ta Adtutloc. Pet dositul lcd - utl ch.crf adlto to ut dle-h-tj. froe ho-pitole dIvIded hy bcuh. o of hedo. Total Porlatl, Mld-Year (th-ougods) - Ac of July 1; 1960, 1070. sod :00 0110 data. '-ura, S'laofPnuod(tctpnhucol - tutl, utan.j and cural- lrhae Ii..ulu (P.-oaat of notal) - Railo of rhaa to total populatloul A ouebl _onelet of aSgou ofP dodasoasoelirlo qere difj=rntdef,in itin of urhS oMe mY affect tcoonT.blitny of data and their nola mole. A -ed-r or icdgcr en or my non ho hocluded In I ,ouuurel 90 1970. tad 1960 dora. the henbl o aalcrlparpocu PouatePr.Ofroto Aner.g nuero ..ma. .r roo -cocI urban,..d rural -aseen. y..eui-to In rear 2000 - Current pepalatfac projentiaee ort ba-d ua 1980 hgr of p.rtoe per root In all urho, and rorul ooaoplnd coo-vetiuna tct1 yopel.tiou by age ed sea end thoir a-relity and fertllity rrc.dali o.repenti-ely. Donlilege euclad. o-preceur-ttrese.d Projeorioe peramtere for terolity rete otpieo he lvl u uoh.-pied pert.. lag life eupctt...cy at birth i.c-reaeg olth coootre per cpita Anm...es to fectriclor ('ero- of% dvelIe -totl, urban, and rural - level, and f'tal, life eepectaoy ..tahLtoibg oc 77.0 yeore. Th. Pur- Coonlnldnellng oaih rla crItyo lIvIng qorter .. e. p-r..ateg. _nne fo f-LnIty rot also hone throc le-1 ae...m.log d-cilce In of nocal. arnue. .nd rura as-elings r-pa...i-ly. f.rtlltyacorin to tacms Ie und.. roar foelly PlnIatpedotaos tech . ooury is then uselgod ov of theto n onOotoeof aort-liy EDUCATIOt ad -etility teeade for projantlan purons.Idued Onr-limt ]Lstloa S_ira otry p.p.ouiacoh- L .. .t.tLaco-y rulto thor in 0 roeh elce Poeay cto - otl nato -d fenlr - Iroco tota, cult and fcnot tlhe tlrh roce. ia aqoa to the deat ratr-,. ad Oleo nhs .ge ec.r-rur tr toleto I ea th' prlnery lo-ved 00 -eroetgec of -eap-cl- ane ootrt ihO inahieved otly after fUotliarroa talne pcinry schoolag pouaio. 1otal Ild-c thiLdrero agd 6-il the rnpl--emt leve of -ilt net r-pradaoloo rote b. h . rnnoobc crlon Y-.r hut adjustsd for dIff.ren lnngch. of priteay edu-tlc; far of com raylacr i .Itef onaoly. Th. otacl.tery p.pulatIo ..e. .. oe_ couOlyle wth -oler- led- alo -oalcccy ....erd lOt pe-e- re itiad ca the haute. of the proicutd ohar-ct-ierc 000. - rlto of non m...i- pupils arr below or ohonhoctul uhsoI age. Intheh.e-r 2000. ead the rote of doctlve of f-tillltyruteor-Plso-Iodrahn -tcarl. bale aod fooale - Coaouted as aboneisnoondaY ant level. odcurlcrq et ...rhor- yours ox arpr-ood priearlI. _r=rco.; T-r -natlury r iananl rea ..ehd - The yaar when attnuonry populanita prc-tdet genra. vo' .catlons. or teacher tro lir - IuroIn.. for popln uian ciiib hr..chod. usually of 12 to 17 y-or of ago; . . ooreod= gcorana are g..terolly 700 aa. ka.. - Mtd-y-a pop.at-oLb per a.q-.c oluntr110 he.ctorca of VO...tlona c-rl1-nt (peroret o1 arcoodory)- Vo-catI... Inelul rocol oreo l960, 1070 and1079dat. loolud. tctoohil, ind-atflal, or ocher proSr-f hdcah uparate tndrpend- P.ar cc ..arooarl ad- Coepated oe abne for agrlultur.l laud .rtly or o dsofc of eaccdoryletr ttn Porpato " deA Stru-ture Chrcel bildrve 10-14 year.... etuc-g (13- Prtmy"ndE, aay eee lie hy..b;11-. oudr. of tr..her 10 tht WlYear), and retired (ho prare ad ove r) os peroantagee of eld-psar pepa- -or-np.nditglva. lafloLb; 1000, 1070. a-d 1090 deta. AdulYt lltrao rat toerent)-titor-t ad.cl (ada. to read and anise) foualo et_ fate p.....n) -ntal - A.-oI g'.-h rates of ctota IOd- uaeesgeof cunaladult poyoloclr. aged lb yoare andovr Year" " youato fr M_90-. 1907 d 0 1970080. Popolacion Iro-th fate(os-eat) -urbtac- ib.-ldret racee of urban papa- C0lONSMTION clatlo fr100-O 1907, ad 19710-dO Pasce-cc C.re. lIer hoto -adP.....ao) faa Sge ar. coupri.e accor Crde Sloch oe(e huod - Annul lion birtch pef tho....od of ald-yacr oureoawlcg l... rhac aght pereoce; on1 ud- heo--o.tere and popolatlot; lOAd, 1970..ad 1900 data, slItary ohilolca. Coud loah Oae (rr thusad) - Ano.e1 .,ah. per cho..eu.d of cfd-yegr Raio cI er (oar thoaodoolrol-A yeo -alnre fo rdio .Popolcion; l9Af, 1970. and 1900 data, broad c.at to r3gec_rl paLo parchauad of Pcplao; oas a bo_ Wornd.."tIon a. - A-treg. no.0.0 of duughtere a eo Ill hear 10 lloaoed rnoelve io oatoacad 10 yearn ,hen rgtato f radio her noe erdstv perod if abe Pner rne .....n .c-po fifr- ece ie1 ffec; dato for --w feore aay cot he oeabL...eu dlit raaeuealy fiv-erIaeagsealg1 1960, 1970. oca 1990. soot -orrtee abolIshed litening. femily PIan.I.