-7-7 IL7 RESTRICTED FIL UCOPIX Report No. p-999 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 It may not be published, quoted or cited without Bank Group authorization.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 CREDIT TO THE REPUBLIC OF MALI FOR A RICE PROJECT December 9, 1971 I I INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF MALI FOR A RICE PROJECT 1. I submit the following report and recommendation on a proposed credit to the Republic of Mali for the equivalent of US$6.9 million on standard IDA terms to help finance a project for Rice Development. PART I - INTRODUCTION 2. The Association has previously made two credits to Mali, both for transport. A summary statement regarding these credits to Mali is given in Annex 1. 3. The $9.1 million credit of 1966 (95-MLI) was for railway rehabil- itation. The original project is now completed. However, the Association has agreed that savings of $530,000 under the credit be used for an exten- sion of the project by track renewal on an additional 26 km. The closing date, originally June 30, 1970, was first postponed to December 31, 1971 and, in view of the extension of the project, has now been postponed to December 31, 1972. Performance under the Credit has not been fully satis- factory. In particular, the Railway's financial situation has remained precarious. Most of the forward:[ng business on the Railway is handled by two private agencies who often are not paid regularly by their clients (pre- dominantly public enterprises) with resulting defaults on the agencies' payments to the Railway. Furthermore, the Government has not reimbursed the Railway for past deficits and has not provided funds to ensure repayment on debts to the Senegal Railway as originally agreed. However, action is now being taken to settle debts and improve the financial situation. The $7.7 million credit of 1970 (197-MLI) for a Highway Maintenance project is being implemented in cooperation, for the first time, with the International Labor Organization (ILO). Execution of this project is proceeding satisfac- torily, except for a two-month delay in the highway preinvestment studies. A number of measures have now been taken to strengthen the consultant team so as to overcome the present difficulties. 4. The proposed credit, which would be the first Bank Group assistance for agriculture in Mali, is also the first of two operations due to be pre- sented to the Executive Directors during this fiscal year. The second proj- ect would be a small telecommunications project. Project preparation is underway in various fields. In particular, projects for livestock, railways and highway rehabilitation may be ready for consideration in FY1973. PART II - THE ECONOMY 5. A report on "The Current Economic Situation and Prospects of Mali" (AW-30a) was distributed to the Executive Directors on December 6, 1971 (R71-265). A Country Data Sheet is attached in Annex 2. 6. Mali is a large land-locked country, extending from the center of the Sahara in the north into the savannah-type open forest regions along its southern border. Nearly 40 percent of its total area is desert; another 40 percent is usable for extensive livestock production leaving only 20 percent suitable for rainfed agriculture and for irrigated agriculture along the Niger River. With a per capita GDP of only about $55, Mali is one of the poorest countries in Africa. It has no known mineral resources that are economically exploitable, while development of manufacturing industries is limited by the small local market, absence of raw materials and the unfavor- able geographic location. Thus agriculture and livestock, accounting for 90 percent of total employment and 50 percent of GDP, is Mali's main source of economic growth and foreign exchange earnings. 7. Following independence in 1960, Mali embarked on an ambitious pro- gram to modernize and develop its economy along socialist lines. A consid- erable number of state enterprises, mostly in manufacturing, trade, and transport were established, while at the same time the activities of pri- vate merchants were severely limited and comprehensive price controls in- troduced. Despite heavy investments, production showed little response as price incentives were inadequate. Excessive central bank financing covering large public sector deficits combined with poor rural production to create large balance of payments deficits. In face of these problems the Government devalued the Mali franc by 50 percent in March 1968. At the same time Mali rejoined the French monetary zone, under which France guarantees the converti- bility of the Mali franc and covers most of the current budget deficits as well as providing considerable capital assistance. 