Mauritania - Livestock Development Project

R E S T R I C T E D Report No. P-989 FRLE COPY TIbs report is for official use only by the Bank Group and specifically authorized organizations or perons. It nay not be published, quoted or cited without Bank Group authorizatlon. The Bank Group does not accept responsibility for the accuracy or completeness of the report. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MAURITANIA FOR A LIVESTOCK PROJECT October 20, 1971-   INTERN&TIONAL DEVELOP4ENT ASSOCIATION REPORT AND RECCMEWDATION OF THE PRESIDENT TO E EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE ISLAMIC REPUBLIC OF MATRIANIA FOR A LIES TOC1K PROJECT 1. I submit the following report and reconmendation on a proposed credit to the Islamic Republic of MIauritania for the equivalent of US$4.15 million on stendard IDA terms to help finance a project for LIvestock Development. PART I - INTRODUCTION 2. In 1960, prior to the independence of Mauritania, the Bank made a loan of $66 million to Soci6t6 des Mines de Fer de Mauritanie (MIFIRMA) a private mining company, to help finance the development of an iron ore mine and associated railway and port installations. 'ltle loan is guaranteed by the Republic of France as well as by MauriLania. The principal share- holders of MIFMA also guaranteed indirectly the service of the company's debt. The mine came into production in the md.-1960's with an initial capacity of 4 million tons of iron ore a year, v}hch has now been in- creased to about 9 million tons a year. The Bank loan will be fully amortized in 1975. 3. Since independence, the Association has provided two credits for the transport sector. The $6.7 million credit of 19614 (No. 69-MAU) was for a road construction project in which Fonds 1;uropgen de Ddveloppement (FED) also participated. The original project is Row completed. However, the Association has agreed that savings of $0.1 million under the credit be used for a minor extension of the project, which is expected to be ao4pleted by the end of 1971. The $2.5 million credit of 1969 (No.159-MAU) was made to assist in financing a tour-year maintenance program. The execution of these projects has been fairly satisfactory, in spite of the shortage of skilled personnel and the resulting heavy reliance on foreign consultants. The 1964 road construction was delayed due to unforeseen technical difficulties and subsequent claims on the contrac- tor. These claims have now been settled. 4. The proposed credit, which would be the first Bank Group assist- ance to the agricultural sector in Mauritania, would be the only oper- ation to be presented to the Executive Directors during the current fiscal year. Project preparation is underway in various fields and two credits for port and agricultural development projects may be ready for consideration in FY 1973. 5. IPG has participated in one project, a $20 million investment in Socidt4 Mini4re de Mauritanie (SOMINA), a compa4r operating a copper mine, made in 1968. The project was completed in early 1971. A summary statement of the Bank loan, IDA credits, aud IF'C investment is at Annex 1I  - 2 - PART II - vTE ECO!0MY 6. A report on "The Current Eccnomic Situation and Prospects of Mauritaniat' (AW-27a) was distributed to the Executive Directors on August 27, 1971 (R 71-214). A Country Data Sheet is attached at Annex 2. 7. Mauritania is a predominantly desert country where crop pro- duction is limited to a narrow semi-arid belt along the southern border, comprising not more than 15 percent of the country's total surface. Over two-thirds of the population, mostly Moors with an Arab- Berber background, is engaged in nomadic livestock herding, while less than a quarter, predominantly of Negro origin, are sedentary subsistence farmers living along the borders of the Senegal River. Urban population, active in the modern sector of the economy (iron ore and copper mining, fish processing, and public administration) accounts for some 10 percent of the total, but is expanding at a rate of over 8 percent per year. Despite tensions between the two segnents of population in the past the country has renained stable. 8. Mauritania represents an extreme case of a dual economy. Mining has remained a foreign-owned enclave industry with transfers abroad accounting for over half of total value added, limited employment, and only minor effects on the rest of the economy. During the '960's, the modern sector, largely consisting of mining, grew by over 14 percent annually, a sharp contrast to the 2.6 percent growth in the traditional sector, which was hardly in excess of population growth. Thus, the standard of living of the bulk of Mauritania's population has scarcely improved. 