Benin - Second Borgou Rural Development Project

Document or The World Bank FOR OFFICIAL USE ONLY -7 -7 9 z Report No. P-4407-BEN MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS OF A PROPOSED CREDIT 0OF SDR 15.9 MILLION TO THE PEOPLE'S REPUBLIC OF BENIN FOR A SECOND BORGOU RURAL DEVELOPMENT PROJECTS January 12, 1988 This document has a restrcted distribution and mav be used by recipients onlv in the perfornance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) US$1 - CFAF 295 (October 1987) FF1 - CFAF 50 WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS BOAD - Banque Ouest-Africaine de Developpement CA - Caisse Autonome d'Amortissement CARDER - Centre d'Action R4gionale pour le Developpement Rural CCCE - Caisse Centrale de Cooperation Economique CFDT - Compagnie Frangaise pour le DEveloppement des Textiles FAO Food and Agricultural Organization (UN) IFAD - International Fund for Agricultural Development )DRAC - Ministere du D6veloppement Rural et de l'Action Cooperative RCF - Recherche Coton Fibre SONAPRA - Soci4t6 Nationale pour la Production Agricole URP - Unit6 de Recherche et de Production GOVERNMENT FISCAL YEAR January I - December 31  FOR OFFICIAL USE ONLY PEOPLE'S REPUBLIC OF BENIN SECOND BORGOU RURAL DEVELOPMENT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Government of Benin Beneficiaries: Ministry of Rural Development and Cooperative Action, SONAPRA, CARDER Borgou and Stabilination Fund Amount: SDR 15.9 million (US$21 million equivalent) Terms: Standard, with 40 years maturity Onlending Terms: Up to CFAF 600 million equivalent to the Stabilization Fund to be repaid over 15 years including a five-year grace period at 4% annual rate of interest. Financing Plan: IDA US$ 21.0 million BOAD US$ 7.1 million CCCE US$ 20.9 million IFAD US$ 10.5 million Government/ Beneficiaries US$ 7.8 million TOTAL US$ 67.3 million Economic Rate of Return: 25% Staff Appraisal Report: Report No. 6460-BEN Maps: IBRD 19394R1 and 20637 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not othtrwisc be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DMVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BENIN FOR A SECOND BORGOU RURAL DEVELOPMENT PROJECT 1. The following memorandum and recommendation on a proposed development credit to the People's Republic of Benin for SDR 15.9 million (US$21 million equivalent) is submitted for approval. The proposed credit would be on standard IDA terms, with 40 years maturity, and would assist in financing a project to improve rural development in the Borgou Province and supporting an action program designed to restructure and rehabilitate the cotton sub-sector. 2. Background. Agriculture, the most important sector in Benin. accounts for about 45? of GDP and half of recorded exports, provides for the livelihood of over 85 of the country's 4 million inhabitants, and is the source of income and employment of about 500,000 farm families. Benin has been historically self-sufficient in food production, with cereals production increasing at the rate of about 42 per annum. The cotton sub-sector is rapidly becoming important for the economy, representing over 1OZ of the value of agricultural output and 24Z of exports for 1985. 3. The Government's principal support for agriculture has come through integrated rural development projects implemented by Provincial Rural Development Agencies, the CARDERs, and assisted by various multilateral and bilateral donors, including IDA. Results from these projects, combined with a return to normal climatic conditions, over the past five years, have been quite impressive with an approximate increase of 502 in foodcrop production and an eightfold increase in cotton production. Technological advance at the farm level is demonstrated by the adoption of animal traction and improved seed, notably in the Borgou Province. However, possibilities for further rapid expansion of the sector appear less favorable than over the last few years because of constraints related to low, even if increasing, world market prices for cotton; a production potential constrained by limited foodcrop markets; and a lack of efficient management in. and adequate funding for, the expanding agricultural parastatals. These constraints require that the Government's strategy focus on the redefinition of the public sector role in managing the rural sector. This would involve greater responsibility for investments by the private sector and farmer groups, improved parastatal management and better support to agricultural services. These issues would be addressed in the sector study included in the proposed project.  