Togo - Third Technical Assistance Project

Document of The World Bank FOR OFFICIAL USE ONLY CR'. /1 '-a epoKrt No. P-4063-TO REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 6.3 MILLION (US$6.2 MILLION EQUIVALENT) TO THE REPUBLIC OF TOCO FOR A THIRD TECHNICAL ASSISTANCE PROJECT May 1, 1985 Thi dowument bas a restricted disbibution and may be aed by recipients nly in the perfonmance of their officia duies. Its contnts may mot otherwise be disclosed withut Wodd Bnk authorization.  CURRENCY EQUIVALENTS Currency Unit = CFA franc (CFAF) US$1.00 = CFAF 490 (West Africa Regional Rate for April 1985) SYSTEM OF WEIGHTS AND MEASURES: METRIC Metric US Equivalent 1 meter (m) = 3.28 feet (ft) 1 square meter (m2) = 10.76 square feet (sq ft) 1 cubic meter (m3) = 35.30 cubic feet (cu ft) 1 kilometer (km) = 0.62 mile (mi) 1 square kilomenter (kM2) = 0.39 square mile (sq mi) 1 hectare (ha) = 2.47 acres 1 metric ton (t) = 2,205 pounds (lb) ABBREVIATIONS AND ACRONYMS ACP = African Caribbean and Pacific States BCEAO = Banque Centrale des Etats de l'Afrique de l'Ouest BOM = Bureau of Administrative Organization and Methods CIMAO = West African Clinker Company DCP = Directorate of Plan Coordination DESA = Agricultural Statistics Directorate DFCEP = Directorate of Plan Financing and Execution Control DGDR = Directorate General of Rural Development DPD = Directorate of Development Planning DRDR = Regional Rural Development Office IMF = International Monetary Fund IOTO = Vegetable Oil Processing Company ITP = Plastic Manufacturing Company ITT = Togo Textile Industry HCT = High Commission for Tourism MAR = Ministry of Rural Works MDR = Ministry of Rural Development MPI = Ministry of Planning and Industry MSE = Ministry of State Enterprises MTC = Ministry of Transport and Commerce OPAT = Export Crop Marketing Board OTP = Phosphate Marketing Board PMU = Project Management Unit RNET = Togo Water Board RPT = Rassemblement du Peuple Togolais  FOR OMCIAL USE ONLY SAC - Structural Adjustment Credit SODETO - Togo Detergent Manufacturing SOPROLAIT - Dairy Processing Company SOTEXMA - Agricultural Equipment Company SOTOMA - Togo Marble Mining Company SDR - Special Drawing Right TA Technical Assistance TOGOFRUIT - Togo Fruit Company TOGOGRAIN - Togo's Grain Marketing Board TOGOTEX Togo Textile Company TOGOROUTE National Trucking Company UNDP ' United Nations Development Program FISCAL YEAR January 1 - December 31 IbThis doum h a mresrcd dsibuton and may be ued by reiPients onlY in the Performance ofI their offic dute Its actents may not otherwise be disdined wnthout World Bank authoration.  REPUBLIC OF TOGO THIRD TECHNICAL ASSISTANCE PROJECT Credit and Project Summary Borrower: The Republic of Togo Amount: SDR 6.3 million (US$ 6.2 million equivalent) Terms: Standard Project Description: The proposed project is designed to help the Government implement and consolidate the second phase of its structural adjustment program agreed with IDA under the second structural adjustment credit (see President's Report No. P-4064-TO dated May 1, 1985). It includes the provision of short and long-term technical assistance services and related logistical support to prepare and execute reform measures in macroeconomic management and policy formulation, planning of rural development and the restructuring and privatization of unprofitable or badly managed state-owned enterprises and hotels. Within the Government itself, the program would attempt to achieve a greater degree of efficiency of the public sector by strengthening the organization and management of key Ministries and the High Commission for Tourism. An important objective of the third technical assistance project is to intensify the training of Togolese staff with a view to assuring a gradual replacement of foreign advisers in the medium-term. Specifically, the project would provide for: (a) long-term advisers (2 years) to the Ministries of Planning and Industry (2 positions), Rural Development (3 positions), State Enterprises (3 positions) and the High Commission for Tourism (1 position); (b) short-term consultancies (142 manmonths) for various studies connected with the implementation of the economic adjustment program and the proposed state enterprise restructuring measures; (c) training (on-the-job and formal) of the local staff; (d) fellowships, office equipment, micro-computers (4), and other supplies and vehicles. This report is based on the findings of IDA appraisal missions that visited the Republic of Togo from November 30 to December 14, 1984 and from February 15 to March 8. 1985. The missions' members were Messrs. L. Boya (Loan Officer and mission leader), I. Thiam (economist). J. Nellis (economist) and Ms. Triche (consultant).  - ii. - Benfits and Risks : Project benefits include an increased Government capacity to prepare and implement sound, comprehensive and consistent macroeconomic policies, and to pursue adjustment policies in crucial areas such as rural development, state enterprise reforms, and public investment programming. The main risk of the project comes from the anticipated difficulties in finding advisory personnel who are both suitably qualified and sufficiently adaptable to provide training to the local staff, without which the institution-building goals of the adjustment process would not be achieved. In selecting the long-term advisers for the project, care would be taken to ensure that the experts have the profile and background necessary to enable them to train nationals.  - iii - Estimated Cost US$ thousands - Local Foreign Total (1) Long-term advisers to the Ministries of Planning and Industry. Rural Development, State Enterprises and the High Commission for Tourism - 2,040 2,040 (2) Short-term consultants for studies 440 1,260 1,700 (3) Training of local staff 1,000 300 1,300 (4) Equipment (micro-computers, office machines), supplies - 210 210 and vehicles (5) Supplementary studies and - 300 300 future project preparation (6) Local salaries, office space rental and communications 610 - 610 (7) Price contingencies for consultants and support services 205 411 616 Total (net of taxes) 2,255 4,521 6,776 Financing Plan - US$ thousands - Local Foreign Total IDA 1,645 4,521 6,166 Government 610 - 610 Total 2,255 4,521 6,776 Estimated Disbursements US$ thousands -- FY86 FY87 FY88 FY89 FY90 Annual 1.200 2,000 1,600 1,200 200 Cumulative 1,200 3,200 4,800 6,000 6,200 Estimated Completion Date: December 31, 1989 Staff Appraisal Rep6rt: Not applicable Map: IBRD 13601R West Africa Programs II May 1985  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TOGO FOR A THIRD TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Togo for SDR 6.3 million (US$ 6.2 million equivalent) on standard IDA terms to help finance a third technical assistance project. PART I - THE ECONOMY 2. An economic report entitled "Togo: Country Economic Memorandum" (3416-TO) was distributed to the Executive Directors in January 1982. Its assessment of the country's economic prospects has been updated by recent Bank missions and is reflected in the following paragraphs. Annex I provides basic country data. Introduction 3. Togo is a small country (56,800 km ) with a population of about 2.8 million and a per capita GNP of US$280 (1983). Between 1980-84. phosphate mining accounted for more than 40 percent of exports in recent years, and contributed to about 17 percent of government revenues. The three main agricultural export crops (coffee, cocoa and cotton) accounted for 25 percent of exports and about 10 percent of government revenues. Political stability has prevailed since 1967, when General Eyadema became President after a military coup. The Government has gradually become civilian. The politburo of the Rassemblement du Peuple Togolais (RPT), the country's only political party, is the center of power. The party is making cautious political overtures, starting with the competitive elections held in March 1985, during which 77 representatives to the National Assembly were elected for the first time out of more than 200 candidates. Togo's external policy favors regional and international cooperation. The country hosted the signing of the three Lomei conventions between the African, Caribbean and Pacific States (ACP) and the European Economic Community.  Background 4. Until 1974. the Government of Togo pursued cautious economic and financial policies and succeeded in achieving rapid economic growth, with an average annual growth rate of growth domestic product (GDP) of 7 percent in real terms, while maintaining internal and external financial equilibria. This economic growth was based on a significant change in the structure of the economy, with the share of mining and trade increasing rapidly while agriculture declined. The expansion of retail trade activities stemmed from the role of Togo as a regional trading center for Nigeria, Ghana, Burkina Faso and Niger. The growth of the mining sector was the result of increased phosphate rock production which reached 2.6 million tons in 1974 from 1.5 million tons in 1970. In agriculture, Togo largely achieved food self-sufficiency, except in years of severe drought. Concerning export crops, cotton production has grown significantly since 1970, even during the drought years; but production of other export crops (cocoa and coffee) stagnated in the early 1970s due to insufficient incentives for farmers and poorly conceived investment projects in the sector. Despite this rapid economic growth, consumption and investment were kept under control. The economy became more and more export-oriented, mainly due to the significant development of phosphate rock exports. The balance of payments was in equilibrium while the public finance deficit remained modest and was financed on a sustainable basis. 