Mauritania - Small-scale Irrigation Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3980-MAt REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 7.7 MILLION TO THE ISLAMlC REPUBLIC OF MAURITANIA FOR A SMALL SCALE IRRIGATION PROJECT March 7, 1985 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 witbout World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Ouguiya (UM) US$ 1.00: UM 80.00 UM1,000: US$12.50 ABBREVIATIONS CCCE Caisse Centrale de Cooperation Economique (French development bank) FAC Fonds d'Aide et de Cooperation (French agency for technical assistance and grants) FAO/CP Food and Agriculture Organization/Bank Cooperative Program FED Fonds Europeen de Developpement (European Development Fund) IFAD International Fund for Agricultural Development KfW Kreditantstalt fur Wiederaufbau (German aid agency) MDR Ministare du Developpement Rural (Ministry of Rural Devel-opment) OMVS Organisation pour la Mise en Valeur du Fleuve Senegal (Senegal Valley Development Authority) SONADER Societe Nationale pour le D6veioppement Rural (National Rural Development Authority) FISCAL YEAR January 1 to December 31  FOR OMCIL USE ONLY ISLAMIC REPUBLIC OF MAURITANIA SMALL SCALE IRRIGATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: Islamic Republic of Mauritania Beneficiary: SONADER, the National Rural Development Agency Amount: SDR 7.7 million (US$7.5 million equivalent) Terms: Standard On Lending: Proceeds of the credit would be passed on to SONADER as a Terms government grant. Project The project would provide for the construction and initial Description operation of 75 small irrigation perimeters of 20-25 ha, totalling 1,600 ha, in the upstream zone of the Mauritanian bank of the Senegal River. It would provide: (a) pumping sets; (b) farming inputs; (c) services of eight Mauritanian professionals to provide agricultural extension, and pump maintenance and repair service; (d) housing and working facilities for these professionals; (e) service of two expatriate technical assistants to assist SONADER in supervising construction of the perimeters; and (f) vehicles and topographic/office equipment to strengthen SONADER's regional offices responsible for these perimeters. A special account would be established under the project to expedite disbursement. Benefits Annual incremental production of edible grain at full and Risks: development would be about 10,000 tons, double the country's present level of irrigated grain input. The project would increase the income of 2,900 farm families. The measures designed to increase cost recovery would eventually permit all existing and future perimeters to be financially independent. The risks are smail: peasants are bighly motivated and have proven their capacity to construct and manage their perimeters under the effective supervision of SONADER. Moreover, since each perimeter would be an independent unit, problems that might develop in one perimeter would not affect the project as a whole. This document has a restricted distribution and may be used by recipients only in the performance of their ofricialduties. ts contents maynot otherwise be disclaosedwthout World Bank authorization.  - ii - Estimated Costs 11: Local Foreign Total ---US$ million------ Perimeter Development 1.0 2.6 3.6 Inputs 0.0 0.5 0.5 Supporting Services 1.3 0.8 2.1 Total Baseline Costs 2.3 3.9 6.2 Contingencies - Physical 0.2 0.5 0.7 - Price 0.9 1.0 1.9 - Implementation delay 1.1 0.9 2.0 Subtotal 2.2 2.4 4.6 TOTAL PROJECT COSTS 4.5 6.3 10.8 Financing Local Foreign Total -- -----US$ million--- - IDA 3.1 4.4 7.5 IFAD 2/ - incremental expenditures 1.1 1.9 3.0 - non-incremental farming iuputs - - 0.4 Government 0.3 - 0.3 TOTAL 4.5 6.3 11.2 Disbursement Schedule (IDA Credit) 1986 1987 1988 1989 1990 1991 1992 1993 1994 Annual 0.4 0.9 1.3 1.5 1.2 1.0 0.7 0.4 0.1 Cumulative 0.4 1.3 2.6 4.1 5.3 6.3 7.0 7.4 7.5 Rate of Return: 25Z Map: IBRD No. 16569 1/ Net of taxes which would be waived. 2/ Includes USS0.4 million of IFAD's contribution to SONADER's rehabilitation plan.  - iii - Staff Appraisal: No. 4269-MTT Chart: SONADER ORGANIZATION CHART, World Bank 24028 a  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR A SMALL SCALE IRRIGATION PROJECT 1. I submit the following report and recommendation on a proposed Development Credit to the Islamic Republic of Mauritania for the equivalent of SDR 7.7 million (US$7.5 million) to help finance a Small Scale Irrigation Project. The Credit would be on standard IDA terms. Additional financing will be provided by the International Fund for Agricultural Development (IFAD) througb a loan of SDR 3.5 million equivalent (US$3.4 million) repayable over 50 years including 10 years of grace with a serxrice charge of 1 percent annually. PART I - THE ECONOMY 2. A report entitled "Islamic Republic of Mauritania - Recent Economic Developments and External Capital Requirements" (2479a-MAU) dated June 4, 1979, has been distributed to the Executive Directors. Since then, a number of missions have visited Mauritania to monitor the economic and financial situation and prospects of the economy. Updated country data are given in Annex I. The Land and its People 3. Mauritania bears many of the characteristics of the "Least Developed Countries" in terms of its physical and human resources, despite a level of per capita income (US$460 in 1983) somewhat higher than that of the world's lowest. Three-quarters of the country is desert or semi-desert, the principal economic activity being livestock herding. Crop farming is generally limited to the sub-Saharan zone in the south, where rainfall is nonetheless sparse and irregular. Pockets of modern economic activity are found in the mining complex of Zouerate, the fishing center of Nouadhibou and the administrative capital of Nouakchott. These centers are geographically separated from the agricultural zones, and there is little economic interaction between them and the rural sector. 4. The three centers of modern economic activity account for a major share of the country's overall output, while livestock and crop farming, which support as much as 70 percent of the population, account on average for about 25 percent of total output. The mass of the population (total 1.6 million) suffers from an extremely low standard of living, as reflected in key social indicators: life expectancy at birth is estimated at 45 years, infant mortality is 132 per 1,000, only one in every three children of school-age attends primary school, and less than 20 percent of the population is literate in either of the two official languages, Arabic and French.  -2- Past Economic Performance 5. Led by increases in iron ore production, Mauritania's GDP sustained an average annual growth rate of 8 percent during the 1960's. The economy experienced a sbarp deceleration in growth in the mid-1970's, however, and a period of marked financial instability in the latter part of the decade. Principal factors were reduced world demand for iron ore, on which the country had been dependent for 70-80 percent of its export earnings, and the effects of severe and repeated drought on output in the rural sector. These factors were compounded by prolonged military conflict in the Western Sahara and a poorly conceived investment policy. The investment program was stepped up in the mid-1970's to rates approaching 40 percent of GDP with the support of heavy inflows of foreign assistance, particularly from OPEC sources and commercial lenders. These resources were used principally to finance the nationalization of the mining sector, ambitious projects in transport infrastructure and a xew large industrial ventures which were to prove unviable. 