% - A-MOvr. nna (hana) - oract-a1 a of acposT'V eune (-, tbaanad -.oation) TO r.cain... far brnudoa..t to of bi,th-coetrn1 d-roo. ade acpiso nor-nn f-ndly plaaticg program. gen..ral publla per chOueaed populotico; atclod..aaltcecsd TV rc.. Lvee PahvPlenin 1- Usrs cvooa of ..rr aMn - Pvntg f enoete La coonrte ans d Ln yearn chnt oratrttoc of TV sets tee L. offact. soeor hild-herig age (15-44 years)wh ow hirc . -b-ooceca d-n.- to Newepaper CruL-a-loo ler thou...nd pop.l.tfawf Shoe cbs -nerge .fre all nerriad -om In -a age Sr.p. cuat of 'daly &e.-r.l Interect tompepr. deflcda prat tablitatti- d-.entd prieefity taacrdln aeealoe nb c aneidared FP000 An NhtITI0O tah "daIly" if it appw.r.. .aa ortes et Icda. of load Orodacw par Canine (1969-7i-100) - laden of Per caPita anua Cln., ann.a Attnndaoc ocr Ceolta oo Year - hosedccth. oofoa of praolcof all fond -odindtia. prod-ti..eode e.-d tad fagd sod tickt.scold daeitg tba year, .. lnuiog adeeeto.e to drIe-. ia l-e le occledryea btac. Cosssditiee cover pelety geode (e.g. auger-cam end abile -it.. brea of4 cager) hcblo ar dible and .cntai ootrltatn (e.g. ..f enoud tc- ar eooludwdl. 1garege- prod-ali. of ...bahuanry7ts b tae On 1B00 P0001 ..tt-I averae prndoonr price enlght; 1961-65, 1970 . d 1000 data. occI Labor Poroa (tboneede)- f-oeoal oiv peca-a lacldio Por ceotta saeoofclre(eonaf -1aIeene COeptee f roere faces an celynd. hoIaido onye udae tc.. anrg equloalet ofoe f n ople avilll In -otry per -spita co lrog pupulsaon of otLages. Dfluitlo.. In vcrtue... tl r Par day.Aehbn eapieoWl.dmtoprodarcti, leport late oot oeaae;1960, 1970 and 1900 data. enports. an oheogee In snook. net sppllee anolde oafsel fead. sede. 'eel (crret - reol labor forcea acnssfacllbrfre qaitiee used 10 fowd Pracecea. and be-n to di-rrlbtta- Raqiracetatre.non)- Laber fortet amng oety buatla and. me t ner ctndby Pa base oe phyelaI.iwglu nee. far .wrMl stil- flehlcg oe p.rcautage fof total labor furo; 1060, 1070 and 1980 data. olty adhatlth -nederine enniwoc tnn1 t-pcrore. bac. egce Induecr )owecl- La1bor force In elde. ontCciat ecfctrn -ad -e diotrlhatl.otf popn.i-to. sod al1ming 10 peree fur neeaadelfricity.atrndgeepoeseoftallbroc; hoeeod lere; 1961-60. 190 In 1977 dto. 190. 190en 00 ae Poe ceot. _urol of cr.c.L. (gpat par day) - ProteIn ooetaet of peo oapina Pertcloalce. ate '(p-rsct) - total, so., and f4otal - Peotlipetfn O .mt aaPpiy of fond Par day. ret apply of fond is dafld cc abo.- he- aelof rtn ace r.nd an c-tel *el. and femle labor f.rorea qursot o aloOnre Iecbthod by U105. p-wide foeol.. p-ertengct of total. eAl an .d femle pope-I..a of alI sg..r.0-atlvely alo1 ceof 6a Srcm of tweet protinj pr dey and 20 gra ofanmc ad 1960. 1070,..ad l9go late. These are ao. nld etcpto ratee puItprocei. of hbfch 10 gram ofcId be aefmc protein. Tes cc- refaeleg-seeroaeo h popltio. and tang tin tred A orde are love then cha. of 70 grat of t-ce proteLn sad23 grem of fwe t.m.s r fr rs f ..t.na arre.. an-Ia protein eeenavrag for ch. -rid, Propoeed by 7A1 Ic cbe Third fuoel e-ednor. Sutlo - iftl of pepelanio ndar 15 and 60 and over fr1dfod Scuy: 1961-6l, 1070 and 1977 data, to the ota laheR fors.. Per C.nt rtt it . 0ro aical ad rules- Pratelo eupply of food de- olved froe aolnsle sod tole n r a Ia; '01-O 170 and 1077 data. iNCOOt DISTRIBUTIONf ChIjdlac1-)Ocbft(r thousand) - Onnul deathe per ebch w to-rec0dfPIst on bc coe Iod find) R- heetd byorichect age goup 14 yeas, to. tlf. n Ic thia ccc Sranp; 0r test deelping oau 5proc-. riche 20I~ .., rpoores 20 Zaot and poorno 40 pecoec tolan data deriv-d tee lif. t ho;16,17 n 00dt.of houtetoblds. Lifo fecuoy an Birth yara) A-Oerge nubtr of years of life rnectotc The fo1loelhg rotles te ore rY appro...n an- ocra f po-rary Lecl., tt bith.t; 196, ISMaod10 ut.ce nuldh f.tcprt ::t, ondrbncuin lcfaot fo. .c.lity fate (Pr houed) - -.-Ia d-etb of It fat under ..n .ear lEcteeted`A.nbaolutc ooty 10__ foon (IOorcaia rhaO and rural- 01t9 yor nch ..u.d tine b-hura 1960, 1970 .Ad 1000 dat. Oaoloc - ocot Lncom L_.et In thtlao ivt hnte hi a n,Ialeu A:ss to: f ee ceow frrlal -tcl cbhn,00 rac- - .n- ourtlau dequate diac pl.an.. esrtla1 nun-fond rqiect aat herofpo I'll tel. ohs."FC1111 P, roa) cith r-asohalnucn .to d ufforuble. aanwraa.Pply (Lacludes treatednrfao- Xtnr oro-nt.oodee b-lucoaiae lotlauced Reletlvo Porcy a-o Lroei (US0 oar cot)-rtan And rural1 -nn ah an that Ico prototted noonbolo. opelg. tad aenItany odin) uc ata roaILepvrytao (nI. In ...tit of net Per -apit. pe:rtcetagoc of che ir r..apetnto populati-ne -aohea -ybl yaruo.