9. Looking ahead, there are three areas in which Mauritania can develop its economic potential: mining, fishing and livestock. Mining is likely to remain an ilVortant source of tax revenues which will help to finance Mauritania's development in other sectors. After 1972, when copper production will reach rated capacity mining outpllt is likely to expand at a much slower pace than in the past, which gives increasing importance to the rapid development of other sectors. l0. There are rich fishing grounde along the Mauritanian coast, rut organizational and financial difficulties in the 1960's seriously retarded the development of the industry. More recently, as a result of private initiatives, fishing activities have expanded rapidly to the point where inadequate port capacity has become a serious limitation. A study to improve the port of Nouadhibou is presently underway and the Government intends to present the project for IDA financing. Its rapid implementation is of high priority. 11. Livestock offers the best possibilities to improve the standard of living of the pcpulation. Over two-thirds of inhabitants depend  - 3 - directly on this sector, which, however, provides only one-third of GNP. Fbr climatic, as well as economic and social reasons, a radical charnge from traditional nomddic herding to a ranching type development is not presently feasible. However, there is scope for gradually improving and modernizing existing techniques, which are well adapted to the extremely difficult climatic situation. Hitherto, there has been an almost complete lack of government support for the livestock sector. The rehabilitation of firebreaks and wells complemented by an improvement and expansion of veterinary and extension services and construction of additional wellsM, is thus the first priority in any livestock development program. 12. Implementation of such a livestock development program will require a considerable increase in current budgetary allocations. While this is consistent with the expected capacity of Government finances, it will necessarily demand a substantial increase in the relative share of public outlays for livestock. Fiscal developments over the last 5 years were marked by rapidly rising current revenues (about 9 percent p.a.), of wdhich about one fourth have been derived from the mining sector, and by an even higher growth of current expenditures. While savings, with the exception of 1969, remained positive, they were insufficient to meet the growing needs of expanding publi.c investments. This resulted in a draw-down of treasury reserves. The Government is now actively studying ways and means to increase current revenues. As the present relatively low level of ta.ation suggests (13 percent of GDP), it should be possible to increase govern- ment revenues, provided there is improved tax administration and revi- sion of the tax structure. The Government is considering possible technical assistance from bilateral or international aid agencies, e.g. the UNDP or IMF. 13. More serious than the overall situation of public finances is the allocation of current expenditures. The continuous and sharp in- crease in salary outlays and in expenditures for security and social services, to the detriment of maintenance, the purchase of equipment and outlays in the rural sector, had serious repercussions on past e^-onomic development. Between 1960 and 1970 current expenditures for maintenance have sharply declined in real terms, and those for pur- chases of equipment and supplies have stagnated, while salary payments have expanded at a rate of abaut 10 percent per year. The growing imbalance between the increasing number of civil servants and the supply of equipment has increasingly hampered satisfactory operation of government departments. Operations of rural services (veterinary services, extension serxices, etc) were seriously handicapped and insufficient allocations for maintenance resulted in gradual dete- rioration of wells and firebreaks. 14. The Government has given priority to the development of the rural sector in its 1970-73 Development Plan, which envisages both substantially increased investments and current outlays for the  - 4 - agricultural and livestock services. With better tax administration, a stabilization of defense expenditures following the recent recon- ciliation with Morocco, and a rationalization of the overly expensive education system, it should be possible for Mauritania to raise the necessary resources to complement available external aid. 15. Since the bulk of past foreign aid received by Mauritania was in grant form, foreign public debt is still very low (debt service payments amounted to ,3 percent of foreign exchange earnings in 1969), though it has been rapidly growing over the past three years. Moreover, rising copper exports will substantially improve Xauritania's foreign trade balance so that the servicing of external debt is not expected to create balance of petnents problems over the coming 5-6 years. However, even under the most optimistic assumptions concerning tax- ation and OWP growth, Mauritania will have great difficulties in generating the savings required to eustain developmental investment and service external debt. Under these circumstances, foreign aid donors should provide assistance on the most concessionary terms possible. 16. Even if foreign lending is entirely on concessional terms, the contribution of budgetary savings to the financing of public investments will remain limited. 