RESTRICTED riL Cur rY tiitr A I A ' A VI-1 7- This report wcis prepared for use within the Bank and its affiliated organizations. Ihey do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. N1TERNA1iTONAL BALNK FOR CONSTRUCTIOIN ALND LJ1hV EL UYMMN-I N I t3iRNA T iOINAL DLE V tEL O:'rIVE N-1 AS S U A IT ION ECONOMIC GROWTH AND PROSPECTS OF TfHE IVORY COAST (summary and four volumes) SUMMARY REPORT July 24, 1970 Western Africa Department CURRENCY EQUIVALENTS (a) Until August 11, 1969 US$ 1.00 = CFAF 246.85 French Franc 1.00 = CFAF 50.00 (b) A^tr.uut1,16 TT.q.5 1.00 = GFAF 977.71 French Franc 1.00 = CFAF 50.00 This report is based on the findings of a mission which visited the Ivory Coast in Novembcr-December 1969 and on further information ob- tained during discussions of the draft report with the Ivorv Coast Governmient in May 1970. ' A. de Azaa T°PDflCie H. Dostal (IBRD) Economist R1. B'shopL~ (.LDrw/FAy, JLtLcubLural EconornlUst R. Egli (IBRD/FAO) Agronomist Ph. Laville (Consultant) Industrial Economist L. Mulder (Consultant) Urban development specialist G. Fossi (IBRD) Planning advisor This report consists of: Atimmav Rvepnnrt Volume I - Main Report Ve%m. II - A4ri1+ -1 nI Volume III - Industrial Development Volme1 . = Population Growth and U--A DevTelop...er,t. SUMMARY AND CONCLUSIONS A. DEVELOPMENTS SINCE 1960 General 1. Since 1960, overall growth of the Ivorian economy has been more rap'id th1an in --slatf not nl orther ,n,trjjt-,a4 of trvoicv4al Af4rca. Tbh -r --.-- - C-Or---…- ----- Gross Domtestic Product at current prices increased by an average 10.8 per- cent per year between 1960 and 1968 or by a" -timated 7-7.5 percent in real terms. As population increased by some 3 percent annually, GDP per head h wa gron st ann..o1 rate of ab.ouat A4.5 percen.t. GDP np ha i4 1968 was $278 and GNP wpas around $268 U/. It seems from partial evidence #hSt -rvO., was S sler ln. L9690 *U - j- 1968 bu.- I '97 ..ill Ur bal be ---.°; ut.%%& 15%R %.LS W l.wU LA &J..50 U.&L& LU AA&L:7V U %. .L71VS W.L.LL kJLWWOWA. W= Q SU.I year as aL result of gocod export crops in 1969/70. The rate of growth of GDP' L. -r-… .. .. 1fil~f-r LI. InLi-o …- ..-'S~ ~.L. &&as Uleen Ver- &UMIVCU. J. aiLWLL. LLJ7UVU09- k-rVO IJCL9C&LLLj WLL LU LIt h b ee --v--eyu,-ve.I was aster lr, 1906+8pre.);-an in the following four years (+38 percent). However, this deceleration occurred mai.nly- b-e-a-u-s-e there wgav a slig',t recerni'or, in 19765. ILn botth periods th,ere were years of very marked acceleration as in 1963 (+18 percent), in 1964 (+21 perc-nt,t, or .i, 1968 (+17J. percent) , in ture witUh mIovements Lu eSxports. 2.u1g1u L12mp01composition of Gur does UQe Qirecely reflect ehe central role of agriculture which still employs 70 percent of total popula- tion. Thue, agricultural production in real terms increased by aoout 5 per-- cent annually and its share in GDP steadily declined from 43 percent in 1960 to 31 percent in 1968. But this decline results mainly from the fact that the secondary sector includes the processing of agricultural products and that marketing margins, including transportation and indirect taxes, are reflected in the tertiary sector. 3. The importance of agriculture is however fully apparent in exports wnere coffee, cocoa and timber have represented 75 to 8u percent of totai exports; and other more or less processed agricultural products, notably pineapples, bananasw,,cotton, ruDber, palm produce etc., contribute another 10 percent. Between'1960 and 1968 exports grew by 11 percent per year at current prices but wnile, for example, they declined slightly in 1965, they increased by 33 percent in 1968. Exports have grown with fluctuations attributable to coffee and cocoa crops and prices. Timber exports have increased both more regularly and more rapidly over the period and in 1965 became th,e second largest export (24 percent of the total), after coffee (33 percent) and before cocoa (18 percent). Timber became the first export in 1969. Though there are no official statistics of the terms of trade, the evidelnce points to a marked improvement since 1965 mainly as a result of the high prices for cocoa since the end of 1968. 1 At the excnhnge rate prevail4ng hbforve t-he 11 I navperat elaw,lunati4n of August 1969. 4. The secondary sector (manufacturing, power, construction) has grown by close to 16 percent annually (at current prices) and contributed 20 percent of GDP in 1968. Manufacturing proper repretsents abbut half of the value of GDP contributed by the sector. Industrial development has been stimulated by the Government's liberal policies towards-foreign private capital investment, particularly through generous tax concessions on profits; eventual tax exemptions on imported materials, a moderate degree of protec- tion and provision of basic facilities at low prices (except for power). In the absence, so far, of known notable mineral resources, industrial invest- ment has concentrated on production for the rapidly expanding, though still small, local market for import substitutes, and on the processing of a grow- ing volume of agricultural exports products. However, the importance of imported inputs and the fact that, in general, exported agricultural products are only semi-processed have limited the amount of value added and the voluiiei of inter-industry flows. 