5. In 1979, government revenues doubled as a result of a fourfold increase in phosphate prices. The Government embarked on an ambitious public investment program and undertook expansionary fiscal and monetary policies. A number of state-owned enterprises were cr-mated, and new investments were implemented in the social sector, infrastructure, luxury hotel construction, public buildings and industry. Many of these proved unprofitable and contributed little to long-term growth. Most investments were financed by foreign borrowings, in part on comercial terms. Economic growth was initially boosted by the investment program. However, by the end of the 1970s and the beginning of the 1980s, the economy started to slow down and then declined, while serious imbalances occurred in public finance and balance of payments. The gross domestic product (GDP) declined in real terms by 4.1 percent per year on average between 1980 and 1983. As early as 1978, the Government began to accumulate payment arrears to external creditors as well as to its local suppliers. By 1979, the overall fiscal deficit had reached 14.3 percent of GDP and the balance of payments current account deficit 23.1 percent of GDP. Under two IMF-supported financial stabilization programs, Togo negotiated external debt reschedulings in 1979 and 1981; the Government began to reduce its investments and to limit the growth of its current expenditures. Consequently, the fiscal deficit and the current account deficit were reduced significantly in 1982 to 6.9 percent of GDP and 11.7 percent of GDP respectively. Nevertheless, the stabilization programs were not fully implemented and the external debt service continued to increase as well as domestic and external arrears.  - 3 - 6. Faced with a worsening economic and financial situation, the Government recognized the need for a more comprehensive recovery policy. In 1983 and 1984, it adopted additional and more stringent financial stabilization programs supported by IMF stand-by arrangements and a first structural adjustment program supported by a SDR 36.9 million IDA credit in May 1983. Togo made good progress in implementing the first structural adjustment program and in achieving the objectives of the financial stabilization programs. LNF-Supported Financial Stabilization Programs 7. The performance criteria under the 1983/84 and 1984/85 IMF-supported financial stabilization programs were met and successfully implemented. The Government made all purchases provided under the 1983/84 and 1984/85 stand-by arrangements (SDR 21.4 million in 1983/84 and SDR 19.0 million in 1984/85). The last purchase was made in March 1985 on the strength of the December 1984 performance criteria. Under the financial program for 1984, a further debt rescheduling of about CFAF 23.4 billion of external debt service obligations falling due in 1984 was arranged with the Paris Club, including 50 percent of principal amounts of debt previously rescheduled in 1979. The objectives of the 1984 stabilization program were more than met with the reduction of the overall fiscal deficit to 2.2 percent of GDP compared to 4.0 percent programmed and that of the balance of payments current account deficit to 5.0 percent of GDP, compared to 9.6 percent programmed. These results were obtained from a combination of a 14 percent increase in gover.ment revenue, strict limits on the current expenditures for both personnel and operating spending, and large inflows of grants. This enabled the Government to eliminate all its external arrears while reducing its domestic arrears by CFAF 12.1 billion. For 1985, the Government and the IMF have agreed on another stand-by arrangement of SDR 15.4 million to be considered by the IMF Board of Directors on May 17, 1985. A meeting of the Paris Club to consider rescheduling Togo's 1985 debt is also scheduled for the week of May 20-24, 1985. 8. A general assessment of the macroeconomic policies in Togo indicates that significant improvement has taken place since the end of 1982. However, deficiencies remain in national economic mangement d the reforms in policies and public sector institutions initiated under SAC I need to be completed. With regard to the exchange rate, Togo's currency, the CFA franc, has depreciated substantially since 1981, in line with the French franc to which it is pegged. The nominal exchange rate against the US dollar was depreciated by 16.6 percent per year between 1980 and 1984 and the real exchange rate by 13.2 percent. Therefore, the exchange rate is probably not seriously overvalued. Neverthelese, distortions still exist between the prices of tradable and non-tradable goods and between the urban and rural sectors. In particular, the system of industrial incentives does not encourage exports, and further substantial rises in agricultural producer prices will be required to unlock productive potential in the rural sector. The Central Bank has maintained positive real interest rates since 1980, and Togo has succeeded in attracting large  - 4- foreign deposits in its banking system, mainly to finance its regioual reexport trade. Price controls are limited to fixing profit margins for a number of basic products. Utility tariffs are periodically adjusted in relation to costs and there are no subsidies on fuel, electricity and water. Finally, the Government is improving public investment programming, public enterprise sector management and its fiscal policy. A renewed effort is underway to attract private investments in Togo. As a result of these macroeconomic policies, resource allocation is being improved and the external current account deficit and budget deficit have been significantly reduced. Recent Economic Developments and Prospects 9. Despite the significant progress made under the Bank and IMF- supported programs and the related substantial non-project external assistance, Togo's economic and financial situation and prospects remain precarious. In 1983, the combined adverse effects of the drought, the reduction in regional trade, and the worldwide recession, caused the GDP to fall by 5.3 percent in real terms. In 1984, improved economic performance in certain sectors were offset by a decline in others. On one hand, owing to favorable weather, food crop, cocoa and cotton output rose. In addition, phosphate rock production and export increased. On the other hand, economic growth was hampered by the closure of the Nigerian borders, the suspension of production by the multinational cement clinker plant (CIMAO), and the sharp decline in coffee output. Overall, the real GDP stagnated in 1984 and the economic growth rate over the medium-term will rise only slowly while external debt service will continue to be high. In the depressed economic conditions of 1983 and 1984. the share of consumption in GDP declined as well as the investment ratio. As a result, the resource gap/GDP ratio decreased in 1983 and 1984 and the current account deficit decreased from 11.7 percent of GDP in 1982 to 10.5 percent in 1983 and 5.0 percent in 1984. Regarding the capital account and the overall balance of payments, large inflows of short-term capital from neighboring countries together with accelerated SAC I disbursements and the Paris Club debt reschedulings more than offset the current account deficit, leading to a balance of payments overall surplus of CFAF 18.7 billion in 1983 and CFAF 15.1 billion in 1984. 10. Over the medium-term, the balance of payments projections indicate a deterioration in the current account deficit. The projections depend on the world market prices of phosphate and agricultural products, and on the ongoing construction of the Nangbeto hydroelectric dam. Along with the deterioration of the current account, the projections of the capital account show a decrease of capital inflows due mainly to the expected reduction of short-term capital inflows from neighboring countries because of the persistent recession in the area and the continuing closure of the Nigerian borders. Moreover, government revenues will continue to be insufficient to cover current expenditures, maintain an adequate level of public investment and meet its substantial debt service obligations. Therefore, the need for external financing of the balance of payments and  - 5 - the public sector will remain strong over the next few years, in the form of both non-project aid and debt rescheduling. 11. Based on this assessment, the Government with assistance from the Association has prepared the proposed second phase of the structural adjustmenc program. The IDA credit would support measures aiming at consolidating and expanding the progress achieved under SAC I with regard to government finance, the public sector investment program and public enterprise rehabilitation. It also calls for initiating the reorganization of key economic ministries. SAC II would also support an action program to achieve a substantial expansion of output in the agricultural sector which contains the main supply potential of the economy. This action program includes a rise in real producer prices of export crops in order to give farmers the incentives to increase output, yields and acreage cultivated, as well as an improvement of the system of extension services and input supply to give both producers of cash crops and food crops the means to respond to price increase incentives. IDA is also playing a catalytic role in helping mobilize external financial assistance for Togo's development in the context of both traditional project lending and non-project lending. The Government plans to hold a Donors' Round Table from June 26 to 28, 1985 under the joint sponsorship of the UNDP and the World Bank in order to mobillize further assistance for Togo. PART II - BANK GROUP OPERATIONS IN TOGO 12. Bank Group lending in Togo totals 23 credits, including eight fully disbursed, amounting to US$239.74 million of which US$95.13 million is undisbursed, and two fully disbursed loans totalling $53.0 million. IDA lending has financed roads; agriculture (cocoa, coffee, cotton and food crops); education; technical assistance to the Ministries of Planning, Rural Development and State Enterprises; a regional DFC operation; and credits for the feasibility studies for a phosphate fertilizer project and for the Nangbeto regional hydroelectric power project and a further credit for the development of the Nangbeto hydroelectric project. The two Bank loans (US$3.5 million to Togo and US$49.5 million to CIMO0 jointly and severally guaranteed by Ghana, Ivory Coast and Togo) have provided fiuancing for the CIXAO regional clinker plant. Annex II contains a summary statement of Bank Group operations as of March 31, 1985. 