Niger - Second Highway Project

RESTRICTED FILE COPY Report No. P-888 This report was prepared for use within the Bank and its affilioted 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 The report may not be published nor may it be quoted as representing their views.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 PR ESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF NIGER FOR A HIGHWAY PROJECT December 21, 1970  INTERNCATIONAL DEVELOPALMET ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF NIGER FOR A HIGEWAY PROJECT 1. I submit the following report and recommendation on a proposed credit, in an amount in various currencies equivalent to US$5,700,000 to the Republic of Niger. PART I - HISTORICAL 2. In March 1968, a mission from the Bank's Permanent Mission to Western Africa visited Niger and proposed preinvestment studies for about 300 km of roads. Financing for these studies was provided under the Highway Maintenance Project of September 23, 1968 (128-NIR) and they were carried out by the French consultants, Societe Centrale pour lEquipement du Territoire - Cooperation (SCET-COOP). Feasibility studies led to the detailed engineering of about 150 km of roads. The proposed project would consist in large part of the construction of these roads. The project was appraised in May 1970 and negotiated in Washington from November 9 to 13 with a Government delegation headed by Mr. Bako, Director of Public Works. 3. The proposed credit would be the fourth operation by the Bank Group in Niger. The following is a summary statement of IDA credits to Niger as of November 30, 1970: Credit Year Borrower Purpose Amount (us$ mill.) No. IDA Undisbursed 55-NIR 1964 Republic of Niger Roads 1.5 128-NIR 1968 Republic of Niger Highway lvlaintenance 6.1 3.6 207-NIR 1970 Republic of Niger Agricultural Credit 0.6 0.6 Total 8.2 Undisbursed 4.2  - 2 - 4. Credit 55-NIR helped finance the construction of a 30 kn road and the improvement of 35 km of another road, both in the eastern part of the country. Execution was satisfactory and the credit has been fully dis- bursed. The road maintenance project financed under Credit 128-NIR pro- vides for the elimination of the backlog of deferred maintenance, the improvement of maintenance operations, the training of local personnel, the purchase of maintenance and shop equipment, and the extension of workshops and stores. Execution is satisfactory; disbursements are only slightly behind schedule, due to difficulties in recruiting enough local personnel who could be trained to become equipment operators and mechanics. 5. Projects presently under preparation include an education project, and a project for the development of livestock. These are expected to be presented to the Executive Directors in FY 1972. PART II - DESCRIPTION OF THE PROPOSED CREDIT 6. Borrower: Republic of Niger. Amount: The equivalent in various currencies of US$5.7 million. Purpose: To assist in financing: (i) construction and improvement of the Niamey-Tillabery, Magaria-Tinkim- Nigerian border and Dan Tyao-Tinkim roads; (ii) consultantst services to supervise the above construction and to train laboratory inspectors and technicians; (iii.) purchase of laboratory and traffic counting equipment; (iv) feasibility study and detailed engineering of the Niamey-Baleyara and Zinder-Bande roads. Amortization: In 50 years including a 10-year period of grace, through semi-annual installments of 1/2 of 1% from January 15, 1981 through July 15, 1990, and 1-1/2% from January 15, 1991 through July 15, 2020. Service charge: 3/4 of 1% per annum. Estimated Economic Return: 13% on road construction.  - 3 - PART III - THE PROJECT 7. An appraisal report entitled: "Appraisal of the Second High- way Project - Niger" (PTR-63a) dated December 21, 1970 is attached. 8. This would be the third IDA credit for transportation in Niger. Transportation presents serious problems in Niger because the country is very large and sparsely populated, and it is far from the sea. The Govern- ment is giving priority to improving communications between the capital and other areas of relatively dense population, which are all located in the South. The Government is also trying to link the southern part of the country with some areas to the North which appear to have agricultural potential. Niger at present has three outlets to the sea: a route to the port of Cotonou (Dahomey), another through Nigeria, and a less direct one through Upper Volta and Ivory Coast. To improve its communications with the outside world, the Government is investigating the feasibility of making the Niger River navigable, is preparing a project for the expansion of the Niamey airport and has shown interest in a UNDP financed study of a road across the Sahara desert. 