CIRCULATING COPY FILE COPY 1E RETURNED TO REPORTS DESK DOCUMENT OF INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use CIRCULATING COPY Report No.P-1661-TA TO BE RETURNED TO REPORTS DESK REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A DAIRY DEVELOPMENT PROJECT June 18, 1975 CURRENCY EQUIVALENTS USED IN THIS REPORT Tanzania Sh = US$0.14 US$1.00 = TSh7.14 TANZANIA FISCAL YEAR July 1st - June 30th REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE UNITED REPUBLIC OF TANZANIA FOR A DAIRY DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed development credit to the United Republic of Tanzania for the equivalent of US$10.0 million on standard IDA terms to help finance a project for dairy development. Approximately $6.5 million would be relent to the Tanzania Rural Development Bank (TRDB) for 20 years, including five years of grace, with interest at 4% per annum. TRDB would onlend to dairy operators at an interest rate of 8-½% for periods up to 15 years including grace periods of up to four years. PART I - THE ECONOMY 2. The last full Economic Report on Tanzania (AE-26) was distributed to the Executive Directors on May 22 and June 22, 1972. This was followed by an Economic Updating Report (30-TA) distributed on December 11, 1972 and which was especially prepared for the East African Consultative Group meeting on Tanzania of January 1973. A basic economic mission is scheduled for late 1975. An agricultural sector report was issued on December 10, 1974. An industry and mining sector report and a report on the fiscal aspects of Tanzania's recent decentralization of Government was distributed in April 1975. The Consultative Group for East Africa met in April 1975 to discuss the progress and prospects of the Tanzanian economy and the need for additional resources to support the Government's development policy. Country data are provided in Annex I. 3. Tanzania has a one-party system which is embodied in the constitu- tion. The party, TANU, is a well organized mass party and is actively engaged at the grass roots in the promotion of popular involvement in the national development effort, and democratic principles are being strictly adhered to within the party. In economic policy making, the long-term objective of.social equality prevails over economic interests of minority groups; some progress towards reducing inequality of income distribution within the category of employed workers has been made, but large gaps continue to exist between urban and rural standards of living. Tanzania is one of the 25 least developed countries as defined by the United Nations. 4. Between 1968 and 1973, GDP increased 4.8% per year in real terms. Exports of goods and services in constant prices grew 2.8% per year during the same period. Domestic savings were maintained at about 18% of GDP. In- vestment increased from 19% of GDP to 23% with public sector investment rising to 80% of the total investment in 1973. Annual price increases were moderate - 2 - to low. Current Government receipts more than doubled, but current expendi- tures increased at similar rates so that budgetary savings stagnated. While imports, especially of capital and intermediate goods grew rapidly, export earnings grew very slowly and the increasing current account deficits were financed by a rapid increase of public capital inflow, largely on concessional terms. 5. The level of domestic savings and investment is substantial and is evidence of a serious commitment to development. The growth of GDP is prob- ably not commensurate with the investment effort. This is largely due to the large amount of investment that went into slow gestation infrastructure and social services. This was exemplified by the investment of about $200 million in the Tan-Zam railway, the largest single project undertaken in Tanzania, and by the diffic:ulties encountered in mounting investment in agriculture. The stagnation of agricultural export volumes and very slow growth in food production were the most worrisome problems. However, prudent domestic financial management, and an increasing inflow of external aid on concessionary terms together with a rather sharp terms of trade improvement in 1973, made it possible t:o maintain a high investment rate while reserves at the end of 1973 stood at a healthy $145 million which was then the equiv- alent of four months' imports. Indeed, the economy appeared in relatively good shape before the events of the winter of 1973-74. 6. Events occurred then which resulted in EL drastic change in the overall balance of payments of Tanzania. First, import prices rose sharply; most particularly petroleum prices. Other import prices increased an estima- ted 15 to 20%. The increased cost of petroleum imports in 1974 compared to 1973 is about $70 million or about 38% of the increased import bill. Second, the 1973 rains failed in many parts of the country resulting in a substantial reduction in food production in 1973-74. This became evident in January and February 1974 necessitating substantial increases in imports of basic food items. The drought became general in 1974 making necessary continued high levels of food imports from September 1974 to August 1975 when the new crop harvest begins. Food imports in 1974 cost about $150 million compared to an annual average in 1970-72 of $40 million. The stagnation of food and agricultural export volumes in 1974 was largely attributable to the drought but also reflected weaknesses in government agricultural policies. 7. The overall balance of payments was in surplus in 1972 and 1973 but the net result of the events of 1973-74 described above is that reserves declined by $89 million in 1974 to a level representing about two weeks' imports. The upward trend of import prices, high food imports and stagnant agricultural export volumes are expected to contirLue into 1975 resulting in an estimated balance of payments deficit of about $150 million. The Govern- ment has secured partial financing of the gap through a $30 million Bank Program Loan of December 20, 1974 (Loan No. 1063 TA) and other multilateral and bilateral sources. - 3 - 8. The projected size and persistence of the balance of payments deficit necessitate strong policy action. The Government has begun a program of in- vestment restructuring, administrative changes, and reduction in the rate of growth of consumption that forms the basis of a sound program for the solu- tion of the medium-term problems. Under this program, the Government has made substantial progress in reallocating public investment from infrastruc- ture development to the directly productive sectors of agriculture, industry and mining. The single largest economic weakness is the low growth of agri- cultural production. Several steps have been taken to increase output. The Government has raised producer prices so as to provide greater incentive. Retail prices have been brought near world parity. Project planning and im- plementation is being improved by administrative changes within the Ministry of Agriculture that will enable government staff to be more effective. The negative impact of villagization on output is being reduced through more careful planning. The Government is reducing unnecessary non-development related recurrent expenditure and is using taxation and wage/price controls to reduce the rate of growth of private consumption. 9. The balance of payments problem is likely to persist through the end of this decade in spite of concentrated Government actions. Accordingly, Tanzania will require additional balance of payments assistance in 1976 and 1977, and a continued capital inflow in excess of the foreign exchange compo- nent of high priority projects if it is to achieve its development targets. Financing of some local expenditures will therefore be justified. 10. Tanzania is one of the three Partner States belonging to the East African Community. The 1967 Treaty for East African Cooperation is one of the most far reaching and comprehensive economic cooperation agreements in existence among sovereign states. However, in practice the degree of eco- nomic integration and cooperation among the Partner States is much less than what was envisaged in the Treaty. Political developments in the Partner States have created tensions within the Community and impaired the growth of interstate trade. These difficulties have been compounded by the balance of payments crisis which currently faces all three Partner States. 