-oal lacom of cTrhe ctr = Y Iroco _Lae is derld Cro tho rutel fouoain oruta-dp-oet . ucad con acr than 200 ashre ra a otaay he.- ori eh odjuatnt for higct ..oat of livbo in, unb. .tn... c..sidwradc hetg altbln racoonbl. soo of nhec h..-o. Ic rural --ru E.i-cacd Pau .tI..Olo Obsol.fn .. OrtY "oom `eve (pro.... - br reasonable so-o -ould ltply that cbs h.ouaenfe or ooebe- of the h-cehold and rurnl1 Percet of population (uh ad rura) nhoar"uole do not have no pod a d1uproporctnateyart of the day 10 octhico the.oo' ilucbev_of p.ople Iora. urban, andrurAl) --eredby anrat dIpoel I Perorota.e of choir rneyputiv pop atihoto. Z-oren diapeacl an olude uheo letiecd dinpee.. oAt~h or vLtnoa creatmeC. ad homa ancrta ood eaencrby oaer-horn eyetee or Ih. us. of pit priotos aed iln- ?Povultiuc rer Pvlio-Popuai.ro. dioldad by 01.0r of procra, tg ohy.t- co-vta and SocIal Data Divialco ca... qboltfIad fran e eedlol eoow1 at _ai_rs icy land. E-bond.o dAly.in and Projeoti.n. Dop--rt PPoruaw.u ..r dUrnug Peract - :Popalet-an divIde by onsheor of practi.ing Soy 1011 usle and resale fradanrsooraae. Iaeltntvu .. prootcue osv- and ourteanilares  - 29 - AMEX I Pag 4 of 5 MAaIGASCAR - ECCNC}IIC INDICATCRS (ROSS NATICOAL PRCUCI IN 1981 Amnual Rage of Growth 1/ US$ min. % 1975-79 1979-81 -G2P at Market Prices 2,817.1 100.0 1.5 -4.5 Grcss Dhmestic Investnent 545.0 19.3 8.4 -15.0 GreBs Doestic Savirg 174.1 6.2 -3.0 -5.0 Current Account Balance -414.7 -14.7 - - Exports of Goods, NES 383.5 13.6 -3.0 -4.7 Imports of Goods, NES 725.7 25.8 5.5 -14.0 CrpUi IABCUR FCRCE AND PCUJUCIVITY IN 1980 Value added 2/ Labour Force 3/ VA Per Abrker US$ En. % '_ % US$ MLn % Agriculture 1,178.9 36.1 4095 88.4 287.9 40.8 Industry 588.3 18.0 127 2.7 4,632.3 657.0 Services 1,331.3 40.8 357 7.7 3,729.1 528.9 lhallocated 4/ 166.1 5.1 51 1.2 3,256.9 461.9 Total - 3,264.6 100.0 4630 100.0 705.1 100.0 COIMRRN FNANCE Central Gowernnent FMG Blin. of GDP 1981 1982 1981 1982 Currert Receipts 104.3 121.9 13.3 11.9 Current Expenditures 112.2 130.9 14.3 12.7 0urrert Deficit -7.9 -9.0 -1.0 -0.9 Capital Expenditures 69.1 39.4 8.8 3.9 Foreign finarrirg (net) 55.6 50.6 7.1 5.0 M2WY, CREDIT AND PRICES 1977 1978 1979 1980 1981 (Bil lion of FMG at TITEnd of tc e Period) Money and Quasi Money 120.3 140.7 172.9 205.8 242.2 Bank Credit to public sector 28.2 48.5 99.1 175.8 233.7 Bank Credit to state erterprises and private sector 96.1 101.1 120.9 150.3 163.8 (Percentage or Index Numbers) Mbney and Quasi Money as % of GDP 25.7 28.9 29.1. 29.8 30.9 GIP Price Deflator (1970 = 100) 183.3 195.7 218.0 251.0 313.6 Annual ercentage changes in Price Deflator 8.6 6.8 11.4 15.1 24.9 Bank Credit to public sector 44.6 72.0 100.4 77.4 32.9 Bank Credit to State Enterprises and private sector 10.1 5.2 19.6 24.3 9.0 Note: All conversiorn to dollars in this table are at the awvrag exchange rate prevailirg durirg the period covered. 1/ Based on 1970 prices. Z/ At market prices. i/ Total labour force. 4/ lxPDrt duties. Apir 1983  - 30 - Anrex I Page 5 of 5 MADAGASCAR - TRAIE PAYNENT AND CAPITAL FLOWS BAIANE CF PAYMENTS MERCANDISE EXPCRTS (AVERAGE 1977-80) 1979 1980 1981 1/ US$ MLn. % (US$ Million) Coffee 179.8 47.3 Vanilla 26.8 7.0 Cloves 49.5 13.0 Meat ard nmeat products 13.0 3.4 Exxrts of (bods & N.F.S. 465.9 492.7 383.5 Fish and shellfish 16.2 4.3 Imports of Goods & N.F.S. 933.6 1,059.2 725.7 Sugar 7.9 2.1 Petroleum products 8.2 2.2 Resource Balance -467.7 -566.5 -342.2 Chramite 10.6 2.8 Other cannndities 68.3 17.9 Total 380.2 100.0 Investment Income -22.6 -37.9 -78.0 Private Trarsfers, Net 7.1 0.9 8.5 EX [RNAL EEBT, 1ECIEER 31, 1981 US$ Mln. Current Account Balance -483.3 -603.4 -411.9 Pablic Debt, incl. guaratteed 1,257.5 Mrect Foreign Investment -6.6 -0.9 -0.7 Non-Garanteed Private Debt _ Total Outstarn1irg & Disbursed 1,257.5 Net MLT Borrowirg: 251.5 274.5 226.3 17EHr SERV1I(E RATIO FCR. 1982 3/' Disbursements 268.0 304.8 294.0 AnDrtization -16.5 -30.3 -67.7 7% Otber Capital (net) 2_ 27.2 127.4 203.2 Public Debt, incl. guaranteed 35.0 4/ ChEnge in Reserves 211.1 202.5 -16.9 (increase = -) IBRD/IIA IENDING, March 31, 1983 US$ nillion IBED DA RATE OF EXCHANE 1979 1980 1981 Outstandirg & US$1.00= =MG 212.72 211.30 271.73 Disbursed 30.56 