Tunisia - Fisheries Project

RESTRICTED F I Pu c, o, 0P T Report No. P-985 This report is for official use only by the Bank Group and specifically authorized organizations or persons. It may not be published, quoted or cited without Bank Group authorization. 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 DEVELOPMENT CREDIT TO THE REPUBLIC OF TUNISIA FOR A FISHERIES PROJECT September 2, 1951  INTERNATIONAL DEVEILOPMENT ASSOCIATION REPORT AND RECOIT]MENEDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVEIDPMENT CREDIT TO THE REPUBLIC OF TUNISIA FOR A FISHERIES PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Republic of Tunisia for the equivalent of US$2 million on standard terms to help finance a coastal fisheries project. PART I - INTRODUCTION 2. The proposed credit would be the Bank Group's first operation in fisheries in Tunisia. The Bank began lending to Tunisia in 1962. It has been active in certain sectors such as transportation and educa- tion, with a view also to improving their institutions, stimulating industrial and tourism development through DFC loans and attempting to encourage the implementation of satisfactory economic policies. A sum- mary statement of Bank loans and IDA credits to Tunisia is attached as Annex I. 3. Execution of projects has generally been satisfactory, with some exceptions. My memorandum to the Executive Directors on August 2, 1971 (IDA/R71-57) indicated that a substantial part of the Second Educa- tion Project of 1966 (Credit No. 94) would be unexpendod as a result mainly of savings in the cost of construction and equ:cp;aent and recom- mended a reallocation of the proceeds of the credit. This reallocation is being worked out with the Tunisian authorities. 4. A detailed account of the problems encountered in implementing the Cooperative Farm Project of 1967 (Loan No. 484 and Credit No. 99) was contained in my memorandum to the Executive Directors on November 5, 1970 (R70-213). The Executive Directors approved amendments to the ori- ginal Loan and Credit Agreements on November 17, 1970. These amendments became effective on March 24, 1971, and disbursements have been resumed and are on schedule. 5. After initial delays, primarily due to the exceptional flood damage which had to be made good, the Railroad Project of 1969 (Loan No. 606 and Credit No. 150) is now proceeding satisfactorily and is expected to be completed by the end of 1973, approximately one year behind the original schedule.  -2- 6. The third loan to Societe Nationale d'Investissement (SNI) of 1969 (Loan No. 648) has been almost completely committed. Disburse- ments on all three loans made to SNI are running on schedule. Prepara- tion of a fourth loan is under way. 7. IFC has made four investments for a total amount of about $14.6 million in a fertilizer plant, SNI and Cofitour, a hotel finance company. It has no projects under active cansideration but Tunisia's new economic orientation provides scope for further operations. 8. The main objective of Bank Group lending is to hasten the implementation of the new policies of economic liberalization introduced in 1970 and, within this framework, to provide external finance on rea- sonable terms, reducing Tunisia's dependence on medium and short-term borrowing. The projects now under study seek to increase production in crucial sectors such as agriculture, industry and tourism and to lp attain certain social objectives, for example, in education, fam- ily planning and urban infrastructure. 9. The proposed project fits logically in Tunisiats development program. It would aim at increasing the supply of animal protein for domestic consumption and of quality fish for a growing tourist industry, and for export. 10. A reconnaissance mission of the FAO/IBRD Cooperative Program in January/February 1968, was followed by a project identification mission in July/August 1968, and by a project preparation mission in May 1969. The project request was finalized in November 1969 and ap- praised by Bank Group staff in December 1970. Negotiations were held in Washington in July 1971. The Tunisian delegation was headed by Mr. Brahim Douik, Directeur des Services des Pgches (Director of Fisheries) of the N4inistry of Agriculture and included representa- tives from the Ministries of Agriculture and Planning, from the Banque Nationale de Tunisie (National Bank of Tunisia) and from the Embassy of Tunisia in Washington. PART II - THE ECONOMY 11. A report entitled "Current Economic Position and Prospects of Tunisia" (EMA-38a) was distributed to the Executive Directors on August 18, 1971. A Country Data Sheet is attached as Annex II. 12. The report stresses the need for implementing new pclicy cbjectives introduced by the Government in November 1970, which provide for reducing direct Government involvement in economic decisions, decentralizing eco- nomic responsibilities, encouraging private initiative and relaxing eco- nomic regulation. It notes that production prospects for 1971 are favor- able because of higher agricultural output. Total demand may grow faster than real GDP and imports will rise, but foreign exchange earnings are alm likely to be higher than before and would thus prevent a further increase in the current account deficit of the balance of payments. As capital inflow is  - 3 - expected to grow, the gradual improvement in reserves achieved during the past three years is likely to continue. The future outlook for the balance of payments depends largely on the discovery of new oil deposits, further expansion of tourism and continuing external aid at a high level. 