13. In the past, project lending has dealt with development needs and policy issues in specific sectors. However, following the deterioration of the overall economic situation in the late 1970s, sector-specific actions are not sufficient and therefore emphasis in our lending to Togo has shifted. A more comprehensive approach supported by policy-based lending such as that envisaged under the first and the second structural adjustment programs is required. Moreover, in a smAll country like Togo. where it is not possible to be involved in all sectors, structural adjustment lending provides an opportunity to support development in a broad range of sectors. In those sectors where the Asscciation is already involved, not only has project lending been consistent with the goals of the structural adjustment  -6- program, but in addition, components of new projects particularly in agriculture and transport will be designed to prepare for and support the adjustment measures. 14. The first and second technical assistance projects have helped the Government to formulate sound investment and macroeconomic policies. Through these projects, the Association initiated a fruitful policy dialogue which has been essential for the preparation of the first and second structural adjustment programs. Consultant studies of several state-owned enterprises were financed in order to determine their potential viability, and in the case of those which are, to identify measures necessary to improve their performance. A capacity to conduct project evaluations and to monitor the performance of ongoing development projects has been established in the Planning Ministry. A plsnning unit is established in the Rural Development Ministry to analyze agricultural project proposals. Under its auspices, a review of all rural development projects was conducted last year in order to provide the basis for the formulation of a long-term rural development strategy. In addition, a price analysis and monitoring unit located in the agricultural marketing board, OPAT, and a research group in the Ministry of Rural Development have been created. 15. IDA has supplied credits for agricultural projects designed to stimulate food crop production and to increase farm incomes through the development of major cash crops such as cocoa, coffee, and cotton. Under the latest such credit for the Second Rural Development Project in cotton areas, subsidies are being phased out and producer prices are being adjusted annually. 16. A water supply project approved in FY83 improved Lome's water supply and contains provisions for future project preparation and other studies. The water and severage agency (RMET), an economically viable state enterprise, is being strengthened as a result of the project. The four credits in the road sector supported efforts to build up an efficient maintenance service, upgrade the country's main roads, and start comprehensive transport planning and coordination. A separate project for feeder road development provides for improvement works and rural maintenance operations. The first education project finrnced the construction of teacher training facilities and expansion of existing facilities and fellowships. A second educational improvement project (Credit No. 1568-TO) signed on April 29, 1985 seeks further improvements of the education system througb teacher training, organizational and management reforms. 17. Togo's performance with respect to project implementation and disbursement is generally satisfactory. The Government is now familiar with IDA's procurement and disbursement procedures. Delays in disbursement are frequent, however, because of the cumbersome administrative regulations governing public contract award in Togo and recently established procedures for withdrawal application processing. The Government has been made aware of this problem and is working with the Bank to find appropriate means to  simplify the procedures. There have been a few cases of project delays caused by shortages of counterpart funds. PART III - PAST AND ONGOING TECMNICAL ASSISTANCE PROJECTS 18. In the past, technical assistance (TA) to Togo was usually limited to technical ministries and public agencies, and to directly operational positions in managerial and technical fields. Recently. however, the Government has shown increasing interest in extending the use of technical assistance to the provision of policy advice, mainly with respect to economic planning. This change in attitude can be explained in part by the economic and financial crisis, following the phosphate boom of the mid-1970s, which suddenly presented Government policy makers with a much more difficult task of managing the short and long-term effects of the crisis. Since 1978, the shortcomings of Government in economic planning in general and project preparation and analysis in particular, have become apparent, not least to the Government itself. These circumstances made the Government more favorably disposed to policy-oriented technical assistance supplied by foreign advisers provided, however, that such assistance also included substantial provision for training of local counterpart personnel in order to ensure lasting effects in Togo, and to justify the high cost involved. 19. The difficulties encountered in implementing the first comprehensive Development Plan (1976-80) pointed to the priority areas in which a need for more systematic technical assistance had emerged: on the macro level, investment planning and monitoring; and on the micro level, project analysis and implementation. Deficiencies in these areas had resulted in significant differences between the outcome of the 1976-80 Development Plan and original forecasts. Not only were the projects selected different from those planned, but they were often chosen without sufficient analysis of their economic and financial soundness. Cost overruns and delays in execution were frequent. Partly as a consequence of inadequate preparation, the state-owned industries created in the aftermath of the phosphate boom of the mid-1970s were unable to generate sufficient revenues to service their debt, and the Togolese Treasury as guarantor had to assume the servicing of debt. The Ministry of Planning and Industry is gradually beginning to influence investment de-isions and their implementation. However, the Ministry is still not equipped to define and implement policies appropriate to the present situation, and to devise a selective and productive investment program to cover the next few years of financial stringency. It is particularly important that the Ministry of PlAnning develop and sustain its capability to carry out these activities effectively, and to play a critical role in the process of improving the quality of the investment program. 20. An improving dialogue with the Bank and the growing need for technical assistance in the Ministry of Planning prompted the Government to request technical assistance in late 1978. The two previous technical assistance credits to Togo (Credit No. 930-TO of 1979 and Credit No. 1270-TO of 1982) had the following basic features: under Credit No. 930-TO  - 8 - (a) an economic adviser for three years, whose main tasks were to assist in investment programming and economic policy formulation, and to help bring about improved coordination between the budgeting process and the plan; (b) a project adviser for three years, whose main tasks were to assist in project preparation and selection of new projects; (c) short-term consultants for 130 manmonths to undertake project-related and more general studies; (d) training of economists; and (e) support services. Credit No. 1270-TO financed a public investment programmer, two planning experts in rural development, two financial analysts and about 110 manmonths of short-term consultancies and vehicles. 21. Under the first technical assistance credit, the economic adviser attached to the Ministry of Planning and Industry in 1979 facilitated the deepening and broadening of the policy formulation of the Government. Nevertheless, because of the shortage of skilled staff in the Ministry and their general unfamiliarity with macroeconomic concepts, the adviser became primarily a project adviser, especially in view of the delays experienced in recruiting the project adviser. The position of project adviser remained vacant for a long time, owing to the difficulties of finding a person with the requisite broad range of skills who was willing to assume a three-year assignment in Loms. A good candidate became available only in September 1982. The economic adviser subsequently devoted most of his time to economic work, until his replacement by an IDA-seconded adviser in .