Dahomey - Highway Maintenance and Engineering Project

RESTRICTED FIM,6 COPYReport No. P-856 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 The report may not be published nor may it be quoted as representing their views.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 CREDIT TO THE REPUBLIC OF DAHOMEY FOR A HIGHWAY MAINTENANCE AND ENGINEERING PROJECT August 19, 1970  INTERNATIONAL DEVLOPflENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF DAHOMEY FOR A HIGHWAY MAINTENANCE AkND ENGINEERING PROJECT 1. I submit the following report and recommendation on a proposed development credit in an amount in various curren- cies equivalent to US$3.5 million to the Republic of Dahomey. PART I - HISTORICAL 2. The proposed credit would be the Bank Group's first lending operation for transport in Dahomey. In March 1966 the Bank's Permanent Mission in West Africa recommended a compre- hensive survey of Dahomey's land transport requirements. In June 1967 UNDP agreed to finance the proposed survey which was carried out jointly by the Canadian consulting firms Lamarre Valois International Ltd. and N.D. Lea Associates, with the Bank serving as Executing Agency. The proposed project evolved from the recommendations of this survey. 3. Negotiations took place in Washington during November 20-26, 1969. The Government delegation was led by Mr. Emile Paraiso, then Minister of Public Works, Telecommunications and Transportation. Further action on the project has been held up pending resolution of the situation which followed the over- throw of Dr. Zinsou's Government by a coup d'etat on December 10, 1969 and which came to an end on April 30 with the agree- ment reached by the three leading candidates to the Presidency. The situation was settled on May 7, with the promulgation of a new constitutional Charter by a Presidential Council and the establishment of a new Government under His Excellency Hubert Maga as President of this Council for a two-year period. One of the first acts of the new Government was to inquire concern- ing the status of the proposed credit and it subsequently confirmed the agreements reached in negotiations with the pre- vious Government. 4. The proposed credit would be the second operation of the Bank Group in Dahomey. The first (Credit 144-DA) of US$4.6 million for an oil palm development project was signed on March 5, 1969. Progress on this project is on schedule, but by August 18, 1970 only US$400,000 had been disbursed.  -2 5. Other projects under consideration include a cotton development project which is at an advanced stage of preparation. PART II - DESCRIPTION OF THE PROPOSED CREDIT 6. Borrower: Republic of Dahomey. Amount: Various currencies equivalent to US$3.5 million. Purpose: To finance the foreign exchange component of: (a) the capital expenditures on a four-year highway maintenance program; and (b) detailed engineering and preparation of bidding documents for reconstruction of about 320 km. of high priority roads. Amortization: In 50 years including a 10-year period of grace, through semi-annual install- ments of 1/2 of 1 per cent from Janualry 15, 1981 through July 15, 1990 and of 1-1/2 per cent from July 15, 1990 through July 15, 2020. Service charge: 3/4 of 1! per annum. Estimated economic return: 30?l (Highway maintenance part only). PART III - THE PROJECT 7. A detailed description of the project is given in the attached report entitled "Appraisal of a Highway Maintenance and Engineering Project - Dahomey" (PTR-31a). 8. The Dahomey highway network consists of 6,550 km. of roads of all standards which serve not only the needs of the country but also provide the primary trade outlet for neighboring, landlocked Niger. The present condition of the roads is generally poor and has seriously deteriorated in the past few years as a result of inadequate maintenance. This is due to lack of funds and to the inefficiency of the Department of Public Works and particularly- the poor condition of its equipment fleet.  - 3 - 9. The project consists of: (a) a four-year highway maintenance program (PART I) providing for: (i) the strengthening and reorganization of the road maintenance organization; and (ii) the overhaul and renewal of the highway maintenance equipment fleet, reorganization of the maintenance shops and purchase of equipment for the soil laboratory; (b) detailed engineering and bidding documents for re- construction of about 320 km. of primary highway (PART II). 10. The highway maintenance program would be carried out by the Department of Public Works, with the assistance of consultants. This program would require capital expenditures of about US$3.5 million equivalent, with a foreign component of about US$3.0 million, i.e. about 85%, to be financed by the proposed credit. Procurement would be on the basis of international competitive bidding. 11. A US$1,080,000 equivalent contract for technical assistance services on PART I of the project, between the Republic of Dahomey and the Canadian Consultants, Lamarre Valois International Ltd. and N.D. Lea Associates, was negotiated at the same time as the proposed credit. To avoid undue delays in project execution, the Consultants started work last February, and I propose that the Association agree to finance the expenditures,estimated at a maximum of about US$300,000, which would be incurred under this contract prior to the signing of the proposed credit. 12. In addition to covering the local cost component of the capital expenditures on the project, the Government would bear all the current expenditures under the highway maintenance program. The program calls for a substantial increase in these expenditures which would be doubled between 1970 and 1973. The Government agreed during negotiations that the earmarked resources of the Road Fund, which had been diverted during the past years to other uses, would henceforth be used exclusively for highway maintenance, and that specific allocations would be made in the budget for the balance of funds required. 