'Under the most favorable assu=ntions concerning GDP growrth and additional saving efforts, such contribution is unlikely to exceed on average 15 percent over the next few years. Accordingly, external lenders should be prepared to finance a substan- tial proportion of project costas, often including local expenditures. PART III - M PROJECT 17. The Project would provide watering facilities and their matntenence, animal health control measures and fire protection works in an area of about 55,000 sq.knas in the sou-th-western part of Mauritania, wThere about half of the population and 40 percent of the livestock are located. The project would be implemented over a four- year period by the Ministries of Rural Development and of Equipment under the overall supervision of the iMnistry of Planning. The Govern- ment is seeking assistance from RED for.a parallel project in areas not covered by the proposed IDA project. An ongoing project, assisted by FAG for the strengthening of the hydrological services and training of well maintenance teams, is complementary to both projects. 18. The Project would comprise : (a) The reconstruction and/or repair of approximately 300 pastoral wells; establishing of three well maintenance teams; exploratory drilling for water at 10 sites in part of the Project area where information on groundwater supply is inadequate and construction of up to 15 new wenls, contingent on the results of the exploratory drilling.  (b) Strengthening arn equipping the Livestock Service of the Ministry of Planning and Rural Development to enable it to carry on a campaign to vaccinate animals in the Project area against the important endemic diseases and treat them against Internal and external parasites, (c) The provision of equipment for regular maintenance of approximately 6,,500 km. of firebreaks within the ProJect area. A Credit and Project Summary is at Annex 3. 19. The total cost of the project is estimated at about US$6.0 million equivalent, of which US$3.7 million are the investment costs and US$2*3 million certain recurrent costs. These costs are treated as part of the project cost because the rehabilitation of wells and firebreaks and upgrading veterinary services will require a large and immediate increase in current expenditures, The proposed IDA credit of US$4.15 million equivalent would finance 69 percent of project costas the remainder being financed by the Government. It would be disbursed against 100 percent of the foreign exchange component9 amounting to US$3.0 million equivalent for contracting services, consultants. imported equipment, and an average of 50 percent of the project recurrent costs over the four year period, amounting to about US$115 million equivalent. To ensure that the Government takes steps in good time to be in a position to provide on a continuing basis the livestock services required after the end of the project period, the contribution from the IDA credit to recurrent costs would decline progressively from 80 percent in the first year to 20 percent in the fourth year. 20. The project would be administered by the Hinistry of Rural Development. The Livestock Service and the Service for 'dater and Forests are within the Ministry of Rural Development. The Department of Infrastructure and the Hydrological Service within the Ministry of Equipment would be concerned with some aspects of the Project. 21. A Project Coordinating Commission would be appointed, before effectiveness, to advise the Minister for Rural Development on certain aspects of the wells and firebreaks components of the Project. It would advise the Minister on terms and conditions of engagement of the wells consultants, on selection of the wells to be repaired or re- constructed, on the bidding documents and on the award of tenders. 22. The Director of Livestock would be the executive officer of the Project Coordinating Conmission. Other members would be repre- sentatives of (a) the Minister for Planning (as Chairman), (b) the Service for Waters and Forests, (c) the Hydrological Service of the Ministry of Equipment, (d) the Department of Infrastructure, and (e) the Director of the Budget,  - 6 - 23. Consultants would be employed to assist the Government in drawing up specifications and bidding documents for the work and well repair and reconstruction and to supervise such work. The main part of the well repair and reconstruction portion of the project would be carried out by contracts to be set in accordance with the Guidelines for Procurement. However, up to 15 percent of well repair work may be carried out by "force account",* One veterinary officer would be employed specifically for the execution of the animal health component of the project. 24. Assurances have been obtained that the Government will continue to maintain the well and firebreaks and the animal health services after the four-year disbursement phase. 