6. The effects of depressed iron ore earnings, droughit and a generally weak record of economic management in the mid-1970's brought the country to financial crisis by 1977. The Government's current expenditure requirements that year reached a level nearly double its receipts, producing a Treasury deficit equivalent to 16 percent of GDP. On the balance of payments the country suffered a severe drain on its reserves despite massive inflows of foreign grants and loans. The Government which took power in 1978 immediately adopted a stabilization program which called for rescheduling more than $200 million in debt service obligations, tight controls on the Government wage bill and a reinforced tax collection effort. The growth of the Government's current budgetary expenditure was curbed, and the earlier drain on the country's foreign reserves was arrested. Modest boosts in iron ore and fisheries production and the stimulus of a new investment effort temporarily enabled the economy to pull away from the stagnation which had characterized it since 1975 and to enjoy a brief three-year period of growth averaging 4 percent per annum during the period 1979-81. 7. The improved performance of the economy could not be sustained, however, in the face of a fallback in mining production and the recurrence of drought. Iron ore production fell by more than 20 percent in 1982-83 to a level only 65 percent of that registered 10 years earlier. Witb rainfall only about 20 percent of normal levels in the 1983/84 season, the livestock herd suffered major losses, and cereals production met less than 10 percent of total demand. Aggregate output of the economy fell by 2.2 percent in 1982, rose by 6.6 percent in 1983 (due to distress sales and offtake in the livestock sector and otber exceptional factors) and stagnated in 1984. In tne absence of sustained growth, per capita incomes today are essentially unchanged in real terms from those of a decade ago. 8. The failure of the mining sector to underpin growth of the economy in the 1980's marks a major reversal of expectations at the outset of the current Five-Year Development Plan period, 1981-85. On the assumption of gradual recovery in the world steel industry and a consequent near-doubling of Mauritania's ore production, mining was expected to resume  - 3 - it's role as the economy's motor of growth through at least the first half of the decade and to ensure the domestic resources to effect the development strategy adopted for the 1980's: to eventually shift the base of the economy from its exhaustible mineral resources to alternative, renewable sources of growth -- irrigated agriculture, livestock and fisheries. The need to ensure future mining capacity and at the same time to diversify the economy has resulted in Mauritania's maintaining its record for some of the highest rates of investment registered among developing countries. Gross capital formation averaged $240 million annually through a peak period, 1981-83, or 35 percent of GDP. Continuing high levels of investment have reflected the completion of large projects in the transport sector begun in the late 1970's and, simultaneously, the execution of the $500 million Guelbs mining project, Gorgol Irrigation and * other major projects undertaken in the framework of the 1981-85 public investment program. Additionally, a spurt of private sector investment in fisheries was made in the early 1980s in response to Government initiatives to promote national exploitation of these formerly foreign-controlled resources. 9. Given the performance of the mining sector and drought-induced shortfalls in rural production, Mauritania's inability to maintain satisfactorv rates of growth have sharply aggravated its exceptional dependence on foreign resources to meet consumption as well as investment requirements. Whereas the external current account deficit had been held in check at an average 22 percent of GDP in the 1979-81 period and the overall balance of payments maintained in approximate equilibrium, Mauritania's external position bas substantially weakened since 1982. Despite a strong rise in earnings from fish exports (estimated at $135 million in 1984 closely rivalling earnings from iron ore of $150 million), the current account deficit expanded to an average 33 percent of GDP in 1982-83. Though in part the result of exceptionally heavy foreign-financed mining investment, the expansion of the deficit was unmatched by a corresponding increase in capital inflows, forcing a massive drawdown of Central Bank reserves (cumulative $77 million in 1982-83). In 1984 the payments crisis was modestly eased by a decline in cereals imports, replaced by exceptional receipts of food aid, and a reduction in other general imports induced by a downward adjustment of the ouguiya exchange rate of 19 percent in relation to the US dollar. Further losses in official reserves were nonetheless incurred (US$33 million), and by end-1984 payments arrears on external medium and iong-term debt had mounted to an estimated $95 million. The Recovery Program and the Current Outlook 10. Mauritania's balance of payments and budgetary situation thus remains extremely weak, requiring continuing adjustment measures over the medium term and heavy support from abroad in the form of financial and technical assistance and food aid. The gradual depreciation of the ouguiya during 1984 was one of a series of recovery measures in the areas of exchange rate and price policy, fiscal administration, the public enterprise sector, the banking system and the public investment program towards reducing external and domestic imbalances to sustainable levels and maximizing the modest prospects for the economy in the medium term. Such  - 4 - measures are being pursued in the context of the Government's 1985 Economic and Financial Recovery Program. In January 1985 the Government reached agreement with the IMF on a proposed Stand-By arrangement for SDR 12 million. In accordance with that agreement, it undertook in February 1985 a further 19 percent effective devaluation of the ouguiya in domestic currency terms and increases in cereals prices at both producer and consumer levels ranging from 12-50 percent. The Government also agreed to raise interest rates to levels which are positive in real terms and to restrict credit expansion. The IMF Stand-By would be put in place following successful negotiations with Arab and Western bilateral creditors to fill the projected 1985 financing gap of about $200 million. 