11. Tanzania's overall debt service ratio is currently about 6%. In terms of outstanding commitments, the Bank Group is Tanzania's largest credi- tor followed by Sweden, the People's Republic of China, Canada, Denmark, the Netherlands and the Federal Republic of Germany. Including a notional one- third share of the debt of the East African Community Corporations, the IBRD is presently holding 14% of Tanzania's outstanding external debt and IDA 16%; the IBRD share is expected to rise to about 20% in the next five years, and the IDA share to remain about the same. Debt service payments to the Bank are about 10% of total debt service payments; the corresponding share for IDA is about 2%. These two figures are projected to rise to about 20% and 3%, respectively, by 1980. Most capital aid to Tanzania is made available on very favorable terms and a declining share of the total is tied to procurement in the donor country. Suppliers' credits have been kept to the minimum. -4- PART II - BANK GROUP OPERATIONS IN TANZANIA 12. Tanzania joined the Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1963, 19 credits and eight Bank loans amount- ing to $289.8 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of nine loans, totaling $229.8 million, which have been extended for the development of common services operated regionally by Tanzania, Kenya and Uganda through their association in the East African Community. The only IFC investments in Tanzania to date, totaling $4.7 mil- lion, were made in the Kilombero Sugar Company in 1960 and 1964. This Company encountered financial difficulties and in 1969 IFC and other investors sold their interest in the Company to the Government. Annex II contains summary statements of Bank loans and IDA credits to Tanzania and the East African Com- munity organizations as of May 31, 1975 and notes on the execution of on- going projects. 13. Our lending program, reflecting the e4ph1asis the Tanzanian Govern- mient is placing on agricultural development, has increasingly focused on directly productive activities in the rural sector. Up to the end of FY72, 10 out of 14 loans and credits have been made for infrastructure. All but one of the loans to the East African Community organizations, of which Tanzania is a beneficiary and co-guarantor, have been extended for improve- ments in transportation and communications. However, the approval by the Executive Directors of the Flue-Cured Tobacco Project (Credit No. 217 TA) in October 1970 opened a new phase in our lending for more directly productive activities. The Smallholder Tea Development Project (Credit No. 287 TA) and a Second Livestock Project (Credit No. 382 TA) were approved in March 2972 and April 1973, respectively. A Cotton Development Project (Credit No. 454 TA), a Cashewnut Development Project (Loan No. 1014 TA) and the Kigoma Integrated Rural Development Project (Credit No. 508 TA) were approved in 1974. Maize and fisheries projects are scheduled for appraisal in June of this year. Preparation for the Tabora rural development project and a for- estry project are underway. 14. Tanzania is developing an institutional structure stressing greater regionalization and development of ujamaa villages designed to promote and respond to development initiatives. These institutions are still in their formative stages, and related organizational and staffing difficulties have sometimes resulted in the project delays referred to in Annex II. Tanzania's education and training programs are expected to solve the manpower problem in the longer run, but meanwhile there will continue to be a need for techni- cal assistance in planning and implementation if the difficulties in executing projects are to be overcome. The Government has taken steps to speed up re- cruitment of needed expatriate technical expertise and is giving priority to improving project implementation. At the request of the Government, about 15 technical staff have been supplied by ADS. With the further assistance of the Regional Mission in Eastern Africa, project implementation is expected to improve. Discussions of a technical assistance project to aid project preparation are underway with the Government. The proposed fifth education -5- project will help improve project implementation and government administration by providing, among other things, training for village and cooperative man- agers, bookkeepers, and accountants. 15. The urban Sites and Services Project (Credit No. 495 TA) approved in July 1974 marked the Bank Group's first lending to Tanzania for urban de- velopment. The Credit for the Tanzania Investment Bank (Credit No. 460 TA) was approved in February 1974 and has now been fully committed. A second loan is scheduled for appraisal later this year. A Highway Maintenance Proj- ect (Credit No. 507 TA) was approved in August 1974. A proposed project for development of a cotton textile plant at Mwanza has been approved; another proposed project for industrial estate development at Morogoro is presently under preparation. In view of the overall balance of payments difficulties presently being faced by Tanzania (see above paragraphs) a Program Loan (Loan No. 1063 TA) was approved in December 1974. 16. The difficulties facing the East African Community Corporations referred to in paragraph 10 have affected the Bank's lending program for the Community. As a result of the agreement between the Partner States in July 1974 on measures to rehabilitate the East African Railways Corporation the Executive Directors approved a proposal on November 5, 1974 to allow the EARC to use the uncommitted portion of Loan No. 674 EA, amounting to about $7.4 million, for consulting services and to help support an emerging invest- ment program. However, since EARC corporate funds are not being transferred in accordance with the agreed formula and Sh 60 million, out of a total of Sh 150 million the Partner States agreed to inject into EARC, have not been paid, the EARC's right to make withdrawals from the Loan Account from Loan No. 674 EA was suspended in February 1975, pending action on both these issues. Furthermore, in the current state of uncertainty regarding the future structure of the Community Corporations, appraisal of further proposed Community proj- ects for corporations which may have structural changes have been postponed until the issues mentioned above have been clarified. The Bank has throughout this difficult period provided assistance to facilitate solutions to the prob- lems facing Community Corporations. This effort is continuing but in view of the fundamental and complex nature of the problems involved it would be rea- sonable to expect that the process of resolving these problems will not be an easy task. PART III - THE AGRICULTURAL SECTOR General Background 17. Agriculture and related activities constitute the largest single sector in the Tanzanian economy. Roughly 40% of GDP is derived from the sector of which 50% constitutes subsistence production. Agricultural exports, which account for 80% of total exports, include mainly sisal, cotton, cashew nuts and coffee. About 94% of the population live in rural areas, usually in - 6 - small isolated communities and 90% of the economically active people are engaged in agriculture. 18. Most production is from smallholdings using family labor. Large- scale agriculture is represented by a small number of private estates and some state farms producing sisal, coffee, tea, wheat, rice and livestock. Estate production has diminished in importance and the state farm program remains small. Tanzania's national herd, the second largest in Africa, is grazed extensively over the 40% of the country which is free from tsetse fly infestation. It is largely managed along traditional lines. There is limited use of oxen for cultivation, mainly in the western cotton areas. In years of normal rainfall, Tanzania is largely self-sufficient in staples, but about 9% of total imports in 1973 were foods of which dairy products accounted for 24%, sugar 32% and food grains about 18%. Food imports in 1974 are expected to rise to over 20% of total imports owing to a continuation of drought conditions during the early part of the year. Agricultural Development Strategy 19. The Government recognizes that agriculture will continue to be the main source of employment and has been trying to devise a strategy which will bring about improvement in output, incomes and the living conditions of the agricultural population. 