5. The tertiary sector has developed rapidly (12.5 percent per year at current prices) mainlv around commercial and triniiPoot activities related to the growing volume of external trade. The high share (44 percent df W5) of this sector, however, no doubt also reflects the high cost of the c6iomer- cial distribution system and of the services sector. Finally, the share of Government though increasing markedlyv has remained modest until 1968. The growth of budgetary expenditure in 1969 and 1970 will probably result ii an accelerated relative growth of the eovernment sector. 6. It apnears from incomnlete evidence that ranid growth has bddfi accompanied by a moderate price inflation of 3-3.5 percent peir year ovef the nerinA 1960-68. There wann hoevaer- an naelerAition in nrice rinei following the CFA franc devaluation of August 1969 by 11.1 percent in line with thnt nf the Freneh frsn. This has resuilteA in higher iifpn6r prices which in view of the economy's openness are a mAjor determinant- of the rwi Pe leveul in I na-l ng, snmewhat aurprsi rinalv, thpe nrier nf anme goods of French origin. There is also some evidence of more rapid than aver= ae 4inrernasa i nprice_ nf lnoal fnnAgt,affa_ nniQt.i7l.nrlv c4nre 1q^7, wHth a1> ~-~~ -*-r- ----_-_-_ 7 --____ ____ - *_--- may reflect an insufficient growth of production as A result of the high rate o … rural exod,. But strict monetary polic4es h'va p "e'anOadi wit._fi the framework of the West African Monetary Union, anj inflationary d6il-, annht of aggregate demA- nA 7 A flU5ALg the-lfactors bIam. expJ6.LA.U t LV%IJLY Ivvry GP p " t w= success, the growth of exports stands out as the prite mover. While exports' U5ve be-enefeitted fro-m f-avoraUblU mark6et cond' tiOnS , ULJI g-U-t. b4 yLUddI..Jii i-U general is in great part the result of abundant supplies of labor and land, and of hign yielding investments. These factors sad the responsiveness tv incentives shown by enterprising Ivorian farmers have greatly e6ntributed to& - iii - theaap effecti-AXve=n.ess- - Wof s0e t o r a'1 p oliis parti 4arl Cr agrlculture. Increas= ing levels of investment have been financed with relative easiness thanks to 1 _1__1__ . 4____ 16 ;.. 1 _1 -- I A - *£LJ.&1 Leve;Jn UL ofUVAU=OU&.U U OC1Vauot Governmen s @sucessi=Lu. jJ.L.LU.L=a in mobilizing internal and external resources. External capital inflow to- ~III~EW.LL.U~JLMULU LIVW MCL.LLMb5LAXU LI19C LUUULAL.7 CO OLLULI5 CAL1.CLLL.L punSL&.LLJ.IU. geth-er wi.t.- We x-p 0r t1 bi-v-i;leth on,s stor ---."> po1J0 0. r.Apgr ~i~sIV ~IL~fXU siorau bg.LC l5IuL0r OL 8KUWL.IL. LLIC 8. xports have been th'e most ILmpora;sn aero rwh h trend of GDP as well as its annual fluctuations are very closely related to those or exports, Exports have consistentely represented around ore-third of gross domestic expenditure and perhaps one half of tradable output l/. Accelerated export growtn nas invariabiy entailed accelerated growth of GDP and conversely a decline in exports in 1965 induced a decline in GDP. Over one-third of the increase in GDP between 1960 and 1964 and over half in the following four years is directly attributable to exports. Because of the widespread primary distribution of gross export proceeds throughout the economy, their multiplier effect is large. Alternatively, the importance of exports can be: measured by the role of imports they permitted to purchase. Imports over the period have contributed one-fourth of total marketed re- sources, about four-fifths of the industry's inputs, and one-fourth of total consumption. 9. With fluctuations, prices for coffee and cocoa have been higher in the late sixties than in most previous years and the terms of trade have! probably improved markedly, at least since 1965. Market conditions for timber have also been favorable to the Ivory Coast in part because o.f shortfalls in supplies from other West African countries in recent years (particularly Nigeria). The Ivory Coast has quickly and effectively grasped market oppor- tunities, through the skillful operations of the agricultural price stabili- zation fund for coffee and cocoa, and also for other less important products. Also, Ivorian products benefit from preferential treatment on the European Common Market; before independence French preferences played a useful role in stimulating exports in the early stage of accelerated growth. 10. Agricultural policies have chiefly aimed at encouraging export crops. This has been achieved by isolating producers' prices for coffee and cocoa from world market fluctuations; by providing some extension services and credit, particularly for cocoa; by permitting the private sector to exploit forest resources at an accelerated rate; and finally by launchirng large programs of production diversification for oil palm and coconuts in the form of both industrial and outgrowers plantation, and encouraging other secondary crops such as bananas, pineapples, rubber and cotton. Efforts to develop locally consumed products have been concentrated on rice. The im- plementation and, to some extent, the conception of agricultural policies i.8 entrusted to specialized public agencies, that enjoy considerable autonomy; some of these agencies are quite efficient. 