8. After the November 1968 militarv take-over, several measures were taken to redress the economic situation: key farm prices were increased and private trade was liberalized. Moreover, a new investment code was adopted to attract foreign capital and a comprehensive review of state enterprises was initiated to improve their financial situation and reduce their technical and managerial difficulties. These measures were fully endorsed by the 1969 Bank mission which also identified the need for further liberalization of prices and marketing, reduction of the balance of payments deficit, balanc- ing of the current budget, rescheduling of external debt, and more thorough measures to improve the efficiency of state enterprises. 9. Over the last three years, the Government has made considerable pro- gress towards reducing the balance of payments deficit from 6-7 percent of GDP in 1968 and 1969 to little over 1 percent in 1970. This was achieved partially through an increase in exports stimulated by more attractive producer prices for groundnuts and cotton and by increased availability of imported goods as - 3 - a result of trade liberalization. Even more important, however, was the sub- stantial improvement in private capital flows as a result of rising confid- ence in the stability of the Malian economy and the more liberal orientation of government policies, which prompted a sizeable repatriation of capital. For the first time in many years, the balance of payments for 1970 registered a substantial net inflow of private capital and transfers exceeding 4 percent of GDP. This trend can be expected to continue, albeit at a somewhat lower level. 10. Conversely, the public finance situation has improved only little over the last three years. Continuous rapid expansion of the civil service has resulted in a sharp increase in the government wage bill, far above the growth of budget revenues and of the economy. As a result, the current budg- et still shows a sizeable deficit. Although revenues have increased somewhat faster than current expenditures in 1970, it is unlikely that the current budget can be balanced within the next few years, thus leaving the Govern- ment dependent, in diminishing amounts, on French budget subsidies. 11. The difficult financial situation of most state enterprises adds to the serious drain on public resources. Partly as a result of unsatisfac- tory management but primarily because of Government's pricing policies, these enterprises are operating at a substantial deficit, which has to be covered by treasury advances and short term borrowing from the Central Bank. The Government's recent decision to allow these companies to increase retail prices of several basic consumption goods is an improvement, but might not be sufficient to achieve satisfactory financial returns. 12. The virtual absence of public savings, together with limited ab- sorptive capacity, are the key constraints in implementing the 1970-72 Reha- bilitation Program. Contrary to past investment patterns, the Rehabilitation Program gives high priority to the rural sector in order to reduce the food deficit and increase exports. In addition to cotton and groundnuts, major emphasis is put on rice cultivation along the Niger River. 13. Among the three crops (cotton, groundnuts and rice) which receive highest priority in the Rehabilitation Program (accounting together for over 80 percent of planned rural investments), the rice program is the most impor- tant. As in many other West African countries, rice consumption has sharply expanded during the last decade, while local production has hardly increased. The country has therefore gradually changed from an important exporter to a net importer of rice (10 percent of total consumption) in spite of its good potential for irrigated rice production. These imports have become an in- creasing burden on the balance of payments amounting to up to $3 million per year. In an attempt to reverse this unsatisfactory trend, the Government is making a special effort to develop rice production, and to this end, has suc- cessfully solicited assistance from its major aid donors. The rice program focuses on two operations: the IDA project around Mopti (in which the French aid agency, FAC, is participating) and another project in the Segou area to be financed by the European Communities (FED). -4- 14. The Rehabilitation Program concentrates on