4. Rationale for IDA Involvement. The project is designed to initiate structural reforms in the rural sector of Benin while continuing IDA's support to improve production in the largest province. Borgou. The project represents an appropriate mix between project and program lending to encourage the Government to pursue needed policy reforms. In Benin's current difficult financial situation, agriculture provldes the best hope for increasing the incomes of a large segment of the population and the country as a whole. The Government has responded positively to XDA's recomuendations through the ongoing rural development projects by introducing policy improvements and reducing subsidies over time and pursuing a more attractive pricing policy for cotton. Farmers have responded rapidly to these more liberal economic policies. Nevertheless and in spite of substantial gains made through area-based rural development projects, signs of stress have appeared in this approach, such as weak coordination of actions at the national level; financial difficulties in supporting institutions, and slow adjustment to changing internal and external conditions. The Government's financial situation is such that it cannot sustain the gains made under the first Borgou Rural Development Project without external support. It has, therefore, asked IDA to help consolidate the gains of the first project and to support the reorientation of its rural development strategy through the reorganization of the cotton sub-sector and a rural sector study. The project has been designed to respond to the Government's request. 5. Project Obiectives. The project would consolidate the results of the first Borgou Rural Development Project by strengthening farmer organizations. import and credit supply and extension services; increasing the productivity of smallholders; and reorganizing the cotton sub-sector and improving its financial viability. The national and regional studies included in the project would be the backbone of a sector adjustment program for the longer term. 6. Project Description. The rural development component would aim at improving extension services and training; promoting animal traction; supplying agricultural inputs and cotton ginning factory spare parts; strengthening applied foodcrop and cotton research; consolidating farmer groups; and rehabilitating and maintaining feeder roads. The institutional component would help in strengthening the financial management and procedures of the CARDER Borgou and the national cotton processing agency, SONAPRA; and preparing a medium-term development program for the sector. The cotton sub-sector rehabilitation component would involve the reassignment of responsibilities among institutions and introduction of far-reaching measures to reduce costs and improve management. Counterpart funds for IDA-financed improved inputs and spare parts would be used to increase the working capital of agencies involved in the sector to enable them to settle their outstanding debts toward the outside economy. The project actions dovetail with the adjustment actions planned in the program of macroeconomic reforms under discussion by the Government, the Bank and the IMF (see Benin Country Brief, September 1987).  7. Total project cost is estimated at US$67.3 million equivalent, with a foreign exchange component of US$26.5 million, or 39Z. A breakdown of costs and the financing plan are show in Schedule A. Procurement methods and disbursements are given in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Benin are presented respectively in Schedule C and D. Two maps showing project location are also attached. The Staff Appraisal Report No. 6460-BEN dated January 12, 1988 is being distributed separately. 8. Agreed Actions. The Government has agreed on the following main actions: (a) implementation of agreed recommendations of an FAO study on CARDER organization; (b) IDA agreement on annual work programs and budgets for CARDER Borgou, SONAPRA, the Stabilization Fund and the Research Units, URP Ina and RCF, and annual audits of the accounts of these institutions; and tc) employment of satisfactory managers in CARDER Borgou, SONAPRA, and the Stabilization Fund. Conditions for effectiveness include: (a) staffing of the secretariat of the Management Committee of the Stabilization Fund and structural modification of SONAPRA; (b) signature of satisfactory contracts for the technical assistance positions in SONAPRA and for export marketing of cotton through sales agents; (c) signature of financing agreements between the Government, the Stabilization Fund and SONAPRA; (d) establishment of a project account and the Government's deposit of its initial contribution; and (e) signature of the first annual working agreement between SONAPRA and the CARDERs. The Government and IDA also agreed on the content of the cotton sub-sector program which the Government subsequently sent to IDA in the form of a Policy Statement. Financing linked to the rehabilitation program would be released in two tranches: the first on effectiveness of the credit and the second, about one year later. based on satisfactory progress in implementation of the cotton sub-sector rehabilitation program. 