20. The major aim is to make significant progress towards socialist organization of rural activity, based on ujamaa cooperatives and maximization of the use of labor. State. farms fill a need for larger scale production units, but the approach to mechanization is cautious and in general based on proven viability. Agricultural production is to be increased within a framework of crop priorities based on production possibilities, market prospects, and a desire for increased self-sufficiency. High priority is given to raising nutritional standards in the country and to the expansion of selected export activities including cotton, livestock, flue-cured tobacco, and cashew nuts, all of which are already being assisted by the Bank Group. Several other types of farming, including dairying, pyrethrum, oilseeds and forestry products and commodities also have scope for expansion. Projects designed to develop some of these are in various stages of preparation. A vigorous policy for the development of vertically integrated single crop authorities dealing with all aspects of production, processing and marketing, is being pursued with cooper- atives playing a central role. 21. The agricultural and rural development study (Report No. 541a-TA), December 1974, discussed Tanzania's agricultural goals, problems, and strate- gies in detail. The conclusions of this report have been given added signifi- cance in view of the economic problems facing Tanzania. The recent shift to projects with directly productive results will accelerate, particularly in maize and livestock. Pric(es of domestic agricultural products have been increased to approach import parity which will provide a renewed producer stimulus and lead to reduced import requirements. A reassessment of export taxes -7- on agricultural commodities and subsidies for agricultural inputs is underway with the aim of reducing influences that tend to restrict or discourage pro- duction. Difficulties in distributing production inputs and the marketing of crops will be reduced by a government program strengthening the cooperative marketing system and providing credit to private truckers. 22. In implementing its policy of reduced dependence on food imports the Government has given priority to the promotiPn of smallholder production of maize. Subsidized fertilizers, the use of insecticides and improved transport are included in this program. Other projects will make Tanzania self-sufficient in sugar production by 1977, improve livestock marketing in the traditional sector and expand meat processing facilities, increase cashew nut production and establish smallholder export oriented projects for tea, tobacco and cotton. Technical Services 23. Research presently being carried out in Tanzania is generally of a good standard although strengthening of some areas is needed. In par- ticular, there is a gap between research and its application at the farm level. Owing to inadequate dissemination of new techniques, limited material, poor logistic support and the fact that staff have been spread too thinly, the extension services have been rather ineffective in introducing the improved techniques to farmers except when organized along project lines. The Dairy Industry 24. The dairy industry in Tanzania is relatively under-developed, and Tanzania has imported an increasing volume of dairy products to meet rising demand in the urban areas. A small commercial sector is engaged in modern dairy farming, using almost exclusively non-indigenous dairy cattle.. Although a few farms are privately owned, most are run by parastatal corporations and serve commercial dairies primarily in the Arusha-Kilimanjaro-Dar es Salaam areas. Commercial dairying has declined in recent years to approximately 10 million liters in 1973 due to the departure of non-African farmers and low milk prices and many farms now stand in urgent need of rehabilitation. By far the largest volume of milk (approximately 475 million liters) is produced by traditional cattle owners. Half is available for human consumption and forms an important part of rural diets. Only a few traditional cattle owners produce for cash sale. Milk is also produced in a very limited number of ujamaa villaRes as a communal venture. 25. Principal constraints for dairy development include the location of some high potential areas far from major markets, low milk price levels, poor rural road networks and limited milk collection services, low milk yields of traditional cattle, shortage of feed during the dry season, weak extension services for dairy, shortages of inputs, and inadequate research to develop -8- dairy farming systems suitable for Tanzanian conditions. If these con- straints are removed or surmounted, Tanzania could develop a viable, indigenous dairy industry, producing all its milk requirements. 26. The Government's strategy for development of the dairy industry is sound. It aims at import substitution production and recognizes the importance of dairy products in the diet of rural dwellers. While depending on parastatal organizations to quickly meet the needs of the urban sector, the Government also seeks to meet the needs of the rural population through a longer term program of assistance benefiting the smallholder. 27. Responsibility for implementing the Government dairy development program rests in the Ministry of Agriculture (KILIMO) whose Livestock Development Division (MIFUGO) has policy responsibility for all matters relating to livestock and dairy. MIFUGO carries out its policies through its research, training, husbandry, extension and veterinary staffs and through parastatal corporations. The Livestock Development Authority of Tanzania (LIDA) has broad responsibilities, including marketing and production of beef and dairy products through parastatal corporations such as the National Ranching Company (NARCO), the Dairy Farming Corporation (DAFCO) and Tanzania Dairies, Ltd. (TDL). NARCO operates beef ranches and breeding ranches. DAFCO has responsibility for developing large-scale dairy farms and TDL for developing and managing commercial milk collection, processing and distribution. The Tanzania Sisal Corporation (TSC) operates well-run beef ranches and dairy farms in the Tanga region as a part of its diversification program. The Kilimanjaro Native Cooperative Union (KNCU) and the National Agricultural and Food Corporation (NAFCO) also operate dairy farms. The Tanzania Rural Development Bank (TRDB) has been designated by the Government as the primary financial vehicle for promoting agricultural credit. Oper- ating on commercial principles, the TRDB handles short- and medium-term credit to farmers through cooperatives, provides somes technical assistance and has served as the main channel for IDA funds in previous credits PART IV - THE PROJECT General 28. An appraisal report entitled "Tanzania - Dairy Development Project", Report No. 765-TA, is being circulated separately. A Development Credit and Project Summary are provided as Annex III to this report. 29. The project was mainly prepared by the Government and appraised in the field in September-October 1974. Negotiations for the proposed credit were held in Washington in May 1975. The Tanzanian delegation was headed by Mr. A. Mushi, Principal Secretary, Ministry of Agriculture. -9- Project Description 30. The project is an integral part of the Government's long-term program for the improvement of dairy farming in Tanzania. The project includes (i) rehabilitation and expansion of commercial dairy farming on nine parastatal farms and improvement and expansion of milk collection, processing and distribution facilities, (ii) development of the traditional dairy sector in 50 ujamaa villages, (iii) breeding improved dairy heifers, (iv) related technical services and applied investigational work for animal disease control, and (v) future project preparation. 31. Seventeen dairy units of about 350 cows each would be developed or established at nine dairy farms in five regions (see map). Two new farms would be established and seven dairy farms already operating would be rehabilitated and expanded. The condition of these farms varies widely, ranging from quite successful dairy farms to very run-down farms with animals in poor condition. 32. The farms would be run as commercial ventures under the management of DAFCO and are located near existing or planned Drocessing-facilities. Modern intensive dairy farming practices would be followed using pre- dominantly non-indigenous cattle and a high degree of mechanization to produce and preserve sufficient fodder to last through the long, dry season. The farms would, in addition to producing milk for the urban markets, serve as a nucleus for development of farming techniques appli- cable to different regions and geographic conditions, and for training managers and farmers in dairy farming. Development of these units would permit the Government to develop dairy farming models that could be extended to other farms in the future. 