1/ GDP excluding such components as rents, government services, construc- tion, etc. - iv - ii. But development policies would have been far less effective with- out favorable conditions in the supply of factors of production, namely the availability of good land in the forest area and the shifts of popula- tion from the North and northern countries towards the South. The impact of this movement can be appreciated by the fact that average value of agricultural production per head in the forest region was in 1965 about twice as high as in the North. Foreign immigration (mainly from Upper Volta and Mali) has specifically provided the bulk of hired labor required in village as well as industrial plantations. Also, in filling serious gaps in the higher and medium echelons, including in managerial tasks, in research and in advisory positions, foreign technical assistants and other expatriates have played an important role; the marginal cost to the Government of this assistance has been increasing though, because French technical assistance, by far the most important, is subject to an overall financial ceiling and the cost of French personnel seconded to the Ivory Coast beyond this ceiling is entirely borne by the Ivorian Government. 12. Two great advantages derived from conditions of abundant supply of land and labor so far have been that first, the cost of agricultural labor has remained low and second the need for capital investment in agriculture has been limited. As a consequence, scarce investible funds could be con- centrated on much needed infrastructure, particularly transportation, in the pre-independence years and in the early sixties. In fact, the apparent average capital output ratio for the period 1960-68 is, without adjustments, less than two. 13. National savings have financed a proportion of gross domestic investment of the order of 80-85 percent during the period 1960-68, a remarkable proportion in view of the large and growing net outflow of factor income and private transfer payments by foreign African workers and by expatriates that considerably reduced domestic savings from their high level of 23 percent of GDP (since 1965). National savings havelarge- ly contributed to progressively increase the level of gross fixed capital formation to over 18 percent in the second half of the sixties. 14. The Government has succeeded in mobilizing a growing volume,,cf internal and external resources needed to finance general, social and.capital expenditures. Current expenditure will have increased by 10.2 percent per year 'from 19'60 to 1970, first as a direct consequence of independence and, in the more recent years, under the influence of growing expenditurescfor education and for public health: in 1960 these two -items represented ;2'3 percent of total expenditure; in 1970 they will represent about 33 percent. Current revenue, however, will have grown at an annual average-ratet of '11.8 percent since 1960 and the overall rate of taxation-was 21.5 percent of GNP in'1968, a high level among developing countries, which would .be tstill higher if the surpluses of the agricultural price stabilizationifund. which can be seen -as a form of tax on farmers' incomes, were included. Taxes on imports and exports, though still accounting for more than half of revenue, have declined relatively to indirect taxes on internal trans- actions and direct taxes as a result of reforms in the taxation system (value added tax, pay-as-you-earn on personal income tax, higher profit tax), of more efficient collection and of increased monetization of the economy. 15. From 1960 to 1966 the public seictor financed 73 percent of public investment which was then about 6.5 percent of GDP; budgetary savings alone financed 62 percent of total public investment. In 1967-70, corresponding to the period of the first formal development plan, the average annual level of public investment will have doubled and local public resources will have contributed about 56 percent to its financing, with one-third of all resources being budgetary savings. The contribution from other public sources, however, nota'bly surpluses made by the agricultural price stabili- zation fund (Caisse 'de Stabilisation et de Soutien des Prix des Produits Agricoles) on coffee and cocoa since 1966 has increased enormously. Inter- nal borroawing has remained limited but the Government is endeavoring to mobi- lize companies' and'personal savings. Most recently (December 1969 - January 1970) the Government successfully launched a public loan of CFAF 500 million which was subscribed to a large extent by small local savers. However, despite these efforts, external capital requirements have become increasingly more important and will represent approximately 40 percent of the financing of public investment in 1967-70 as against 27 percent in 1960-66. The ex- ternal balance has remained strong since 1960 with a trade surplus every vear. and record levels of CFAF 26 billion or 23 percent of the value of merchandise exports in 1968 and about CFAF 30 billion in 1969. Non-factor services, factor oavments and orivate transfers. however- are all sizeable negative items amountinag to about 30 percent of the value of merchandise imDorts' over the period 1960-68. AA a result; the current balance has gene- rally been negative'except in 1968 when it was practically zero and in 1969 when it beeame slightly nosittve. Net public tranafnra- and Inng-term niuhlic and private capital have in general more than matched the current deficit. Net external assets,-have increased steadily and at the end of 1969 they re- presented, with $100 Lllion, more than half the reserves of the West Afric-an Monetarv Union. or 1our months worth of imports. 