Guinea - National Agricultural Export Promotion Project

Doca=t of The World Bank FOPt OFFICUAL USE ONLY Report No. P-5828-GUI MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT OF SDR 15.2 MILLION TO THE REPUBLIC OF GUINEA FOR A NATIONAL AGRICULTURAL EXPORT PROMOTION PROJECT 10 May 29, 1992 MICROFICHE COPY Report No. P- 5828-GUI Type: (PM) BALCET, JC/ X34934 / J 8143/ AFlAG This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit Guinean Franc (GNF) US $ 1.0 = GNF 71C 1/ SDR 1.0 US $1.37 2/ WEIGHTS AND MEASURES Metric System ABBREVIATIONS AND ACRONYMS CCIAG Chambre de Commerce, d'industbie et d'Agriculture de Guinde - Guinean Chamber of Commerce, Industry and Agriculture CICM - Centre Intemational de CrEdit Mutuel Intemational Center of Mutual Credit CLIFEL - Comite de Liaison Interprofessionnel pour les Fruits et lEgumes Interprofessional Liaison Committee for Fruits and Vegetables DNGR Direction Nationale du Genie Rural (MARA) - National Directorate of Rural Engineering FAC - Fonds dAide et de Cooperation (France) French Fund for Aid and Cooperation PDMCG - Projet de Developpement du Mouvement Coop6ratif en Guinee - C:ooperative Development Project PESRPP Public Enterprise Sector Rationalization and Privatization Project PNVA - Projet National de Vulgarisation Agricole - National Agricultural Extension Project PPF - Project Preparation Facility PSPP - Private Sector Promotion Program SAL - Structural Adjustment Lending SENATEC - Service National dAppui Technique et d'Enregistrement pour les CoopEratives - National Cooperative Support Service FISCAL YEAR January 1 - December 31 11 Represents the exchange rate at appraisal in May 1991. The exchange rate is established through an auction system and was GNF 922 to the U.S. dollar at negotiations in May 1992. 2/ As of May 8, 1992.  FOR OMCIL USE ONLY REPUBLIC OF GUINEA NATIONAL AGRICULTURAL EXPORT PROMOTIQN PROJECT CREDIT ANJD PROJECT SUMMARY The Govemment of Guins,a Beneficlirjes: Private/semi-orivate entities: Guinean Chamber of Commerce (CCIAG), Interprofessional Uaison Committee for Fruits and Vegetables (CLIFEL), selected nucleus estate companies, Mutual Credit Company (CICM) and Fund Management Company; and aovemment grolects/services: National Extension Project (PNVA), Agronomic Research Institute (IRAG), Cooperatives Development Project (PDMCG), National Cooperative Support Service (SENATEC) and National Directorate of Rural Engineering (DNGR). *Credit Amount: SDR 15.2 million (US$ 20.8 million equivalent) Terms: Standard IDA terms, with 40 years maturity Financina Plan: Govemment US$ 2.5 million IDA US$ 20.8 million FAC US$ 0.6 million Beneficiaries U$ 0.7 million Total US$ 24.6 million Economic Rate of Retum 17% for production components (about 55% of project costs) Staff AoRraisal Report: tNo. 9997-GUI IBRD 23527 and 23528 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF IDA TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO GUINEA FOR A NATIONAL AGRICULTURAL EXPORT PROMOTION PROJECT 1 I submit for your approval the following memorandum and recommendation on a proposed development credit to Guinea for SDR 15.2, the equivalent of US$20.8 million, on standard IDA terms with a maturity of 40 years to help finance a project for agricultural export promotion. PART I. COUNTRY POLICIES AND BANK GROUP ASSISTANCE STRATEGY DeveloRment Performance and Congstraints 2. After independence from France In 1958, Guinea left the Franc zone, introduced a centrally planned economy, and nationalized all foreign-owned enterprises. The domestic private sector gradually went underground. The once dynamic agricultural sector retumed to subsistence production and agricultural exports simply ceased. An ambitious public investment program aimed at creating a modem, state-owned manufacturing sector failed, leaving a substantial debt burden and growing arrears. The exchange rate became heavily overvalued; non-mining tax revenues shrank; the better educated left in large numbers; public health and education were neglected; state banks became insolvent; the heavily overstatVed public enterprises ran Into severe financial problems; and the nation's infrastructure crumbled. The mining sector expanded with the opening of two enclave, joint venture bauxite mines and constituted the main source of foreign exchange and general revenue. 