quick-yielding and directly productive investments in the rural sector, combined with efforts to improve the efficiency and financial position of the state enterprises. In the longer ternm, however, a more sizeable and broader investment program, including expansion of education and other infrastructure, will be necessary to achieve continuous satisfactory economic growth. Higher public savings are crucial to the implementation of such a plan. This hinges on a substan- tial reduction in the growth of the government wage bill--which must fall well below the increase in current revenues. Furthermore, the Government will have to abandon its policy of having public enterprises sell import products at subsidized prices to the urban population. This change in prices might well create some difficult problems with civil servants and trade unions. It can only be achieved gradually and might have to be ac- companied by an increase in basic salaries. 15. Little progress has been made in rescheduling Mali's high foreign debt, two-thirds of which is held by the U.S.S.R. and the People's Republic of China. Service payments amount to some 20 percent of government revenues and 13 percent of export earnings but are projected to reach 50 percent of both budgetary revenues and exports by 1976 unless substantial rescheduling is obtained. However, while there have been no formal agreements on this subject, Mali is already receiving and is lilcely to continue to receive a de facto moratorium for the bulk of its foreign debt, since the U.S.S.R. and China seem willing not to insist on timely servicing of their credits in case of serious financial difficulties. In consequence, the real debt burden might well turn out to be much lower than the above projections suggest, which would considerably ease the balance of payments and budget problems. 16. While implementation of the Rehabilitation Program should stimulate economic growth and improve both public finances and the balance of trade, Mali's financial position will remain basically weak for some years. Eco- nomic growth over the next decade will continue to be modest, with GDP grow- ing at best by 4-5 percent p.a. or some 3 percent per capita. Meanwhile, the capacity for raising public savings will remain limited even assuming a con- certed and successful effort by the Government to limit the growth in its wage bill and abolish consumer subsidies by public enterprises. Thus, public in- vestments will in the future have to be financed largely by external assis- tance. Furthermore, considering the present weak situation of the budget, as well as of the balance of payments, this assistance should to the maximum extent possible be on concessionary terms and cover a high proportion of total project costs, including local expenditures. PART III - THE PROJECT 17. The Project would improve conditions for rice irrigation in the Mopti area of the Niger River flood plains. Through rehabilitation and construction of polders, paddy acreage in the project area would increase from about 22,000 ha. to about 31,000 ha., while yields would increase from - 5 - 0.88 ton/ha. to an estimated 1.86 tons/ha. The increment in production, as a result of the project, would be equivalent to a 30 percent increase in the country's present rice production. About 7,300 farm families would each cultivate an average plot of 4 ha. and would continue to grow subsistence crops outside the project area. The Project would be implemented over a 6-year period under the overall responsibility of the Ministry of Production, assisted by consultants. French bilateral aid (FAC) would finance all foreign personnel cost. The Government will have FED assistance for a parallel pro- ject in the Segou area with which the proposed project would be coordinated. 18. The Project would comprise: (a) construction of three polders, including land preparation, with a rice cultivated area of 13,300 ha.; (b) rehabilitation of five polders, including land preparation, with a rice cultivated area of 13,200 ha.; (c) land preparation on 2,000 ha. of an existing polder; (d) construction of buildings for the project; (e) establishment of a project authority, Operation Riz Mopti (ORM), including provision of farm machinery and technical assistance to ORM. The project authority will operate and maintain the polders, allocate land in the new polders, produce and distribute selected seeds, and provide credit and extension services in all areas mentioned above, plus in existing polders with a rice cultivated area of 2,700 ha.; (f) establishment and operation of an agricultural research station; and (g) preparation of a feasibility study for a second rice project in the Mopti area. Consultants would be engaged to assist the Rural Engineering Department of the Ministry of Production in the supervision of construction, to advise ORM in its activities, including training of Malian staff during the development period, and to help prepare the feasibility study. They will be replaced by their Malian deputies as soon as feasible. A Credit and Project Sumnary is given in Annex 3. 