9. Benefits. Economic benefits would primarily derive from production improvement, and consolidation and increase of yields achieved under the first Borgou Project. Increases in production and productivity would raise the average per capita income despite lower producer prices and higher input prices. By helping to finance and restructure Benin's key cotton sub-sector, the project would help it survive the abrupt drop in export prices that occurred during the 1985/86 and 1986/87 seasons, thereby averting a possible depression in the economy at large, and would improve its financial viability and comparative advantage. The project would also assist in restoring the viability of key rural institutions and would prepare the way for sector-wide adjustment programs in the future. The economic rate of return is 252 and is not overly sensitive to variations in yields, world market prices or cost overruns. 10. Risks. The main risks concern the possibility that international cotton prices may recover more slowly than anticipated, the negative reaction of farmers to cotton price reduction and market constraints on foodcrop production. The project is designed in such a way that if international cotton prices were to stay at their present low level in real terms for a long time, adjustments could be made to  -4- introduce more extensive production methods that would reduce input cost through the adoption of simple technical recommendations for cultural practices. Research is also being undertaken into crop diversification possibilities. 11. Recommendation. I am satisfied that the proposed credit complies with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. Barber B. Conable President Attachments Washington, D.C. February 16, 1988  - 5 - Schedule A PEOPLE'S REPUBLIC OF BENIN SECOND BORGOU RURAL DEVELOPMENT PROJECT ESTIMATED COSTS AND FINANCING PLAN Estimated Project Costs Local Foreign Total 1 of Base Costs -USS million ------ Agricultural Development 3.8 5.5 9.3 15.3 Research 1.7 1.7 3.4 5.6 Cooperative Development 0.7 0.3 1.0 1.7 Environmental Protection 0.1 0.3 0.4 0.7 BottomLand and Well Program 0.3 0.7 1.0 1.7 Rural Roads 1.1 2.9 4.0 6.7 Institutional Development 3.2 7.8 11.0 18.2 Studies and Audits 0.3 2.2 2.5 4.1 Cotton Program Support 6.3 1.1 7.4 12.4 Financial Restructuring 20.3 O.O 20.3 33.7 Base Cost 37.8 22.5 60.3 100.0 Physical Contingencies 1.4 1.7 3.1 5.1 Price Contingencies 1.6 2.3 3.9 6.5 Total Project Costs 40.8 26.5 67.3 (including taxes) Taxes 2.8 -- 2.8 Total Project Costs 38.0 26.5 64.5 (net of taxes) Proposed.Financina Plan IDA 11.5 9.5 21.0 BOAD 2.2 4.9 7.1 CCCE 14.6 6.3 20.9 IFAD 4.7 5.8 10.5 Government/Beneficiaries 7.8 - 7.8 Total 40.8 26.5 67.3  - 7 - Schedule a PEOPtivs WOPUB]C OP SEN N SECOND BOWOOU URAL DEVELOPMENT PROJECT PROCUREMENT METHODS ANDO ISBURSEMENTS Procurement Method (USS millon) _._.... ________-................................ _.__...... Lecal & Internatlonal Totel Project Element iCD Shopping LCD Other NjA Costa Building and Conatruction 1. u.C 1.9 (1 .1) (1 .1) Warehoume 3/ 6.9 0.9 Feeder Roads 4.9 4.9 Bottomiand Developmnt !/ 6.9 0.9 End ronimntal Protection 1.6 3.S Wells sJ 0.4 034 Incremental Inputs 3.9 3.9 Oxen, Traction Equipmnt and Foodcrop Marketing 3.3 3.9 Vehicles A EquIpment / 1.6 1.4 3.1 (1.4) (1.4) Technical Assistance, Studies and Fellowships !/ / 11.2 11.2 (6.2) (6.2) Operating Costs - Vehicleo 3.3 1.2 1.9 (036) (037) (1.2) - Other 2.6 2.3 650 (1.6) (1.5) Inputs and Spars Parts / 0 12.1 17.3 29.0 Ltfl -_- (97) Total Costs 16.6 6.2 1.3 41.4 2.a 57.a (9.7) (1.8) (1.1) (9.6) (21.3) Note: Figureo in perenthowe are the respective amounts financed by IDA. ff Procurement will be done according to procedures acceptable to BOAD. ki' Goods and service. for the components financed by CCCE (vehicles, technical assistance and inputs and spore ports) will be carried out according to procedures acceptable to CCCE. gS Employmnt of consultont and technical assistance staff financed by IDA (equivalent to about USD5.3 million) will be in accordance with IDA guidelines. gf IDA and IFAD-financed inputs and spare parts will be procured through ICB.  Schedule 8 - B Di abursemnta Amount of X o@ Estimated Credit Allocation Cost to be Category Item ('9u9) financed Us5 SDR 1. BuIlding A Construction 951 72e Box 2. Equipment (a) CARDER Borgou 1,150 880 92% (b) RCF 40 so 90g (c) Cjntral Services so 40 90X td) StabllIzatlon Fund 6o s9 909 a. Operating Coats (a) CARDER Borgou 2,200 1,870 709 (b) RCF 159 120 70% (c) Control Services 150 120 7O% (d) StmblIlzation Fund 1in 90 79% 4. Technical Assistance, Studie