9. The proposed project includes construction and improvement of one road in the Western part of the country (Niamey-Tillabery) and improvement of two roads in-its central part (Magaria-Tinkim-Nigerian border and Dan Tyao-Tinkim). The Niamey-Tillabery road (115 km) links the national capital with a relatively fertile area which provides Niamey with much of its food. Besides the traditional staples, millet and sorghum, the area also produces increasing quantities of rice and is starting to produce sugar. Under the project, this road would be re- aligned and paved for all-weather use. The liagaria-Tinkim-Nigerian border (20 km) and Dan Tyao-Tinkim (14 km) roads will be used mainly for the export of groundnuts from central Niger through Nigeria. Their improvement would substantially reduce exporterst transportation costs. This implies, however, that Nigeria will also improve the road linking the proposed road from the Niger border to the city of Kano in northern Nigeria. Bank Group financing has been requested for this road, which has been appraised in November/December 1970. The draft Development Credit Agreement provides in Section 3.03 that, should the Kano-N'iger road not be built, the Tinkim-Nigerian border section would not be constructed end that the standards for the Magaria-Tinkim section would be laiered. 10. In addition, the proposed credit would finance the purchase of laboratory and traffic counting equipment and the services of consultants to supervise construction and to train laboratory inspectors and tech- nicians. 11. The proposed credit would also help finance feasibility studies and, if justified, the detailed engineering of the iNiamey-Baleyara (98 kIm) and Zinder-Bande (72 km) roads, which link the countryls two main cities with nearby agricultural centers.  - 4 - 12. The Department of Public Works (DPW) would be responsible for the execution of the project with the assistance of consultants. It is adequately staffed for this task. Under the draft Development Credit Agreement, the Government would undertake to consult with the Association on a program for the gradual replacement of expatriate personnel through- out the DPW with Nigerien nationals (Section 4.05). 13. Total cost of the project would be about $8.0 million, of which about $6.5 million for construction works, about $1.4 million for consult- antst services and engineering studies, and about $0.1 million for equip- ment. Foreign exchange costs amount to about $4.5 million, or 56% of total cost. The proposed $5.7 million credit would cover about 71 percent of total cost, including all foreign exchange costs and about $1.2 million of local costs. This degree of local cost financing I consider justified by the very limited capacity of the country to generate savings (r-ra22 below). 14. The two construction contracts (one for Niamey-Tillabery and one for the other roads) would be subject to international competitive bidding by prequalified contractors. For supervision, the Government intends to preserve continuity by engaging SCET-COOP, the consultants who drew up the detailed engineering. The draft contract with the consultants was negotiated simultaneously ujith the credit; the signing of this con- tract would be a condition of efLectiveness of the Develop:ient Credit Agree,ient. Disbursements would cover a fixed percentage of civil works (70,,), a perccntage corresponding to the foreign cost of consultants' services (80%,) and the c.i.f. cost of equipient qnd materials. 15. The investment in road construction would yield a ratc of return of about 13 percent. PART IV - LEGAL INSTRUME-NTS AND AUTHORITY 16. The draft Development Credit Agreement between the Republic of Niger and the Association, the Recommendation of the Committee provided for by Article V Section l(d) of the Articles of Agreement of the Asso- ciation and the text of the Resolution approving the proposed Development Credit are being distributed to the Executive Directors separately. The draft Development Credit Agreement conforms generally to the pattern of agreements for projects of this kind. PART V - THE ECONOMY 17. A report entitled: "The Economy of Niger" (AF-77a) dated July 8, 1968 was distributed to the Executive Directors on July 19, 1968. An economic mission will be sent to Niger in February 1971. A b. -ic data sheet is annexed.  18. Niger is a landlocked country with extremely difficult natural conditions. Soils are generally poor. Climatic conditions - limited and concentrated rainfall and high evaporation - narrow the choice of crops. Few resources can be devoted to cash crops; the main cash crop is ground- nuts, exports of which constitute one major source of foreign exchange (about 60 percent). The livestock population is large but the development of this sector is made difficult by lack of water, poor sanitary condi- tions, and transportation costs. The latter also hamper mineral and industrial development. Nevertheless, overall economic growth since independence (1960) was relatively satisfactory until 1967. During these seven years, GDP increased by about 4.6 percent per annum in real terms, or about 2 percent per annum per capita. GDP per capita was about $87 in 1966. 