19. Works for the new polders include construction of embankments, intake regulators, canals, farm roads and cattle crossings. The same applies for the agricultural research station and the seed multiplication farm. Rehabilitation of existing polders would involve strengthening embankments and raising their heights to acceptable standards. Furthermore, a laterite-surfaced road would be constructed on top of the embankments of the most frequently used sections, and intake regulators would be improved. Existing canals that have become silted would be cleared and new canals built to improve drainage and filling conditions. 20. Land Preparation (about 10,000 ha.) in polders mentioned above and in the Sarantomo-Sine polder would require deep plowing to destroy existing grass and light bush vegetation. Construction of buildings would include of- fices, storage buildings and housing for ORM, the seed multiplication farm, the research station and the feasibility studies. In addition, a combined office and storage building would be erected in each of the three new polders and in two existing polders not already supplied with one. 21. Agricultural Research. The present research station and the seed multiplication farm at Ibetemi would be transferred to near the town of Mopti where they would have better access to ORM headquarters and where experiments could be carried out, not only on floating rice, but also on irrigated rice. In addition, their program would be expanded to include research on fertilizer and ox-drawn farm implements, as well as on performance of seed trials on farms scattered throughout the project area. 22. The feasibility study for a second rice project would include a number of technical surveys, detailed engineering of an all-weather road be- tween Ke-Macina and Tenenkou, a health survey of the project area, and an analysis of markets, prices and economic benefits. The Rural Economics In- stitute under the Ministry of Production would continue to coordinate those studies carried out by specialized firms and would be responsible for the final report. 23. The cost of the Project, including taxes of $1.0 million, is esti- mated at about $9.4 million equivalent, of which $5.6 million would be in foreign exchange. The proposed IDA credit of $6.9 million equivalent would finance 73 percent of total cost. It would cover an estimated $4.5 million foreign exchange cost of civil works contracts, agricultural research, equip- ment and studies for a second rice project. It would also cover $2.4 million equivalent of local expenditures on civil works contracts, management and ex- tension services, and the feasibility studies of the second project. FAC would finance an estimated $0.7 million foreign exchange cost for foreign personnel. The Government's contribution of $1.8 million equivalent would finance all taxes on construction materials, equipment and services to be paid under the project ($1.0 million), local procurement of farm implements ($0.5 million of which $0.4 million indirect foreign exchange cost), and basic salaries of government employees working under the project ($0.2 mil- lion). 24. Recovery of project costs would be achieved through imposition of a levy in kind on project farmers, which would be set at 60 kg. of paddy per ha. in the first year and increase gradually to 180 kg. of paddy per ha. from the tenth year onward. Revenue from the levy would be sufficient to recover annual operation and maintenance costs and all direct investments, without interest costs, over a period of about 35 years. - 7 - 25. Overall responsibility for the proposed project would rest with the Ministry of Production whose Rural Engineering Department would be in charge of polder construction and rehabilitation. The extension service of the Min- istry of Production would be organized in two units: ORM, which would cover the proposed project, and ORS (Operation Riz Segou), which would cover the FED-financed project. To insure adequate coordination and to provide inte- grated policy guidance for ORM and ORS, a National Rice Commission would be set up within the Ministry of Production, chaired by the Minister or his representative and comprising the Rural Engineering Department, ORM and ORS. 26. ORM would be established by decree as a semi-autonomous project authority, directly responsible to the Minister of Production. It would be administered by a board of six members, including a representative of the Min- istry of Production, the Director of Agriculture, the Director of Rural Engi- neering and three experts appointed by the Minister. ORM would be managed by a Project Manager appointed by the Minister. 