13. The execution of this maintenance program would result in a reduction of vehicle operating costs of about 25% during the ten-year period 1970-79. The economic rate of return would exceed 30%. In addition, project implementation would help reduce the expenditures required in the future for road rehabilitation and reconstruction.  14. In addition to the four-year highway maintenance program, the project includes detailed engineering and prepara- tion of bidding documents for the reconstruction of a 301 km. section of the Parakou-Nalanville road and of two sections totalling 18 km. of the Cotonou-Bohicon road. The German consulting firm Dorsch A.G. was selected for these studies and their contract was negotiated at the same time as the proposed credit. The signature of this US$470,300 equivalent contract is a condition of effectiveness of the Credit Agreement. Foreign exchange payments under this contract, estimated at about uS$385,oo0c would be financed under the proposed credit; the local costs amounting to about US$85,0o0 equivalent would be provided by the Government. PART IV - LEGAL INSTRUMENTS AND AUTHORITY 15. The draft Development Credit Agreement between the Republic of Dahomey and the Association, the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association and the draft Resolution approving the proposed development credit, are being distributed separately to the Executive Directors. 16. The draft Development Credit Agreement follows general- ly the pattern for projects of this kind, including a covenant to ensure the availability of local funds for highway maintenance (Section 4.13(b)). PART V - THE ECONONY 17. A basic data sheet is annexed. A report entitled "Economic Situation and Prospects of Dahomey", dated April 13, 1970 (No. AW-9a) was circulated to the Executive Directors on April 23, 1970. The report noted that the economy had made little overall progress since independence and that budgetary difficulties had been recurrent, but that the most recent years had seen a revival of agricultural production based on important Government projects for oil palm produce and cotton. It also acknowledged the determined efforts made by the previous Government to redress the budgetary situation, and some encouraging results both in stabilizing expenditure and in increasing revenue. 18. Since the change of administration of December 1969, development projects have continued uninterrupted and a marked growth of production and exports can therefore be expected.  Public finances, however, remain clouded by many uncertainties. The present Government had indicated it intended to follow the policies of financial rehabilitation initiated by the previous Administration. Last June, however, the Government felt it wise to abolish the unpopular national solidarity tax which was estimated -to produce about lOc' of budget revenues. The Govern- ment intends to cover part of the budget shortfall by drawing on the surpluses of certain state entities and by creating new indirect taxes. In spite of this, the Government is unlikely to be able to balance its current budget this year and expects to cover the deficit by French aid and by drawing from the Central Bank for West Africa, which has recently agreed to raise its borrowing ceiling for Dahomey. The budget situation will thus remain a major problem and continued deficits on the current budget are likely for some time. Prospects for continued economic growth are reasonably good and if sound policies are followed, the public finances will improve. It will never- theless be difficult for the Government to make more than a small contribution to the capital cost of development projects over the next few years. 19. Dahomey remains a very poor country with a GDP per head of less than US$80. Under the very difficult financial situation that will prevail during the next few years, Dahomey cannot be regarded as creditworthy for conventional loans and the greater of external aid should consist, as in the past, of grants and loans on very soft terms such as those of IDA. PART VI - COMPLIANCE WITH ARTICLES OF AGREEM1IENT 20. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VII - RECOMMENDATION 21. I recommend that the Executive Mirectors approve the proposed credit. Robert S. McNamara President by S.R. Cope Attachments Washington, D.C. August 19, 1970  ANNEX DAHOMEY BASIC DATA Area: 450,000 sq. miles; 116,000 sq. kms. Population (1968) mid-year est. 2.571 million Rate of growth: 2.8% p.a. Birth rate: g5 o/oo Mortality rate: 27 o/oo School attendance rate (1965): 24% Gross Domestic Product and Expenditure: Total GDP at market prices (1966): CFAF 48.9 billion$ 198 million Per Head: CFAF 19,020; $77 Rate of growth 1960-68: 44.^ at current prices Origin of GDP factor cost (1966) Expenditure on GDP (1966) Agriculture 50 Private consumption 79 Manufacturing & construction 9 Public consumption 18 Services & transport 27 Gross fixed capital formation 16 Government 14 Change in stocks ... Erports 16 iLnus imports -29 100 100 Government Finance (billions CFAF) 1966 1967 1968 1969 (estimate) Current revenue 5.5 6.1 6.5 7.9 Current expenditure 7.3 6.9 7.5 8.7 Deficit (-) -1.8 70. -1.0 -0.8 Money and Credit: Member of the West African Monetary Union (UMOA) within the Franc area. billion CFA francs (end of year) 1966 1967 1968 Money supply 6.42 6.6 6.94 Credit to economy 4.54 4.84 5.14 Foreign assets (net) 1.67 1.09 1.90 Balance of Payments billion CFA francs 1966 1967 1968 Exports (f.o.b.) 4.68 -3720 6.90 Imports (c.i.f.) -10.87 -13.80 -10.00 Current balance-' -6.52 -7.60 -6.30 Transfers 4.81 5.00 5. 00 Capital (net) 0.15 (1.80)L/(2.30)2- 1/ ;ftei non-factor services and-faetoi payments. 2/ Incomplete.  - ii - -Cornmodity concentration of exports (1965-67): As % of estimated As % of recorded exports rts Palm produce 37 55 Cotton 8 12 External Debt: Total outstanding as of June 30, 1968 Disbursed Total $ million 37.2 38.1 CFAF billion 10.3 10.5 Rate of exchange (a) Until August 11, 1969 - U.S. $1.00 CFAF 246.85 (b) After August 11, 1969 - U.S. $1.00 = CFAF 277.71 August 19, 1970