%ugust 1983. These delays are in part responsible for the slow disbursement profiles of the Togo technical assistance projects compared with the Regions's average. The second technical assistance program placed more emphasis on the accomplishment of specific tasks by expatriate experts ('firefighting") working with one or two local counterpart staff rather than training of all local staff involved in the respective units. In most cases, technical assistants were assigned to the Ministers' inner cabinets rather than to the technical departments. As a result, Ministers tended to rely on expatriate advisers to the exclusion of local staff from the process of problem-solving and decision-making. Performance under the state enterprise component of the project was impeded because of an institutional vacuum created by the abolition of the former Ministry of Industry and State Enterprisesr and because the profiles of the two experts originally retained under this component were not satisfactory. 22. To sum up, we can conclude that the principal objective of the TA I and II credits was to help Togo cope with the immediate effects of the impending financial and economic crisis at that time. The projects enabled the Government to meet the performance criteria for the IMF stand-by programs and IDA first structural adjustment credit. The training objective was implied, but the mechanisms for providing and monitoring training were not clearly identified. It was assumed that the counterpart system (technical assistance experts working with one or more designated local staff) would ipso facto result in skills transfer. 23. Notwithstanding the above difficulties, the past technical assistance projects were a useful vehicle for providing a wide range of consultants' services to meet specific needs promptly. Consultants were  - 9 - financed to prepare the phosphate engineering and the Nangbeto hydroelectric projects and the second rural development project. Consultants also examined the prospects for selected state-owned enterprises, and provided short-term policy assistance to the badly understaffed Ministries of Plan and State Enterprises. Prospects for the development of small scale private industry have been studied by consultants. In addition, consultants assisted in making operational an agricultural price analysis and monitoring unit for cash crops. The unit now routinely prepares annual price recommendations for these crops. Another important contribution of the technical assistance effort is the ongoing computerization of Government financial operations. 24. As a result of the increased needs of the Government and the expanding use of consultants, especially in connection with the preparation of the first and second structural adjustment programs, funds under the two ongoing projects are expected to be fully committed by May 1985. PART IV - THE PROJECT 25. The proposed third technical assistance project was appraised in November/December 1984 and February/March 1985 by IDA missions, following initial project preparation in July/August 1984. A project and credit summary is provided at the beginning of the report. Annex III contains supplementary project data, and Annexes IV and V provide selected draft terms of reference for the project long-term advisers and an implementation schedule. Negotiations were held in Washington D.C. on April 29, 1985 with a Government delegation led by H. E. Yaovi Adodo, Minister of Planning and Industry. Project Objectives and Description 26. Background. The need continues for further technical assistance in a variety of fields. Consultants and certain specialists are still needed to help the Government cope with the present difficult financial and economic situation. The Ministry of Planning and Industry will continue to need some form of economic advisory assistance after the departure of the present IDA-seconded economic adviser in August 1986. Specialized consultants and an investment programmer and a project analyst are needed for the elaboration of an effective investment plan. The Ministry of State Enterprises, which is seriously underataffed, cannot devise and implement a recovery program for the state enterprises without technical assistance. The Ministry of Rural Development needs assistance in planning, project preparation and monitoring, data collection and coordination of applied research to rekindle growth in agriculture and to tap the unused potential of the sector. The newly created High Commission for Touri3m, responsible for improving the performance of government hotels requires assistance in hotel management contract negotiations, in devising and implementing a sector promotion policy and in monitoring the operations of the rehabilitated hotels. Other important factors to consider are needs to  - 10 - prepare future structural adjustment programs, and to address the technical and managerial difficulties encountered by the Government in implementing the IMF-supported financial stabilization programs. 27. Bank-financed technical assistance would concentrate on areas in which little or no other foreign expertise is made available or sought. Close cooperation would be maintained with other bilateral and multilateral sources of technical assistance, which is provided mainly through advisory positions in the Government ministries and agencies, in order to avoid duplication. 28. The primary goal of the third technical assistance project is to foster institution-building and not merely to provide short-term remedies, hence the emphasis on training of Togolese and institutional reforms of the key Government functions (economic development planning, investment programming, strengthening of extension services, agricultural research coordination, etc.). The other objectives of the proposed project are to assist the Government in preparing and executing the reform measures under the second phase of its structural adjustment (see President's Report No. P-4064-TO dated May 1, 1985) and financial stabilization programs through the provision of short- and long-term technical assistance services and related logistical support; and to improve the institutional arrangements for planning and policy formulation; and strengthen the skilns of local staff so as to promote more effective macroeconomic planning, and improved management of key sectors in the medium- and long-term. To this end, the project targets four areas for intensive assistance as follows: (i) macroeconomic and financial management; (ii) agricultural sector planning and policy formulation; (iii) state enterprise restructuring and management; and (iv) tourism promotion policy and reorganization of the High Commission for Tourism. 29. Technical assistance would be provided to the key ministries involved in structural adjustment for periods ranging from a few weeks to up to two years. To ensure that the work of the expatriate advisers has a lasting and tangible impact, and in view of the importance attached to training by the Togolese Government and the Association, the terms of reference of consultants selected would contain explicit provisions for training responsibilities. Systematic on-the-job training of counterpart local staff would be a substantial component of the annual work programs of the expatriate advisers, and their selection would be based both on their expertise as advisers and on their suitability to perform such training. vJithin three months of their arrival, the experts, to be deployed in the line units, would submit to the project manager, training programs for the local staff working in their respective units. Progress in training of counterpart staff would be reviewed by the Association and the Government during supervision missions. The overall goal of training would  - 11 - be the gradual replacement of the foreign advisers by Togolese counterparts by the end of the project (Section 3.03 of the Development Credit Agreement). Detailed Features A. A Macroeconomic and Financial Management 30. Development Planning and Investment Programming: The Ministry of Planning and Industry (MPI) is responsible for overall development planning and preparation of the public investment program. The Ministry of Planning recently took steps to involve its three technical directorates and the regional planning offices in the planning process. The Directorate of Plan Coordination (DCP) is now responsible for overall coordination of the planning process and for elaborating the macroeconomic projections. The Directorate of Development Planning (DPD) is responsible for liaison with the technical ministries in the elaboration of sector strategies and for assuring that projects are adequately evaluated and documented, and are consistent with the macro projections. The Directorate of Plan Financing and Execution Control (DFCEP) is responsible for monitoring investment disbursements and ex post evaluation of projects. 31. MPI's role as an active central authority for coordinating investments and administering external financing was recently reaffirmed. In the past, technical ministries obtained and administered external financing for projects with very little centralized control. Investment programming was introduced in 1982 for the preparation of the 1983 investment program, and a three-year rolling Investment programming system was inaugurated during the preparation of the 1984-86 investment program. The division of responsibilities both within MPI and between MPI and the technical ministries is still evolving, and communication channels still need to be clarified and developed. For the last two years, the establishment of the investment programming system was managed by an expatriate hired for that purpose. Regional offices are to play a fairly limited role, consisting of initiating project briefs for mini-projects and monitoring the physical execution of projects. 