Niger - Highway Maintenance Project

FILE COPY RESTRICTED Report No. P- 6 3 3 This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF NIGER FOR A HIGHWAY MAINTENANCE PROJECT September 3, 1968  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECCMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A DEVELOPMENT CREDIT TO THE REPTJBLIC OF NIGER FOR A HIGHWAY MAINTENANCE PROJECT 1. I submit the following report and recommendation on a proposed development credit in an amount in various currencies equivalent to US$6.12 million to the Republic of Niger to assist in the financing of a highway maintenance project. PART I - HISTORICAL 2. The problems of road transport in Niger have engaged the attention of the W4orld Bank Group since 1963. In 1964, the Association made a first credit of $1.5 million (Credit 55-NIR) to finance the engineering and con- struction of two small road sections, serving mainly the export of groundnuts. The mission which appraised that project concluded that maintenance of the road system was inadequate and that consultants should be engaged to prepare a maintenance program. 3. In July 1965, the Bank made a technical assistance grant of $85,000 to help finance a road maintenance study. On the basis of the recommenda- tions of the consulting firm Bureau Central d'Etudes pour les e'quipements d'Outre-mer (BCECM), which completed the study in 1967, the Government of Niger applied in May 1967 for IDA assistance in the financing of a four- year road maintenance program. During the appraisal in September 1967, the mission was asked by the Government to study the possibility of including, in the proposed road maintenance project, the financing of preinvestment studies for high priority roads. In March 1968, about 300 kilometers of roads for feasibility studies were identified. 4. Formal negotiations took place in Washington between July 17 and July 25 with a delegation comprising Mr. J. Amina, Charge d'Affaires, Embassy of Niger; Mr. M. Bako, Director of Public Works; Mr. J. Robert, Technical Adviser, Ministry of Finance and Mr. A. Galland, Deputy Director of Public Works. 5. The proposed credit would be the second lending operation by Bank/ IDA in the Republic of Niger. The project financed under the first credit (Credit 55-NIR) is more than a year behind schedule because of delays on the part of the Government in completing negotiations with their consultants, but is now progressing satisfactorily and is about 75 percent completed. As of July 31, 1968, the undisbursed balance of the credit was $650,000. 6. An agricultural credit project, presently under consideration by the Association, will be appraised by the end of this year. PART II - DESCRIPTION OF THE PROPOSED CREDIT 7. Borrower: Republic of Niger Amount: Various currencies equivalent to $6.12 million.  - 2 - Purpose: To assist in financing: (a) a four-year high- way maintenance program, and (b) feasibility studies for about 300 kilometers of roads, with subsequent detailed engineering for about 150 kilometers of high priority road sections. Amortization: Over a period of 50 years, including 10 years of grace, in semi-annual installments commenc- ing January 15, 1979, and ending July 15, 2018; each installment up to and including the pay- ment due on July 15, 1988 to be 1/2 of 1 percent, thereafter to be 1-1/2 percent of the principal amount. Service charge: 3/4 of 1 percent per annum on the principal amount of the credit disbursed and outstanding. PART III - THE PROJECT 8. A detailed description of the project is given in the attached report entitled nAppraisal of a highway maintenance project - Niger" (TO-649a) dated August 27, 1968. 9. Niger is a large land-locked country with an econony depending mainly on livestock and agriculture. The highway network consists of only about 7,300 km of roads of all standards, and the present condition of these roads is generally poor. Quite a number of roads are impassable during the rainy season. The Department of Public Works is hampered by the poor condition of its equipment and lack of adequate personnel and funds. Maintenance installations and shop equipment are insufficient, and main- tenance personnel have little skill. The Government intends to make every effort to eliminate the backlog of deferred maintenance in order to bring the road network back to normal standards. 10. The project is in two parts. The first consists of a four-year highway maintenance program providing for the elimination of the backlog of maintenance, the purchase of maintenance and shop equipment, the ex- tension and improvement of workshops and stores, and the training of maintenance personnel at all levels. This maintenance program will be carried out by the Department of Public Works, with the assistance of international consultants acceptable to the Association. A contract between the Republic of Niger and the French consulting firm BCEOM for maintenance advisory services was negotiated at the time of the credit negotiations, and the signing of the contract is expected in the near future; but its effectiveness is subject to the effectiveness of the Credit Agreement. An amount of $5.49 million of the proposed IDA credit, including $1.08 million for the Consultants' Contract, would be applied to the capital expenditures of the four-year program (1968-72), totalling $8.13 million. The Association would finance almost all the foreign exchange costs of the program (a small amount would also be supplied by  the French Fonds d1Aide et de Coop6ration), and some $210,000 of local subsistence costs for the consultants. 11. Procurement will be on the basis of international competitive bidding, except for an amount of about $155,000 for the extension of workshops and stores, which will be subject to local competitive bidding, in accordance with procedures acceptable to IDA. 12. All the recurrent highway maintenance expenditures for the four- year program, totalling about $7.5 miUlion, as well as most of the local currency component of the capital expenditures (about $2.5 million equi- valent), would be borne by the Niger Government. 