11. Successful implementation of the Government's Economic and Financial Recovery Program, supported by the international community, is critical to the medium-term outlook for the economy. With disciplined economic management and well-conceived measures to exploit Mauritania's limited resources, modest but sustained growth in output is possible. Rural sector production should recover moderately from drought-induced lows of 1984. Although international iron ore markets are not expected to recover significantly through the 1980's, it is possible for SNIK to continue to improve the cost effectiveness ef its operations. In the livestock sector, some time will be needed to reconstruct the herd following the heavy mortality and accelerated offtake over the past two years. In the period ahead, irrigation development will increasingly contribute to food supplies, ever though cereals production will remain highly vulnerable to the effects of drought. In the fisberies sector, now a major source of foreign exchange and budgetary revenue, growth could remain strong for another 3-4 years, but would then level out if resources are not to be over-exploited. Under favorable assumptions, overall growth of the economy through the remainder of the 1980's could average 3.5 percent annually, or 1.0 percent ahead of the projected rate of population growtb. 12. In an effort to tap the growth potential of crop agriculture, the Government gives primary emphasis to irrigation. Climatic vagaries in the major food producing zones of the Senegal River Basin are such that fully controlled irrigation is considered by the Mauritanians to be the most feasible means of narrowing the country's exceptionally wide food deficit. In favorable years, domestic foodgrain production meets 35-40 percent of demand. In 1984 under conditions of extreme drougbt domestic production met less than 10 percent of demand. In order to stabilize and expand production of foodgrains, particularly rice, the Covernment has launched a major irrigation program under the IVth Plan. Whereas less than 2,000 ha were under irrigation at end of 1980, the Government hoped to be able to bring an additional 10,000 ha under irrigation by 1985. 13. This target has now been revised downward as a result of the high cost of infrastructure, the paucity of indigenous technical expertise and the very fundamental socio-economic changes brought about by irrigation development. In view of the constraints faced by large scale irrigation, priority is currently given to exploiting the potential for small scale s&emes. The experience gained in small scale irrigation is expected to then serve in the implementation of the larger schemes and consequently in  - 5 - effecting the very difficult structural changes called for in the Government's development strategy. PART II - BANK GROUP OPERATIONS IN MAURITANIA 14. As of FY84 the Bank Group has had 19 operations in Mlauritania for a total of US$212.6 million. Of these, two are Bank loans for mining operations (US$66 million for MIFERMA in 1960, and US$60 million to SNIM in 1979 for the Guelbs Iron Ore Project). The other 17 are IDA credits totalling US$86.9 million. Of the IDA operations, five have been in the transport sector, six in the rural sector, two for education, two have been technical assistance projects for economic planning and there have been 0 separate projects for urban and rural development and petroleum exploration. IFC has no operations in Mauritania. The Bank Group's presence in Mauritania was fairly substantial in the early 1970s, and in 1970-72 it was the third largest donor providing about 18 percent of Mauritania's external capital assistance. Since then, external financial assistance to Mauritania from other sources has increased rapidly and at present, the Bank Group's share in Mlauritania's external capital assistance amounts to about 8.0 percent. 15. Until the mid-seventies Bank Group strategy for Mauritania focussed on financing traditional projects mainly in agriculture, transport and education. Since the mid-seventies this assistance has been broadened increasingly to address the institutional weaknesses of country economic management, investment planning and project implementation which had manifested themselves during the last decade. In 1978, the Association assisted the Government in designing a financial and economic rehabilitation program for which the first Technical Assistance Project (FY77) provided the expertise. Assistance for the formulation of macro-economic policy, a medium and long-term development strategy, and investment programs is being continued under a Second Technical Assistance Project (FY82), which is also helping to develop a pipeline of feasible investment projects other than mining (iron ore) on which the country can no longer solely count for sustained economic growth. The objective of this assistance is to institute a much more thorough evaluation of investments than occurred in the past especially to avoid large, capital intensive projects with low productivity and unsatisfactory rates of return. Priority will now be given to projects aiming at the rehabilitation and maintenance of existing infrastructure, and encouraging only those new investments that demonstrativelv promise a high rate of return. 16. Following a comprehensive review of the public sector enterprises financed under the first Technical Assistance project, assistance was also provided to the Interministerial Committee for the Rehabilitation of Public Enterprises in the preparation of a medium-term rehabilitation program for the public enterprise sector. This program sets forth measures to increase the efficiency of the existing enterprises through selective actions of rehabilitation, privatization and liquidation and outlines rehabilitation programs for several of these enterprises including actions on pricing policies, personnel adjustments, streamlining of management and appropriate  - 6 - maintenance of equipment. In support of this program a Public Entetprise Technical Assistance and Rehabilitation Project is scheduled to be presented to the Board of Executive Directors during FY85. 17. In order to address Mauritania's severe balance of payment problems, tight fiscal situation and its inability to service its public debt problems, the Association in close cooperation with the IMP is assisting the Government in preparing a Rehabilitation Program (1985-89) which will need to be supported by both debt rescheduling and non-project aid. To back-up these efforts, our country and economic sector work has been intensified and will include sector papers on fisheries, education, a energy and urban development. Provided that a Second IKE Standby arrangement is approved and satisfactory progress is made in the implementation of economic recovery measures, a Consultative Group meeting will be organized to obtain donor support for the Rehabilitation Program. 18. Professional training of Government officials remains an essential ingredient of IDA assistance to overcome the acute shortages of trained local staff at all levels, which constitute a major difficulty in project implementation. Through project aid and technical assistance, efforts have been made to strengthen vocational training for the modern industrial sector and farmers training, in parallel with broadening access to prima.-y education. Nonetheless, shortages of pupils completing secondary and vocational schools with satisfactory results remain critical and explain the low productivity of employees in the modern sector. As a consequence technical assistance should continue to be an important part of project financing. 