25. It is estimated that production of meat and milk from the Ilvestock herds in the project area would be increased by about 30 per- cent through reduction in cattle mortality and in the loss of pastures by fire. Conversely, livestock herds and output would fall substantially below present levels if action along the lines proposed in the project were not taken. The rate of the return of the project to the economy is estimated at 19 percent. PAI?K IV - LiGAL INS TRUMENTS AND AUTHORITY 26. The draft Development Credit Agreement bettTeen the Islamic Republic of Mauritania and the Association, the Report of the Commit- tee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association and the text of a resolution approving the proposed credit are being distributed to the Executive Directors separately. Appointment of the Project Coordinating Commission with composition and terms of reference satisfactory to the Association would be a condition of effectiveness of the credit. 27. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART V - REOONlllNDATION 28. I recommend that the Executive Directors approve the proposed credit. Robert S. iMcNamara President Attachment Washingtono D.C. October 20, 1971  ANNEX I SUMMARY STATEMENT OF BANK LOANS AND IDA CREDITS TO MAURITANIA AS OF SEPTEMBER 30, 1971 Loan or Amount (US$ million) Credit Number Year Borrower Purpose Bank IDA Undisbursed 2h0-FR 1960 MIFERMA Mines 66.0 69-MAU 1964 Republic of Mauritania Roads 6.7 0.1 159-MAU 1969 Republic of Road Mauritania Maintenance 3.0 14 Total 66.0 of which has been repaid to Bank and others 32.7 Total now outstanding 33.3 Amount sold: 63.3 of which has been repaid 31.4 31.9 Total now held by Bank and IDA 1.4 9.7 Total undisbursed 1-5 IFC INVESTMENT TO MAURITANIA AS OF SEPTEMBER 30, 1971 Amount (US $ million) Year Company Loan Equity Total 1968 SOMIMA 18.8 1.2 20.0 Amount sold or repaid 9.1 0.5 9.6 Total held by IFC 9.7 0.7 1o.4 1/ With the guarantee of Mauritania and France.   ANNEX 2 COUWNTRY DATA Area: 400,000 square miles (1,037,700 kni2) Population: (1970 estimate) Total 1,165,000 2 Density 3 per square mile (1 per kmi) Rate of growth 2.0% per year School attendance 15% of school-age population Political Status: Independent since November 1960 Gross domestic product (market prices): 1959 1964 1967 1968 1969 prelim. GDP at current market prices (billion CFA francs) 16.7 33.6 43.0 45.6 47.0 Rate of growth (% per annum) / 15.0% / 7.0% 10.9% p.a. GDP per capita (CFA francs) 18,040 32,200 38,800 40,500 41,040 Rate of growth (% per annum) /12.3%// 5.0% p.a. 8.5% p.a. Price rise (% per annum) / 1.5% p.a. GDP at curren,+/prices (million US$) 53 107 137 145 169 GDP per capita (US$)Il 58 103 124 129 148 At the exchange rate of CFAF 277.71= US$ 1.00 prevailing after August 1969.  - 2 - PART II - THE ECONOMY 6. A report on "The Current Economic Situation and Prospects of Mburitania" (AW-27a) was distributed to the Executive Directors on August 27, 1971 (R 71-214). A Country Data Sheet is attached at Annex 2. 7. Mauritania is a predominantly desert country where crop pro- duction is limited to a narrow semi-arid belt along the southern border, comprising not more than 15 percent of the country's total surface. Over two-thirds of the population, mostly Moors with an Arab- Berber background, is engaged in nomadic livestock herding, while less than a quarter, predominantly of Negro origin, are sedentary subsistence farmers living along the borders of the Senegal River. Urban population, active in the modern sector of the economy (iron ore and copper mining, fish processing, and public administration) accounts for some 10 percent of the total, but is expanding at a rate of over 8 percent per year. Despite tensions between the two segments of population in the past the country has remained stable. 8. Mauritania represents an extreme case of a dual economy. Mining has remained a foreign-owned enclave industry with transfers abroad accounting for over half of total value added, limited employment, and only minor effects on the rest of the economy. During the 1960's, the modern sector, largely consisting of mining, grew by over 14 percent annually, & sharp contrast to the 2.6 percent growth in the traditional sector, which was hardly in excess of population growth. Thus, the standard of living of the bulk of Mauritania's population has scarcely improved. 9. Looking ahead, there are three areas in which Hauritania can develop its economic potential: mining, fishing and livestock. Mining is likely to remain an important source of tax revenues which will help to finance Mauritania's development in other sectors. After 1972, when copper production will reach rated capacity mining output is likely to expand at a much slower pace than in the past, which gives increasing importance to the rapid development of other sectors. 10. There are rich fishing grounds along the Mauritanian coast, but organizational and financial difficulties in the 1960's seriously retarded the development of the industry. More recently, as a result of private initiatives, fishing activities have expanded rapidly to the point where inadequate port capacity has become a serious limitation. A study to improve the port of Nouadhibou is presently underway and the Government intends to present the project for IDA financing. Its rapid implementation is of high priority. 