185.34 FM 1 = US$ 0.0047 0.0047 0.0037 Undisbursed 150.66 Outstardirg incl. Undisbursed 30.56 336.00 1/ Provisional estimates from the Central Bank of Madagascar 2/ Includes SDR allocations, public trarsfers, state ars private slDrt-term capital, and errors and omissiors 3/ Debt service payments as % of eports of g,ods ard services 4/ After effects of debt reschedulirg arangnerts April 1983 under Paris Club  - 31 - ANNEX II Page 1 of 10 STATUS OF BANK GROUP OPERATIONS IN THE DEMOCRATIC REPUBLIC OF MADAGASCAR A. Statement of Bank Loans and IDA Credits (as of March 31, 1983) 1/ * Loan or Credit Number Year Borrower Purpose Bank IDA Undisbursed -------(US$ Million)------ Eight Credits and Five Loans have been fully disbursed 32.58 79.55 -- CR 506-MAG 1974 Madagascar Village Livestock 9.60 1.12 CR 641-MAG 1976 Madagascar Highways IV 22.00 4.90 CR 663-MAG 1976 Madagascar Education II 14.00 2/ 2.67 CR 817-MAG 1978 Madagascar Andekaleka Hydroelectric 43.00 3/ 6.63 CR 881-NAG 1979 Madagascar Mangoky - Agriculture 12.00 3.63 CR 903-MAG 1979 Madagascar Railways II 13.00 0.94 CR 938-MAG 1979 Madagascar Highways V 24.00 21.03 CR 977-MAG 1980 Madagascar Industrial Bank - BNI 5.00 3.62 CR 1002-NAG 1980 Madagascar Water/Sanitation 20.50 19.45 CR 1016-MAG 1980 Madagascar Petroleum Exploration 12.50 5.27 CR 1064-MAG 1981 Madagascar Agriculture Bank - BTM 91.48 5/ 8.36 CR 1086-MAG 1981 Madagascar Plain of Antananarivo T.A. 1.96 5/ 1.81 CR 1155-MAG 1981 Madagascar Accounting and Audit 10.25 51 8.87 CR 1161-MAG 1981 Madagascar Forestry II 17.77 5/ 15.69 CR 1211-MAG 1982 Madagascar Village Livestock II 4/ 13.95 5/ 13.95 CR 1249-MAG 1982 Madagascar Agriculture Instituti-ons 5.67 5/ 4.06 CR 1298-MAG 1982 Madagascar Tsimiroro Heavy Oil Exploration 11.66 5/ 10.66 CR.1337-MAG 1982 Madagascar Lac Alaotra 18.00 4/ 18.00 TOTAL 32.58 343.89 150.66 of which has been repaid 2.02 7.89 TOTAL now outstanding 30.56 336.00 150.66 Amount sold of which has been repaid TOTAL now held by Bank and IDA 30.56 336.00 TOTAL undisbursed 158.20 150.66 1/ Prior to exchange adjustments. 2/ Including a Norwegian grant participation of US$7.0 million. 3/ Including a supplemental credit of US$10.0 million of 1980. 4/ Not yet effective. 5/ Computed at the February 28, 1982 exchange rate.  - 32 - ANNEX II Page 2 of 10 B. Statement of IFC Investments (as of May 31, 1983) Loan Equity Total (US$ Million) 1977 Sotema - Textile Mill at Majunga 11.00 0.29 11.29 1980 Bata - Shoe Manufacturing in Antananarivo 1.25 - 1.25 1983 Pecheries de Nossi-Be 7.31 0.13 7.44 19 T.9 8- C. Status of Projects in Execution as of March 31, 1983 1/ 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, 1983 The project assisted 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 strengthening of the country's road maintenance administration. The 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, a local firm. Construction has begun and consultants Louis Berger have started training 39 local instructors, utilizing some of the existing facilities and equipment. As of December 1982, about 80 percent of the project had been completed; it is expected to be totally completed by June 30, 1984 or four years behind schedule. This delay was induced by the then prevailing inefficiency of the project management team prior to the appointment of the new Minister in January 1982. The Minister has put in place a new management team, and the project performance has improved. Disbursements which were very slow have also started to improve following the shortening of administrative procedures. Despite the delay in implementation, the project is still within estimated costs and available financing. 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 weaknesses in project execution.  - 33 - ANNEX II Page 3 of 10 Credit No 663-MAG: Second Education Project; US$14.0 million of December 10, 1976; Date of Effectiveness: August 15, 1977; Closing Date: June 30, 1983. The project is designed to assist the Government in decentralizing the educational system and to improve the quality of basic education. It comprises construction, furnishing and equipping of five Regional Education Centers (RECs) including vehicles for the inspectorate, and a Teaching Materials Production Center, including related technical assistance. Norway took 50 percent participation in the project under an agreement signed on December 16, 1977. Construction work on all five RECs is virtually completed. Most of the furniture and equipment has been delivered and in three of the centers the administrative facilities are already in use. The Teaching Materials Production Center is completed and is at present producing educational material at a limited level, awaiting the installation of supplementary equipment and appointment of additional staff. Technical specialists provided under contract with the Organization for Rehabilitation through Training (ORT) who started work in 1977 have trained the technical local staff which is operating the Center. Tenders for equipment to be financed under the project, for a printshop to be added to the Center have been approved. Because of delays in the construction of the printshop building, which is to be entirely financed by the Government, it has been proposed that the equipment be temporarily installed in rented premises. In order to allow for the completion of all project components, including the training programs, the Bank Group agreed to postpone the Closing Date first, from December 31, 1981 to December 31, 1982 and subsequently to June 30, 1983.  - 34 - ANNEX II Page 4 of 10 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 of Effectiveness: May 30, 1979; Closing Date: December 31, 1983. The project will meet the growth in electricity demand until about 1992 in the Antananarivo area and provides for the strengthening of JIRAMA. It consists of a concrete diversion dam and an intake structure; a 4-km tunnel, underground power house, tailrace and access tunnels; two turbines and two generators; electrical and mechanical equipment; a transmission line to Antananarivo; engineering services; preliminary investigation and design for a storage reservoir; and technical assistance and training for JIRAMA staff. The project has operated successfully since it was placed into commercial service on May 29, 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: August 31, 1984. The project supports the irrigation 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 in which 5400 ha has already been developed since the 1960s under external and local financing for cotton and rice production. Project implementation has been seriously delayed due to foreign exchange shortage for the procurement of equipment and spare parts, to the financial, managerial and technical problems of SAMANGOKY and to the overall difficult socio-political and economic environment in Madagascar. Civil works have been stopped due to cost overruns and agricultural production has slumped. As a result, SAMANGOKY is virtually bankrupt and has had to be bailed out by government. In line with its present policy and with the Bank's sector strategy of giving priority to rehabilitation than to new development, government has proposed restructuring of the Project to focus on rehabilitation of agricultural production and on institution-building and to limit irrigation development to only 1500 ha; the proposal also includes cancellation of SAMANGOKY's civil works contract to allow it to focus on rehabilitation of agricultural production.  - 35 - ANNEX II Page 5 of 10 Credit No 938-MAG: Fifth Highway Project; US$24.0 million credit of July 30, 1979; Date of Effectiveness: March 11, 1980; Closing Date: June 30, 1984. The project is intended to arrest the deterioration of the paved highway network in order to reduce transport costs and, where possible, avoid costly reconstruction works. It also includes construction of bridges on the Antsohihy-Ambanja road and provision to increase the maintenance capacity of the Ministry of Public Works. Co-financing is provided by a European Economic Community Special Action Account credit of US$10 million. As of September 1982, the project was 25 percent completed and is scheduled to be totally completed by June 1984, or about 1 1/2 years behind schedule. The delay was induced by the then prevailing inefficiency of the project management team prior to the appointment of the new Minister in January 1982. The Minister has put in place a new management team, and the project's performance has improved. Disbursement also has improved following the shortening of administrative procedures. As a result of this delay and further deterioration of the paved roads, the cost of the project has increased by about 36 percent. Given the