16. FfnA1llv noiltical And inatitutlonnAl fAntnrn. hAvP Alsan hpen importani: instruments of growth. Political stability in the Ivory Coast hAs been often and 4ustlv celebrated.. steStmina from thin stability there has been a great continuity in economic policies and, in a broader sense, a consistent adherante to a eertain eronom.rt- philosophv that fAvnred pragmAtism over rigid dognas. 'Moreover there has been a continuity in the planning inntitutionnm nnA lande-rnhni whirh nna pevmitte&A to impnrnov Adeelpnnnnt planning and its gradual adoption as a working method within the govern- ment machInery. In nart4iulnr, dur4ng tho Aatcad, moedi- and short-tern plans have become an instrument for guiding and controlling public sector - vi - investments. Fureher, in a region where various couneri'es have undergone serious political difficulties at one time or another, political stability has given a comparative advantage to the Ivory Coast. 17. Institutional links with the former colonial power have been maintained notably in the form of economic cooperation agreements that led to the important amounts of soft aid received since independence. And also, together with other former French colonies, in the form of common monetary institutions - the West African Monetary Union - whose main benefits are a common currency for the seven member countries, illimited convertibili- ty with the French franc and freedom of transfers withih the franc zone (and to a large extent with non-franc areas as well), all features which have greatly facilitated trade and foreign investment. At the same time, monetary cooperation implies common discipline, to which the Ivory Coast has strictly adhered. Among the member countries of the Union, the Ivory Coast has not only the most successful record of economic development, it is also the country that has most significantly contributed to the Union's foreign ex- change earnings. 18. Association to the European Economic Community since 1958 has also been a source of sizeable external assistance on soft terms and in fact the European Development Fund is currently the main source of project aid. This association has also permitted a widening of trade relations both for imports and for exports. B. PROBLEMS FOR FUTURE GROWTH 19. At the end of its first decade of impressive economic expansion, the Ivory Coast has still no doubt a promising future before it. Past growth, however, has not been costless as reflected in .a number of mounting economic and social problems. These are particularly serious as regards urbanization and urban unemployment, increased income inequalities, and lack of national participation in development. At the same time, none of the factors mentioned above - abundant supply of labor and land, favorable terms of trade, high returns on investment - can be taken for granted in the future. Indeed, there are already indications of worsening conditions regarding land and agricultural labor availability in the Southeast. The world market outlook for most primary products is not very bright, and development schemes tend to become more capital intensive. 20. Besides the economic and social costs normally associated wlt-h rapid growth of the cities, urban unemployment has taken disquieting- proportions. It results from an annual rate of urban immigration in the sixties of about 8 percent (11 percent for Abidian) which is far above- that of job creation. Nominal income differentials between urban and rural areas, increasinR reluctance towards aericultural work, the socia-l and physical constraints of rural living due in part to poor social infrastruc- ture, and the innadeqniav nf primarv educatinn are the general reasons for rural exodus in the Ivory Coast as in many other African countries. A peculiar aspect here is that a high ,inemnlnvment rate in the r'tien nf perhaps 20 percent of the male labor force among Ivorians, is associated - vii - with the presence of many foreign African workers in occupations like small traders, dockers, or family servants. This indicates the Ivorians' lack of interest for this type of employment, at least at the prevailing wage rates. 21. Another problem stems from growing regional income disparities, particularly between the savannah and the forest area. In this connection, emigration from the North is both a result and a partial remedy but severe limitations to increased labor productivity with existing agricultural techniques in the savannah pose the question of what means to use in order to raise living standards in this region. 22. Finally, the limited participation of Ivorians in many critical. aspects of economic development is creating serious tensions. This is paLr- ticularly striking in, but not confined to industry, where entrepreneurship, skilled labor, and capital are massively foreign. This situation in turn is to a large extent the result of inadequate education in the past, partic- ularly as regards the training of higher and medium level technicians and of skilled workers. A particular difficulty here is, of course, that while the pressure for faster "Ivorization" is an immediate problem, its solution is by nature a long-term one in its most crucial aspect of providing adequate training and enforcing educational reforms. 