19. Assistance to the education sector is being provided under the Second Education Project (FY82) which aims at expanding accesE to primary education, improving vocational training in the modern industrial and commercial sectors, and training of lower secondary school teachers to replace a substantial number of foreign technical assistants on expensive contract basis. Future IDA assistance should continue to focus on the need to reduce technical assistance personnel. The Government recently requested the Association to assist the Government Education Reform Committee in the review of key sectoral issues, a clear definition of overall long term objectives, the formulation of policies, the preparation of an investment program to increase efficiency of education and training, and the reduction in recurrent costs to lower the large share of education (30 percent) in the national budget. Additional sector work is being initiated for this purpose. 20. Assistance to agriculture will be continued since this sector is still considered Mauritania's principal source of growth over the longer term, despite its weak base and extreme vulnerability to drought, and the high cost of investments caused by difficult physical conditions, limited transport infrastructure, and the high level of technical assistance needed. Through the Second Technical Assistance to the Rural Seccor project (FY83), rural institutions will be strengthened and efficient incentives developed by addressing such fundamental issues as input and product pricing, subsidies and land tenure. The proposed project would continue IDA assistance to the on-going irrigation program, emphasizing the  participation of beneficiaries in construction, maintenance and operation to keep investment costs down. A Second Livestock project (FY86), would improve livestock production, strengthen services and - based on encouraging experience in Niger and Mali - establish pastoral cooperatives on a trial basis with grazing rights allocated to identifiable land areas. This would enhance renewable resource management through greater involvement by the pastoralists themselves. In the fisheries sector, wbich could be an important source of future growth, a sector study has been prepared to assist the Government in the elaboration of a sector strategy. The objective is to enable Mauritania to capture a larger share of the benefits currently reaped by foreign trawlers operating along the coast. Once this strategy is in place, a fisheries project could be considered. 21. In the energy sector, our assistance consists of supporting the Government's search for oil through the Petroleum Exploration Project (FY82) and carrying out an energy assessment to recommend strategies and policies aimed at improving energy demand management, devrelop indigenous energy resources, strengthen institutions, and identify specific areas for follow-up technical assistance, based on which a future operation could be developed. The Association is also helping Mauritania to evolve an overall strategy for the urban sector. Urbanization has grown dramatically in recent years while appropriate measures to adjust to this development have not been taken. Sector work is being carried out to gather detailed knawledge of the urban requirements and to examine the wider urban policy issues in the context of Mauritania's overall development aspects. This sector work may lead to the design of an urban project later in this decade. To assist in Mauritania's efforts to diversify employment and sources of income, financing was provided to encourage private enterprise through the Mauritanian Development Bank (Credit 888-MAU) and to promote artisanal carpet-weaving activities. A Second Industrial Development project to be presented soon to the Board would further pursue these objectives and through studies develop appropriate policies for improving subsector performance and possibilities of further expansion of the manufacturing sector. PART III - THE AGRICULTURAL SECTOR Overview 22. Two-thirds of Mauritania lies in the Sahara zone with less than 100 mm of annual rainfall. The rest is in the Sahel with a maximum precipitation of only 600 mm. Thus, Mauritania has one of the poorest agricultural resource basis of all countries in West Africa. The rural sector provides the livelihood for about 70 percent of the population and contributes about 25 percent of the GDP with some 65 percent of the rural population involved in nomadic herding. Sedentary agriculture is limited to a relatively narrow strip along the Senegal River, a small area (Guidimaka) in the south where local precipitation allows rainfed cropping, some oases in the north, and few isolated regions where shallow lakes make flood recession cropping possible. Insufficient and erratic rainfall has been the major barrier to this sector's growth, aggravated in the past decade by the recurrence of serious droughts.  -B- Livestock 23. This subsector, which accounts for 80 percent of the output of the rural sector, is the largest single contributor to Mauritania's GDP (20 percent), larger than mining. However, the livestock population of cattle, sheep and goats was cut in half by the effects of the droughts of the mid-1970s; at present there are about 1.4 million cattle and 5-6 million sheep and goats. Shortages of fodder during the dry season are among the major constraints to livestock development. Cattle are also threatened by diseases. In the late 1960s the Government carried out a systematic campaign to eradicate rinderpest, the main animal health bazard. Follow-up of this effort is insufficient and, although occasional outbreaks have been controlled, the threat nonetheless remains latent and requires the continuation of vaccination campaigns. In 1971, IDA financed a livestock development project (Cr. 273-MAU. US$4.15 million), whicb provided for rehabilitation and construction of wells, construction of firebreaks. and vaccinations. It was completed fairly successfully in 1978. Experience during and subsequent to this project suggests that although there is some potential for increasing the herd size, there ia also a risk of major losses during drought periods. Thus the future for livestock lies more with improved animal health and husbandry practices than herd expansioll. Non-irrigated Agriculture 24. Along the Senegal and the Gorgol Rivers. farmers grow rainfed millet, flood-recession sorghum, and some vegetables. Yields are low due to the use of traditional cultivation techniques as well as irregular flooding and rainfall. In favorable years production of sorgbum and millet is about 40,000 tons which satisfies only 15 percent of domestic demand of food. In drougbt years, rainfed production may be redtuced by 50 percent or more. Expansion or improvement of rainfed agriculture is tecbnically, financially and economically non-viable and farmers will not risk investing where there is substantial probability of loss due to drought. Irrigation 25. Irrigation was not started until the 1960. and by the end of 1982 about 4,000 ha had been developed, half being small perimeters of about 20 ha and half two large projects, namely Mpourie (1,400 ha) and Kaedi (700 ha). Of the small perimeters, about 1,700 ha have been sponsored by the Government, with external assistance from the European Development Fund (FED), the French Agency for Technical Assistance and Grants (FAC), IDA and the Wetberland. The remaining few hundred hectares are either entirely private or sponsored by non-governmental organizations. The record has been mixed, but small perimeters have performed far better than large ones. During the Fourth Development Plan period (1981-1985), a further 10,000 ha were to be irrigated, with 3,300 ha threugh small