Government's limited funds, the project would be reduced within the available funds, with no significant adverse effect on project objectives. AfDB has agreed to consider the Government's request to finance part of the resurfacing works, and the Public Works Department is reviewing the equipment list to adjust it to available financing. Credit No 903-MAG: Second Railway Project; US$13.0 million credit of June 25, 1979; Date of Effectiveness: May 7, 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 accounting methods. The French Caisse Centrale de Cooperation Economique provided US$20.5 million in co-financing. Disbursements which were suspended in June 1983 were resumed in Nomvember 1982. The last major item in this project is study of the viability of the branch lines - Antananarivo-Antsirabe and Fianarantsoa-Manakara, submissions for which have been received and will be reviewed during the next mission.  - 36 - ANNEX II Page 6 of 10 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, 198 4. 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 small- and medium-scale enterprise sectors. At end of March, 1983 about US$3.6 million of the credit has been committed for medium- and large-scale enterprises and for feasibility studies. However, the pace of commitment of funds for small scale enterprises is slower, owing to the difficulties BNI encounters in identifying bankable SSE projects. Credit No 1002-MAG: Antananarivo Water and Sanitation Project; US$20.5 million Credit of May 8, 198U0, Date of Effectiveness: December 17, 1980; Closing Date: June 30, 1985. The project will increase access to treated water for the Antananarivo urban population and improve sanitation conditions. The main contracts for the water supply works have been awarded and construction is about 40 percent completed. Implementation of the Drainage and Sewerage component by the Ministry of Public Works has scarcely progressed and the delay is now three years behind the appraisal schedule. 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. Implementa- tion of the project is progressing satisfactorily. Geological and legal consul- tants were employed to assist the Government in preparing data with a view to promoting exploration by interested oil companies and in negotiating exploration agreements. Four exploration contracts have been signed with Mobil, Occidental Petroleum, Agip and Amoco. Other studies, technical assistance, a seismic survey and training provided in the project are proceeding satisfactorily, including a second round of bidding for exploration acreage.  - 37 - ANNEX II Page 7 of 10 Credit No 1065-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 extension of seasonal, medium-term, and long-term credit to smallholders through the National Bank for Rural Development (BTM) for the purchase of improved seeds, pesticides, insecticides, fertilizers, and small farm equipment. Due to poor repayment records on many loans extended under the collective guarantee credit scheme, BTM has suspended these scheme in many regions. This action has resulted in a significant drop in lending activity. Consequently, BTM has been able to use only a small amount of Project funds as it has only marginally exceeded the base period level necessary to qualify for reimbursement from the IDA Credit. In addition, due to the scarcity of foreign exchange, few inputs are available in Madagascar. To help remedy the current situation, BTM has agreed with the Association that part of the Credit be used to finance fertilizer imports destined for smallholders in selected rice growing areas. These fertilizers will provide farmers with inputs and will support lending operations directed to individuals rather than through cooperatives. The Association is at present discussing with government a proposal that a part of Credit funds should also be allocated to the import spare parts and equipment for the agriculture sector. 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 supports the Government's efforts to institute a multisectoral approach to an integrated flood control and development program for the Plain of Antananarivo area; it provides for strengthening the coordinating role of the Directorate General of Planning of the Ministry of Finance in the development of the Plain of Antananarivo. The contract for pre-investment studies to define options for flood control programs and to provide Government with elements for decision-making was awarded in late 1981 and work began in early 1982. Problems in obtaining aerial photographs delayed completion of phase one of this phase. Phase one has now been satisfactorily completed and a number of coherent technical schemes have been selected for further study.  - 38 - ANNEX II Page 8 of 10 Credit No 1155-MAG: Audit and Accounting Project; US$11.5 million Credit of June 11, 1981; Date of Effectiveness: May 6, 1982; Closing Date: March 31) 1988. The project includes measures to develop a suitable legislative framework for the accounting and auditing sector, to increse the level of expertise in these professions through training, to strengthen the national audit company RINDRA and to provide foreign expertise to local accounting firms in dealing with their clients. Consultants have been retained to start the design of the training programs and to help RINDRA carry out its audit missions. Credit No 1161-MAG: Second Mangoro Forestry Project; US$20.0 million Credit of October 29, 1981; Date of Effectiveness: July 1, 1982; Closing Date: December 31, 198 4. The project will continue the reforestation program begun under the first project, and will assist the Government's efforts to establish a forest industry complex in the Mangoro Valley. Recent studies have shown that forest yields will be lower than previously estimated. The project unit has requested consultant assistance to verify these disappointing results and determine their causes. The plantation programs have also been scaled down. Studies are currently under way to determine the most appropriate industrial development for the wood resources available. They have already shown that, due to high investment costs and the depressed world market situation for wood products, most export oriented industrial options show poor financial and economic returns. The Secretary-General of Planning recently requested the consultants carrying out the industrial studies to proceed with detailed feasibility studies of two options: a wood pelletizing plant, which would substitute in part for imported oil, and a particle board plant. In addition, consultants are preparing a prospectus for a small kraftmill (75,000 TPA). Credit No 1211-MAG: Second Village Livestock Project; US$15.0 million credit of April 15, 1982; Date of Effectiveness: March 11, 1983; Closing Date: December 31, 1987. The Project supports the Government's 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. In Mahajanga province, basic animal health programs are being  - 39 - ANNEX II Page 9 of 10 extended, and a pilot animal production program, supported by rural road and water supply components, is at the detailed planning stage. Veterinary supplies and equipment for producing vaccines are being provided to improve the countryside animal health program and management assistance and training for key institutions in the livestock sector are to be provided. Recruitment and training of personnel, construction and procurement of equipment, initiated under the first phase project, are well advanced. Credit No 1249-MAG: Agricultural Institutions Technical Assistance Project; US$5.7 million credit of May 28, 1982; Date of Effectiveness: December 16, 1982; Closing Date: June 30, 1985. The project focusses on institution building and redefinition of sector investment programs and policies. Project activities are concentrated in the following areas: (a) management improvement programs for MPARA, (b) strengthening agricultural planning, (c) rice sector studies, (d) management improvement programs for selected agricultural parastatals, (e) strengthening research operations, and (f) project preparation studies. Implementation to date has been satisfactory and work is underway on a number of components. Preparation of a three year (1984/86) agricultural investment plan is well advanced and should be completed by the end of May 1983. The first phase of a rice sector study has been completed and preliminary conclusions and policy recommendations have been discussed with government officials. Work on the second phase of the study began in February 1983 and will continue for the rest of calendar year 1983; at that time options open to the Government in the area of pricing and marketing policies will be discussed and a reform program