23. The problems just outlined will be more easily solved if overall growth is maintainedi at a satisfactory rate. This will not be easy because the faivorable factors of the past will not be there or will not be so porer- ful, or will involve higher costs. 24. If the favorable combination of population and land that has boen instrumental in past: growth is to be maintained or approximated, it is important that shifts of population from North (including neighboring coim- tries) to South continue. This would first permit to remedy some agricul- tural labor shortageks apparent in the Southeast, but only so, however, ilE there are adequate incentives for agricultural labor. This may necessitate both higher remunerations in agriculture to the full extent that market conditions will permit, direct suasion bv the Government (for example, to induce! unemployed workers in Abidjan to shift to neighboring rural areas), and introduction of some more land-intensive techniques that will allow newcomers to obtain use of some land for their own cultivation (not necesesarily full property) without impinging on the areas that local populaktions need. 25. The opening of the Southwest following the San Pedro port and citv nroiect anneara as a maior attempt at creating anew favorable land- population relationships in a potentially rich and very sparsely populated area of 30;000 anqAre kilometers. About 150.000 new rural settlers would be needed over the next ten years to fully carry out a regional program that will include development of atich nroduc-t as re-oe8a rubber- oil palm- coconut, timber, and.food crops. Some large industrial units - a paper nisil mil-l - a incknr ,rFUhin@ mill a en iron nrO mSne; - And n vArietv of auxiliary industries and urban services are also projected and will require - viii - additional labor. Past experience warrants confidence that population (including hopefully some at least of the 100,000 to 130,000 persons to be displaced by the Kossou dam) will be forthcoming once the basic facil- ities, particularly roads and village infrastructure, are there. These will cost about CFAF 20 billion ($72 million) of which about half already committed for the port and the city of San Pedro. 26. If population movements to the South continue, this will not only permit to increase exportable production but will also greatly help to maintain adequate food supplies, a problem of increasing importance in view of the continued trend towards urbanization that will reduce the proportion of rural population from 75 percent in 1965 to 60 percent by 1980. 27. In order to be success-ful instruments of overall development, population shifts to the South will require action in two complementary fields. First, though it would be unrealistic to expect a marked decrease in urban immigration, every effort should be made to maintain it within limits and to avoid divertinR excessive amounts of public resources into urban development. The level of services in towns, particularly Abidjan, should be adapted not only to some socially desirable standard but to the country's possibilities. It would be particularly inopportune to invest heavily in or subsidize housing. water, transport. and other.services in cities where unemployment is already high and could only be encouraged by such measures. 28. Secondly, as the Government is well aware, economic retardation in the North will not be solved solely by emigration. Another solution already larti-allv applied bv the Government. is to marginallv redistribute national income by subsidization of production, notably cotton. Another would be to modifyv nrnduction techniquen8 for examnle- by a mechanization of agriculture leading to a system of modern extens-ive cultivation with high returns to lnahnr in sreAU whPrP lAnd 18 Mwaif1Ah1A_ F mar{mnntatinn in this dirertinn is -already underway nwear Bouake. Also, the introduction and development nf n" nVInAn Or9nnrIArV "tus4n, notably r Ae -nl 1vpatndek nffars interesting possibilities in view of the rapidly increasing demand for those products. 29. In the solution of the two 4nter-e-lated proble a of u1nemplo nt and Ivorization, education has a central though not exclusive role to play. Not so much, however, through a ran4A 4nenase 4r the rate of primary sca^hl attend-ance - this rate is probably close to 50 percent and is already high by African. 4 - .arAS - b1it es,se4.4tally f-U h 4prov-d .ean,.hi w #ihAAa reforms in the curriculae, and development of secondary technical and voca- tional education. Measures in th-is dlr ction. are bein!g taken by the Govern- ment within the framework of a long-term plan (loi-cadre) and appear generally -'seq-uate, wi:hQ '.he .-sratP h: ,eoJec:i-e for pr-a, XUMLY" (Q pUercen WAin 1 LIC &Wu1LVL-L n be cse a rigld priority. percent in 1979/80) should not be considered a rigid priority. - ix - 'AA cectoral po..l w c.ue to411 ---e4... % corncentrated or. - eanson of export crops, notalbly cocoa, coffee (rehabilitation and processing), and t&LV 0Ut.U&LULy U LSU . WI U L a L.