33. The project would improve milk collection systems in Dar es Salaam and Arusha. Milk collection centers would be located on dairy farms and would serve neighboring small producers. Processing and distribution facilities in Dar es Salaam would be expanded, obsolete equipment replaced, production bottlenecks removed and new equipment installed. Vehicles would also be provided to improve milk distribution. 34. Small (20 cow) dairy units would be developed in 50 ujamaa villages in suitable regions as a pilot program to develop dairies in ujamaa villages. These units would be based on up-graded cattle from the heifer breeding unit and would be run as communal ventures, with milk generally consumed within the village as a source of protien, and in some cases sold. This program will help to develop the technical and insti- tutional base for future projects. 35. A breeding unit would be established in the West Lake region (see map) to produce approximately 1,800 dairy heifers a year for sale to parastatal dairy farms, individual farmers, and ujamaa villages. These heifers are essential to build up herds on parastatal dairy farms and ujamaa dairy units developed under this project, and would also provide a - 10 - source of up-graded dairy cows that would be required for future dairy projects, particularly those directed at village producers. The breeding program would use 6,000 zebu-boran cows raised on the ranches, and would be based on artificial insemination with imported semen from pedigree dairy bulls. 36. A total of 30 man years of technical assistance would be provided for the commercial dairy farms, the ujamaa dairy units, and the West Lake heifer breeding unit, to train Tanzanian managers, develop management systems and administrative procedures, and prepare future projects. Specialists would be internationally recruited to serve as dairy farm group managers, manager of the heifer breeding unit, a project preparation team for the ujamaa dairy farms, and to provide technical support at LIDA headquarters, and financial advice to TRDB. The qualifications and ex- perience of these experts and their terms and conditions of employment would be subject to approval by the Association (Section 2.02 of the Project Agreement and Section 3.02 of the Development Credit Agreement). Funds would be provided for overseas fellowships and in-country short courses to develop skills in dairy farming techniques and for studies to assist in monitoring and evaluating project performance. 37. An applied research program on the impact of foot-and-mouth disease (FMD) and other animal diseases on the traditional cattle herd would be initiated. This program would be designed to analyze existing information on herd co-efficients and the reported incidence of FMD and other diseases and to conduct applied investigational work at village level to measure losses in production that result from FMD outbreaks. The principal items financed would be a veterinary economist and staff and logistic support. Organization and Execution 38. Implementation of the project is estimated to take five years. The Ministry of Agriculture (KILIMO), as the parent organization, would have overall responsibility for project implementation. LIDA would over- see and monitor the project through a project coordinator who would expedite and coordinate implementation. The Board of Directors of LIDA, which has members from all agencies involved in the project, would serve as project coordinating committee. The committee would be responsible for approval of ranch development plans. DAFCO would manage its own commercial dairy fatms as well as those of KNCU, NAFCO and TSC. TRDB, in conjunction with the regional livestock staff, would be responsible for the ujamaa dairy program, NARCO would establish the West Lake heifer breeding unit. TDL would be responsible for the milk processing and collection component. KILIMO, LIDA and TRDB would direct and coordinate technical services. Project Costs and Financing 39. Total project costs are estimated to be US$15.3 million, of which US$7.3 million (48%) is foreign exchange and $0.2 million is taxes and duties. The commercial dairy farms are estimated to cost $4.8 million. the collection and processing component $0.5 million, the ujamaa dairy development $0.5 million, the hLeifer breeding unit $1.4 million and tech- nical services $2.7 million excluding contingencies. Price contingencies of $4.4 million and physical contingencies of $1.0 million have been included in the total cost estimates. A 15% p.a. price contingency was used based on recent Tanzanian experience. 40. The proposed IDA credit of $10.0 million would finance 65% of the total project cost, covering the total foreign exchange cost and 33% of local costs excluding taxes and duties. The balance would be financed by the Government, parastatal corporations and ujamaa villages. 41. Credit funds for the commercial dairy farms, ujamaa dairy units, the heifer breeding program, and milk collection, processing and dis- tribution would be loaned by the Government to TRDB for 20 years including five years of grace at an interest rate of 4% per annum. TRDB would take the credit risk and the Government would bear the exchange risk. TRDB would loan funds for the commercial dairy farms, ujamaa dairv units, and the heifer breeding unit at 8-½% annually for 15 years with a four year grace period. Funds for the milk collection and processing component would be onlent at 8-½% for eight years with no grace period since returns would begin immediately. The lending rate is one percentage point higher than the existing lending rate for such loans by the TRDB. The 4-i% margin that TRDB would derive from onlending is sufficient to defray the cost of credit administration and procurement and delivery of inputs to the beneficiaries as well as allowing the accumulation of further funds for relending to priority rural sector projects. 42. Financial projections have been made for each of the dairy farms and found to be satisfactory, with an average 18% rate of return; operations of the heifer breeding unit would result in a financial rate of return of 33%. The financial position of the ujamaa villages will be examined during the selection of the 50 to participate in this project. Since no strong tradition of ujamaa dairy farming exists, reliance upon dairy units for cash generation would be risky. Accordingly, it is anticipa'ted that in virtually all cases the dairy unit would be one of several communal ventures producing cash revenues. Loans would be ex- tended only if repayment were assured by a sound source of cash income adequate to meet debt service requirements. - 12 - Production, Marketing and Prices 43. Total milk producton in Tanzania is currently estimated at about 500 million liters a year with about 10 million liters entering the commercial market. Annua:L incremental production under the proposed project by 1980 would be about 10 million liters of milk and would increase to 15 million liters by 1987, at full development. Milk produced on project commercial dairy farms and provided through the improved collection system would be sold to the commercial dairies, which would be expanded to handle the anticipated increased volume. Milk produced in ujamaa villages would in general be sold within the villages but in some instances, where the ujamaas are located near processing facilities, surplus milk would be sold to commercial dairies. M1ilk prices are controlled by the Government at the producer and retail levels for commercially processed milk. The Government has previously attempted to keep milk prices low as it views this as a product of primary necessity but is now considering a substantial price increase in view of the need to provide incentives for increased production. The current price averages about T Sh 1.00 per liter and an increase to T Sh 1.25 a liter is under study. Such a price level would ensure an adequate financial return to dairy farms at: current price levels. With the expansion of milk production under the project pricing policies will assume greater importance in the future and would have to be reviewed on a regular basis to ensure i:hat they are set at a level which will assure an adequate return to both large and small producers. It was therefore agreed at negotiations that the Government woula consult with the Association, at least once a year, on milk price levels in Tanzania (Section 3.03 of the Development Credit Agreement). Procurement 44. Contracts for the supply of machinery, equipment and vehicles (US$2.0 million) would be awarded after international competitive bidding in accordance with Bank/IDA guidelines, with the exception of some machinery for milk processing (US$0.2 million) which would be purchased directly from the supplier of the plant's basic equipment to ensure conformity with existing equipment and to economize on procurement of spare parts and service. Cattle (US$2.3 million) would be purchased locally. Orders would be bulked to the maximum extent possible. For small individual purchases such as single vehicles or tractors, spare parts, supplies, etc., not to exceed US$50,000 for individual orders. Government procurement procedures would be followed. In evaluation of bids, local manufacturers would be allowed a preference margin of 15% or the existing rate of import duties, whichever is the lower. 