will be agreed upon with the Government. Management audits have been conducted and rehabilitation plans prepared for several priority agricultural parastatals; implementation of these plans is now underway (or about to begin). Restructuring and strengthening of several other key parastatals is also planned under the project, as is development of a training program for parastatal managers and accounting staff. Analysis of technical and organizational problems facing the national agricultural research institute, FOFIRA, has also been undertaken with assistance from IRRI and ISNAR, and programs for strengthening performance in these areas are to be developed shortly. In addition, work is to begin in the near future on helping MPARA officials refine the ministry's new organizational structure and develop operational procedures for headquarters and field staff.  - 40 - ANNEX II Page 10 of 10 Credit No 1298-MAG: Tsimiroro Heavy Oil Exploration Project; US$11.5 million credit of December 3, 1982; Date of Effectiveness: January 21, 1983; Closing Date: December 31, 198 6. The project would support the Government's efforts to evaluate the country's hydrocarbon potential with the objective of realizing domestic oil production in the future. It consists of a 10-well exploratory drilling program to determine the characteristics of the Tsimiroro heavy oil deposit, additional studies and training. Implementation is progressing satisfactorily. A contract with a drilling company was signed in December 1982 and actual drilling is planned to take place in Summer 1983. Credit No 1337-MAG: Lac Alaotra Rice Intensification Project; US$18.0 million, credit of May 10, 1983; Date of Effectiveness: September 6, 1983; Closing Date: June 30, 1989. The project would increase rice production and the marketed surplus in the Lac Alaotra region, thereby saving foreign exchange expenditures on rice imports. This would be mainly achieved through the rehabilitation of existing irrigation infrastructure, the supply of farm inputs, and management and institutional technical assistance.  - 41 - ANNEX III Page 1 of 2 MADAGASCAR Supplementary Project Data Sheet Sixth Highway Project Section I. Timetable of Key Events (a) Identification: 1981/1982 in the course of implementation of the Fifth Highway Project (b) Project preparation: 1981/1982 (c) Appraisal Mission: November/December 1982 (d) Negotiations: May 19 to 27, 1983 (e) Planned Date for Credit Effectiveness: October 1983 Section II. Special IDA Implementation Actions None Section III. Special Conditions (a) the Government would (i) by March 31, 1984, raise road transport tariffs to a level acceptable to the Association, and (ii) by December 31, 1984, deregulate road transport tariffs (para. 46); (b) the Government would remove all restrictions on the selection of routes and commodities to be transported by private transporters (para. 46); (c) the Government would ensure that each year a quota in foreign exchange of at least US$15 million equivalent is made available to commercial transport enterprises to import the spare parts required by them to operate efficiently (para. 42);  - 42 - ANNEX III Page 2 of 2 (d) the Government will establish a Road Fund to ensure that adequate, timely and easily accessible funds are available exclusively for road maintenance (para. 37). Condition of Effectiveness A condition to the effectiveness of the Development Credit Agreement would be an increase of tariffs for road transport by 40 percent (para. 46). Condition of Disbursement A condition of disbursement of the credit funds for the rehabilitation of the private road transport industry component would be that a subsidiary agreement, acceptable to the Association, between the Government and BNI has been signed (para. 61).  IB R D 16909R 14- ~~~~~~~~~~~~~~~~~~~~~~~~~JUNE 1982 Atsemnartra MAD AGA SC AR SIXTH HIGHWAY PROJECT ECONOMI{C ROAD NETWORK- NOSY 8 rbd FIFTH HIGHWAY PROJECT:- S[XTH HIGHWAY PROJECT: A WORF.SHOP IMPROVEMENT A+WOKSHP IMROVMEN POAD REHABILITATION - ROAD REHIAEHJTATION ___ ROAD IMPROVEMENT AND 9RtDGE CQNSTRUCTfO~! EXISTiNG ROADS: d *- PAVED,ROADS,Sebv - ENGINEERED EARTH{ ROADS RUlooc ----FEEDER AND RUJRAL ROADS AOII RAItROADS ba.. Akj yAntaIcho + AfRPORTS tnkoy RiVERS,---A PROVINCE 8OUNDARIES Sf/a-/Miorer I l t E)ILOMETERS Mnrsr A Acorlonreco? 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