13. The execution of this program would bring substantial benefits in the form of reduced vehicle operating costs, and would reduce the amount of expenditures required in the future for routine road maintenance and for road rehabilitation and reconstruction. In the light of these benefits it is estimated that the proposed maintenance program would yield an annual economic rate of return on the investment of about 10 percent. 14. The second part of the project consists of feasibility studies for about 300 km of roads with subsequent detailed engineering and preparation of bidding documents for about 150 km of high priority road sections selected by the Niger Government in agreement with the Association. A contract between the Republic of Niger and the consulting firm "'SociWt Centrale pour 1'Equipement du Territoire - Coop6ration" (SCET/Coop6ration) was negotiated at the time of the credit negotiations, and the signing of the contract is expected in the near future; but its effectiveness is subject to the effectiveness of the Credit Agreement. The foreign exchange component of the contract, estimated at $630,000 would be financed under the proposed IDA credit. 15. The Credit Agreement provides for reimbursement of project expendi- tures incurred from October 1, 1968. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 16. The draft Credit Agreement between the Republic of Niger and the Association and the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association are being distributed to the Executive Directors separately. 17. The draft Credit Agreement conforms generally to the pattern of credit agreements for similar highway maintenance projects. PART V - THE ECONOMY 18. A report, "The Economy of Niger" (No. AF-77a dated July 8, i968), was circulated to the Executive Directors on July 19, 1968.  - h - 19. The overall growth of Nigerts economy over the six years since independence (1960) has been of the order of one-third in real terms, equivalent to about one-sixth on a per head basis. This is significant progress as compared to the relative stagnation of the pre-independence years and it must be appraised against the extremely difficult natural conditions, harsh climate, enormous distance from the sea, and a population that could survive largely only through dispersal over the vast desert, semi-desert and savannah areas of the country. Exports increased by 60% from 1960 to 1967; the quantity of groundnuts sold abroad doubled; live- stock, the country's second largest export, sold to neighboring countries, mainly Nigeria, has also increased, Efforts toward the diversification of exports have not yet borne much fruit, but new products such as cotton have made a good start recently. Gross investment has also increased consi- derably from 9% to 14% of GDP. Niger's economy retains, however, all the characteristics of very low economic development with an average GDP per head of $80 equivalent with 90% of the population in the rural sector and 60% of GDP originating in agriculture, of which half is non-marketed production. 20. Niger has been receiving French budgetary support throughout the period, but - thanks both to great increases in revenue based on a sus- tained effort to raise more taxes, and to a policy of strictly controlling public expenditures - the dependence of the budget on French aid has been considerably reduced. It is expected that such aid will not be necessary in 1968/69. Starting in 1970 or so, revenue will accrue to Niger from its participation in a newT uranium mining venture with France. Public savings are still low, representing about 1/5 of total public investment in 1964-1966, but this represents a much higher level than in the preceding period. External development aid, mainly from FAC and EEC, is essential to enable Niger to carry out its development programs and so is technical assistance. 21. The 1967-70 program represents, as compared to previous plans, much more realistic and better oriented efforts to deal with the country's development problems. The emphasis is on improvement of basic facilities, chiefly in transportation and water supply, which are both critical to any development of production, exports, and to the expansion of the internal market. Parallel to the investment program, the Government is pursuing policies aimed at adjusting the economy to the new circumstances created by the cessation, in 1967/68, of the French support to groundnuts exports, by lowering export taxes, and by trying effectively to increase efficiency of both production and marketing. At the same time, producers' prices have been reduced for groundnuts (by about 18% for the 1967/68 season) and for cotton to avoid any recourse to budget subsidies. 22. In vi-ew of the bleak outlook for prices of Niger's main exports, even if, as it is hoped, the forthcoming renewal of the association with the European Economic Community provides for some support, and given the extreme difficulty in increasing public savings, Niger will continue to require sizeable aid to finance its public investment programs in the future. Because of its extreme poverty and the resulting low savings, the bulk of such aid will have to be on soft terms, with conventional borrowing playing only a complementary role.  PART VI - COMPLIANCE WITH ARTICLES OF AGREEMENT 23. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VII - RECJMENDATION 24. I recommend that the Executive Directors adopt the following Resolution: Resolution No. Approval of-t%a Development Credit to the Republic of Niger in an amount equivalent to US$6,120,000. Resolved: that the Association shall grant a development credit to the Republic of Niger in an amount in various currencies equivalent to six million one hundred twenty thousand dollars ($6,120,000) to mature on and prior to July 15, 2018, to bear a service charge at the rate of three-fourths of one percent (3/4 of 1%) per annum, and to be upon such other terms and conditions as shall be substantially in accordance with the terms and conditions set forth in the form of Development Credit Agreement (Highway Maintenance Project) between the Republic of Niger and the Association, which has been presented to this meeting. Robert S. McNamara President Attachment Washington D.C. September 3, 1968