45. Local contractors after local bidding would carry out most civil works contracts (US$1.6 million). The balance would be constructed by force account (US$0.6 million) or, for ujamaa units, by village labor (US$0.1 million). - 13 - Disbursements 46. To minimize delays in project implementation, it is proposed that up to $50,000 would be disbursed retroactively to cover technical assistance costs for the preparation of ranch plans in order to enable procurement to proceed more rapidly. 47. Funds from the Credit Account would be disbursed over five years on the following basis: (a) 80% of the total of each loan approved by TRDB for development of commercial dairy farms, ujamaa units, milk collection and processing, and the heifer breeding unit (US$6.5 million); and (b) 100% of the foreign expenditures and 80% of local expenditures for technical services, salaries and fees (US$2.0 million). The remaining US$1.5 million of the credit is unallocated. Benefits 48. The benefits of the project would consist of increased production of milk and high grade dairy heifers, which would result in savings of foreign exchange by reducing dairy imports and increased milk consumption in villages where nutritional levels are low. Annual foreign exchange savings of about T Sh 20.0 million (US$2.7 million) are anticipated when the project is fully developed. Ujamaa villages participating in the project would derive benefits either in the form of increased milk for consumption (and thus improved levels of nutrition) or its equivalent value as cash revenue, estimated at T Sh 21,600 (US$3,000) per village annually at full development, and T Sh 14,000 (US$2,000) annually from livestock sales. 49. The economic rate of return from the project is estimated at 22% over 25 years. An increase in total project costs of 10% would lower the return to 18%; a decrease in project benefits of 10% would also lower the return to 19%. The primary risk involved in this project is the sensitivity of dairy output to the quality of farm management. For the parastatal farms to remain viable, the quality of farm management would have to be improved through the technical assistance that would be provided by this credit. The ujamaa dairies involve high risk since there is little experience with this dairy model. This experiment, however, is low in cost (US$0.5 million) and holds promise as the beginning of a large program of dairy development through developing high yielding dairy methods and a cadre of skilled manpower. - 14 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 50. The draft Development Credit Agreement between the United Republic of Tanzania and the Association, the draft Project Agreement between the Association and the Tanzania Rural Development Bank, the Report of the Committee provided for in Article V, Section l(d) of the Articles of Agreement and the text of a Resolution approving the proposed credit are being distributed to the Executive Directors separately. The draft Agreements conform to the normal pattern for livestock and agricultural credit projects. 51. Features of the Development Credit and Project Agreements of special interest are referred to in paragraphs 36 and 43 of this report. Conditions of credit effectiveness would be (a) that a subsidiary loan agreement between the Borrower and TRDB, acceptable to the Association, had been executed, and (b) that at least three group managers for the dairy farms had been recruited and taken up their posts (Section 5.01 of the Development Credit Agreemtent). 52. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 53. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments Washington, D.C. June 18, 1975 Annex I Page 1 of 3 pagaa COUNTRT DATA - TANZSNIA 1ARE POPULATION PiSEITT 9b5,o87 k 13.6 million (Aid-19.72) 17 / Per 802of arable lnd S5CIAL INDICATORS Reference Ccuntriee Taniantc K ihicnias GNP PER CA_TA US$ 8IT LA553I5) LI 120 /bd 170 /b 310 b 430 /4. DEVOG PA MP E c o NV-th vate (per thmv.ond) b6 Ic.d b7 a b8 / 28 N/ Crude death rate (per thouiend) 25 7 22 18 f 8 7 Inf.nt moo-telity rate (per thousend live birth.) 225 160-165 e 55 lI Life axpectancy at birth (years) 38 Ls 43 Lb8 I 65 59 Oroee -rproductimn roto/2 * 3.2 3.b 2.6 2.7 Popolatioc grouth rate s 2.2 3.0 h 3.2 L 2.2 2.9 h Population grow h rats - ,rba. 5 iL 7 A /J U 6jF Age structurn (pe-cent) C-lA 1.2 cdl Ml a LI8 k LII 15-6b 56 c 53 b8 57 a 5 65 n o:rr 2c 3 3 3 Age depcnd.o cy rtio/ 0.8 c d 0.9 a 1.1 0 o 8 0.91 Economic dcpendency rs. o 1.2. 1.2 I.b 1 4 1.6 r Urban population es porcent of total b L/cd.p 7 /, 10 Li 4.1 /k 29 L&.g Family planningi N. of acceptors cumulative (thous.) . . 220 /8 No. of usore (% of married w.en) . . . .15 Total labor force (thousanda) b,900 / 5,600 4.!! ,100 /-.4 10,500 /b 3,200 Z. Porcout.ge peploynd in agricultcre 89 / 91 Td7c 90 Zk 18 LI iS Percenta.go .n-nlcyod ., .. .. 5/k 8 /f 1H0008 PISTR:-p.TlON l1rcont of nationalt icos rao-ivnd by highest 5% 31 , 15 4 2 u 2? Parcnt cf national incox. rncoied by hiphost 206 ... 37 521 Perc-nt of national income recsived by 1ighost 20% .. 60 13 t a 5 tu Poec-nt of natio-rl icone receiovd by lo0oAt 12 . . , DlSThIBIl'BT_ OF LANiD CUNlMRliIP T n.i5 1% f yccm28 % owrod by n"allost 10% of ,wnarn 2 hEALTH fili NUTBiTICN z7fo e -prhy7iclAn 20,000 /8 21 570 d 7,830 /4 2,210 /v 3 860 /g.v Pop.lation per rl-oing person .. b,890 /4 1.v70 / 1 760 / 1,060 E Pnp0" . ] n r horci tnt P.c _!O /d 700'd 770 1,920 330 Par capita calorio supply as S ol requirerlentn / S b02 L 73 lu. 103 >b 68...r Per capita protoin a,pply, total (grams per day)6 1,2 b43 71 65 19 Of ahich, eni-al and Foles 22 L- 23 29 19 Lrz 20 ;8, Lea.:. r.a l-b, la.7.^' ¢ .. .. ,. ., t;u iEJUCi1ION Adju.t,d /o pei.ary school earolLment cetio 25 37 4 67 lOb °9 4 Adjuatcd 75, secOnda y .heool enrollment ratio 2 3 £ 9 o 113b Toace of s!chooi:g provided, fil,t and -ncond 1evel 13 13 13 12 13 Vccatlcuor onrollnont as % of vo.. echnol anrollneat 23 4 /ao 2 15 /o 3 /4 Adult literacy rate . .. .. 30 /a,.ad 91 T 89 Ld.ae ROUSING Avarago No. of persons per roon (urban) 1.8 fA . 2.7 Par-ct of nucopind n-ite with-ut piped ,ater .. .. .. 80 L..& Ac.ee. to 1uistri,ity (oa % of total popolotinn) -.. .- - 50 Peccant of fucal pxcl.ti -n o.neact.d to electricity .. .. .. . 30 CONSUMPTION R; oio0rncmner- per 1000 population 2 16 b8 <9 128 / 12 Peasrrgaer care per 1000 popal.tian .. 3/b .ah 9 [1,a7 2 /8 26 6 Electric Tower .on.enption (k.oi p.o.) 1 31/b 78 /b 392 ll Z Newspyrlt connumption p.c. kg per year 0.1 / 0.1 ZE 05 7 3.7 3.0 iotes: F1garens iec, either to the 1nteet periods or to account of eor,ruc.ountel te-per.turn, body ooighte, aid the ltent yenor. Latnst p-eriodn refer in pri.ciple to diet,ribti.n by age and anr of -.tional populatione. the ye- r 8956-60 or 1966-70; the lrteat years in prin- 6 Prrotein otondord.e (reqairoerctz) foe all coultrioa an e-tab- ciple t- 1260 -ud 1970. ' lished by U3I E;cnor.ic ,e.earob cSerice provide for a ciniulr /4 The Jc Crpite GuP roil eir tt carckt pricer for allova-nc of 60 grama of total protein por day, And 20 gr.ee of ycoon uthir thIn 17c10,calculated by the once covoersin o nimal and polo. p-otnin, of which 10 g.an. ehoald be -ni-nl techoiqee as the 1972 World Lkani htleu. protein. Tlnce staMnarde eo anre ahat lower than thore of 75 /2 A" er-ee unber cf drughters per wo.en of rrprod.ctive grans of total protein and 23 grams or anial. protein on a-- .Ce. average for the world, proposod by FAD In the Third World FPod Pop. o,t1- gFo.cth rates Are for the decedos endinr in Sarvey. 1960 cod 19-o. /7 Some et,idtie ho-e naggoted that crude death rates of children /4 healoct-f pcpuiation under 15 cnd 65 and over to popula- ages I through 4A nay is used no a flint approninatioc is-lea of tion of Ccfs 15-64 for aeo dcpend!-cy rntio nud to 1abor eloutritlc. force of rges 15-61 for eccr.onic d,pendency ratio. L§ Pertcentay oenolled of corr-ropending popol&ticon of echool Age /4 FAO ref.i,ny- ,tAnodrds repic ucr:t ph.