32. To assure the continuation of investment programming on a sound basis, the proposed credit would finance the services of an investment programmer in the Ministry of Planning and Industry for two years to advise the Togolese technical staff of the above-mentioned directorates on ways of improving the investment programming system and carrying out macroeconomic projections. The programmer would report to and work closely with the Togolese head of the Planning Coordination Directorate. 33. The technical ministries are expected to participate in the formulation of sector strategies and provide inputs for the investment progranmmng process in the form of project briefs, evaluation and monitoring data, but there is no uniform planning mechanism in these technical ministr I ts, and the division of responsibilities between MPI and the technical ministries is not clearly defined. Some improvements are now  - 12 - being introduced in the rural development sector in the context of our structural adjustment lending; in the transport sector in connection with SAC II preparation and our project lending; in the energy sector as a result of the Nangbeto hydroelectric project; and in the education sector, through the first and second education projects. But planning in other social sectors such as health, population and urbanism remains weak. 34. To help improve project preparation capacity, the project would provide financing for the services of a project adviser to be assigned in the Ministry of Planning and Industry for two years to strengthen project evaluation and monitoring. The project adviser would work closely with the sector planning staffs in MPI and sector planning missions in the identification and evaluation of projects for the investment program. The adviser would also assist the Director of Development Planning to formulate recommendations for the division of labor and establishment of clear channels of communication between MPI and the technical ministries as regards the investment programming and monitoring process. Finally, the project adviser would identify the skills gaps of local staff responsible for planning, monitoring and evaluation, and help develop appropriate methodologies and training schemes in close consultation with the project training officer to be appointed under the project. 35. In additlon to the long-term advisory services, short-term consultant missions would be organized under the project to work with staff of sector divisions of MPI and with the technical ministries to formulate or refine sector (and regional) investment strategies consistent with the macroeconomic goals, and to identify and evaluate projects for the sector investment programs. 36. In the short-term, emphasis would be placed on enabling the existing structures to function better, but eventually it may be necessary to reorganize the Planning Ministry itself and the other key technical ministries. There is also a need to improve the incentives and the morale of the civil servants. To achieve these objectives. the Government has decided to undertake a reform of the key economic ministries. This is obviously a long and politically sensitive exercise which would require careful preparation. The Government plans to start with an organizational study in 1985 in order to prepare these reforms. As a first step in this direction, the Bureau of Administrative Organization and Methods (BOM) in the Planning Ministry would have to be strengthened so that it can carry out the necessary background studies. Project funds would be used to accomplish this initial task. The Association would be consulted on the terms of reference of the preparatory studies and their progress, and would be prepared to finance limited technical assistance services under the proposed credit. 37. National Accounts. A serious constraint to improvements in the areas of macroeconomic analysis, overall development planning and the formulation of sectoral strategies and policies is the lack of systematic data collection and analysis. The Directorate of Statistics in MPI is  - 13 - responsible for collecting and analyzing economic data and preparing the national accounts. In the past, it has been unable to perform this function properly, since its data collection channels were not well developed and its technical expertise and access to methodologies were inadequate. The Central Bank (BCEAO) collects data and prepares national account projections for its own use, but these do not necessarily satisfy the needs of the Government, nor are they always available to the Government. It is intended to use the short-term consultant resources under the project to improve the data base and its collection, and preparation of national accounts for the purpose of overall development planning. B. Agricultural Sector PlannE!g and Policy Formulation 38. Rural Development Planning and Management. Rural development in Togo is characterized by a large number of discrete projects financed by a multiplicity of foreign donors. Such diversity fosters creativity and experimentation but since national and regional management is weak, little has been done to reap the potential benefits of this diversity and to extract its lessons. Responsibility for the sector is divided between two ministries: the Ministry of Rural Development (MDR) and the Ministry of Rural Works (MAR). As a result, the sector suffers from fragmentation and a lack of coordination. National priorities have not been pursued in a coherent fashion. Key national support services such as extension and research lack the resources and expertise to become effective, a situation that is perpetuated by the fact that the major projects have created their own such services In an effort to ensure the achievement of individual project goals. 39. To deal with these problems, the Government has recently established a planning unit within the Ministry of Rural Development (MDR), has undertaken a review of the sector, and is beginning to formulate a global sector strategy. A detailed rural development program designed to implement the strategy is being prepared. To ensure the success of this program, Government will have to assume increasing responsibility for planning and coordinating rural sector activities. This will require strengthening of the Government's administrative apparatus and a broad-based improvement in the technical expertise of local staff at both the central and regional levels. Such improvements can be brought about only in the medium to long-term, and will probably require a reorganization of the sector administration, particularly the regional rural development offices (DRDRs). In the short-term, the planning unit of the Ministry of Rural Development should continue to establish methods for strategy formulation, investment programming and project evaluation. 40. The proposed project provides for the services of a rural development planning and coordination adviser for two years in the Ministry of Rural Development. The expert would report to the Director General of Rural Development and would assist the Togolese staff of the planning unit to define sector strategy, master methodologies for project identification, monitoring and evaluation, and strengthen communication links between the  - 14 - regional DRDRs and the central directorates in Lomc, and between the three Ministries of Rural Development, Rural Works, and Planning and Industry. Since a large part of this work has already been initiated under the second technical assistance project, the planning adviser would devote more time to training of local staff in the future. The adviser would identify staff and skill requirements of MDR and MAR for the planning process, assess skill levels and recommend appropriate training programs (including on-the-job training for the planning unit staff and the staff of the technical directorates in MDR and MAR), and reorganization options aimed at enabling the Government to manage effectively rural development and coordinate external aid in pursuit of a coherent rural development strategy. 41. Agricultural Research. Four ministries are currently involved in research: MDR, MAR, the Ministry of Commerce and Transport (MTC), and the Ministry of National Education and Scientific Research. Most major projects have an applied research component and several international organizations are sponsoring research in Togo. As a result of lack of coordination, the allocation of research funds is inefficient. Moreover, research activities are not always linked to extension programs, and a few important problems (e.g. forestry) are not being studied at all. To resolve this problem, the Government created in 1983 an agricultural applied research coordination unit attached to the Directorate General of Rural Development (DGDR) and the Ministry created an agricultural research committee responsible for defining the Governmentts research policy and designing work programs. Despite some overlap in responsibilities between these two bodies and confusion as to their respective roles, no serious problems have arisen since the latter committee is large and unwieldy (with nine working commissions), and lacks the material resources to function effectively. On thc other hand, the small two-person research coordination unit has already made .ts mark. It has undertaken an inventory of ongoing research activities in Togo, proposed a medium-term research strategy and recommended institutional reforms necessary to improve planning and coordination. It has also intensified contacts with external research agencies, particularly at the regional level. 