27. Assurances have been obtained by the Government that a special ac- count for ORM's personnel expenditures will be established and that monthly deposits will be made to this account in amounts required to maintain a bal- ance adequate to cover basic salary requirements for three months. 28. All civil works contracts, as well as procurement of machinery and equipment, would be carried out through international competitive bidding. 29. The major benefits of the project would be additional production of rice to help reduce the increase in rice imports. It would result in foreign exchange savings of about $2.6 million annually. Improved farm techniques and increasing use of equipment would also benefit millet and sorghum production. There would be a reduction of grazing areas during the dry period, caused by draining part of existing lakes and ponds, but this would be largely compen- sated by the increased production of rice straw. At full development of the project in 1982, farmer's income is expected to reach about $300 equivalent annually or about 2 1/2 times the present level. The economic rate of return would be 14 percent with project life assumed at 35 years. The economic costs exclude all taxes as well as subsidies on equipment and fertilizers. PART IV - LECAL INSTRLMENTS AND AUTHORITY 30. The draft Development Credit Agreement between the Republic of Mali and the Association, the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement of the Association, and the text of a resolution approving the proposed credit are being dis- tributed to the Executive Directors separately. Conditions for effective- ness of the Agreement would be the establishment of OPR, the establishment of a special account for ORM personnel expenditures and the employment of engineering consultants. - 8 - 31. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART V - RECOMMENDATION 32. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachment Washington, D.C. December 9, 1971 AIE4EX 1 SUNmI RY STATEMENqT OF BANK LOANS A1fJD IDA CREDITS TO MALI AS OF OCIOBER 31~, 1971 Credit Amount (US$ million) Number Year Borrower Pur22s IDA Undisbursed 95-.YLI 1966 Republic of Mali Railwalys 9.1 2.3 197-MLI 1970 Republic of Mali Highway Maintenance 7.7 602 Total 16.8 Total now held by IDA i6.8 Total undisbursed 86 ANNEX 2 COUNTRY DATA Area 460,000 square miles (1,200,000 km ) Population : (mid 1971 estimates) Total 5.3 million Density 12 per square mile (4 per km2) Rate of growth 2.5 0/o per year Political Status : Independent since 1960 Gross Domestic Product (market prices): 1964/5 1965/6 1966/7 1967/8 1969 GDP at current prices (billion MF) 90.4 94.6 104.0 130.5 135.5 GDP at 1967/8 prices (billion MF) 115.5 120.2 124.0 130.5 127.8 Rate of growth / 2.8o/ p.a. / GDP per capita at current prices (US$) 2/ 48 48 Structure of GDP (1969) Sources : 0/o Uses 0/ Rural Sector 43.0 Private consumption 71.9 Manufacturing, power 9.4 Public consumption 16.5 Construction 4.6 Gross domestic investment 17.8 Commerce, transport 28.0 Balance of payments Other services 3.2 deficit on goods and Public authorities 11.8 services -6.2 100.0 100.0 1/ Adjusted to exclude the impact of the 1969 drought on rural production. 2/ Not comparable with later years because of heavy devaluation in May 1967. - 2- Financin_f Domestic investmnerts (in billion IV) 1967/68 1969 Gross domestic investments 22.7 24.1 Gross national savings 9.8 15.1 Net capital inflow 2.7 -0.5 Decrease in foreign assets 9.6 8.2 Central and Regional Government Finances in billion PIF) 1967/68 1969 1970 Current revenues 18.8 17.1 20.0 Current expenditures 18.6 20.8 20.1 Current balance -0.2 -3.7 -0.1 Investment expenditures 2.2 1.4 1.6 Overall deficit -2.0 -,.i -1.7 Financed from: foreign sources 1.0 5.0 2.8 -local sources 1.0 0.1 -1.1 Mone's and credit Relations to monetary areas : Member of the Franc area (ZEn billion I'!F, end o 4 period) 1968 1969 1970 Thtal money supply 23.1 25.3 27.7 