-4nlogic-l rc- a defined for oach country. qu-i-ro-ti fot co-rrl Activity and hcalth, otking E ia aoch-I o fcocs., end pastures; /b 1972; /4 1957, /d Tangar*-ik; /, 8967; /f tni ertirete, 196<-7rl; Iwdst Pole eta- / 1960-7?; L4 15 gazottnd township., 1957-67; fi 2,000 -c rone inTahaitnL s; /k Seeol City cnd osouncliE,- .ties of 5,000 or oc.u in7.Abitants; LI African po.1l.tion; /, 1969; A 1973; L. 1971; Z4 33 gaD:tt.cd ta:.-.ips; 16 oettd towunships; /r L Gzetted arma- of 10,00( o r.orc inulilr.ols; /. Ln or force 15-59 Ag; ire. cML-U ilcoetolin; [0 hcL t%.-mo; Lv INr.ber on, reginLer, not all corkoino in country; /4 Ferson-el in ;'vuc,,,..o, or-vcCooC.i'y; /4 i'7;9U1-l; / F:ir : ne; /: 1 96:-66; /.a 1969; /01 0 lc!uding t-ocher troilIng rci !L.irc 0-v 1, /. D.f7-.r_!i.loc otirukow ___. 15 yoar, or.; 00cr; Ace 1W; /,,r 19iT, Zlozibo,; [E 196:-6'; f_h lvoiudmr.f, foucr-useot ocl.iuco~/; .Iu Regi:.tucc-J -ly; f i1 1963; =w Witer piprd i /-ciIc; fjI yearn a:.d u-olr. * *l:a'aes!a la tnelec-led o 1.0tLe cb4-live count,y cuut-tl- ici cii -.pa,ablo in i:e And Ito econoudc elc;ror.t is ,cocril Otcps ah-ed. R6 April 1, 1975 ActresS iTOjee 1-2 f~~~~~~~~~~~~~~~lIArd- 19 67 - 19 70 - -, 1970 I 2 72 1970o 1071 197.2 1474 55 9767 1 9 69 19 72 19 73 197LU 12 S -Ir ,:s c Sor3t 1214.1 12 75. 4 Y 2. 149 4. 7 15. 63. 61 4. 9 5. 6 4. 10. 7. 0. Gala-r frac%(.-02 -10. -21.5 - 323 -49 .0 c~roos S- 1 121i3. 1 244"..6 l99 '. 14 73. 2 15 29 .7 1 503. 1 5. 0 4.5 5. 1 4.0 103.0 100.40 100l.0 i.e t I (SarI ) 346 6 39 5.1I t5 4 15.6 4105. 3 239 .5 6 .7 .6 1 . I. 4 0. 6 30. 2 31 .2 20.2 o- _sav is 301.5 310.6 s _0, 2752 272 329.2 3.-1 2 .6 0. 7 2.0 2 5. 0 24. 6 23.6 asaU t Ct,6 83. I 4.' 9 138.4 113.1 63. 35. 67 46 ferns., rt.Oo TCed5lOrC5 ~~~10312.8 1061 .6 1550 0 1260.3 131 5.8S 131 2. 4 5. 8 4.6P 4 .7 3. 8 84. 3 84 .0 6 1.8 I,tns' tv,st (i,el. stocks) 254.2 262.6 '19 5 4 32 3.23 3277. 0 3 3 1.0 9 .1 8.4 6 .7 2.4 20.9 22. 7 2 2.68 D-ncatc Savz gs 191.1 203.1 235.7 164.9 213.9 270.7 1.4 2.7 7 .3 4 .7 15.7 16.1 18.2 Nontio"aI. e 198.0 206.8 235.3 190.9 203.5 2861.-3 3.1 3.4 4.9 4.5 16.3 16.4 18.2 8076011ATh017i6 Y>~~~~~~~~~~6 Annua.l DOev at. Current Frira __- ____ 194672 1970-73 1932 AsPretoTta Cups'a t1'0503 94.2 117.0 125.2 137.2 138.0 149.5 13.5 14.0 2.4 29.6 30.3 31.0 Tritrelraci'c plyt; Cow3.fsclv) 101.7 132.1 154.4 210.6 212.1 226.6 13.5 21.5 7.6 31.9 34.8 30.2 F'uel 0 .'avoetl 27.0 35.8 41.3 139.4 145.2 161.8 16.3 27.7 42.0 8.5 9.4 10.2, ci'eo S''cec (27.0) (35.8) (41.3) (139.4) (1.45 0) (161.8) (16.3) (27.7) (42.0) (6. 5) (9.4) (10.23 C, 9 5.-5 9 6.6 62.0 2 25. 3 176R,. 0 64.8 1.0 1.4 -5.2 30.0 25,.3 20.5 Crl) 194 381.5 403.8 712.5 463. 622.7 8.7 1449.3 100.0 120 loS.0 5yp~orts5 1/ prt'-i"c ado-c~1 (r,1 . fste7s) 183.1 183.1 208.8 329.5 332.) 337.4 0.6 13.2 6.2 77.4 75.4 7 2 .3 Fuels n.L& 'cl'e ma -.terials ) . 75 of iotch: i5'3ct 0t5u 7 53.4 159.8 30.7I 42.0 43.7 46.85 U 1. 5 9 9.7 27.5- 22. 6 724.51 10.6 mri f.ae4urr3l r'nc0 9 49.1 54.0 59,4 65.7. 7 6.6 317.0 Total. 'as(fob) 239'T5 '-'7497W 243.6 023 5TWW '2277i -7W7 T' "'E-C '57oio 100U.9 T ioo--. ToarIarm wa.~l ,z .d,r Tracte . .. .. .. . M.re,c. rdiLc , -J- ,tin`ln-s Av-rcr, 1967-49 I(075 Etepr..t Free oes IOS779077O 117.6 74 170. 171. Ia" -t Th..va 1..~~~ 00 ~~ __99 121.9 157.2 140.2 i 11.3~ Teruis of Tra, a Icnde 101.6 98.5 86.7 92.7 89.9 87.0 Fuports Valunes ja1des 126.0 127.0 132.0 135.3 143.0 149.6 Ierilrsltssra 446.5 442.7 4713. 2 3.3 4.4 1.4 2 .6 40.0 38.1 39.5 2sa.Lya niAasg 179. 2 196.0 262.2 9.3 8.3 7 .2 5.0 16.0 12.0 16.5 4'yi S >5.2 5:;.: ~~~~ ~~~~ ~~~~ ~~~~~7.i 2.6 7.0 . ±. ~a'.~ a PlaY ~~~~~~~~~~~~1116.8 1162.2 1 255 .3 5.7 6.3 4 .7 4.5 100.0 120.0 1 00.0C 74537.lC F811420 Anc'a _ o4t at f;<_sli-t ~Prices 1967-722 uPee f0 TC et ral Ge c--,,, t)1. 92 21.6 2. tare-st c .>,235.6 260.3 306.3 14.0619.2 2.67 3. 7 ... ~~~228.4 249.3 306.6 195- .6 88 1 23.0 7.2 1.0 -0.3 - 0.6 09 - 066c,r Publse teeter 39.0 57.0 75.0 25.0 3.2 4.5 5.6 PtS 1'c Sector Inve-stment 163.0 233.0 233.0 21.0 1o.3 16.4 17.5 j07-P541T 71l10135hE D-tTAtLS Actual Pr . As ~~ Total Cearreet I air1. 601921F-"! 'lirygYL F)'1973 21.1 17.5 1. Other Serial Services 710.3 Agricult,ure 731.5 27.3 .5 Other E,casesir Seucn 5.4 Adsicist,ratlon no.3 Defens~e 30.5 32.0 9. 55/ Sthle 11..9 2 3 ,2 33.7 Total Current ExpenItturecs 10. 10. 100. 5~~137CTE0 11762.t77AT317 . ~~~~~~~~~1960- :1965- 1970- 1973- (Ca.tr.c3.a.te tears 0-vesTa-rea,ge2 dat4) 7 5 3970 1975 1.979 .terapl 10 2.9 .4.3 4.3 Irrpart Elautteity 1.6 0.4 0,5 Sl,el1indtl flneAatiCOsig Rate 0.1 0.1 0.25 maurginal 91ationul Sav-ings Raute .0.2 0.1 0.2 tAble FORCE AjND ______ jts]. tabor ' ree -___ :,, 1 1 .'.'t orect, psi ese) l9~~~~~' 1911 19,1 . ;~~~~~~~~~~~~~~~~~~~7 1 Act Irutture ~~~~~~~~~ ~ ~~~5.3 91 98 43 Ind,istry ~~~~~~~0.1 2 1 590 69' letIratry . ~~~~~~~~~~~~~0.4 72170 49W cot C,'~ SellsI less thi> half S I seldarvc.c to ,,-Cla Iri I L,O' Sti rp Ir1ta Ldrtstta e Sie vau dr ccvrreg . Sv. IeF1, 1971 3/laiueah BWAI OF 9PATS, 'U.!L ASISTA=NCE AND DMR .(auexnts in mi'li=i7: of -.S. dloiaLra at current prices) Avg. Annual Actal _ ttbma .erl Pro1ected _rcvtll Rate 1!M -- l17D0 1971 1972 17773 1977 1977 19 - 1979 1969-1979 SU2R EAIUI7E OF FAr 4TS txports (incl. N75) 276.8 308.8 333.1 397.5 479.8 516.9 543.4 646.8 713.0 802.7 915,6 13.0 Iero-t (inel. XFS) 288.4 373.1 449,8 476.1 591.'. 775.9 757.4 765.3 859.8 964.2 1079.3 14.0 Rescnce Balance (X-X) -11.6 -64. 3 -116.67 -78.6 ' I'. -260.0 -2710 -_ tl .5 -46 . -1.5 - i 63.7 Irterest (not) 2.9 ) _35 ) 3 . ) - 34 -5. -7.3 -13.6 -21.1 -22.6 -32.0 -49.7 )33.0 Dtreoc 0 vetsnert L-ncome ) ' . ) -1.5) -1.5 - 1.5 -1.5 - 1.5 .S . 1.5 '4-kn-O lwdtts e 0.0 0.0 0.0 0.0 0.() 0.0 0.0 0.0 0.0 0.0 0.0 C_-__-( 8.6 12.4 9.3 -1.7 0.' 14.0 7.0 7.7 8.5 9.3 10.2 1.7 7i-awanc, on CGurreN'Acoite -5.9 -55,4 -110.4 -83 .7 8 -25h.8 -22. -I -16zr.4 -TT7 -'-r. r ~~- - ____ - - - -- pr±vate DiLrect Investnesnt nl nil oil nil ni' nil nil nil ,IIl nil nit - Official Capital Grants 10.0 12.0 14.0 16.0 18.0 20.0 21.5 23.1 24.8 26.7 28.7 11.0 'st--nt9 ~~~ ~~~~~~-9.9 -9.7 -11.9 -15.4 -13.:' .14.0 _14.0 -14.0 _14.0 -t4.5 -15.0 4.3 8'et 8 1*.hs - 4a,e z ItS 34.1 39.4 37.9 1192.0 IT % 17 .5 o 97.77 10.8 othe 7:411 Lcans -P.cra.nt:l 0.0 0.0 0.0 : .. . .. .. flnelotas u. v 4.5 11.4 5.b ____ ____ _____Act ____I__ attaated Cno4'iAl1 .r aeat.ors n.e.i. -21,0 -52.0 -15.0 28.2 -6.6 19.9 1970 1971 1972 ib973 Crn.:ro rin t 41Reserveo 2.8 -15.3 - 4.1 60.2 27.f MOT AND IE:BT SRV1C1 '- Piblic obOt Out. & DL;sb,sed 176.4 220.2 262.5 344.5 424.6 GRA.NT A'TD V;AN 2M17,?S Ofici1al Granta & Orant-like Intereat or Publil Debt 6.1 6.2 11 6.9 8.7 Repeyoenta on Pulbic Debt 9.9 9.7 11.9 29.0 11.5 NUblic 1A'&I .Oans Total Public Debt Service 16.0 15.9 18.5 35.8 20.2 7.0 30.0 - - C.her Debt Service (net) - - - - - TDA 20.5 9.0 9.8 10.8 28.1 Total Debt Service (net) cthnr _ _ _ _ 8tI'tr }'.iJ.tlateral - - 3.3 2.0 Burden on Export rnrirnp (%) 0.mern:onts 48.8 232.4 26.3 49.3 94.9 1upp'2.isro - 0.3 - - Pablic Debt Service 5.8 5.2 5.6 9.0 4.2 F`narcina 3n.titutions 3.2 3.0 Total Debt Service 5.8 5.2 5.6 9.0 4.2 80rds _ _ _ _. ^ TDS-Direct 3nest. Inc. 5.1 4.8 5.1 7.7 3.0 r,1b lic InAns n. s.i. 16.9 2.2 0.8 .. 'Snlic K411T loam Aveorage Terts of Public Debt Actunl Dvbt OctetaMtng or fee. 31. 1972 Int. as % Prior Year DOf&D 4.2 3.5 3.0 2.6 2.3 .=At M.,, Dxrad rPercent Amort. as % Prior Year DO&3 6.8 5.5 5.4 11.0 3.3 ;;n. rd .ga.ak 24.0 X ° ID3 49.1 14.2 MD Debt Out. & Disbcrscd YlOc'.F 'idtgllteral 2.5 0.7 as % Public Debt 0&D 1.4 1.7 4.1 7.6 7.4 213.5 62.0 ' as % Public Debt Service.' 0.0 0.6 1.6 2.2 10.0 -er-, ~~~~~~~~~0.3 0.1 F,._ ctal t.tnti a 24.2 7.0 IDA Debt Out. & Erisburepd 10.1 2.9 Ra % Public 3ebt D&D 14,2 15.4 16.1 15.6 13.7 t aL, >_b'_c t;. n.e.i 20.9 6.1 as % PabLac Debt Servi,oea/ 0.6 0.6 1.1 1.1 '.9 ^-.e bic T Debt 344.6 100.0 not anpl.cable e Staff estimute 1t Not tinluding Thnz.rte's share in EAC (debt) .t. n- 'o - nil, or negligible 2t 'BRD/1DA debt srcvice as % of total publi. debt service ,., nc-, 7j.