42. Over the next two years this unit should concentrate on practical improvements in the effectiveness of ongoing research activities by advising the stations on research activities to be undertaken and on dissemination of results in collaboration with the regional extensior. services. It should continue to prepare and evaluate new research projects, assist in identifying funding sources and study and recommend ways of reorganizing and strengthening the agricultural research function in the Ministry. Under the proposed project, the research coordination unit would be merged with the planning unit of the Ministry of Rural Development not later than October 1, 1985 (Section 3.07 (i) of the Development Credit Agreement). The project would finance the services of a research adviser for one year to assist the Government in defining an agricultural research policy and the means of implementing it. In addition, the adviser would help identify and prepare new research projects and define future research programs.  - 15 - 43. TOCOGRAIN. The Government's foodcrop marketing board, TOGOGRAIN, which never controlled a significant portion of the foodcrop market In Togo has over the last few years incurred large operating losses as a result of poor management and storage losses. Under the first structural adjustment program, the Government agreed to limit the role of TOGOGRAIN to :he maintenance of a security stock which should not exceed 10,000 tons at any given time, as part of the Government's stated policy of gradual liberalization of food crop marketing and export. A complete elimination of that agency poses sensitive political problems for the Government in a region prone to droughts and periodic famine. To carry out its streamlined role in an efficient manner, and to reduce its operating losses, TOGOGRAIN would need technical assistance to improve its management and establish new operating guidelines. This assistance would be financed by the proposed project through the services of a management adviser to TOGOGRAIN for two years to help improve operational and financial management. The adviser's work would be carried out in three phases (page 6 of Annex IV) and he/she would play an important role in the proposed redefinition of TOGOGRAIN's operating guidelines. 44. In connection with its decision to limit the role of TOGOGRAIN, the Government agreed to engage in other activities that promote food security, including crop forecasting and the collection and dissemination of market information. The Directorate of Agricultural Statistics (DESA) in the Ministry of Rural Development has a network of data collection agents and collects market information regularly. An agricultural survey was completed in 1982/83. The Directorate needs to establish a data bank and improve the ability of its staff to analyze and interpret the data for its use. Assistance is also needed in the area of crop forecasting. The project would finance the cost of one four-wheel drive vehicle for DESA's data gathering work and provide short-term consultancies for studies in these areas. C. State Enterprises Management 45. Many of the seventy-three Togolese state-owned enterprises are poorly managed, and their accounting and auditing are inadequate. The number of employees is often excessive. Operating losses are common. During the last two years, the Government addressed these problems on a case-by-case basis. Several entities have been closed, a few others studied in detail, and restructuring plans are being designed. The steel mill and the oil refinery storage tanks have been leased to private operators and negotiations for the privatization or leasing of two or three others, including the textile units, are underway. In carrying out these exercises, the Government had to use the services of international experts and consultants. 46. The administrative arrangements for dealing with state enterprises underwent a series of changes in the last two years which resulted in uncertainty and lack of a coherent strategy for the sector. The Government has now clarified the situation by reconstituting the Ministry of State Enterprises as of September 1984, giving it a mandate to  - 16 - divest in all but a handful of strategically and socially important entities. To this end, the emphasis on diagnostic studies and formulation of restructuring plans would be continued, but with greater participation by the local staff. In addition, the Government would need assistance in identifying private partners and in negotiating participation agreements with them. The third technical assistance credit would be used to finance consulting and technical assistance services as follows: (i) a state enterprise restructuring adviser for two years to assist the Minister's cabinet in the review of diagnostic data and studies, monitoring of the restructuring program, and to assist in identifying potential private partners and in the negotiation of proposals for their participation; (ii) an economic and financial analyst in the technical departments of the Ministry of State Enterprises (MSE) for two years to assist and train staff in undertaking company diagnostic studies, defining performance criteria and in guiding analytical studies of enterprises not already examined; and (iii) a financial management adviser for two years in the technical departments of MSE to establish a management information system and train staff in its operatiou and use. 47. As regards those state enterprises which will be retained in the Government's portfolio, after the restructuring process, three key conditions must be met to establish the basis for long-term Improvements in their management and control. First, their institutional and legal status must be clarified so that an appropriate balance can be struck between the autonomy needed for efficient operation on one hand, and the accountability necessary to ensure adherence to national objectives on the other. Second, tariff or price policies consistent with lorg-term cost recovery should be adopted and rigorously applied. Third, financial management should be improved through carefully targeted training programs for the financial staff of borh the Ministry as well as the state enterprises. If large-scale investmerts are needed to carry out restructuring programs for selected state enterprises, they could be financed under a separate project, once basic improvements in financial management and the policy environment have been achieved. 48. The Government Privatization Program. While the search for privatization partners continues for the state enterprises studied under the second technical assistance credit (TTT, TOGOTEX, ITP, IOTO, SODETO, SOTONA, TOGOROUTE, SOPROLAIT, etc.), the Government has identified a second batch of twenty state-owned enterprises for which restructuration programs need to be prepared. A medium-term framework has been agreed with the Government to accelerate their privatization. Bearing in mind the anticipated difficulties of finding suitable partners to take over the assets in view of their structural weaknesses, and the need to reorganize some of the companies in order to make them attractive to private  - 17 - investors, the following work program and timetable have been adopted by the Government: (i) completion of the ongoing general classification of public enterprises by type of restructuring action required by December 1985 and start of the search for private investors for companies to be privatized by March 1986; (ii) completion of restructuring plans before privatization and closure of companies to be liquidated by March 1986; (iii) start of the search for private investors for restructured companies by September 1986; and (iv) completion of the restructuring/privatization/ liquidation exercise by December 1988. 49. The proposed project would finance about 80 manmonths of short-term consultancies to conduct company audits and management and organizational reviews as necessary, and to perform specific tasks related to the Government's efforts to privatize under the most favorable conditions the large number of idle companies it owns. The short-term consultancies would help carry out financial and management audits, accounting and management information systems, as well as other expenditures relating to privatization, liquidation proceedings and closures. The explicit identification of this subcategory is to underline the importance of this component in the overall public sector efficiency goals of structural adjustment. 