&M 6Li 4JV=L& LAU . VUU 5 J . .t L V U .L.LM 7 ' based (palm oil, coconut, pineapples, rubber, cotton, etc.). Timber raises a d.L.LL.Lcult probleu. inL v.UW -C the .oreseabl e UL.LuLL of the curre.ly higher lpriced species: the Government has to choose between permitting acceler,Lste explo,taL.LoUI,AU an UiOS.ig some restraint -ar,d thIus avoid a sharp down-fall of production in the mid-seventies, the latter policy being probably preferable. At the same ti-me, it should induce LoggiLg firms to promote marketing of mew species. 31. In industry, the liberal policy followed so far needs a certain degree of re-orientation. Stricter criteria shouid be applied in granting financial advantages to avoid excessive protection and introduction of non- viable firms, to favor employment creation, to fill some gaps in the indus- trial structure, (for example in timber processing, ship repairing and mechanical industries) and to develop production of intermediate goods. This should apply psrticularly to internally oriented firms and in this respect it appears that the scope tor development of import-substitution industr:Les is probably greater than foreseen in view of the growth and diversification of c'onsumption. Processing of exported agricultural pro- ducts will be accelerated in tune with agricultural development. Export- oriented industries wlll represent a new major theme for policy: a good start is being taken and some new large projects in this line are already well advanced (notably a large textile complex); others, already mentioned, require further study but present reasonable prospects. The Government is well aware of the necessity for exportable manufactures to be competi- tive and appears particularly careful in submitting relevant projects to wide international comnpetition among would-be promoters. The regional market, particularly lthe countries of the Conseil de l'Entente, though not negligible, wLll rema:Ln limited as long as Ghana is not included. Increased coordination with this country is, therefore, important and in fact appears rather promisLng now. However, the Government aims at exporting also to de- veloped countries: this will be the case of textiles as it is already for some processed agricultural products (canned pineapples). C . TH_E OUTLOOK 32. In the missiLon's view, exports will grow less rapidly than during the past: decade. Thisi trend, it should be noted, will be an accentuation of the pattern observed in the past when exports grew by nearly 16 percent per annum in 1960-64 but by 8 percent in the following four years. The general reason for the projected relative decline is that agricultural exports will be affected both by. world price declines and by supply limitations in the case of timber, whereas it is doubtful that industrial exports will grow in such a manner, at least before the mid-seventies, as to maintain overaLl export (growth at the high levels of the past. 33. Under tne assumed policy that in order to prevent a sharp down- turn after 1975, the rate of exploitation of forest resources will not be accelerated, agricultural exports i are projected to grow by 5.i-6.0 percent until 1975, and total exports by 6 percent or slightly more per year between the average of 1967-68 (base period) and 1975. In the following five years exports would grow by 3.8 to 5.6 percent per year depending on the outcome of the two large projects (iron ore and paper pulp) currently under consi- deration 2/. 34. The slower growth of exports combined with an increase in imports projected not to be slower than that of GDP and at higher CFAF prices because of the 1969 devaluation, and with an increasing outflow of factor and private transfers payments, will make the current balance more unfavorable. The size of the current deficit again will be affected by unpredictable movements in prices and quantities, but also, especially after 1975, by the outcome of large industrial projects which would much increase both exports, factor payments and private transfers abroad in the long-term, and imports during the construction period. Under an "intermediate" assumption retained by the mission, the current deficit after private transfers would grow to around CFAF 30 billion by 1975 or three times the average for 1967-68. This would represent a resource gap 3/ of 6 percent in the period 1971-75 as against 2 percent in 1964-68 (and 2.5 percent excluding the exceptional results of 1968). This relatively large increase, particularly at a time when repayment of debt will become much more important than in the past, will necessitate intensified efforts by the Government to attract external capital. 35. Slower export growth will be one reason for expecting a slower growth of GDP. Another is that although the level of gross investment will rise markedly, this increase will be less than between the two previous five- year periods. Above all, the changing composition of investment towards large infrastructural projects (Kossou, San Pedro), larger investment in urban development and housing, more costly investment in agriculture, and "heavier" industries, will result in lower returns to capital than in the past (higher capital output ratio). Also, the ratio of net to gross invest- ment will decline. 