perimeters and the remaining 6,700 ha through larger projects. However, the targets of most large scale projects bave been revised downward as a result of serious problems experienced by these projects (the largest one, the Gorgol Noir, wbich is financed by IDA and other donors, has been scaled down from 3,600 ha to 2,000 ha). Thus, it seems now more realistic to estimate that by 1990 the additional irrigated erea will be of the order of 6,500 ha which  - 9 - is already a formidable challenge to the implementation and management capacity of the Mauritanian institutions. Large-scale irrigation may eventually be possible from the two major dams on the Senegal River (Manantali and Diama) that are being constructed by the Senegal River Development Office (OMVS), a trinational (Mali, Mauritania and Senegal) entity financially supported by several bilateral and multilateral agencies. Although the irrigation potential in Mauritania from the reservoirs may be up to 100,000 ha. there are major technical, institutional, economic, financial and sociological problems which would need to be first resolved. Institutions 26. While OMVS is in charge of planning and supervising the regulation of the river and associated power and transport investments, the development of irrigated perimeters renains the responsibility of the member states. In Mauritania, the Mini:try of Rural Development (MDR) is in charge of water resources development. Under this Ministry. the National Rural Development Authority (SONADER) was set up with donor assistance in 1975. SONADER was, however, entrusted with excessive responsibilities, including the planning and design of rural development projects, execution of works by fcrce account, the operation and maintenance of projects, and the provision of support services (farming equipment, extension, credit, input distribution, and marketing). As a result, the agency incurred serious financial and functional difficulties which the Government and the donors tried to overcome with a series of technical assistance projects, not always well coordinated. In 1983, the Mauritanian authorities undertook an in-depth revision of the tasks and structure of SONADER. An outline plan was agreed between SONADER and its do,nors in October 1983 and finalized in April 1984. According to this plan SONADER will in future prepare irrigation projects and supervise their implementation, but will relinquish any direct involvement in project implementation. Maintenance of pumps, suppLy of inputs, agricultural credit and marketing activities will be transferred to the private sector or existing banks, which will deal directly with the cooperative groups concerned within each project. The Government and SONADER have committed tbemselves to complete these steps through L987. 27. The serious financial problems faced by SONADER were another inevitable consequence of the agency's over-ambitious mandate; budgeting provision for current expenditures have been consistently lower than actual costs, resulting in a growing gap far beyond the Government's financial capability. Without any other income. SONADER incurred heavy debts (at present UM 108 million, equivalent to about two years of headquarters' budget), which brought the institution almost to a collapse. At a meeting held in Nouakchott in November 1984, Government and representatives of SONADER's donors agreed on a financial rehabilitation plan which will assure SONADER's financial requirements for the period 1984-86 (these requirements have been estimated to total UN 387 million). The Government's and donors' shares would be about 40 percent and 60 percent, respectively. By having secured financing for its operating budget and ics projects' non-incremental costs through direct donors contributions SONADER will be able to retire its debts with the Government budgetary allocations.  - 10 - IDA will use the savings (US$2 million) realized under the Credit for the Technical Assistance Project to the Rural Sector (Cr. 1414-MAU) as its contribution to SONADER's rehabilitation. These savings have materialized as a result of the scaling down of the agency's responsibilities. IDA's contribution has been earmarked to finance SONADER's 1984, 1985 and 1986 budgets. 28. The Government has already contributed UM 38 million to SONADER's financial rehabilitation in 1984. Agreement was reached during negotiations that the Government will establish a Rehabilitation Fund for SONADER and deposit in this Fund by December 31, 1986 the outstanding balance of its contribution (UM 110 million). (Section 5.01 of the draft Development Credit Agreement (DCA).) As part of SONADER's rehabilitation, the Government has also agreed during negotiations that starting from the 1985-86 season, SONADER will sell farm inputs at their full cost (Section 4.03 of the draft Project Agreement (PA)) and, no later than January 1, 1986, will eliminate all subsidies on fertilizer prices (Section 5.02 of the DCA). Government's Objectives and Strategy 29. The Government gives high priority to agriculture and rural development as the key element for economic growth. The Government's main objectives for the rural sector, as stated in the 1981-1985 Plan, are threefold: to increase food production, both of cereals and animal products; to protect and rehabilitate the environment; and to reverse the steep increase in urban migration. These objectives are reasonable, as is the proposed strategy of investing in projects with the least possible recurrent costs and substantial beneficiary participation. The Government recognizes that little can be done to increase rainfed crop production and that the undertaking of over-ambitious irrigation projects entails serious problems, both technical and financial. It has tberefore given primary emphasis to small scale irrigation. In view of its tight fiscal situation and the difficulties in servicing its debt, the Government is reviewing its agricultural investment program within the framework of its economic recovery plan now under preparation with the assistance of the IMF and IDA. Sector Issues 30. Three main issues affect the rural sector in Mauritania. First, institutions are weak due to the acute shortage of trained personnel. This means that projects should be of an appropriate scale, and kept simple. Government has not hesitated to obtain technical assistance from several external sources, both to train staff and to fill line positions, and such technical assistance will be required for a long time. But partly because the institutions are weak, Government is under no illusions about the capability of the public sector. More than in many other countries, Government relies on private initiative in the rural sector and hence has not set up a plethora of public institutions that would be difficult to dismantle, and seems determined to avoid the kinds of mistakes that have been made elsewhere. Second, investment costs are very high, due mainly to the difficult physical conditions, as well as recourse to higb-cost expatriate manpower. This reinforces the point that projects should be  - 11 - kept simple. Third, policies on prices and subsidies are urban-based, thus reducing production incentives. There have, however, been recent substantial improvements in producer prices for rice, sorghum, millet and maize which have now reached the level of border prices. Also, wholesale and consumer