19. Since 1968, however, lNiger has been undergoing economic diffi- culties due to droughts and to the civil war in Nigeria. Although ground- nut exports continued to increase, livestock owners in particular suffered heavy losses. The resulting decline in agricultural incomes and exports and the termination of French budgetary support contributed to financial difficulties in the public sector, which the Government attempted to solve by increasing income taxes, reducing personnel expenditures and asking the French Government for renewed assistance. Recognizing Nigerts difficulties, the French Government tentatively agreed to resume its support for a period of four years (1970-73) in the amount of CFAF 1 billion (US$3.6 million) per year or close to 10 percent of Government revenues. 20. With normal weather conditions and the end of the civil war in Nigeria, production and trade should again expand. Livestock and/or meat exports to Ivory Coast and other countries of the Entente Group should also increase if the recent decision to set up a common market for live- stock and meat is effectively implemented. Public finance will be improved by the fiscal revenues to be derived from the mining of uranium at Arlit, when operations start in the spring of 1971; such revenues are expected to reach about $4.3 million in 1983, i.e. about 13 percent of the 1969 Government revenues. 21. Unless further important discoveries are made, however, the development strategy cannot be based on the exploitation of mineral re- sources, nor is there much scope for industrial development, particularly in view of the serious handicap of transportation costs. IJiger, therefore, has no choice but to make the best of poor natural conditions by developing its agriculture and livestock. The main export possibilities remain groundnuts and livestock, but cotton also appears to hold promise. At this stage, other projects in agriculture can only be directed toward domestic consumption. In its development plans, the Government gives first priority to rural development, followed by education and transport- ation.  - 6 - 22. Given the severe limitations on its resources, INiger has handled its economic affairs well. The Government has managed the public finances prudently, particularly by keeping personnel expenses down, but the poverty of the country means that savings are very small and that public investment has to depend heavily on aid from abroad. In recent years only some 16 percent of public investment has been financed from internal savings, and the proportion is not likely to rise in the next years. In these circumstances, the direct import content of investment is much less than the total external capital required by the economy, and this provides the justification for local expenditure financing. Although Niger's external debt servicing requirements are small, its heavy dependence on external aid indicates that, as far as possible, capital should be provided on concessionary terms. PART VI - COMPLIANCE WITH ARTICLES OF !ORMENT 23. I am satisfied that the proposed development credit xould comply with the Articles of Agreement of the Association. PART VII - RECOI1,EE11DATION 24. I recommend that the EIxecutive Directors approve the proposed development credit. Robert S. McNamara President Attachment Washington, D.C. December 21, 1970  A N N E X N I G E R BASIC DATA Area: 490,000 sq. miles;l,267,000 sq.kms. Population (1969): 3.9 million. Rate of Growth: 2.5% to 2.8% per annum. School Attendance (1957); 4% at primary level. (1967): 10.5% at primary level. Political Status: Independent since 1960. Gross Domestic Product: (billion CFA francs, current prices) 1960 1966 (est.) Total 50.1 77.0 Real Growth p.a. (1960-66): 4.6% GDP per head (1966): Approximately CFAF 21,400; US$87 Structure of GDP (1966): Origin % Uses % Agriculture 59.0 Private consumption 74.5 Secondary Sector 12.0 Public consumption 12.3 Tertiary Sector 29.0 Gross investment 13.2 (incl. Government) Exports 16.5 Imports -16.5 100.0 100.0 Central Government Budget (billion CFA francs): 1960 1965/66 1968/69 1. Current revenue 3.9 8.4 9.9 2. Current expenditure 5.1 7.8 9.4 3. Balance -1.2 0. 0.5 4. Investment expenditure -0.5 -1.2 -0.8 5. Total excess expenditure -1.7 -0.6 -0.3 Money and Credit: Niger is a member of the West African Monetary Union (UMOA) within the franc area.  Billion CFA francs (end of year) 1962 1967 1969 Money supply 9 7.9 T. Credit to economy 4.6 9.0 9.6 Credit to government -0.9 -0.9 -0.4 External reserves 1.6 -0.3 0.6 External Trade (Goods): Billion CFA francs 1964 1966 1968 Estimated exports f.o.b. 10.3 11.9 9W Estimated imports c.i.f. 10.2 11.6 9.1 0.1 0.3 0.5 (Note: estimates of exports and imports vary considerably) Commodity concentration of exports (1966-1969): One product (shelled groundnuts) 66.5s Two products (groundnuts and livestock): 81% Balance of Payments (rough estimates): Billion CFA francs 19 67/68 Balance on goods and services -3.88 Net transfer payments h.79 Non-Monetary capital -0 67 Balance 0.24 GQigG in reserves (increase) -o.06 Errors and omissions -0.18 External Aid (1960-1968): Commitments Disbursed Billion CFA francs Total 31.5 20.5 of which: French 15.3 12.4 EEC 13.3 7.3 External Debt Outstanding as of Dec. 31, 1968 (including undisbursed): US$38,699,000 Debt Service Ratio (1969): 1.7% Exchange Rate: US$1.00 = CFA franc 277.71 since August 11, 1969 December 21, 1970