50. The assistance proposed would also consist of the provision of short- and long-term expert services to enable the Ministry to identify privatization partners and negotiate deals, and, for the remaining state-owned units, to prepare and implement an appropriate Government policy with respect to the enterprises to be restructured, characterized by clear objectives, priorities and performance criteria. Each long-term adviser and the short-term consultants would work closely with a team of local counterpar- staff drawn from the staff of the Ministry, and, where relevant, from other ministries and key state enterprises. The state enterprise restructuring adviser would report directly Lo the Minister of State Enterprises, whereas the other two experts deployed in the directorates would report to the heads of their respective line un-Lts. D. The Tourism Sector 51. Although Togo's investment efforts in tourism have as yet only shown modest results, the establishment of an extensive and high-class hotel infrastructure has been a constant preoccupation since 1970. Since tourism is the third largest export revenue earner (after phosphate mining and agriculture), the objective is to enhance the hotels' earning potential by improving the cuality of services and equipment available to tourists, conference organizers and international meetings. The Togolese hotel infrastructure includes two thousands rooms divided amongst forty or so establishments, twenty of which are in Lome. There are a number of high-class hotels: Hotel de la Paix, Hotel Sarakawa, Hotel du 2 Fevrier, Hotel Tropicana ir. the capital, Hotel de la Kara, Hotel de Fazao, and other  - 18 - hotels throughout the country. The state-owned hotels account for about 70 percent of the lodging capacity. 52. Less conclusive, however, is the economic success of the sector, which burdens the country's budget in two ways: (i) tae financial expenses linked to the investments; and (ii) the recurrent deficits of the hotels which are charged to the State. Between 1977 and 1982, the gross operating loss of public hotels (excluding depreciation and reserves) accounted for an annual deficit of close to US$1 million. This deficit comes from a few luxury hotels which, with a low occupancy rate, are unable to balance their operating accounts, even though depreciation of invested capital and debt service are directly borne by the Treasury. Considering the impact that these hotels will continue to have on the overall profitability of tourism, the objective is to restructure the sector and to reform the financial management of key hotels. Bookkeeping would be improved, and annual financial audits initiated for each hotel. 53. Under the second technical assistance project, a comprehensive study of the sector was carried out which led to specific recommendations for improving the performance of the Government hotels. As a result, measures were taken to increase their efficiency and to avoid a price war, and a new strategy for the hotel sector as a whole was developed. The strategy aims to impiove the financial performance of the hotels by making their accounting systems uniform, by establishing performance criteria and by renegotiating management contracts for the large hotels. Privatization of some of these hotels is a possibility in the long run, but under the present conditions of very low occupancy rate, such an effort is unlikely to bear fruit. Instead, the Government intends to concentrate on limiting the hotel losses and to optimize the chances of their possible privatization by taking measures to improve the business environment and operational efficiency of the hotels. 54. To achieve these objectives, the Government has adopted a program of hotel contract negotiations to be implemented during the second structural adjustment period as follows: a first negotiation has been completed for the Hotel de la Paix in Lome. The agreed contract which wan reviewed by the IDA appraisal mission, stipulates that the remuneration of the managing company would be based on operating profits. This contract would be used a model for future hotel contract negotiations according to the following timetable: international bids for contracts would be received and reviewed by the Government not later than December 31, 1985. Negotiations of contracts for the Hotel du 2 Fevrier, Hotel Sarakava, and Tropicana would be concluded by June 30, 1986. 55. Under the third technical assistance project, the Government would take three kinds of policy measures to support the above-mentioned hotel sector reforms: (i) An institutional reform which would strengthen the technical and human resources of the High Commission for Tourism to  - 19 - exercise its promotional role an& sectoral control functions more effectively. New administrative measures governing the tariffs in the hotels and the statutes and salaries of personnel in the tourism sector have been adopted recently. The proposed project would finance the services of a tourism adviser to the High Commissioner for Tourism for two years to assist in the internal reorganization of the Commission, formulation and implementation of a sector promotion policy, and monitoring of the operations of the hotels. (ii) A promotional plan to attract more tourists to Togo through the opening of two new tourism offices abroad and the creation of a travel agency with the participation of private partners, and by negotiating charter flight arrangements. A study of air access would be undertaken for improving tourists' access to Togo. Local handicrafts intended for tourists would be developed, especially by strengthening the distribution centers for Togolese handicraft items. (iii) Sector human resources development would be strengthened by the accelerated training of five high-level Togolese in hotel management, two high-level managers in marketing, and three managers in general tourism administration. Project funds would be used to reorganize and finance the promotion of Togolese tourism in the major foreign markets, and to provide expert services and chort-term consultancies for the execution of these tasks. E. Supplementary Studies and Future Project Preparation 56. In order to enable the Government to meet a wide variety of technical assistance needs, some of which are not yet identified, the proposed project provides for 30 manmouths of short-term consultancies. The resources would be used for, inter alia, preparation and review of future development projects, economic studies of private sector incentives in industry and of domestic financing of the artisan and small scale industry sector, aid coordination activities elaboration of a system of monthly macroeconomic indicators, and various analyses related to the implementation of the Government's program of economic and financial reforms. The consultants would carry out only high-priority studies defined by the Government agencies involved in the project, which would be selected in accordance with criteria to be agreed upon between the Government and the Association. These would include relevance to current- and long-term economic issues, consistency with the policy reform demands of the structural adjustment process, and absence of alternative sources of funding on better-than-IDA terms. The studies would be determined by the Government with the prior approval of the Association (Section 3.04 of the Development Credit Agreement).  - 20 - F. Training Programs 57. To achieve the training objectives, the Government would deploy the technical assistance experts in the line units instead of the Ministe,'s inner cabinets so as to impact on a larger pool of local trainees. The project would set up an instituti3nal mechanism for administering this and future technical assistance projects (whether IDA-financed or not) through the creation of a technical assistance project management unit, comprising staff and procedures to plan, organize and monitor all on-the-job training activities. As training would be a main theme of the third technical assistance project, it was agreed that a training officer responsible for planning, organizing and monitoring of all training activities under the project take up his position within the project management unit as a condition of credit effectiveness (Section 5.01(c) of the Development Credit Agreement). In addition, the Government would provide for explicit training responsibilities in the contracts of the TA experts (see Annex IV), including preparation of annual work programs for training. 58. The on-the-job training to be provided by the resident advisers would be supplemented by more formal training programs which would be designed for each of the Government agencies targeted by the project. The programs would be designed and implemented with the assistance of specialized training consultants under the supervision of the project training officer. The resident advisers would collaborate in identifying training needs and in providing on-the-job follow-up. To the extent that they are available, World Bank training resources would be called upon to assist in these efforts as part of project supervision. The project would also provide for fellowships for short and long-term studies abroad in agricultural sciences, economics, business management and hotel administration. A total of ten fellowships would be financed for specialized graduate degrees overseas. In-country seminars in planning techniques, particularly project evaluation, and state enterprise management and accounting would be carried out under the project. The pedagogical thrust of the project would be achieved through a careful selection of long-term advisers and the preparation within three months after the advisers' arrival in Togo of annual training programs for the Togolese staff (Section 3.02(b) of the Development Credit Agreement). G. Equipment, Office Machines and Supplies; Vehicles and Travel 59. Computerization. Micro-computers could be effective too's for data processing and upgrading statistical work for the purpose of macroeconomic planning and management throughout the Government. A few micro-computers have recently been acquired and are proving useful for limited and specialized tasks such as debt management, state enterprise account recording, expenditure control, etc. Government financial operations are now being computerized with technical assistance provided under the IDA-financed second technical assistance project, complemented with hardware provided by the French Government. Although