prices for food aid and imported rice have increased substantially and should reach import parity level by 1987. Furthermore, the proposed project includes specific measures to reduce subsidies (para. 46). Bank Group Involvement in the Sector 31. The proposed project would be the seventh Bank Group lending operation in the rural sector. The first six operations were: a livestock development project in FY72; a Drought Relief Fund project in FY73, under which IDA financed a small irrigation subproject; the Gorgol Engineering project in FY74, which prepared the final engineering designs and tender documents for the Gorgol Irrigation project; a first Technical Assistance project to the rural sector in FY77; a small irrigation component under the Urban and Rural Development Fund project in FY79; the Gorgol Irrigation project in FY81; and a Second Technical Assistance project to the rural sector in FY84. Project performance audit reports have been issued for the first four operations. Common problems have included: (a) slow implementation arising from administrative inefficiencies within the Government. a consequence also of the acute shortage of trained local staff at all levels, although there was a notable improvement in SONADER under the first Technical Assistance project; (b) cost overruns partly due to slow implementation and exacerbated by the exceptional political situation that prevailed up to 1979; (c) difficulties in obtaining the counterpart funds. Despite the above problems the four projects have reached an acceptable degree of success. The lessons learned from the past experience have been taken into account in the design of the new projects. In particular, more attention is being given to the selection and training of staff and an effort is being made to keep the projects simple and on a scale more in line with the country's scarce financial resources and limited administrative capacity. Cost recovery elements are also being introduced wherever possible to reduce the financial burden on the Government. The ongoing Gorgol Irrigation project, the first large irrigation scheme to be developed in Mauritania experienced considerable problems. These were, however, due mainly to the project design which proved to be too ambitious for the country's conditions, especially as far as the project's operation and maintenance aspects were concerned. The project was recently scaled down considerably and its design simplified. Project beneficiaries are now involved in the construction of on-farm works and manual farming practices have been introduced in lieu of the initially foreseen heavy mechanization. With these changes, the results of the first farming season, which was completed in December 1984, have been encouraging.  - 12 - PART IV - THE PROJECT 32. In March 1982, the Mauritanian Government confirmed earlier requests to IDA for assistance with the financing and implementation of a small scale irrigation project. Based on a preparation report completed in December 1981 by the FAO/IBRD Cooperative Program, as well as experience acquired with the irrigation subsector in the course of supervision of past and ongoing projects, a Bank mission appraised the project in May 1982. The time taken to process this project has been unusually long because the project processing was halted several times as a result of (a) a delay by the Government in paying US$1.0 million equivalent to SONADER, which was a condition of Board presentation of the IDA-financed Second Rural Sector Technical Assistance Project, and (b) subsequent delays in reaching a satisfactory agreement among the Government and the donors on the functional and finarcial rehabilitation of SONADER (paras. 26-28). The processing of the proposed project resumed when an agreement was reached on this issue in November 1984. Negotiations were held in Washington February 11-15, 1985 with a government delegation led by Mr. Ba Oumar, head of the Finance Department, Ministry of Planning and Regional Development. A delegation of IFAD also participated in the negotiations. A Staff Appraisal Report entitled "The Islamic Republic of Mauritania: Small Scale Irrigation project (No. 4269-MAU) dated March 4, 1985 is being circulated separately. A supplementary project data sheet is presented in Annex III. Project Objectives and Description 33. The proposed project would be the next step in IDA's continuing program of support for irrigation in Mauritania. The project would be part of SONADER's ongoing program of development of small scale irrigation, to which IDA has contributed twice through a subproject of the Drought Relief Fund Project (FY73) and a stibproject of the Urban and Rural Development Fund (FY77). The key features of small scale irrigation are the participation of the beneficiaries in the construction, operation and maintenance of their perimeters, and low investment cost. The proposed project would contain two innovations, designed to provide a greater assurance of sustained success, and their successful realization would be an important project ob'.ective: all new perimeters would be of at least 20 ha, in order to permit an adequate spread of fixed costs; and changes in current practices would be made to obtain increased cost recovery in order to permit more financial autonomy for the small perimeters. The project would also bring about a significant contribution to food production. 34. The project would provide for the construction and iuitial operation of small perimeters of 20 - 25 ha, each served by a pumping set, in the Gouraye and Kaedi sectors, the most upstream zone of the Mauritanian bank of the Senegal River. It would include:  - 13 - (a) development of 75 perimeters totalling about 1,600 ha; (b) provision of 75 pumping sets for these perimeters plus 20 additional stand-by sets; (c) provision of farming inputs; (d) provision of vehicles, topographic and office equipment; (e) construction of housing and working facilities in Gouraye; (f) provision of technical assistance to SONADER to supervise the construction of small perimeters (two expatriate irrigation engineers); and (g) provision of technical assistance to project beneficiaries in the form of agricultural extension services (eight Mauritanian professionals), organization and management of cooperatives (two Mauritanian professionals) and pump maintenance and repair service (four Mauritanian mechanics), 35. The project would finance the construction of two types of perimeters. Type A perimeters would be constructed entirely by the beneficiaries themselves. SONADER's role would be to design the perimeter lavout, supervise the construction, undertake the minor cement works at the stilling basin, and install the pump set and accessories. These perimeters would be built wherever the site conditions permit; only 25 such sites have been identified in the project area. Type B perimeters would be built on more difficult sites, where the terrain requires earth-moving that exceeds the capability of the beneficiaries. Such works would be undertaken by contractors, under the supervision of SONADER, but perimeter construction would otberwise be identical to Type A perimeters. There are 50 appropriate sites for Type B perimeters in the project area. Project Execution 36. Responsibility for the execution of the project would rest with SONADER. SONADER has begun work on the final designs for the 50 Type B perimeters, for which the mechanical earthworks would be undertaken by a contractor in the 1985-86 dry season. To supervise these works, and to organize and supervise the works to be undertaken by the beneficiaries' own labor, SONADER would set up two construction brigades, each headed by an expatriate irrigation engineer with three construction superintendents. 