13. I'unisia's foreign debt burden is high: in 1970 the debt service ratio was about 22 percent. This ratio (including service of new borrowing) is likely to decline slightly to about 19 percent during 1973-76 and then to rise again to about 22 percent by 1980. The debt structure has improved thanks to the restraint over the past few years in short and medium-term borrowing and the availability of foreign aid at favorable conditions. Tunisia can be considered creditworthy for some conventional long-term borrowing provided that a large proportion of new external assistance is made available on concessional terms. 14. The Consultative Group for Tunisia, established in 1962 under the chairmanship of the Bank, will meet again next October and will exchange views on Tunisia's economic position and prospects. It will discuss in particular two documents prepared by the Tunisian authorities on the results and possibilities of development aid to Tunisia and on the promotion of export-oriented industries. PART III - THE PROJECT 15. Agriculture is still the mainstay of almost half the population and accounts for about one fourth of exports. However, production has stagnated in the 1960's because of poor management of the government-sponsored cooperatives. Furthermore, there have been large year-to-year fluctuations due to weather. Agriculture's contribution to GDP has declined from 21 percent in 1964/66 to 16 percent in 1968/70. As a result of this trend and the rapid increase in population, Tunisia changed from a net exporter to a net importer of agricultural commodities; shortages and substantial price increases have occurred since 1970, particularly for meat. The new economic policies give high priority to raising agricultural production. 16. Fisheries play a small part in Tunisia's economy. Total catch is about 28,000 tons per year and the per capita consumption is about 6 kilo- grams per year. The proposed project wiould help to increase total productior. by about 10 percent. Tunisia claims all sea within 6 miles of its coast as its "territorial sea", bu-t extends its fishing limit out to 12 miles, as do most other countries with Mediterranean coasts. This limit has not given rise to any major disputes. The inshore fishing vessels being financed under the project would fish mostly within this 12 mile limit. 17. Inshore fishing, which would be assisted by the project, accounts for 35 percent of Tunisia's total annual catch, while trawling accounts for 26 percent and other production, mainly light attraction fishing, for a further 39 percent. Including dependents, almost 20,000 people are supported entirely by inshore fisheries. Overall data on 1-lediterranean fisheries  resources are scanty. To strengthen fisheries research, and in particular to improve trawling efficiency, Ui\LP is financing a three year fisheries survey and development project which is being executed by FAO. HTew invest- ments in trawling would depend on the findings of this survey. In the mean- time, investment is being concentrated on inshore fishing, the traditional sector, which appears to have good development potential. 18. Inshore fishing produces high quality fish for which hLigh prices are paid throughout the year. ALmost all the inshlore catch is marketed as fresh fish and consumed mainly by the urban population and tourists. FAO has projected that per capita demand per annum for fish iJill increase from about 6 kilograms in 1969 to about 13 kilograms in 1980, assuming no signif- icant fish and meat price changes, mainly as a result of income increases. The market outlook for fresh fish for local consumption is favorable, and ex;sting marketing arrangements are satisfactory. 19. Up to 1969, the Government concentrated on the formation of cooperatives in all sectors of the economy, including fisheries. Because of the failure of agricultural cooperatives to increase production, the Govern- ment introduced sweeping changes in the orientation and emphasis of economic policies in September 1969. Since then state eni-terprises, cooperatives and private enterprises have been permitted to exist side by side. The liberal- ization of economic activity gave fresh encouragement particularly to inshore fishermen who presently operate a fleet of 2,4.00 inshore craft, 600 of which are motorized. Host fishermen left production cooperatives and service cooperatives have been disband_d. 20. Since 1968, the Goverr1nent has provided subsidies through special Government funds (like the Fonds Special d'Encouragement a la Peche, FOSEP) administered by the Banque Nationale de Tunisie (BTIT). Fishermen received low interest loans and Government grants for the purchase of fishing vessels, and the Government assumed the credit risk. Although fisheries development provides high economic return, such concessionary credit to fisheries can be justified over the short term because fishermen lack capital and incur hinh risks due to catch fluctuations. Under the proposed project, credit would continue to be made available on concessionary terms, but to a lesser degree than is being provided from Government funds at present as described in para. 31 below. Description and Organization 21. A detailed report entitled "Appraisal of a Fisheries Project" (PA-91a) is being distributed separately. A credit and project summary is attached as Annex III. 22. The proposed project would be extremely important for Tunisia's fisheries development. It aims at increasing annual inshore fish production by about 2,600 tons (valued at about D .65 million or US4$1.2 million) thus raising supplies of animal protein, mainly for domestic consumption.  