Credits to private secvor 5.6 6.4 9.1 Credits to public sector 46.5 54.3 62.7 Dalance of payments (in billion >rF) 1968 ]969 1970 Imports 1/ 21.7 29.3 26.2 Exports Y/ 14.0 22.0 21.7 Trade balance -7.7 -7.3 -4.5 Net services -10.4 -10.8 -11.8 Goods and services balance -18.1 -18.1 --16.3 2 Recorded and estimated unrecorded. -3- External Trade Relationship to customs area : Hember of the West Africa Customs Union Associated Member of the European Communities 1968 1969 1970 Exports (in 0/o of GDP) 10.7 16.2 15.4 / Imports (in /o of GDP) 16.6 21.6 18.6 Concentration of exports (0/0) rough estimates Livestock on the hoof 53 0/0 Fish (smoked and dried) 15 O/o Coton fiber 13 0/0 International reserves (as of December 31) 1968 1969 3970 Gross foreign assets :US$ million 10.5 11.0 9.0 2 month's imports 2.9 2.5 2.3 Net foreign assets ;US $ million -46.6 -53.1 -55.1 -IYF Position (US $ million) 1968 1969 1970 19713/ C(uota 17.0 17.0 22.0 22.0 Drawings outstanding 12.0 10.4 8.0 6.5 SDR - - 1.3 WIorld Bank GrouP Operations (UTW mp toml Se2tember 30j1l971 Commitments Disbuirsements Bank - - IDA 16.3 8.3 External Public Debt (US $ million) 1970 Total debt as of December 31 including undisbursed 288.2 excluding undisbursed 236.6 Total debt service : due 4.0 paid 0.0 Debt service relative to foreign exchange earnings : due 13.4 o/o paid 0.1 0/0 Exchange rate : Prior to May 1967: MiS 246.8 = US$ 1.00 May 1967 to August 1969 MF 493.7 = US$ 1.00 After August 1969 : IF 555.4 - US$o 1.00 / Pecorded and estimated unrecorded. 2/ Estim:teda S/ End of September. ANNFX 3 19ALI Credit and ProjectSummary Pace ent Project Borrower: The Republic of Mali Amount and Terms of Credit: US$6.9 million equivalent repayable through semi-annual installments of 1/2 of 1 percent from June 1, 1982 through December 1, 1991 and of 1-1/2 percent from June 1, 1992 through December 1, 2021- service charge 3/4 of 1 percent per annwu. Project: Construction and rehabilitation of polders covering an area of 31,000 ha.,including extension services and agricultural credits. construction of buildings for the project establishrment of a project authority, OLeration Riz MoEti* establishment and operation of an agricultural research station! preparation of a feasibility study for a second rice project in the Mopti area. Estimated Cost: Foreign Total Exchange Local (US$ thousands) Civil Works 3,860 2,140 1,720 Engineering Supervision 220 150 70 Agricultural Research 440 210 230 Farm Machinery 930 790 140 Management Extension Services 1,730 930 b00 Second-stage Studies 660 400 260 Contingencies 1,580 1,010 570 Total 9,420 5,630 3,790 ANNEX 3 -2- Financing of Project: IDA Credit 6,900 FAC 700 Government 1,820 Total 9,420 Procurement Arrangements: All civil works contracts as well as the procurement of farm machinery and equipment to be financed by !DA would be carried out through international competit.ive bidding. Fertilizers and ox-drawn farm implements to be sold to participating farmers for cash or credit would be purchased anmually on the basis of applications received from ORM. Construction Period.- 1972-76. Disbursements: The Credit would be disbursed against the CIF cost of equipment and implements and 7u percent of the combined cost of civil works, second-stage studies, salaries and operating costs of OR[41, and the agricultural research station. The timing of disbursements (FY) is estimated as follows! 1973 1974 1975 1976 1977 1978 Total Amount 1.2 2.5 2.2 0.7 0.15 0.15 6.9 ($ million) Consultants: The Borrower would be assisted in the handling of polder construction activities by a management consultants firm, which would furnish the services of five experts to ORI. Appraisal Report: Report entitled "Appraisal of the Mlopti Rice Project, Mali (PA-107a)" dated November 9, 1971. 5 0O 4t30' f 40 0 -15°00' REPUBLIC OF MALI -b>tY0 MOPTI RICE PROJECT GENERAL LAYOUT ,6) .. .. ... ... .... .. , t V E .isting polders ...... i\I/ 1 \ Neo polders Bank project for first stoge ! Areo to be st.d,ed for seco,,c stage 1 - p A 1\ . ; / Mo,, roods R|2 aEA COVE \> i / Othe, rood3 A 5-2 r7 -* N ES polder- 4-30' 0 5 0 5 20 25 30S r 4~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~40 30 S 4. DINA ) TEENO 9, DIMA KORO - / / / ~~~~~~~~~~~~~~~~~~~~~~DJENNE WJ POLDERO 5. IBETEMI ,So-. 1, MOPTI NORTH 6, MOPTI SOUTH/fl SNGI\_5! r 2, SOUFOUROULAYE 7. KARBAYE / _ , ' 3, SOFARA 8, SARANTOMO -SINE G Uf I7 GuNeAgI UPPER VOLTA 4, DIA - TENENKOU 9, DIAMBA- KOUROU /X +,// 9t~_ - / ,ffiY k } % L I 3 E N I A \ /~I V 0 9Y CO AS T h 5i 0°' T. )5 lo -.l i 4-30 '/ t OCTOBER 1971 IBRD-3502R