37. SONADER's regional offices at Gouraye and Kaedi would be strengthened in order to be able to provide supporting services to the groups of beneficiaries on the new perimeters. These services would include input delivery, maintenance of pumping equipment, advice on water management, and advice to the group on managing perimeter affairs, including accounting. Each new perimeter would receive the advisory services on a systematic basis for the first three years of operations. Input delivery would be a continuing operation until such time as alternative suppliers become available. Similarly, pumping equipment  - 14 - maintenance would be continued until alternative mechanical services became available. The project wr ld provide the staffing, training and additional facilities required to ens.re reliable pumping equipment maintenance services. Project cost and financing 38. Total project costs, net of taxes and import duties which would be waived, but including contingencies, are estimated at UH 866.7 million, equivalent to US$lO.B million, of which 58 percent would be foreign exchange. In addition, project beneficiaries would provide US$0.6 million equivalent through their sweat equity contribution. A summary breakdown of costs is shown in the credit and project summary at the beginning of this report. Base costs have been set at January 1985. Physical contingencies to allow for variations in quantities have been estimated as follows: earthworks, 25 percent; construction materials, 15 percent; pumping equipment, 15 percent; farming inputs, 20 percent; and operating costs of vehicles, 25 percent. Price contingencies have been calculated at the following annual percentage rates: 1985 19B6 1987 1988 1989 Foreign costs 5.0 7.5 8.0 8.0 8.0 Local costs 10.0 10.0 10.0 10.0 10.0 Although project design is fairly simple and no major difficulties are expected, experience demonstrates that IDA-financed irrigation projects in West Africa have a disbursement period of eight-and-one-half years after Board presentation. To allow for cost overruns derived from delay in project execution, cost estimates have been revised assuming an implementation period of eight years. Under this hypothesis, the project cost, including physical and price contingencies, would be US$2.1 million higher than the cost corresponding to a five-year implementation period. This difference is added to project cost as a contingency for implementation delay. The average unit cost of developmeut works is $2,800 per ha, including physical contingencies, but excluding price and implementation delay contingencies, which is very reasonable for Mauritanian conditions. 39. IDA would provide a USS7.5 million credit for this project. Jointly with an IFAD loan of US$3.0 million. The IDA credit would cover about 97 percent of the total project cost (100 percent of foreign cost and 96 percent of local cost). IDA's and IFAD's funds would be disbursed on the basis of a 70:30 ratio. The government share in the financing of the project would only be 3 percent. In addition to its share in the financing of the project, IFAD would contribute US$400,000 toward SONADER's financial rehabilitation. IFAD has earmarked the amount for financing of recurrent fertilizer imports, thus freeing the equivalent amount of government money (to be deposited in the Rehabilitation Fund) that SONADER would use to meet its obligations. The effectiveness of the IFAD loan and the appointment of IDA by IFAD to administer IFAD's loan would be conditions of effectiveness of the IDA credit (Section 7.01 of the DCA).  - 15 - 40. In view of the financial constraints the Government is currently facing, it would be essential to prefinance some operational costs. Therefore, an amount of SDR 520,000 from the IDA credit and the IFAD loan would be deposited in a Special Account to be held in local currency at a commercial bank. Opening of the Special Account would be a condition of credit effectiveness (Section 7.01 of the DCA). The account would be replenished upon receipt of satisfactory evidence for expenditures, provided that such expenditures are eligible. Management of the account and preparation of Statements of Expenditures would be the responsibility of SONADER. Assurances were obtained at negotiations that the Special Account would be operated under terms and conditions acceptable to the Association (Section 3.02(b) of the DCA). Procurement 41. Two contracts for civil works totalling US$1.6 million would be awarded through Limited International Tender (LIT). Pumping sets and fertilizer would be procured under contracts awarded on the basis of international competitive bidding (ICB). Other goods would be grouped in appropriate bidding packages which, for values above US$50,000 would be procured through LIT, for values below $50,000 (it is not expected that such procurement would exceed $250,000) could be procured by other procedures acceptable to the Association. Consultant Services totalling USS 1.5 million would be procured according to Bank guidelines. Procurement arrangements for both IDA and IFAD funds are summarized below:  - 16 - Amounts and Methods of Procurement (US$ million) Items to be procured Procurement Method Total Cost ICB LIT Other Civil Works Earth works 1.4 1.4 Buildings 0.2 0.2 Goods Pumping equipment 1.6 1.6 Construction materials 0.7 0.7 Vehicles 0.5 0.5 Fertilizers 0.3 1/ 0.3 1/ Spare parts 0.1 0.1 0.2 Fuel, lubricants 0.3 0.3 Other equipment 0.1 0.1 Services Consultants engineers 2/ 1.5 L.5 Local staff & operating cost of supporting services 4.0 4.0 Total Cost 1.9 2.9 6.0 10.8 1/ Amount to be financed by IDA (1.3) (2.0) (4.2) (7.5) 1/ Does not include the US$0.4 million worth of fertilizers, to be used off-project, which would be also procured through ICB and financed 100% by IFAD. 2/ Two senior irrigation engineers over four years at the base cost of US$120,000 p.a. Disbursement 42. Disbursement of the IDA credit and IFAD loan would be on the following basis: for civil works 100 percent of expenditures; for construction material, equipment (offices and workshops) and vehicles 100 percent of expenditures; for consultant services 100 percent of expenditures; for operation and maintenance of vehicles 80 percent of expenditures; for salaries of local staff 90 percent of expenditures; for agricultural inputs 100 percent of expenditures; for non-incremental agricultural input (solely financed by IFAD) 100 percent of expenditures. Withdrawal applications would be fully documented, except for local staff salaries, operation and maintenance of vehicles and for expenditures under contracts below US$10,000 equivalent for which Statements of Expenditures (SOE) would suffice; supporting documentation of SOEs would be made  - 17 - available to IDA supervision missions, and be explicitly examined during the audits. Accounts and Audit 43. SONADER will establish and maintain separate project accounts in accordance with sound and generally accepted financial practices. An auditor's opinion and report acceptable