23. The "Direction des Services des Peches" (Directorate of Fisheries) of the I-inistry of Agriculture would be responsible for the execution of the project and would be strengthened by a new Fisheries Project Division which wzould include a fisheries specialist as chief of the project, a naval architect and a master carpenter, all of whom would likely be recruited abroad because kniowledge of these fields is not available in Tunisia. The newT division would be responsible for providing suitable boat designs; super- vising boat construction; executing international bidding for motorized boats; advising fishermen in the use of newi boats; providing BMT with technical appraisals of loan requests and subsequent teclmical supervision of borrowers; and testing of improved boat designs. The nelw boats would be similar in general appearance to the type of craft now used by Tunisian fishermen, but wxould be more efficient. The naval architect would prepare the newi design. 24. Throughout the period of project implementation, the Fisheries Project Division wJould organize short term training courses for fishermen, particularly for the skippers of new-r boats, in order to improve their skill and competence. Prior participation in such training courses ol^uld be a condition of effectiveness of sub-loan agreements between BWT and fishermen. To introduce modern boat design technioues in Tunisia, the project would finance overseas training of the Tunisian counterpart of the naval architect for twelve months at shipyards in the ilediterranean area. 25. To ensure effective lending operations for the fisheries sector, BMT's fisheries credit administration would be strengthened. To this end, BNT wrill nominate under the project one of its senior officers to be respons- ible for the lending program and employ an adequate number of fisheries loan appraisers and supervisors. This staff wiould work in close cooperation with the Fisheries Project Division in the Directorate of Fisheries. 26. The project wlould, over a four year investment period: (a) provide credit (through B-:T) to fisher:uen for replacemen-t of obsolete inshore craft by about 335 fully equipped motorized wooden boats, including fishing gear; (b) staff and equip a Fisheries Project Division in the .iinistry of Agriculture; (c) reinforce I31T's staff to carry out financial appraisals of loan applicants and to ensure satisfactory loan repayments; and (d) train skippers and provide overseas training for selected Tunisian staff in the Fisheries Project Division of the Iiinistry of Agriculture.  - 6- Cost Estimates and Financing 27. Project cost estimates are summiarized in Annex III. Boat construction costs are based on quotations from local boat yards, including CIF cost of diesel engines, wood, nails and accessories, since it is expected that Tunisian boat yards would win construction contracts under international competitive bidding. Cost of fishing gear and spare parts is based on CIF and local costs on imports. Total project costs are estimated at about D 1.6 million (US&3.1 million) of wihich about D 1.1 million (US$2.0 million) or 64 percent of total project cost, would be in foreign exchange. 28. An IDA credit of US$2 million would finance the foreign exchange costs of the project. The proposed project financing is summarized in Annex III. 29. To encourage inshore fish production, Government would make grants to fishermen to cover 15 percent of investmnents in fully equipped motorized inshore boats. In all, the Government would contribute about D 370,000 (US$706,000) to project costs, including D 206,300 (US&393,000) for grants to fishermen and about D 164,200 (US-p313,000) for supporting technical services. 30. Fishermen would provide about D 137,500 (USp262,000) from their own resources equivalent to 10 percent of investments in boats and gear. The cost of diesel spare parts, to be procured. through spare parts importers, would amount to D 47,000 (US$,89,00) including con-ingencies and import duties. (See Annex III, page 3, footnote 1). 31. The Government would be the borrower of the proposed US,2 mil- Jioncredit and wiould assume the foreign exchange risk. As indicated in paragraph 20 above, Banque iHationale de Tunisie (3UT) would be the channel for credits to fishermen. Under a subsidiary loan agreement, the Government would: (a) relend about US$l,830,CC0 of IDA funds to BTIT; and (b) lend about USdl30,000 of its own funds to BiNlT; all for 15 years, including 5 years grace, at 3 percent annual interest. This subsidiary loan of about USl.96 million would cover 75 percent of the cost of fishing boats, including gear, i.e. 100 percent of BiIT's loan to fishermen, which would carry not less than 6 percent annual interest instead of the average current BIT and FOSEP lending rate of 3 to 4 percent. Under the subsidiary loan agreement, Government would assume 50 percent of any losses due to default by sub-borrowers, rather than the current 100 percent. The balance of the IDA funds, about US?170,000, would remain with the Govern- ment and wiould be used to finance supporting services. Any savings on project costs would be used to provide additional credit for inshore boats, subject to the approval of the Association. It would be a condition of effectiveness of the IDA credit that the subsidiarr loan agreement satisfactory to the Association between the Government and BT72 had been concluded.  - 7 - 32. BNiT fisheries loan policies and procedures under the project would be substantially changed from those now in effect, as indicated above. Furthermore, it w-as agreed that the var-ous subsidy elements, e.g. direct grants, interest rates, subsidies and assumption of default rislc by the Government, would be regarded as transitory measures. H condition of effectiveness of the credit would be that FOSEP (Fonds Special d'Encouragement a la Peche) terms (see paragraph 20 above) would be brought into line with the project terms. Procurement 33. The 335 inshore fishing boats to be procured under the project would be about 9.5 meters long at water line, carry a crew of 4 to 5 men, skipper included, and make trips of about two days. Bulk procurement of these boats would be handled by the Directorate of Fisheries on behalf of fishermen participating in BIJT's lending program, following international competitive bidding procedures. Participation in bidding for boats is expected from countries bordering the iiediterranean Sea. However, Tunisian boat builders are expected to win all boat bids, mainly because they would avoid expensive sea freight costs. Bid documen-ts, including detailed boat designs, standards and specifications, would be prepared by the naval architect in the Fisheries Project Division, who would also assist in bid evaluation and supervision of construction. Tunisian bidders would be allowed a preference margin equiv- alent to the existing level of customs duties on imported boats (presently 11 percent) and marine diesel engines (presently 13 percent) or 15 percent of CIF values, whichever is lower. 34. The Directorate of Fisheries wQuld invite bids for the delivery of about 335 inshore boats spread over a period of three years, according to expected inflow of loan applications by fishermen as estimated at the time of bid issue. Initially, firm bids would be invited for a total of not less than 50 boats, but, in order to encourage participation by the smaller Tunisian boat builders, bids wjould be accepted for less thar the total number of boats provided the boat builder could supply not less than 10 boats within a 12 month period. In order to help ensure effective local bidding and standardization of diesel engines - the latter being important for setting up satisfactory maintenance and spare parts services in the likelihood that Tunisian boat yards would win all the boat bids - the following bids would be invited simultaneously: (a) internationally, including from Tunisia, for complete inshore fishing boats; (b) from Tunisian boat yards only, for inshore fishing boat hulls, including cost of installing marine diesel engines; and (c) internationally, including from Tunisia, for marine diesel engines to be installed in Tunisian hulls. Contracts would be awarded so as to obtain the cheapest evaluated complete boat.  35. Suppliers wJould be carefully screened as there is no international market for, nor large-scale production of, wooden inshore boats in the Mediterranean area. This would involve evaluation of suppliers' construction capacities, technical abilities and financial standing. Conditions for qualifications would include firm assurances by suppliers to provide a one- year warranty on hulls and engines; and adequate hull and engine repair facilities and spare parts inventories for diesel engines at suitable locations in Tunisia throughout the period of the lending program. Any prequalification of suppliers as well as bid documents and contract awards would be subject to prior IDA approval. One of the bidders for diesel engines is expected to be a state-controlled firm, which will participate on the same basis as private bidders (see Schedule 5 of the Development Credit Agreement). 36. As fishing gear has to suit varying local conditions and fish resources, it is not suitable for bulk procurement. Fishermen would therefore obtain imported fishing gear of their choice through existing trade channels. Also, the vehicles for supporting services would be locally purchased as there would be too few for an international contract. Suppliers of fishing gear and vehicles from member countries and Switzerland are sufficiently represented in Tunisia, assuring satisfactory competition. The Government would promptly take all measures to permit importatibn of boats, boat building materials, equipment, gear and spare parts on certification by the KIinistry of Agriculture that the imports are required to carry out the project. Disbursement 37. Disbursement of the proposed credit would be made against 90 percent of disbursed subloans for the purchase of motorized boats and gear by BNT, equivalent to foreign exchange costs of boats and gear; and against 100 percent of foreign exchange costs of: (a) personnel recruited abroad and overseas training; (b) vehicles imported by the Direction des Services des Peches and BNT; and (c) diesel engine spare parts imported by suppliers' agents. The proposed credit would be likely to be disbursed over a period of 4h