3. As a result, economic growth averaged only 2 percent a year during the period from independence to the fall of the Sdkou Tour6 regime In 1984. In 1990, per capita GNP amounted to only US$ 440. Population growth accelerated from 1.5 percent a year in 1965 to 2.7 percent in 1990. In that year, average life expectancy was 43.3 years, and about a quarter of the children bom died before the age of five. Only 34 percent of school-age children attended primary school and 24 percent of the population was literate. The 1991 U.N. report on human development, which measures various social indicators, ranked Guinea last of 160 countries. 4. Progress is being made toward greater democracy: in 1990 the press was freed, and strikes and demonstrations were allowed. In early 1991, free municipal elections took place. A new constitution was adopted in early 1992 and multi party legislative elections are scheduled for the end of 1992, Presidential elections for 1993. Performance under the Structural Adiustrnent Program. 5. Following the fall of the Sekou Tour6 regime in April 1984, Guinea's new military leaders embarked upon ambitious reforms to free the economy from Govemment interference and introduce a market economy. The Bank supported these reforms with a first Structural Adjustment Loan (SAL I, Cr. 1659-GUI) approved in February, 1986. The first phase of the structural adjustment process, 1985-87, saw an impressive number of economic reforms: the Govemment lifted import restrictions and price controls, devalued the currency, and established a market oriented foreign exchange system; it privatized or liquidated 86 state enterprises (including all state-owned banks) and reduced the size of the civil service by almost 30 percent. Investment was focussed on reconstructing the road network and other key transport infrastructure. The economy reacted with strong growth in construction and small-scale enterprise activities, but the response from modem sector Investors was disappointing. 6. During the second phase of adjustment, begun in 1988 with support from SAL II (Cr. 1928- GUI) and an IMF SAF arrangement, progress was slower, partly because Govemment now needed to go beyond the dismantling of old, inappropriate policies and practices and try to set up new Institutions capable of sustaining the market economy. There have, nevertheless, been important achievements under this program, including: a structural increase in non-mining revenues from 3 to 6 percent of GDP  -2 - In 1991; removal of uneconomic projects from the public investment program; and, a clean-up o the state controlled electricity and oil distribution sectors. Also, fuel prices and utility tariffs were increased to cost recovering levels, and interest rates became positive in real terms. However, civil service reform fell short of expectations. Under SAL II the Govemment had agreed to establish a mechanism for the nonitoring and control of its personnel rolls ard wage bill as a specific condition for second tranche release. In 1991, second tranche release was delayed because this specific condition had not yet been fulfilled (see para. 44). Since end 1991, inadequate budget performance has emerged as a second issue affecting tranche release. 7. Economic arowth averaged about 4 percent a year over the 1986-90 period. However, in 1991 it fell to only 1.9 percent, as against 5 percent targeted for that year. Civil unrest related to the slow pace of democratic reforms and low Govemment wages contributed to this poor performance. Modem sector investment remained very low and informal sector growth (that had driven economic growth in the years before) slowed down. Moreover, severe and frequent interruptions of the electricity supply cor.tiniued to constrain output growth. Agriculture is estimated to have grown by only 2 percent a year during 1986-91. Table 1. Key Macroeconomic Indicators verage Act. PFP. Act. PFP. RPF PFP. REP. 1986-89 j?990 1