to the Association on such accounts, as well as on the Rehabilitation Fund (para. 28) and the Special Account (para. 40) will be provided within six months of the close of the financial year. The auditor's report will include a statement on the adequacy of the accounting system and internal controls, especially regarding the reliabilitv of SOEs (Sections 4.01 and 4.02 of the PA). Prices 44. Market prices for cereals are primarily determined by Government policy on the selling prices of concessionary food aid as well as commercial rice imports. Government food aid policy has recently changed, due in part to the advice of the main food donors, resulting in a significant improvement in the incentives offered to domestic cereal production. In February 1985, the Government raised wholesale prices for food aid cereals from UM 15/kg to UM 22.5/kg in Nouakebott and from UM 14/kg to UM21.5 in the interior. One of the objectives of the recent price increase was to eliminate the distortions caused by low consumer prices for food aid cereals. The increase in consumer prices was accompanied by increases in official producer prices for cereals. Producer prices for sorghum, millet and maize were raised from Um 15/kg to UM 21/kg and paddy producer prices from UM 12.5/kg to UM 14/kg. The higher consumer and producer prices should have a stimulative effect on domestic production. 45. Up to February 1985, input prices were at full cost and tax-free with the sole exception of fertilizer for which a subsidy of about 50 percent was provided in relation to the border price. All fertilizer was sold at UM 12/kg regardless of composition and location. In February 1985, Government reduced the subsidy on fertilizers by 50 percent, and will totally eliminate the remaining subsidy on January 1, 1986 (para. 28) Cost Recovery 46. The current practice for small scale irrigation schemes is that beneficiary groups repay one-half of the price of the first pumping set and two-thirds of the price of the replacement set at an interest of 8.5 percent over a four-year period. Auxiliary materials and installation are provided by SONADER at no charge to the group. Except in the first season, when all inputs are supplied at no charge, users pay fuel, lubricants, spare parts and the salary of the pump operator, but labor and other maintenance and repair costs are borne by SONADER. These arrangements imply a high level of subsidy no longer justified in view of the increase in producer prices (para. 44). During negotiations agreement was reached that, beginning with the 1985-86 season, SONADER would sell inputs at their full cost (Section 4.03 of draft PA). Agreemeat was also reached that SONADER would study the feasibility of (a) introducing full cost charges  - 18 - for mechanical services required for pumping equipment repair (study to be completed by December 31, 19B6); and (b) eliminating the subsidy on the first replacement pump set (study to be completed by December 31, 1988). i.e. three years after starting irrigation and before the first replacement pumping sets are expected to be sold. (Section 4.04 of the draft PA.) Financial Implications for the Public Sector 47. Under the proposed arrangements, Government's direct contribution would be 3 percent of project costs, about UM 24 million, which would be financed by a budgetary allocation to SONADER. At full development, SONADER would withdraw all extension agents, charge out or disband its pump repair services, and its only unremunerated services would be for input logistics, farm management advice and, perhaps credit recovery. The cost of these services would be about UK 6 million per year, at constant base costs, wbich the Government would have to continue to provide to SONADER after project completion. Project beneficiaries would at full development be making an aggregate incremental income of UM 65 million/year. An unknown part of this income would be spent on taxable goods from which Government would derive revenue, and Government's breakeven share would be 1OZ of beneficiaries' aggregate income. Plausibly, this would be realized by beneficiaries spending 50 percent of their incremental incomes on goods bearing an average tax rate of 20 percent. Thus the incremental revenues are expected to cover the recurrent costs of the project. Benefits and Risk 48. About 2,900 farm families (20,000 people) would directly benefit from 1,600 irrigable hectares on the 75 new perimeters. Average witbout-project incomes are about 15 percent below the critical consumption level (CCL), estimated at 60 percent of per capita GNP, while witb-project incomes would be about lOX above the CCL. Incremental annual output would be about 3,500 tons of paddy, 6,000 tons of maize, 500 tons of cowpeas and 10,000 tons of hay and straw. The continued implementation of the measures designed to increase cost recovery would permit the financial autonomy of the small perimeters. The estimated economic rate of return over 20 years is 25 percent. The social rate of return would be even larger, since the distributional impact of the project would be to benefit small farmers. The risks are small; in particular, since each perimeter would be an independent unit, problems that might develop in one perimeter would not affect the project as a whole. PART V - LEGAL INSTRUMENTS AND AUTHORITY 49. The draft Development Credit Agreement between the Islamic Republic of Mauritania and the Association, the draft Project Agreement between the Association and SONADER, and the Recommendation of the Committee provided for in Article V, Section I (d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 50. Special conditions of the draft Development Credit Agreement and Project Agreement are listed in Section III of Annex III of this report.  - 19 - Special conditions of Credit effectiveness include: (i) all conditions precedent to the effectiveness of the IFAD loan have fulfilled; (ii) IFAD bas appointed the Association as Cooperating Institution to administer the IFAD loan; and (iii) the Special Account has been opened (Section 7.01 of the DCA). PART VI - RECOMMENDATION 51. I recommend that the Executive Directors approve the proposed Developmen t Credit. Attachments Washington, D.C., March 7, 1985  - 20 - ANNEX I TA LI IA Page 1 of 5 MACU PAUlA - ASOCAL INDICAT0M DATA SAE?B U 4grA ~~MOST (MOTHNT EBV STDIAWft RCgIME MlDDUL SGGR MSt Dk 16oL0 u,ical iSgttit AFRICA S. Op SANARA N. AFRICA A MID EAST TOTAL 1030. 7 030.? 10)0.7 AGRICULTURAL 391 393.3 39 Go - ClA (Urns) 100.0 210.0 470.0 1112.9 1149.6 grSZ CUW MMCM (KLDGRm or OIL EQUIVALENTI 12.0 115.0 132.0 529.0 .22.1 poWInaT An VIL UTATlSTIS POPULATIUN.MID-?EAR tWMOUSANDS) 970.0 1214.0 159L.0 UIIU 7oPMATION CI O TOTAL) 3.4 12.5 25.0 29.? 46.2 POuLATION PROICTION3 POPMIanON INW S 000 (HI m L) 2.3 STATIOURY POPULATION (MILL) .2* POPULATION "MCUiTm 1.9 POPUATION DENSITY pF Sq. I. 0.9 1.2 1.3 n3. 36.3 Pn sq. CM. ACRS. LAID 2.5 3.1 4.0 111.3 461.7 POPULATION AC STRUCTE CZ) 0-14 IRS 4.0 45.3 *6.2 45.4 43.6 15-6 4IS 53.3 52.0 50.8 51.7 33.1 65 ANDASVE 2.7 2.7 2.7 2.9 3.3 POPULATION 00WCH RATE (Z) TOTAL 2.2 2.2 2.3 2.6 2.5 UallAN 1.2 15.5 6.1 5.2 4.5 cRE 53I2T3 PATC (PER THOUS) 50.7 49.9 63.4 47.0 40.4 CRUDE DCAII RATE (PM TOS) 27.1 22.9 19.4 15.2 11.5 GROSS REPRODUCTION RATE 3.4 3.4 2.4 3.2 2.6 FAMILY PLANNING ACCEPTOIS. USUAL (tMOUS) .. USERS t: OF MARRIED WOMEN) .. .. 1.0 e .. 22.2 FOOD AM STS