additional  - 21 - equipment should continue to be acquired, care should be taken to ensure that hardware is suited to needs, duplication is avoided and that adequate training in computer use is provided. The project therefore includes provision for four micro-computers to be allocated at the rate of one each to the Agricultural Marketing Board (OPAT), the High Commission for Tourism, the Directorate of Statistics of MPI and the Ministry of State Enterprises. The project would also finance, as necessary for the successful implementation of the various components, photocopiers and typewriters, office supplies and five cars to be allocated at the rate of one each to the Ministry of Planning and Industry, the Ministry of State Enterprises, the High Commission for Tourism and two vehicles to the Ministry of Rural Development. Limited in-country and international travel for the project consultants, training equipment and materials would also be financed. Project Cost and Financing 60. The cost of the proposed third technical assistance project is estimated at about US$6.8 million, including a foreign exchange component of 67 percent. The proposed IDA contribution of SDR 6.3 million (US$6.2 million equivalent) would cover the foreign costs and about 73 percent of the local costs. IDA financing of this proportion of local costs is justified by the Government's current financial difficuilties. The Government would contribute US$610,000 equivalent in the form of salaries of counterpart staff and the project local staff, rental of office space and costs of communications, representing 9 percent of total costs. Coutingencies of about 10 percent have been applied to all project items based on an expected average annual inflatton rate of 10 percent during the project period. Project Management Arrangements 61. Overall responsibility for project execution would rest with the Minister of Planning and Industry, as in the past. rhe first and second projects were managed by the IDA-seconded economic adviser with the assistance of a Togolese counterpart. This arrangement presented two problems: discontent among the Togolese and the fact that project management is time-consuming and detracts from the time the economic adviser spends on macroeconomic policy analysis. The advantage of this arrangement was that the economic adviser knew the Association procedures and policy. Transferring responsibility to Togolese staff would undoubtedly entail some loss of efficiency and may slow down project implementation (e.g. the processing of contracts for short-term consultancies) until the new project manager (para 62) becomes more familiar vith project prncedures. Nevertheless a gradual transfer of responsibility is necessary for the ultimate success of the project.  - 22 - 62. As a special condition of effectiveness of the IDA credit, a project management unit would be created in the cabinet of the Minister of Planning and Industry to oversee the operations of the proposed project and a Togolese project manager and a training officer would have taken up their positions in MPI (Section 5.01 of the Development Credit Agreement). The unit would also include an accountant, two secretaries and a messenger/ driver as full-time project local staff. 63. In most cases, technical assistance experts would be assigned to work with the Togolese technical directors who would organnize and direct the work of the advisers and associated Togolese staff or working groups. By September 1, 1985, the Government would establish a project monitoring committee which would consist of the project manager and the participating Togolese directors. The project monitoring committee would meet every two months to evaluate the advancement of the project, including t-aining of local staff (Section 3.02 (c) of the Development Credit Agreement). 64. The possibility of retaining outside agencies, such as the U.N. Department of Technical Cooperation, to assist in recruitment and logistical support would be investigated, and the Government would be encouraged to consider subcontracting some of the training programs abroad to experienced bilateral agencies. 65. Togolese counterparts, with qualifications acceptable to the Association, would be associated with the work of the resident advisers in the line units (Section 3.03 of the Development Credit Agreement). Responsibility for the execution of each part of the project would rest with the Ministry concerned. The project is expected to be completed by December 31. 1989 and the credit closing date would be June 30, 1990 (Section 2.03 of the Development Credit Agreement). Procurement and Disbursement 66. The selection, qualifications, experience, terms and conditions of employment for all resident advisers and consultants unde; the proposed project would be according to Bank Group guidelines and subject to prior approval by the Association (Section 2 of Schedule 3 of the Development Credit Agreement). Separate accounts would be maintained by the Government agencies concerned for all project activities and centralized at the project management unit (PMU) by the project manager, and would be audited each year by auditors acceptable to the Association. All disbursements from the credit account would be fully documented except for small expenditur2s not in excess of US$5,000 equivalent for gasoline, vehicle maintenance, in-country travel which would be disbursed against certified statements of expenditure. Copies of supporting documentation would be held by the Borrower and made available for inspection by IDA supervision missions and the project auditors. The statements of expenditure would be audited by independent auditors. Equipment, vehicles and office supplies (totalling US$210,000) would be procured according to local procedures satisfactory to the Association.  - 23 - 67. The proceeds of the IDA credit would be disbursed against 100 percent of the total cost of the resident advisers, short-term consultants, and fellowships; and 100 percent of the total cost of training equipment and materials, office equipment and supplies, vehicles and travel. A special revolving account of up to US$100,000 would be maintained by the project management unit to cover eligible project expenditures. A CFAF account would be opened by the Government in a commercial bank or at the Central Bank as a condition of IDA's initial deposit in the special revolving account. The account would be replenished by IDA on the basis of Government withdrawal requests aggregated into applications of not less than US$20,000 equivalent for submission to IDA. The special revolving account would be operated under terms and conditions acceptable to IDA (Section 2.02(b) of the Development Credit Agreement). The Government would be responsible for reimbursing the special revolving account for any expenditures not acceptable to IDA. Reporting and Auditing 68. The project management unit would maintain separate accounts for the IDA credit and for the Government's counterpart financing where appropriate. During negotiations, the Government gave assurances that: (a) the project special revolving account and statements of expenditure would be audited annually by independent auditors acceptable to IDA; (b) the Government would submit the accounts and auditors' reports to IDA within six months of the end of the Government's fiscal year; and (c) the auditors' reports would be of such scope and in such detail as IDA might reasonably request (Section 4.01 of the Development Credit Agreement). The PMU would in addition submit quarterly progress reports to IDA on project implementation and expenditures, and a final report on the implementation experience and project outcome within six months of the credit closing date. Benefits and Risks 69. The benefits to Togo from the proposed project include an increased capacity to prepare and implement sound macroeconomic policies and to pursue adjustment policies in crucial areas such as rural development, state enterprises reform and public investment programming. The main risks of the project include the possible difficulties in finding advisory personnel who are both suitably qualified and sufficiently adaptable to gain and retain the confidence of the Government, and train the local staff without which the effectiveness of the resident advisers would be greatly reduced. The Government's awareness of the need for improved technical assistance in support of its economic reform program is reflected by the first and second technical assistance projects and by its commitment to continue an improved and streamlined technical assistance effort. To ensure the success of the training component, the project provides for special arrangements to facilitate training of local staff.  - 24 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 70. The draft Development Credit Agreement between the Republic of Togo 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. 71. Features of the draft Development Credit Agreement of special interest are listed in Section III of Annex III. A special condition of effectiveness is the creation of a project management unit within MPI to oversee the operations of the technical assistance project, including the appointment of a project manager and a training officer to serve on the unit. 72. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 73. I recommend that the Executive Directors approve the proposed credit. A. W. Clausen President Attachments Washington, D.C. May 1, 1985  - 25- ANNEX I TABLE (Page I of 5) TOGO SOIAL INDlICATOS DATA Sti TOGO mEfhZNCa GhMPst (WEIGHTE AVERAGE) I NOST (nOST imcsw zsTITz) /b 9 CCENT LW IlNCOltE AOICA mDDLE To-a l