11. Livestock offers the best possibilities to improve the standard of living of the population. Over two-thirds of inhabitants depend  - 3 - ANNEX 2 Balance of payments T-n billion CFA francs) 1959 1964 1968 Imports 6.9 13.7 15.8 Exports 13.8 21.0 Trade Balance -3.6 +0.1 +5.2 Net services 2.3 -0.6 -2.1 Net factor income and private remittances abroad -0.7 -5.3 -8.1 Net errors and omissions 0.4 13 -2 Current account balance -I7 _7. External Trade Relationship to large customs area: Member of the West African Customs Union and Associated Member of the European Communities 1964 1968 1969 Exports (in % of GDP) 41l1 45.9 48.4 Imports (in % of GDP) 40.8 34.6 39.3 Concentration of exports: (%) Iron ore 77.2 75.5 76.4 Estimated gross disbursements of foreign aid (in billion CPA francs) 1959 1964 1969 1970 France 2.3 1.9 1.4 1.3 EC (FED) - 0.6 1.0 0.3 Others - 0.1 1.2 0.6 Total 2.3 2,6 7 2.2 of which technical assistance (0.3) (0.6) (0.7) (0.8) International reserves (as of December 31) (Gross external assets imputed within the UMOA) 1964 1968 1969 12270 Total value (US$ million) 10.7 9.0 4.1 3.6 Monthts imports of goods 2.3 1.7 0.8 0.7 IMF Position (US$ million) 1964 1968 1969 1971 (J;e) Quota 7.5 9.0 10.0 13.0 Drawings none none none 1.0  - 4 - ANNEX 2 World Bank Group Operations A. Past operations (US$ million, as of September 30. 1971) Amounts committed Amount disbursed IBRD 66.0 / 66.0 IDA 9.7 8.2 B. Terms of IBRD/IDA lending to public sector (weighted average) Rate of interest Grace period Repayment p.a. (years) period December 1964 - December 1969 0.75 (service 10 50 charge) External Public Debt, end of year (in US$ million) 1967 1968 1969 1970 Total debt outstanding; including undisbursed: 33.7 4o.8 46.o 38.6 disbursed only: 21.6 24.4 30.0 27.8 Debt service ratio (% of total export earnings) 1.0% 1.5% 2.3% n.a. Exchange rate: CFAF 277.71 - US $ 1.00 / IBRD loan to MIFERMA, a private company, guaranteed by the Governments of Mauritania and France.  ANNEX 3 MAURITANIA Credit and PrQjot, 6!HZ22a Livestock Development Project Borrower: The Republic of Mauritania Amount and Terms of Credit: US $4.15 million equivalent, repayable 1981-2021; service charge 3/4 of 1 percent per annum. Project: Reconstruction and repair of pastoral wells, training and equipment of pastoral well maintenance teams; exploratory drilling and subsequent well construction; establishment of an animal health program; establishment and maintenance of firebreaks. Foreign New Investment Total Exchange Local (US $ thousands) Wells Component 1. Repair 270 Wells 1,295 1,036 259 2. Reconstruct 30 Existing Wells 456 365 91 3. Construct 15 New Wells 228 182 46 4. Exploratory Drilling for Water 120 108 12 (10 forages) 5. Equip 3 Well Maintenance Teams 204 164 40 6. Consultant Services 250 225 25 Animal Health 270 230 40 Firebreaks 215 215 _ Contingencies 20% 608 500 108 Sub-total 3,646 3,025 621 Operating Costs 3 Well Maintenance Teams 520 45 475 Animal Health Services 1,029 570 459 Firebreak maintenance 367 180 187 Contingencies 20% 390 230 160 Sub-total 2,306 1,025 1,281 Tol 5,952 4,050 1,902  ANNEX 3 -2- Financing of Project: IDA Credit 4,150 Government 1,802 Procurement Arrangements: Contracts for well construction would be subject to international competitive bidding except a maximum of 15 percent of well repair and reconstruction works, which upon recommendation by consultants, may be carried out by the Borrower. Vehicles, various items of plant and machinery for the well maintenance teams would be procured by international competitive bidding. The value of items other than vehicles for the animal health component of the Project would not justify international competition. Construction Period: 1972-76 Disbursements: The Credit would be disbursed against the foreign exchange component of expenditures on employment of consultants, contractors and purchase of equipment and against 80 per- cent of operating costs of the project in year 1, 60 per- cent of such costs in year 2, 40 percent in year 3 and 20 percent in year 4. Consultants: The Borrower would be assisted in the wells component of the project by consultants to conduct detailed surveys, prepare bidding documents, evaluate bids received and supervise the execution. The consultants would further make recomnendations regarding the extent to which the Borrower should employ contractors for the repair and reconstruction of wells. Appraisal Report: Report entitled "Livestock Development Project, Mauritania (PA-102a)1t dated October 15, 1971.  ISLAMIC REPUBLIC OF MAURITANIA T .rj,. 4 LIVESTOCK PROJECT JPj I L IBYA Paved roads I .- . P- ved roads under construction Grovel roads ML t'iCEF Tracksd$E r. E ~CA * Airfields .u 28 ~~Copper _ v' CEN APRO A Date polms - - 28- O R OR 8>Fishing t8 ~,- Jo Annual rainfall, millirneters /Aaiun International boundries ALGER IA Livestock project area \ 7- ao 0 LEO 15 I I * - \ rrI L E S \Bir-Moohrein o so 100.ISO 200 250SP N H o 50 oo15 2,O s0 , S P AN I S H ! j KILOltETERS . 24' I SAHARA ! 240 ___________ _______[ _________ _ _ _ _- TROPIC OF-CANCER - _ - _ -- - --- ___ F F.DerikM j M A L I ,OVM TUNNEL Nouadhiboui 0Ouadane 8> CP'* >S r # *<