36. An annual rate of growth of GDP of 6.5 percent up to 1975 as foreseen by the mission, would correspond to, and be consistent with, sectoral 1/ Including semi-processed agricultural produce (sawn timber, cotton lint, palm oil, cocoa paste, etc.) and also canned pineapples. Z/ These export projections inevitably ignore probable short-term fluc- tuations of the kind which in the past have generally occurred to-the advantage of the Ivory Coast. 3/ Current account deficit as a p-roportion of GDP. - xi - growth L, ates Of p.xt-tl 30.50 percent" for 4r.du8strial crow-Fou 3. percent.for food crops, 10 percent or slightly more for the secondary sector and 7 per- c_en_ ____t _UL LLLw _~~LUL LI. .UU L1_ __ ___ u1t A & L. .L A LueAs_At_ , v;entL'o ur t hCeIC e *t I r2-9:ry- sectorL inColuding wvsLac; se ra-e thuso I------ which is only meant to illustrate a slightly lower trend in overall growth -,an inL he years 19760-69, WOUJl.u .1-JeIMVI, be 5b.5bftULr)Y. i. .Lri0 ruDLAL. .LL'VaorILL1± rz«ui.,uu 3Te drart development plan ;197,L-75 is currently unuer revision tl take account of a number of changes in production objectives but above all to adapt its size, composition and financing to recent developments, notaDly the implementation of the Kossou dam project (started in early 1969) and the expansion of the San Pedro-Soutnwest program (started in early i968). Tne total cost of these two projects may amount to CFAF 60-70 billion of which perhaps GFAF 45 billion in the 1971-75 plan period. About half of this latter sum will be allocated to the resettlement part of the Kossou project. New production projects related to either scheme will be additional to this;. These projects if simpily added to all the expenditures included in the draft plan (Esquisse diu Plan i97i-75) (of April 1968) and to other projects not yet in the plan (such as the Abidjan "Riviera" tourism project) would lead to an unmanageable program both in regard to the country's absorptive capacity and to the financial means available. 38. The size of the program in the draft plan is about CFAF 220 bil- lion 1/, including CFAF 30 billion Government's participations representing an average annual level 30 percent above that of 1967-70. In adjusting to this ceiling, the Government will have to reduce some sectoral programs in order to accommodate the important Southwest scheme and the unavoidable costs of Kossou. While this adjustment will have to be implemented flexibly over time, it does seem that sectors where sizeable reductions are possible include the road construction program, urban development and administrative infrastructure. On}the other hand, the draft program for agriculture would need a change of empheLsis (particularly away from oil palm) but can probably not be reduced. One important source of savings should be the reduction in unit costs in such important fields as road construction and school building. 39. To the CFAF 220 billion investment program should be added some CFAF 50 billion for- the servicing of existing (external) debt of $341 million as of August 31, 1969, and of debt contracted or to be contracted after mid-1969. Under certain assumptions this is estimated by the mission to represent another (:FAF 20 billion. Total financial charges for 1971-75 1/ The original program was CFAF 202 billion at 1965 prices. The esti- mate of CFAF 220 billion takes account of price increases over the laEIt 4 years. - xii - wokukid tnus 'e LCAF' 29U Dbiion (,0 U45 miiiion), or aDour Su percenr above the averag'e level for 1967-70. 40; n kMitch 20, 1970, the National Assembly approved a three-year public investment program for 1970-72 as part ot the torthcoming i97-75 five-year plan. This would correspond to CFAF 230 billion for five years if continued at the 1970-72 rate. However, in this program the Kossou'and Southwest projects represent 35 percent of total expenditures, in about equal shares, and expenditures on Kossou will decrease after 1972-73. It di6a'ppedr, therefore, that the Government is aiming at a program for 1971- 75 of the order of magnitude intdicated. 41. The mission projects internal public resources of about CFAF 180 'i-i-ion for 1971i-5, of which budgetary saVinggs (before intetest payments &i public debt) would represent CFAF 120 billion, public enterprises a-nd o'thei autoiomous budgets CFAF 20 billionj other public sivi-tgs, i.e., a-iniy dispo'sable surpluses of the agricultural price stabilization fund, CFAF 29 bi-llion; and internal borrowing CFAF 8 billion-. These highly tentati'f'e fi6i&its imply, am'ong other things, an average yearly inctease of Go6eTrdhaint irveufiue of 6.5 percent - si*ce a higher level under the mission's Assffp- tions would imply an exceptionally high overall rate of taxation - agid a growth of expenditure not e*ceeding 7 percent in real terms representt-ihg a sligit: re-duction As comipared to the last five years. The main implidati6n of this reduction is that, since social expenditures (education and health) 'Will hive to §idw m6re than the averAge, general current expenditures ahould not ifnidease by more than 3-4 percent per year. Noni-budgetary resot.We's are priticularly unpredictable. The important share of the? itabilik-tCi6 fuiid is subject to great elasticity. As po6jected (eFAP 26 billioni) i-t i' 06ssibly s'omewhat p-essimistic insofar as it is based on some iTihteanes ini p'r6ducers' prices (cocoa and coffee) that t-he Government may well toftidet unnece'ssary, and that as a precautionary measure it assumes that in 6he year dut of five profits by the stabilization fund would fall to zet'o as a iesiilt of a drop in market prices. 