-.bla seDArAta17- -- less tizn hslf the b;'t ;:7nL5dtd iXn to'lz n-.Allest urtt 3ho- Novezber 19, 1974 ANNEX II Page 1 of 8 A. SUMMARY STATEMENT OF BANK LOANS FOR COMMON SERVICES GUARANTEED BY KENYA, TANZANIA AND UGANDA AS AT MAY 31, 1975 (US$ million) Amount less cancellations No. Year Borrower Purpose Bank Undisbursed Three loans fully disbursed 75.0 638 EA 1969 EAHC Harbours 35.0 5.3 674 EA 1970 EARC Railways 42.4 17.3 675 1970 EAPTC Telecommunications 10.4 0.2 843 EA 1972 EADB Development Finance 8.0 7.2 865 EA 1972 EAHC Harbors 26.5 17.8 914 EA 1973 EAPTC Telecommunications 32.5 18.5 Total 229.8 66.3 of which has been repaid 29.1 Total now outstanding 200.7 Amount sold 24.4 of which has been repaid 24.4 0 Total now held by Bank 200.7 Total undisbursed 66.3 ANNEX II Page 2 of 8 B. STATEMENT OF BANK LOANS AND IDA CREDITS TO TANZANIA AS AT MAY 31, 1975 (US$ million) Amount less cancellations No. Year Borrower Purpose Bank IDA Undisbursed Three loans and six credits fully disbursed 65.2 43.0 586 TA 1969 Tanzania Roads 7.0 1.9 149 TA 1969 " Education 5.0 1.0 217 TA 1970 " Tobacco 9.0 5.6 715-2 TA 1974 TANESCO Power 5.0 2.5 232 TA 1971 Tanzania Education 3.3 2.0 265 TA 1972 " Roads 6.5 4.2 287 TA 1972 " Smallholder Tea 10.8 6.1 371 TA 1973 Education 10.3 10.1 382 TA 1973 Livestock 18.4 17.9 454 TA 1974 Cotton 17.5 17.4 460 TA 1974 Tanzania Investment Bank 6.0 5.2 1014 TA 1974 Cashewnut 21.0 21.0 495 TA 1975 Sites and Services 8.5 8.3 507 TA 1975 Highway Maintenance 10.2 10.2 508 TA 1975 Rural Development 10.0 9.9 513 TA 1975 Sugar 9.0 9.0 1041 TA 1975 Sugar 9.0 9.0 Total 107.2 167.6-/ 141.3 of which has been repaid 0.8 0.4 106.4 Amount sold 0.1 of which has been repaid 0.1 0 Total now outstanding 106.4 167.2 Total undisbursed 34.4 106.9 141.3 - Net of exchange adjustments ANNEX II Page 3 of 8 D. PROJECTS IN EXECUTIONl/ (As of May 1, 1975) There are currently 16 projects under execution in Tanzania AGRICULTURAL SECTOR Credit No. 217 TA - Tobacco Project: $9.0 million Credit of October 9, 1970; Closing Date - September 30, 1976 As a result of the Tanzania Government's intention to complete its villagization program by 1976, the process has been accelerated and a total of about 7,200 families have been moved to villages in the tobacco complexes, bringing the number of project farmers to 10,000. As a result of these vigorous efforts, it is now likely that the appraisal target of 15,000 farmers will be reached by 1975. Strict measures to enforce minimum tobacco acreaRes per family are expected to contribute to increased tobacco production. However, yields per hectare and quality of leaf have been below anticipated levels. Improvements are required to strengthen the extension and cooperative services. Pro- vision of water supplies and social infrastructure are progressing well. Credit No. 287 TA - Smallholder Tea Project: $10.8 million Credit of March 3, 1972; Closing Date - December 31, 1976 This project has experienced serious management problems both at headquarters and in the field which have largely contributed to the shortfall in planting achievements, currently 45% of target. Insuf- ficient and poor quality field supervision with inadequate control and guidance from headquarters have resulted in poor husbandry practices, low yields and poor quality of leaf produced. Of the four tea factories established or improved under the project, only one is performing satisfactorily. These problems are being reduced since all senior extension staff positions have been filled and monthly visits are being made to each project area. F'inancial management is improving and disbursements accelerating after the appointment of a Chief Accountant, Cost Accountant and Internal Auditor. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in par- ticular, to report any problems which are being encountered, and the actions being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 4 of 8 Credit No. 508 TA - Kigoma Rural Development Project: $10.0 million Credit of August 21, 1974; Closing Date - December 31, 1980 The credit became effective in November 1974. Government has designated two national parastatal marketing corporations to per- form the input delivery and crop marketing functions under the project rather than the Kigoma Cooperative Union which would have required a financial reorganization. Possible changes to legal documents are being studied. TRDB remains the lending channel for IDA funds under the project. The Operations Manager (henceforth designated Project Manager), Financial Controller and Land-Use Planner are now on site and heavily involved in planning implementation; several other appointments remain to be filled. A large acreage (relative to previous years) has been planted with cotton and a variety of steps are necessary (now underway) to market it effectively. The Project Management hopes that 30 project villages will qualify for loans under the project starting in September. However, this goal may be an optimistic one in view of the need for a trained bookkeeper and extension worker and preparation of a Village Site Feasibility Report for each project village as a prerequisite to its borrowing under the project. Credit No. 454 TA - Geita Cotton Project: $17.5 million Credit of January 17, 1974; Closing Date - December 31, 1982 The conditions in which the project will operate were radically changed by the decision effective April 15, 1974, that farmers through- out the district should immediately move into villages. The move was poorly planned and in the short-run will adversely affect production of cotton and food crops. Although in the long-run villagization could well be advantageous to the project as savings in mechanization, extension and credit staff could be achieved, the initial implementation of the project will be delayed. A mission from RMEA is reviewing the project and their report is awaited. Loan No. 1014 TA - Cashewnut Development Project: $21.0 million Loan of June 24, 1974; Closing Date - December 31, 1981 The lowest bids for the five processing facilities to be constructed under the project were considerably in excess of the ap- praisal estimate for the project component. Following detailed discussions between the Government and contractor, the cost has been considerably reduced by deletion of non-essential items so as to not affect the aims of the project. The Government has requested deletion of a rural water supply and a community education center; with these changes, the loan funds will be sufficient to finance 66% of the project as compared to 69%, at appraisal. ANNEX II Page 5 of 8 Credit No. 513 TA and Loan No. 1041 TA - Kilombero Sugar Development Project: $9.0 million Credit and $9.0 million Loan of September 27, 1974; Closing Date - December 31, 1979 The project was declared effective February 24, 1975. The Government is currently making good progress toward ambitious project goals. Civil works bid documents are in an advanced stage of prepara- tion. Contracts are being let for some goods and equipment; measures to reduce possible cost overruns on the civil works components are being considered by the Government. Credit No. 382 TA - Second Livestock Development Project: $18.5 million Credit of May 23, 1973_1Closing Date - December 31, 1977 The credit was declared effective on September 28, 1973 but so far implementation has been extremely slow. IDA disbursements to date have been limited to technical services and it is only during the past four - five months that the development of cattle ranching and marketing has started to get under way. The meat processing component of the project was recently scaled down by almost a third of appraisal proposals becauset of increase in costs. However, overall progress should improve now that responsibility for project implementation has been transferred to the newly established Livestock Development Authority. EDUCATION SECTOR Credit No. 149 TA - Second Education Project: $5.0 million Credit of May 29, 1969; Closing Date - December 31, 1975 Most project schools are complete and all are scheduled for completion by July 1975. Completed schools are adequately furnished but not yet fully equipped. IProcurement and installation of the remaining furniture and equipment is in progress. The project has experienced a minor overrun of $0.4 million. Credit No. 232 TA - Third Education Project: $3.3 million Credit of February 5, 1971; Closing Date - June 30, 1975 Contracts for all 13 project institutions have now been awarded after retendering made necessary by high prices of the original quotations. As a result, the project is about 18 months behind schedule. Procurement of furniture and equipment and the fellowship training program are progressing satisfactorily. A cost overrun of about $0.45 million is expected. ANNEX II Page 6 of 8 Credit No. 371 TA - Fourth Education Project: $10.3 million Credit of April 13, 1973; Closing Date - June 30, 1978 A substantial cost overrun, possibly as much as $13 million, for civil works is being discussed within the Government. The Govern- ment has decided to defer the construction of three secondary schools in the project to reduce building standards and to seek additional financing from bilateral aid donors. INDUSTRIAL