0; !W&These assum"pti6ns would imply external rei6utces amountifn to C-FAF 10 billibi' ($400 million) or significantly mote 'than in the pas-t. botli absolutely and relatively. This raises first the question of the Goemfieiiit's capacity to participate in the cost of prolects involvinz eiteffial finAncing. It may be toughly estimated that at least 20 p-re~tft ''bf tWhe oublic fivesttmet program br CFAF 45 billibi will not be suitible for -external financing. On the other hand, since 'public debt service is ri;oieicted to ibkbrb about CFAF 70 billibrn. local tesbutce5 le-ft to "mwtch" 'e'xteral 'finincing will bie CFAF 65 bi-ll-ion. Extetrbal funds w-o-uld 'the nhate to fAnnnr 1i-_n5t ian-th;rOd nf #+he ebAt of oligbi-c e pihuectn on fh& -iter*A Of co'urse, the ex'act propbotioh for each pr-oject will vary. But Tihn Sdie ~tdheC, "^ot^2 bbrArulsu_e; h'4 in ituld iiiiii-,1 t-he f4in"ifiihiioi nf liteii iiii#t.m -ih tie '6tavrge propeot-ion a'tived at is rather high, it will be *109titiial resouiEs-, to tbn'sidek the ibvestikent program of CFAF 220 billion as a - xiii - maximum. In particular, the Government should strictly refrain from undertaking projects beyond those included in the development plan without concurrently reducing those which are in it. On the other hand, if external sources do not: normally provide at least 60 percent of the cost of suitable projects, the implementation of the overall program would become very diffi- cult and since the social or related aspects of the program (for example, the resettlement of thie Kossou population) could probably not be reduced without some difficulties, directly productive projects would have to be abandoned or postponed, thus further depressing the future overall growth rate of the economv. 43. The tendency to undertake unplanned operations is no doubt encouraged by the ease with which it is possible to obtain medium-term financing from abroad in the form of suppliers' credits and similar loans. In the last few years the Government has become more careful in the use of such means. Laxitvyin. this domain would result in a dangerous hardening of the average terms at which external capital will be obtained. This, the Govermnent should make! everv effort to avoid in view of the foreseeable increase in deibt service. 44. The mission's assumptions underlying the projected level of debt 8ervi,e in 1971-7% on deht to he contracted in and After 1970 in*ltAdes an average interest rate of 4.5 percent, and 25 years repayment period includ- mna ' vav rn f gArace Aiurina wh4erh intev-rpnat wnild ha bneaItd Wifth tfh,a, torntst ° -- -_ o--- -- -- - -- -_ -_ r__-- - _ total debt service wouLld not exceed 8-9 percent of merchandise exports in 1Q71_75 but it w4ll ahanvh rlons to 40 percent of Anmdostic pubc14 savinga (70 out of 180). : 45. Capital in the amount needed and on such terms will not be obtairt- ab ve:y eazily, *t traditional - aof aid r.otably EEC aid na*ly vfl ad France ver.y~. easi ly.a * t1 .. ---.e5…*~I.fJ~~~t OC may be assumed to be willing to commit a total of CFAF 30 to 40 billion ($110 to 140 miLlio.1.6on) or. sofJt. tem DiabuirsLemen:46 fLro". Lthese sourcea ad from all other bilateral sources, particularly the Federal Republic of Germa"n., Ta-l.y .-A the TJD4tedA Stna tes, ..ludin4ng.,,A.- pye. __o _st '. 4 - &we.,,, L Oh& - .*11-,-… o ;~ -1- 0- Ioe. --I& h.tS 1 (for example, for Kossou), could hardly exceed some CFAF 70 billion in 197=75 ilea- "g about C,WA 50 b411io -n to we dlsbursed my ot:her sources including the Bank Group. Part of this will have to be medium-term financ- l.gA W-A'chA, 1A. app'lie t-o eco.omically justified proJLecs -ay assLst iL, fulfilling the desired overall investment targets. Nevertheless, as the V1J.LUIU~ external. AJUUI41&5= UJL~ ~ UU% LUVU LLJ.LI 891L .LL rio L - e o f Lxer" .lr&U&6.Lancr. requiredU Ais -vg tohg prOpOrtion, of costly madium-term financing would ultimately require a larger gross A41.Lf. &.LA.~LWW bU UIWPI. &OF=1U7WA&6VVWp 6 LIIWO~LU5...W&&.L6Y IL 5UUICWUL rUUULA.L&I LLItl' capital ir.u o<;,p-------- the po% lbli: -C so-ew% edcr h overall investment program should not be abandoned. This could be done by …&J..~~~~~~~ ~ Al1.,., -- . A -- 1 L -- - stretching some prog-Kam o-ver &L IMMSLe. A.80U, 55 WB8 Udon L,r LLAh jJL'tVLUUU LJaUL, it would be useful for the 1971-75 plan to split total programmed investmen,t uetwetern a rhard corse anUu ua ouptLional trrlc-e. - xiv - 46. The conditions on which aid will be available from various sources will probably be to some extent inter-dependent and the effectiveness of total aid will be enhanced by continued flexible coordination between sources, as in the past. While some aid agencies may seek to adjust their terms to the conditions extended by others, this process of adjustment is limited by the type of funds available and institutional rules. In any event, as in the past, the Bank will seek to adapt its lending both to the features of each particular project and to the general economic conditions in the Ivory Coast which, in view of the normally fluctuating pattern of growth, and the many factors which may affect the rate of future development mill have to be periodically assessed.