SECTOR Credit No. 460 TA - Tanzania Investment Bank Project: $6.0 million Credit of February 13, 1974; Closing Date - June 30, 1978 The credit has been fully committed. A follow-on project is under consideration. POWER SECTOR Loan No. 715 TA - Kidatu Hydroelectric Project: $3.0 million Loan of December 14, 1970 and $5.0 million Supplementary Loan No. 712-2 TA of June 24, 1971; Closing Date - June 30, 1976 Construction work for this project is nearly complete. The project is on schedule and the first unit came on stream in March 1975 and the second is expected to be completed by July 1. A mission visited Tanzania in April to appraise the second stage Kidatu power project. TRANSPORTATION SECTOR Credit No. 265 TA - Third Highway Project: $6.5 million Credit of August 6, 1971; Closing Date - December 31, 1976 After long delays in completing tender arrangements, the contract for the Mtwara-Masasi road was made at nearly three times the appraised cost. Most of the overrun is covered by a $4.4 million loan from ADB and use of the $1.8 million balance from the Bank's Second Highway Project (Loan No. 586 TA). Construction of this road is proceeding satisfactorily. Feeder road construction in Geita and Mara has been slowed by shortages of local funds, fuel, materials and personnel. This has received the attention of the Ministry of Works and some improvement has been effected. Consultants' feasibility studies for Kilombero and Kilimanjaro are proceeding satisfactorily. ANNEX II Page 7 of 8 Credit No. 507 TA - Highway Maintenance Project: $10.2 million Credit of August 21, 1974; Closing Date - June 30, 1979 The project was declared effective on November 20, 1974. Recruitnent of expatriates required for implementation is being discussed by the Government with the Crown Agents. Tender documents for the first batch of equipment are being prepared by the Ministry of Works. URBAN SECTOR Credit No. 495 TA - Sites and Services Project: $10.0 million Credit of July 12, 1974; Closing Date - December 31, 1978 The project was declared effective in October 1974 and has made a good start. Contract for infrastructure construction at two sites have been awarded; tenders for two other sites have been received, and contract documents for the remaining two sites are being completed. Tender prices were high on the initial bids but are becoming competitive as more sites are tendered. At present total project costs are estimated to exceed appraisal estimates by about 3%. Training program for technical staff of Ministry of Lands, Housing and Urban Development commenced in March 1975. A consultant has been appointed for Monitoring and Evaluation of the project. PROGRAM LOAN Loan No. 1063 TA - Program Loan: $30.0 million Loan of December 20, 1974; Closing Date - December 31, 1975 The loan is fully disbursed. The Government continues to implement policies designed to relieve the balance of payments dif- ficulties. A Bank mission will visit Tanzania in July to review the effect of the implementation of such policies. Although the Government has been successful in finding other sources to assist in financing the balance of payments gap, the overall resource gap will be larger than anticipated at appraisal owing to a more rapid deterioration in the terms of trade than expected. There are currently six projects under execution by the East African Community. TRANSPORT SECTOR Loan No. 674 EA - Third Railways Project: $42.4 million Loan of May 25, 1970; Closing Date - June 30, 1976 This loan was suspended on February 13, 1975. The reasons for suspension and conditions for lifting the suspension are discussed in Parts,Iand II of this report. ANNEX II Page.8 of 8 Loan No. 638 EA - Second Harbours Project: $35.0 million Loan of August 25, 1969; Closing Date - December 31, 1975 The Harbours Corporation is in a healthy cash position overall although there have been problems in transferring funds from regional offices to headquarters. It is now expected that the project will be completed by the end of 1975. Loan No. 865 EA - Third Harbors Project: $26.5 million Loan of December 18, 1972; Closing Date - June 30, 1977 A delay of six months is expected in completing civil works under this project. Cost overruns have been experienced in some project items. The situation is under study by the Corporation, which will shortly issue a plan for speeding implementation. DEVELOPMENT BANK Loan No. 843 EA - East African Development Bank Project: $8.0 million Loan of June 28, 1972; Closing Date - May 31, 1976 Operations-of the Bank have been decentralized with a resulting strengthening of the Bank's supervisory capability. Management problems associated with decentralization have largely been rectified so that the pace of Bank operations is expected to quicken in FY76. Nearly $6.5 million of the loan has been committed, and a second loan is being considered for appraisal. TELECOMMUNICATIONS SECTOR Loan No. 675 EA - Second Telecommunications Project: $10.4 million Loan of May 25, 1970; Closing Date - June 30, 1975 Problems within the EAC have only marginally affected the Posts and Telecommunications Corporation due to the considerable existing decentralization of operating authority. Deterioration of the corporate cash position and rate of return has been slight in comparison to other Community Corporations; the situation will be improved by a rate increase allowed by the Community in February 1975. Loan No. 914 EA - Third Telecommunications Project: $32.5 million Loan of June 22, 1973; Closing Date - December 31, 1976 Procurement is generally on schedule with $20 million committed and the balance near tender stage. All major items are expected to be completed by mid-1975, except two microwave links which, due to long lead time for delivery, will be delayed by 18 months. ANNEX III Page 1 of 2 TANZANIA DAIRY DEVELOPMENT CREDIT AND PROJECT SUMIARY BORROWER: United Republic of Tanzania AMOUNT: US$'10.0 million equivalent TERMS: Standard IDA terms RELENDING TERMS: The following are the proposed relending terms: Interest Amortization Government to Tanzania Rural 4% 20 years including Development Bank (TRDB) five years grace TR)B to National Ranching 8--% 1.5 years including Company, Dairy Farming four years grace (Corporation, Tanzania Sisal Corporation, National Agri- cultural and Food Corpora- tion, Kilimanjaro Native. Cooperative Union and ujamaa villages TRDB to Tanzania Dairies Ltd.8-½N% 8 years with no grace period PROJECT DESCRIPTION: The project comprises rehabilitation and expansion of commercial dairy farming on parastatal farms, improvement of milk collection, processing, and distribution facilities, development of the tra- ditional dairy sector in 50 ujamaa villages, breeding of improved dairy heifers., technical services and applied investigational work for animal disease control, and future projec:t preparation. ESTIMATED COST: (US$ million) Local Foreign Total % of Total Parastatal dairy farms 2.5 2.3 4.9 31 Ujamaa dairy development .4 .1 .5 3 Heifer breeding unit 1.3 .1 1.4 9 Milk collection and processing .1 .4 .5 3 Technical services .8 1.8 2.6 18 Contingencies: physical .5 .5 1.0 7 price 2.3 2.1 4.4 29 Total project cost °.0 7.3 15.3 100 ANNEX III Page 2 of 2 FINANCING PLAN: (US$ million) Total % of Total Government 4.2 27 Parastatal crops 1.0 7 Ujamaa villages 0.1 1 IDA 10.0 65 Total 15.3 100 ESTIMATED (US$ million) DISBURSEMENTS: 1975/76 1976/77 1977/78 1978/79 1979/80 1.0 3.7 3.2 1.2 0.9 PROCUREMENT International competitive bidding for equipment and ARRANGEMENTS: furniture for contracts in excess of $50,000; local manufacturers would be allowed a preferential margin of 15% or the existing rate of import duties, which- ever is lower; Government procurement procedures would be allowed on contracts less than $50,000 subject to a total limit of $500,000; some specialized equipment would be procured from the manufacturer of existing plant equipment to ensure conformity; cattle would be purchased locally; civil works are unlikely to attract international bids and would be tendered locally, constructed by force account, or by ujamaa villages. TECHNICAL 30 man years at a cost of $2.6 million. ASSISTANCE: RATE OF RETURN: The overall economic rate of return is estimated at about 22%. APPRAISAL REPORT: Report No. 765-TA (May 23, 1975) MAP: A map of Tanzania that shows the project area is attached. U GAN DA ~~ Falls I ' ~ I o 0 Bunol AK A/I/JO T; bU'~ , ,aB O K E N Y AA RWAND C- t vV Nan¢e XS g *_ angany/ko 2 Ch A,z (1 MOVO lhvn- S E Z A M B I A X .: J X / t IWAMBI ; ge < Fv 2 w { NangurukuruW i~~~~~~~~~~~~~~~angrukrs ilw ~~1!0< orpn g 0 7 -RNA ®3 Regional HeadquarteJrs 9